EX-99.1 4 d780716dex991.htm EX-99.1 EX-99.1

EXHIBIT 99.1

Monotype Announces Second Quarter 2019 Results

Revenue Grows 4%, Net Income Reaches $10.3 Million and Net-Adjusted EBITDA Increases 24%

Conference Call Scheduled for 8:30 a.m. EDT Will Not Take Place in Light of HGGC Transaction

WOBURN, Mass., July 26, 2019 – Monotype Imaging Holdings Inc. (Nasdaq: TYPE) today announced financial results for the second quarter ended June 30, 2019.

Second quarter 2019 highlights

 

  •  

Revenue for the quarter was $63.2 million, an increase of 4% year over year.

 

  •  

Net income was $10.3 million; Non-GAAP net adjusted EBITDA was $21.6 million, or 34% of revenue.

“We are pleased with our second quarter performance,” said Scott Landers, President and CEO of Monotype. “In line with our strategic direction, we will continue to drive the business with a view on the long-term as we address both the creative and OEM needs of our enterprise customers.”

HGGC Transaction

In a separate press release issued today, Monotype announced that it has entered into a definitive agreement under which HGGC, a leading middle market private equity firm, will acquire all outstanding shares of Monotype common stock for $19.85 per share in cash, representing an equity value of approximately $825 million.

Second quarter 2019 operating results

Revenue for the quarter increased 4% to $63.2 million, compared to $60.7 million for the second quarter of 2018. Creative Professional revenue was $35.2 million, an 8% decrease from the second quarter of 2018. OEM revenue was $28.0 million, an increase of 26% from the same period in 2018.

Gross margin for the quarter was 81.3% compared to 82.2% in the prior year quarter.

Net income was $10.3 million, compared to net income of $0.7 million in the second quarter of 2018. Earnings per diluted share was $0.25, compared to earnings per diluted share of $0.02 in the prior year quarter.

Non-GAAP net income, which excludes the amortization of intangible assets, stock based compensation expense, acquisition-related compensation expense, and non-recurring expenses, net of taxes, was $15.4 million, compared to $12.0 million in the second quarter of 2018. Non-GAAP earnings per diluted share was $0.38 in the second quarter of 2019, compared to $0.30 in the prior year period.

Non-GAAP net adjusted EBITDA was $21.6 million, or 34% of revenue, compared to $17.4 million in the second quarter of 2018.

Cash and cash flow

Monotype had cash and cash equivalents of $47.8 million as of June 30, 2019, compared to $46.4 million as of March 31, 2019, and $75.8 million as of June 30, 2018. The company generated $13.0 million of cash from operations in the second quarter of 2019, compared to using $4.2 million of cash in operations in the second quarter of 2018. During the second quarter of 2019, the company repaid $5.0 million on its outstanding revolving line of credit.

In the second quarter of 2019, Monotype repurchased approximately 50,000 shares of common stock on the open market at prevailing market prices, for a total consideration of $1.0 million, completing the $25 million share repurchase authorization announced in the second quarter of 2018.

Quarterly dividend

Monotype’s most recent dividend payment of $0.116 per share was paid on July 19, 2019, to shareholders of record as of the close of business on July 1, 2019. In light of the announced transaction with HGGC, Monotype will not pay a quarterly dividend through transaction close.

In light of the announced transaction, Monotype’s earnings conference call scheduled for today at 8:30 a.m. EDT will not take place. Additionally, given the pending transaction, Monotype is not updating its outlook for the balance of 2019.

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 release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including those related to future revenues and operating results; the growth of the company’s business; anticipated savings, the impact of federal tax reform legislation; the execution of the company’s capital allocation and funding strategies; 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 the company’s products or products that incorporate the company’s solutions; risks associated with the company’s ability to adapt products or services to new markets and to anticipate and quickly respond to evolving technologies and customer requirements; risks associated with the company’s development of and the market acceptance of new products, product features or services; risks associated with the anticipated cost savings and expenses from the company’s restructuring actions and wind down of certain of the company’s products including that such savings and expenses are not as predicted; risks associated with increased competition in markets the company serves, including the risks that increased competition may result in the company’s inability to gain new customers, retain existing customers or may force the company to reduce prices; risks associated with the ownership and enforcement of the company’s intellectual property; and risks associated with geopolitical conditions and changes in the financial markets. 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 December 31, 2018 and subsequent filings. The forward-looking financial information set forth in this release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts to be included in the company’s future earnings releases and public filings. While the company 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.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the proposed merger transaction. In connection with the proposed merger transaction, Monotype will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”), including a proxy statement on Schedule 14A (the “Proxy Statement”). This communication is not a substitute for the Proxy Statement or for any other document that Monotype may file with the SEC or send to Monotype’s stockholders in connection with the proposed merger transaction. BEFORE MAKING ANY VOTING DECISION, INVESTORS AND SECURITY HOLDERS OF MONOTYPE ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT MONOTYPE, THE PROPOSED MERGER TRANSACTION AND RELATED MATTERS. The proposed merger transaction will be submitted to Monotype’s stockholders for their consideration. Investors and security holders will be able to obtain free copies of the Proxy Statement (when available) and other documents filed by Monotype with the SEC through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed by Monotype with the SEC will also be available free of charge on Monotype’s website at www.monotype.com or by contacting Monotype’s Investor Relations contact at ir@monotype.com.

Participants in the Solicitation

Monotype and its directors and certain of its executive officers and employees may be deemed to be participants in the solicitation of proxies from Monotype’s stockholders with respect to the proposed merger transaction under the rules of the SEC. Information about the directors and executive officers of Monotype and their ownership of shares of Monotype’s common stock is set forth in its Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 25, 2019, its proxy statement for its 2019 annual meeting of stockholders, which was filed with the SEC on April 4, 2019 and in subsequent documents filed with the SEC, including the Proxy Statement. Additional information regarding the persons who may be deemed participants in the proxy solicitations and a description of their direct and indirect interests in the merger transaction, by security holdings or otherwise, will also be included in the Proxy Statement and other relevant materials to be filed with the SEC when they become available. You may obtain free copies of this document as described above.

About Monotype

Monotype empowers creative minds to build and express authentic brands through design, technology and expertise. Further information is available at www.monotype.com. Follow Monotype on Twitter, Instagram and LinkedIn.

Monotype is a trademark of Monotype Imaging Inc. registered in the U.S. Patent and Trademark Office and may be registered in certain jurisdictions. ©2019 Monotype Imaging Holdings Inc. All rights reserved.

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)

 

     June 30,
2019		     December 31,
2018		  
Assets             

Current assets:

     

Cash and cash equivalents

    $ 47,763     $ 60,106  

Restricted cash

      6,000       6,000  

Accounts receivable, net

      47,076       55,943  

Income tax refunds receivable

      6,904       5,122  

Prepaid expenses and other current assets

      7,634       6,473  
  

 

 

    

 

 

  

Total current assets

      115,377       133,644  

Right of use asset

      14,320       —    

Property and equipment, net

      11,850       14,105  

Goodwill

      275,946       276,222  

Intangible assets, net

      71,265       74,699  

Other assets

      15,184       8,986  
  

 

 

    

 

 

  

Total assets

    $ 503,942     $ 507,656  
  

 

 

    

 

 

  
Liabilities and Stockholders’ Equity             

Current liabilities:

     

Accounts payable

    $ 1,748     $ 1,719  

Accrued expenses and other current liabilities

      33,864       43,840  

Accrued income taxes payable

      180       510  

Deferred revenue

      10,777       10,337  

Lease liability

      3,701       —    
  

 

 

    

 

 

  

Total current liabilities

      50,270       56,406  

Revolving line of credit

      65,000       75,000  

Other long-term liabilities

      1,711       3,102  

Deferred income taxes

      36,891       35,083  

Reserve for income taxes

      —         2,471  

Lease liability

      12,053       —    

Accrued pension benefits

      5,956       5,888  

Stockholders’ equity:

     

Common stock

      46       46  

Additional paid-in capital

      327,918       319,486  

Treasury stock, at cost

      (92,747 )      (83,518 ) 

Retained earnings

      102,973       99,605  

Accumulated other comprehensive loss

      (6,129 )      (5,913 ) 
  

 

 

    

 

 

  

Total stockholders’ equity

      332,061       329,706  
  

 

 

    

 

 

  

Total liabilities and stockholders’ equity

    $ 503,942     $ 507,656  
  

 

 

    

 

 

  

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

     Three Months Ended
June 30,		     Six Months Ended
June 30,		  
     2019      2018     2019      2018  

Revenue

      63,236        60,687       114,592        117,370  

Cost of revenue

      10,990        9,956       20,593        22,392  

Cost of revenue—amortization of acquired technology

      843        860       1,700        1,724  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total cost of revenue

      11,833        10,816       22,293        24,116  
  

 

 

     

 

 

    

 

 

     

 

 

  

Gross profit

      51,403        49,871       92,299        93,254  

Operating expenses:

           

Marketing and selling

      18,570        20,081       35,700        40,170  

Research and development

      6,764        8,456       14,205        17,752  

General and administrative

      11,588        11,858       23,607        27,476  

Restructuring

      32        6,376       8        6,570  

Amortization of other intangible assets

      829        965       1,661        1,989  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total operating expenses

      37,783        47,736       75,181        93,957  
  

 

 

     

 

 

    

 

 

     

 

 

  

Income (loss) from operations

      13,620        2,135       17,118        (703 ) 

Other (income) expense:

           

Interest expense, net

      698        799       1,469        1,527  

Other expense (income), net

      239        (633 )      445        (535 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Total other expense

      937        166       1,914        992  
  

 

 

     

 

 

    

 

 

     

 

 

  

Income (loss) before provision (benefit) for income taxes

      12,683        1,969       15,204        (1,695 ) 

Provision (benefit) for income taxes

      2,376        1,274       2,237        (1,191 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Net income (loss)

    $ 10,307      $ 695     $ 12,967      $ (504 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Net income (loss) available to common stockholders—basic and diluted

    $ 9,971      $ 666     $ 12,558      $ (504 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Net income (loss) per common share—basic and diluted

    $ 0.25      $ 0.02     $ 0.31      $ (0.01 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Weighted-average number of shares outstanding:

           

Basic

      40,026,865        40,418,308       40,015,672        40,436,595  

Diluted

      40,065,910        40,537,852       40,066,047        40,436,595  

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET ADJUSTED EBITDA

 

     Three Months Ended
June 30,		     Six Months Ended
June 30,		  
     2019      2018     2019      2018  

Net income (loss)

    $ 10,307      $ 695     $ 12,967      $ (504 ) 

Interest expense, net

      698        799       1,469        1,527  

Other expense (income), net

      239        (633 )      445        (535 ) 

Provision (benefit) for income taxes

      2,376        1,274       2,237        (1,191 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Income (loss) from operations

      13,620        2,135       17,118        (703 ) 

Depreciation and amortization

      3,168        3,198       6,337        6,447  

Stock based compensation(1)

      3,879        4,590       8,098        8,837  

Acquisition-related compensation(2)

      166        1,084       333        2,273  

Non-recurring expenses(3)

      743        6,376       719        11,490  
  

 

 

     

 

 

    

 

 

     

 

 

  

Net adjusted EBITDA

    $ 21,576      $ 17,383     $ 32,605      $ 28,344  
  

 

 

     

 

 

    

 

 

     

 

 

  

 

(1)

For the three and six months ended June 30, 2018, $1.4 million of stock based compensation expense was reversed as a result of forfeitures of awards by employees included in the restructuring plan. This non-recurring amount has been included in restructuring expenses.

(2)

For the three months ended June 30, 2019, the amount includes $0.2 million of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the three months ended June 30, 2018, the amount includes $0.9 million of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.2 million of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement. For the six months ended June 30, 2019, the amount includes $0.3 million of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the six months ended June 30, 2018, the amount includes $1.8 million of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.5 million of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement.

(3)

For the three months ended June 30, 2019, the amount primarily includes $0.7 million of certain advisor fees related to shareholder activities. For the three months ended June 30, 2018, the amount includes $6.4 million of restructuring expenses. For the six months ended June 30, 2019, the amount primarily includes $0.7 million of certain advisor fees related to shareholder activities. For the six months ended June 30, 2018, the amount includes $2.7 million of certain advisor fees related to shareholder activities, $2.2 million of royalty expenses, recorded in cost of sales, associated with revenue that was not recognized under ASC 606 and $6.6 million of restructuring expenses.

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

 

     Three Months Ended
June 30,		      Six Months Ended
June 30,		  
     2019      2018      2019      2018  

GAAP net income (loss) available to common stockholders — diluted

    $ 10,307      $ 695      $ 12,967      $ (504 ) 

Amortization, net of tax of $386, $425, $776 and $865, respectively

      1,286        1,400        2,585        2,848  

Stock based compensation, net of tax of $802, $672, $1,656 and $1,417, respectively(1)

      3,077        3,918        6,442        7,420  

Acquisition-related compensation, net of tax of $0, $0, $0 and $0, respectively(2)

      166        1,084        333        2,273  

Non-recurring expenses, net of tax of $172, $1,486, $166 and $2,677, respectively(3)

      571        4,890        553        8,813  
  

 

 

     

 

 

     

 

 

     

 

 

  

Non-GAAP net income

    $ 15,407      $ 11,987      $ 22,880      $ 20,850  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

For the three and six months ended June 30, 2018, the amount excludes a $1.2 million, net of tax, non-recurring reduction for forfeitures of awards by employees included in the restructuring plan. This amount is included in non-recurring expenses.

(2)

For the three months ended June 30, 2019, the amount includes $0.2 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the three months ended June 30, 2018, the amount includes $0.9 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.2 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement. For the six months ended June 30, 2019, the amount includes $0.3 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the six months ended June 30, 2018, the amount includes $1.8 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.5 million, net of tax, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement.

(3)

For the three months ended June 30, 2019, the amount includes $0.5 million, net of tax, of certain advisor fees related to shareholder activities. For the three months ended June 30, 2018, the amount includes $4.9 million, net of tax, of restructuring expenses. For the six months ended June 30, 2019, the amount includes $0.5 million, net of tax, of certain advisor fees related to shareholder activities. For the six months ended June 30, 2018, the amount includes $2.1 million, net of tax, of certain advisor fees related to shareholder activities, $1.7 million, net of tax, of royalty expenses, recorded in cost of sales, associated with revenue that was not recognized under ASC 606 and $5.0 million, net of tax, of restructuring expenses.

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

RECONCILIATION OF GAAP EARNINGS (LOSS) PER DILUTED SHARE TO NON-GAAP EARNINGS PER DILUTED SHARE

 

     Three Months Ended
June 30,		      Six Months Ended
June 30,		  
     2019      2018      2019      2018  

GAAP income (loss) per diluted share

    $ 0.25      $ 0.02      $ 0.31      $ (0.01 ) 

Amortization, net of tax of $0.01, $0.01, $0.01 and $0.02, respectively

      0.04        0.03        0.07        0.07  

Stock based compensation, net of tax of $0.02, $0.02, $0.03 and $0.03, respectively(1)

      0.08        0.10        0.17        0.18  

Acquisition-related compensation, net of tax of $0.00, $0.00, $0.00 and $0.00, respectively(2)

      0.00        0.03        0.01        0.05  

Non-recurring expenses, net of tax of $0.00, $0.04, $0.00 and $0.07, respectively(3)

      0.01        0.12        0.01        0.22  
  

 

 

     

 

 

     

 

 

     

 

 

  

Non-GAAP earnings per diluted share

    $ 0.38      $ 0.30      $ 0.57      $ 0.51  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

For the three and six months ended June 30, 2018, the amount excludes a $1.2 million, or $0.03 per share, net of tax, non-recurring reduction for forfeitures of awards by employees included in the restructuring plan. This amount is included in non-recurring expenses.

(2)

For the three months ended June 30, 2019, the amount includes $0.2 million, or $0.00 per share, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the three months ended June 30, 2018, the amount includes $0.9 million, or $0.02 per share, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.2 million, or $0.01 per share, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement. For the six months ended June 30, 2019, the amount includes $0.3 million, or $0.01 per share, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition. For the six months ended June 30, 2018, the amount includes $1.8 million, or $0.04 per share, of expense associated with the deferred compensation arrangement resulting from the Olapic acquisition and $0.5 million, or $0.01 per share, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement.

(3)

For the three months ended June 30, 2019, the amount primarily includes $0.5 million, or $0.01 per share, net of tax, of certain advisor fees related to shareholder activities. For the three months ended June 30, 2018, the amount includes $4.9 million, or $0.12 per share, net of tax, of restructuring expenses. For the six months ended June 30, 2019, the amount primarily includes $0.5 million, or $0.01 per share, net of tax, of certain advisor fees related to shareholder activities. For the six months ended June 30, 2018, the amount includes $2.1 million, or $0.06 per share, net of tax, of certain advisor fees related to shareholder activities, $1.7 million, or $0.04 per share, net of tax, of royalty expenses, recorded in cost of sales, associated with revenue that was not recognized under ASC 606 and $5.0 million, or $0.12 per share, net of tax, of restructuring expenses.

MONOTYPE IMAGING HOLDINGS INC.

OTHER INFORMATION

(Unaudited and in thousands)

OTHER INFORMATION

Stock based compensation is comprised of the following:

 

     Three Months Ended
June 30,		     Six Months Ended
June 30,		  
     2019      2018     2019      2018  

Marketing and selling

    $ 1,702      $ 2,152     $ 3,472      $ 3,886  

Research and development

      640        893       1,362        1,881  

General and administrative

      1,537        1,545       3,264        3,070  

Restructuring(1)

      —          (1,402 )      —          (1,402 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Total expensed

    $ 3,879      $ 3,188     $ 8,098      $ 7,435  

Property and equipment

      —          7       —          21  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total stock based compensation

    $ 3,879      $ 3,195     $ 8,098      $ 7,456  
  

 

 

     

 

 

    

 

 

     

 

 

  

 

(1)

For the three and six months ended June 30, 2018, $1.4 million of stock based compensation expense was reversed as a result of forfeitures of awards by employees included in the restructuring plan. This non-recurring amount has been included in restructuring expenses.

MARKET INFORMATION

The following table presents revenue for our two major markets:

 

     Three Months Ended
June 30,		      Six Months Ended
June 30,		  
     2019      2018      2019      2018  

Creative Professional

    $ 35,225      $ 38,417      $ 67,988      $ 73,415  

OEM

      28,011        22,270        46,604        43,955  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 63,236      $ 60,687      $ 114,592      $ 117,370  
  

 

 

     

 

 

     

 

 

     

 

 

  

Investor Relations:

Monotype

Mary Conway

ir@monotype.com