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Monotype Imaging Announces Third Quarter 2012 Results

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WOBURN, Mass.--(BUSINESS WIRE)--

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 third quarter ended Sept. 30, 2012.

Third quarter 2012 highlights

  • Revenue for the quarter was $38.0 million, a 24 percent increase year-over-year.
  • Non-GAAP net adjusted EBITDA was a record $17.0 million, or 45 percent of revenue.
  • Operating income was a record $12.4 million, a 30 percent increase year-over-year and 33 percent of revenue.
  • Cash flow from operations was $13.5 million, a 25 percent increase year-over-year.

“We had a strong third quarter, with continued momentum in our Creative Professional and OEM businesses, highlighted by innovations that support the three fundamental aspects of our business – our typefaces, technology and expertise,” said Doug Shaw, president and chief executive officer. “Our focus is to continue to diversify while adding meaningful value to our solutions. To that end, we're excited about the acquisition of Design By Front, which brings to Monotype a powerful design tool for creating compelling websites using Web fonts. We gain a talented team that will expand our ability to serve creative markets.”

“Our continued execution generated record profits for the third quarter, reflecting the strength and flexibility of our business model,” said Scott Landers, senior vice president and chief financial officer. “Even as we continue to innovate, integrate and diversify, we are realizing significant expense leverage. Moving forward, we will continue down this path of delivering even more value to our customers and shareholders.”

Third quarter 2012 operating results

Revenue for the quarter was $38.0 million, up 24 percent compared to $30.7 million for the third quarter of 2011. OEM revenue was $24.3 million, increasing five percent from the third quarter of 2011. Creative Professional revenue was $13.7 million, increasing 79 percent from the same period last year.

Net income was $8.0 million, compared to $6.0 million in the third quarter of last year. Earnings per diluted share were $0.21, compared to $0.16 in the same period last year.

Non-GAAP net income, which excludes the amortization of intangible assets and stock-based compensation expense, net of taxes, was $10.8 million, compared to $8.6 million in the third quarter of 2011. Non-GAAP earnings per diluted share were $0.29, compared to $0.23 in the same period last year.

Non-GAAP net adjusted EBITDA was $17.0 million, or 45 percent of revenue, compared to $13.7 million in the third quarter of last year.

A reconciliation of GAAP measures to non-GAAP measures for the three and nine months ended Sept. 30, 2012 and 2011 is provided in the financial tables that accompany this release.

Cash, cash flow and debt balances

Monotype had cash and cash equivalents of $38.0 million as of Sept. 30, 2012, compared to $53.9 million as of Dec. 31, 2011 and $32.9 million as of June 30, 2012. The company generated $13.5 million of cash from operations in the third quarter of 2012, an increase of 25 percent year-over-year.

Outstanding debt was $32.3 million as of Sept. 30, 2012, a decrease compared to $37.3 million as of Dec. 31, 2011, and $42.3 million as of June 30, 2012. On a year-to-date basis, the company has paid down $30.0 million in debt and used $24.6 million of cash on hand for the Bitstream acquisition.

As of Sept. 30, 2012, Monotype had net cash of $5.7 million, compared to net debt of $9.4 million in the prior quarter.

Acquisition of Design By Front

Monotype today announced that it has acquired Design By Front Limited, a privately-held, 14-person firm based in Belfast, Northern Ireland, and developers of the Typecast™ application, a browser-based tool for designing Web pages with Web fonts. In its transaction completed yesterday, Monotype acquired all outstanding shares of Design By Front for up to $5.1 million in cash. Monotype paid $2.6 million in cash upon closing; $100,000 was accrued pending final adjustments, with the remainder to be paid contingent on attainment of certain criteria through 2014.

Quarterly dividend

The initial quarterly cash dividend of $0.04 per share of common stock was paid on Oct. 19, 2012. Monotype's board of directors approved the next quarterly dividend of $0.04 per share which will be paid on Jan. 22, 2013 to shareholders of record as of the close of business on Jan. 2, 2013.

Financial outlook

For the fourth quarter of 2012, Monotype expects revenue in the range of $37.2 million to $38.7 million. The company anticipates fourth quarter 2012 non-GAAP net adjusted EBITDA in the range of $15.7 million to $16.7 million, GAAP earnings per diluted share in the range of $0.19 to $0.21 and non-GAAP earnings per diluted share in the range of $0.26 to $0.28.

For the full year 2012, Monotype is increasing its revenue and profit guidance, and now expects revenue in the range of $148.0 million to $149.5 million. The company anticipates full year 2012 non-GAAP net adjusted EBITDA in the range of $63.5 million to $64.5 million, GAAP earnings per diluted share in the range of $0.74 to $0.76 and non-GAAP earnings per diluted share in the range of $1.02 to $1.04.

Conference call details

Monotype will host a conference call on Tuesday, Oct. 30, 2012, at 8:30 a.m. EDT to discuss the company's third quarter 2012 results and business outlook for the remainder of 2012. Individuals who are interested in listening to the audio webcast should log on to the Investor Relations portion of the About Us section of Monotype's website at www.monotypeimaging.com. The live call can also be accessed by dialing 888-549-7750 (domestic) or 480-629-9722 (international) using passcode 4569412. If individuals are unable to listen to the live call, the audio webcast will be archived in the Investor Relations 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 OEM business and Creative Professional 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; 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 or product features; risks associated with the company's ability to adapt its products to new markets and to anticipate and quickly respond to evolving technologies and customer requirements; risks associated with the company's ability to integrate the acquisition of Design By Front Limited including the risk that the company may not be able to successfully bring to market Design By Front's Typecast product; risks associated with the company's ability to pay dividends including the risk that the company's board of directors may not approve future dividends; 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 Annual Report on Form 10-K for the year ended Dec. 31, 2011 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 Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 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 Imaging

Monotype Imaging 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 library 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.monotypeimaging.com.

Monotype is a trademark of Monotype Imaging Inc. registered in the U.S. Patent and Trademark Office and may be registered in certain jurisdictions. Helvetica and Frutiger are trademarks of Linotype Corp. registered in the U.S. Patent and Trademark Office and may be registered in certain jurisdictions in the name of Linotype Corp. or its licensee Linotype GmbH. Univers is a trademark of Linotype GmbH registered in the U.S. Patent and Trademark Office and may be registered in certain other jurisdictions. Typecast is a trademark of Design By Front Limited. All other trademarks are the property of their respective owners. ©2012 Monotype Imaging Holdings Inc. All rights reserved.

 

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)

   

September 30,
2012

December 31,
2011
Assets
Current assets:
Cash and cash equivalents $ 37,988 $ 53,850
Accounts receivable, net 6,383 6,588
Income tax refunds receivable 429 733
Deferred income taxes 2,529 506
Prepaid expenses and other current assets   3,249     3,228  
 
Total current assets 50,578 64,905
Property and equipment, net 2,510 2,404
Goodwill 172,090 140,807
Intangible assets, net 86,463 71,664
Deferred income taxes 328 396
Other assets   3,227     3,646  
 
Total assets $ 315,196   $ 283,822  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,148 $ 1,123
Accrued expenses and other current liabilities 14,296 12,235
Accrued income taxes 2,438 1,280
Deferred revenue 6,854 7,742
Current portion of long-term debt   10,000     10,000  
 
Total current liabilities 34,736 32,380
Long-term debt, less current portion 22,321 27,321
Other long-term liabilities 511 225
Deferred income taxes 26,804 20,596
Reserve for income taxes, net of current portion 901 1,174
Accrued pension benefits 3,924 3,765
Stockholders' equity:
Common stock 37 36
Additional paid-in capital 175,723 167,448
Treasury stock, at cost (86 ) (86 )
Retained earnings 50,631 30,986
Accumulated other comprehensive income (loss)   (306 )   (23 )
 
Total stockholders' equity   225,999     198,361  
 
Total liabilities and stockholders' equity $ 315,196   $ 283,822  
 

 

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

       
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012     2011     2012     2011  
Revenue $ 37,982 $ 30,695 $ 110,827 $ 91,490
Costs and expenses:
Cost of revenue 5,426 2,503 15,164 7,490
Cost of revenue—amortization of acquired technology   1,085     798     2,965     2,373  
 
Total cost of revenue   6,511     3,301     18,129     9,863  
 
Gross profit 31,471 27,394 92,698 81,627
Operating expenses:
Marketing and selling 8,614 8,169 26,605 24,198
Research and development 4,617 4,116 13,549 12,176
General and administrative 4,386 4,284 14,011 12,621
Amortization of other intangible assets   1,405     1,252     4,057     3,847  
 
Total operating expenses 19,022 17,821 58,222 52,842
Income from operations 12,449 9,573 34,476 28,785
Other (income) expense:
Interest expense 457 587 1,461 2,388
Interest income (6 ) (29 ) (22 ) (91 )
Loss (gain) on foreign exchange 24 215 301 (266 )
Loss (gain) on derivatives 65 (536 ) (14 ) 487
Loss on extinguishment of debt 422 422
Other expense, net   33     2     19     2  
 
Total other expense 573 661 1,745 2,942
Income before provision for income taxes 11,876 8,912 32,731 25,843
Provision for income taxes   3,886     2,920     11,606     8,813  
 
Net income $ 7,990   $ 5,992   $ 21,125   $ 17,030  
 

Net income available to common shareholders—basic & diluted

$ 7,857   $ 5,891   $ 20,779   $ 16,753  
 
 
Net income per common share:
Basic $ 0.22 $ 0.17 $ 0.57 $ 0.48
Diluted $ 0.21 $ 0.16 $ 0.55 $ 0.46
Weighted average number of shares:
Basic 36,323,556 35,447,484 36,217,950 35,267,592
Diluted 37,620,269 36,829,518 37,600,448 36,703,298
 
Dividends declared per share $ 0.04 $ $ 0.04 $
 

 

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

       

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

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012   2011   2012   2011
Income from operations $ 12,449 $ 9,573 $ 34,476 $ 28,785
Depreciation and amortization 2,838 2,320 7,985 6,987
Share based compensation   1,666   1,806   5,300   5,128
 
Net adjusted EBITDA $ 16,953 $ 13,699 $ 47,761 $ 40,900
 

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME

       
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012   2011   2012   2011
GAAP net income $ 7,990 $ 5,992 $ 21,125 $ 17,030
Amortization, net of tax 1,676 1,378 4,529 4,099
Share based compensation, net of tax   1,121   1,214   3,419   3,379
 
Non-GAAP net income $ 10,787 $ 8,584 $ 29,073 $ 24,508
 

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

       
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012   2011   2012   2011
GAAP earnings per diluted share $ 0.21 $ 0.16 $ 0.55 $ 0.46
Amortization, net of tax 0.05 0.04 0.13 0.11
Share-based compensation, net of tax   0.03   0.03   0.09   0.09
 
Non-GAAP earnings per diluted share $ 0.29 $ 0.23 $ 0.77 $ 0.66
 

 

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

       

OTHER INFORMATION

 

Share based compensation is comprised of the following:

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012   2011   2012   2011
Marketing and selling $ 745 $ 777 $ 2,346 $ 2,172
Research and development 390 414 1,215 1,187
General and administrative   531   615   1,739   1,769
 
Total share based compensation $ 1,666 $ 1,806 $ 5,300 $ 5,128
 

MARKET INFORMATION

       

The following table presents revenue for our two major markets:

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
  2012   2011   2012   2011
OEM $ 24,280 $ 23,047 $ 73,873 $ 67,830
Creative Professional   13,702   7,648   36,954   23,660
 
Total $ 37,982 $ 30,695 $ 110,827 $ 91,490
 

 

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
Q4 2012 Q4 2012
GAAP net income $ 7,000 $ 7,800
Amortization, net of tax 1,600 1,600
Share-based compensation, net of tax 1,100 1,100
 
Non-GAAP net income $ 9,700 $ 10,500
 
 
GAAP earnings per diluted share $ 0.19 $ 0.21
Amortization, net of tax 0.04 0.04
Share-based compensation, net of tax 0.03 0.03
 
Non-GAAP earnings per diluted share $ 0.26 $ 0.28
 
 
Weighted average diluted shares used to compute non-GAAP earnings per share

37,800,000

37,800,000

Assumes 35% effective tax rate.

   

Low End of
Guidance

High End of
Guidance

2012 2012
GAAP net income $ 28,100 $ 28,900
Amortization, net of tax 6,100 6,100
Share-based compensation, net of tax 4,500 4,500
 
Non-GAAP net income 38,700 39,500
 
 
GAAP earnings per diluted share $ 0.74 $ 0.76
Amortization, net of tax 0.16 0.16
Share-based compensation, net of tax 0.12 0.12
 
Non-GAAP earnings per diluted share $ 1.02 $ 1.04
 
Weighted average diluted shares used to compute non-GAAP earnings per share

37,800,000

37,800,000

 

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

Q4 2012 Q4 2012
GAAP operating income $ 11,200 $ 12,200
Depreciation and amortization 2,800 2,800
Share-based compensation   1,700   1,700
Non-GAAP net adjusted EBITDA $ 15,700 $ 16,700
 
 

Low End of
Guidance

High End of
Guidance

 

2012

 

2012

GAAP operating income

$

45,600

$

46,600

Depreciation and amortization

10,900

10,900

Share-based compensation

 

7,000

 

7,000

Non-GAAP net adjusted EBITDA

$

63,500

$

64,500

ICR
Staci Mortenson, 781-970-6120
ir@monotypeimaging.com

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