Monotype Announces Third Quarter 2013 Results

  Monotype Announces Third Quarter 2013 Results

 Company Reports Record Creative Professional Results; Announces $50 Million
                           Share Repurchase Program

Business Wire

WOBURN, Mass. -- October 31, 2013

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, 2013.

Third quarter 2013 highlights

  *Revenue was $40.5 million, a seven percent increase year over year.
  *Creative Professional revenue was a record $16.4 million, a 20 percent
    increase year over year.
  *Operating income was $11.7 million, or 29 percent of revenue.
  *Non-GAAP net adjusted EBITDA was $16.9 million, or 42 percent of revenue.

“The long-term growth strategy we articulated three years ago is driving
top-line results, as more Creative Professional customers turn to Monotype for
type-centric solutions that ensure brand integrity and creative expression,”
said Doug Shaw, president and chief executive officer. “We believe we are well
positioned as a strategic solutions provider to help customers achieve their
goals. Moving ahead, we expect to end the year with a strong fourth-quarter
performance across all our businesses.”

“During the third quarter, we continued to deliver solid financial results and
cash flow, all while investing for the future,” said Scott Landers, senior
vice president and chief financial officer. “Our confidence in Monotype’s
long-term growth potential has been reaffirmed with the announcement of a
share repurchase program, which demonstrates our ongoing commitment to deliver
value to shareholders.”

Third quarter 2013 operating results

Revenue for the quarter was $40.5 million, up seven percent compared to $38.0
million for the third quarter of 2012. Creative Professional revenue was $16.4
million, a gain of 20 percent from the third quarter of 2012. OEM revenue was
$24.0 million, compared to $24.3 million in the prior year period.

Net income was $7.1 million, compared to $8.0 million in the third quarter of
2012. Earnings per diluted share were $0.18, compared to $0.21 in the prior
year period.

Non-GAAP net income, which excludes the amortization of intangible assets and
stock-based compensation expense, net of taxes, was $10.1 million, compared to
$10.8 million in the third quarter of 2012. Non-GAAP earnings per diluted
share were $0.25, compared to $0.29 in the prior year period.

Non-GAAP net adjusted EBITDA was $16.9 million, or 42 percent of revenue,
compared to $17.0 million or 45 percent of revenue in the third quarter of
2012.

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

Cash and cash flow

Monotype had cash and cash equivalents of $64.3 million as of Sept. 30, 2013,
compared to $39.3 million as of Dec. 31, 2012, and $51.7 million as of June
30, 2013. The company generated $11.4 million of cash from operations in the
third quarter of 2013.

Share repurchase program

Monotype today announced that its board of directors has authorized a share
repurchase program of up to $50 million of the company’s outstanding shares of
common stock over the next two years. Purchases under the program, intended to
offset shareholder dilution, are expected to be made periodically on the open
market as business and market conditions warrant. The share repurchase program
does not obligate Monotype to acquire any particular amount of common stock,
and the program may be suspended or discontinued at any time.

Quarterly dividend

Monotype’s most recent dividend payment of $0.06 per share was paid on Oct.
21, 2013, to shareholders of record on Oct. 1, 2013. The next dividend payment
of $0.06 per share will be paid on Jan. 22, 2014, to shareholders of record as
of Jan. 2, 2014.

Financial outlook

For the fourth quarter of 2013, Monotype expects revenue in the range of $42.2
million to $43.7 million. The company anticipates fourth quarter 2013 non-GAAP
net adjusted EBITDA in the range of $17.5 million to $19.0 million, GAAP
earnings per diluted share in the range of $0.18 to $0.20 and non-GAAP
earnings per diluted share in the range of $0.26 to $0.28.

For the full-year 2013, Monotype expects revenue in the range of $165.8 to
$167.3 million. The company anticipates full year 2013 non-GAAP net adjusted
EBITDA in the range of $70.2 million to $71.7 million, GAAP earnings per
diluted share in the range of $0.78 to $0.80 and non-GAAP earnings per diluted
share in the range of $1.08 to $1.10.

Conference call details

Monotype will host a conference call on Thursday, Oct. 31, 2013, at 8:30 a.m.
EDT to discuss the company’s third 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 480-629-9771 (international) using passcode
4644186. 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 Sept. 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)
                                                            
                                                September 30,     December 31,
                                                2013              2012
Assets
Current assets:
Cash and cash equivalents                       $  64,335         $  39,340
Accounts receivable, net of allowance for          7,781             6,996
doubtful accounts
Income tax refunds receivable                      3,784             2,209
Deferred income taxes                              2,216             2,218
Prepaid expense and other current assets          2,782           2,454   
                                                                  
Total current assets                               80,898            53,217
Property and equipment, net                        2,779             2,587
Goodwill                                           175,593           174,294
Intangible assets, net                             79,094            86,736
Other assets                                      2,899           3,232   
                                                                  
Total assets                                    $  341,263       $  320,066 
                                                                  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                                $  1,075          $  1,038
Accrued expenses and other current                 17,520            17,319
liabilities
Accrued income taxes                               —                 2,191
Deferred revenue                                   7,649             8,725
Current portion of long-term debt                 —               10,000  
                                                                  
Total current liabilities                          26,244            39,273
Long-term debt, less current portion               —                 12,321
Other long-term liabilities                        617               613
Deferred income taxes                              31,727            26,832
Reserve for income taxes, net of current           1,131             963
portion
Accrued pension benefits                           5,281             4,958
Stockholders’ equity:
Common stock                                       39                37
Additional paid-in capital                         203,176           178,681
Treasury stock, at cost                            (86      )        (86     )
Retained earnings                                  73,004            56,980
Accumulated other comprehensive income            130             (506    )
(loss)
                                                                  
Total stockholders’ equity                        276,263         235,106 
                                                                  
Total liabilities and stockholders’             $  341,263       $  320,066 
equity
                                                                             
                                                                             

MONOTYPE IMAGING HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except share and per share data)
                                                                           
                           Three Months Ended                      Nine Months Ended
                           September 30,                           September 30,
                           2013               2012                 2013               2012
Revenue                    $ 40,468           $ 37,982             $ 123,592          $ 110,827
Costs and expenses:
Cost of revenue              5,935              5,426                17,960             15,164
Cost of
revenue—amortization        1,141            1,085              3,418            2,965      
of acquired
technology
                                                                                      
Total cost of               7,076            6,511              21,378           18,129     
revenue
                                                                                      
Gross profit                 33,392             31,471               102,214            92,698
Operating expenses:
Marketing and                10,632             8,614                30,943             26,605
selling
Research and                 4,655              4,617                14,518             13,549
development
General and                  4,926              4,386                14,611             14,011
administrative
Amortization of
other intangible            1,490            1,405              4,467            4,057      
assets
                                                                                      
Total operating              21,703             19,022               64,539             58,222
expenses
Income from                  11,689             12,449               37,675             34,476
operations
Other (income)
expense:
Interest expense             271                457                  1,002              1,461
Interest income              (5         )       (6         )         (10        )       (22        )
Loss on foreign              98                 24                   938                301
exchange
Loss (gain) on               216                65                   216                (14        )
derivatives
Other expense               8                33                 (29        )      19         
(income), net
                                                                                      
Total other expense          588                573                  2,117              1,745
Income before
provision for income         11,101             11,876               35,558             32,731
taxes
Provision for income        4,037            3,886              12,567           11,606     
taxes
                                                                                      
Net income                 $ 7,064           $ 7,990             $ 22,991          $ 21,125     
                                                                                      
Net income available
to common                  $ 6,950           $ 7,857             $ 22,608          $ 20,779     
shareholders—basic &
diluted
                                                                                      
Net income per
common share:
Basic                      $ 0.18             $ 0.22               $ 0.60             $ 0.57
Diluted                    $ 0.18             $ 0.21               $ 0.58             $ 0.55
Weighted average
number of shares:
Basic                        38,276,890         36,323,556           37,717,883         36,217,950
Diluted                      39,657,474         37,620,269           39,205,915         37,600,448
Dividends declared         $ 0.06             $ 0.04               $ 0.18             $ 0.04
per common share
                                                                                                   
                                                                                                   

MONOTYPE IMAGING HOLDINGS INC.
OTHER INFORMATION
(Unaudited and in thousands)

RECONCILIATION OF GAAP OPERATING INCOME TO NON-GAAP NET ADJUSTED EBITDA
                                                           
                             Three Months Ended          Nine Months Ended
                             September 30,               September 30,
                             2013         2012           2013         2012
Income from operations       $ 11,689     $ 12,449       $ 37,675     $ 34,476
Depreciation and               3,017        2,838          9,036        7,985
amortization
Share based                   2,159       1,666         5,994       5,300
compensation
                                                                      
Net adjusted EBITDA          $ 16,865     $ 16,953       $ 52,705     $ 47,761
                                                                        
                                                                        

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
                                                           
                             Three Months Ended          Nine Months Ended
                             September 30,               September 30,
                             2013         2012           2013         2012
GAAP net income              $ 7,064      $ 7,990        $ 22,991     $ 21,125
Amortization, net of           1,673        1,676          5,102        4,529
tax
Share based
compensation, net of          1,373       1,121         3,878       3,419
tax
                                                                      
Non-GAAP net income          $ 10,110     $ 10,787       $ 31,971     $ 29,073
                                                                        
                                                                        

RECONCILIATION OF GAAP EARNINGS PER DILUTED SHARE TO NON-GAAP EARNINGS PER
DILUTED SHARE
                                                             
                                    Three Months Ended       Nine Months Ended
                                    September 30,            September 30,
                                    2013        2012         2013       2012
GAAP earnings per diluted           $  0.18     $ 0.21       $ 0.58     $ 0.55
share
Amortization, net of tax               0.04       0.05         0.13       0.13
Share-based compensation,             0.03      0.03        0.11      0.09
net of tax
                                                                        
Non-GAAP earnings per               $  0.25     $ 0.29       $ 0.82     $ 0.77
diluted share
                                                                          
                                                                          

MONOTYPE IMAGING HOLDINGS INC.
OTHER INFORMATION
(Unaudited and in thousands)

OTHER INFORMATION
Share based compensation is comprised of the following:
                                                            
                                 Three Months Ended        Nine Months Ended
                                 September 30,             September 30,
                                 2013        2012          2013        2012
Marketing and selling            $ 1,003     $ 745         $ 2,753     $ 2,346
Research and development           501         390           1,405       1,215
General and administrative        655        531          1,836      1,739
                                                                       
Total share based                $ 2,159     $ 1,666       $ 5,994     $ 5,300
compensation
                                                                         
                                                                         

MARKET INFORMATION
The following table presents revenue for our two major markets:
                                                          
                           Three Months Ended          Nine Months Ended
                           September 30,               September 30,
                           2013         2012           2013          2012
Creative                   $ 16,449     $ 13,702       $ 46,435      $ 36,954
Professional
OEM                         24,019      24,280        77,157       73,873
                                                                     
Total                      $ 40,468     $ 37,982       $ 123,592     $ 110,827
                                                                       
                                                                       

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       High End of
                                                 Guidance         Guidance
                                                 Q4 2013          Q4 2013
GAAP net income                                  $ 7,400          $ 8,200
Amortization, net of tax                           1,700            1,700
Share-based compensation, net of tax              1,400           1,400
                                                                  
Non-GAAP net income                              $ 10,500         $ 11,300
                                                                  
                                                                  
GAAP earnings per diluted share                  $ 0.18           $ 0.20
Amortization, net of tax                           0.04             0.04
Share-based compensation, net of tax              0.04            0.04
                                                                  
Non-GAAP earnings per diluted share              $ 0.26           $ 0.28
                                                                  
                                                                  
Weighted average diluted shares used to            40,100,000       40,100,000
compute non-GAAP earnings per share
                                                                  
Assumes 37% effective tax rate.
                                                                  
                                                                  

                                              Low End of     High End of
                                                 Guidance         Guidance
                                                 2013             2013
GAAP net income                                  $ 30,600         $ 31,400
Amortization, net of tax                           6,700            6,700
Share-based compensation, net of tax              5,200           5,200
                                                                  
Non-GAAP net income                               42,500          43,300
                                                                  
                                                                  
GAAP earnings per diluted share                  $ 0.78           $ 0.80
Amortization, net of tax                           0.17             0.17
Share-based compensation, net of tax              0.13            0.13
                                                                  
Non-GAAP earnings per diluted share              $ 1.08           $ 1.10
                                                                  
                                                                  
Weighted average diluted shares used to            39,400,000       39,400,000
compute non-GAAP earnings per share
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     High End of
                                    Guidance       Guidance
                                    Q4 2013        Q4 2013
GAAP operating income               $  12,300      $   13,800
Depreciation and amortization          3,000           3,000
Share-based compensation              2,200          2,200
                                                   
Non-GAAP net adjusted EBITDA        $  17,500      $   19,000
                                                   
                                                   

                                 Low End of   High End of
                                    Guidance       Guidance
                                    2013           2013
GAAP operating income               $  49,800      $   51,300
Depreciation and amortization          12,100          12,100
Share-based compensation              8,300          8,300
                                                   
Non-GAAP net adjusted EBITDA        $  70,200      $   71,700

Contact:

Investor Relations:
ICR
Staci Mortenson, 781-970-6120
ir@monotype.com
 
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