Monotype Imaging CEO Discusses Q3 2010 Results - Earnings Call Transcript

Monotype Imaging Holdings Inc. ( TYPE)

Q3 2010 Earnings Call

November 02, 2010 08:30 pm ET

Executives

Staci Mortenson - ICR

Dough Shaw - President & CEO

Scott Landers - SVP & CFO

Analysts

Ralph Schackart - William Blair

Richard Davis - Canaccord

Matthew Kempler - Sidoti

Ross MacMillan - Jefferies & Company

Steven Frankel - Dougherty & Company

Saket Kalia - JPMorgan

Presentation

Operator

Welcome to Monotype Imaging Q3 2010 conference call on the 2 of November 2010. Throughout today’s presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (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 second quarter financial conference call. With me this morning are Dough Shaw, President and Chief Executive Officer; and Scott Landers, Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind everyone that matters we are discussing today and the information contained in the press release issued by the company earlier this morning announcing our third 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, expect 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, November 2, 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 third 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 would 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 principles. 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 and Presentations in the Investor Relations section of our website at www.monotypeimaging.com. The call will be archived on our website for one year.

And now, I'd like to turn the call over to Dough Shaw.

Doug h Shaw

Hello and thank you for joining us this morning. Monotype Imaging had a very strong third quarter with double-digit growth across key operating metrics including revenue, operating income and net adjusted EBITDA. Total revenue was $28.4 million, a 23% increase year-over-year. Net adjusted EBITDA increased 31% to $13.4 million representing a 47% margin.

Our business continues to generate significant cash flow. During the quarter, cash flow from operations was $13.8 million. Year-to-date, cash flow from operations was $35.7 million, an increase of 60% compared to the first nine months of 2009.

Now I'd like to provide highlights of our OEM and creative professional businesses. Starting with OEM, we achieved record revenue of $21.5 million, a 32% increase year-over-year. We posted double-digit growth in both our printer imaging and display imaging businesses.

We experienced ongoing recovery in laser printer units as well as increased volume in our printer driver business, enabling us to outgrow the market as we’ve done historically. Our display imaging business experienced growth across the board, driven by existing customer deployments and recent design wins. We also secured our first graphical user interface design win since acquiring Planetweb.

Turning to Creative Professionals, we reported $6.9 million in revenue, a 3% increase year-over-year and a 14% sequential increase. This was our best creative professional quarter in nearly two years. Our direct business continues to improve and with the commercial launch of Fonts.com Web Fonts, the long-term growth prospects for our web business are strong.

Now I would like to spend a few moments on some of our key initiatives beginning with our printer imaging business. Over the past several years, the embedded font standard for laser printers has been 181 typefaces in support of the PCL and PostScript Page Description Languages.

However, as new printers hit the market with capabilities such as global printing and Cloud-based printing, but font standard is increasing. Along with 181 core fonts, printer OEMs are turning to us to embed the new Microsoft Office default fonts, the on-delay and WorldType font collection for global printing, and a hardly tuned fonts for control panels and a collection of typefaces help facilitate in mobile printing all for Monotype Imaging. Our sales force is actively promoting this significantly increased laser printer standard, and we anticipate adoption by the market leaders over time.

Turning to another new area of growth for our printer imaging business, several OEMs are evaluating our Page Description Language or PDL solution, which we announced in July. Our embedded PDL offering is designed to enable highly efficient superior quality end-to-end printing.

OEMs are able to differentiate their products through built-in print management functions. And the other device categories RIM, one of the world's leading smartphone manufacturer is now shipping our fonts in Blackberry devices and as we’ve reported in the past we continue to work closely with leading e-book reader manufacturers such as Amazon. Our font solution ships in the latest Kindle which have received excellent review for its readability. IDC predicts that the e-reader in tablet market will grow from above 12 million units in 2010 to more than 50 million units in 2014. Our focus remained strong in this area as our operating could be a key differentiator for these customers.

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