☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 20-3289482(State of incorporation)
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | TYPE | NASDAQ Global Select Market |
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September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 79,540 | $ | 91,434 | ||||
Restricted cash | 5,000 | — | ||||||
Accounts receivable, net of allowance for doubtful accounts of $598 at September 30, 2017 and $467 at December 31, 2016 | 30,424 | 26,549 | ||||||
Income tax refunds receivable | 2,314 | 2,967 | ||||||
Prepaid expenses and other current assets | 6,361 | 4,631 | ||||||
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Total current assets | 123,639 | 125,581 | ||||||
Property and equipment, net | 16,690 | 14,166 | ||||||
Goodwill | 278,487 | 273,489 | ||||||
Intangible assets, net | 86,555 | 90,717 | ||||||
Restricted cash | 12,990 | 17,992 | ||||||
Other assets | 2,920 | 3,075 | ||||||
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Total assets | $ | 521,281 | $ | 525,020 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,185 | $ | 2,170 | ||||
Accrued expenses and other current liabilities | 31,409 | 28,762 | ||||||
Accrued income taxes payable | 314 | 1,473 | ||||||
Deferred revenue | 16,898 | 16,081 | ||||||
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Total current liabilities | 50,806 | 48,486 | ||||||
Revolving line of credit | 96,000 | 105,000 | ||||||
Other long-term liabilities | 11,430 | 11,753 | ||||||
Deferred income taxes | 38,286 | 37,780 | ||||||
Reserve for income taxes | 2,685 | 2,727 | ||||||
Accrued pension benefits | 6,092 | 5,296 | ||||||
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; Issued: 44,822,339 at September 30, 2017 and 43,771,600 at December 31, 2016 | 44 | 43 | ||||||
Additional paid-in capital | 292,272 | 274,946 | ||||||
Treasury stock, at cost, 3,040,769 shares at September 30, 2017 and 2,493,174 shares at December 31, 2016 | (63,359 | ) | (56,232 | ) | ||||
Retained earnings | 90,657 | 105,718 | ||||||
Accumulated other comprehensive loss | (3,632 | ) | (10,497 | ) | ||||
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Total stockholders’ equity | 315,982 | 313,978 | ||||||
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Total liabilities and stockholders’ equity | $ | 521,281 | $ | 525,020 | ||||
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June 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 47,763 | $ | 60,106 | ||||
Restricted cash | 6,000 | 6,000 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $555 at June 30, 2019 and $492 at December 31, 2018 | 47,076 | 55,943 | ||||||
Income tax refunds receivable | 6,904 | 5,122 | ||||||
Prepaid expenses and other current assets | 7,634 | 6,473 | ||||||
Total current assets | 115,377 | 133,644 | ||||||
Right of use asset | 14,320 | — | ||||||
Property and equipment, net | 11,850 | 14,105 | ||||||
Goodwill | 275,946 | 276,222 | ||||||
Intangible assets, net | 71,265 | 74,699 | ||||||
Other assets | 15,184 | 8,986 | ||||||
Total assets | $ | 503,942 | $ | 507,656 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,748 | $ | 1,719 | ||||
Accrued expenses and other current liabilities | 33,864 | 43,840 | ||||||
Accrued income taxes payable | 180 | 510 | ||||||
Deferred revenue | 10,777 | 10,337 | ||||||
Lease liability | 3,701 | — | ||||||
Total current liabilities | 50,270 | 56,406 | ||||||
Revolving line of credit | 65,000 | 75,000 | ||||||
Other long-term liabilities | 1,711 | 3,102 | ||||||
Deferred income taxes | 36,891 | 35,083 | ||||||
Reserve for income taxes | — | 2,471 | ||||||
Lease liability | 12,053 | — | ||||||
Accrued pension benefits | 5,956 | 5,888 | ||||||
Commitments and contingencies (Note 15) | ||||||||
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: 46,464,430 at June 30, 2019 and 45,803,288 at December 31, 2018 | 46 | 46 | ||||||
Additional paid-in capital | 327,918 | 319,486 | ||||||
Treasury stock, at cost, 5,166,895 shares at June 30, 2019 and 4,504,236 shares at December 31, 2018 | (92,747 | ) | (83,518 | ) | ||||
Retained earnings | 102,973 | 99,605 | ||||||
Accumulated other comprehensive loss | (6,129 | ) | (5,913 | ) | ||||
Total stockholders’ equity | 332,061 | 329,706 | ||||||
Total liabilities and stockholders’ equity | $ | 503,942 | $ | 507,656 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 60,507 | $ | 52,229 | $ | 170,773 | $ | 150,804 | ||||||||
Cost of revenue | 9,719 | 8,534 | 28,638 | 24,441 | ||||||||||||
Cost of revenue—amortization of acquired technology | 885 | 1,327 | 2,644 | 3,589 | ||||||||||||
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Total cost of revenue | 10,604 | 9,861 | 31,282 | 28,030 | ||||||||||||
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Gross profit | 49,903 | 42,368 | 139,491 | 122,774 | ||||||||||||
Operating expenses: | ||||||||||||||||
Marketing and selling | 22,453 | 16,538 | 66,417 | 45,273 | ||||||||||||
Research and development | 8,997 | 7,781 | 27,778 | 21,108 | ||||||||||||
General and administrative | 11,291 | 11,353 | 34,032 | 28,840 | ||||||||||||
Amortization of other intangible assets | 1,021 | 941 | 3,051 | 2,418 | ||||||||||||
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Total operating expenses | 43,762 | 36,613 | 131,278 | 97,639 | ||||||||||||
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Income from operations | 6,141 | 5,755 | 8,213 | 25,135 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 815 | 429 | 2,365 | 753 | ||||||||||||
Interest income | (116 | ) | (78 | ) | (309 | ) | (204 | ) | ||||||||
Loss on foreign exchange | 1,357 | 360 | 4,544 | 794 | ||||||||||||
Loss (gain) on derivatives | 119 | (93 | ) | 290 | (299 | ) | ||||||||||
Other (income) expense, net | (32 | ) | 5 | 24 | (16 | ) | ||||||||||
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Total other expense | 2,143 | 623 | 6,914 | 1,028 | ||||||||||||
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Income before provision for income taxes | 3,998 | 5,132 | 1,299 | 24,107 | ||||||||||||
Provision for income taxes | 2,737 | 2,707 | 1,609 | 9,671 | ||||||||||||
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Net income (loss) | $ | 1,261 | $ | 2,425 | $ | (310 | ) | $ | 14,436 | |||||||
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Net income (loss) available to common stockholders—basic | $ | 1,196 | $ | 2,341 | $ | (310 | ) | $ | 13,982 | |||||||
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Net income (loss) available to common stockholders—diluted | $ | 1,195 | $ | 2,340 | $ | (310 | ) | $ | 13,983 | |||||||
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Net income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.36 | |||||||
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Diluted | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.35 | |||||||
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Weighted-average number of shares outstanding: | ||||||||||||||||
Basic | 39,594,130 | 39,977,120 | 39,576,312 | 39,348,437 | ||||||||||||
Diluted | 39,798,779 | 40,261,247 | 39,576,312 | 39,699,790 | ||||||||||||
Dividends declared per common share | $ | 0.113 | $ | 0.110 | $ | 0.339 | $ | 0.330 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
License revenue | $ | 54,136 | $ | 48,093 | $ | 96,008 | $ | 93,960 | ||||||||
Service revenue | 9,100 | 12,594 | 18,584 | 23,410 | ||||||||||||
Total revenue | 63,236 | 60,687 | 114,592 | 117,370 | ||||||||||||
Cost of revenue—license | 8,231 | 7,282 | 15,033 | 16,894 | ||||||||||||
Cost of revenue—service | 2,759 | 2,674 | 5,560 | 5,498 | ||||||||||||
Cost of revenue—amortization of acquired technology | 843 | 860 | 1,700 | 1,724 | ||||||||||||
Total cost of revenue | 11,833 | 10,816 | 22,293 | 24,116 | ||||||||||||
Gross profit | 51,403 | 49,871 | 92,299 | 93,254 | ||||||||||||
Operating expenses: | �� | |||||||||||||||
Marketing and selling | 18,570 | 20,081 | 35,700 | 40,170 | ||||||||||||
Research and development | 6,764 | 8,456 | 14,205 | 17,752 | ||||||||||||
General and administrative | 11,588 | 11,858 | 23,607 | 27,476 | ||||||||||||
Restructuring | 32 | 6,376 | 8 | 6,570 | ||||||||||||
Amortization of other intangible assets | 829 | 965 | 1,661 | 1,989 | ||||||||||||
Total operating expenses | 37,783 | 47,736 | 75,181 | 93,957 | ||||||||||||
Income (loss) from operations | 13,620 | 2,135 | 17,118 | (703 | ) | |||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 781 | 945 | 1,689 | 1,797 | ||||||||||||
Interest income | (83 | ) | (146 | ) | (220 | ) | (270 | ) | ||||||||
Other | 239 | (633 | ) | 445 | (535 | ) | ||||||||||
Total other expense, net | 937 | 166 | 1,914 | 992 | ||||||||||||
Income (loss) before provision (benefit) for income taxes | 12,683 | 1,969 | 15,204 | (1,695 | ) | |||||||||||
Provision for (benefit from) income taxes | 2,376 | 1,274 | 2,237 | (1,191 | ) | |||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Net income (loss) available to common stockholders—basic and diluted | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Net income (loss) per common share—basic and diluted | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Weighted-average number of shares outstanding: | ||||||||||||||||
Basic | 40,026,865 | 40,418,308 | 40,015,672 | 40,436,595 | ||||||||||||
Diluted | 40,065,910 | 40,537,852 | 40,066,047 | 40,436,595 |
(LOSS)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 1,261 | $ | 2,425 | $ | (310 | ) | $ | 14,436 | |||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Unrecognized actuarial gain, net of tax of $8, $4, $23 and $12, respectively | 16 | 9 | 45 | 26 | ||||||||||||
Foreign currency translation adjustments, net of tax of $1,058, $118, $3,469 and $688, respectively | 2,191 | 131 | 6,820 | 677 | ||||||||||||
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Comprehensive income | $ | 3,468 | $ | 2,565 | $ | 6,555 | $ | 15,139 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Unrecognized actuarial gain, net of tax of $5, $8, $10 and $13, respectively | 6 | 22 | 22 | 41 | ||||||||||||
Foreign currency translation adjustments, net of tax of $193, ($834), ($83) and ($478), respectively | 579 | (3,507 | ) | (238 | ) | (2,182 | ) | |||||||||
Comprehensive income (loss) | $ | 10,892 | $ | (2,790 | ) | $ | 12,751 | $ | (2,645 | ) | ||||||
STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net (loss) income | $ | (310 | ) | $ | 14,436 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 9,271 | 9,114 | ||||||
Loss on retirement of fixed assets | 90 | — | ||||||
Amortization of deferred financing costs and accreted interest | 165 | 165 | ||||||
Stock based compensation | 15,294 | 12,705 | ||||||
Excess tax benefit on stock options | — | (404 | ) | |||||
Provision for doubtful accounts | 734 | 216 | ||||||
Deferred income taxes | (2,982 | ) | 2,312 | |||||
Unrealized currency loss on foreign denominated intercompany transactions | 3,870 | 422 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (3,978 | ) | (372 | ) | ||||
Prepaid expenses and other assets | (2,336 | ) | (2,778 | ) | ||||
Restricted cash | 2 | (9,027 | ) | |||||
Accounts payable | (16 | ) | (12 | ) | ||||
Accrued income taxes payable | (349 | ) | 942 | |||||
Accrued expenses and other liabilities | 162 | 2,359 | ||||||
Deferred revenue | 1,122 | 1,869 | ||||||
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Net cash provided by operating activities | 20,739 | 31,947 | ||||||
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Cash flows from investing activities | ||||||||
Purchases of property and equipment | (5,272 | ) | (1,600 | ) | ||||
Purchases of intangible asset | (54 | ) | — | |||||
Acquisition of business, net of cash acquired | — | (120,444 | ) | |||||
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Net cash used in investing activities | (5,326 | ) | (122,044 | ) | ||||
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Cash flows from financing activities | ||||||||
Payments on revolving line of credit | (9,000 | ) | — | |||||
Proceeds from revolving line of credit | — | 110,000 | ||||||
Purchase of treasury stock | (6,446 | ) | — | |||||
Common stock dividends paid | (14,030 | ) | (12,961 | ) | ||||
Excess tax benefit on stock options | — | 404 | ||||||
Proceeds from exercises of common stock options | 1,062 | 2,390 | ||||||
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Net cash (used in) provided by financing activities | (28,414 | ) | 99,833 | |||||
Effect of exchange rates on cash and cash equivalents | 1,107 | 327 | ||||||
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(Decrease) increase in cash and cash equivalents | (11,894 | ) | 10,063 | |||||
Cash and cash equivalents at beginning of period | 91,434 | 87,520 | ||||||
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Cash and cash equivalents at end of period | $ | 79,540 | $ | 97,583 | ||||
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per share data)
Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, March 31, 2019 | 46,397,404 | $ | 46 | 4,955,996 | $ | (91,329 | ) | $ | 324,027 | $ | 97,458 | $ | (6,714 | ) | $ | 323,488 | ||||||||||||||||
Net income | 10,307 | 10,307 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
— exercised options | 1,157 | — | 12 | 12 | ||||||||||||||||||||||||||||
— restricted share grants | 56,706 | — | — | — | ||||||||||||||||||||||||||||
— restricted units converted | 9,163 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 135,736 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 55,428 | (1,088 | ) | (1,088 | ) | |||||||||||||||||||||||||||
Shares withheld | 19,735 | (330 | ) | (330 | ) | |||||||||||||||||||||||||||
Stock based compensation | 3,879 | 3,879 | ||||||||||||||||||||||||||||||
Dividends declared ($0.116 per share) | (4,792 | ) | (4,792 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial income, net of tax | 6 | 6 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | 579 | 579 | ||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 46,464,430 | $ | 46 | 5,166,895 | $ | (92,747 | ) | $ | 327,918 | $ | 102,973 | $ | (6,129 | ) | $ | 332,061 | ||||||||||||||||
Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, March 31, 2018 | 45,588,021 | $ | 44 | 3,419,116 | $ | (65,294 | ) | $ | 305,023 | $ | 100,673 | $ | (1,177 | ) | $ | 339,269 | ||||||||||||||||
Net income | 695 | 695 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 55,258 | — | 734 | 734 | ||||||||||||||||||||||||||||
—restricted share grants | 84,523 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 10,381 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 109,165 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 44,600 | (981 | ) | (981 | ) | |||||||||||||||||||||||||||
Shares withheld | 13,901 | (306 | ) | (306 | ) | |||||||||||||||||||||||||||
Stock based compensation | 3,195 | 3,195 | ||||||||||||||||||||||||||||||
Dividends declared ($0.116 per share) | (4,891 | ) | (4,891 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 22 | 22 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (3,507 | ) | (3,507 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2018 | 45,738,183 | $ | 44 | 3,586,782 | $ | (66,581 | ) | $ | 308,952 | $ | 96,477 | $ | (4,662 | ) | $ | 334,230 |
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2018 | 45,803,288 | $ | 46 | 4,504,236 | $ | (83,518 | ) | $ | 319,486 | $ | 99,605 | $ | (5,913 | ) | $ | 329,706 | ||||||||||||||||
Net income | 12,967 | 12,967 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 49,643 | — | 334 | 334 | ||||||||||||||||||||||||||||
—restricted share grants | 540,658 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 70,841 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 155,096 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 425,928 | (7,678 | ) | (7,678 | ) | |||||||||||||||||||||||||||
Shares withheld | 81,635 | (1,551 | ) | (1,551 | ) | |||||||||||||||||||||||||||
Stock based compensation | 8,098 | 8,098 | ||||||||||||||||||||||||||||||
Dividends declared ($0.232 per share) | (9,599 | ) | (9,599 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial income, net of tax | 22 | 22 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (238 | ) | (238 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2019 | 46,464,430 | $ | 46 | 5,166,895 | $ | (92,747 | ) | $ | 327,918 | $ | 102,973 | $ | (6,129 | ) | $ | 332,061 |
Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2017 | 44,934,364 | $ | 44 | 3,215,644 | $ | (64,083 | ) | $ | 298,113 | $ | 97,815 | $ | (2,521 | ) | $ | 329,368 | ||||||||||||||||
Net loss | (504 | ) | (504 | ) | ||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 242,079 | — | 3,383 | 3,383 | ||||||||||||||||||||||||||||
—restricted share grants | 476,875 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 84,865 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 262,509 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 44,600 | (981 | ) | (981 | ) | |||||||||||||||||||||||||||
Shares withheld | 64,029 | (1,517 | ) | (1,517 | ) | |||||||||||||||||||||||||||
Stock based compensation | 7,456 | 7,456 | ||||||||||||||||||||||||||||||
Dividends declared ($0.232 per share) | (9,784 | ) | (9,784 | ) | ||||||||||||||||||||||||||||
Cumulative adjustment, ASC 606 adoption | 8,950 | 8,950 | ||||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 41 | 41 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (2,182 | ) | (2,182 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2018 | 45,738,183 | $ | 44 | 3,586,782 | $ | (66,581 | ) | $ | 308,952 | $ | 96,477 | $ | (4,662 | ) | $ | 334,230 |
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 12,967 | $ | (504 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 6,337 | 6,447 | ||||||
Loss on extinguishment of debt | 34 | — | ||||||
Loss on retirement of assets | 21 | 10 | ||||||
Loss on abandonment of product line | — | 3,223 | ||||||
Amortization of deferred financing costs and accreted interest | 108 | 110 | ||||||
Stock based compensation | 8,098 | 7,435 | ||||||
Provision for doubtful accounts | 229 | 659 | ||||||
Deferred income taxes | 1,829 | (4,603 | ) | |||||
Unrealized currency (gain) on foreign denominated intercompany transactions | (38 | ) | (207 | ) | ||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
Accounts receivable | 8,677 | 4,345 | ||||||
Prepaid expenses and other assets | (7,317 | ) | (3,957 | ) | ||||
Accounts payable | 31 | (108 | ) | |||||
Income tax refunds receivable | (1,782 | ) | — | |||||
Accrued income taxes | (2,793 | ) | (1,013 | ) | ||||
Accrued expenses and other liabilities | (9,760 | ) | (9,801 | ) | ||||
Deferred revenue | 460 | 1,283 | ||||||
Net cash provided by operating activities | 17,101 | 3,319 | ||||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (811 | ) | (2,125 | ) | ||||
Purchases of intangible assets | — | (160 | ) | |||||
Net cash used in investing activities | (811 | ) | (2,285 | ) | ||||
Cash flows from financing activities | ||||||||
Net payments on revolving line of credit | (10,200 | ) | (8,000 | ) | ||||
Proceeds from line of credit, net of issuance costs | 42 | — | ||||||
Common stock dividends paid | (9,598 | ) | (9,604 | ) | ||||
Purchase of treasury stock | (7,678 | ) | (981 | ) | ||||
Payments for employee taxes on shares withheld | (1,551 | ) | (1,517 | ) | ||||
Proceeds from exercises of common stock options | 334 | 3,382 | ||||||
Net cash used in financing activities | (28,651 | ) | (16,720 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | 18 | (304 | ) | |||||
Decrease in cash, cash equivalents and restricted cash | (12,343 | ) | (15,990 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 66,106 | 100,809 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 53,763 | $ | 84,819 | ||||
Noncash transactions: | ||||||||
Borrowing under revolving line of credit | $ | 158 | $ | — |
September
2019
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.
KK (“Monotype Japan”).
Share Based Compensation
without restating prior periods’ balances or disclosures.
Pending
consolidated balance sheet, but did not have a material impact on our consolidated statements of operations or cash flows. The most significant impact of the adoption of ASU
Plan
Statement of Cash Flows
Leases
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842): Amendments to the FASB Accounting Standards Codification,which replaces the existing guidance for leases. ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases.inform credit loss estimates. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. This guidancenew standard is effective for annual and interim periods beginning after December 15, 2018 and requires retrospective application. The Company is currently assessing the impact that adopting ASU 2016-02 will have on its consolidated financial statements and related disclosures.
Revenue Recognition
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 a comprehensive five-step revenue recognition model based on principle that replaces virtually all existing revenue recognition under U.S. GAAP and which requires revenue to 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. ASU 2014-09 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 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, 2017,2019, with early adoption permitted for annual and interim periods beginning after December 15, 2016.
permitted. We will adopt the standard on January 1, 2018, and at that time, we will apply the modified retrospective method of adoption. We have developed an implementation plan to assessare currently evaluating the impact of the new guidance on our operations, financial results and related disclosures. To date,adoption of ASU
For the Three Months Ended June 30, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Creative Professional | OEM | Total | Creative Professional | OEM | Total | |||||||||||||||||||
License revenue: | ||||||||||||||||||||||||
License transferred at a point in time | $ | 27,049 | $ | 27,087 | $ | 54,136 | $ | 27,215 | $ | 20,878 | $ | 48,093 | ||||||||||||
Service revenue: | ||||||||||||||||||||||||
Service transferred at a point in time | 436 | 409 | 845 | 568 | 720 | 1,288 | ||||||||||||||||||
Service transferred over time | 7,740 | 515 | 8,255 | 10,634 | 672 | 11,306 | ||||||||||||||||||
Total | $ | 35,225 | $ | 28,011 | $ | 63,236 | $ | 38,417 | $ | 22,270 | $ | 60,687 | ||||||||||||
For the Six Months Ended June 30, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Creative Professional | OEM | Total | Creative Professional | OEM | Total | |||||||||||||||||||
License revenue: | ||||||||||||||||||||||||
License transferred at a point in time | $ | 51,188 | $ | 44,820 | $ | 96,008 | $ | 52,749 | $ | 41,211 | $ | 93,960 | ||||||||||||
License transferred over time | — | — | — | — | — | — | ||||||||||||||||||
Service revenue: | ||||||||||||||||||||||||
Service transferred at a point in time | 868 | 605 | 1,473 | 1,190 | 1,705 | 2,895 | ||||||||||||||||||
Service transferred over time | 15,932 | 1,179 | 17,111 | 19,476 | 1,039 | 20,515 | ||||||||||||||||||
Total | $ | 67,988 | $ | 46,604 | $ | 114,592 | $ | 73,415 | $ | 43,955 | $ | 117,370 | ||||||||||||
June 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Current | Long-term | Total | Current | Long-term | Total | |||||||||||||||||||
Deferred revenue | $ | 10,777 | $ | 1,566 | $ | 12,343 | $ | 10,337 | $ | 1,552 | $ | 11,889 | ||||||||||||
Unbilled backlog | 3,389 | 1,679 | 5,068 | 5,666 | 1,837 | 7,503 | ||||||||||||||||||
Total | $ | 14,166 | $ | 3,245 | $ | 17,411 | $ | 16,003 | $ | 3,389 | $ | 19,392 | ||||||||||||
Based on the progress of our evaluation to date, while we are still in the process of quantifying the transition adjustmentgenerate resources that will be recordedused 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 January 1, 2018, which will depend in part on the additional contractscertain fonts that are executed during the fourth quarterowned by third parties. These fees are related to license revenue that is satisfied at a point in time and payable again upon license renewal, and as a result are incurred immediately upon contract execution. Accordingly, there were no capitalized costs related to costs to fulfill a contract as of 2017, we anticipate that the transition adjustment to retained earnings will include approximately $5 million to $9 millionJune 30, 2019 or as of revenue from contracts entered into on or before December 31, 2017,2018.
4. Acquisition
Olapic, Inc.
On August 9, 2016, the Company purchased 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 consumers to make more educated purchasing decisions, discover new products and connect to the brand’s community. The Company 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$6.0 million, consisting of approximately $13.7 million in cash and borrowed $110.0 million from its line of credit, netrespectively, of cash acquired. The Merger Agreement included an additional $9.0 million of consideration that has been placedheld in escrow and willto be paid to the founders of Olapic contingent upon 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 or restricted stock units to the founders and employees of Olapic. These awards will vest over time based on continued employment, and accordingly will be accountedused 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 Companypayments due in 2019 in connection with the Olapic, Inc. acquisition.
The table below provides the Olapic employees by functional area who joined the Company in connection with the acquisition:
| ||||
| ||||
| ||||
| ||||
The purchase price was allocatedconsolidated balance sheet that sum to the assets and liabilities based upon their estimated fair value at the date of acquisition, as noted below (in thousands):
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 | ||
|
|
The estimated fair values of intangible assets acquired were recorded as follows:
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 | ||||||
|
|
A portiontotal of the purchase price has been allocated to intangible assets and goodwill, respectively, and is reflectedsame such amounts shown in the tables above. The fair value of the assets acquired and liabilities assumed is less than the purchase price, resulting in the recognition of goodwill. The goodwill reflects the value of the synergies we expect to realize and the assembled workforce. The acquisition of 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 and using assumptions that the Company’s management believes are reasonable given the information available.
We recorded revenue of $5.2 million and $13.5 million, and a net loss of $7.8 million and $24.4 million, from the acquired Olapic operations within the Company’s consolidated operations for the three and nine months ended September 30, 2017, respectively. Transaction costs of $0.7 million and $1.1 million are included in general and administrative expenses in our condensed consolidated statements of operations for the three and nine months ended September 30, 2016, respectively.
Pro Forma Results
The following table shows unaudited pro forma results of operations as if we had acquired Olapic at the beginning of the periods presentedcash flows (in thousands, except per share amounts)thousands):
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
Revenue | $ | 53,586 | $ | 159,415 | ||||
Net income | $ | 1,116 | $ | 4,900 | ||||
Net income available to common stockholders—basic | $ | 1,032 | $ | 4,446 | ||||
Net income available to common stock holders—diluted | $ | 1,031 | $ | 4,447 | ||||
Net income per common share: basic | $ | 0.03 | $ | 0.11 | ||||
Net income per common share: diluted | $ | 0.03 | $ | 0.11 | ||||
Weighted average number of shares—basic | 39,977,120 | 39,348,437 | ||||||
Weighted average number of shares—diluted | 40,261,247 | 39,699,790 |
The unaudited pro forma results of operations are not necessarily indicative of the actual results that would have occurred had the transactions actually taken place at the beginning of the periods indicated.
5.
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Consolidated balance sheet classification: | ||||||||
Cash and cash equivalents | $ | 47,763 | $ | 75,819 | ||||
Restricted cash, short term | 6,000 | 3,000 | ||||||
Restricted cash, long term | — | 6,000 | ||||||
Total cash, cash equivalents and restricted cash | $ | 53,763 | $ | 84,819 | ||||
Fair Value Measurement at September 30, 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 | $ | 12,255 | $ | 12,255 | $ | — | $ | — | ||||||||
Cash equivalents—commercial paper | 26,672 | — | 26,672 | — | ||||||||||||
Cash equivalents—U.S. government and agency securities | 1,504 | 1,504 | — | — | ||||||||||||
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| |||||||||
Total short-term financial assets | 40,431 | 13,759 | 26,672 | — | ||||||||||||
Restricted cash equivalents—money market fund | 9,000 | 9,000 | — | — | ||||||||||||
Restricted cash equivalents—U.S. government and agency security fund | 8,990 | 8,990 | — | — | ||||||||||||
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| |||||||||
Total long-term financial assets | 17,990 | 17,990 | — | — | ||||||||||||
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Total | $ | 58,421 | $ | 31,749 | $ | 26,672 | $ | — | ||||||||
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|
|
|
|
Assets: Cash equivalents—money market funds Cash equivalents—commercial paper Cash equivalents—corporate bonds Cash equivalents—U.S. government and agency securities Total short-term financial assets Restricted cash equivalents—money market fund Restricted cash equivalents—U.S. government and agency security fund Total long-term financial assets Total Fair Value Measurement at December 31, 2016 Total Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 16,994 $ 16,994 $ — $ — 16,989 — 16,989 — 4,802 — 4,802 — 11,368 11,368 — — 50,153 28,362 21,791 — 9,000 9,000 — — 8,992 8,992 — — 17,992 17,992 — — $ 68,145 $ 46,354 $ 21,791 $ —
Fair Value Measurement at June 30, 2019 | ||||||||||||||||
Total | Quoted Prices (unadjusted) 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 | $ | 14,126 | $ | 14,126 | $ | — | $ | — | ||||||||
Cash equivalents—Certificate of Deposit | 578 | 578 | — | — | ||||||||||||
Restricted cash equivalents—money market fund | 6,000 | 6,000 | — | — | ||||||||||||
Total current assets | $ | 20,704 | $ | 20,704 | $ | — | $ | — | ||||||||
Total assets | $ | 20,704 | $ | 20,704 | $ | — | $ | — | ||||||||
Fair Value Measurement at December 31, 2018 | ||||||||||||||||
Total | Quoted Prices (unadjusted) 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 | $ | 28,940 | $ | 28,940 | $ | — | $ | — | ||||||||
Restricted cash equivalents—money market fund | 6,000 | 6,000 | — | — | ||||||||||||
Total current assets | $ | 34,940 | $ | 34,940 | $ | — | $ | — | ||||||||
Total assets | $ | 34,940 | $ | 34,940 | $ | — | $ | — | ||||||||
6.
Weighted- Average Amortization Period (Years) | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | |||||||||||||||||||||||
Customer relationships | 10 | $ | 68,194 | $ | (53,419 | ) | $ | 14,775 | $ | 67,502 | $ | (50,808 | ) | $ | 16,694 | |||||||||||||
Acquired technology | 11 | 69,085 | (47,840 | ) | 21,245 | 68,228 | (44,361 | ) | 23,867 | |||||||||||||||||||
Non-compete agreements | 4 | 14,607 | (13,301 | ) | 1,306 | 14,440 | (12,655 | ) | 1,785 | |||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
Trademarks | 44,829 | — | 44,829 | 43,971 | — | 43,971 | ||||||||||||||||||||||
Domain names | 4,400 | — | 4,400 | 4,400 | — | 4,400 | ||||||||||||||||||||||
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| |||||||||||||||||
Total | $ | 201,115 | $ | (114,560 | ) | $ | 86,555 | $ | 198,541 | $ | (107,824 | ) | $ | 90,717 | ||||||||||||||
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7.
June 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||
Weighted- Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||
Customer relationships | 10 | $ | 64,784 | $ | (56,454 | ) | $ | 8,330 | $ | 64,822 | $ | (55,288 | ) | $ | 9,534 | |||||||||||||
Acquired technology | 11 | 68,773 | (54,704 | ) | 14,069 | 68,823 | (52,747 | ) | 16,076 | |||||||||||||||||||
Non-compete agreements | 4 | 13,626 | (13,239 | ) | 387 | 13,636 | (13,073 | ) | 563 | |||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
Trademarks | 44,079 | — | 44,079 | 44,126 | — | 44,126 | ||||||||||||||||||||||
Domain names | 4,400 | — | 4,400 | 4,400 | — | 4,400 | ||||||||||||||||||||||
Total | $ | 195,662 | $ | (124,397 | ) | $ | 71,265 | $ | 195,807 | $ | (121,108 | ) | $ | 74,699 | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Finance lease cost | $ | — | $ | — | $ | — | $ | — | ||||||||
Operating lease cost | 1,137 | — | 2,291 | — | ||||||||||||
Short-term lease cost | 10 | — | 10 | — | ||||||||||||
Variable lease cost | 107 | — | 159 | — | ||||||||||||
Total lease cost | $ | 1,254 | $ | — | $ | 2,460 | $ | — | ||||||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 1,215 | — | |||||
Right-of-use | ||||||||
Operating leases | 1,890 | — |
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Weighted average remaining lease term: | ||||||||
Operating leases | 4.75 years | — | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 3.92% | — |
2020 | $ | 4,250 | ||
2021 | 3,740 | |||
2022 | 3,543 | |||
2023 | 2,451 | |||
2024 | 1,473 | |||
Thereafter | 1,813 | |||
Total future minimum lease payments | $ | 17,270 | ||
Less: amounts representing interest | (1,516 | ) | ||
Total lease liabilities | $ | 15,754 | ||
Less: current operating lease liability | (3,701 | ) | ||
Long-term operating lease liability | $ | 12,053 | ||
2019 | $ | 4,728 | ||
2020 | 3,131 | |||
2021 | 2,806 | |||
2022 | 2,652 | |||
2023 | 1,256 | |||
Thereafter | 2,004 | |||
Total | $ | 16,577 |
Repayment of any amounts borrowed are not required until maturity of The Company had $75.0 million outstanding under the Original Credit Facility. However, the Company may repay any amounts borrowedAgreement at any time, without premium or penalty. At September 30, 2017 and December 31, 2016,2018. Available borrowings under the Original Credit Agreement were reduced by approximately $0.5 million for one standby letter of credit issued in connection with a facility lease agreement, leaving $74.5 million available for borrowings at December 31, 2018. At June 30, 2019, the Company had $96.0 million and $105.0$65.0 million outstanding under the Credit Facility. At September 30, 2017 and December 31, 2016, availableAvailable 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 $53.5 million and $44.5$134.5 million available for borrowingborrowings at SeptemberJune 30, 2017 and December 31, 2016, respectively.
2019.
As of September 30, 2017, The Company is required to pay a commitment fee, based on the maximumconsolidated leverage ratio, permitted was 3.00:1.00equal to 0.175%, 0.20%, 0.225% or 0.25% per annum on the undrawn portion available under the revolving credit facility and variable per annum fees in respect of outstanding letters of credit. In connection with the New Credit Agreement, the Company incurred closing and legal fees of approximately $1.0 million, which have been accounted for as deferred financing costs, that, together with approximately $0.3 million of unamortized deferred financing costs associated with loan syndicate lenders who participated in the new facility, will be amortized to interest expense over the term of the New Credit Agreement. In addition, $34 thousand of unamortized deferred financing costs associated with the
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Provision for income taxes at statutory rate | $ | 1,399 | 35.0 | % | $ | 1,796 | 35.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | (173 | ) | (4.3 | )% | 559 | 10.9 | % | |||||||||
Stock based compensation | 141 | 3.5 | % | 86 | 1.7 | % | ||||||||||
Foreign rate differential | (109 | ) | (2.7 | )% | (255 | ) | (4.9 | )% | ||||||||
Research credits | (381 | ) | (9.5 | )% | (141 | ) | (2.8 | )% | ||||||||
Permanent non-deductible acquisition-related expense | 1,629 | 40.7 | % | 905 | 17.6 | % | ||||||||||
Disqualifying dispositions on incentive stock options | — | — | (33 | ) | (0.6 | )% | ||||||||||
Net shortfall on stock based compensation | 257 | 6.4 | % | — | — | |||||||||||
Other, net | (26 | ) | (0.6 | )% | (210 | ) | (4.2 | )% | ||||||||
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| |||||||||
Reported income tax provision | $ | 2,737 | 68.5 | % | $ | 2,707 | 52.7 | % | ||||||||
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Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Provision for income taxes at statutory rate | $ | 455 | 35.0 | % | $ | 8,437 | 35.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | (234 | ) | (18.0 | )% | 830 | 3.4 | % | |||||||||
Stock based compensation | 64 | 5.0 | % | 181 | 0.8 | % | ||||||||||
Foreign rate differential | (47 | ) | (3.6 | )% | (512 | ) | (2.1 | )% | ||||||||
Research credits | (170 | ) | (13.1 | )% | (300 | ) | (1.2 | )% | ||||||||
Permanent non-deductible acquisition-related expense | 727 | 55.9 | % | 1,324 | 5.5 | % | ||||||||||
Disqualifying dispositions on incentive stock options | — | — | (44 | ) | (0.2 | )% | ||||||||||
Net shortfall on stock based compensation | 799 | 61.5 | % | — | — | |||||||||||
Other, net | 15 | 1.2 | % | (245 | ) | (1.1 | )% | |||||||||
|
|
|
|
|
|
|
| |||||||||
Reported income tax provision | $ | 1,609 | 123.9 | % | $ | 9,671 | 40.1 | % | ||||||||
|
|
|
|
|
|
|
|
At September
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Provision for income taxes at statutory rate | $ | 2,663 | 21.0 | % | $ | 414 | 21.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | 265 | 2.1 | % | 26 | 1.3 | % | ||||||||||
Foreign tax credit valuation allowance | (1,299 | ) | (10.2 | )% | — | — | ||||||||||
Impact of foreign income | 415 | 3.2 | % | 790 | 40.1 | % | ||||||||||
Permanent non-deductible expense | 274 | 2.2 | % | 60 | 3.1 | % | ||||||||||
Net shortfall (windfall) on stock based compensation | 111 | 0.9 | % | (39 | ) | (1.9 | )% | |||||||||
Other, net | (53 | ) | (0.5 | )% | 23 | 1.1 | % | |||||||||
Reported income tax provision | $ | 2,376 | 18.7 | % | $ | 1,274 | 64.7 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Provision (benefit) for income taxes at statutory rate | $ | 3,193 | 21.0 | % | $ | (356 | ) | 21.0 | % | |||||||
State and local income taxes, net of federal tax benefit | 318 | 2.1 | % | (51 | ) | 3.0 | % | |||||||||
Foreign tax credit valuation allowance | (1,557 | ) | (10.2 | )% | — | — | ||||||||||
Impact of foreign income (loss) | 505 | 3.3 | % | (448 | ) | 26.4 | % | |||||||||
Permanent non-deductible expense | 334 | 2.2 | % | (241 | ) | 14.2 | % | |||||||||
Net shortfall (windfall) on stock based compensation | 218 | 1.4 | % | (156 | ) | 9.2 | % | |||||||||
Reversal of reserve for income taxes | (544 | ) | (3.6 | )% | — | — | ||||||||||
Other, net | (230 | ) | (1.5 | )% | 61 | (3.5 | )% | |||||||||
Reported income tax (benefit) | $ | 2,237 | 14.7 | % | $ | (1,191 | ) | 70.3 | % | |||||||
10.assets.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss), as reported | $ | 1,261 | $ | 2,425 | $ | (310 | ) | $ | 14,436 | |||||||
Less: net income attributable to participating securities | (65 | ) | (84 | ) | — | (454 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) available to common shareholders—basic | $ | 1,196 | $ | 2,341 | $ | (310 | ) | $ | 13,982 | |||||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Basic: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,750,884 | 41,687,590 | 41,700,355 | 40,730,524 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (2,156,754 | ) | (1,710,470 | ) | (2,124,043 | ) | (1,382,087 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of common shares used in computing basic net income (loss) per common share | 39,594,130 | 39,977,120 | 39,576,312 | 39,348,437 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per share applicable to common shareholders—basic | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.36 | |||||||
|
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|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) available to common shareholders—basic | $ | 1,196 | $ | 2,341 | $ | (310 | ) | $ | 13,982 | |||||||
Add-back: undistributed earnings allocated to unvested shareholders | (179 | ) | (88 | ) | — | 33 | ||||||||||
Less: undistributed earnings reallocated to unvested shareholders | 178 | 87 | — | (32 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) available to common shareholders—diluted | $ | 1,195 | $ | 2,340 | $ | (310 | ) | $ | 13,983 | |||||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Diluted: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,750,884 | 41,687,590 | 41,700,355 | 40,730,524 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (2,156,754 | ) | (1,710,470 | ) | (2,124,043 | ) | (1,382,087 | ) | ||||||||
Weighted-average number of common shares issuable upon exercise of outstanding stock options, based on the treasury stock method | 204,649 | 284,127 | — | 351,353 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of common shares used in computing diluted net income (loss) per common share | 39,798,779 | 40,261,247 | 39,576,312 | 39,699,790 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per share applicable to common shareholders—diluted | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.35 | |||||||
|
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|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss), as reported | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Less: net income (loss) attributable to participating securities | (336 | ) | (29 | ) | (409 | ) | — | |||||||||
Net income (loss) available to common shareholders—basic | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Denominator: | ||||||||||||||||
Basic: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,377,788 | 42,188,672 | 41,321,044 | 42,252,027 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (1,350,923 | ) | (1,770,364 | ) | (1,305,372 | ) | (1,815,432 | ) | ||||||||
Weighted-average number of common shares used in computing basic net income (loss) per common share | 40,026,865 | 40,418,308 | 40,015,672 | 40,436,595 | ||||||||||||
Net income (loss) per share applicable to common shareholders—basic | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | �� | |||||||||||||||
Net income (loss) available to common shareholders—basic | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Add-back: undistributed earnings allocated to unvested shareholders | 180 | — | 107 | — | ||||||||||||
Less: undistributed earnings reallocated to unvested shareholders | (180 | ) | — | (107 | ) | — | ||||||||||
Net income (loss) available to common shareholders—diluted | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Denominator: | ||||||||||||||||
Diluted: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,377,788 | 42,188,672 | 41,321,044 | 42,252,027 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (1,350,923 | ) | (1,770,364 | ) | (1,305,372 | ) | (1,815,432 | ) | ||||||||
Weighted-average number of common shares issuable upon exercise of outstanding stock options | 39,045 | 119,544 | 50,375 | — | ||||||||||||
Weighted-average number of common shares used in computing diluted net income (loss) per common share | 40,065,910 | 40,537,852 | 40,066,047 | 40,436,595 | ||||||||||||
Net income (loss) per share applicable to common shareholders—diluted | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Options | 633,858 | 776,827 | 824,536 | 700,934 | ||||||||||||
Unvested restricted stock | 566,934 | 357,338 | 652,741 | 354,379 | ||||||||||||
Unvested restricted stock units | 32,971 | 15,873 | 58,674 | 14,681 |
11.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Options | 488,867 | 543,794 | 489,882 | 641,825 | ||||||||||||
Unvested restricted stock | 1,082,601 | 643,109 | 997,436 | 846,046 | ||||||||||||
Unvested restricted stock units | 86,034 | 57,158 | 83,944 | 67,219 |
repurchases
Share
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Marketing and selling | $ | 2,455 | $ | 2,164 | $ | 7,348 | $ | 5,349 | ||||||||
Research and development | 1,131 | 1,180 | 3,227 | 2,869 | ||||||||||||
General and administrative | 1,685 | 1,962 | 4,719 | 4,487 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expensed | $ | 5,271 | $ | 5,306 | $ | 15,294 | $ | 12,705 | ||||||||
Property and equipment | 44 | — | 97 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total share based compensation | $ | 5,315 | $ | 5,306 | $ | 15,391 | $ | 12,705 | ||||||||
|
|
|
|
|
|
|
|
In the three and nine months ended September 30, 2017, $44 thousand and $97 thousand, respectively, of share based compensation was capitalized as part of internal software projects, and this amount is included in property and equipment, net in our condensed consolidated balance sheet.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Marketing and selling | $ | 1,702 | $ | 2,152 | $ | 3,472 | $ | 3,886 | ||||||||
Research and development | 640 | 893 | 1,362 | 1,881 | ||||||||||||
General and administrative | 1,537 | 1,545 | 3,264 | 3,070 | ||||||||||||
Restructuring | — | (1,402 | ) | — | (1,402 | ) | ||||||||||
Total expensed | $ | 3,879 | $ | 3,188 | $ | 8,098 | $ | 7,435 | ||||||||
Property and equipment | — | 7 | — | 21 | ||||||||||||
Total stock based compensation | $ | 3,879 | $ | 3,195 | $ | 8,098 | $ | 7,456 | ||||||||
12.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Creative Professional | $ | 34,521 | $ | 27,798 | $ | 92,234 | $ | 75,170 | ||||||||
OEM | 25,986 | 24,431 | 78,539 | 75,634 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 60,507 | $ | 52,229 | $ | 170,773 | $ | 150,804 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Creative Professional | $ | 35,225 | $ | 38,417 | $ | 67,988 | $ | 73,415 | ||||||||
OEM | 28,011 | 22,270 | 46,604 | 43,955 | ||||||||||||
Total | $ | 63,236 | $ | 60,687 | $ | 114,592 | $ | 117,370 | ||||||||
Effective as
We market our products and services principally through offices in the U.S., United Kingdom, Germany, China, Republic of Korea and Japan.
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 27,951 | 46.2 | % | $ | 25,129 | 48.1 | % | ||||||||
Japan | 14,963 | 24.7 | 12,187 | 23.3 | ||||||||||||
Europe, Middle East, and Africa (EMEA) | 13,952 | 23.1 | 9,971 | 19.1 | ||||||||||||
Rest of World | 3,641 | 6.0 | 4,942 | 9.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 60,507 | 100.0 | % | $ | 52,229 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 74,631 | 43.7 | % | $ | 64,125 | 42.5 | % | ||||||||
Japan | 44,278 | 25.9 | 38,872 | 25.8 | ||||||||||||
Europe, Middle East, and Africa (EMEA) | 37,392 | 21.9 | 32,215 | 21.4 | ||||||||||||
Rest of World | 14,472 | 8.5 | 15,592 | 10.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 170,773 | 100.0 | % | $ | 150,804 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 34,396 | 54.4 | % | $ | 27,086 | 44.6 | % | ||||||||
Japan | 9,748 | 15.4 | 11,718 | 19.3 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 13,934 | 22.0 | 15,060 | 24.8 | ||||||||||||
Rest of World | 5,158 | 8.2 | 6,823 | 11.3 | ||||||||||||
Total | $ | 63,236 | 100.0 | % | $ | 60,687 | 100.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 57,612 | 50.3 | % | $ | 51,971 | 44.3 | % | ||||||||
Japan | 19,382 | 16.9 | 23,370 | 19.9 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 27,391 | 23.9 | 30,064 | 25.6 | ||||||||||||
Rest of World | 10,207 | 8.9 | 11,965 | 10.2 | ||||||||||||
Total | $ | 114,592 | 100.0 | % | $ | 117,370 | 100.0 | % | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Long-lived assets: | ||||||||
United States | $ | 316,048 | $ | 318,786 | ||||
United Kingdom | 4,050 | 3,882 | ||||||
Germany | 57,563 | 52,237 | ||||||
Rest of World | 4,071 | 3,467 | ||||||
|
|
|
| |||||
Total | $ | 381,732 | $ | 378,372 | ||||
|
|
|
|
13.
June 30, 2019 | December 31, 2018 | |||||||
Long-lived assets: | ||||||||
United States | $ | 308,586 | $ | 303,046 | ||||
United Kingdom | 3,864 | 3,484 | ||||||
Germany | 55,302 | 54,357 | ||||||
Asia (including Japan) | 5,629 | 4,139 | ||||||
Total | $ | 373,381 | $ | 365,026 |
Three Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Severance and termination benefits | $ | 32 | $ | 4,032 | ||||
Reversal of stock based compensation expense | — | (1,402 | ) | |||||
Accelerated deferred compensation | — | 523 | ||||||
Intangible assets impairment | — | 2,623 | ||||||
Write off of allocated goodwill | — | 600 | ||||||
Total restructuring | $ | 32 | $ | 6,376 | ||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Severance and termination benefits | $ | 8 | $ | 4,226 | ||||
Reversal of stock based compensation expense | — | (1,402 | ) | |||||
Accelerated deferred compensation | — | 523 | ||||||
Intangible assets impairment | — | 2,623 | ||||||
Write off of allocated goodwill | — | 600 | ||||||
Total restructuring | $ | 8 | $ | 6,570 |
Personnel related | ||||
Restructuring reserve at January 1, 2019 | $ | 2,968 | ||
Restructuring charges | (24 | ) | ||
Cash payments | (1,595 | ) | ||
Foreign currency exchange rate changes | (9 | ) | ||
Restructuring reserve at March 31, 2019 | 1,340 | |||
Restructuring charges | 32 | |||
Cash payments | (807 | ) | ||
Foreign currency exchange rate changes | (8 | ) | ||
Restructuring reserve at June 30, 2019 | $ | 557 | ||
14.2018.
Dividend Declaration
Share Purchase Program
Subsequent to September 30, 2017, the Company purchased 8,000 shares of common stock for $0.2 million, at an average price $
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 Formforward-lookingforward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-lookingforward looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward-lookingforward looking statements. The forward-lookingforward looking statements made in this Quarterly Report on Formforward-lookingforward 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
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 99,00013,000 typeface designs, and include some of the world’s most widely used designs, such as the Times New RomanGothic™GothicDroid™ Droidand linotype.com,visitsvisitors in 20162018 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.
Effective as
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 September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 27,951 | 46.2 | % | $ | 25,129 | 48.1 | % | ||||||||
Japan | 14,963 | 24.7 | 12,187 | 23.3 | ||||||||||||
Europe, Middle East, and Africa (EMEA) | 13,952 | 23.1 | 9,971 | 19.1 | ||||||||||||
Rest of World | 3,641 | 6.0 | 4,942 | 9.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 60,507 | 100.0 | % | $ | 52,229 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 74,631 | 43.7 | % | $ | 64,125 | 42.5 | % | ||||||||
Japan | 44,278 | 25.9 | 38,872 | 25.8 | ||||||||||||
Europe, Middle East, and Africa (EMEA) | 37,392 | 21.9 | 32,215 | 21.4 | ||||||||||||
Rest of World | 14,472 | 8.5 | 15,592 | 10.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 170,773 | 100.0 | % | $ | 150,804 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
below:
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 34,396 | 54.4 | % | $ | 27,086 | 44.6 | % | ||||||||
Japan | 9,748 | 15.4 | 11,718 | 19.3 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 13,934 | 22.0 | 15,060 | 24.8 | ||||||||||||
Rest of World | 5,158 | 8.2 | 6,823 | 11.3 | ||||||||||||
Total | $ | 63,236 | 100.0 | % | $ | 60,687 | 100.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 57,612 | 50.3 | % | $ | 51,971 | 44.3 | % | ||||||||
Japan | 19,382 | 16.9 | 23,370 | 19.9 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 27,391 | 23.9 | 30,064 | 25.6 | ||||||||||||
Rest of World | 10,207 | 8.9 | 11,965 | 10.2 | ||||||||||||
Total | $ | 114,592 | 100.0 | % | $ | 117,370 | 100.0 | % | ||||||||
Creative Professional Revenue
Our Creative Professional revenue is primarily derived from font licenses, font related services and from custom font design services. We license fonts directly to 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. 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. In addition, Creative Professional revenue includes revenue derived from our software as a service, or SaaS, offerings.
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, or accounted for on a percentage-of-completion basis where appropriate. 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.
OEM Revenue
Our OEM revenue is derived substantially from printer imaging, printer driver and display imaging products. Under our licensing arrangements, we either receive a royalty for each product unit incorporating our fonts and technology that is shipped by our OEM customers or a fixed fee as specified under license arrangements with certain 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 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 contract accounting, completed contract for short-term projects and percentage-of-completion for long-term projects, may be used.
2018.
2018
Three Months Ended June 30, | Increase (Decrease) | |||||||||||
2019 | 2018 | |||||||||||
License revenue | $ | 54,136 | $ | 48,093 | $ | 6,043 | ||||||
Service revenue | 9,100 | 12,594 | (3,494 | ) | ||||||||
Cost of revenue—license | 8,231 | 7,282 | 949 | |||||||||
Cost of revenue—service | 2,759 | 2,674 | 85 |
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Revenue: | ||||||||
Creative Professional | 57.1 | % | 53.2 | % | ||||
OEM | 42.9 | 46.8 | ||||||
|
|
|
| |||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 16.0 | 16.3 | ||||||
Cost of revenue—amortization of acquired technology | 1.5 | 2.6 | ||||||
|
|
|
| |||||
Total cost of revenue | 17.5 | 18.9 | ||||||
|
|
|
| |||||
Gross profit | 82.5 | 81.1 | ||||||
Marketing and selling | 37.1 | 31.7 | ||||||
Research and development | 14.9 | 14.9 | ||||||
General and administrative | 18.7 | 21.7 | ||||||
Amortization of other intangible assets | 1.7 | 1.8 | ||||||
|
|
|
| |||||
Total operating expenses | 72.4 | 70.1 | ||||||
|
|
|
| |||||
Income from operations | 10.1 | 11.0 | ||||||
Interest expense, net | 1.1 | 0.6 | ||||||
Loss on foreign exchange | 2.3 | 0.7 | ||||||
Loss (gain) on derivatives | 0.2 | (0.2 | ) | |||||
Other income | (0.1 | ) | — | |||||
|
|
|
| |||||
Total other expense | 3.5 | 1.1 | ||||||
Income before provision for income taxes | 6.6 | 9.9 | ||||||
Provision for income taxes | 4.5 | 5.3 | ||||||
|
|
|
| |||||
Net income | 2.1 | % | 4.6 | % | ||||
|
|
|
|
Revenues
Three Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Revenue: | ||||||||
Creative Professional | 55.7 | % | 63.3 | % | ||||
OEM | 44.3 | 36.7 | ||||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 17.4 | 16.4 | ||||||
Cost of revenue—amortization of acquired technology | 1.3 | 1.4 | ||||||
Total cost of revenue | 18.7 | 17.8 | ||||||
Gross profit | 81.3 | 82.2 | ||||||
Marketing and selling | 29.4 | 33.1 | ||||||
Research and development | 10.7 | 14.0 | ||||||
General and administrative | 18.3 | 19.5 | ||||||
Restructuring | 0.1 | 10.5 | ||||||
Amortization of other intangible assets | 1.3 | 1.6 | ||||||
Total operating expenses | 59.8 | 78.7 | ||||||
Income from operations | 21.5 | 3.5 | ||||||
Interest expense, net | 1.1 | 1.4 | ||||||
Other | 0.3 | (1.1 | ) | |||||
Total other expense | 1.4 | 0.3 | ||||||
Income before provision from income taxes | 20.1 | 3.2 | ||||||
Provision from income taxes | 3.8 | 2.1 | ||||||
Net income | 16.3 | % | 1.1 | % | ||||
The following table presents revenue for these two principal markets (in thousands):
Three Months Ended September 30, | Increase | |||||||||||
2017 | 2016 | |||||||||||
Creative Professional | $ | 34,521 | $ | 27,798 | $ | 6,723 | ||||||
OEM | 25,986 | 24,431 | 1,555 | |||||||||
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|
|
|
| |||||||
Total revenue | $ | 60,507 | $ | 52,229 | $ | 8,278 | ||||||
|
|
|
|
|
|
Three Months Ended June 30, | Increase (Decrease) | |||||||||||
2019 | 2018 | |||||||||||
Creative Professional | $ | 35,225 | $ | 38,417 | $ | (3,192 | ) | |||||
OEM | 28,011 | 22,270 | 5,741 | |||||||||
Total revenue | $ | 63,236 | $ | 60,687 | $ | 2,549 | ||||||
OEM revenue was $26.0$22.2 million and $24.4 million infor the three months ended SeptemberJune 30, 2017 and 2016, respectively, an2018. Revenue from our display imaging customers increased as a result of earning a fixed fee upon a delivery of a large multi-year license customer agreement. This increase of $1.6 million, or 6.4%.was partially offset by a decline in printer revenue. Revenue from our printer imaging electronic OEM customers increaseddecreased period over period partially due to $2.0 million of one-time benefits as we continue to convert customers tolower fixed fee contracts from royalty bearing contracts,contract revenue. We expect there to be continued volatility in periodic revenue based on the timing and increased revenue fromduration of fixed-fee term licenses with our display imaging consumer electronic OEM customers, partially offset by decreased revenue from our independent software vendor customers.
over period.
or 2.0%.
Operating Expenses
Marketinghigher rent expense stemming from headcount changes, period over period.
Research and Development. Research and development expense increased $1.2 million, or 15.6% to $9.0$8.5 million in the three months ended SeptemberJune 30, 2017, as compared2018, mainly due to $7.8lower personnel expenses. Personnel and personnel related expenses decreased primarily due to lower headcount from restructuring actions in the second and fourth quarters of 2018.
General and Administrative. General and administrative expense was $11.3 million and $11.4 million in the three months ended September 30, 2017 and 2016,2018, respectively, a decrease of $0.1$0.3 million, or 0.6%2.3%. Personnel and personnel related expenses decreased $0.6 million in the three months ended September 30, 2017,second quarter of 2019, as compared to the same period in 2016, due2018, primarily to a redeployment of Olapic employees to either sales or development related activities from the administrative organization in connection with our Olapic integration strategy. This was partially offset by increased software expense, of $0.5 million generally due to lower headcount. Outside professional services increased headcount,$0.4 million in the second quarter of 2019, as compared to the same period over period.
in 2018, due to higher advisor fees related to shareholder activities.
14.1%, mainly due to the write off intangible assets associated with the Swyft business in the second quarter of 2018.
Loss on Foreign Exchange
Losses on foreign exchange were $1.4$0.2 million and $0.4income of $0.6 million infor the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, an increasea decrease of $1.0$0.8 million, primarily the result ofor 137.8%, mainly due to currency fluctuations on our foreign denominated receivables and payables. In
Loss (Gain) on Derivatives
Loss (gain) on derivatives was a loss of $0.1 million2019 and a gain of $0.1 million in the three months ended September 30, 2017 and 2016, respectively, a decrease of $0.2 million, due to our 30-day forward currency contracts.
Provision for Income Taxes
During the three months ended September 30, 2017 and 2016,2018, our effective tax rate was 68.5%a provision of 18.7% and 52.7%a provision of 64.7%, respectively. respectively, primarily due to the following:
Six Months Ended June 30, | ||||||||||||
2019 | 2018 | Increase (Decrease) | ||||||||||
License revenue | $ | 96,008 | $ | 93,960 | $ | 2,048 | ||||||
Service revenue | 18,584 | 23,410 | (4,826 | ) | ||||||||
Cost of revenue—license | 15,033 | 16,894 | (1,861 | ) | ||||||||
Cost of revenue—service | 5,560 | 5,498 | 62 |
Results of Operationsbasis for the Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
following discussion of operating results.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Revenue: | ||||||||
Creative Professional | 54.0 | % | 49.8 | % | ||||
OEM | 46.0 | 50.2 | ||||||
|
|
|
| |||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 16.8 | 16.2 | ||||||
Cost of revenue—amortization of acquired technology | 1.5 | 2.4 | ||||||
|
|
|
| |||||
Total cost of revenue | 18.3 | 18.6 | ||||||
|
|
|
| |||||
Gross profit | 81.7 | 81.4 | ||||||
Marketing and selling | 38.9 | 30.0 | ||||||
Research and development | 16.3 | 14.0 | ||||||
General and administrative | 19.9 | 19.1 | ||||||
Amortization of other intangible assets | 1.8 | 1.6 | ||||||
|
|
|
| |||||
Total operating expenses | 76.9 | 64.7 | ||||||
|
|
|
| |||||
Income from operations | 4.8 | 16.7 | ||||||
Interest expense, net | 1.2 | 0.4 | ||||||
Loss on foreign exchange | 2.7 | 0.5 | ||||||
Loss (gain) on derivatives | 0.2 | (0.2 | ) | |||||
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|
| |||||
Total other expense | 4.1 | 0.7 | ||||||
Income before provision for income taxes | 0.7 | 16.0 | ||||||
Provision for income taxes | 0.9 | 6.4 | ||||||
|
|
|
| |||||
Net (loss) income | (0.2 | %) | 9.6 | % | ||||
|
|
|
|
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Revenue: | ||||||||
Creative Professional | 59.3 | % | 62.6 | % | ||||
OEM | 40.7 | 37.4 | ||||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 18.0 | 19.1 | ||||||
Cost of revenue—amortization of acquired technology | 1.5 | 1.4 | ||||||
Total cost of revenue | 19.5 | 20.5 | ||||||
Gross profit | 80.5 | 79.5 | ||||||
Marketing and selling | 31.2 | 34.2 | ||||||
Research and development | 12.4 | 15.2 | ||||||
General and administrative | 20.6 | 23.4 | ||||||
Restructuring | — | 5.6 | ||||||
Amortization of other intangible assets | 1.4 | 1.7 | ||||||
Total operating expenses | 65.6 | 80.1 | ||||||
Income (loss) from operations | 14.9 | (0.6 | ) | |||||
Interest expense, net | 1.3 | 1.3 | ||||||
Other | 0.4 | (0.5 | ) | |||||
Total other expense | 1.7 | 0.8 | ||||||
Income (loss) before benefit from income taxes | 13.2 | (1.4 | ) | |||||
Provision (benefit) from income taxes | 1.9 | (1.0 | ) | |||||
Net income (loss) | 11.3 | % | (0.4 | )% | ||||
Nine Months Ended September 30, | Increase | |||||||||||
2017 | 2016 | |||||||||||
Creative Professional | $ | 92,234 | $ | 75,170 | $ | 17,064 | ||||||
OEM | 78,539 | 75,634 | 2,905 | |||||||||
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|
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| |||||||
Total revenue | $ | 170,773 | $ | 150,804 | $ | 19,969 | ||||||
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|
|
|
|
|
Six Months Ended June 30, | Increase (Decrease) | |||||||||||
2019 | 2018 | |||||||||||
Creative Professional | $ | 67,988 | $ | 73,415 | $ | (5,427 | ) | |||||
OEM | 46,604 | 43,955 | 2,649 | |||||||||
Total revenue | $ | 114,592 | $ | 117,370 | $ | (2,778 | ) | |||||
2018.
2018, respectively, a decline of 1.1%.
2018.
described above.
$0.3 million stemming from headcount changes, period over period.
General and Administrative. General and administrative2018, mainly due to lower headcount.
restructuring action announced June 2018. See Note 14 for further details.
2018.
Loss on Foreign Exchange
Losses on foreign exchange were $4.5 million and $0.8$0.5 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, an increasea decrease of $3.7$0.9 million, primarily the result ofor 176.8%, mainly due to currency fluctuations on our foreign denominated receivables and payables. In the nine months ended September
2018
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash provided by operating activities | $ | 20,739 | $ | 31,947 | ||||
Net cash used in investing activities | (5,326 | ) | (122,044 | ) | ||||
Net cash (used in) provided by financing activities | (28,414 | ) | 99,833 | |||||
Effect of exchange rates on cash and cash equivalents | 1,107 | 327 | ||||||
|
|
|
| |||||
(Decrease) increase in cash and cash equivalents | $ | (11,894 | ) | $ | 10,063 | |||
|
|
|
|
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Net cash provided by operating activities | $ | 17,101 | $ | 3,319 | ||||
Net cash used in investing activities | (811 | ) | (2,285 | ) | ||||
Net cash used in financing activities | (28,651 | ) | (16,720 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | 18 | (304 | ) | |||||
Total decrease in cash, cash equivalents and restricted cash | $ | (12,343 | ) | $ | (15,990 | ) | ||
We generated $31.9 million in cash from operations during the nine months ended September 30, 2016. Net income, after adjusting for depreciation and amortization, amortization of deferred financing costs and accretion of interest, shareloss on retirement of fixed assets, stock based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes and unrealized currency gainloss on foreign denominated intercompany transactions generated $38.9$9.3 million in cash. The
ASC 606. Accrued income taxes used $1.0 million during the six months ended June 30, 2018.
equipment.
2019. Cash generated fromused in financing activities for the ninesix months ended SeptemberJune 30, 20162018 was $99.8 million. Cash borrowed from our revolving Credit Facility for the acquisition of Olapic, Inc. generated $110.0$16.7 million. We received cash from the exercises of stock options of $2.4 million and the excess tax benefit on stock options provided $0.4$3.4 million. We paid cash dividends of $13.0$9.6 million and we paid $8.0 million on our outstanding revolving line of credit. We also purchased $1.0 million of treasury stock in the six months ended June 30, 2018 and paid $1.5 million in employee taxes on shares withheld in the ninesix months ended SeptemberJune 30, 2016.
2018.
Credit Facility
On September 15, 2015,2019, the Company entered into a new credit agreement (the “New Credit Agreement”) by and among the Company, the Company’s subsidiary, Monotype Imaging Inc., (“the Borrower”), any financial institution that becomes a Lender (as defined therein) and Silicon Valley Bank of America, N.A., as agent which provides foradministrative agent. Pursuant to the New Credit Agreement the Lenders have agreed to provide the Borrower with a five-year $150.0$200.0 million senior 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$300.0 million. The Credit Facility is availableprovides more flexibility in addition to an increased borrowing capacity and extended terms, as defined above. The New Credit Agreement replaced the Company’s existing $150.0 million revolving credit facility (the “Original Credit Agreement”) by and between the Company and Silicon Valley Bank. The Original Credit Agreement was terminated effective March 22, 2019 and was scheduled to expire on a revolving basis through September 15, 2020. RepaymentThe Company had $75.0 million outstanding under the Original Credit Agreement at December 31, 2018. Available borrowings under the Original Credit Agreement were reduced by approximately $0.5 million for one standby letter of any amounts borrowed are not required until maturity ofcredit issued in connection with a facility lease agreement, leaving $74.5 million available for borrowings at December 31, 2018. At June 30, 2019, the Company had $65.0 million outstanding under the Credit Facility. However,Available borrowings under the Company may repay any amounts borrowedCredit Facility have been reduced by approximately $0.5 million for one standby letter of credit issued in connection with a facility lease agreement, leaving $134.5 million available for borrowings at any time, without premium or penalty.
June 30, 2019.
As of September 30, 2017, the maximum leverage ratio permitted was 3.00:1.00 and our leverage ratio was 2.47:1.00 and the minimum fixed charge coverage ratio was 1.25:1.00 and our fixed charge ratio was 6.57:1.00.judgment defaults. 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 obligations of the Borrower under the Credit Facility isFacilities are unconditionally guaranteed by the Company and certain subsidiaries and secured by a lien on substantially all of the Company’spresent and its domestic subsidiaries’ tangiblefuture property and intangible property by a pledge of allassets of the equity interests of the Company’s directCompany and indirect domesticsuch subsidiaries, and by a pledge by the Company’s domestic subsidiaries of 65% of the equity of their direct foreign subsidiaries,in each case, subject to limited exceptions. In addition to other covenants, the New Credit Agreement places limits on the Companyexceptions 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 September 30, 2017.
The following table presents a reconciliation from net 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 Facility (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 1,261 | $ | 2,425 | $ | (310 | ) | $ | 14,436 | |||||||
Provision for income taxes | 2,737 | 2,707 | 1,609 | 9,671 | ||||||||||||
Interest expense, net | 699 | 351 | 2,056 | 549 | ||||||||||||
Depreciation and amortization | 3,098 | 3,343 | 9,271 | 9,114 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
EBITDA | $ | 7,795 | $ | 8,826 | $ | 12,626 | $ | 33,770 | ||||||||
Share based compensation | 5,271 | 5,306 | 15,294 | 12,705 | ||||||||||||
Non-cash add backs | — | — | — | — | ||||||||||||
Restructuring, issuance and cash non-operating costs | 202 | 19 | 198 | 497 | ||||||||||||
Acquisition expenses | — | 1,125 | — | 1,125 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted EBITDA(1) | $ | 13,268 | $ | 15,276 | $ | 28,118 | $ | 48,097 | ||||||||
|
|
|
|
|
|
|
|
exclusions.
2019.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 1,261 | $ | 2,425 | $ | (310 | ) | $ | 14,436 | |||||||
Interest expense, net | 699 | 351 | 2,056 | 549 | ||||||||||||
Other expense, net | 1,444 | 272 | 4,858 | 479 | ||||||||||||
Provision for income taxes | 2,737 | 2,707 | 1,609 | 9,671 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | $ | 6,141 | $ | 5,755 | $ | 8,213 | $ | 25,135 | ||||||||
Depreciation and amortization | 3,098 | 3,343 | 9,271 | 9,114 | ||||||||||||
Share based compensation | 5,271 | 5,306 | 15,294 | 12,705 | ||||||||||||
Acquisition-related compensation(1) | 1,407 | 1,077 | 4,221 | 2,233 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net adjusted EBITDA(2) | $ | 15,917 | $ | 15,481 | $ | 36,999 | $ | 49,187 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Interest expense, net | 698 | 799 | 1,469 | 1,527 | ||||||||||||
Other (income) expense, net | 239 | (633 | ) | 445 | (535 | ) | ||||||||||
Provision (benefit) for income taxes | 2,376 | 1,274 | 2,237 | (1,191 | ) | |||||||||||
Income (loss) from operations | 13,620 | 2,135 | 17,118 | (703 | ) | |||||||||||
Depreciation and amortization | 3,168 | 3,198 | 6,337 | 6,447 | ||||||||||||
Stock based compensation (1) | 3,879 | 4,590 | 8,098 | 8,837 | ||||||||||||
Acquisition-related compensation (2) | 166 | 1,084 | 333 | 2,273 | ||||||||||||
Non-recurring expenses(3) | 743 | 6,376 | 719 | 11,490 | ||||||||||||
Net adjusted EBITDA (5) | $ | 21,576 | $ | 17,383 | $ | 32,605 | $ | 28,344 | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
GAAP income (loss) per diluted share | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Amortization, net of tax of $0.01, $0.01, $0.01 and $0.02, respectively | 0.04 | 0.03 | 0.07 | 0.07 | ||||||||||||
Stock based compensation, net of tax of $0.02, $0.02, $0.03 and $0.03, respectively (1) | 0.08 | 0.10 | 0.17 | 0.18 | ||||||||||||
Acquisition-related compensation, net of tax of $0.00, $0.00, $0.00 and $0.00, respectively (2) | 0.00 | 0.03 | 0.01 | 0.05 | ||||||||||||
Non-recurring expenses, net of tax of $0.00, $0.04, $0.00 and $0.07, respectively(4) | 0.01 | 0.12 | 0.01 | 0.22 | ||||||||||||
Non-GAAP earnings per diluted share(6) | $ | 0.38 | $ | 0.30 | $ | 0.57 | $ | 0.51 | ||||||||
(1) | For the three and six months ended non-recurring amount has been included in restructuring expenses. |
(2) | For the three months ended June 30, 2019, the amount includes |
For the three months ended June 30, 2019, the amount primarily includes $0.7 million of certain advisor fees related to shareholder activities. For the three months ended June 30, 2018, the amount includes $6.4 million of restructuring expenses. For the six months ended June 30, 2019, the amount primarily includes $0.7 million of certain advisor fees related to shareholder activities. For the six months ended June 30, 2018, the amount includes $2.7 million of certain advisor fees related to shareholder activities, $2.2 million of royalty expenses, recorded in cost of sales, associated with revenue that was not recognized under ASC 606 and $6.6 million of restructuring expenses. |
(4) | For the three months ended June 30, 2019, the amount primarily includes $0.5 million, or $0.01 per share, net of tax, of certain advisor fees related to shareholder activities. For the three months ended June 30, 2018, the amount includes $4.9 million, or $0.12 per share, net of tax, of restructuring expenses. For the six months ended June 30, 2019, the amount primarily includes $0.5 million, or $0.01 per share, net of tax, of certain advisor fees related to shareholder activities. For the six months ended June 30, 2018, the amount includes $2.1 million, or $0.06 per share, net of tax, of certain advisor fees related to shareholder activities, $1.7 million, or $0.04 per share, net of tax, of royalty expenses, recorded in cost of sales, associated with revenue that was not recognized under ASC 606 and $5.0 million, or $0.12 per share, net of tax, of restructuring expenses. |
(5) | Net adjusted EBITDA 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 income (loss) from operations and net income (loss). Net adjusted EBITDA as an operating performance measure has material limitations since it excludes the statement of 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, net adjusted EBITDA should be evaluated in conjunction with net income (loss) for complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable GAAP performance measure to net adjusted EBITDA. As net adjusted EBITDA is not defined by GAAP, our definition of net adjusted EBITDA 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 that net adjusted EBITDA 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. |
In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA and net adjusted EBITDA as discussed above, we discuss a key measure that is not calculated according to GAAP. This non-GAAP measure is non-GAAP earnings per diluted share, which is defined as earnings per diluted share before amortization of acquired intangible assets and share based compensation expenses. We use non-GAAP earnings per diluted share as one of our principal indicators of the operating performance of our business. We use non-GAAP earnings per diluted share in internal forecasts, supplementing the financial results and forecasts reported to our board of directors and evaluating short-term and long-term operating trends in our operations. We believe that non-GAAP earnings per diluted share permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period-to-period without direct correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our non-GAAP earnings per diluted share may be valuable indicators of our operating performance.
The following table presents a reconciliation from net income (loss) per diluted share, which is the most directly comparable GAAP measure, to non-GAAP earnings per diluted share as used by management:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP net income (loss) per diluted share | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.35 | |||||||
Amortization, net of tax of $0.03, $0.03, $0.12 and $0.06, respectively | 0.01 | 0.03 | 0.03 | 0.09 | ||||||||||||
Share based compensation, net of tax of $0.09, $0.07, $0.31 and $0.13, respectively | 0.04 | 0.06 | 0.07 | 0.20 | ||||||||||||
Acquisition-related compensation, net of tax of $0.00, $0.00, $0.00 and $0.00, respectively(1) | 0.04 | 0.03 | 0.11 | 0.06 | ||||||||||||
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Non-GAAP earnings per diluted share(2) | $ | 0.12 | $ | 0.18 | $ | 0.20 | $ | 0.70 | ||||||||
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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 non-GAAP earnings per diluted share is a material limitation. non-GAAP earnings per diluted share is a material limitation. Acquisition-related compensation and its associated income or (expense) has a meaningful impact on our financial statements therefore its exclusion fromnon-GAAP earnings per diluted 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 fromnon-GAAP earnings per diluted share 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 diluted 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. |
Contractual Obligations | Total | July 2019 - June 2020 | July 2020 - June 2022 | July 2012 - June 2024 | Thereafter | |||||||||||||||
Operating leases | $ | 17,270 | $ | 4,250 | $ | 7,283 | $ | 3,924 | $ | 1,813 |
For
total revenue for the three months ended June 30, 2018 or for the six months ended June 30, 2019 or 2018.
Our business could be negatively affected as a result of the actions of activist stockholders.
Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in publicly traded companies recently. On October 6, 2017, we were notified that various funds affiliated with Starboard Value, BLR Partners LP and FMLP Inc. (collectively, the “Starboard Group”), have obtained a significant stake in our Company for the purposes of (i) engaging in discussions with the Company regarding operating results, cost and capital allocation, opportunities to enhance stockholder value and corporate governance, (ii) taking all action necessary to achieve the foregoing and (iii) taking any other actions the Starboard Group determines to undertake in connection with their respective investment in the Company, including, but not limited to, a potential solicitation of proxies in furtherance of seeking representation on the Board of Directors of the Company. Considering and responding to any proposals from the Starboard Group or any other activist stockholders, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. We expect to incur significant legal and advisory fees in the fourth quarter of 2017 related to the activist stockholder matters. Additionally, such stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with customers and service providers, make it more difficult to attract and retain qualified personnel, and cause our stock price to experience periods of volatility.
Period | Total Number of Shares Purchased(1)(2) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||
July 4, 2017 to July 28, 2017(3) | 210,321 | $ | 16.90 | 196,989 | $ | 13,622,045 | ||||||||||
August 2, 2017 to August 31, 2017 | 35,764 | $ | 9.52 | 18,000 | $ | 13,280,506 | ||||||||||
September 1, 2017 to September 29, 2017(3) | 31,306 | $ | 14.73 | 18,000 | $ | 12,943,743 | ||||||||||
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Total | 277,391 | $ | 13.72 | 232,989 | $ | 12,943,743 | ||||||||||
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Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||
April 3, 2019 to April 29, 2019 (1)(2)(3) | 81,496 | $ | 13.88 | 55,428 | $ | 777 | ||||||||||
May 3, 2019 to May 31, 2019 (1) | 33,475 | $ | — | — | $ | — | ||||||||||
June 2, 2019 to June 30, 2019 (1)(2) | 95,928 | $ | 2.96 | — | $ | — | ||||||||||
Total | 210,899 | $ | 6.72 | 55,428 | $ | — | ||||||||||
(1) | The Company repurchased unvested restricted stock |
(2) | The Company withheld 2,263 shares and 17,472 shares of vested restricted stock to satisfy the payment of taxes associated with the awards’ vesting in April and June, respectively. |
(3) | The Company purchased shares of common stock in accordance with its share repurchase program announced on |
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Exhibit No. | Description | |||
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31.1 | ||||
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32.1 | ||||
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 |
* | Filed herewith. |
** | Furnished herewith. |
MONOTYPE IMAGING HOLDINGS INC. | ||||||
Date: | By: | / | ||||
Scott E. Landers | ||||||
President, Chief Executive Officer and Director
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(Principal Principal Accounting Officer) |
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