(Former Name, Former Address and Former Fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock as of July ~~22, 2015~~21, 2016 was ~~39,753,358.~~40,810,386.


	June 30, 2015			December 31, 2014			June 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	74,620		$	90,325		$	109,517		$	87,520
Accounts receivable, net of allowance for doubtful accounts of $205 at June 30, 2015 and $164 at December 31, 2014		10,085			9,279
Accounts receivable, net of allowance for doubtful accounts of $331 at June 30, 2016 and $264 at December 31, 2015								13,872			15,179
Income tax refunds receivable		2,925			2,593			1,396			2,558
Deferred income taxes		2,763			2,898
Prepaid expenses and other current assets		3,734			4,361			4,430			3,846

Total current assets		94,127			109,456			129,215			109,103
Property and equipment, net		15,611			10,578			14,061			15,204
Goodwill		187,194			176,999			186,259			185,735
Intangible assets, net		73,556			73,862			65,687			69,264
Restricted cash								9,335			9,304
Other assets		1,836			3,563			2,834			3,177

Total assets	$	372,324		$	374,458		$	407,391		$	391,787

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	504		$	1,156		$	1,484		$	1,385
Accrued expenses and other current liabilities		18,088			24,570			20,682			21,422
Accrued income taxes payable		477			640			2,470			2,395
Deferred revenue		8,303			7,107			9,213			10,086

Total current liabilities		27,372			33,473			33,849			35,288
Other long-term liabilities		3,274			2,596			7,867			6,914
Contingent acquisition consideration		4,997			—
Deferred income taxes		35,024			32,960			38,660			35,159
Reserve for income taxes		3,044			4,637			2,429			2,316
Accrued pension benefits		5,361			5,679			5,117			4,928
Commitments and contingencies(Note 15)
Commitments and contingencies(Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value, Authorized shares: 10,000,000; Issued and outstanding: none		—			—			—			—
Common stock, $0.001 par value, Authorized shares: 250,000,000; Issued: 41,701,482 at June 30, 2015 and 40,770,197 at December 31, 2014		41			39
Common stock, $0.001 par value, Authorized shares: 250,000,000; Issued: 42,862,295 at June 30, 2016 and 42,019,646 at December 31, 2015								43			42
Additional paid-in capital		246,424			232,522			264,886			256,215
Treasury stock, at cost, 1,982,364 shares at June 30, 2015 and 1,303,737 shares at December 31, 2014		(50,455	)		(31,946	)
Treasury stock, at cost, 2,060,841 shares at June 30, 2016 and 1,999,354 shares at December 31, 2015								(50,455	)		(50,455	)
Retained earnings		103,962			98,672			111,960			108,908
Accumulated other comprehensive loss		(6,720	)		(4,174	)		(6,965	)		(7,528	)

Total stockholders’ equity		293,252			295,113			319,469			307,182

Total liabilities and stockholders’ equity	$	372,324		$	374,458		$	407,391		$	391,787

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenue	$	46,405		$	44,963		$	92,451		$	91,035		$	48,733		$	46,405		$	98,575		$	92,451
Cost of revenue		7,553			7,322			14,963			13,830			7,588			7,553			15,907			14,963
Cost of revenue—amortization of acquired technology		1,134			1,146			2,267			2,291			1,131			1,134			2,262			2,267

Total cost of revenue		8,687			8,468			17,230			16,121			8,719			8,687			18,169			17,230

Gross profit		37,718			36,495			75,221			74,914			40,014			37,718			80,406			75,221
Operating expenses:
Marketing and selling		14,532			11,987			27,508			23,105			14,648			14,532			28,735			27,508
Research and development		5,290			4,910			11,089			10,663			5,991			5,290			13,327			11,089
General and administrative		7,010			5,386			13,909			11,584			8,638			7,010			17,487			13,909
Amortization of other intangible assets		790			1,431			1,492			2,863			742			790			1,477			1,492

Total operating expenses		27,622			23,714			53,998			48,215			30,019			27,622			61,026			53,998

Income from operations		10,096			12,781			21,223			26,699			9,995			10,096			19,380			21,223
Other (income) expense:
Interest expense		449			256			795			534			162			449			324			795
Interest income		(145	)		(6	)		(257	)		(8	)		(72	)		(145	)		(126	)		(257	)
Loss on foreign exchange		498			136			612			170
Loss on derivatives		208			158			72			214
(Gain) loss on foreign exchange														(373	)		498			434			612
(Gain) loss on derivatives														(200	)		208			(206	)		72
Other income, net		(1	)		(3	)		(2	)		(4	)		(32	)		(1	)		(21	)		(2	)

Total other expense		1,009			541			1,220			906
Total other (income) expense														(515	)		1,009			405			1,220

Income before provision for income taxes		9,087			12,240			20,003			25,793			10,510			9,087			18,975			20,003
Provision for income taxes		3,183			4,549			6,742			9,657			3,857			3,183			6,964			6,742

Net income	$	5,904		$	7,691		$	13,261		$	16,136		$	6,653		$	5,904		$	12,011		$	13,261

Net income available to common stockholders—basic	$	5,754		$	7,532		$	12,960		$	15,847		$	6,447		$	5,754		$	11,668		$	12,960

Net income available to common stockholders—diluted	$	5,755		$	7,534		$	12,962		$	15,847		$	6,447		$	5,755		$	11,669		$	12,962

Net income per common share:
Basic	$	0.15		$	0.19		$	0.33		$	0.41		$	0.16		$	0.15		$	0.30		$	0.33

Diluted	$	0.15		$	0.19		$	0.33		$	0.40		$	0.16		$	0.15		$	0.29		$	0.33

Weighted-average number of shares outstanding:
Basic		38,826,185			38,714,178			38,827,668			38,713,432			39,377,945			38,826,185			39,250,297			38,827,668
Diluted		39,395,395			39,623,517			39,458,758			39,865,906			39,748,905			39,395,395			39,635,262			39,458,758
Dividends declared per common share	$	0.10		$	0.08		$	0.20		$	0.16		$	0.11		$	0.10		$	0.22		$	0.20

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014			2016			2015		2016		2015
Net income	$	5,904	$	7,691		$	13,261		$	16,136		$	6,653		$	5,904	$	12,011	$	13,261
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,560		(166	)		(2,546	)		(161	)
Unrecognized actuarial gain, net of tax of $4, $0, $8 and $0, respectively													9			—		18		—
Foreign currency translation adjustments, net of tax of ($600), $681, $566 and ($1,496), respectively													(1,469	)		1,560		545		(2,546	)

Comprehensive income	$	7,464	$	7,525		$	10,715		$	15,975		$	5,193		$	7,464	$	12,574	$	10,715

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Six Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2016			2015
Cash flows from operating activities
Net income	$	13,261		$	16,136		$	12,011		$	13,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,096			5,970			5,771			5,096
Loss on retirement of fixed assets		20			9			—			20
Amortization of deferred financing costs and accreted interest		258			227			110			258
Adjustment to contingent consideration		—			(552	)
Share based compensation		6,241			5,016			7,399			6,241
Excess tax benefit on stock options		(1,726	)		(1,951	)		(304	)		(1,726	)
Provision for doubtful accounts		105			—			128			105
Deferred income taxes		2,317			1,772			2,296			2,317
Unrealized currency loss (gain) on foreign denominated intercompany transactions		13			(140	)
Unrealized currency loss on foreign denominated intercompany transactions								430			13
Changes in operating assets and liabilities:
Accounts receivable		(737	)		(1,039	)		1,105			(737	)
Prepaid expenses and other assets		2,186			353			(480	)		2,186
Restricted cash								(31	)		—
Accounts payable		(623	)		405			95			(623	)
Accrued income taxes payable		(131	)		4,614			1,400			(131	)
Accrued expenses and other liabilities		(3,164	)		(2,540	)		(260	)		(3,164	)
Deferred revenue		1,247			1,920			(800	)		1,247

Net cash provided by operating activities		24,363			30,200			28,870			24,363

Cash flows from investing activities
Purchases of property and equipment		(6,847	)		(2,472	)		(1,003	)		(6,847	)
Acquisition of business, net of cash acquired		(14,289	)		(1,015	)		(101	)		(14,289	)

Net cash used in investing activities		(21,136	)		(3,487	)		(1,104	)		(21,136	)

Cash flows from financing activities
Excess tax benefit on stock options		1,726			1,951			304			1,726
Common stock dividends paid		(7,156	)		(5,528	)		(8,473	)		(7,156	)
Purchase of treasury stock		(18,601	)		(23,881	)		—			(18,601	)
Payment of contingent consideration		(289	)		—			—			(289	)
Proceeds from exercises of common stock options		5,854			3,111			2,045			5,854

Net cash used in financing activities		(18,466	)		(24,347	)		(6,124	)		(18,466	)
Effect of exchange rates on cash and cash equivalents		(466	)		27			355			(466	)

(Decrease) increase in cash and cash equivalents		(15,705	)		2,393
Increase (decrease) in cash and cash equivalents								21,997			(15,705	)
Cash and cash equivalents at beginning of period		90,325			78,411			87,520			90,325

Cash and cash equivalents at end of period	$	74,620		$	80,804		$	109,517		$	74,620

The accompanying notes are an integral part of these condensed consolidated financial statements.

Monotype Imaging Holdings Inc. (the “Company” or “we”) is a leading provider of type, technology and expertise for creative ~~applications~~professionals and consumer ~~devices.~~device manufacturers. Our end-user and embedded solutions for print, web and mobile environments enable ~~people~~consumers and professionals to create and consume dynamic content ~~on any~~across multiple devices and ~~every device.~~mediums. Our technologies and fonts enable the display and printing of high quality digital text. Our ~~technologies and fonts have been widely deployed across, and embedded in,~~solutions power the visual expression of the leading makers of a wide range of ~~consumer~~ devices, including laser printers, digital copiers, mobile phones, e-book readers, tablets, automotive displays, digital cameras, navigation devices, digital televisions, set-top boxes, ~~and~~ consumer appliances and Internet of Things devices, as well as provide a high-quality text experience in numerous software applications and operating systems. We also provide printer drivers ~~page description language interpreters,~~and printer user interface technology ~~and color imaging solutions~~ to printer manufacturers and OEMs (original equipment manufacturers). We license our fonts and technologies to consumer device manufacturers, independent software vendors and creative and business professionals and we are headquartered in Woburn, Massachusetts. We operate in one business segment: the development, marketing and licensing of technologies and fonts. We also maintain various offices worldwide for selling and marketing, research and development and administration. We conduct our operations through four domestic operating subsidiaries, Monotype Imaging Inc., Monotype ITC Inc., MyFonts Inc. and Swyft Media Inc., and five foreign operating subsidiaries, Monotype Ltd., Monotype GmbH ~~and its wholly-owned subsidiary, FontShop International Inc.~~(“Monotype Germany”), Monotype Solutions India Pvt. Ltd., Monotype Hong Kong Ltd. and Monotype KK.

The accompanying unaudited condensed consolidated interim financial statements as of June 30, ~~2015~~2016 and for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015 include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. The results for interim periods are not necessarily indicative of results to be expected for the year or for any future periods.

In management’s opinion, these unaudited condensed consolidated interim financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim periods presented.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, ~~2014~~2015 as reported in the Company’s Annual Report on Form 10-K.

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As of June 30, ~~2015,~~2016, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, have not changed.

In ~~April 2015,~~March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, ~~2015-05,~~2016-09,~~Intangibles~~Compensation – ~~Goodwill and Other – Internal-Use Software (Subtopic 350-40)~~Stock Compensation (Topic 718), ~~Customer’s Accounting~~Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 identifies areas for ~~Fees Paid in a Cloud Computing Arrangement.~~ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license elementsimplification involving several aspects of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for ~~service contracts. The ASU aims~~share based payments, including income tax consequences, classification of awards as either equity, or liabilities, an option to ~~reduce complexity and diversity in practice. The standard~~make a policy election to recognize gross share based compensation expense with actual forfeitures recognized as they occur as well as certain classification changes on the statement of cash flows. This guidance is effective for ~~the Company on January 1,~~annual and interim reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently ~~evaluating~~assessing the impact ~~of the adoption of~~that adopting ASU ~~2015-03 on its consolidated financial statements.~~

~~In April 2015, the FASB, issued ASU 2015-03,~~~~Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs,~~which provides that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of the related debt liability, rather than classifying the costs separately in the balance sheet as a deferred charge. The ASU aims to reduce complexity. The standard is effective for the Company on January 1, 2017. The Company is currently evaluating the impact of the adoption of ASU 2015-032016-09 will have on its consolidated financial statements ~~but does not expect the adoption of this standard to have any impact.~~and related disclosures.

In February ~~2015,~~2016, the FASB issued ~~updated accounting guidance on consolidation requirements. This update changes the guidance with respect~~ASU 2016-02,Leases (Topic 842), Amendments to the ~~analysis~~FASB Accounting Standards Codification,which replaces the existing guidance for leases. ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a ~~reporting entity~~twelve month term, these arrangements must ~~perform~~now be

recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to ~~determine whether it should consolidate certain types of legal entities.~~all comparative periods presented in the consolidated financial statements. This guidance is effective for annual ~~periods,~~ and interim ~~periods within those annual~~ periods beginning after December 15, ~~2015, with early adoption permitted.~~2018 and requires retrospective application. The Company ~~does not expect adoption of this guidance to~~is currently assessing the impact that adopting ASU 2016-02 will have ~~a material impact~~ on ~~our~~its consolidated financial ~~statements.~~statements and related disclosures.

In August 2014, the FASB issued ASU 2014-15,Presentation of Financial Statements – Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management of a company to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern. The ASU provides guidance on evaluating an entity’s ability to continue as a going concern and the content of any required footnote disclosure based on that evaluation. The assessment period is one year after the date of the financial statements are issued. The standard is effective for the Company on January 1, ~~2017. Early~~2017, with early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15, but we do not expect the adoption of this standard to have any impact on ~~its~~our consolidated financial statements.

In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU 2014-9,Revenue from Contracts with Customers (Topic 606), which provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ~~This~~The guidance ~~was~~is effective for annual reporting and interim periods beginning after December 15, ~~2016~~2017. Early adoption is permitted for annual and allows for either full retrospective or modified retrospective application, with early adoption not permitted. On July 9, 2015 the FASB voted to approve a one-year deferral of the effective date of this guidance. In accordance with the agreed upon delay, the guidance is effective for the Company on January 1, 2018.interim periods beginning after December 15, 2016. The Company is currently evaluating the adoption method it will apply, and the impact that this guidance will have on its financial statements and related disclosures.

On January 30, 2015, the Company purchased all of the outstanding stock of TextPride, Inc. operating under the name of Swyft Media, a privately-held mobile messaging company located in New York, New York. In connection with the acquisition, TextPride, Inc. was renamed Swyft Media Inc. and became a wholly-owned subsidiary of the registrant. Swyft Media’s expertise in the emerging world of branded, in-app mobile messaging content is expected to help Monotype reach new customers, with an opportunity to add value by including some of the world’s largest and most popular collections of fonts. The impact of this acquisition was not material to our condensed consolidated financial statements.

The Company acquired Swyft Media for an aggregate purchase price of approximately $17.0 million, consisting of $12.1 million in cash, plus contingent consideration of up to $15.0 million payable through 2018, which had an estimated net present value of $4.9 million. We paid $11.6 million from cash on hand at the time of the acquisition, net of cash acquired. Of the purchase price, approximately $4.7 million and $13.6 million have been allocated to intangible assets and goodwill, respectively. The fair value of the assets acquired and liabilities assumed is less than the purchase price, resulting in the recognition of goodwill. The goodwill reflects the value of the synergies we expect to realize and the assembled workforce. The acquisition of Swyft Media was structured in such a manner that the goodwill is not expected to be deductible for tax purposes. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the acquisition, which remains preliminary as of June 30, 2015, and using assumptions that the Company’s management believes are reasonable given the information currently available. The final allocation of the purchase price to intangible assets, goodwill and deferred tax assets and liabilities may differ materially from the information presented in these condensed consolidated financial statements. Twelve

employees joined the Company in connection with the acquisition. See Note 6 for additional information on the fair value measurements for all financial assets and liabilities, including contingent consideration, which is measured at fair value on a recurring basis.

On July 14, 2014, the Company purchased all of the outstanding stock of FontShop International GmbH, a privately-held font distributor located in Berlin, Germany, its wholly-owned subsidiary FontShop International, Inc. based in San Francisco, California, the FontFont typeface library, FontShop AG of Berlin, the largest distributor of the FontFont library, and certain other typeface families, collectively FontShop, for an aggregate purchase price of $14.6 million. We paid $11.9 million from cash on hand at the time of the acquisition, and the remainder, or $2.7 million, was paid in January 2015. Of the final purchase price, $8.5 million and $6.3 million was allocated to intangible assets and goodwill, respectively. The purchase price allocation was finalized as of June 30, 2015. Approximately $6.3 million of the goodwill is expected to be deductible for tax purposes. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the acquisition, and using assumptions that the Company’s management believes are reasonable given the information that was currently available. On October 9, 2014, FontShop International GmbH was merged into Monotype Germany effective August 1, 2014. Following the merger, FontShop International Inc. became a wholly-owned subsidiary of Monotype Germany. On October 28, 2014, FontShop AG was merged into Monotype Germany. Fifty employees joined the Company in connection with the acquisition.

We incur foreign currency exchange gains and losses related to certain customers that are invoiced in U.S. dollars, but who have the option to make an equivalent payment in their own functional currencies at a specified exchange rate as of a specified date. In the period from that date until payment in the customer’s functional currency is received and converted into U.S. dollars, we can incur realized gains and losses. We also incur foreign currency exchange gains and losses on certain intercompany assets and liabilities denominated in foreign currencies. We are currently utilizing 30-day forward contracts to mitigate our exposure on these currency fluctuations. These contracts are generally set to expire and are settled at month end. The instruments are not designated as hedging instruments, and accordingly, the gain or loss is recognized upon cash settlement and is included in loss on derivatives in the accompanying condensed consolidated statements of income. At June 30, 2015 and December 31, 2014 we had one forward foreign exchange contract outstanding, which was entered into on those dates. See Note 6 for details regarding the fair value of these instruments.

The following table presents the losses on our derivative financial instruments which are included in loss on derivatives in our accompanying condensed consolidated statements of income (in thousands):

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the Codification established a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: ~~Other~~Observable inputs ~~that are observable directly or indirectly,~~other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market ~~corroborated inputs.~~data.

Level 3: Unobservable inputs that are ~~used when~~supported by little or no market ~~data is available~~activity and ~~requires~~that are significant to the ~~company to develop its own assumptions about how market participants would price~~fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs to the extent possible as well as considers counterparty and our own credit risk in its assessment of fair value.

The following table presents our financial assets and liabilities that are carried at fair value, classified according to the three categories described above (in thousands):


	Fair Value Measurement at June 30, 2015									Fair Value Measurement at June 30, 2016
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents—money market funds	$	26,458	$	26,458	$	—		$	—	$	30,872	$	30,872	$	—	$	—
Cash equivalents—commercial paper		9,249		—		9,249			—		10,807		—		10,807		—
Cash equivalents—corporate bonds		4,319		—		4,319			—		8,419		—		8,419		—

Total assets	$	40,026	$	26,458	$	13,568	��	$	—	$	50,098	$	30,872	$	19,226	$	—

Liabilities:
Contingent acquisition consideration	$	4,997	$	—	$	—		$	4,997

Total liabilities	$	4,997	$	—	$	—		$	4,997


	Fair Value Measurement at December 31, 2014								Fair Value Measurement at December 31, 2015
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents—money market funds	$	34,309	$	34,309	$	—	$	—	$	21,808	$	21,808	$	—	$	—
Cash equivalents—commercial paper		3,000		—		3,000		—		8,920		—		8,920		—
Cash equivalents—U.S. government and agency securities		2,700		—		2,700		—
Cash equivalents—corporate bonds										9,293		—		9,293		—

Total assets	$	40,009	$	34,309	$	5,700	$	—	$	40,021	$	21,808	$	18,213	$	—

Liabilities:
Contingent acquisition consideration	$	270	$	—	$	270	$	—

Total liabilities	$	270	$	—	$	270	$	—

The Company’s recurring fair value measures relate to short-term investments, which are classified as cash equivalents, derivative instruments and from time-to-time contingent consideration. The fair value of our cash equivalents are either based on quoted prices for similar assets or other observable inputs such as yield curves at commonly quoted intervals and other market corroborated inputs. The fair value of our ~~derivative instruments~~derivatives is based on quoted market prices from various banking institutions or an independent third party provider for similar instruments. In determining the fair value, we consider our non-performance risk and that of our counterparties. At June 30, ~~2015,~~2016, we had one ~~30-day forward~~ contract to sell ~~2.2~~2.5 million British ~~pound~~pounds sterling and purchase $3.4 million that together, had an immaterial fair value. ~~At December 31, 2014, we had one 30-day~~There were no outstanding forward ~~contract to sell 2.3 million British pound sterling and purchase $3.5 million that together, had an immaterial fair value.~~

~~For the contingent acquisition consideration classified as Level 2~~contracts at December 31, ~~2014, fair value approximated book value, and represented the amount to be paid based on actual achievement of the criteria.~~2015.

At June 30, 2015, the Company had recorded approximately $5.0 million in contingent consideration related to the January 2015 acquisition of Swyft Media. The contingent consideration is payable in cash based on the achievement of certain revenue and EBITDA margin targets for the years ending December 31, 2015 through 2016, with a catch-up period for the year ending December 31, 2017, and subject to a cap of $15.0 million. The fair value of this liability was estimated using a Monte Carlo simulation model, relying on significant inputs that are not observable in the market and thus represent a Level 3 fair value measurement. The significant inputs in the Level 3 measurement not supported by market activity included our expected revenues and

EBITDA for each of the measurement periods and the estimated level of risk and volatility around the forecast. The Monte Carlo simulation was relied on to estimate the projected revenues, EBITDA margins, and contingent acquisition consideration payments for each measurement period. The average contingent acquisition consideration payments for the years 2015 through 2017, following 100,000 simulation trials, were discounted to present value to capture the time value of money and counterparty risk, based upon an assessment of the Company’s borrowing risk, and applying its credit rating to adjust the risk free rate.

~~The changes in the estimated fair value for our liabilities measured on a recurring basis using significant unobservable inputs (Level 3) are as follows (in thousands):~~

The Company’s non-financial assets and non-financial liabilities subject to non-recurring measurements include goodwill and intangible assets.

Intangible assets ~~consist~~as of ~~the following~~June 30, 2016 and December 31, 2015 were as follows (dollar amounts in thousands):


		June 30, 2015							December 31, 2014								June 30, 2016							December 31, 2015
	Weighted- Average Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Balance		Gross Carrying Amount		Accumulated Amortization			Net Balance		Weighted- Average Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Balance		Gross Carrying Amount		Accumulated Amortization			Net Balance
Customer relationships	10	$	60,175	$	(47,818	)	$	12,357	$	57,488	$	(47,018	)	$	10,470	10	$	60,070	$	(49,825	)	$	10,245	$	59,994	$	(48,767	)	$	11,227
Acquired technology	11		54,604		(36,860	)		17,744		55,064		(34,411	)		20,653	11		54,365		(41,858	)		12,507		54,424		(39,336	)		15,088
Non-compete agreements	4		12,979		(11,948	)		1,031		12,172		(11,862	)		310	4		12,972		(12,291	)		681		12,946		(12,111	)		835
Indefinite-lived intangible assets:
Trademarks			38,024		—			38,024		38,029		—			38,029			37,854		—			37,854		37,714		—			37,714
Domain names			4,400		—			4,400		4,400		—			4,400			4,400		—			4,400		4,400		—			4,400

Total		$	170,182	$	(96,626	)	$	73,556	$	167,153	$	(93,291	)	$	73,862		$	169,661	$	(103,974	)	$	65,687	$	169,478	$	(100,214	)	$	69,264

On ~~July 13, 2011,~~September 15, 2015, the Company entered into a new credit agreement (“(the “New Credit Agreement”) by and among the Company, the Company’s subsidiary, Monotype Imaging Inc., any financial institution that becomes a Lender (as defined therein) and Silicon Valley Bank, as agent which provides for a five-year $150.0 million secured revolving credit facility (the “Credit Facility”)~~, with~~. The Credit Facility permits the Company to request that the Lenders, at their election, increase the secured credit facility to a maximum of $200.0 million. The New Credit Agreement replaced the Company’s existing $120.0 million revolving credit facility (the “Original Credit Agreement”) by and between the Company and Wells Fargo Capital Finance, ~~LLC, the administrative agent for a syndicate of Lenders (“Lenders”), which provides the Company with a five-year, $120.0 million secured~~

~~revolving credit facility.~~ Borrowings under the Credit Facility bear interest at a variable rate not less than zero based upon, at the Company’s option, either LIBOR or the ~~base rate (which is the highest~~higher of (i) the prime rate as published in the Wall Street Journal, and (ii) 0.5% plus the overnight federal funds rate, ~~and (iii) 1.0% in excess of the three-month LIBOR rate),~~ plus in each case, an applicable margin. The applicable margin for LIBOR loans, based on the applicable leverage ratio, is ~~either 1.5%~~1.25%, 1.50% or ~~2.0%~~1.75% per annum, and the applicable margin for base rate loans, based on the applicable leverage ratio, is either ~~0.5%~~0.25%, 0.50% or ~~1.0%~~0.75%% per annum. At June 30, ~~2015~~2016 our rate, inclusive of applicable margins, was ~~3.75%~~1.9% for ~~prime. At June 30, 2015,~~LIBOR and the Company had no outstanding ~~debt~~borrowings under the Credit Facility. The Company is required to pay ~~an unused line~~a commitment fee, based on the applicable leverage ratio, equal to ~~0.375%~~0.20%, 0.25% or 0.30% per annum on the undrawn portion available under the revolving credit facility and variable per annum fees in respect of outstanding letters of ~~credit, if any. Such~~credit. In connection with the New Credit Agreement, the Company incurred closing and legal fees ~~are included in~~of $1.0 million, which have been accounted for as deferred financing costs and will be amortized to interest expense inover the ~~accompanying condensed consolidated statements~~term of ~~income.~~the New Credit Agreement.

The Credit Facility contains two financial covenants; a leverage ratio and a fixed charge coverage ratio. Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the Credit Facility to declare all amounts borrowed under the Credit Facility, together with accrued interest and fees, to be immediately due and payable. In addition to other covenants, the New Credit ~~Facility is secured by substantially all of our assets and~~Agreement places limits on the ~~Company’s~~Company and its subsidiaries’ ability to incur debt or liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates and alter its business. ~~We were~~The New Credit Agreement also contains events of default, and affirmative covenants, including financial maintenance covenants which include (i) a maximum leverage ratio of consolidated total debt to consolidated adjusted EBITDA of 3.00 to 1.00, and (ii) a minimum fixed charge coverage ratio of 1.25 to 1.00. As of June 30, 2016, our leverage ratio was 0.00: 1.00 and our fixed charge ratio was 4.31: 1.00. Adjusted EBITDA, under the Credit Facility, is defined as consolidated net income (or loss), plus net interest expense, income taxes, depreciation and amortization, and share based compensation expense, plus acquisition expenses not to exceed $2.0 million on a trailing twelve month basis, plus restructuring, issuance costs, cash non-operating costs and other expenses or losses minus cash non-operating gains and other non-cash gains. Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the New Credit Agreement to declare all amounts borrowed under the New Credit Agreement, together with accrued interest and fees, to be immediately due and payable. In addition, the Credit Facility is secured by a lien on substantially all of the Company’s and its domestic subsidiaries’ tangible and intangible property by a pledge of all of the equity interests of the Company’s direct and indirect domestic subsidiaries and by a pledge by the Company’s domestic subsidiaries of 65% of the equity of their direct foreign subsidiaries, subject to limited exceptions. The Company was in compliance with all covenants under our Credit Facility as of June 30, ~~2015.~~2016.

Our German subsidiary maintains an unfunded defined benefit pension plan which covers substantially all employees who joined the ~~company~~Company prior to the plan’s closure to new participants in 2006. Participants are entitled to benefits in the form of retirement, disability and surviving dependent pensions. Benefits generally depend on years of service and the salary of the employees.

The components of net periodic benefit cost included in the accompanying condensed consolidated statements of income were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		2016		2015		2016		2015
Service cost	$	30	$	29	$	59	$	59	$	25	$	30	$	48	$	59
Interest cost		30		44		58		88		30		30		60		58
Amortization		19		—		38		—		12		19		25		38

Net periodic benefit cost	$	79	$	73	$	155	$	147	$	67	$	79	$	133	$	155

A reconciliation of income taxes computed at federal statutory rates to income tax expense is as follows (dollar amounts in thousands):


	Three Months Ended June 30,										Three Months Ended June 30,
	2015					2014					2016					2015
Provision for income taxes at statutory rate	$	3,180		35.0	%	$	4,284		35.0	%	$	3,678		35.0	%	$	3,180		35.0	%
State and local income taxes, net of federal tax benefit		130		1.4	%		225		1.8	%		151		1.4	%		130		1.4	%
Stock compensation		30		0.3	%		78		0.6	%
Share based compensation												54		0.5	%		30		0.3	%
Foreign rate differential		(99	)	(1.1	)%		—		—			(156	)	(1.5	)%		(99	)	(1.1	)%
Disqualifying dispositions of incentive stock options		(3	)	—			(25	)	(0.2	)%
Research credits												(90	)	(0.8	)%		—		—
Permanent non-deductible acquisition-related expense												258		2.5	%		—		—
Other, net		(55	)	(0.6	)%		(13	)	—			(38	)	(0.4	)%		(58	)	(0.6	)%

Reported income tax provision	$	3,183		35.0	%	$	4,549		37.2	%	$	3,857		36.7	%	$	3,183		35.0	%


	Six Months Ended June 30,										Six Months Ended June 30,
	2015					2014					2016					2015
Provision for income taxes at statutory rate	$	7,001		35.0	%	$	9,028		35.0	%	$	6,641		35.0	%	$	7,001		35.0	%
State and local income taxes, net of federal tax benefit		287		1.4	%		481		1.9	%		271		1.4	%		287		1.4	%
Stock compensation		62		0.3	%		165		0.6	%
Share based compensation												95		0.5	%		62		0.3	%
Reversal of reserves		(342	)	(1.7	)%		—		—			—		—			(342	)	(1.7	)%
Foreign rate differential		(186	)	(0.9	)%		178		0.7	%		(257	)	(1.4	)%		(186	)	(0.9	)%
Disqualifying dispositions of incentive stock options		(19	)	(0.1	)%		(42	)	(0.2	)%
Research credits												(159	)	(0.9	)%		—		—
Permanent non-deductible acquisition-related expense												419		2.2	%		—		—
Other, net		(61	)	(0.3	)%		(153	)	(0.6	)%		(46	)	(0.1	)%		(80	)	(0.4	)%

Reported income tax provision	$	6,742		33.7	%	$	9,657		37.4	%	$	6,964		36.7	%	$	6,742		33.7	%

At June 30, ~~2015,~~2016, the reserve for uncertain tax positions was approximately ~~$6.5~~$5.7 million. Of this amount, ~~$3.7~~$3.3 million is recorded as a reduction of deferred tax assets and ~~$2.8~~$2.4 million is classified as long term liabilities. During the first quarter of 2015, the Company settled a tax audit related to its Japan subsidiary. As a result of this settlement, the Company recognized a tax benefit of $0.3 million.

Basic and diluted earnings per share are computed pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating security according to their respective participation rights in undistributed earnings. Unvested restricted stock awards granted to employees are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock. In accordance with Accounting Standards Codification Topic No. 260,Earnings Per Share, diluted net income per share is calculated using the more dilutive of the following two approaches:

For the three and six months ended June 30, ~~2015~~2016 and ~~the three months ended June 30, 2014,~~2015, the two-class ~~method was used in the computation of diluted net income per share as this approach was more dilutive. For the six months ended June 30, 2014, the treasury stock~~ method was used in the computation of diluted net income per share as this approach was more dilutive. The following presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share (in thousands, except share and per share data):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Numerator:
Net income, as reported	$	5,904		$	7,691		$	13,261		$	16,136		$	6,653		$	5,904		$	12,011		$	13,261
Less: net income attributable to participating securities		(150	)		(159	)		(301	)		(289	)		(206	)		(150	)		(343	)		(301	)

Net income available to common shareholders—basic	$	5,754		$	7,532		$	12,960		$	15,847		$	6,447		$	5,754		$	11,668		$	12,960

Denominator:
Basic:
Weighted-average shares of common stock outstanding		39,873,730			39,555,875			39,758,947			39,438,705			40,721,081			39,873,730			40,475,785			39,758,947
Less: weighted-average shares of unvested restricted common stock outstanding		(1,047,545	)		(841,697	)		(931,279	)		(725,273	)		(1,343,136	)		(1,047,545	)		(1,225,488	)		(931,279	)

Weighted-average number of common shares used in computing basic net income per common share		38,826,185			38,714,178			38,827,668			38,713,432			39,377,945			38,826,185			39,250,297			38,827,668

Net income per share applicable to common shareholders—basic	$	0.15		$	0.19		$	0.33		$	0.41		$	0.16		$	0.15		$	0.30		$	0.33


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014		2016			2015			2016			2015
Numerator:
Net income available to common shareholders—basic	$	5,754		$	7,532		$	12,960		$	15,847	$	6,447		$	5,754		$	11,668		$	12,960
Add-back: undistributed earnings allocated to unvested shareholders⁽¹⁾		51			96			124			N/A		72			51			95			124
Less: undistributed earnings reallocated to unvested shareholders⁽¹⁾		(50	)		(94	)		(122	)		N/A		(72	)		(50	)		(94	)		(122	)

Net income available to common shareholders—diluted	$	5,755		$	7,534		$	12,962		$	15,847	$	6,447		$	5,755		$	11,669		$	12,962

   Three Months Ended
June 30,    Six Months Ended
June 30,
   2015    2014    2015 2014
Denominator:

Diluted:

Weighted-average shares of common stock outstanding
   39,873,730       39,555,875       39,758,947    39,438,705
Less: weighted-average shares of unvested restricted common stock outstanding
   (1,047,545 )    (841,697 )    (931,279 ) (725,273 )
Weighted-average number of common shares issuable upon exercise of outstanding stock options, based on the treasury stock method
   569,210       909,339       631,090    973,470
Weighted-average number of restricted stock, based on the treasury stock method⁽²⁾
   N/A       N/A       N/A    179,004






Weighted-average number of common shares used in computing diluted net income per common share
   39,395,395       39,623,517       39,458,758    39,865,906






Net income per share applicable to common shareholders—diluted
   $ 0.15       $ 0.19       $ 0.33    $ 0.40

The following common share equivalents have been excluded from the computation of diluted weighted-average shares outstanding, as their effect would have been anti-dilutive:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		2016		2015		2016		2015
Options		433,463		689,410		370,201		417,058		643,714		433,463		662,988		370,201
Unvested restricted stock		405,522		395,520		247,768		233,813		386,297		405,522		352,900		247,768
Unvested restricted stock units		14,825		5,700		11,341		3,420		15,377		14,825		14,085		11,341

On October 23, 2013, the Company’s Board of Directors approved a share repurchase program permitting repurchases of up to $50.0 million of the Company’s outstanding shares of common shares for a maximum period of two years. Intended to offset shareholder dilution, the Company made repurchases periodically, on the open market as business and market conditions warrant through June 5, 2015, at which date the maximum amount of repurchases was reached. During the quarter ended June 30, 2015, the Company repurchased a total of 457,128 shares of its common stock for an aggregate purchase price of $12.5 million, including brokers’ fees. Of that amount, the Company purchased 14,278 shares of common stock, for an aggregate purchase price of $0.4 million, including brokers’ fees, in excess of its publicly announced share repurchase program upon the conclusion of the program.

We account for share based compensation in accordance with ASC Topic No. 718,Compensation – Stock Compensation, which requires the measurement of compensation costs at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. The following presents the impact of share based compensation expense on our condensed consolidated statements of income (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		2016		2015		2016		2015
Marketing and selling	$	1,609	$	1,250	$	2,875	$	2,296	$	1,604	$	1,609	$	3,185	$	2,875
Research and development		644		613		1,186		1,127		876		644		1,689		1,186
General and administrative		1,217		893		2,180		1,593		1,141		1,217		2,525		2,180

Total expensed	$	3,470	$	2,756	$	6,241	$	5,016	$	3,621	$	3,470	$	7,399	$	6,241
Property and equipment		40		40		82		63		—		40		—		82

Total share based compensation	$	3,510	$	2,796	$	6,323	$	5,079	$	3,621	$	3,510	$	7,399	$	6,323

In the three ~~months ended June 30, 2015~~ and ~~2014, approximately $40 thousand and $40 thousand, respectively, and in the~~ six months ended June 30, 2015, ~~and 2014, approximately $82~~$40 thousand and ~~$63~~$82 thousand, respectively, of share based compensation was capitalized as part of an internal software project, and this amount is included in property and equipment, net in our condensed consolidated balance sheet. As of June 30, ~~2015,~~2016, the Company had ~~$30.4~~$30.5 million of unrecognized compensation expense related to employees and directors’ unvested stock option awards, restricted stock units and restricted stock awards that are expected to be recognized over a weighted-average period of 2.9 years.

We view our operations and manage our business as one segment: the development, marketing and licensing of technologies and fonts. Factors used to identify our single segment include the financial information available for evaluation by our chief operating decision maker in making decisions about how to allocate resources and assess performance. While our technologies and services are sold into two principal markets, Creative Professional and OEM, expenses and assets are not formally allocated to these market segments, and operating results are assessed on an aggregate basis to make decisions about the allocation of resources. The following table presents revenue for these two major markets (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Creative Professional	$	23,457	$	20,678	$	47,372	$	41,182
OEM		25,276		25,727		51,203		51,269

Total	$	48,733	$	46,405	$	98,575	$	92,451

The Company attributes revenue to geographic areas based on the location of our subsidiary receiving such revenue. For example, licenses may be sold to large international companies which may be headquartered in ~~South~~the Republic of Korea, but the sales are received and recorded by our subsidiary located in the United ~~States.~~States, U.S. In this example, the revenue would be reflected in the ~~United States~~U.S. totals in the table below. We market our products and services through offices in the ~~United States,~~U.S., United Kingdom, Germany, ~~Hong Kong, South~~China, Republic of Korea and Japan. The following summarizes revenue by location:


	Three Months Ended June 30,										Three Months Ended June 30,
	2015					2014					2016					2015
	Sales		% of Total			Sales		% of Total			Sales		% of Total			Sales		% of Total
	(In thousands, except percentages)										(In thousands, except percentages)
United States	$	26,520		57.2	%	$	24,602		54.7	%	$	27,250		55.9	%	$	26,520		57.2	%
United Kingdom		1,530		3.3			2,636		5.9			2,247		4.6			1,530		3.3
Germany		5,389		11.6			4,210		9.4			6,535		13.4			5,389		11.6
Japan		12,773		27.5			13,367		29.7			12,532		25.7			12,773		27.5
Other Asia		193		0.4			148		0.3			169		0.4			193		0.4

Total	$	46,405		100.0	%	$	44,963		100.0	%	$	48,733		100.0	%	$	46,405		100.0	%


	Six Months Ended June 30,										Six Months Ended June 30,
	2015					2014					2016					2015
	Sales		% of Total			Sales		% of Total			Sales		% of Total			Sales		% of Total
	(In thousands, except percentages)										(In thousands, except percentages)
United States	$	51,363		55.5	%	$	48,538		53.3	%	$	53,761		54.5	%	$	51,363		55.5	%
United Kingdom		3,378		3.7			5,329		5.9			6,572		6.7			3,378		3.7
Germany		11,233		12.2			8,687		9.5			12,567		12.8			11,233		12.2
Japan		25,980		28.1			28,081		30.9			25,348		25.7			25,980		28.1
Other Asia		497		0.5			400		0.4			327		0.3			497		0.5

Total	$	92,451		100.0	%	$	91,035		100.0	%	$	98,575		100.0	%	$	92,451		100.0	%

Long-lived assets, which include property and equipment, goodwill and intangible assets, but exclude other assets ~~long-term investments~~ and deferred tax assets, are attributed to geographic areas in which Company assets reside and is shown below (in thousands):


	June 30, 2015		December 31, 2014		June 30, 2016		December 31, 2015
Long-lived assets:
United States	$	210,344	$	189,927	$	202,909	$	206,822
United Kingdom		4,992		5,138		4,025		4,581
Germany		57,500		62,917		55,639		55,269
Asia (including Japan)		3,525		3,457		3,434		3,531

Total	$	276,361	$	261,439	$	266,007	$	270,203

We conduct operations in facilities under operating leases expiring through 2022. In accordance with the lease terms, we pay real estate taxes and other operating costs. Our leases in California, New York, Massachusetts, Germany, India and Republic of Korea contain renewal options. The Company’s future minimum payments under non-cancelable operating leases as of June 30, 2016 are approximately as follows (in thousands):

From ~~time to time,~~time-to-time, we may be a party to various claims, suits and complaints. We do not believe that there are claims or legal proceedings that, if determined adversely to us, would have a material adverse effect on our business, results of operations or financial condition.

Under our standard license agreement with our OEM customers, we warrant that the licensed technologies are free of infringement claims of intellectual property rights and will meet the specifications as defined in the licensing agreement for a specified period, typically one ~~year period.~~year. Under the licensing agreements, liability for such indemnity obligations is limited, generally to the total arrangement fee; however, exceptions have been made on a case-by-case basis, increasing the maximum potential liability to agreed upon amounts at the time the contract is entered into or unlimited liability. We ~~have never incurred costs payable to a customer or business partner to defend lawsuits or settle claims related to these warranties, and as a result, management believes~~believe the estimated fair value of these warranties is minimal. Accordingly, there are no liabilities recorded for these warranties as of June 30, ~~2015~~2016 and December 31, ~~2014.~~2015.

On July 20, 2016 the Company entered into an agreement and plan of merger to purchase all of the outstanding shares of Olapic, Inc., a privately-held company located in located in New York, New York; its wholly-owned subsidiaries Olapic UK Ltd., based in London, England; and Olapic Argentina S.A., based in Córdoba, Argentina; for an aggregate all cash purchase price of approximately $130.0 million, upon the closing of the merger. Olapic’s Earned Content Platform helps brands collect, curate, use and analyze user-generated content in the form of images and videos in their ecommerce experiences and across multiple marketing channels. This helps to create powerful branded experiences that drive consumer engagement and increase conversions. Monotype also plans to issue approximately $19.0 million of stock awards to the founders and employees of Olapic. These awards will vest over time, and accordingly will be accounted for as compensation expense. We expect to use a combination of cash on hand and borrowings under our current Credit Facility to finance the transaction. The closing is contingent upon necessary regulatory approvals and we expect the acquisition to close in the third quarter of 2016. The results of operations of Olapic will be included in our consolidated results beginning on the date of acquisition.

On July ~~22, 2015~~26, 2016 the Company’s Board of Directors declared a ~~$0.10~~$0.11 per share quarterly cash dividend on our outstanding common stock. The record date is set for October ~~1, 2015~~3, 2016 and the dividend is payable to shareholders of record on October 21, ~~2015.~~2016. Dividends are declared at the discretion of the Company’s Board of Directors and depend on actual cash from operations, the Company’s financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directors on a quarterly basis.

This Quarterly Report on Form 10-Q contains forward looking statements. Forward looking statements relate to future events or our future financial performance. We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition. The outcome of the events described in these forward looking statements is subject to risks, uncertainties and other factors described in “Risks Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, as well as those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Accordingly, you should not rely upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward looking statements. The forward looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

We are a leading provider of type, technology and expertise for creative ~~applications~~professionals and consumer ~~devices.~~device manufacturers. Our vision is that our fonts and technology empower every word and experience. ~~We strive to enable the best user experience and ensure brand integrity, regardless of device, platform or language.~~ We help creative professionals, consumer device manufacturers and independent software vendors connect their brands, content, products and services to consumers and businesses ~~everywhere, from content creation to consumption.~~everywhere. Monotype is home to some of the world’s ~~best known~~most well-known typeface collections. Along with our custom type services, our solutions enable ~~customers~~consumers and professionals to express their creativity, while our tools and technologies improve creative workflows and maximize efficiency as content is published or distributed. Our solutions provide worldwide language coverage and high-quality text, and our embedded solutions support compelling user ~~interfaces and brand fidelity by providing for the display of content on any device or platform, as the author intended.~~interfaces. We offer more than ~~25,000~~16,000 typeface designs, and include some of the world’s most widely used designs, such as the Times New Roman^®, Helvetica^®, Frutiger^®, ITC Franklin ~~Gothic™~~Gothic^™, FF Meta and ~~Droid™~~Droid^™ typefaces, and support more than 250 Latin and non-Latin languages. Our e-commerce websites, includingmyfonts.com, fonts.com, fontshop.com, ~~linotype.com~~and ~~fontfont.com,~~linotype.com, which attracted more than 7780 million visits in ~~2014~~2015 from over 200 countries and territories, offer thousands of high-quality font products ~~in some cases more than 127,000,~~ including our own fonts from the Monotype Libraries, as well as fonts from third parties.

We derive revenue from two principal sources: licensing our fonts and font related services to creative and business professionals, which we refer to as our Creative Professional revenue, and licensing our text imaging solutions to consumer device manufacturers and independent software vendors, which we refer to as our OEM revenue. We derive our Creative Professional revenue primarily from brands, agencies, publishers, corporations, enterprises, small businesses and individuals. Some of our revenue streams, particularly custom ~~revenue~~font design services where spending is largely discretionary in nature, have historically been and we expect them to continue to be in the future, susceptible to weakening economic conditions.

Geographic revenue, which is based on the location of our subsidiary receiving such revenue, is in the table below:


	Three Months Ended June 30,										Three Months Ended June 30,
	2015					2014					2016					2015
	Sales		% of Total			Sales		% of Total			Sales		% of Total			Sales		% of Total
	(In thousands, except percentages)										(In thousands, except percentages)
United States	$	26,520		57.2	%	$	24,602		54.7	%	$	27,250		55.9	%	$	26,520		57.2	%
United Kingdom		1,530		3.3			2,636		5.9			2,247		4.6			1,530		3.3
Germany		5,389		11.6			4,210		9.4			6,535		13.4			5,389		11.6
Japan		12,773		27.5			13,367		29.7			12,532		25.7			12,773		27.5
Other Asia		193		0.4			148		0.3			169		0.4			193		0.4

Total	$	46,405		100.0	%	$	44,963		100.0	%	$	48,733		100.0	%	$	46,405		100.0	%


	Six Months Ended June 30,										Six Months Ended June 30,
	2015					2014					2016					2015
	Sales		% of Total			Sales		% of Total			Sales		% of Total			Sales		% of Total
	(In thousands, except percentages)										(In thousands, except percentages)
United States	$	51,363		55.5	%	$	48,538		53.3	%	$	53,761		54.5	%	$	51,363		55.5	%
United Kingdom		3,378		3.7			5,329		5.9			6,572		6.7			3,378		3.7
Germany		11,233		12.2			8,687		9.5			12,567		12.8			11,233		12.2
Japan		25,980		28.1			28,081		30.9			25,348		25.7			25,980		28.1
Other Asia		497		0.5			400		0.4			327		0.3			497		0.5

Total	$	92,451		100.0	%	$	91,035		100.0	%	$	98,575		100.0	%	$	92,451		100.0	%

For the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, sales by our subsidiaries located outside the United States comprised ~~42.8%~~44.1% and ~~45.3%~~42.8%, respectively, of our total revenue. For the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, sales by our subsidiaries located outside the United States comprised ~~44.5%~~45.5% and ~~46.7%~~44.5%, respectively, of our total revenue. We expect that sales by our international subsidiaries will continue to represent a substantial portion of our revenue for the foreseeable future. Future international revenue will depend on the continued use and expansion of our text imaging solutions worldwide.

We derive a significant portion of our OEM revenue from a limited number of customers, in particular manufacturers of laser printers and consumer electronics. For the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, our top ten licensees by revenue, all of which are with OEM customers, accounted for approximately ~~34.1%~~30.4% and ~~36.1%~~34.1% of our total revenue, respectively. For the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, our top ten licensees by revenue ~~all of which are with OEM customers,~~ accounted for approximately ~~34.8%~~30.7% and ~~37.4%~~34.8% of our total revenue, respectively. As Creative Professional revenue growth is expected to continue to outpace OEM revenue growth, we expect total revenue from our top ten licensees to continue to decrease as a percentage of total revenue. Although no one customer accounted for 10% or ~~moreof~~more of our total revenue for the three or six months ended June 30, ~~2015~~2016 or ~~2014,~~2015, if we are unable to maintain relationships with major customers or establish relationships with new customers, our licensing revenue will be adversely affected.

Our Creative Professional revenue is derived from font licenses, font related services and from custom font design services. We license fonts directly to end-users through our e-commerce websites, via telephone, ~~email~~e-mail and indirectly through third-party resellers. Font related services refer to our web font services and web design tools. We also license fonts and provide custom font design services to graphic designers, advertising agencies, media organizations and corporations. We refer to direct, indirect and custom ~~revenue,~~font design services, as non-web revenue, and refer to revenue that is derived from our websites, as web revenue.

Revenue from font licenses to our e-commerce customers is recognized upon payment by the customer and the software embodying the font is shipped or made available. Revenue from font licenses to other customers is recognized upon shipment of the software embodying the font and when all other revenue recognition criteria have been met. Revenue from resellers is recognized upon notification from the reseller that our font product has been licensed and when all other revenue recognition criteria have been met. Custom font design services ~~revenue is~~are generally recognized upon ~~delivery, unless it is part of a bundled services arrangement, in which case, it is recognized over the longest service period.~~delivery. Font related service revenue is mainly subscription based and it may contain software as a service. The subscription revenue is recognized ratably over the subscription period. We consider web server and commercial rights to online fonts as recurring revenue and it is recognized upon ~~invoicing~~payment by the customer and proof of font delivery, when all other revenue recognition criteria have been met. Contract accounting, completed contract for short-term projects and percentage-of-completion for long-term projects, is used where services are deemed essential to the software. We consider both the completed contract and percentage-of-completion method of revenue recognition for contract accounting arrangements. We have the ability to make reasonable estimates, and therefore, typically use the percentage-of-completion method in arrangements subject to contract accounting applying input or output measures, where appropriate. We make certain judgements, by estimating the amount of expenses to be recognized, together with the percent of revenue earned in each particular period.

Our OEM revenue is derived substantially from per-unit royalties received for printer imaging and printer driver, or printer products, and display imaging products. Under our licensing arrangements we typically receive a royalty for each product unit incorporating our ~~text imaging solutions~~fonts and technology that is shipped by our OEM customers. We also receive OEM revenue from fixed fee licenses with certain of our OEM customers. Fixed fee licensing arrangements are not based on units shipped by the customer, ~~ships,~~ but instead, customers pay us on a periodic basis for the right to embed our ~~typefaces~~fonts and ~~technology.~~technology in their products. Although significantly less than royalties from per-unit shipments and fixed fees from OEM customers, we also receive revenue from software application and operating systems vendors, who include our ~~typefaces~~fonts and technology in their products, and for font development. Many of our per-unit royalty licenses continue for the duration that our OEM customers ship products that include our technology, unless terminated for breach. Other licenses have terms that typically range from one to five years, and usually provide for automatic or optional renewals. We recognize revenue from per-unit royalties in the period during which we receive a royalty report from a customer, typically one quarter after royalty-bearing units are ~~shipped, as we do not have the ability to estimate the number of units shipped by our customers.~~shipped. Revenue from fixed fee licenses is generally recognized when it is billed to the customer, so long as the product has been delivered, the license fee is fixed and non-refundable and collection is probable. OEM revenue also includes project-related agreements for which contract accounting, completed contract for short-term projects and percentage-of-completion for long-term projects, may be used.

Our cost of revenue consists of font license fees that we pay on certain fonts that are owned by third parties, allocated internal engineering expense and overhead costs directly related to custom font design services. License fees that we pay to third parties are typically based on a percentage of our Creative Professional and OEM revenue and do not involve minimum fees. Our cost of OEM revenue ishas typically had a lower cost than our cost of Creative Professional revenue because we own a higher percentage of the fonts licensed to our OEM customers, provide value-added technology and have negotiated lower royalty rates on the fonts we license from third parties because of volume. ~~The cost~~We have achieved improved margins on our Creative Professional revenue as a result of ~~our~~product mix and lower royalty rates. In addition, Creative Professional revenue includes custom font design service revenue, iswhich has a substantially higher cost than our other revenue. Our gross profit margin may vary depending on the ~~cost~~mix of revenue between sales of our ~~other revenue~~fonts and ~~as a result, our gross margin varies from period-to-period~~sales of third party fonts, and depending on the level of custom font design ~~revenue recorded.~~service revenue.

Cost of revenue also includes amortization of acquired technology, which we amortize over 8 to 15 years. For purposes of amortizing acquired technology we estimate the remaining useful life of the technology based upon various considerations, including our knowledge of the technology and the way our customers use it. We use the straight-line method to amortize our acquired ~~technology as there~~technology. There is no reliable evidence to suggest that we should expect any other pattern of amortization than an even pattern, and we believe this best reflects the expected pattern of economic usage.

Our gross profit percentage is influenced by a number of factors including product mix, pricing and volume at any particular time. However, our cost of OEM revenue is typically lower than our cost of Creative Professional revenue because we own a higher percentage of the fonts licensed to our OEM customers, provide value-added technology and have negotiated lower royalty rates on the fonts we license from third parties because of volume. ~~Within~~In addition, within our Creative Professional business, the cost of our custom font design service revenue is substantially higher than the cost of our other revenue. ~~As a result,~~The relative cost of our Creative Professional revenue has decreased in recent periods, as efforts to sell more of our fonts have been successful, and because we have recently experienced success in our effort to sell certain license rights that carry lower royalty rates to Creative Professional customers. Our gross profit ~~varies~~is subject to variability from period-to-period, depending on the product mix ~~between,~~ and ~~within, Creative Professional and OEM~~the level of custom font design service revenue.

The preparation of financial statements and related disclosures in conformity with GAAP and our discussion and analysis of our financial condition and results of operations requires us to make judgments, assumptions and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

There has been no material change in our critical accounting policies since December 31, ~~2014.~~2015. Information about our critical accounting policies may be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies,” of our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

Results of Operations for the Three Months Ended June 30, ~~2015~~2016 Compared to Three Months Ended June 30, ~~2014~~2015

The following table sets forth items in the condensed consolidated quarterly statements of income as a percentage of sales for the periods indicated:


	Three Months Ended June 30,						Three Months Ended June 30,
	2015			2014			2016			2015
Revenue:
Creative Professional		44.6	%		40.6	%		48.1	%		44.6	%
OEM		55.4			59.4			51.9			55.4

Total revenue		100.0			100.0			100.0			100.0
Cost of revenue		16.3			16.3			15.6			16.3
Cost of revenue—amortization of acquired technology		2.4			2.5			2.3			2.4

Total cost of revenue		18.7			18.8			17.9			18.7

Gross profit		81.3			81.2			82.1			81.3
Marketing and selling		31.3			26.7			30.1			31.3
Research and development		11.4			10.9			12.3			11.4
General and administrative		15.1			12.0			17.7			15.1
Amortization of other intangible assets		1.7			3.2			1.5			1.7

Total operating expenses		59.5			52.8			61.6			59.5

Income from operations		21.8			28.4			20.5			21.8
Interest expense, net		0.7			0.6			0.2			0.7
Loss on foreign exchange		1.1			0.3
Loss on derivatives		0.4			0.3
(Gain) loss on foreign exchange								(0.8	)		1.1
(Gain) loss on derivatives								(0.4	)		0.4
Other income, net		—			—			(0.1	)		—

Total other expense		2.2			1.2
Total other (income) expense								(1.1	)		2.2
Income before provision for income taxes		19.6			27.2			21.6			19.6
Provision for income taxes		6.9			10.1			7.9			6.9

Net income		12.7	%		17.1	%		13.7	%		12.7	%

The following discussion compares the three months ended June 30, ~~2015~~2016 with the three months ended June 30, ~~2014.~~2015.

We view our operations and manage our business as one segment: the development, marketing and licensing of technologies and fonts. Factors used to identify our single segment include the financial information available for evaluation by our chief operating decision maker in making decisions about how to allocate resources and assess performance. While our technologies and services are sold to customers in two principal markets, Creative Professional and consumer device manufacturers and independent software vendors, together OEM, expenses and assets are not formally allocated to these markets, and operating results are assessed on an aggregate basis to make decisions about the allocation of resources.

The following table presents revenue for these two principal markets (in thousands):


	Three Months Ended June 30,				Increase/ (Decrease)			Three Months Ended June 30,				Increase/ (Decrease)
	2015		2014		Increase/ (Decrease)			2016		2015		Increase/ (Decrease)
Creative Professional	$	20,678	$	18,266	$	2,412		$	23,457	$	20,678	$	2,779
OEM		25,727		26,697		(970	)		25,276		25,727		(451	)

Total revenue	$	46,405	$	44,963	$	1,442		$	48,733	$	46,405	$	2,328

Revenue was ~~$46.4~~$48.7 million and ~~$45.0~~$46.4 million for the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively, an increase of ~~$1.4~~$2.3 million, or ~~3.2%~~5.0%.

Creative Professional revenue increased ~~$2.4~~$2.8 million, or ~~13.2%~~13.4%, to $23.5 million for the three months ended June 30, 2016, as compared to $20.7 million for the three months ended June 30, 2015, ~~as compared~~mainly due to ~~$18.3~~an increase in direct revenue from our enterprise customers, primarily due to increased sales of digital advertising and web font services, and growth in sales of recurring licenses.

OEM revenue was $25.3 million and $25.7 million for the three months ended June 30, ~~2014, mainly from increased web revenue due to increased font license revenue~~2016 and ~~increased sales of our web font services.~~

~~OEM revenue was $25.7 million and $26.7 million for the three months ended June 30,~~ 2015, ~~and 2014,~~ respectively, a decrease of ~~$1.0~~$0.5 million, or ~~3.6%~~1.8%. Decreased revenue from per unit royalty arrangements with our printer ~~and display~~ imaging ~~consumer~~ electronic OEM customers, ~~was partially offset by increased~~mainly due to lower volumes of shipments, and decreased revenue from our independent software vendor customers, mainly due to the timing of ~~certain non-recurring license deals in the second quarter of 2014.~~revenue, was partially offset by increased revenue from our automotive display imaging OEM customers, period over period.

Cost of revenue, excluding amortization of acquired technology, was consistent at $7.6 ~~million and $7.3~~ million for the three months ended June 30, 2016 and 2015, ~~and 2014, respectively, an increase of $0.3 million, or 3.2%.~~respectively. As a percentage of total revenue, cost of revenue, excluding amortization of acquired technology, was ~~consistent at~~15.6% and 16.3% in the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively. In the second quarter of ~~2015,~~2016, as compared to the same period in ~~2014,~~2015, there were fewer custom font ~~design revenue had~~development projects, which typically have a ~~lower~~higher associated ~~cost,~~cost. In the ~~impact of which was offset by an increase in~~three months ended June 30, 2016, Creative Professional revenue ~~which~~was 48.1% of total revenue, as compared to 44.6% of total revenue in the same period in 2015. Our Creative Professional revenue has typically ~~has~~had a higher associated cost than our OEM revenue. ~~In the three months ended June 30, 2015,~~Historically, when Creative Professional revenue ~~was 44.6%~~increased as a percentage of total revenue, we would have expected our overall gross profit percentage to decrease. However, in the second quarter of 2016, as compared to ~~40.6% of total revenue in~~ the same period in ~~2014.~~2015, we achieved improved margins on our Creative Professional revenue with enterprise customers, from selling a lower proportion of third party fonts, and from license revenues to Creative Professional customers that carry lower royalty rates.

The portion of cost of revenue consisting of amortization of acquired technology was unchanged at $1.1 million for the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively.

Gross profit in the three months ended June 30, ~~2015 and 2014 was consistent at 81.3% and 81.2%~~2016 increased 0.8% to 82.1% of sales ~~respectively. In~~in the second quarter of ~~2015,~~2016, as compared to 81.3% of sales in the same period in ~~2014, we achieved improved gross profit on custom font development revenue, which was offset by a higher~~2015, due to variations in product mix ~~of Creative Professional revenue,~~ as detailed above.

Marketing and Selling.Marketing and selling expense ~~increased $2.5~~was $14.6 million ~~or 21.2%, to~~and $14.5 million in the three months ended June 30, 2016 and 2015, ~~as compared to $12.0~~respectively, an increase of $0.1 million, ~~in the three months ended June 30, 2014.~~or 0.8%. Personnel expenses, including travel, increased ~~$1.9~~$0.6 million mainly due to additional ~~headcount primarily~~compensation expense in connection with an amendment to the Swyft Media Merger Agreement executed in November 2015, which was partially offset by a net decrease in salary expense due to a redeployment of certain employees at the beginning of 2016 to development related activities from our ~~acquisitions~~sales and marketing organization, net of ~~Swyft Media~~other sales and ~~FontShop, and increased share based compensation~~marketing headcount additions. Consulting expense decreased $0.5 million, period over period, a reduction in ~~the three months ended June 30, 2015, as compared~~targeted spending mainly due to the same period in 2014. Increased infrastructure expenses, primarily rent and depreciation expense, mainly associated with our new corporate office, contributed $0.5 million to the increase in the three months ended June 30, 2015, as compared to the same period in 2014.timing of activities.

Research and Development. Research and development expense ~~was~~increased $0.7 million, or 13.3%, to $6.0 million in the three months ended June 30, 2016, as compared to $5.3 million in the three months ended June 30, 2015, ~~as compared to $4.9 million in the three months ended June 30, 2014, an increase of $0.4 million, or 7.7%,~~ primarily from an increase in personnel expenses due to increased headcount from the redeployment of certain former marketing and ~~consulting expenses.~~selling employees and fewer custom font development projects, partially offset by a grant received related to the company’s development work within Northern Ireland.

General and Administrative. General and administrative expense increased $1.6 million, or ~~30.2%~~23.2%, to $8.6 million in the three months ended June 30, 2016, as compared to $7.0 million in the three months ended June 30, 2015, ~~as compared~~primarily due to ~~$5.4~~increased personnel expenses. Personnel expenses increased $1.1 million in the ~~three months ended June 30, 2014. Personnel and personnel related expenses increased $0.5 million in the three months ended June 30, 2015,~~second quarter of 2016, as compared to the same period in ~~2014,~~2015, mainly ~~due to~~

~~increases in share based compensation.~~the result of key hiring. In the ~~three months ended June 30, 2014, we recognized a $0.6~~second quarter of 2015, approximately $0.3 million ~~reduction~~of personnel expenses were capitalized in ~~expense due to a revised estimate for contingent acquisition consideration. There~~connection with our new ERP system. As the system was placed into service in the third quarter of 2015, there was no ~~similar item~~capitalization benefit in the same period in ~~2015. Higher infrastructure expenses, primarily~~2016, and the associated depreciation ~~and software maintenance~~ expense ~~associated with our new ERP systems,~~ contributed an additional $0.3 million to the overall increase in general and administrative expense.

Amortization of Other Intangible Assets. Amortization of other intangible assets ~~decreased~~was $0.7 million ~~or 44.8%, to~~and $0.8 million infor the three months ended June 30, 2016 and 2015, ~~as compared to $1.5~~respectively, a decrease of $0.1 million, ~~in the three months ended June 30, 2014, mainly the result of an asset becoming fully amortized in the fall of 2014.~~or 6.1%.

Interest expense, net of interest income was ~~consistent at~~$0.1 million and $0.3 million for the three months ended June 30, 2016 and 2015, ~~and 2014.~~a decrease of $0.2 million. There was no debt outstanding during either the three months ended June 30, 2016 or 2015. Interest expense in both periods consisted mainly of unused line fees in connection with our Credit Facility. ~~There was no debt outstanding during either period.~~

~~Loss~~(Gain) loss on foreign exchange ~~increased~~was a gain of $0.4 million ~~or 266.2%, to~~and a loss of $0.5 million for the three months ended June 30, 2016 and 2015, ~~as compared to $0.1 million for~~respectively, an increase of $0.9 million. In the three months ended June 30, ~~2014.~~2016, the gain was primarily due to the strengthening of the U.S. dollar as compared to the Japanese Yen. In the three months ended June 30, 2015, the loss on foreign exchange was primarily due to the strengthening of the British pound sterling, as compared to the U.S. dollar. ~~In the three months ended June 30, 2014, the loss was primarily due to the revaluation of liabilities incurred in the acquisition of Design by Front.~~

~~Loss~~(Gain) loss on derivatives was ~~consistent at~~a gain of $0.2 million and a loss of $0.2 million in the three months ended June 30, 2016 and 2015, ~~and 2014,~~ respectively, an increase of $0.4 million due to our 30-day forward currency contracts.

For the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, our effective tax rate was ~~35.0%~~36.7% and ~~37.2%~~35.0%, respectively. The ~~decrease~~increase in our effective rate is primarily due to ~~the effect~~a charge of ~~foreign income and dividends, which resulted in~~2.5% for non-deductible acquisition related expenses, offset by a ~~1.1% decrease~~benefit of 0.8% for research credits. There were no similar items in the ~~second quarter~~same period in 2015. The legislation for the research credit for 2015 ~~effective tax rate,~~had not yet been passed as ~~compared to 2014, and a 0.4% decrease in state and local income taxes, net~~ of ~~federal benefit.~~June 30, 2015.

Results of Operations for the Six Months Ended June 30, ~~2015~~2016 Compared to Six Months Ended June 30, ~~2014~~2015

The following table sets forth items in the condensed consolidated year-to-date statement of income as a percentage of sales for the periods indicated:


	Six Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2016			2015
Revenue:
Creative Professional		44.5	%		39.5	%		48.1	%		44.5	%
OEM		55.5			60.5			51.9			55.5

Total revenue		100.0			100.0			100.0			100.0
Cost of revenue		16.2			15.2			16.1			16.2
Cost of revenue—amortization of acquired technology		2.4			2.5			2.3			2.4

Total cost of revenue		18.6			17.7			18.4			18.6

Gross profit		81.4			82.3			81.6			81.4
Marketing and selling		29.8			25.5			29.2			29.8
Research and development		12.0			11.7			13.5			12.0
General and administrative		15.0			12.7			17.7			15.0
Amortization of other intangible assets		1.6			3.1			1.5			1.6

Total operating expenses		58.4			53.0			61.9			58.4

Income from operations		23.0			29.3			19.7			23.0
Interest expense, net		0.6			0.6			0.2			0.6
Loss on foreign exchange		0.6			0.2			0.4			0.6
Loss on derivatives		0.1			0.2
(Gain) loss on derivatives								(0.2	)		0.1
Other income, net		—			—			—			—

Total other expense		1.3			1.0			0.4			1.3
Income before provision for income taxes		21.7			28.3			19.3			21.7
Provision for income taxes		7.4			10.6			7.1			7.4

Net income		14.3	%		17.7	%		12.2	%		14.3	%

The following discussion compares the six months ended June 30, ~~2015~~2016 with the six months ended June 30, ~~2014.~~2015.

The following table presents revenue for these two principal markets (in thousands):


	Six Months Ended June 30,				Increase/(Decrease)			Six Months Ended June 30,				Increase/ (Decrease)
	2015		2014		Increase/(Decrease)			2016		2015		Increase/ (Decrease)
Creative Professional	$	41,182	$	35,985	$	5,197		$	47,372	$	41,182	$	6,190
OEM		51,269		55,050		(3,781	)		51,203		51,269		(66	)

Total revenue	$	92,451	$	91,035	$	1,416		$	98,575	$	92,451	$	6,124

Revenue was ~~$92.5~~$98.6 million and ~~$91.0~~$92.5 million for the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively, an increase of ~~$1.4~~$6.1 million, or ~~1.6%~~6.6%.

Creative Professional revenue increased ~~$5.2~~$6.2 million, or ~~14.4%~~15.0%, to $47.4 million for the six months ended June 30, 2016, as compared to $41.2 million for the six months ended June 30, ~~2015,~~2015. Direct revenue from our enterprise customers increased, primarily due to increased sales of web font services, growth in sales of recurring licenses, and increased branded mobile messaging revenue due to increased sales volume in the six months ended June 30, 2016, as compared to ~~$36.0~~the same period in 2015.

OEM revenue was $51.2 million and $51.3 million for the six months ended June 30, ~~2014, mainly from increased web revenue due to increased font license revenue~~2016 and ~~sales of our web font services.~~

~~OEM revenue was $51.3 million and $55.0 million for the six months ended June 30,~~ 2015, ~~and 2014,~~ respectively, a decrease ~~$3.8~~$0.1 million, or ~~6.9%~~0.1%. Decreased royalty revenue from ~~per unit royalty arrangements with~~ our printer imaging OEM customers, mainly due to lower volume of shipments from our printer imaging OEM customers, and ~~display imaging consumer electronic OEM~~decreased license revenue from our independent software vendor customers, was partially offset by increased revenue from our ~~independent software vendor customers, mainly due to timing of certain non-recurring license deals in the second quarter of 2014.~~display imaging consumer electronic OEM customers.

Cost of revenue excluding amortization of acquired technology was ~~$15.0~~$15.9 million and ~~$13.8~~$15.0 million in the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively, an increase of ~~$1.2~~$0.9 million, or ~~8.2%~~6.3%. As a percentage of total revenue, cost of revenue excluding amortization of acquired technology was ~~16.2%~~relatively unchanged at 16.1% and ~~15.2%~~16.2% in the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively. The ~~increases,~~increase in ~~both~~ dollars ~~and as a percentage of revenue, are~~is predominantly due to ~~variations~~increased revenue. In the six months ended June 30, 2016, Creative Professional revenue was 48.1% of total revenue, as compared to 44.5% of total revenue in ~~product mix.~~the same period in 2015. Our Creative Professional revenue has typically ~~has~~had a higher associated cost than our OEM revenue. InHistorically, when Creative Professional revenue increases as a percentage of total revenue, we would have expected our overall gross profit percentage to decrease. However, in the six months ended June 30, ~~2015, Creative Professional revenue was 44.5% of total revenue,~~2016, as compared to ~~39.5% of total revenue in~~ the same period in ~~2014.~~2015, we achieved improved margins on our Creative Professional revenue with enterprise customers from selling a lower proportion of third party fonts, and from license revenues to Creative Professional customers that carry lower royalty rates.

Amortization of acquired technology was unchanged at $2.3 million for the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively.

Gross profit ~~decreased 0.9%~~increased 0.2% to ~~81.4%~~81.6% of sales in the six months ended June 30, ~~2015,~~2016, as compared to ~~82.3%~~81.4% of sales in the six months ended June 30, ~~2014,~~2015, due to variations in product mix, as detailed above.

Marketing and Selling.Marketing and selling expense ~~increased $4.4~~was $28.7 million ~~or 19.1%, to~~and $27.5 million in the six months ended June 30, 2016 and 2015, ~~as compared~~respectively, an increase of $1.2 million, or 4.5%. Personnel expenses increased $2.6 million, period over period, mainly due to ~~$23.1~~additional compensation expense in connection with an amendment to the Swyft Media Merger Agreement executed in November 2015 and variable compensation and share based compensation expense. These were partially offset by decreased salary expense due to a redeployment of certain employees at the beginning of 2016 to development related activities from our sales and marketing organization, period over period. Consulting and marketing expenses decreased $1.1 million in the six months ended June 30, 2014. Personnel expenses increased $2.7 million due to additional headcount primarily from our acquisitions of Swyft Media and FontShop, and increased share based compensation period over period. Targeted marketing spending, including expenses for website redesign and development of marketing materials, increased $0.9 million in the six months ended June 30, 2015,2016, as compared to the same period in ~~2014. Increased infrastructure expenses, primarily depreciation~~2015, mainly due to the timing of activities. Decreased transaction fees on web sales, bank fees and ~~rent expense,~~bad debts together contributed ~~$0.6~~$0.3 million to the ~~increase in~~overall change period over period, mainly the ~~first half~~result of ~~2015, as compared to the same period in 2014, which is mainly associated with our new corporate office.~~improved credit and collections efforts.

Research and Development. Research and development expense ~~was $11.1~~increased $2.2 million, ~~and $10.7~~or 20.2%, to $13.3 million in the six months ended June 30, ~~2015 and 2014, respectively, an increase of $0.4~~2016, as compared to $11.1 million ~~or 4.0%.~~in the six months ended June 30, 2015. Personnel expenses increased ~~$0.2~~$1.6 million in the first half of ~~2015,~~2016, as compared to the same period in ~~2014,~~2015, a result of ~~less custom font development.~~increased headcount from the redeployment of certain employees from our sales and marketing organization to development related activities at the beginning of 2016, partially offset by a grant received for development work within Northern Ireland. Increased ~~travel~~software license expense and ~~infrastructure~~consulting expenses ~~mainly rent expense,~~ contributed to the remainder of the increase.

General and Administrative. General and administrative expense increased ~~$2.3~~$3.6 million, or ~~20.1%~~25.7% to ~~$13.9~~$17.5 million in the six months ended June 30, ~~2015,~~2016, as compared to ~~$11.6~~$13.9 million in the same period in ~~2014.~~2015. Personnel ~~and personnel related~~ expenses increased ~~$1.0~~$2.7 million in the six months ended June 30, ~~2015,~~2016, as compared to the same period in ~~2014, primarily~~2015, mainly the result of ~~increased share based compensation and increased headcount. Increased infrastructure~~key hiring. In the six months ended June 30, 2015, approximately $0.6 million of personnel expenses ~~primarily rent and depreciation expense, contributed $0.9 million to the increase, which is principally associated~~were capitalized in connection with our new ~~corporate office. Professional~~ERP system. As the system was placed into service ~~expenses increased $0.3 million~~ in the ~~first half~~third quarter of 2015, ~~as compared to~~there was no capitalization benefit in the same period in ~~2014, due~~2016, and associated depreciation expense contributed an additional $0.6 million to the ~~timing of acquisition related~~overall increase in general and ~~non-recurring expenses.~~administrative expense.

Amortization of Other Intangible Assets. Amortization of other intangible assets ~~decreased $1.4 million, or 47.9%, to~~was unchanged at $1.5 million infor the six months ended June 30, 2016 and 2015, ~~as compared to $2.9 million in the six months ended June 30, 2014, mainly the result of an asset becoming fully amortized in the fall of 2014.~~respectively.

Interest expense, net of interest income ~~was consistent at~~decreased $0.3 million to $0.2 million for the six months ended June 30, 2016, as compared to $0.5 million for the six months ended June 30, 2015, ~~and 2014.~~mainly due to a reduction in the commitment fee rate in connection with the refinancing of our Original Credit Agreement in September 2015. There was no debt outstanding during either ~~the six months ended June 30, 2015 or 2014. Interest expense, in both periods, consisted mainly of unused line fees in connection with our Credit Facility.~~period.

Loss on foreign exchange ~~increased~~decreased $0.2 million, or 29.1%, to $0.4 million ~~or 260.0%,~~for the six months ended June 30, 2016, as compared to $0.6 million for the six months ended June 30, ~~2015, as compared to $0.2 million for the six months ended June 30, 2014. In the six months ended June 30, 2015, the~~2015. The loss ~~on foreign exchange~~in both periods was primarily ~~due to~~ the ~~strengthening~~result of ~~the Euro~~currency fluctuations on our foreign denominated receivables and British pound sterling, as compared to the U.S. dollar. In the six months ended June 30, 2014, the loss was primarily due to the revaluation of liabilities incurred in the acquisition of Design by Front.payables.

~~Loss~~(Gain) loss on derivatives was ~~$0.1~~a gain of $0.2 million and ~~$0.2~~a loss of $0.1 million in the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, respectively, a decrease of ~~$0.1~~$0.3 million ~~or 66.4%,~~ primarily due to our 30-day forward currency contracts.

For the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, our effective tax rate was ~~33.7%~~36.7% and ~~37.4%~~33.7%, respectively. The increase in our effective rate includes a charge of 2.2% for non-deductible acquisition related expenses. The effective tax rate for the six months ended June 30, 2015 included a benefit of 1.7% for the reversal of reserves in connection with a settlement of the tax audit related to the Company’s Japan subsidiary. There was no similar item in the same period in ~~2014. In addition, the effect of foreign income and dividends resulted in a 0.9% decrease in the 2015 effective tax rate, as compared to an increase of 0.7% in the 2014 effective tax rate.~~2016. The effective tax rate for the six months ended June 30, 2016 included a ~~charge~~benefit of ~~1.4%~~0.9% for ~~state and local income taxes, net of federal benefit,~~research credits. There was no similar item in the same period in 2015, as ~~compared to a charge of 1.9% in 2014.~~the legislation for the credit for 2015 had not yet been passed.

Since our inception, we have financed our operations primarily through cash from operations, private and public stock sales and long-term debt arrangements, as described below. We believe our existing cash and cash equivalents, our cash flow from operating activities and available bank borrowings will be sufficient to meet our anticipated cash needs for at least the next twelve months. At June 30, ~~2015,~~2016, our principal sources of liquidity were cash and cash equivalents totaling ~~$74.6~~$109.5 million and a ~~$120.0~~$150.0 million revolving credit facility, of which there were no outstanding borrowings. On October 23, 2013, our Board of Directors approved a share repurchase program of up to $50.0 million of our outstanding common stock over a maximum two year period. In the first half of 2015, we used $18.2 million in cash to repurchase shares and completed the repurchase program in June 2015, after reaching the maximum cumulative spend. We also used $0.4 million in cash to repurchase shares in excess of our previously approved share repurchase program. On July 20, 2016, we entered into an agreement to purchase Olapic Inc. for approximately $130.0 million. We expect the acquisition to close in the third quarter of 2016, and intend to fund the acquisition with a combination of cash on hand and borrowings from our Credit Facility. Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion and future acquisitions we might undertake.

The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in thousands):


	Six Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2016			2015
Net cash provided by operating activities	$	24,363		$	30,200		$	28,870		$	24,363
Net cash used in investing activities		(21,136	)		(3,487	)		(1,104	)		(21,136	)
Net cash used in financing activities		(18,466	)		(24,347	)		(6,124	)		(18,466	)
Effect of exchange rates on cash and cash equivalents		(466	)		27			355			(466	)

Total (decrease) increase in cash and cash equivalents	$	(15,705	)	$	2,393
Total increase (decrease) in cash and cash equivalents							$	21,997		$	(15,705	)

Significant variations in operating cash flows may occur because, from time-to-time, our customers make prepayments against future royalties. Prepayments may be required under the terms of our license agreements and are occasionally made on an elective basis and often cause large fluctuations in accounts receivable and deferred revenue. The timing and extent of such prepayments significantly impacts our cash balances.

We generated $28.9 million in cash from operations during the six months ended June 30, 2016. Net income, after adjusting for depreciation and amortization, amortization of deferred financing costs and accretion of interest, share based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes, and unrealized currency loss on foreign denominated intercompany transactions generated $27.8 million in cash. Decreased accounts receivable offset by decreased deferred revenue generated $0.3 million in cash, mainly due to timing of customer payments. Decreased accrued expenses and increased prepaid expenses offset by increased accounts payable used $0.6 million, primarily a result of the payment of 2015 accrued variable compensation amounts. Increased accrued income taxes generated $1.4 million during the six months ended June 30, 2016.

We generated $24.4 million in cash from operations during the six months ended June 30, 2015. Net income, after adjusting for depreciation and amortization, amortization of deferred financing costs and accretion of interest, share based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes, and unrealized currency loss on foreign denominated

intercompany transactions generated $25.6 million in cash. Decreased accrued expenses and income taxes, and accounts payable, offset by decreased prepaid expenses, used $1.5 million in cash, primarily a result of the payment of 2014 accrued variable compensation amounts. Decreased deferred revenue offset by increased accounts receivable generated $0.5 million in cash mainly due to timing of customer payments.

~~We generated $30.2 million in cash from operations during~~Investing Activities

During the six months ended June 30, 2014. Net income, after adjusting for depreciation and amortization, adjustment to contingent consideration, loss on retirement of fixed assets, amortization of deferred financing costs and accretion of interest, share based compensation, excess tax benefit on stock options, deferred income taxes and unrealized currency gain on foreign denominated intercompany transactions generated $26.52016 we used $1.1 million in ~~cash. Deferred revenue generated $1.9 million in cash,~~investing activities mainly ~~due to~~for the ~~timing~~purchase of ~~customer payments. A decrease in accrued expenses~~property and other liabilities used $2.5 million, primarily a result of the payment of 2013 accrued variable compensation. Accrued income taxes generated $4.6 million during the six months ended June 30, 2014. Increases in accounts receivable and accounts payable combined with decreases in prepaid expenses and other assets used $0.3 million in cash, mainly due to the timing of payments.

equipment. During the six months ended June 30, 2015 we used $21.1 million in investing activities mainly for the purchase of $6.8 million of property and equipment, primarily for new ERP systems and our new corporate office, and $14.3 million for acquisitions. ~~During~~

Cash used in financing activities for the six months ended June 30, ~~2014~~2016 was $6.1 million. We received cash from exercises of stock options of $2.0 million and excess tax benefit on stock options provided $0.3 million and we ~~used $3.5~~paid cash dividends of $8.5 million in ~~investing activities mainly for~~ the ~~purchase of $2.5 million of property and equipment, and $1.0 million for acquisitions.~~

Cash used in financing activities for the six months ended June 30, 2015 was $18.5 million. We received cash from exercises of stock options of $5.9 million and excess tax benefit on stock options provided $1.7 million. We paid cash dividends of $7.2 million, made contingent consideration payments of $0.3 million and purchased $18.6 million in treasury stock in the six months ended June 30, 2015.

Cash used in financing activities for the six months ended June 30, 2014 was $24.3 million. We received cash from exercises of stock options of $3.1 million and excess tax benefit on stock options provided $2.0 million. We paid cash dividends of $5.5 million, and purchased $23.9 million in treasury stock in the six months ended June 30, 2014.

On April ~~28, 2015~~26, 2016 our Board of Directors approved a ~~$0.10~~$0.11 per share or ~~$3.2~~$4.2 million, quarterly cash dividend on our outstanding common stock. The record date was July 1, ~~2015~~2016 and the dividend was paid to shareholders of record on July 21, ~~2015.~~2016. We anticipate this to be a recurring quarterly dividend with future payments and record dates, subject to board approval. On July ~~22, 2015~~26, 2016 the Company’s Board of Directors approved a ~~$0.10~~$0.11 per share, quarterly cash dividend on our outstanding common stock. The record date is set for October ~~1, 2015~~3, 2016 and the dividend is payable to shareholders of record on October 21, ~~2015.~~2016.

On ~~July 13, 2011 we~~September 15, 2015, the Company entered into a new credit agreement (the “New Credit Agreement”) by and among the Company, the Company’s subsidiary, Monotype Imaging Inc., any financial institution that becomes a Lender (as defined therein) and Silicon Valley Bank, as agent which provides for a five-year ~~$120.0~~$150.0 million secured revolving credit facility (the “Credit Facility”). The Credit Facility permits the Company to request that the Lenders, at their election, increase the secured credit facility to a maximum of $200.0 million. The Credit Facility provides more attractive interest rates and a lower commitment fee than those under the Original Credit Agreement, as defined below. The New Credit Agreement replaced the ~~Amended~~Company’s existing $120.0 million revolving credit facility (the “Original Credit Agreement”) by and ~~Restated~~between the Company and Wells Fargo Capital Finance, LLC. The Original Credit Agreement ~~which~~was terminated effective September 15, 2015 and was scheduled to expire on July ~~30, 2012.~~ 13, 2016.

Borrowings under the Credit Facility bear interest through September 15, 2020 at a variable rate not less than zero based onupon, at the ~~leverage ratio at~~Company’s option, either LIBOR or the higher of (i) the prime rate ~~plus 0.5%,~~ as ~~defined~~published in the ~~credit agreement,~~Wall Street Journal, and (ii) 0.5% plus the overnight federal funds rate, plus in each case, an applicable margin. The applicable margin for LIBOR loans, based on the applicable leverage ratio, is 1.25%, 1.50% or ~~(ii)~~1.75% per annum, and the applicable margin for base rate loans, based on the applicable leverage ratio, is either 0.25%, 0.50% or 0.75%% per annum. At June 30, 2016 our rate, inclusive of applicable margins, was 1.9% for LIBOR ~~plus 1.5%.~~and the Company had no outstanding debt under the Credit Facility. The Company is required to pay ~~an unused line~~a commitment fee, based on the applicable leverage ratio, equal to ~~0.375%~~0.20%, 0.25% or 0.30% per annum on the undrawn portion available under the revolving credit facility and variable per annum fees in respect of outstanding letters of credit. ~~At June 30, 2015 our rate, inclusive of applicable margins, was 3.75% for prime and we had no outstanding debt under the Credit Facility. There are no required repayments. The Company, in accordance~~In connection with the New Credit ~~Facility, is permitted~~Agreement, the Company incurred closing and legal fees of approximately $1.0 million in 2015, which have been accounted for as deferred financing costs and will be amortized to ~~request that~~interest expense over the ~~Lenders, at their election, increase~~term of the ~~secured credit facility to a maximum of $140.0 million.~~New Credit Agreement.

In addition to other covenants, the New Credit Facility provides that we not exceed a maximum leverage ratio. The leverage ratio is defined as the ratio of aggregate outstanding indebtedness to trailing twelve months Adjusted EBITDA. Adjusted EBITDA is defined as consolidated net earnings (or loss), plus net interest expense, income taxes, depreciation and amortization and share based compensation expense, plus restructuring, issuance costs, cash non-operating costs and other expenses or losses minus cash non-operating gains and other non-cash gains; provided however that the aggregate of all cash non-operating expense shall not exceed $250 thousand and all such fees, costs and expenses shall not exceed $1.5 million on a trailing twelve months basis.

Additional limits are imposed on acquisition related expenses. We also must maintain a minimum fixed charge ratio. As of June 30, 2015, the maximum leverage ratio permitted was 3.00:1.00 and our leverage ratio was 0.00:1.00 and the minimum fixed

charge coverage ratio was 1.25:1.00 and our fixed charge ratio was 3.83:1.00. Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the Credit Facility to declare all amounts borrowed under the Credit Facility, together with accrued interest and fees, to be immediately due and payable. In addition, the Credit Facility is secured by substantially all of our assets andAgreement places limits on the ~~Company’s~~Company and its subsidiaries’ ability to incur debt or liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates and alter its business. The New Credit Agreement also contains events of default, and affirmative covenants, including financial maintenance covenants which include (i) a maximum ratio of consolidated total debt to consolidated adjusted EBITDA of 3.00 to 1.00 and (ii) a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. Adjusted EBITDA, under the Credit Facility, is defined as consolidated net income (or loss), plus net interest expense, income taxes, depreciation and amortization, and share based compensation expense, plus acquisition expenses not to exceed $2.0 million on a trailing twelve month basis, plus restructuring, issuance costs, cash non-operating costs and other expenses or losses minus cash non-operating gains and other non-cash gains. As of June 30, 2016, the maximum leverage ratio permitted was 3.00:1.00 and our leverage ratio was 0.00:1.00 and the minimum fixed charge coverage ratio was 1.25:1.00 and our fixed charge ratio was 4.31:1.00. Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the New Credit Agreement to declare all amounts borrowed under the New Credit Agreement, together with accrued interest and fees, to be immediately due and payable. In addition, the Credit Facility is secured by a lien on substantially all of the Company’s and its domestic subsidiaries’ tangible and intangible property by a pledge of all of the equity interests of the Company’s direct and indirect domestic subsidiaries and by a pledge by the Company’s domestic subsidiaries of 65% of the equity of their direct foreign subsidiaries, subject to limited exceptions.

The following table presents a reconciliation from net income, which is the most directly comparable GAAP operating performance measure, to EBITDA and from EBITDA to Adjusted EBITDA as defined in our credit facilities (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014			2015		2014			2016		2015		2016		2015
Net income	$	5,904	$	7,691		$	13,261	$	16,136		$	6,653	$	5,904	$	12,011	$	13,261
Provision for income taxes		3,183		4,549			6,742		9,657			3,857		3,183		6,964		6,742
Interest expense, net		304		250			538		526			90		304		198		538
Depreciation and amortization		2,794		2,988			5,096		5,970			2,897		2,794		5,771		5,096

EBITDA	$	12,185	$	15,478		$	25,637	$	32,289		$	13,497	$	12,185	$	24,944	$	25,637
Share based compensation		3,470		2,756			6,241		5,016			3,621		3,470		7,399		6,241
Non-cash add backs		—		(552	)		—		(552	)		—		—		—		—
Restructuring, issuance and cash non-operating costs⁽²⁾		78		66			199		39			98		78		478		199
Acquisition expenses		—		340			339		398			—		—		—		339

Adjusted EBITDA⁽¹⁾	$	15,733	$	18,088		$	32,416	$	37,190		$	17,216	$	15,733	$	32,821	$	32,416

The Credit Facility also contains provisions for an increased interest rate during periods of default. We do not believe that these covenants will affect our ability to operate our business, and we were in compliance with all covenants under our Credit Facility as of June 30, ~~2015.~~2016.

In addition to Adjusted EBITDA as discussed above, we rely internally on certain measures that are not calculated according to GAAP. This non-GAAP measure is net adjusted EBITDA, which is defined as net income ~~(loss) from operations~~ before interest expense, net, other (income) expense, net, provision for income taxes, depreciation, amortization of acquired intangible assets and share based compensation expenses. We use net adjusted EBITDA as a principal indicator of the operating performance of our business. We use net adjusted EBITDA in internal forecasts and models when

establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining bonus compensation for our employees based on operating performance and evaluating short-term and long-term operating trends in our operations. We believe that net adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period-to-period without direct correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our net adjusted EBITDA may be valuable indicators of our operating performance.

In November 2015, we revised our definition of non-GAAP net adjusted EBITDA to exclude the impact of acquisition-related contingent consideration adjustments. The impact of these adjustments has been added back in calculating non-GAAP net adjusted EBITDA. This change more accurately reflects management’s view of the Company’s business and financial performance.

The following table presents a reconciliation from net income, ~~from operations,~~ which is the most directly comparable GAAP operating financial measure, to net adjusted EBITDA as used by management (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
									2016			2015⁽¹⁾		2016		2015⁽¹⁾
Net income									$	6,653		$	5,904	$	12,011	$	13,261
Interest expense, net										90			304		198		538
Other (income) expense, net										(605	)		705		207		682
Provision for income taxes										3,857			3,183		6,964		6,742
	2015		2014		2015		2014
Income from operations	$	10,096	$	12,781	$	21,223	$	26,699		9,995			10,096		19,380		21,223
Depreciation and amortization		2,794		2,988		5,096		5,970		2,897			2,794		5,771		5,096
Share based compensation		3,470		2,756		6,241		5,016		3,621			3,470		7,399		6,241
Contingent consideration adjustment⁽²⁾										578			—		1,156		—

Net adjusted EBITDA(1)	$	16,360	$	18,525	$	32,560	$	37,685
Net adjusted EBITDA⁽³⁾									$	17,091		$	16,360	$	33,706	$	32,560

In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA and net adjusted EBITDA as discussed above, we discuss a key measure that is not calculated according to GAAP. This non-GAAP measure is non-GAAP earnings per diluted share, which is defined as earnings per diluted share before amortization of acquired intangible assets and ~~stock-based~~share based compensation expenses. We use non-GAAP earnings per diluted share as one of our principal indicators of the operating performance of our business. We use non-GAAP earnings per diluted shares in internal forecasts, supplementing the financial results and forecasts reported to our board of directors and evaluating short-term and long-term operating trends in our operations. We believe that non-GAAP earnings per diluted share permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period-to-period without direct correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our non-GAAP earnings per diluted share may be valuable indicators of our operating performance.

In November 2015, we revised our definition of non-GAAP earnings per diluted share to exclude the impact ofacquisition-related contingent consideration adjustments. The impact of these adjustments has been added back in calculatingnon-GAAP earnings per diluted share. This change more accurately reflects management’s view of the Company’s business and financial performance.

The following table presents a reconciliation from earnings per diluted share, which is the most directly comparable GAAP measure, to non-GAAP earnings per diluted share as used by management:

The table below summarizes our operating lease contractual obligations at June 30, 2016 and the effects of such obligations on liquidity and cash flow in future years (in thousands). There is no change in our other contractual obligations from those disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015.

Information concerning recently issued accounting pronouncements may be found in Note 3 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

We are exposed to financial market risk, including interest rate risk and foreign currency exchange risk.

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Cash equivalents consist primarily of bank deposits and certain investments, such as commercial paper, corporate securities and municipal securities, with maturities less than 90 days or containing seven day guaranteed put features to the issuer. Deposits of cash held outside the United States totaled approximately ~~$8.8~~$16.5 million and ~~$10.3~~$15.3 million at June 30, ~~2015~~2016 and December 31, ~~2014,~~2015, respectively.

We grant credit to customers in the ordinary course of business. Credit evaluations are performed on an ongoing basis to reduce credit risk, and no collateral is required from our customers. An allowance for uncollectible accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and credit evaluation. None of our customers individually accounted for 10% or more of our gross accounts receivable as of June 30, ~~2015.~~2016. At December 31, ~~2014, one customer~~2015, none of our customers individually accounted for ~~10.1%~~10% or more of our gross accounts receivable. Due to the nature of our quarterly revenue streams derived from royalty revenue, it is not unusual for our accounts receivable balances to include a few customers with large balances. Historically, we have not recorded material losses due to customers’ nonpayment. Our Creative Professional business consists of a higher volume of lower dollar value transactions. Accordingly, as the percent of Creative Professional revenue increases in relation to total revenue, we expect the average time to collect our accounts receivables, and our overall accounts receivables balances, to increase.

For the three and six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, no customer accounted for more than 10% of our revenue.

In the past we have used interest rate derivative instruments to hedge our exposure to interest rate volatility resulting from our variable rate debt. ASC Topic No.815,Derivatives and Hedging, or ASC 815, requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships, including a requirement that all designations must be made at the inception of each instrument. As we did not make such initial designations, ASC 815 requires changes in the fair value of the derivative instrument to be recognized as current period income or expense.

The fair value of derivative instruments is estimated based on the amount that we would receive or pay to terminate the agreements at the reporting date. Our exposure to market risk associated with changes in interest rates relates primarily to our long term debt. The interest rate on our Credit Facility fluctuates with either the prime rate or the LIBOR interest rate. At June 30, ~~2015~~2016 and December 31, ~~2014,~~2015, the Company had no borrowings under our revolving Credit Facility. Historically, we have purchased interest rate swap instruments to hedge our exposure to interest rate fluctuations on our debt obligations.

In accordance with ASC Topic No. 830,Foreign Currency Matters, or ASC 830, all assets and liabilities of our foreign subsidiaries whose functional currency is a currency other than U.S. dollars are translated into U.S. dollars at an exchange rate as of the balance sheet date. Revenue and expenses of these subsidiaries are translated at the average monthly exchange rates. The resulting

translation adjustments as calculated from the translation of our foreign subsidiaries to U.S. dollars are recorded as a separate component of stockholders’ equity. For the three months ended June 30, ~~2015~~2016 and ~~2014,~~2015, sales by our subsidiaries located outside North America, particularly the U.K, Germany and Japan, comprised ~~42.8%~~44.1% and ~~45.3%~~42.8%, respectively, of our total revenue. For the six months ended June 30, ~~2015~~2016 and ~~2014,~~2015, sales by our subsidiaries located outside North America comprised ~~44.5%~~45.5% and ~~46.7%~~44.5%, respectively, of our total revenue. An effect of a 10% strengthening of the British pound sterling, the Euro orand Japanese yen, relative to the U.S. dollar, would have decreased our revenues by ~~$4.6~~$2.5 million, ~~increased~~decreased expenses by ~~$2.8~~$2.1 million and decreased operating income by ~~$1.0~~$0.4 million for the three months ended June 30, ~~2015.~~2016. For the six months ended June 30, ~~2015,~~2016, a 10% strengthening of the British pound sterling, the Euro orand Japanese yen, relative to the U.S. dollar, would have ~~would have~~ decreased our revenues by ~~$9.2~~$5.3 million, ~~increased~~decreased expenses by ~~$5.4~~$4.2 million and decreased operating income by ~~$2.1~~$1.1 million. The sensitivity analysis assumes that all currencies move in the same direction at the same time and the ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels.

We incur foreign currency exchange gains and losses related to certain customers that are invoiced in U.S. dollars, but who have the option to make an equivalent payment in their own functional currencies at a specified exchange rate as of a specified date. In the period from that date until payment in the customer’s functional currency is received and converted into U.S. dollars, we can incur realized gains and losses. We also incur foreign currency exchange gains and losses on certain intercompany assets and liabilities denominated in foreign currencies. We are currently utilizing 30-day forward contracts to mitigate our exposure on these currency fluctuations. Any increase or decrease in the fair value of the forward contracts is offset by the change in the value of the hedged assets of our consolidated foreign affiliate. At ~~both~~ June 30, ~~2015 and December 31, 2014~~2016 there was one currency contract outstanding, to purchase and sell two different currencies, which was entered into on those dates, and accordingly, the fair value was materially equivalent to its book value. There were no outstanding forward contracts at December 31, 2015.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2015.~~2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives.

Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2015,~~2016, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, ~~2015~~2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we may be a party to various claims, suits and complaints. We do not believe that there are claims or legal proceedings that, if determined adversely to us, would have a material adverse effect on our business, results of operations or financial condition.

~~There~~Except as noted below, there are no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

We conduct a substantial portion of our business outside North America and, as a result, we face diverse risks related to engaging in international business.

We have offices in six foreign countries and we are dedicating a significant portion of our sales efforts in countries outside North America. We are dependent on international sales for a substantial amount of our total revenue. In 2015, 2014 and 2013, approximately 45.5%, 47.6% and 45.3%, respectively, of our total revenue was derived from operations outside the U.S. and we expect that international sales will continue to represent a substantial portion of our revenue for the foreseeable future. This future international revenue will depend on the continued use and expansion of our type and technologies, including the licensing of our solutions worldwide.

If we are unsuccessful in managing these risks, our business and results of operations could be adversely affected.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about purchases by the Company during the quarter ended June 30, ~~2015~~2016 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware		20-3289482
(State of incorporation)		(I.R.S. Employer Identification No.)

600 Unicorn Park Drive Woburn, Massachusetts		01801
(Address of principal executive offices)		(Zip Code)


				Page
Part I. Financial Information			2

Item 1.	Condensed Consolidated Financial Statements ~~(Unaudited)~~		2

	•	Condensed Consolidated Balance Sheets as of June 30, ~~2015~~2016 and December 31, ~~2014~~2015	2

	•	Condensed Consolidated Statements of Income for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015	3

	•	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015	4

	•	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2015~~2016 and ~~2014~~2015	5

	•	Notes to Condensed Consolidated Financial Statements	6

Item2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1715

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2928

Item 4.	Controls and Procedures		3029

Part II. Other Information			3129

Item 1.	Legal Proceedings		3129

Item 1A.	Risk Factors		3130

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3130

Item 3.	Defaults Upon Senior Securities		3231

Item 4.	Mine Safety Disclosures		3231

Item 5.	Other Information		3231

Item 6.	Exhibits		31

Signatures			32

~~Signatures~~Exhibit Index			33

~~Exhibit Index~~			34


	June 30, 2015			December 31, 2014
Computer equipment and software	$	17,472		$	12,084
Furniture and fixtures		1,122			1,093
Leasehold improvements		3,957			3,498

Total cost		22,551			16,675
Less accumulated depreciation and amortization		(6,940	)		(6,097	)

Property and equipment, net	$	15,611		$	10,578


Years ending June 30:
2017	$	3,316
2018		2,982
2019		2,618
2020		2,299
2021		2,221
Thereafter		2,104

Total	$	15,540


	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
Fair value measurement at the beginning of period	$	4,900	$	—
Contingent consideration recorded upon acquisition				4,900
Accreted interest		97		97

Fair value measurement at end of period	$	4,997	$	4,997


Contractual Obligations	Total		July 2016 - June 2017		July 2017 - June 2019		July 2019 - June 2021		Thereafter
Operating leases	$	15,540	$	3,316	$	5,600	$	4,520	$	2,104


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1)
April 1, 2015 to April 30, 2015⁽²⁾		50,300	$	33.08		50,300	$	10,437,160
May 1, 2015 to May 29, 2015⁽²⁾		336,856		26.73		336,856		1,434,066
June 1, 2015 to June 30, 2015⁽³⁾⁽⁴⁾		81,659		22.08		69,972		—

Total		468,815	$	26.60		457,128	$	—


Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2016 to April 30, 2016		3,657	$	—		—	$	—
May 3, 2016 to May 31, 2013		517		—		—		—
June 30, 2016 to June 30, 2016		20,842		—		—		—

Total		25,016	$	—		—	$	—


		MONOTYPE IMAGING HOLDINGS INC.

Date: July ~~29, 2015~~	27, 2016	By:	/S/ DS~~OUGLAS~~COTT ~~J. S~~E. L~~HAW~~ ANDERS
			~~Douglas J. Shaw~~Scott E. Landers President, Chief Executive Officer and Director (Principal Executive Officer)

Date: July ~~29, 2015~~	27, 2016	By:	/S/ SJ~~COTT~~OSEPH ~~E. L~~D. H~~ANDERS~~ ILL
			~~Scott E. Landers~~Joseph D. Hill Executive Vice President, Chief Financial Officer, ~~Chief Operating Officer,~~ Treasurer and Assistant Secretary ~~(Principal~~ (Principal Financial Officer)


Exhibit No.		Description

~~10.1~~		Form of Incentive Stock Option Agreement under the Second Amended and Restated 2007 Stock Option and Incentive Plan *

~~10.2~~		Form of Non-Qualified Option Agreement under the Second Amended and Restated 2007 Stock Option and Incentive Plan *

~~10.3~~		Form of Restricted Stock Award Agreement under the Second Amended and Restated 2007 Stock Option and Incentive Plan *

~~10.4~~		Form of Restricted Stock Unit Agreement under the Second Amended and Restated 2007 Stock Option and Incentive Plan *

~~10.5~~		Form of Restricted Stock Award Agreement for Non-Employee Directors under the Second Amended and Restated 2007 Stock Option and Incentive Plan *

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer.*

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Chief Financial Officer.*

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer.**

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company