Monotype Announces Second Quarter 2013 Results

Monotype Imaging Holdings Inc. (Nasdaq: TYPE), a leading provider of typefaces, technology and expertise for creative applications and consumer devices, today announced financial results for the second quarter ended June 30, 2013.

Second quarter 2013 highlights
  • Revenue was $41.1 million, a seven percent increase year over year.
  • Operating income was $12.2 million, or 30 percent of revenue.
  • Non-GAAP net adjusted EBITDA was $17.3 million, or 42 percent of revenue.
  • Cash flow from operations was a record $17.9 million.
  • Cash was $51.7 million as of June 30, 2013, with no debt outstanding.

“Our results show that Monotype is becoming an even more valued partner to creative professionals trying to solve the toughest responsive design challenges,” said Doug Shaw, president and chief executive officer. “Our solutions provide the freedom, flexibility and functionality required to streamline the creative workflow and deliver the best branded experiences.”

“During the quarter, we further strengthened our balance sheet, generating nearly $18 million in cash from operations. We paid off our remaining debt and ended the quarter with $51.7 million in cash. We remain aligned with our stated strategy of investing for growth, both organically and through acquisitions, while returning cash to our shareholders,” said Scott Landers, senior vice president and chief financial officer.

Second quarter 2013 operating results

Revenue for the quarter was $41.1 million, up seven percent compared to $38.5 million for the second quarter of 2012. OEM revenue was $26.4 million, a six percent increase from the second quarter of 2012. Creative Professional revenue was $14.7 million, a gain of eight percent from the same period in 2012.

Net income was $7.3 million, compared to $7.4 million in the second quarter of 2012. Earnings per diluted share were $0.18, compared to $0.19 in the same period in 2012.

Non-GAAP net income, which excludes the amortization of intangible assets and stock-based compensation expense, net of taxes, was $10.3 million, compared to $10.1 million in the second quarter of 2012. Non-GAAP earnings per diluted share were $0.26, compared to $0.27 in the same period in 2012.

For the second quarter, GAAP and non-GAAP earnings per diluted share were negatively impacted by $0.02 due to a higher than anticipated tax rate of 37 percent, and a yen-related foreign exchange impact of $300,000.

Non-GAAP net adjusted EBITDA was $17.3 million, or 42 percent of revenue, compared to $16.4 million or 43 percent of revenue in the second quarter of 2012.

A reconciliation of GAAP measures to non-GAAP measures for the three and six months ended June 30, 2013 and 2012 is provided in the financial tables that accompany this release.

Cash, cash flow and debt balances

Monotype had cash and cash equivalents of $51.7 million as of June 30, 2013, compared to $39.3 million as of Dec. 31, 2012, and $43.0 million as of March 31, 2013. The company generated $17.9 million of cash from operations in the second quarter of 2013.

Monotype had no debt outstanding as of June 30, 2013, a decrease from $22.3 million as of Dec. 31, 2012, and $42.3 million as of June 30, 2012.

Quarterly dividend

Monotype’s most recent dividend payment of $0.06 per share was paid on July 19, 2013, to shareholders of record on July 1, 2013. The next dividend payment of $0.06 per share will be paid on Oct. 21, 2013, to shareholders of record as of Oct. 1, 2013.

Financial outlook

For the third quarter of 2013, Monotype expects revenue in the range of $39.0 million to $40.5 million. The company anticipates third quarter 2013 non-GAAP net adjusted EBITDA in the range of $15.5 million to $17.0 million, GAAP earnings per diluted share in the range of $0.16 to $0.18 and non-GAAP earnings per diluted share in the range of $0.24 to $0.26.

Monotype is adjusting its previously issued, full-year 2013 guidance, which anticipated revenue in the range of $165.0 million to $169.0 million. The company now expects revenue in the range of $165.0 to $168.0 million, inclusive of an approximately $1.0 million negative impact from foreign exchange rates, not previously considered in the full-year 2013 revenue guidance. GAAP and non-GAAP earnings per diluted share are now expected to be in the range of $0.76 to $0.80 and $1.07 to $1.11, respectively, reflecting the full year impact of foreign exchange and a slightly higher tax rate.

The company is reiterating its full year 2013 non-GAAP net adjusted EBITDA in the range of $69.5 million to $72.5 million.

Conference call details

Monotype will host a conference call on Friday, July 26, 2013, at 8:30 a.m. EDT to discuss the company’s second quarter 2013 results and business outlook for 2013. Individuals who are interested in listening to the audio webcast should log on to the Investors portion of the About Us section of Monotype’s website at www.monotype.com. The live call can also be accessed by dialing 877-941-8609 (domestic) or 480-629-9821 (international) using passcode 4628867. If individuals are unable to listen to the live call, the audio webcast will be archived in the Investors portion of the company’s website for one year.

Non-GAAP financial measures

This press release contains non-GAAP financial measures under the rules of the U.S. Securities and Exchange Commission. This non-GAAP information supplements and is not intended to represent a measure of performance in accordance with disclosures required by generally accepted accounting principles. Non-GAAP financial measures are used internally to manage the business, such as in establishing an annual operating budget and in reporting to lenders. Non-GAAP financial measures are used by Monotype management in its operating and financial decision-making because management believes these measures reflect ongoing business in a manner that allows meaningful period-to-period comparisons. Accordingly, Monotype believes it is useful for investors and others to review both GAAP and non-GAAP measures in order to (a) understand and evaluate current operating performance and future prospects in the same manner as management does and (b) compare in a consistent manner the company’s current financial results with past financial results. The primary limitations associated with the use of non-GAAP financial measures are that these measures may not be directly comparable to the amounts reported by other companies and they do not include all items of income and expense that affect operations. Monotype management compensates for these limitations by considering the company’s financial results and outlook as determined in accordance with GAAP and by providing a detailed reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures in the tables attached to this press release.

Forward-looking statements

This press release may contain forward-looking statements including those related to future revenues and operating results, the growth of the company’s Creative Professional business and OEM business, the execution of the company’s growth strategy and anticipated business momentum that involve risks and uncertainties that could cause the company’s actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: risks associated with changes in the economic climate, including decreased demand for fonts or products that incorporate the company’s text imaging solutions; risks associated with the interruption of certain manufacturing chains as a result of natural disasters or political tensions; risks associated with changes in the financial markets, including the availability of credit; risks associated with increased competition, which may result in the company losing customers or force it to reduce prices; risks associated with the development and market acceptance of new products, product features or services; risks associated with the company’s ability to adapt its products or services to new markets and to anticipate and quickly respond to evolving technologies and customer requirements; and risks associated with the ownership and enforcement of the company’s intellectual property. Additional disclosure regarding these and other risks faced by the company is available in the company’s public filings with the Securities and Exchange Commission, including the risk factors included in the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and subsequent filings. The forward-looking financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2012. While Monotype may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, even if an estimate changes.

About Monotype

Monotype is a leading global provider of typefaces, technology and expertise that enable the best user experience and ensure brand integrity. Based in Woburn, Mass., Monotype provides customers worldwide with typeface solutions for a broad range of creative applications and consumer devices. The company’s libraries and e-commerce sites are home to many of the most widely used typefaces – including the Helvetica®, Frutiger® and Univers® families – as well as the next generation of type designs. Further information is available at www.monotype.com.

Monotype, Helvetica and Frutiger are trademarks of Monotype Imaging Inc. registered in the U.S. Patent and Trademark Office and may be registered in certain jurisdictions. Univers is a trademark of Monotype GmbH registered in the U.S. Patent and Trademark Office and may be registered in certain jurisdictions. All other trademarks are the property of their respective owners. ©2013 Monotype Imaging Holdings Inc. All rights reserved.
 

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)
 
 

June 30, 2013
 

December 31, 2012
Assets
Current assets:
Cash and cash equivalents $ 51,669 $ 39,340
Accounts receivable, net 7,697 6,996
Income tax refunds receivable 3,845 2,209
Deferred income taxes 2,210 2,218
Prepaid expenses and other current assets   2,301    

2,454
 
 
Total current assets 67,722 53,217
Property and equipment, net 2,422 2,587
Goodwill 173,668 174,294
Intangible assets, net 81,173 86,736
Other assets   3,093     3,232  
 
Total assets $ 328,078   $ 320,066  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,153 $ 1,038
Accrued expenses and other current liabilities 16,244 17,319
Accrued income taxes 2,191
Deferred revenue 10,170 8,725
Current portion of long-term debt       10,000  
 
Total current liabilities 27,567 39,273
Long-term debt, less current portion 12,321
Other long-term liabilities 702 613
Deferred income taxes 29,797 26,832
Reserve for income taxes, net of current portion 1,022 963
Accrued pension benefits 5,008 4,958
Stockholders’ equity:
Common stock 39 37
Additional paid-in capital 196,921 178,681
Treasury stock, at cost (86 ) (86 )
Retained earnings 68,283 56,980
Accumulated other comprehensive loss   (1,175 )   (506 )
 
Total stockholders’ equity   263,982     235,106  
 
Total liabilities and stockholders’ equity $ 328,078   $ 320,066  
 

 

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited and in thousands, except share and per share data)
 
 

Three Months Ended June 30,
 

Six Months Ended June 30,
  2013       2012     2013       2012  
Revenue $ 41,085 $ 38,496 $ 83,124 $ 72,845
Cost of revenue 6,016 6,080 12,025 9,738
Cost of revenue—amortization of acquired technology   1,139     1,085     2,277     1,880  
 
Total cost of revenue   7,155     7,165     14,302     11,618  
 
Gross profit 33,930 31,331 68,822 61,227
Operating expenses:
Marketing and selling 10,392 8,720 20,311 17,991
Research and development 4,891 4,588 9,863 8,932
General and administrative 4,980 4,698 9,685 9,625
Amortization of other intangible assets   1,487     1,431     2,977     2,652  
 
Total operating expenses 21,750 19,437 42,836 39,200
Income from operations 12,180 11,894 25,986 22,027
Other (income) expense:
Interest expense 313 553 731 1,004
Interest income (5 ) (9 ) (5 ) (16 )
Other (income) expense, net   262     (198 )   803     184  
 
Total other expense 570 346 1,529 1,172
Income before provision for income taxes 11,610 11,548 24,457 20,855
Provision for income taxes   4,299     4,133     8,530     7,720  
 
Net income $ 7,311   $ 7,415   $ 15,927   $ 13,135  
 
Net income available to common stockholders – basic $ 7,182   $ 7,286   $ 15,658   $ 12,921  
 
Net income available to common stockholders – diluted $ 7,185   $ 7,286   $ 15,665   $ 12,921  
 
Net income per common share:
Basic $ 0.19 $ 0.20 $ 0.42 $ 0.36
Diluted $ 0.18 $ 0.19 $ 0.40 $ 0.34
Weighted average number of shares:
Basic 37,725,082 36,046,725 37,415,514 36,164,567
Diluted 39,029,653 37,423,532 38,758,807 37,589,957
 

 

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)
 

RECONCILIATION OF GAAP OPERATING INCOME TO NON-GAAP NET ADJUSTED EBITDA
 
 

Three Months Ended June 30,
  Six Months Ended June 30,
  2013     2012   2013     2012
Income from operations $ 12,180 $ 11,894 $ 25,986 $ 22,027
Depreciation and amortization 3,022 2,814 6,019 5,147
Share based compensation   2,086   1,711   3,835   3,634
 
Net adjusted EBITDA $ 17,288 $ 16,419 $ 35,840 $ 30,808
 

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2013     2012   2013     2012
GAAP net income $ 7,311 $ 7,415 $ 15,927 $ 13,135
Amortization, net of tax 1,654 1,615 3,421 2,855
Share based compensation, net of tax   1,314   1,098   2,497   2,289
 
Non-GAAP net income $ 10,279 $ 10,128 $ 21,845 $ 18,279
 

RECONCILIATION OF GAAP EARNINGS PER DILUTED SHARE TO NON-GAAP EARNINGS PER DILUTED SHARE
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2013     2012   2013     2012
GAAP earnings per diluted share $ 0.18 $ 0.19 $ 0.40 $ 0.34
Amortization, net of tax 0.04 0.05 0.09 0.09
Share-based compensation, net of tax   0.04   0.03   0.07   0.06
 
Non-GAAP earnings per diluted share $ 0.26 $ 0.27 $ 0.56 $ 0.49
 

 

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)
 

OTHER INFORMATION
 

Share based compensation is comprised of the following:
 
  Three Months Ended June 30,   Six Months Ended June 30,
2013   2012 2013   2012
Marketing and selling $ 973 $ 770 $ 1,750 $ 1,601
Research and development 488 384 904 825
General and administrative 625 557 1,181 1,208
 
Total share based compensation $ 2,086 $ 1,711 $ 3,835 $ 3,634
 

MARKET INFORMATION
 

The following table presents revenue for our two major markets:
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2013     2012   2013     2012
Creative Professional $ 14,654 $ 13,547 $ 29,986 $ 23,252
OEM   26,431   24,949   53,138   49,593
 
Total $ 41,085 $ 38,496 $ 83,124 $ 72,845
 

 

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands, except share and per share data)
 

RECONCILIATION OF FORECAST GAAP EARNINGS PER DILUTED SHARE TO FORECAST NON-GAAP EARNINGS PER DILUTED SHARE
 
 

Low End of Guidance
 

High End of Guidance
Q3 2013 Q3 2013
GAAP net income $ 6,300 $ 7,000
Amortization, net of tax 1,700 1,700
Share-based compensation, net of tax   1,500   1,500
 
Non-GAAP net income $ 9,500 $ 10,200
 
 
GAAP earnings per diluted share $ 0.16 $ 0.18
Amortization, net of tax, per diluted share 0.04 0.04
Share-based compensation, net of tax, per diluted share   0.04  

0.04
 
Non-GAAP earnings per diluted share $ 0.24 $ 0.26
 
 
Weighted average diluted shares used to compute earnings per share

40,000,000

40,000,000
 

Assumes 37% effective tax rate.
 

Low End of Guidance

High End of Guidance
  2013   2013
GAAP net income $ 29,900 $ 31,600
Amortization, net of tax 6,700 6,700
Share-based compensation, net of tax   5,400   5,400
 
Non-GAAP net income   42,000   43,700
 
 
GAAP earnings per diluted share $ 0.76 $ 0.80
Amortization, net of tax, per diluted share 0.17 0.17
Share-based compensation, net of tax, per diluted share   0.14   0.14
 
Non-GAAP earnings per diluted share $ 1.07 $ 1.11
 
Weighted average diluted shares used to compute earnings per share

39,300,000

39,300,000
 

Assumes 36% effective tax rate.
 

 

MONOTYPE IMAGING HOLDINGS INC.

RECONCILIATION OF FORECAST GAAP OPERATING INCOME

TO FORECAST NON-GAAP NET ADJUSTED EBITDA

(Unaudited and in thousands)
 
 

Low End of Guidance
 

High End of Guidance
Q3 2013 Q3 2013
GAAP operating income $ 10,300 $ 11,800
Depreciation and amortization 2,900 2,900
Share-based compensation   2,300   2,300
 
Non-GAAP net adjusted EBITDA $ 15,500 $ 17,000
 
 

Low End of Guidance

High End of Guidance
  2013   2013
GAAP operating income $ 49,000 $ 52,000
Depreciation and amortization 12,000 12,000
Share-based compensation   8,500   8,500
 
Non-GAAP net adjusted EBITDA $

69,500
$ 72,500

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