(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 ☒ 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 RegulationS-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 ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act) Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock as of April ~~20, 2017~~23, 2018 was ~~41,845,813.~~42,173,562.


	March 31, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	86,946		$	91,434		$	85,351		$	82,822
Accounts receivable, net of allowance for doubtful accounts of $451 at March 31, 2017 and $467 at December 31, 2016		22,069			26,549
Restricted cash								10,000			11,987
Accounts receivable, net of allowance for doubtful accounts of $699 at March 31, 2018 and $634 at December 31, 2017								34,064			34,461
Income tax refunds receivable		2,116			2,967			1,920			1,204
Prepaid expenses and other current assets		5,534			4,631			6,455			5,714

Total current assets		116,665			125,581			137,790			136,188
Property and equipment, net		15,273			14,166			16,454			16,763
Goodwill		274,166			273,489			280,454			279,131
Intangible assets, net		89,014			90,717			83,503			84,856
Restricted cash		17,974			17,992			6,000			6,000
Other assets		3,029			3,075			4,750			3,112

Total assets	$	516,121		$	525,020		$	528,951		$	526,050


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,986		$	2,170		$	2,943		$	1,467
Accrued expenses and other current liabilities		23,593			28,762			38,127			43,096
Accrued income taxes payable		—			1,473			440			522
Deferred revenue		17,511			16,081			15,889			15,102

Total current liabilities		43,090			48,486			57,399			60,187
Revolving line of credit		102,000			105,000			90,000			93,000
Other long-term liabilities		13,372			11,753			5,830			6,428
Deferred income taxes		36,055			37,780			27,135			28,004
Reserve for income taxes		2,759			2,727			2,811			2,783
Accrued pension benefits		5,409			5,296			6,507			6,280
Commitments and contingencies(Note 13)
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; Shares issued: 44,449,589 at March 31, 2017 and 43,771,600 at December 31, 2016.		44			43
Common stock, $0.001 par value, Authorized shares: 250,000,000; Shares issued: 45,587,983 at March 31, 2018 and 44,934,364 at December 31, 2017								44			44
Additional paid-in capital		280,981			274,946			305,023			298,113
Treasury stock, at cost, 2,621,131 shares at March 31, 2017 and 2,493,174 shares at December 31, 2016		(57,305	)		(56,232	)
Treasury stock, at cost, 3,419,116 shares at March 31, 2018 and 3,215,644 shares at December 31, 2017								(65,294	)		(64,083	)
Retained earnings		99,348			105,718			100,673			97,815
Accumulated other comprehensive loss		(9,632	)		(10,497	)		(1,177	)		(2,521	)

Total stockholders’ equity		313,436			313,978			339,269			329,368

Total liabilities and stockholders’ equity	$	516,121		$	525,020		$	528,951		$	526,050

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


	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2018			2017
Cash flows from operating activities
Net (loss) income	$	(1,075	)	$	5,358
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss							$	(1,199	)	$	(1,075	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		3,051			2,874			3,249			3,051
Loss on retirement of assets								9			12
Amortization of deferred financing costs and accretion of interest		55			55			55			55
Loss on retirement of assets		12			—
Share based compensation		4,831			3,778
Excess tax benefit on stock options		—			(159	)
Stock based compensation								4,247			4,831
Provision for doubtful accounts		209			30			191			209
Deferred income taxes		(1,955	)		1,673			(4,582	)		(1,955	)
Unrealized currency loss on foreign denominated intercompany transactions		293			1,130			(575	)		293
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		4,445			(1,134	)		7,783			4,445
Prepaid expenses and other assets		(1,330	)		(32	)		(1,321	)		(820	)
Restricted cash		19			(18	)
Accounts payable		(190	)		872			1,463			(190	)
Accrued income taxes		(569	)		(1,085	)		(690	)		(569	)
Accrued expenses and other liabilities		(4,334	)		(1,995	)		(4,179	)		(4,334	)
Deferred revenue		1,628			(158	)		3,045			1,628

Net cash provided by operating activities		5,090			11,189			7,496			5,581

Cash flows from investing activities
Purchases of property and equipment		(1,969	)		(527	)		(1,463	)		(1,969	)
Acquisition of business, net of cash acquired		—			(101	)
Purchases of intangible assets								(160	)		—

Net cash used in investing activities		(1,969	)		(628	)		(1,623	)		(1,969	)

Cash flows from financing activities
Payments on revolving line of credit		(3,000	)		—			(3,000	)		(3,000	)
Excess tax benefit on stock options		—			159
Common stock dividends paid		(4,568	)		(4,002	)		(4,712	)		(4,568	)
Purchase of treasury stock		(658	)		—			—			(658	)
Payments for employee taxes on shares withheld								(1,210	)		(510	)
Proceeds from exercises of common stock options		310			790			2,648			310

Net cash used in financing activities		(7,916	)		(3,053	)		(6,274	)		(8,426	)
Effect of exchange rates on cash and cash equivalents		307			413
Effect of exchange rates on cash, cash equivalents and restricted cash								943			307

(Decrease) increase in cash and cash equivalents		(4,488	)		7,921
Cash and cash equivalents at beginning of period		91,434			87,520
Increase (decrease) in cash, cash equivalents and restricted cash								542			(4,507	)
Cash, cash equivalents and restricted cash at beginning of period								100,809			109,427

Cash and cash equivalents at end of period	$	86,946		$	95,441
Cash, cash equivalents and restricted cash at end of period							$	101,351		$	104,920

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 branded and design assets, technology and expertise for creative professionals and consumer device manufacturers. We provide high-quality, branded or personalized content across multiple devices and mediums. Our solutions, which include type, branded mobile content, visual content marketing solutions, custom design services, and tools and technologies that enable the creative process are licensed through our direct sales channel,e-commerce platforms and partner platforms. We also provide consumer device manufacturers and independent software vendors, or ISVs, with the right solutions for delivering consistent, compelling user experiences.

Our solutions power the visual expression of the leading makers of a wide range of devices, including laser printers, digital copiers and mobile devices, among others, as well as provide a high-quality text experience in numerous software applications and operating systems. We license our design assets and technology to creative professionals, consumer device manufacturers and independent software vendors. We are headquartered in Woburn, Massachusetts and we operate in one business segment: the development, marketing and licensing of design assets and technology. We also maintain various offices worldwide for selling and marketing, research and development and administration. WeAt March 31, 2018, we conduct our operations through five domestic operating subsidiaries, Monotype Imaging Inc., Monotype ITC Inc. (“ITC”), MyFonts Inc. (“MyFonts”), Swyft Media Inc. and Olapic, Inc., and ~~seven~~six foreign operating subsidiaries, Olapic Argentina S.A., Monotype Ltd. (“Monotype UK”)~~, Olapic UK Ltd.~~, Monotype GmbH (“Monotype Germany”), Monotype Solutions India Pvt. Ltd. (“Monotype India”), Monotype Hong Kong Ltd. (“Monotype Hong Kong”) and Monotype KK (“Monotype Japan”).

The accompanying unaudited condensed consolidated interim financial statements as of March 31, ~~2017~~2018 and for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 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 onForm 10-Q and Article 10 of RegulationS-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, ~~2016,~~2017, as reported in the Company’s Annual Report onForm 10-K. The Company’s significant accounting policies and practices are as described in the Annual Report, except for the adoption of ~~Accounting Standards Update, or ASU, 2016-09, as~~the accounting standards described in Note 3 below.

For the three months ended March 31, 2018, we have changed our presentation of revenue to disclose service revenue and cost of service revenue separately from license revenue and cost of license revenue, as service revenue now exceeds the materiality threshold for an individual line item. Prior year amounts have also been restated to conform to current presentation.

We classify cloud-based subscriptions and other services, such as font related services, custom font design and post contract support as service revenue on our condensed consolidated statements of operations. All other revenue is classified as license revenue.

In ~~March 2016,~~May 2014, the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board jointly issued ASU ~~2016-09,~~2014-09,~~Compensation—Stock Compensation~~Revenue from Contracts with Customers (Topic ~~718): Improvements~~606)(“ASC 606”), which outlines a comprehensive five-step revenue recognition model based on principle that replaces virtually all existing revenue recognition rules under U.S. GAAP and which requires revenue to ~~Employee Share-Based Payment Accounting.~~be recognized in a manner to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU2014-09 also provided the guidance in ASC Topic 340,Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-

40), which includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs. The standard requires retrospective application; however, it allows entities to choose either full retrospective adoption, in which the standard is applied to all of the periods presented, or modified retrospective adoption, in which the cumulativecatch-up adjustment to the opening balance of retained earnings is recognized at the date of application, with additional disclosures required to describe these effects.

We adopted the standard on January 1, 2018, and applied the modified retrospective method of adoption and have elected to apply the new standard only to contracts not completed at January 1, 2018, which represents contracts for which all (or substantially all) of the revenues have not been recognized under existing guidance ~~identifies areas~~as of the date of adoption.

The cumulative effect of the adoption on our condensed consolidated balance sheet, by applying the modified retrospective method as of January 1, 2018, is as follows (in thousands):

In addition, we recognized additional royalty expenses totaling approximately $2.2 million, or $0.05 per share, upon the adoption of ASC 606, as an indirect effect of a change in accounting principle. These amounts are included in cost of revenue – license in the accompanying condensed consolidated statement of operations for ~~simplification involving several aspects~~the three months ended March 31, 2018.

The following reflects the Company’s condensed consolidated balance sheet and condensed consolidated statement of operations on an as reported basis and as if we had continued to recognize revenue under the guidance of ASC985-605,SoftwareRevenue Recognition, which is also referred to herein as “legacy GAAP” (in thousands):

The following summarizes the significant changes under ASC 606 as compared to legacy GAAP:

Under legacy GAAP, revenue related to our term licenses that were bundled with service-related performance obligations when vendor-specific objective evidence (“VSOE”) did not exist was required to be recognized ratably over the term of the agreement. Under ASC 606, the Company allocates revenue to each performance obligation in the contract and each performance obligation is accounted for separately; the license revenue is recognized at the time of delivery and the service revenue is recognized over time based on their relative standalone selling prices. The application of this provision is particularly impactful to our new Mosaic product offering which was launched in the first quarter of 2018. This new offering bundles our traditional font licenses with a SaaS based portal, which under legacy GAAP would have been recognized ratably. This provision also has resulted in some revenue from contracts signed prior to 2018 being accelerated and recorded to retained earnings instead of in our operating results in 2018 and beyond.

We have a limited number of contracts in which we offered extended payment terms for term licenses to our customers, including cases in which the license is delivered in full at the beginning of the contract. Under legacy GAAP, revenue was recognized when the payments became due, based upon the requirement that the fee be fixed or determinable. However, under the new guidance, revenue related to such arrangements is accelerated, with revenue related to the license recognized at the time of delivery, less a financing component (interest income) to be recognized over time based on the payment terms. The application of this provision has resulted in revenue from certain contracts signed prior to 2018 being accelerated and recorded to retained earnings instead of in our operating results in 2018 and beyond. This also impacts new contracts that we sign in 2018.

Please see Note 4 for the Company’s policies related to revenue recognition and accounting for ~~share based payments, including income tax consequences, classification~~costs to obtain and fulfill a customer contract.

In November 2016, the FASB issued ASU2016-18,Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as either equity, or liabilities, an option to make a policy election to recognize gross share based compensation expense with actual forfeitures recognized as they occur as well as certain classification changesrestricted cash and restricted cash equivalents in cash and cash equivalents when reconcilingbeginning-of-period andend-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, ~~2016,~~2017, with early adoption permitted. We adopted ASU ~~2016-09~~2016-18 on January 1, ~~2017~~2018 and ~~elected to account for forfeitures when they occur,~~reflected restricted cash and restricted cash equivalents in thebeginning-of-period andend-of-period amounts on the cash flows, on a ~~modified~~ retrospective basis. As aof result of this adoption, ~~$0.6 million of additional stock based compensation expense, net of tax, was recorded to retained earnings~~the beginning-of-period amount on the date of adoption as a cumulative effect adjustment related to our accounting policy change for forfeitures. In accordance with the adoption of this guidance, the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation will no longer be recorded to additional paid in capital in our balance sheet. Instead, such amounts will be recorded to tax expense. During the first quarter of 2017, we recorded a tax expense of $0.5 million to differences (shortfalls) in stock compensation deductions realized in the first quarter and the corresponding amount of expense recognized for financial statement purposes. We also elected to

prospectively apply the change in presentation of excess tax benefits wherein excess tax benefits recognized on stock based compensation expense is now classified as an operating activity in our condensed consolidated statements of cash ~~flows. We did not adjust the classifications of excess tax benefits in our condensed consolidated statements of cash~~ flows increased $18.0 million for the three months ended March 31, ~~2016.~~2018 and March 31, 2017, respectively, to include restricted cash and restricted cash equivalent balances. The ~~adoption did not have any other~~end-of-period amount on the statement of cash flows increased $16.0 million and $18.0 million for the three months ended March 31, 2018 and 2017, respectively, to include restricted cash and restricted cash equivalent balances.

In May 2017, the FASB issued ASU2017-09,Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.This guidance clarifies when companies would apply modification accounting to changes to the terms or conditions of a stock based payment award. The guidance narrows the definition of a modification. This guidance is effective for annual and interim periods beginning after December 15, 2017. We adopted ASU2017-09 on January 1, 2018 and there was no material impact on our consolidated financial statements.

In March 2017, the FASB issued ASUNo. 2017-07,Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.This guidance revises the presentation of the net periodic benefit cost in the income statement. The new standard will be effective for annual and interim periods beginning after December 15, 2017. We adopted ASU2017-07 on January 1, 2018 and there was no material impact on our consolidated financial statements.

In August 2017, the FASB issued ASUNo. 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This guidance simplifies the application of the hedge accounting guidance in current GAAP and improves the financial reporting of hedging relationships by allowing entities to better align their risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods. We are currently evaluating the impact of the adoption of ASU ~~2017-07;~~2017-12; however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated step 2 from the goodwill impairment test. This guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted for testing dates after January 1, 2017. We are currently evaluating the impact of the adoption of ASU2017-04; however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash~~, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU2016-02,Leases (Topic 842): Amendments to the FASB Accounting Standards Codification,which replaces the existing guidance for leases. ASU2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a ~~twelve month~~twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU2016-02, aright-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 ASU2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. This guidance is effective for annual and interim periods beginning after December 15, 2018 and requires retrospective application. There are additional optional practical expedients that may be elected. The Company is currently developing its implementation plan and assessing the impact that adopting ASU2016-02 will have on its consolidated financial statements and related disclosures.

~~In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU 2014-09,~~~~Revenue from Contracts with Customers (Topic 606),~~ ~~which outlines~~We recognize revenue when a ~~comprehensive five-step~~customer obtains control of a promised good or service. The amount of revenue ~~recognition model based on principle~~recognized reflects consideration that ~~replaces virtually all existing revenue recognition under U.S. GAAP and which requires revenue~~we expect to be ~~recognized in a manner~~entitled to ~~depict the transfer of promised goods or services to a customer at an amount that reflects the consideration expected to be received~~receive in exchange for ~~those goods or services. The standard requires retrospective application, however, it allows entities~~these services, and excludes any sales incentives and taxes collected from customers, that are subsequently remitted to choose either full retrospective adoption in which the standard is applied to all of the periods presented, or modified retrospective adoption, in which the cumulative catch-up adjustment to the opening balance of retained earnings is recognized at the date of application, with additional disclosures required to describe these effects. In August 2015, the FASB issued ASU 2015-14,~~Revenue from Contracts with Customers (Topic 606): Deferral Date~~, which defers the effective date of ASU 2014-09 by one year. The guidance is effective for annual reporting and interim periods beginning after December 15, 2017, with early adoption permitted for annual and interim periods beginning after December 15, 2016.governmental authorities.

We ~~expect to adopt the standard~~adopted ASC 606 on January 1, 2018 ~~and at that time, we expect to apply~~using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under legacy GAAP. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our products and services and will provide financial statement readers with enhanced disclosures.

Our Creative Professional revenue is primarily derived from rights to use font licenses, from custom font design services from and hosted software as a service, or SaaS, offerings. We ~~have developed an implementation plan~~license fonts directly to ~~adopt this new guidance. As part of this plan, we~~end-users through our direct sales organization,e-commerce websites and indirectly through third-party resellers. Web font and digital ad related services refer to our web font services and web design tools. Our customers include graphic designers, advertising agencies, media organizations and corporations.

Revenue from font licenses is recognized upfront when the font software is delivered or made available to the customer. Custom font design services are ~~currently assessing~~generally not a separate distinct performance obligation and are sold with a license for the ~~impact~~custom font, in which case revenue is recognized upon completion of the ~~new guidance on~~services and when the font is delivered and accepted by the customer. In limited cases, the Company has an enforceable right to payment prior to final delivery and acceptance of custom font design work. In these cases the Company has determined that the proper treatment is a single over-time performance obligation using input methods (incurred hours towards completion) to measure progress towards completion to determine the pattern of satisfaction of the performance obligation.

For our ~~results of operations. Based on~~hosted offerings where we provide our ~~procedures performed~~customers the right to ~~date, we have identified certain~~

access our software without taking possession, revenue ~~streams, specifically term and royalty-based license agreements, for which~~is recognized over the ~~standard could have a material impact; however, further analysis is required and we will continue to evaluate this assessment~~contract period on a ~~quarterly~~time-elapsed basis, ~~in 2017. Under~~which is consistent with the ~~current guidance, revenue related~~transfer of service to the customer. Payment terms and conditions for Creative Professional contracts generally require payment within thirty to sixty days of contract inception. An exception exists for certain contracts for our SaaS offerings or a limited number of multi-year term license agreements ~~that are bundled with services related performance obligations for~~ which ~~vendor-specific objective evidence (“VSOE”) does not exist is required to be recognized ratably~~have periodic payment terms, generally quarterly or annually, over the term of the ~~agreement. However, under~~contract. In instances where the ~~new guidance,~~timing of revenue recognition differs from the respective payment terms, we have considered whether such contracts include a significant financing component, subject to the applicable practical expedient. The purpose of these payment structures is to align with industry and market standards, not to provide customers with financing. We have determined our contracts generally do not include a significant financing component; however, the Company will ~~allocate revenue~~continue to ~~each performance obligation~~assess (1) the length of time between when the goods or services are delivered and expected payment and (2) prevailing interest rates in the ~~agreement~~market tore-evaluate this conclusion.

Our OEM revenue is derived substantially from printer imaging, printer driver and ~~each will require separate accounting treatment and lead~~display imaging products. OEM revenue primarily relates to accelerated revenue recognition compared with current practice. The license portion will be recognized at the time of delivery and the service revenue will be recognized over time based on the standalone selling prices of each performance obligation. In addition, we have on occasion, offered extended payment terms for term licenses toproviding our customers ~~including cases~~the right to embed our fonts and technology in ~~which~~their products over a certain term. Under our OEM licensing arrangements, we either receive a fixed fee as specified under the license arrangement or a royalty for each product unit incorporating our fonts and technology that is ~~delivered in full at the beginning of the contract. We currently recognize revenue under such arrangements when the payments become due, based upon the current requirement that the fee be~~shipped by our OEM customers. Although significantly less than royalties fromper-unit shipments and fixed and determinable. However, under the new guidance, revenue related to such arrangements would be accelerated, with revenue related to the license recognized at the time of delivery, less a financing component (interest income) to be recognized over time based on the payment terms. Further, under the new guidance,fees from OEM customers, we ~~will be required to estimate royalty~~also receive revenue from software application and operating systems vendors, who include our ~~royalty-based licenses~~fonts and technology in their products and for font development. Revenue fromper-unit royalty contracts is estimated and recognized in the period that the royalty-bearing event ~~occurs,~~or sale by our OEM customer occurs. Revenue from fixed fee licenses is generally recognized upfront at the point in time when the software embodying the font is shipped or made available to the customer. Certain OEM contracts may include customer support services and unspecified updates for our font technology which is ~~different~~a distinct stand-ready performance obligation and recognized ratably over the service period. Many of ourper-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 fiscal quarter to five years, and usually provide for automatic or optional renewals.

The following table presents our ~~current practice~~revenue disaggregated by the timing of ~~recognizing~~revenue recognition as well as by type of product or services offered (See Note 12 for further information regarding revenue by major markets and revenue by geography):

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once we determine the performance obligations, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The corresponding revenue is recognized as the related performance obligations are satisfied as discussed in the revenue categories above.

Judgment is required to determine the standalone selling price for each distinct performance obligation. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

With the exception of OEM royalty ~~revenue when it is~~licenses, our contracts do not generally include a variable component to the transaction price. If royalties are not yet reported to us for the period in which the subsequent sale is expected to occur, we are required to estimate such royalties. When a new contract is signed for the licensing of IP on aper-unit basis, we deliver the licenses and based on ongoing discussions with the customer, will estimate when the distribution will begin and estimate royalties based on distribution forecasts provided by the ~~licensee, at which time the fee is deemed fixed~~customer. For ongoing arrangements, we have developed a process to estimateper-unit royalties based on historical data, trends, seasonality, knowledge of changes in contracts/rates, and ~~determinable. The Company is still~~quarterly discussions with sales personnel to identify significant changes in the ~~process~~customer’s distribution forecast (via seasonality, introduction of ~~evaluating these~~new products, discontinuation or products, etc.). Revenue related to the estimation ofper-unit royalties was $4.3 million for three months ended March 31, 2018.

As discussed above, certain of our Creative Professional contracts have payment terms that differ from the timing of revenue recognition which requires us to assess whether the transaction price for those contracts include a significant financing component. We have elected the practical expedient which permits an entity to not adjust for the effects of a significant financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those contracts in which the period exceeds the one year threshold, this assessment, as well as the quantitative estimate of the financing component and its ~~other~~relative significance, requires judgment. We estimate the significant financing component provided to our customers with extended payment terms by determining the present value of the future payments by applying a discount rate that reflects the customer’s creditworthiness.

The aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied or are partially satisfied as of March 31, 2018 is $27.1 million. This amount consists principally of amounts billed for undelivered services that are included in deferred revenue ~~streams and quantifying~~totaling approximately $17.3 million, as well as unbilled backlog, which is the amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations, for enforceable contracts when there is not a present unconditional right to invoice (a receivable), totaling approximately $9.8 million. Of these amounts, approximately $20.2 million is expected ~~impact that~~to be recognized as revenue within the ~~standard will have on its financial statements and related disclosures.~~

~~On August 9, 2016, the Company purchased~~next 12 months, with substantially all of the outstanding shares of Olapic, Inc., a privately-held company 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 (collectively, “Olapic”). Olapic is a provider of a leading visual commerce platform for collecting, curating, showcasing and measuring crowd sourced photos and videos. 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 allows consumersremainder expected to make more educated purchasing decisions, discover new products and connect to the brand’s community. Olapic leverages photos and videos from social network sites to help to create powerful branded experiences that drive consumer engagement and increase conversions. The Company acquired Olapic for an aggregate purchase price of approximately $123.7 million, net of cash acquired, which consisted of approximately $13.7 million in cash and $110.0 million borrowed from its line of credit. The Olapic Merger Agreement included an additional $9.0 million of consideration that has been placed in escrow and will be paid to the founders of Olapic contingent upon their continued employment with the Company. Accordingly, this amount will be recognized as compensation expense over the service period contractually required to earn such amounts, which is $3.0 million after twenty four months and the remainder after thirty six months from the acquisition date. Monotype issued approximately $17.1 million of a combination of restricted stock awards and restricted stock units to the founders and employees of Olapic. These awards will vest over time based on continued employment, and accordingly will be accounted for as compensation expense. Seventy four employees from Olapic’s U.S. operations, eighty four employees from Olapic’s Argentina operations and forty UK and European employees joined the Company in connection with the acquisition. The results of operations of Olapic have been included in our consolidated results and revenue ~~is included~~ within the ~~Creative Professional market beginning on August 9, 2016,~~following 24 month period, as shown in the ~~date of acquisition.~~

~~The~~ table ~~below provides the Olapic employees by functional area who joined the Company in connection with the acquisition:~~

~~The purchase price was allocated to the assets and liabilities based upon their estimated fair value at the date of acquisition, as noted~~ below (in thousands):

A portion of the purchase price has been allocated to intangible assets and goodwill, respectively, and is reflected in the tables above. The fair value of the assets acquired and liabilities assumed is less than the purchase price, resulting in therevenue recognition of goodwill. The goodwill reflects the value of the synergies we expect to realize and the assembled workforce. The acquisition of Olapic 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 March 31, 2017, and using assumptions that the Company’s management believes are reasonable given the information currently available. The Company is in the process of completing its valuation of certain intangible assets, the valuation of the acquired deferred tax assets and liabilities. The final allocation of the purchase price to intangible assets, goodwill, deferred tax assets and liabilities may differ ~~materially~~ from the ~~information~~timing of invoicing to customers. We record an unbilled receivable, or contract asset, when revenue is recognized prior to invoicing when we have an enforceable right to payment. When invoicing occurs prior to revenue recognition, we have unearned revenue, or contract liabilities, presented ~~in these~~on our condensed consolidated ~~financial statements.~~balance sheet as “deferred revenue” within deferred revenue and other long-term liabilities, as appropriate. When invoicing occurs after revenue recognition, we have earned revenue, or contract assets, presented on our condensed consolidated balance sheet as “unbilled receivables” within accounts receivable and other assets, as appropriate.

~~We included revenue of $3.6 million and a net loss of $7.4 million from the acquired Olapic operations within the Company’s consolidated operations for~~Revenue recognized during the three months ended March 31, ~~2017.~~

~~The following table shows unaudited pro forma results of operations as if we had acquired Olapic~~2018 from amounts included in deferred revenue at the beginning of the period ~~presented (in thousands, except per share amounts):~~

~~The unaudited pro forma results~~was approximately $6.8 million. Revenue recognized during the three month ended March 31, 2018 from performance obligations satisfied or partially satisfied in previous periods, mainly due to changes in the estimate of ~~operations are not necessarily indicative~~royalty revenues, is approximately $4.3 million. During the three months ended March 31, 2018, the change in contract assets reclassified to receivables as a result of the ~~actual results~~right to the transaction consideration becoming unconditional was not material. The contract modifications entered into during the three months ended March 31, 2018 did not have a significant impact on the Company’s contract assets or deferred revenue.

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain commissions paid under our sales incentive programs meet the requirements to be capitalized. The amount capitalized for incremental costs to obtain contracts as of March 31, 2018 was $1.4 million; of which $0.5 million was short-term and has been included in prepaid expenses and other current assets and $0.9 million was long term and has been included in other assets in our condensed consolidated balance sheet. Costs to obtain a contract are amortized as sales and marketing expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract and the estimate of the amortization period, which ranges between three and ten years depending on the nature of the performance obligations within the contract. These costs are periodically reviewed for impairment; however, no impairment existed as of March 31, 2018. We have elected to apply the practical expedient and recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have ~~occurred had~~recognized is one year or less.

We capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the ~~transactions actually taken place~~contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs primarily relate to font license fees that we pay on certain fonts that are owned by third parties. These fees are related to license revenue that is satisfied at ~~the beginning~~a point in time and payable again upon license renewal, and as a result are incurred immediately upon contract execution. Accordingly, there are no capitalized costs related to costs to fulfill a contract as of ~~the periods indicated.~~March 31, 2018.

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 December 31, 2016								Fair Value Measurement at March 31, 2018
	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	$	16,994	$	16,994	$	—	$	—	$	3,072	$	3,072	$	—	$	—
Cash equivalents—commercial paper		16,989		—		16,989		—		16,476		—		16,476		—
Cash equivalents—corporate bonds		4,802		—		4,802		—		1,507		—		1,507		—
Cash equivalents—U.S. government and agency securities		11,368		11,368		—		—		7,487		7,487		—		—
Restricted cash equivalents—money market fund										10,000		10,000		—		—

Total current assets		50,153		28,362		21,791		—		38,542		20,559		17,983		—
Restricted cash equivalents—money market fund		9,000		9,000		—		—		6,000		6,000		—		—
Restricted cash equivalents—U.S. government and agency security fund		8,992		8,992		—		—

Total long term assets		17,992		17,992		—		—		6,000		6,000		—		—

Total assets	$	68,145	$	46,354	$	21,791	$	—	$	44,542	$	26,559	$	17,983	$	—


									Fair Value Measurement at December 31, 2017
									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									$	2,014	$	2,014	$	—	$	—
Cash equivalents—commercial paper										16,477		—		16,477		—
Cash equivalents—corporate bonds										1,457		—		1,457		—
Cash equivalents—U.S. government and agency securities										10,488		10,488		—		—
Restricted cash equivalents—money market fund										3,000		3,000		—		—
Restricted cash equivalents—U.S. government and agency security fund										8,987		8,987		—		—

Total current assets										42,423		24,489		17,934		—
Restricted cash equivalents—money market fund										6,000		6,000		—		—

Total long term assets										6,000		6,000		—		—

Total assets									$	48,423	$	30,489	$	17,934	$	—

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~~time-to-time as 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 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 ournon-performance risk and that of our counterparties. At March 31, ~~2017,~~2018, we had one30-day forward contract to sell ~~2.7~~2.4 million British pounds sterling and purchase $3.4 million that together, had an immaterial fair value; and at December 31, ~~2016,~~2017, we had one30-day forward contract to sell ~~2.8~~2.5 million British pounds sterling and purchase $3.4 million that together, had an immaterial fair value.

The Company’snon-financial assets andnon-financial liabilities subject tonon-recurring measurements include goodwill and intangible assets.

Intangible assets as of March 31, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows (dollar amounts in thousands):


	Weighted- Average Amortization Period (Years)				March 31, 2017												December 31, 2016											Weighted- Average Amortization Period (Years)				March 31, 2018												December 31, 2017
				Gross Carrying Amount				Accumulated Amortization				Net Balance				Gross Carrying Amount				Accumulated Amortization				Net Balance							Gross Carrying Amount				Accumulated Amortization				Net Balance				Gross Carrying Amount				Accumulated Amortization				Net Balance
Customer relationships	Weighted- Average Amortization Period (Years)		10			$	67,584			$	(51,570	)		$	16,014			$	67,502			$	(50,808	)		$	16,694			10			$	68,479			$	(55,068	)		$	13,411			$	68,296			$	(54,213	)		$	14,083
Acquired technology		11				68,331				(45,424	)			22,907				68,228				(44,361	)			23,867			11				69,443				(50,107	)			19,336				69,200				(48,945	)			20,255
Non-compete agreements		4				14,460				(12,840	)			1,620				14,440				(12,655	)			1,785			4				14,678				(13,661	)			1,017				14,632				(13,470	)			1,162
Indefinite-lived intangible assets:
Trademarks						44,073				—				44,073				43,971				—				43,971							45,339				—				45,339				44,956				—				44,956
Domain names						4,400				—				4,400				4,400				—				4,400							4,400				—				4,400				4,400				—				4,400

Total					$	198,848			$	(109,834	)		$	89,014			$	198,541			$	(107,824	)		$	90,717						$	202,339			$	(118,836	)		$	83,503			$	201,484			$	(116,628	)		$	84,856

On 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”). 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 is available to the Company on a revolving basis through September 15, 2020. Repayment of any amounts borrowed is not required until maturity of the Credit Facility; however, the Company may repay any amounts borrowed at any time, without premium or penalty. At March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had ~~$102.0~~$90.0 million and ~~$105.0~~$93.0 million outstanding under the Credit Facility. At March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, available borrowings under the Credit Facility have been reduced by approximately $0.5 million for one standby letter of credit issued in connection with a facility lease agreement, leaving ~~$47.5~~$59.5 million and ~~$44.5~~$56.5 million available for borrowing at March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Borrowings under the Credit Facility bear a variable rate not less than zero based upon, at the Company’s option, either LIBOR or the higher of (i) the prime rate as published in the 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 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 March 31, 2018, our rate, inclusive of applicable margins, was 3.6% for LIBOR, and at December 31, 2017, our rate, inclusive of applicable margins, was ~~2.6% for LIBOR, and at December 31, 2016, our rate, inclusive of applicable margins, was 2.5%~~3.1% for LIBOR.

As of March 31, ~~2017,~~2018, the maximum leverage ratio permitted was 3.00:1.00 and our leverage ratio was ~~2.01:~~2.24:1.00 and the minimum fixed charge coverage ratio was 1.25:1.00 and our fixed charge ratio was ~~5.28:~~3.42:1.00. 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. In addition to other covenants, the New Credit Agreement places limits on the 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 Company was in compliance with the covenants under the Credit Facility as of March 31, ~~2017.~~2018.

Our German subsidiary maintains an unfunded defined benefit pension plan which covers substantially all employees who joined the 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 operations were as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended March 31,
	2017		2016		2018		2017
Service cost	$	22	$	23	$	28	$	22
Interest cost		25		30		27		25
Amortization		22		13		24		22

Net periodic benefit cost	$	69	$	66	$	79	$	69

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


	Three Months Ended March 31,										Three Months Ended March 31,
	2017					2016					2018					2017
(Benefit) provision for income taxes at statutory rate	$	(411	)	35.0	%	$	2,963		35.0	%
Benefit from income taxes at statutory rate											$	(770	)	21.0	%	$	(411	)	35.0	%
State and local income taxes, net of federal tax benefit		(20	)	1.7	%		120		1.4	%		(78	)	2.1	%		(20	)	1.7	%
Stock based compensation		(20	)	1.7	%		41		0.5	%		(22	)	0.6	%		(20	)	1.7	%
Foreign rate differential		45		(3.8	)%		(101	)	(1.2	)%		(1,237	)	33.8	%		45		(3.8	)%
Research credits		59		(5.0	)%		(69	)	(0.8	)%		18		(0.5	)%		59		(5.0	)%
Permanent non-deductible acquisition-related expense		(245	)	20.9	%		161		1.9	%		(301	)	8.2	%		(245	)	20.9	%
Net shortfall on stock based compensation		471		(40.1	)%		—		—
Net (windfall) shortfall on stock based compensation												(117	)	3.2	%		471		(40.1	)%
Other, net		20		(1.8	)%		(8	)	(0.1	)%		42		(1.1	)%		20		(1.8	)%

Reported income tax (benefit) provision	$	(101	)	8.6	%	$	3,107		36.7	%
Reported income tax benefit											$	(2,465	)	67.3	%	$	(101	)	8.6	%

As of March 31, ~~2017,~~2018, the reserve for uncertain tax positions was approximately ~~$6.6~~$6.8 million. Of this amount, ~~$4.1~~$4.6 million is recorded as a reduction of deferred tax assets and ~~$2.5~~$2.2 million is classified as ~~long term~~long-term liabilities.

As disclosed in the Company’s 2017 Form 10-K, the Company recorded the tax effects of the 2017 Tax Cuts and Jobs Act (TCJA) in the consolidated financial statements for the year ended December 31, 2017. The new legislation required the Company to pay tax on the unremitted earnings of its foreign subsidiaries through December 31, 2017. Because of the complexities involved in determining the previously unremitted earnings and profits of all our foreign subsidiaries, the Company is still in the process of obtaining, preparing, and analyzing the required information, as permitted in accordance with Staff Accounting Bulletin No. 118. The Company recorded an initial estimate of the tax on unremitted earnings of approximately $0.2 million, however, this amount was offset by available foreign tax credits, and as a result the net estimated amount payable related to the deemed repatriation of foreign earnings was zero. The Company is continuing to update this estimate, but does not expect there to be a material change in the estimate once it is finalized.

For the three months ended March 31, 2018 and 2017, earnings was not allocated to participating securities in the calculation of basic and diluted earnings per share as there were net losses. For the three months ended March 31, 2018 and 2017, the net ~~(loss)~~loss available to common shareholders iswas divided by the ~~weighted average~~weighted-average number of common shares outstanding during the period to calculate diluted earnings per share. For the three months ended March 31, 2018 and 2017, the assumed exercise of stock options and assumed vesting of restricted stock and restricted stock units were not included in the computation of net ~~(loss)~~loss per share as their effect would have been anti-dilutive. ~~For the three months ended March 31, 2016, the two-class method was used in the computation of diluted net income per share, as the result was more dilutive.~~

The following presents a reconciliation of the numerator and denominator used in the calculation of basic net ~~(loss) income~~loss per share and a reconciliation of the numerator and denominator used in the calculation of diluted net ~~(loss) income~~loss per share (in thousands, except share and per share data):

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:

On August 30, 2016, the Company’s Board of Directors approved a share purchase program permitting repurchases of up to $25.0 million of the Company’s outstanding shares of common stock through December 31, 2017. During the quarter ended March 31, 2017, the Company repurchased a total of 27,000 shares of its common stock for an aggregate purchase price of $0.6 million, including brokers’ fees. Intended to offset shareholder dilution, the Company expects to make repurchases periodically, either on the open market or in privately negotiated transactions, subject to availability, as business and market conditions warrant. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or discontinued at management’s and/or the Board of Director’s discretion.

We account for ~~share~~stock 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~~stock based compensation expense on our condensed consolidated statements of ~~income~~operations (in thousands):


	Three Months Ended March 31,				Three Months Ended March 31,
	2017		2016		2018		2017
Marketing and selling	$	2,330	$	1,581	$	1,734	$	2,330
Research and development		1,018		813		988		1,018
General and administrative		1,483		1,384		1,525		1,483

Total expensed		4,831		3,778		4,247		4,831
Property and equipment		22		—		14		22

Total share based compensation	$	4,853	$	3,778
Total stock based compensation					$	4,261	$	4,853

In the first quarter of 2018 and 2017, approximately $14 thousand and $22 thousand, respectively, of ~~share~~stock based compensation was capitalized in connection with internal software projects, and this amount is included in property and equipment, net in our condensed consolidated balance ~~sheet.~~sheets. As of March 31, ~~2017,~~2018, the Company had ~~$50.2~~$37.8 million of unrecognized compensation expense related to employees and directors unvested stock options and restricted stock awards that are expected to be recognized over a weighted average period of ~~2.9~~2.6 years.

We view our operations and manage our business as one segment: the development, marketing and licensing of ~~technologies~~design assets and ~~fonts.~~technologies. 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 March 31,				Three Months Ended March 31,
	2017		2016		2018		2017
Creative Professional	$	27,071	$	23,915	$	34,998	$	27,071
OEM		25,394		25,927		21,685		25,394

Total	$	52,465	$	49,842	$	56,683	$	52,465

~~Effective as~~We market our products and services principally through offices in the United States, United Kingdom, Germany, China, Republic of ~~January 1, 2017, our presentation of geographic revenue has been changed to better align with how our business operates. As a result, we now~~Korea and Japan. We report revenue based on the geographic location of our ~~customers, rather than based on the location of our subsidiary receiving such revenue.~~customers. For example, licenses may be sold to large international companies, which may be headquartered in the Republic of Korea, but the sales are received and recorded by our subsidiary located in the United States. Historically, in the table below such revenues would be included in the revenue for the United States, whereas for our new presentation, such revenues would be reported in the Republic of Korea and included in the revenue for Rest of World. Geographic revenue for the three months ended March 31, 2016 has been recast to conform to this presentation.

~~We market our products and services principally through offices in the U.S., United Kingdom, Germany, China, Republic of Korea and Japan.~~ The following table summarizes revenue by customer location (in thousands of dollars, except percentages):


	Three Months Ended March 31,										Three Months Ended March 31,
	2017					2016					2018					2017
	Revenue		% of Total			Revenue		% of Total			Revenue		% of Total			Revenue		% of Total
United States	$	23,597		45.0	%	$	20,194		40.5	%	$	24,823		43.8	%	$	23,597		45.0	%
Japan		14,461		27.6			13,699		27.5			11,652		20.5			14,461		27.6
Europe, Middle East, and Africa (EMEA)		10,860		20.7			11,568		23.2			15,066		26.6			10,860		20.7
Rest of the World		3,547		6.7			4,381		8.8			5,142		9.1			3,547		6.7

Total	$	52,465		100.0	%	$	49,842		100.0	%	$	56,683		100.0	%	$	52,465		100.0	%

Long-lived assets, which include property and equipment, goodwill and intangibles, 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):


	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Long-lived assets:
United States	$	318,461	$	318,786	$	313,210	$	314,930
United Kingdom		3,870		3,882		4,104		4,004
Germany		52,648		52,237		59,591		58,319
Asia (including Japan)		3,474		3,467		3,506		3,497

Total	$	378,453	$	378,372	$	380,411	$	380,750

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 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 aone-year period. Under the licensing agreements, liability for such indemnity obligations is limited, generally to the total arrangement fee; however, exceptions have been made on acase-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 the estimated fair value of these warranties is minimal. Accordingly, there are no liabilities recorded for these warranties as of March 31, ~~2017 and~~2018 or December 31, ~~2016.~~2017.

On April ~~27, 2017,~~2, 2018, the Company’s Board of Directors declared an ~~$0.113~~$0.116 per share quarterly cash dividend on our outstanding common stock. The record date is set for July ~~3, 2017,~~2, 2018, and the dividend is payable to shareholders of record on July ~~21, 2017.~~20, 2018. 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 onForm 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 Form10-K for the year ended December 31, ~~2016,~~2017, 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 onForm 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 onForm 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.

~~Monotype empowers~~We are a leading global provider of design assets, technology and expertise that are designed to enable the best user experiences, ensure brand integrity and help companies engage their best customers. We empower expression and engagement for creatives, designers, engineers and marketers at the world’s most revered brands. ~~These~~Monotype is home to some of the world’s most well-known typeface collections. We provide high-quality creative assets and technology solutions to marketers and content creators that empower our customers to achieve global brand fidelity and drive consistent user experiences across a wide variety of devices and online media. Along with our custom type services, our solutions enable consumers and professionals ~~sit at globally recognized organizations or are independent creatives located across the globe. Regardless of~~to express their ~~organization or location, we support their efforts by producing compelling content~~creativity, while our tools and technologies ~~that build beloved~~improve creative workflows and ~~valued brands,~~maximize efficiency as content is published or distributed. Our solutions provide ~~technology that cultivate meaningful engagement with their brand enthusiasts,~~worldwide language coverage and ~~provide intelligence~~high-quality text, and ~~insight through the measure of content performance to optimize resources and spending.~~

~~Our mission is to be the first place to turn for the design assets, technology and expertise for all touchpoints.~~

For creatives, designers and engineers, we empower expression through high-value design assets, technologies that improve the discovery, curation, measurement and brand integrity of content, and through custom studio design services. For marketers, we enable engagement with a customer’s brand enthusiasts and measurement of content interactions in digital environments such as mobile messaging and social media platforms.

our embedded solutions support compelling user interfaces. We offer more than ~~99,000~~14,000 typeface designs, and include some of the world’s most widely used designs, such as the Times New Roman^®, Helvetica^®, Frutiger^®, ITC Franklin Gothic™, FF Meta and Droid™ typefaces, and support more than 250 Latin andnon-Latin languages. Oure-commerce websites, includingmyfonts.com, fonts.com, ~~fontshop.com,~~linotype.com,and ~~linotype.com,~~fontshop.com, which attracted more than 50 million ~~visits~~visitors in ~~2016~~2017 from over 200 countries and territories, offer thousands of high-quality font products 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~~design assets and technology to brands and creative 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. We derive our OEM revenue primarily from consumer device manufacturers. Our Creative Professional and OEM revenues are both comprised of license and service revenues. We classify cloud-based subscriptions and other services, such as font related services, custom font design and post contract support as service revenue. All other revenue is classified as license revenue. We operate our business based on our two principal markets, Creative Professional and OEM, which is the basis for the following discussion of operating results.

Some of our revenue streams, particularly project-related and custom font design service revenue 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.

~~Effective as of January 1, 2017, our presentation of geographic~~Geographic revenue, ~~has been changed to better align with how our business operates. As a result, we now report revenue~~which is based on the geographic location of our customers, rather than 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 the Republic of Korea, but the sales are received and recorded by our subsidiary located in the United States. Historically, such revenues would be included in the revenue for the United Statesis in the table below, whereas for our new presentation, such revenues would be reported in the Republic of Korea and included in the revenue for Rest of World in the table below. Geographic revenue for the three months ended March 31, 2016 has been recast to conform to this presentation.

We market our products and services principally through offices in the U.S., United Kingdom, Germany, China, Republic of Korea and Japan. The following summarizes revenue by customer location (in thousands of dollars, except percentages):


											Three Months Ended March 31,
	Three Months Ended March 31,										2018					2017
	2017					2016					Revenue		% of Total			Revenue		% of Total
	Revenue		% of Total			Revenue		% of Total			(In thousands of dollars, except percentages)
United States	$	23,597		45.0	%	$	20,194		40.5	%	$	24,823		43.8	%	$	23,597		45.0	%
Japan		14,461		27.6			13,699		27.5			11,652		20.5			14,461		27.6
Europe, Middle East, and Africa (EMEA)		10,860		20.7			11,568		23.2			15,066		26.6			10,860		20.7
Rest of the World		3,547		6.7			4,381		8.8			5,142		9.1			3,547		6.7

Total	$	52,465		100.0	%	$	49,842		100.0	%	$	56,683		100.0	%	$	52,465		100.0	%

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, revenue from customers outside the United States comprised ~~55.0%~~56.2% and ~~59.5%~~55.0%, 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~~design assets and technology worldwide.

We derive a significant portion of our OEM revenue from a limited number of customers, in particular manufacturers of laser printers and consumer electronic devices. For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, our top ten licensees by revenue, most of which are OEM customers, accounted for approximately ~~31.3%~~23.0% and ~~32.3%~~31.3% of our total revenue, respectively. ~~Although no~~No one customer accounted for more than 10% of our total revenue for the three months ended March 31, ~~2017~~2018 or ~~2016, if we are unable to maintain relationships with major customers or establish relationships with new customers, our licensing revenue will be adversely affected.~~2017.

~~Our~~For a description of our Creative Professional revenue ~~is primarily derived from font licenses, font~~and related services and from custom font design services. We license fonts directly to end-users through our e-commerce websites, via telephone, e-mail and indirectly through third-party resellers. Web font and digital ad 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 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 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. In addition, Creative Professional revenue includes revenue derived from our software as a service, or SaaS, offerings. Web font and digital ad service revenue is mainly self-hosted and recorded upon delivery. Revenue from Olapic’s Earned Content platform is a SaaS-based, subscription model. Company hosted subscription-based arrangements and our software as a service products are accounted for as subscription revenue, recognized ratably over the subscription period.

We consider web server and commercial rights to online fonts as recurring revenue and it is recognized upon 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.~~policy, see Note 4.

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 receiveFor a ~~royalty for each product unit incorporating our fonts and technology that is shipped by our OEM customers. We also receive OEM revenue from fixed fee licenses with certain~~description of our OEM ~~customers. Fixed fee licensing arrangements are not based on units shipped by the customer, but instead, customers pay us on a periodic basis for the right to embed our fonts~~revenue and ~~technology in their products over a certain term. 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 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 fiscal quarter 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. 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, is not bundled with any time-based elements and collection is probable. OEM revenue also includes project-related agreements for which contractrelated accounting ~~completed contract for short-term projects and percentage-of-completion for long-term projects, may be used.~~policy, see Note 4.

Our cost of revenue consists of font license fees that we pay on certain fonts that are owned by third parties, personnel and allocated internal engineering expense and overhead costs ~~directly~~ related to custom font design services and our SaaS based offerings and cloud-based web ~~services costs related to our SaaS-based offerings.~~service costs. 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 has 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. We have achieved improved margins on our Creative Professional revenue as a result of product mix and lower royalty rates. In addition, Creative Professional revenue includes custom font design service revenue, which has a substantially higher cost than our other revenue. Our gross profit margin may vary depending on the mix of revenue between sales of our fonts and sales of third-party fonts, and depending on the level of custom font design service revenue.

Cost of revenue also includes amortization of acquired technology, which we amortize over 7 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. 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. In addition, within our Creative Professional business, the cost of our custom font design and SaaS based service revenue is substantially higher than the cost of our other revenue. The relative cost of our Creative Professional revenue has decreased in recent periods, as efforts to sell license rights to more fonts that we own 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 Creative Professional revenue is growing at a faster rate than our OEM revenue. We expect these trends to continue. Our gross profit is subject to variability fromperiod-to-period, depending on the product mix and the level of custom font design and SaaS based 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 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.

Information about our critical accounting policies may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies,” included in our Annual Report on Form10-K for the year ended December 31, ~~2016,~~2017, except for the adoption as of January 1, ~~2017,~~2018, of guidance in ~~ASU 2016-09~~ASC 606 as more fully described in Note 3 to the accompanying unaudited condensed consolidated quarterly statements.

Results of Operations for the Three Months Ended March 31, ~~2017~~2018 Compared to Three Months Ended March 31, ~~2016~~2017

We derive revenue from two principal sources: licensing our design assets and technology to brands and creative 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. We derive our OEM revenue primarily from consumer device manufacturers. Our Creative Professional and OEM revenues are both comprised of license and service revenues. We classify cloud-based subscriptions and other services, such as font related services, custom font design and post contract support as service revenue. All other revenue is classified as license revenue. Revenue and cost of revenue, bifurcated into license and service, is as follows:

License revenue increased primarily due to the growth in sales of revenue from our enterprise customers, including the launch of our Mosaic product offering, partially offset by decreases due to certain one-time printer revenue recognized in the first quarter of 2017 as a result of conversion of customers to fixed fee contracts from royalty bearing contracts. There was no corresponding item in the current period. Additionally, we recorded lower royalty based revenue as a result of the adoption of ASC 606. We now estimate and accrue our royalty-based revenue in the quarter when the royalty-based units are shipped, as opposed to when those shipments were reported to us by the licensee under legacy GAAP. This change had the effect of shifting traditional holiday seasonality revenue for consumer electronics from the first quarter to the fourth quarter.

Service revenue has increased as a percentage of total revenue due primarily to the growth of our SaaS-based product offerings. Gross profit from license revenue, before amortization of acquired technology, decreased from 84.5% to 79.0%. These decreases are primarily due to additional non-recurring royalty expense for which there was no corresponding revenue in the period in accordance with ASC 606. Gross profit from service revenue, before amortization of acquired technology, decreased from 76.7% to 73.9%. See further discussion below for additional information regarding our period over period revenue and cost of revenue.

While revenue from services has grown to a level of significance requiring separate disclosure, we continue to operate our business based on our two principal markets, Creative Professional and OEM, which is the basis for the following discussion of operating results.

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


	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2018			2017
Revenue:
Creative Professional		51.6	%		52.0	%		61.7	%		51.6	%
OEM		48.4			48.0			38.3			48.4

Total revenue		100.0			100.0			100.0			100.0
Cost of revenue		16.7			16.7			22.0			16.7
Cost of revenue—amortization of acquired technology		1.7			2.3			1.5			1.7

Total cost of revenue		18.4			19.0			23.5			18.4

Gross profit		81.6			81.0			76.5			81.6
Marketing and selling		40.6			28.2			35.4			40.6
Research and development		18.2			14.7			16.6			18.2
General and administrative		20.8			17.8			27.7			20.8
Amortization of other intangible assets		1.9			1.5			1.8			1.9

Total operating expenses		81.5			62.2			81.5			81.5

Income from operations		0.1			18.8
(Loss) income from operations								(5.0	)		0.1
Interest expense, net		1.2			0.2			1.3			1.2
Loss on foreign exchange		1.0			1.6
(Gain) loss on foreign exchange								(0.1	)		1.0
Loss on derivatives		0.1			—			0.2			0.1
Other		—			—			—			—

Total other expenses		2.3			1.8			1.4			2.3
(Loss) income before provision for income taxes		(2.2	)		17.0
(Benefit) provision for income taxes		(0.2	)		6.2
Loss before benefit from income taxes								(6.4	)		(2.2	)
Benefit from income taxes								(4.3	)		(0.2	)

Net (loss) income		(2.0	%)		10.8	%
Net loss								(2.1	%)		(2.0	%)

The following discussion compares the three months ended March 31, ~~2017~~2018 with the three months ended March 31, ~~2016.~~2017.

We view our operations and manage our business as one segment: the development, marketing and licensing of ~~technologies~~design assets and ~~fonts.~~technologies. Factors used to identify our single segment include the financial information available for evaluation by our chief operating decision maker in ~~making decisions about~~determining 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 March 31,							Three Months Ended March 31,
	2017		2016		Increase/ (Decrease)			2018		2017		Increase/ (Decrease)
Creative Professional	$	27,071	$	23,915	$	3,156		$	34,998	$	27,071	$	7,927
OEM		25,394		25,927		(533	)		21,685		25,394		(3,709	)

Total revenue	$	52,465	$	49,842	$	2,623		$	56,683	$	52,465	$	4,218

Revenue was ~~$52.5~~$56.7 million and ~~$49.8~~$52.5 million for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively, an increase of ~~$2.6~~$4.2 million, or ~~5.3%~~8.0%.

Creative Professional revenue increased ~~$3.2~~$7.9 million, or ~~13.2%~~29.3%, to $35.0 million for the three months ended March 31, 2018, as compared to $27.1 million for the three months ended March 31, 2017, ~~as compared to $23.9 million for the three months ended March 31, 2016,~~ mainly due to ~~revenue from Olapic and an increase in recurring revenue primarily due to continued~~ growth in sales of ~~recurring licenses~~revenue from our enterprise customers, including the launch of our Mosaic solution and ~~digital ad~~higher service revenue ~~in the three months ended March 31, 2017,~~ as ~~compared~~SaaS offerings continue to ~~the same period in 2016.~~become a larger part of our offering portfolio.

OEM revenue ~~was $25.4~~decreased $3.7 million, ~~and $25.9~~or 14.6%, to $21.7 million in the first quarter of ~~2017 and 2016, respectively, a decrease~~2018, as compared to $25.4 million in the first quarter of ~~$0.5 million, or 2.1%.~~2017. Revenue from our ~~display~~printer imaging ~~consumer~~ electronic OEM customers decreased period over period ~~primarily~~largely due to ~~lower volumes~~certainone-time printer revenue recognized in the first quarter of ~~shipments by our display imaging customers, which was partially offset by increased revenue from our printer imaging electronic OEM customers,~~2017 as ~~we continue to convert~~a result of conversion of customers to fixed fee contracts from royalty bearing contracts. There was no corresponding item in the current period. Additionally, we recorded lower royalty based revenue as a result of the adoption of ASC 606. We now estimate and accrue our royalty-based revenue in the quarter when the royalty-based units are shipped, as opposed to when those shipments were reported to us by the licensee under legacy GAAP. This change had the effect of shifting traditional holiday seasonality revenue for consumer electronics from the first quarter to the fourth quarter.

Cost of revenue, excluding amortization of acquired technology, was ~~$8.8~~$12.4 million and ~~$8.3~~$8.8 million in the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. The increase in cost of revenue in the first quarter of 2018 is partially a result of the increase in revenue and partially due to $2.2 million of additionalnon-recurring royalty expense for which there was no corresponding revenue item in the period ~~over period.~~in accordance with ASC 606. As a percentage of sales, cost of revenue, excluding amortization of acquired technology, was ~~unchanged at~~22.0% and 16.7% of total revenue in the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

The portion of cost of revenue consisting of amortization of acquired technology was unchanged at $0.9 ~~million and $1.1~~ million for the three months ended March 31, 2018 and 2017, ~~and 2016, respectively, a decrease of $0.2 million, or 22.4%.~~respectively.

Gross profit ~~was~~decreased 5.1% to 76.5% in the three months ended March 31, 2018, as compared to 81.6% in the three months ended March 31, ~~2017, as compared to 81.0%~~2017. The decrease in gross profit in the three months ended March 31, ~~2016, an increase of 0.6% primarily due to decreased amortization of acquired technology. In the three months ended March 31, 2017, Creative Professional revenue was 51.6% of total revenue,~~2018, as compared to ~~48.0% of total revenue in~~ the same period in ~~2016. While Creative Professional revenue has typically had a higher associated cost than OEM revenue, and though our Creative Professional revenue has grown~~2017, was primarily due to the additionalnon-recurring royalty expense as ~~a percentage of total revenue, improved margins on our Creative Professional revenue have allowed us to maintain consistent gross margins period over period.~~described above.

Marketing and Selling.Marketing and selling expense ~~increased $7.2~~was $20.1 million ~~or 50.8%, to~~and $21.2 million in the three months ended March 31, 2018 and 2017, ~~as compared to $14.1~~respectively, a decrease of $1.1 million, ~~in the three months ended March 31, 2016, primarily~~or 5.5%, mainly due to lower personnel expenses. Personnel and personnel related expenses ~~increased $5.7~~decreased $1.3 million in the first quarter of 2018, as compared to the same period in 2017, partially due to ~~additional~~the Olapic restructuring in the fall of 2017 and other decreases in headcount, ~~mainly from our acquisition of Olapic~~which were partially offset by increased variable compensation and targeted hiring, and additional compensation expense recognized on deferred compensation arrangements in connection with our acquisitions of Swyft and Olapic. Increased infrastructure expense due to increased headcount contributed $1.1 million to the overallannual salary increases. A net increase in ~~marketing~~infrastructure expenses, such as software and ~~selling expense,~~facilities, provided a $0.2 million increase period over period.

Research and Development. Research and development expense ~~increased $2.2~~was $9.4 million ~~or 30.2%, to~~and $9.5 million in the three months ended March 31, 2018 and 2017, ~~as compared to $7.3~~respectively, a decrease of $0.1 million, in the three months ended March 31, 2016, primarily due to personnel expenses. Personnel expenses increased $2.0 million due to increased headcount in connection with our acquisition of Olapic, net of a reduction for capitalized personnel costs for development projects in the first quarter of 2017, as compared to the same period in 2016.or 1.2%.

General and Administrative. General and administrative expense increased ~~$2.1~~$4.8 million, or ~~23.5%~~43.6%, to $15.7 million in the three months ended March 31, 2018, as compared to $10.9 million in the three months ended March 31, ~~2017,~~2017. Outside consulting and legal expenses increased $3.2 million in the first quarter of 2018, as compared to ~~$8.8~~the same period in 2017, primarily due to additional expenses incurred related to shareholder activities. Personnel and personnel related expenses increased $1.1 million in the three months ended March 31, ~~2016. Personnel and personnel related expenses increased $1.3 million in the three months ended March 31, 2017,~~2018, as compared to the same period in ~~2016, primarily~~2017, the result of increased headcount mainly from key ~~hiring.~~hiring during the second half of 2017 and annual salary increases. Increased infrastructure expenses, such as ~~rent and~~ software expenses and depreciation, together contributed ~~$0.7~~$0.5 million to the overall increase in general and administrative expenses, period over period.

Amortization of Other Intangible Assets. Amortization of other intangible assets was unchanged at $1.0 ~~million and $0.7~~ million for the three months ended March 31, ~~2017~~2018 and ~~2016, an increase of $0.3 million, or 37.6%, mainly due to our acquisition of Olapic.~~2017.

Interest expense, net of interest income was ~~$0.6~~$0.7 million and ~~$0.1~~$0.6 million for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively, an increase of ~~$0.5~~$0.1 million, or ~~484.3%~~15.4%, mainly due to borrowings under our revolving line of ~~credit in 2017.~~credit.

~~Loss~~(Gain) loss on foreign exchange was ~~$0.6 million~~a gain of $34 thousand and ~~$0.8~~a loss $0.6 million in the three months ended March 31, 2018 and 2017, respectively. The gain and ~~2016, respectively, an increase of $0.2 million. The~~ loss in ~~both~~each of the periods was primarily the result of currency fluctuations on our foreign denominated receivables and payables.

~~(Loss) gain~~Loss on derivatives was a loss of ~~$54 thousand,~~$0.1 million in the first quarter of 2018, as compared to a ~~gain~~loss of $6$54 thousand in the three months ended March 31, 2017, ~~and 2016, respectively,~~ the net result of changes in the market value of our30-day forward currency derivative contracts.

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, our effective tax rate was ~~8.6%~~67.3% and ~~36.7%~~8.6%, respectively. ~~The Company’s~~Our effective tax rate of ~~8.6%~~67.3% for the three months ended March 31, ~~2017~~2018 is significantly ~~lower~~higher than ~~the 2016~~our 2017 effective tax rate ~~of 36.7% for two reasons. First,~~primarily due to the ~~fact that~~enactment of the ~~Company’s pre-tax income for~~Tax Cuts and Jobs Act (“The Act”) in December 2017. Significant changes resulting primarily from The Act included:

Non-deductible expenses added 8.2% to the effective tax rate for the three months ended March 31, ~~2017 included an expense of 40.1% related~~2018, as compared to ~~a net shortfall on stock compensation. We adopted ASU 2016-09,~~~~Improvements to Employee Share-Based Payments~~ on January 1, 2017 which specifies that all tax effects related to share based payments will be recorded through the income statement. There was no similar item in the same period in 2016, as these items were recorded to equity prior to the adoption of this standard. The effective tax rate20.9% for the three months ended March 31, 2017, ~~included~~primarily due to changes in the deductibility of officers compensation under The Act, partially offset by the reduction in the statutory rate and a ~~charge of 20.9% for~~ decrease innon-deductible ~~expenses, as compared to a charge of 1.9%~~ acquisition-related compensation expense for the ~~three months ended March 31, 2016. The~~period.

In addition, a net windfall on stock based compensation resulted in a 3.2% increase ~~is due to deferred compensation associated with~~in the Olapic acquisition and also due to the fact that the impact of the non-deductible expenses as a percentage of pre-tax income is higher in 2017 as compared to 2016, as a result of the decrease in overall pre-tax income . The effective ~~tax~~ rate for the first quarter of ~~2017 included a benefit of 5.0% for research credits,~~2018, as compared to a ~~benefit of 0.8%~~shortfall rate in the same period in ~~2016.~~2017 that resulted in a 40.1% reduction in the effective rate.

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 Form10-Q.

Cash Flows for the Three Months Ended March 31, ~~2017and 2016.~~2018 and 2017.

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 one year from the issuance of these financial statements. At March 31, ~~2017,~~2018, our principal sources of liquidity were cash and cash equivalents totaling ~~$86.9~~$85.4 million and a $150.0 million revolving credit facility, of which there was ~~$102.0~~$90.0 million of outstanding borrowings. ~~On August 30, 2016, our Board of Directors approved a share repurchase program of up to $25.0 million of our outstanding common stock, which permits purchases through December 31, 2017. In~~Our liquidity and cash flows in the three months ended March 31, 2017, ~~we used $0.7 million in cash to purchase shares~~included share purchases made under ~~the plan. Olapic has, and will continue to operate at~~ a ~~net loss in the near term.~~share repurchase program, which ended on December 31, 2017. 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):


	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2018			2017
Net cash provided by operating activities	$	5,090		$	11,189		$	7,496		$	5,581
Net cash used in investing activities		(1,969	)		(628	)		(1,623	)		(1,969	)
Net cash used in financing activities		(7,916	)		(3,053	)		(6,274	)		(8,426	)
Effect of exchange rates on cash and cash equivalents		307			413
Effect of exchange rates on cash, cash equivalents and restricted cash								943			307

Total (decrease) increase in cash and cash equivalents	$	(4,488	)	$	7,921
Total increase (decrease) in cash, cash equivalents and restricted cash							$	542		$	(4,507	)

Variations in operating cash flows occur fromtime-to-time, because our enterprise customers make upfront payments on subscription revenue. These payments are required under the terms of our license agreements and can cause large fluctuations in accounts receivable and deferred revenue. The timing and extent of such payments may significantly impact our cash balances. We generated $7.5 million in cash from operations during the three months ended March 31, 2018. Net loss, after adjusting for depreciation and amortization, loss on retirement of assets, amortization of deferred financing costs, accreted interest, stock based compensation, provision for doubtful accounts, deferred income taxes, and unrealized currency gain on foreign denominated intercompany transactions generated $1.4 million in cash. Decreased accrued expenses offset by increased accounts payable used $2.7 million in cash, primarily a result of the payment of 2017 accrued variable compensation. Increased deferred revenue and decreased accounts receivable generated $10.8 million in cash as a result of customer payments received in Q1, net of an increase in unbilled receivables due to the adoption of ASC 606. Prepaid expenses and other assets used $1.3 million in cash, mainly due to an increase in capitalized contract costs related to the adoption of ASC 606. Accrued income taxes used $0.7 million during the quarter ended March 31, 2018.

We generated ~~$5.1~~$5.6 million in cash from operations during the three months ended March 31, 2017. Net loss, after adjusting for depreciation and amortization, amortization of deferred financing costs, accreted interest, stock based compensation, provision for doubtful accounts, deferred income taxes, and unrealized currency gain on foreign denominated intercompany transactions generated $5.4 million in cash. Decreased accrued expenses and accounts payable used $4.5 million in cash, primarily a result of the payment of 2016 accrued variable compensation. Increased deferred revenue and decreased accounts receivable, offset by increased prepaid expenses generated ~~$4.8~~$5.3 million in cash, mainly due to timing. Accrued income taxes used $0.6 million during the quarter ended March 31, 2017.

During the three months ended March 31, 2016. Net income, after adjusting for depreciation and amortization, amortization of deferred financing costs, accreted interest, stock based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes, and unrealized currency gain on foreign denominated intercompany transactions generated $14.72018, we used $1.6 million in ~~cash. Decreased accrued expenses~~investing activities for the purchase of $1.4 million of property and ~~increased prepaid expenses~~equipment and ~~other assets, net~~$0.2 million for acquisition of increased accounts payable used $1.1 million in cash, primarily a result of the payment of 2015 accrued variable compensation amounts. Increased accounts receivable and decreased deferred revenue used $1.3 million in cash, mainly due to timing of customer payments. Accrued income taxes used $1.1 million during the quarter ended March 31, 2016.

intangible assets. During the three months ended March 31, 2017, we used $2.0 million in investing activities for the purchase of property and equipment. ~~During the three months ended March 31, 2016 we used $0.6 million in investing activities for the purchase of $0.5 million of property and equipment and $0.1 million for the Swyft Media acquisition.~~

Cash used in financing activities for the three months ended March 31, 2018 was $6.3 million. We received cash from exercises of stock options of $2.6 million. We paid a cash dividend of $4.7 million and we paid $3.0 million on our outstanding revolving line of credit. We also used $1.2 million for employee taxes on shares withheld. Cash used in financing activities for the three months ended March 31, 2017 was ~~$7.9~~$8.4 million. We received cash from exercises of stock options of $0.3 million. We paid a cash dividend of $4.6 million and we paid $3.0 million on our outstanding revolving line of credit. We also purchased $0.7 million of treasury stock and paid $0.5 million in employee taxes on shares withheld in the three months ended March 31, 2017. Cash used in financing activities for the three months ended March 31, 2016 was $3.0 million. We received cash from exercises of stock options of $0.8 million and excess tax benefit on stock options provided $0.2 million in the three months ended March 31, 2016. We paid a cash dividend of $4.0 million in the three months ended March 31, 2016.

On February ~~15, 2017,~~14, 2018, our Board of Directors approved an ~~$0.113~~$0.116 per share, or ~~$4.7~~$4.9 million, quarterly cash dividend on our outstanding common stock. The record date was April ~~3, 2017~~2, 2018 and the dividend was paid to shareholders on April ~~21, 2017.~~20, 2018. We anticipate this to be a recurring quarterly dividend with future payments and record dates, subject to board approval. On April ~~27, 2017,~~2, 2018, our Board of Directors approved a ~~$0.113~~$0.116 per share quarterly cash dividend on our outstanding common stock. The record date is set for July ~~3, 2017~~2, 2018 and the dividend is payable to shareholders of record on July ~~21, 2017.~~20, 2018.

On 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”). 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 is available to the Company on a revolving basis through September 15, 2020. Repayment of any amounts borrowed is not required until maturity of the Credit Facility; however, the Company may repay any amounts borrowed at any time, without premium or penalty. Borrowings under the Credit Facility bear a variable rate not less than zero based upon, at the Company’s option, either LIBOR or the higher of (i) the prime rate as published in the 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 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 March 31, 2018, our rate, inclusive of applicable margins, was 3.6% for LIBOR, and at December 31, 2017, our rate, inclusive of applicable margins, was ~~2.6 for LIBOR, and at December 31, 2016, our rate, inclusive of applicable margins, was 2.5%~~3.1% for LIBOR. The Company had outstanding borrowings under the Credit Facility of ~~$102.0~~$90.0 million at March 31, ~~2017,~~2018, and ~~$105.0~~$93.0 million at December 31, ~~2016.~~2017. The Credit Facility has $0.5 million reserved for onestand-by letter of credit in connection with a facility lease ~~agreement. There was $47.5~~agreement, leaving $59.5 million and $56.5 million available for borrowing at March 31, ~~2017,~~2018 and ~~$44.5 million was available at~~ December 31, ~~2016.~~2017, respectively.

The following table presents a reconciliation from net ~~(loss) income,~~loss, 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 March 31,					Three Months Ended March 31,
	2017			2016		2018			2017
Net (loss) income	$	(1,075	)	$	5,358
(Benefit) provision for income taxes		(101	)		3,107
Net loss						$	(1,199	)	$	(1,075	)
Benefit from income taxes							(2,465	)		(101	)
Interest expense, net		631			108		728			631
Depreciation and amortization		3,051			2,874		3,249			3,051

EBITDA	$	2,506		$	11,447	$	313		$	2,506
Share based compensation		4,831			3,778
Stock based compensation							4,247			4,831
Non-cash add backs		—			—		—			—
Restructuring, issuance and cash non-operating costs		49			380		335			49
Acquisition expenses		—			—		—			—

Adjusted EBITDA⁽¹⁾	$	7,386		$	15,605	$	4,895		$	7,386

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 March 31, ~~2017.~~2018.

In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA as discussed above, we discuss a key measure that is not calculated according to GAAP. Thisnon-GAAP measure is net adjusted EBITDA, which is defined as income (loss) from operations before depreciation, amortization of acquired intangible assets, ~~and share~~stock based compensation ~~expenses.~~expense and acquisition-related compensation. 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 fromperiod-to-period without direct correlation to underlying operating performance. We believe that thesenon-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.

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

In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA and net adjusted EBITDA as discussed above, we discuss another key measure that is not calculated according to GAAP. Thisnon-GAAP measure isnon-GAAP earnings per diluted share, which is defined as earnings per diluted share before amortization of acquired intangible assets, ~~and share~~stock based compensation ~~expenses.~~expenses and acquisition-related compensation. We usenon-GAAP earnings per diluted share as one of our principal indicators of the operating performance of our business. We usenon-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 thatnon-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 fromperiod-to-period without direct correlation to underlying operating performance. We believe that thesenon-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 ournon-GAAP earnings per diluted share may be valuable indicators of our operating performance.

In March 2018, we revised our definition ofnon-GAAP net adjusted EBITDA andnon-GAAP earnings per share to exclude the impact ofone-timenon-recurring expenses, such as certain advisor fees, royalty expenses and restructuring expenses. This change more accurately reflects management’s view of the Company’s business and financial performance.

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

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

(2)

For the three months ended March 31, ~~2016,~~2018, the amount includes ~~$0.6~~$2.7 million, or ~~$0.01~~$0.05 per share, net of ~~expense~~tax, of certain advisor fees related to shareholder activities, $2.2 million, or $0.04 per share, net of tax, of royalty expenses, recorded in cost of sales, associated with ~~the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement.~~revenue that was not recognized under ASC 606 and $0.2 million, or $0.00 per share, net of tax, of restructuring expenses.

~~(2)~~(3)

Non-GAAP earnings per diluted share is not a measure of operating performance under GAAP and should not be considered as an alternative or substitute for GAAP profitability measures such as earnings per share and earnings per diluted share.Non-GAAP earnings per diluted share as an operating performance measure has material limitations since it excludes the statement of income impact of amortization expense and ~~share~~stock based compensation, and therefore, does not represent an accurate measure of profitability. We have significant intangible assets and amortization expense is a meaningful element in our financial statements and therefore its exclusion fromnon-GAAP earnings per diluted share is a material limitation. ~~Share~~Stock based compensation and the associated expense has a meaningful impact on our financial statements and therefore its exclusion fromnon-GAAP diluted earnings per share is a material limitation. Contingent consideration and its associated income or (expense) has a meaningful impact on our financial statements therefore its exclusion fromnon-GAAP diluted earnings per share is a material limitation.Non-recurring expenses, such as certain advisor fees, royalty expenses and restructuring expenses, have a meaningful impact on our financial statements and therefore its exclusion from net adjusted EBITDA is a material limitation. As a result,non-GAAP earnings per diluted share should be evaluated in conjunction with earnings per diluted share for complete analysis of our profitability, as earnings per diluted share includes the financial statement impact of these items and is the most directly comparable GAAP operating performance measure tonon-GAAP earnings per diluted share. Asnon-GAAP earnings per diluted share is not defined by GAAP, our definition ofnon-GAAP earnings per diluted share may differ from and therefore may not be comparable to similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations thatnon-GAAP earnings per share has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP.

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 debt and municipal securities, with maturities less than 90 days. Deposits of cash held outside the United States totaled approximately ~~$16.5~~$26.1 million and ~~$16.3~~$24.3 million at March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, 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. As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, no customers individually accounted for 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 months ended March 31, ~~2017~~2018 and ~~2016,~~2017, 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. At March 31, 2018 and December 31, 2017, the Company had borrowings under our revolving Credit Facility of $90.0 million and $93.0 million, respectively. The interest rate on our Credit Facility fluctuates with either the prime rate or the LIBOR interest ~~rate. At~~rate and at March 31, ~~2017 and December 31, 2016,~~2018, our rate was 3.6% for LIBOR. A 10% increase in the ~~Company had borrowings under~~rate would have increased our ~~revolving Credit Facility of $102.0 million and $105.0 million, respectively. Historically, we have purchased~~ interest ~~rate swap instruments to hedge our exposure to interest rate fluctuations on our debt obligations.~~expense by $0.9 million.

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 March 31, ~~2017~~2018 and ~~2016,~~2017, revenue from customers outside the United States, particularly EMEA and Japan, comprised ~~55.0%~~56.2% and ~~59.5%~~55.0%, respectively, of our total revenue. An effect of a 10% strengthening of the British pound sterling, the Euro Japanese yen and orthe Argentine peso, relative to the U.S. dollar, would have decreased our revenues by ~~$2.7~~$2.0 million, decreased expenses by ~~$2.3~~$2.4 million and ~~decreased~~increased operating income by ~~$0.4~~$0.5 million for the three months ended March 31, ~~2017.~~2018. The sensitivity analysis assumes that all currencies move in the same direction at the same time and the ratio ofnon-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 utilizing30-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 March 31, ~~2017,~~2018, we had one30-day forward contract to sell ~~2.7~~2.4 million British pound sterling and to purchase $3.4 million that together, had an immaterial fair value, and at December 31, ~~2016,~~2017, we had one30-day forward contract to sell ~~2.8~~2.5 million British pound sterling and to purchase $3.4 million that together, had an immaterial fair value.

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 March 31, ~~2017.~~2018. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-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 March 31, ~~2017,~~2018, 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 Rules13a-15(f) and15d-15(f) under the Exchange Act) that occurred during and as of the fiscal quarter ended March 31, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to revenue recognition to facilitate its adoption on January 1, 2018. There were no significant changes to our internal control over financial reporting due to the adoption of the new standards.

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 are no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report onForm 10-K for the year ended December 31, ~~2016.~~2017.

The following table provides information about purchases by the Company during the quarter ended March 31, ~~2017~~2018 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 onForm 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.~~

30Pursuant 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 March 31, ~~2017~~2018 and December 31, ~~2016~~	2017		2

	•	Condensed Consolidated Statements of Operations for the three months ended March 31, ~~2017~~2018 and ~~2016~~	2017		3

	•	Condensed Consolidated Statements of Comprehensive ~~Operations~~Income (Loss) for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017			4

	•	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2017~~2018 and ~~2016~~	2017		5

	•	Notes to Condensed Consolidated Financial Statements			6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations				1618

Item 3.	Quantitative and Qualitative Disclosures About Market Risk				26

~~Item 4.~~	~~Controls and Procedures~~				27

~~Part II. Other Information~~					27

Item 4.	Controls and Procedures				28

Part II. Other Information					29

Item 1.	Legal Proceedings				2729

Item 1A.	Risk Factors				2729

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds				2729

Item 3.	Defaults Upon Senior Securities				2829

Item 4.	Mine Safety Disclosures				2829

Item 5.	Other Information				2829

Item 6.	Exhibits				28

~~Signatures~~					29

~~Exhibit Index~~					30

Exhibit Index					31

Signatures					32


	Three Months Ended March 31,
	2017			2016
Revenue	$	52,465		$	49,842
Cost of revenue		8,778			8,319
Cost of revenue—amortization of acquired technology		878			1,131

Total cost of revenue		9,656			9,450

Gross profit		42,809			40,392
Operating expenses:
Marketing and selling		21,242			14,087
Research and development		9,554			7,336
General and administrative		10,927			8,849
Amortization of other intangible assets		1,011			735

Total operating expenses		42,734			31,007

Income from operations		75			9,385
Other (income) expense:
Interest expense		758			162
Interest income		(127	)		(54	)
Loss on foreign exchange		560			807
Loss (gain) on derivatives		54			(6	)
Other		6			11

Total other expense		1,251			920

(Loss) income before provision for income taxes		(1,176	)		8,465
(Benefit from) provision for income taxes		(101	)		3,107

Net (loss) income	$	(1,075	)	$	5,358

Net (loss) income available to common stockholders—basic	$	(1,075	)	$	5,218

Net (loss) income available to common stockholders—diluted	$	(1,075	)	$	5,219

Net (loss) income per common share:
Basic	$	(0.03	)	$	0.13

Diluted	$	(0.03	)	$	0.13

Weighted-average number of shares outstanding:
Basic		39,476,439			39,122,649
Diluted		39,476,439			39,521,619
Dividends declared per common share	$	0.113		$	0.11


	Three Months Ended March 31,
	2018			2017
License revenue	$	45,867		$	44,007
Service revenue		10,816			8,458

Total revenue		56,683			52,465
Cost of revenue—license		9,612			6,804
Cost of revenue—service		2,824			1,974
Cost of revenue—amortization of acquired technology		864			878

Total cost of revenue		13,300			9,656

Gross profit		43,383			42,809
Operating expenses:
Marketing and selling		20,065			21,242
Research and development		9,442			9,554
General and administrative		15,690			10,927
Amortization of other intangible assets		1,024			1,011

Total operating expenses		46,221			42,734

(Loss) income from operations		(2,838	)		75
Other (income) expense:
Interest expense		852			758
Interest income		(124	)		(127	)
(Gain) loss on foreign exchange		(34	)		560
Loss on derivatives		136			54
Other		(4	)		6

Total other expense, net		826			1,251

Loss before benefit from income taxes		(3,664	)		(1,176	)
Benefit from income taxes		(2,465	)		(101	)

Net loss	$	(1,199	)	$	(1,075	)

Net loss available to common stockholders—basic and diluted	$	(1,199	)	$	(1,075	)

Net loss per common share—basic and diluted	$	(0.03	)	$	(0.03	)

Weighted-average number of shares outstanding—basic and diluted		40,005,789			39,476,439
Dividends declared per common share	$	0.116		$	0.113


	As Reported					As Adjusted
	December 31, 2017		Cumulative Adjustments			January 1, 2018
Assets:
Accounts receivable, net⁽¹⁾	$	34,461	$	7,052		$	41,513
Prepaid expenses and other current assets⁽²⁾		5,714		427			6,141
Other assets⁽³⁾		3,112		650			3,762

Liabilities:
Deferred revenue		15,102		(2,923	)		12,179
Other long-term liabilities⁽⁴⁾		6,428		(825	)		5,603
Deferred income taxes		28,004		2,927			30,931

Stockholders’ equity:
Retained earnings		97,815		8,950			106,765


	March 31, 2018
	As Reported			Balances without adoption of ASC 606			Difference
Assets:
Accounts receivable, net	$	34,064		$	28,335		$	5,729
Prepaid expenses and other current assets		6,455			6,347			108
Other assets		4,750			3,670			1,080

Liabilities:
Accrued expenses and other current liabilities		38,127			35,966			2,161
Deferred revenue		15,889			17,549			(1,660	)
Other long-term liabilities		5,830			6,298			(468	)
Deferred income taxes		27,135			26,951			184

Stockholders’ equity:
Retained earnings		100,673			93,973			6,700

	For the three months ended March 31, 2018
	As Reported			Balances without adoption of ASC 606			Difference
License revenue	$	45,867		$	43,568		$	2,299
Service revenue		10,816			10,618			198
Cost of revenue—license		9,612			7,451			2,161
Marketing and selling		20,065			20,519			(454	)
Benefit from income taxes		(2,465	)		(2,649	)		184
Net loss		(1,199	)		(1,805	)		606
Net loss—basic and diluted	$	(0.03	)	$	(0.05	)	$	0.02


	March 31, 2018
	Creative Professional		OEM		Total
License Revenue:
License transferred in point in time	$	24,879	$	20,333	$	45,212
License transferred over time		655				655
Service Revenue:
Service transferred in point in time		470		656		1,126
Service transferred over time		8,994		696		9,690

Total	$	34,998	$	21,685	$	56,683


	~~Number of~~ ~~employees~~
~~Marketing and selling~~		~~117~~
~~Research and development~~		68
~~General and administration~~		13

~~Total~~		~~198~~


	Estimated Fair Value at Acquisition Date
Cash	$	5,942
Accounts receivable and other current assets		8,174
Property and equipment and other assets		1,029
Goodwill		89,705
Identifiable intangible assets		30,100
Accounts payable and other accrued expenses		(2,468	)
Deferred revenue		(7,334	)
Deferred tax liability		(1,449	)

Total purchase price	$	123,699


	Current		Long-term		Total
Deferred revenue	$	15,889	$	1,372	$	17,261
Unbilled backlog		4,343		5,482		9,825

Total	$	20,232	$	6,854	$	27,086


	Estimated Fair Value at Acquisition Date (in thousands)		Estimated Useful Life (in years)
Developed technology	$	14,300		10
Customer relationships		7,900		10
Non-compete agreements		1,400		4
Indefinite-lived intangible assets:
Trademarks and tradenames		6,500

Total	$	30,100


	Fair Value Measurement at March 31, 2017
	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	$	10,488	$	10,488	$	—	$	—
Cash equivalents—commercial paper		17,990		—		17,990		—
Cash equivalents—corporate bonds		7,758		—		7,758		—
Cash equivalents—U.S. government and agency securities		13,990		13,990		—		—

Total current assets		50,226		24,478		25,748		—
Restricted cash equivalents—money market fund		9,000		9,000		—		—
Restricted cash equivalents—U.S. government and agency security fund		8,974		8,974		—		—

Total long term assets		17,974		17,974		—		—

Total assets	$	68,200	$	42,452	$	25,748	$	—


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
January 3, 2017 to January 31, 2017 ^(1)(2)(3)		21,044	$	8.31		8,000	$	19,119,343
February 1, 2017 to February 28, 2017 ⁽¹⁾⁽²⁾		49,058	$	3.71		8,000	$	18,937,126
March 3, 2017 to March 31, 2017 ^(1)(2)(3)		57,855	$	12.35		11,000	$	18,719,337

Total		127,957	$	8.12		27,000	$	18,719,337


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
January 1, 2018 to January 31, 2018 ⁽¹⁾⁽²⁾		36,838	$	3.03		—	$	—
February 2, 2018 to February 27, 2018 ⁽¹⁾⁽²⁾		60,119	$	4.59		—	$	—
March 3, 2018 to March 30, 2018 ⁽¹⁾⁽²⁾		106,515	$	7.72		—	$	—

Total		203,472	$	5.95		—	$	—


	~~MONOTYPE IMAGING HOLDINGS INC.~~

~~Date: April 28, 2017~~	~~By:~~	/S~~/ SCOTT~~ ~~E. LANDERS~~
		~~Scott E. Landers~~
		~~President, Chief Executive Officer and Director~~
		~~(Principal Executive Officer)~~

~~Date: April 28, 2017~~	~~By:~~	/S~~/ ANTHONY~~ C~~ALLINI~~
		~~Anthony Callini~~
		~~Executive Vice President, Chief Financial Officer,~~ ~~Treasurer and Assistant Secretary~~ ~~(Principal Financial Officer)~~


Exhibit Number		Description

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


	MONOTYPE IMAGING HOLDINGS INC.

Date: April 30, 2018	By:	/S/ SCOTT E. LANDERS
		Scott E. Landers
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: April 30, 2018	By:	/S/ ANTHONY CALLINI
		Anthony Callini
		Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial Officer)

Large accelerated filer

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Smaller reporting company

Emerging growth company