Monotype Imaging Holdings Inc. (TYPE)

Q2 2010 Earnings Conference Call

July 30, 2010 10:00 AM ET

Executives

Staci Mortenson – IR, ICR

Doug Shaw – President and CEO

Scott Landers – SVP and CFO

Analysts

Ralph Schackart – William Blair

Steven Frankel – Brigantine Advisors

Matthew Kempler – Sidoti & Company LLC

Ross MacMillan – Jeffries & Company

David Delleo – Canaccord Genuity

Saket Kalia – JP Morgan

Presentation

Operator

Welcome to the Monotype Imaging Q2 2010 Conference Call on the 30 th of July 2010. (Operator Instructions).

I will now hand the conference over to Staci Mortenson. Please go ahead, madam.

Staci Mortenson

Thank you and good morning everyone. Thank you for joining us for Monotype Imaging’s second quarter 2010 financial conference call. With me this morning are Doug Shaw, President and Chief Executive Officer, and Scott Landers, Senior Vice President and Chief Financial Officer.

Before we begin, I’d like to remind everyone that matters we’re discussing today and the information contained in the press release issued by the company earlier this morning announcing our second quarter financial results that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements, including predictions, estimates, expectations and other forward-looking statements, generally identifiable by the use of the word believes, will, expects or similar expressions, are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly, participants on today’s call are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinion only as of today’s date, July 30 th, 2010. Information on the potential factors and detailed risks that could affect the Company’s actual results of operations is included in the Company’s filings with the SEC.

The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our second quarter press release or on this morning’s conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I’d like to remind you that today’s discussion will include references to net adjusted EBITDA, which is intended to serve as a further compliment to our results provided in accordance with generally accepted accounting principle.

A reconciliation of this non-GAAP measure can be found in our press release. In addition, a link to today’s call can be found under Events & Presentation in the Investor Relations section of our website at www.monotypeimaging.com. This call will be archived on our website for one year.

And now I’d like to turn the call over to Doug Shaw. Doug?

Doug Shaw

Hello and thank you for joining us this morning. Monotype Imaging delivered a solid second quarter performance reporting top and bottom line growth.

Total revenue of $24.4 million, a 10% increase year-over-year despite some negative currency impact. Net adjusted EBITDA grew to $10.4 million or a 43% margin.

Our business continues to generate significant cash flow. Through the first of the year, cash flow from operations was $21.9 million an increase of 27% compared to the first half of 2009.

Before I provide detail on some of our business activities, I’d like to highlight the financial results of our OEM and Creative Professional businesses, which both experienced year-over-year growth.

Starting with OEM, our performance for the second quarter was $18.4 million, a 9% increase year-over-year. Revenue from traditional ways of printers improved sequentially for the third quarter in a row and we continued to outperform market growth rates. We’re encouraged by early trends for the third quarter, which indicates sustainable demand.

And other OEM categories, we find new agreements with manufacturers of mobile phones, e-book readers and navigational devices. These are evolving dynamic markets with continual requirements for high quality tech in user experiences. We expect increased deployments as we go forward.

Moving to Creative Professional, we reported $6 million in revenue in the second quarter, a 13% increase year-over-year. We experienced constant currency growth across all sectors of our Creative Professional business with the largest improvement coming from non-web activities. With the growing pipeline of direct business, which is driven by increased bending from our enterprise customers.

In our web business, we strong prospects for long-term growth as you prepare for the commercial launch of our Web Font Services offering.

Now, I’d like to discuss the progress we’ve made on our growth initiatives. Over the years, even during the economic downturn, we’ve been able to leverage our business model to fund development and invest for growth.

Recently, we announced an OEM Printer Solution that supports multiple page description languages or PDLs. This was a long-term development effort that resulted in a new imaging architecture that supports our fonts, our universal font scaling technology, printer drivers, colored technology and embedded PDLs. This combination gives OEMs a complete comprehensive solution that enables highly efficient superior quality end to end printing. Devices can also be engineered to complete tasks that are traditionally handled through host computers such as margin control and watermark printing.

OEMs are able to differentiate their products through built-in print management functions and provide additional value to their customers.

As outlined in our recent press release, we are working with Adobe to direct OEM printer customers towards genuine postscript in PDF solutions. Conversely, Adobe is able to compliment its own offering with XPF and PCL support for Monotype Imaging in addition to our font color and printer drivers. We expect OEM to benefit with improved flexibility and choice as a result of greater PDL options available to them.

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