UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~

2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission File Number

001-33612

MONOTYPE IMAGING HOLDINGS INC.

(Exact name of registrant as specified in its charter)


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

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

Registrant’s telephone number, including area code: (781)

970-6000

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes

☒

☐

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

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

☐

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

Securities registered pursuant to Section 12(b) of the Act:


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

The number of shares outstanding of the registrant’s common stock as of ~~October 24, 2017~~July 18, 2019 was ~~41,734,360.~~

~~MONOTYPE IMAGING HOLDINGS INC.~~

~~INDEX~~

41,288,487.


		~~Page~~

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

   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


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


Total assets
   $ 521,281 $ 525,020


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


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 )


Total stockholders’ equity
   315,982 313,978


Total liabilities and stockholders’ equity
   $ 521,281 $ 525,020


	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

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

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

   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


Total cost of revenue
   10,604 9,861 31,282 28,030


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


Total operating expenses
   43,762 36,613 131,278 97,639


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 )


Total other expense
   2,143 623 6,914 1,028


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


Net income (loss)
   $ 1,261 $ 2,425 $ (310 ) $ 14,436


Net income (loss) available to common stockholders—basic
   $ 1,196 $ 2,341 $ (310 ) $ 13,982


Net income (loss) available to common stockholders—diluted
   $ 1,195 $ 2,340 $ (310 ) $ 13,983


Net income (loss) per common share:

Basic
   $ 0.03 $ 0.06 $ (0.01 ) $ 0.36


Diluted
   $ 0.03 $ 0.06 $ (0.01 ) $ 0.35


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


	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

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

MONOTYPE IMAGING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

STOCKHOLDERS’ EQUITY

(~~Unaudited~~in thousands, except share and ~~in thousands)~~

   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


Net cash provided by operating activities
   20,739 31,947


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 )


Net cash used in investing activities
   (5,326 ) (122,044 )


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


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
Cash and cash equivalents at beginning of period
   91,434 87,520


Cash and cash equivalents at end of period
   $ 79,540 $ 97,583

per share data)

MONOTYPE IMAGING HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~

June 30, ~~2017~~

2019

1. Nature of the Business

Monotype Imaging Holdings Inc. (the “Company” or “we”) ~~empowers expression~~is a leading global provider of branded and engagement for creatives, designers, engineers and marketers at the world’s most revered brands. These professionals sit at globally recognized organizations or are independent creatives located across the globe. Regardless of their organization or location, we support their efforts by producing compelling content and technologies that build beloved and valued brands, provide technology that cultivate meaningful engagement with their brand enthusiasts, and provide intelligence and insight through the measure of content performance to optimize resources and spending. Our mission is to be the first place to turn for the design assets, technology and expertise for ~~all touchpoints. For creatives, designers~~creative professionals and ~~engineers, we empower expression through high-value~~consumer device manufacturers. We provide high-quality creative assets and technology solutions across multiple devices and mediums. Our solutions, which include type, visual content marketing solutions, custom design ~~assets,~~services, and tools and technologies that ~~improve~~enable the ~~discovery, curation, measurement~~creative process are licensed through our direct sales channel,

e-commerce

platforms 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 mediapartner platforms. We ~~offer more than 99,000 typeface designs,~~also provide consumer device manufacturers and ~~include some~~independent software vendors, or ISVs, with the right solutions for delivering consistent, compelling user experiences. Our solutions power the visual expression of the ~~world’s most widely used designs, such as the Times New Roman~~^®~~, Helvetica~~^®~~, Frutiger~~^®~~, ITC Franklin Gothic™, FF Meta~~leading makers of a wide range of devices, including laser printers, digital copiers and ~~Droid™ typefaces, and support more than 250 Latin and non-Latin languages. Our e-commerce websites, including~~~~myfonts.com, fonts.com, fontshop.com,~~~~and~~ ~~linotype.com,~~ ~~which attracted more than 50 million visits in 2016 from over 200 countries and territories, offer thousands of high-quality font products from the Monotype Libraries,~~mobile devices, among others, as well as ~~from third parties.~~

provide a high-quality text experience in numerous software applications and operating systems. We license our design assets and technology to creative professionals, consumer device manufacturers and independent software vendors.

We are headquartered in Woburn, Massachusetts and we operate in

one

business segment: the development, marketing and licensing of design assets and technology. We also maintain various offices worldwide for selling and marketing, research and development and administration. WeAt

June 30,

2019, we conduct our operations through ~~five~~

four

domestic operating subsidiaries, Monotype Imaging Inc., Monotype ITC Inc. (“ITC”), MyFonts Inc.~~, Swyft Media Inc.~~ (“MyFonts”) and Olapic, Inc., and

six ~~wholly-owned~~

foreign operating subsidiaries, Olapic Argentina S.A., Monotype Ltd. (“Monotype UK”), Monotype GmbH (“Monotype Germany”), Monotype Solutions India Pvt. Ltd. (“Monotype India”), Monotype Hong Kong Ltd. (“Monotype Hong Kong”) and Monotype ~~KK.~~

KK (“Monotype Japan”).

2016-02,

right-of-use

asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of ~~cash flows.~~adoption of ASU

2016-02

must be calculated using the applicable incremental borrowing rate at the date of adoption. This guidance is effective for annual and interim ~~reporting~~ periods beginning after December 15, ~~2016, with early adoption permitted.~~ 2018.

We adopted ASU ~~2016-09~~

2016-02

on January 1, ~~2017~~2019. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allows us to carryforward the historical lease classification. We also elected the practical expedient that allows an accounting policy election to exclude right of use assets and ~~elected to account~~lease obligations from the balance sheet for ~~forfeitures when they occur, on~~all leases with an initial term of 12 months or less.

As permitted in the standard, the Company is using a modified retrospective ~~basis. As~~approach, where current periods are shown under the new standard, while comparative periods are shown under Accounting Standard Codification No. 840, Leases (prior to the adoption of ASU

2016-02),

where entities recognize a ~~result of this adoption, $0.6 million of additional stock based compensation expense, net of tax, was recorded~~cumulative effect to retained earnings onat the date of adoption ~~as a cumulative effect adjustment related to our accounting policy change for forfeitures. In accordance with the~~

without restating prior periods’ balances or disclosures.

The adoption of this guidance, the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation will no longer be recorded to additional paid in capital in our balance sheet. Instead, such amounts will be recorded to tax expense. We also elected to prospectively apply the change in presentation of excess tax benefits wherein excess tax benefits recognized ASU

2016-02

on stock based compensation expense is now classified as an operating activity in our condensed consolidated statements of cash flows. We did not adjust the classifications of excess tax benefits in our condensed consolidated statements of cash flows for the three and nine months ended September 30, 2016. The adoption did not have any otherJanuary 1, 2019, had a material impact on our ~~financial statements.~~

~~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

2016-02

was the recognition of additional
right-of-use
assets and lease liabilities for operating leases. At adoption, the Company recognized
right-of-use
assets of approximately $14.4 million and total lease liabilities of $15.9 million.

Derivatives

In August 2017, the FASB issued ASU

No. 2017-12,

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

This guidance simplifies the application of the hedge accounting guidance in current GAAP and ~~improve~~improves the financial reporting of hedging relationships by allowing entities to better align their risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods. We adopted ASU

2017-12

on January 1, 2019 and there was no material impact on our consolidated financial statements.

Comprehensive Income

In February 2018, the FASB issued ASU

2018-02,

Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated

Other Comprehensive Income.

This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Cuts and Jobs Act (“The Act”). The new standard is effective for annual and interim periods beginning after December 15, 2018. We adopted this pronouncement on January 1, 2019 and elected to not reclassify the stranded federal corporate tax rate effects to retained earnings, which amount to approximately $0.6 million.

Pending

Internal Use Software

In August 2018, the FASB issued ASU

2018-15,

Intangibles

– Goodwill and Other –

Internal-Use

Software (Topic

350-40):

Customer’s Accounting for Implementation of Cost Incurred in a Cloud Computing Arrangement that is Considered a Service Contract,

(“ASU

2018-15”)

This update clarifies the accounting for implementation costs related to a cloud computing arrangement that is a service contract previously defined in ASU

2015-05.

This guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU ~~2017-12;~~

2018-15;

however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Defined Benefit Pension ~~Benefits~~

Plan

In ~~March 2017,~~August 2018, the FASB issued ASU ~~No. 2017-07~~ ~~Compensation-Retirement Benefits (Topic 715)-Improving~~
2018-14,

Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the ~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement~~Disclosure Requirements for Defined Benefit ~~Cost.~~ Plans,

(“ASU

2018-14”)

This guidance ~~revises~~eliminates requirements for certain disclosures and requires certain additional disclosures concerning the ~~presentation of the net periodic~~company’s defined benefit ~~cost in the income statement. The new standard will be~~pension plans and other postretirement plans. This guidance is effective for annual and interim reporting periods beginning after December 15, ~~2017.~~2020, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU ~~2017-07;~~

2018-14;

however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,
(“ASU
2018-13”).
This guidance is designed to improve the effectiveness of the disclosure. The new standard is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU
2018-13;
however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Goodwill

In January 2017, the FASB issued ASU

2017-04,

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

, which eliminated step 2 from the goodwill impairment test. This guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption ~~permitted for testing dates after January 1, 2017.~~permitted. We are currently evaluating the impact of the adoption of ASU

2017-04;

however, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

~~Statement of Cash Flows~~

Financial Instruments – Credit Losses

In ~~November~~June 2016, the FASB issued ASU ~~2016-18,~~~~Statement~~

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of ~~Cash Flows (Topic 230): Restricted Cash~~Credit Losses on Financial Instruments

, which requires companies to ~~include amounts generally described as restricted cash~~measure credit losses utilizing a methodology that reflects expected credit losses and ~~restricted cash equivalents in cash~~requires a consideration of a broader range of reasonable and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We do not expect the adoption of this guidancesupportable information to ~~have a material effect on our consolidated financial statements and related disclosures.~~

~~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 assess~~are currently evaluating the impact of the ~~new guidance on our operations, financial results and related disclosures. To date,~~adoption of ASU

2016-13;

however, we ~~have substantially completed our initial assessment~~do not expect the adoption of ~~the potential areas of the balance sheet and financial statement components impacted, have prepared our preliminary accounting policy memorandum and are beginning~~this standard to assess the quantitative impact of adoption, including assessing the impact of the new guidance on our results of operations and internal controls. Based on our procedures performed to date, we have identified certain revenue streams, specifically term and royalty-based license agreements, for which the standard could have a material impact on our consolidated financial statements.

4. Revenue Recognition

We recognize revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects consideration that we expect to be entitled to receive in exchange for these services, and excludes any sales incentives and taxes collected from customers, that are subsequently remitted to governmental authorities.

Nature of Licenses and Services & Timing of Revenue Recognition

Creative Professional Revenue

Our Creative Professional revenue is primarily derived from rights to use font licenses, custom font design services, our web font and digital ad related services (which includes our web font services and web design tools), and hosted software as a service, or SaaS, offerings. We license fonts directly to

end-users

through our direct sales organization,

e-commerce

websites and indirectly through third-party resellers. Our customers include graphic designers, advertising agencies, media organizations and corporations.

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

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

re-evaluate

this conclusion.

OEM Revenue

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

customer. Certain OEM contracts may include customer support services and unspecified updates for our font technology which is ~~different~~a distinct stand-ready performance obligation and recognized ratably over the service period. Many of 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.

Disaggregated Revenue

The following table presents our ~~current practice~~revenue disaggregated by the timing of ~~recognizing~~revenue recognition as well as by type of product or services offered (see Note 13 for further information regarding revenue by major markets and revenue by geography):


	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

Significant Judgments

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

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

With the exception of OEM royalty ~~revenue when it is~~licenses, our contracts do not generally include a variable component to the transaction price. If royalties are not yet reported to us for the period in which the subsequent sale is expected to occur, we are required to

estimate such royalties. When a new contract is signed for the licensing of IP on a

per-unit

basis, we deliver the licenses and based on ongoing discussions with the customer, we will estimate when the distribution will begin and estimate royalties based on distribution forecasts provided by the ~~licensee, at which time~~customer. For ongoing arrangements, we have developed a process to estimate

per-unit

royalties based on historical data, trends, seasonality, knowledge of changes in contracts/rates, and quarterly discussions with sales personnel to identify significant changes in the fee is deemed fixed or determinable. The Company has, and plans to continue to, convert printer imaging electronic OEM customers to fixed fee contracts from royalty bearing contracts. At September 30, 2017, approximately 80%customer’s distribution forecast (via seasonality, introduction of ~~estimated printer revenue has been converted to fixed fee license contracts. The~~ new ~~guidance also requires certain costs~~products, discontinuation of products, etc.). Revenue related to ~~contract acquisition, such as sales commissions,~~the estimation of

per-unit

royalties was

5.5

million and $

4.6

million for the

three

months ended June 30, 2019 and 2018, respectively.

As discussed above, certain of our Creative Professional contracts have payment terms that differ from the timing of revenue recognition which requires us to ~~be capitalized and amortized over~~assess whether the ~~expected period of benefit.~~transaction price for those contracts include a significant financing component. We currently recognize such expenses based on when they are earned. We are currently in the process of evaluating our commission plans and other factors that that will impact the period over which such expenses are recognized under the new guidance. We currently plan to electhave elected the practical expedient which permits an entity to not adjust for the effects of a significant financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those contracts in which the period exceeds the one year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. We ~~also plan~~estimate the significant financing component provided to ~~elect~~our customers with extended payment terms by determining the present value of the future payments by applying a discount rate that reflects the customer’s creditworthiness.

Transaction Price Allocated to Future Performance Obligations

The aggregate amount of transaction price allocated to performance obligations consists principally of amounts billed for undelivered services that are included in deferred revenue, as well as unbilled backlog, which is the amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations, for enforceable contracts when there is not a present unconditional right to invoice (a receivable). Substantially all the long-term amount is expected to be recognized as revenue within the following 24 month period. The aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied or are partially satisfied as of June 30, 2019 and December 31, 2018 are in the table below (in thousands):


	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

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivable, or contract asset, when revenue is recognized prior to invoicing and when we have an enforceable right to payment. When invoicing occurs prior to revenue recognition, we have unearned revenue, or contract liabilities, presented on our condensed consolidated balance sheet as “deferred revenue” within deferred revenue and other long-term liabilities, as appropriate at June 30, 2019 and December 31, 2018. When invoicing occurs after revenue recognition, we have earned revenue, or contract assets, presented on our condensed consolidated balance sheet as “unbilled receivables” within accounts receivable and other assets, as appropriate at June 30, 2019 and December 31, 2018.

Revenue recognized during the three months ended June 30, 2019 and 2018 from amounts included in deferred revenue at the beginning of the period were approximately $3.7 million and $7.6 million, respectively. Revenue recognized during the six months ended June 30, 2019 and 2018 from amounts included in deferred revenue at the beginning of the period were approximately $9.4 million and $14.4 million, respectively. Revenue recognized during the three and six months ended June 30, 2019 from performance obligations satisfied or partially satisfied in previous periods, mainly due to changes in the estimate of royalty revenues, was $5.5 million. Revenue recognized during the three and six months ended June 30, 2018 from performance obligations satisfied or partially satisfied in previous periods, mainly due to changes in the estimate of royalty revenues, was $4.6 million. During the three and six months ended June 30, 2019 and 2018, the change in contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was not material. The contract modifications entered into during the six months ended June 30, 2019 and June 30, 2018 did not have a significant impact on the Company’s contract assets or deferred revenue.

Costs to Obtain and Fulfill a Contract

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain commissions paid under our sales incentive programs meet the requirements to be capitalized. The amount capitalized for incremental costs to obtain contracts as of June 30, 2019 was $4.2 million, all of which was long term and has been included in other assets in our condensed consolidated balance sheet. Costs to obtain a contract are

amortized as sales and marketing expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract and the estimate of the amortization period, which ranges between three and ten years depending on the nature of the performance obligations within the contract. These costs are periodically reviewed for impairment; however, no impairment existed as of June 30, 2019 or as of December 31, 2018. The amount of capitalized costs related to contracts which were terminated on or before June 30, 2019, due to the customer exercising an opt-out clause or the cancellation of an anticipated renewal was not material and was charged to operating expenses in the first half of 2019.

We have elected to apply the practical expedient ~~which permits~~and recognize the incremental costs of obtaining contracts as an entity to only apply the transition guidance to contracts that are not completed at the date of the initial application of ASU 2014-09. We currently plan to elect the practical expedient which permits us to expense ~~costs as they are~~when incurred if the amortization period of the assets that the Company otherwise would have recognized is ~~determined to be~~ one year or less.

We ~~expect~~capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the ~~new guidance~~contract, (ii) are expected to have a significant impact on our financial statements, including the expected transition adjustment to adopt ASC606; however, we are still in the process of evaluating the quantitative impact that the standard will have on our financial statements and related disclosures, which may be material.

~~Based on the progress of our evaluation to date, while we are still in the process of quantifying the transition adjustment~~generate resources that will be ~~recorded~~used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs primarily relate to font license fees that we pay on ~~January 1, 2018, which will depend in part on the additional contracts~~certain fonts that are ~~executed during the fourth quarter~~owned 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 million~~June 30, 2019 or as of ~~revenue from contracts entered into on or before~~ December 31, ~~2017,~~2018.

5. Restricted Cash

Cash and cash equivalents that ~~otherwise would have been included in 2018 revenue had ASC 606 not been adopted effective January 1, 2018. This estimate is~~are restricted as to withdrawal or use under the terms of contractual agreements are classified on our balance sheet based on ~~contracts that have been entered into as of September~~relevant restrictions. At June 30, ~~2017, as well as an estimate based on our current sales forecasts, of contracts that will be entered into between October 1, 2017~~2019 and December 31, ~~2017. As~~2018, we ~~have not yet completed our analysis of the quantitative impact of ASC 606 on contracts with our customers,~~had $6.0 million and since this estimate includes assumptions about future events that may or may not take place, actual results could differ materially from this estimate. Furthermore, as the estimate excludes several other key aspects of ASC 606, such as the changes in accounting for costs to acquire contracts, it is not intended to provide an estimate of the full transition adjustment that we will ultimately record. Finally, since the estimate excludes the potential impact of contracts entered into subsequent to January 1, 2018, it is not intended to provide a complete estimate of the impact of ASC606 on 2018 revenue.

~~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, net~~respectively, of cash ~~acquired. The Merger Agreement included an additional $9.0 million of consideration that has been placed~~held in escrow ~~and will~~to 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 Company~~payments due in 2019 in connection with the Olapic, Inc. acquisition.

The ~~results~~following table provides a reconciliation of ~~operations of Olapic have been included in our consolidated results~~cash, cash equivalents and ~~revenue is included~~restricted cash reported within the ~~Creative Professional market beginning on August 9, 2016, the date of acquisition.~~

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


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

~~Total~~		~~198~~

~~The purchase price was allocated~~consolidated 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 portion~~total of the ~~purchase price has been allocated to intangible assets and goodwill, respectively, and is reflected~~same 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 presented~~cash 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.


	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

6. Fair Value Measurements

The following table presents our financial assets and liabilities that are carried at fair value (in thousands):

   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    —      —








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    —      —








Total long-term financial assets
   17,990    17,990    —      —








Total
   $ 58,421    $ 31,749    $ 26,672    $ —

   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)
Assets:

Cash equivalents—money market funds
   $ 16,994    $ 16,994    $ —      $ —
Cash equivalents—commercial paper
   16,989    —      16,989    —
Cash equivalents—corporate bonds
   4,802    —      4,802    —
Cash equivalents—U.S. government and agency securities
   11,368    11,368    —      —








Total short-term financial assets
   50,153    28,362    21,791    —
Restricted cash equivalents—money market fund
   9,000    9,000    —      —
Restricted cash equivalents—U.S. government and agency security fund
   8,992    8,992    —      —








Total long-term financial assets
   17,992    17,992    —      —








Total
   $ 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	$	—	$	—

7. Intangible Assets

Intangible assets ~~consist~~as of ~~the following~~June 30, 2019 and December 31, 2018 were as follows (dollar amounts in thousands):

   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








Total
      $ 201,115    $ (114,560 ) $ 86,555    $ 198,541    $ (107,824 ) $ 90,717


			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

9. Debt

On ~~September 15, 2015,~~March 22, 2019, the Company entered into a new credit agreement (the “~~New~~“New Credit ~~Agreement~~”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 for~~administrative 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~~”“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 available~~provides 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.

~~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 borrowed~~Agreement 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, available~~Available borrowings under the Credit Facility have been reduced by approximately $0.5 million for one standby letter of credit issued in connection with a facility lease agreement, leaving ~~$53.5 million and $44.5~~$134.5 million available for ~~borrowing~~borrowings at ~~September~~June 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 ~~maximum~~consolidated leverage ratio, ~~permitted was 3.00:1.00~~equal 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

pro-rata

share of prior loan syndicate lenders that did not participate in the new facility were written off and charged to other expense in the first quarter of 2019.

The New Credit Agreement includes financial covenants which require the Company to maintain

(i) a consolidated leverage ratio of no greater than 3.25 to 1.0 or, upon a qualified acquisition subject to certain conditions, 3.75 to 1.0 and (ii) a minimum consolidated interest coverage ratio of 3.00 to 1.0.

At June 30, 2019, our consolidated leverage ratio was ~~2.47:1.00~~0.59 to 1.0 and ~~the minimum fixed charge~~our consolidated interest coverage ratio was ~~1.25:1.00~~21.38 to 1.0. The New Credit Agreement also contains customary affirmative and ~~our fixed charge ratio was 6.57:1.00.~~negative covenants for transactions of this type and other affirmative and negative covenants agreed to by the parties, including, among others, limits on the Company and its subsidiaries’ ability to incur debt or liens, engage in sale-leaseback transactions, make loans, investments and acquisitions, incur additional indebtedness, engage in mergers, enter into asset sales, transact with affiliates and alter its business. Adjusted EBITDA, under the Credit Facility, is defined as consolidated net earnings (or loss), plus net interest expense, income taxes, depreciation and amortization, and share based compensation expense, plus acquisition expenses not to exceed $2.0 million, minus capitalized research and development expense, plus restructuring, issuance costs, cash

non-operating

costs and other expenses or losses minus cash

non-operating

gains and other

non-cash

gains; provided, however that the aggregate of all cash

non-operating

expense shall not exceed 10% of Consolidated EBITDA. The New Credit Agreement also provides for a number of customary events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control and 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 is~~Facilities are unconditionally guaranteed by the Company and certain subsidiaries and secured by a lien on substantially all of the ~~Company’s~~present and ~~its domestic subsidiaries’ tangible~~future property and ~~intangible property by a pledge of all~~assets of the ~~equity interests of the Company’s direct~~Company and ~~indirect domestic~~such 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 Company~~exceptions 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 asexclusions.

10. Income Taxes

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

   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 )%






Reported income tax provision
   $ 2,737    68.5 % $ 2,707    52.7 %






   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	%

As of June 30, ~~2017,~~2019, the ~~reserve~~liability for ~~uncertain~~unrecognized tax ~~positions~~benefits was approximately ~~$6.5 million. Of this amount,~~ $4.0 million, all of which is recorded as a reduction of deferred tax ~~assets and $2.5 million is classified as long-term liabilities.~~

~~10.~~assets.

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

   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

   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


	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	)

12. Stockholders’ Equity

Share ~~Purchases~~

repurchases

On ~~August 30, 2016,~~May 3, 2018, the Company’s Board of Directors approved a share purchase program permitting repurchases of up to $25.0 million of the Company’s outstanding shares of common stock through ~~December 31, 2017.~~

June 7, 2019

. During the quarter ended ~~September~~June 30, ~~2017,~~2019, the Company repurchased a total of ~~232,989~~55,428 shares of its common stock for an aggregate purchase price of ~~$4.2~~$1.1 million, including brokers’ fees. Intended to offset shareholder dilution, the Company ~~expects~~expected to make repurchases periodically, either on the open market or in privately negotiated transactions, subject to availability, as business and market conditions ~~warrant.~~warrant, through April 29, 2019, at which date the maximum amount of purchases was reached. The share ~~repurchase~~purchase program ~~does~~did not obligate the Company to acquire any particular amount of common stock, and the program may behave been suspended or discontinued at management’s and/or the Board of ~~Directors’~~Director’s discretion.

~~Share~~

Stock Based Compensation

We account for ~~share~~stock based compensation in accordance with ASC Topic No. 718,~~Compensation—~~

Compensation – Stock Compensation,,

which requires the measurement of compensation costs at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. The following presents the impact of ~~share~~stock based compensation expense on our condensed consolidated statements of operations (in thousands):

   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

As of ~~September~~June 30, ~~2017,~~2019, the Company had ~~$42.7~~$24.8 million of unrecognized ~~share based~~ compensation expense related to employees and directors’ unvested stock ~~option~~ awards ~~restricted~~and stock units ~~and restricted stock awards~~ that are expected to be recognized over a ~~weighted-average~~weighted average period of ~~2.6~~2.1 years.

~~12.~~

13. Segment Reporting

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

   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

Geographic segment information

~~Effective as~~

We market our products and services principally through offices in the United States, United Kingdom, Germany, China, Republic of ~~January 1, 2017, our presentation of geographic revenue has been changed to better align with how our business operates. As a result, we now~~Korea and Japan. We report revenue based on the geographic location of our ~~customers, rather than based on the location of our subsidiary receiving such revenue.~~customers. For example, licenses may be sold to large international companies, which may be headquartered in the Republic of Korea, ~~but the sales are received and recorded by our subsidiary located in the United States. Historically, in the table below~~ such revenues would be included in the revenue for ~~the United States, whereas for our new presentation, such revenues would be reported in the Republic of Korea and included in the revenue for~~ Rest of World. ~~Geographic revenue for the three months and nine months ended September 30, 2016 has been recast to conform to this presentation.~~

~~We market our products and services principally through offices in the U.S., United Kingdom, Germany, China, Republic of Korea and Japan.~~

The following table summarizes revenue by customer location (in thousands of dollars, except percentages):

   Three Months Ended 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	%

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

   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

14. Restructuring

In December 2017, the Company implemented a restructuring plan to accelerate the integration of the Olapic business into the core of Monotype in an effort to improve operational efficiencies and to align its investment in the Olapic business to better support it over time. The plan provided for the elimination of 89 positions worldwide. As part of this plan, the Company recorded charges of approximately $3.0 million for severance and termination benefits and $0.2 million of facilities and associated costs. This restructuring was completed in the third quarter of 2018.

On June

2018

, the Company implemented a restructuring plan, under which the Company reduced headcount in certain areas of the Company, made the decision to cease sales and marketing of the Swyft product and service line and to close a regional office, all in an effort to improve operational efficiencies. The plan provided for the elimination of approximately

positions worldwide across a variety of functions, with a concentration within engineering, as well as sales and marketing. The Company recorded net charges totaling $

6.8

million related to severance and termination benefits, net of stock based compensation reversal, the write off of goodwill and intangible assets attributable to Swyft, the acceleration of the final deferred compensation payment to the founders of Swyft, and charges associated with the office closure. We reversed $

1.4

million of stock based compensation expense as a result of forfeitures of awards by employees included in the restructuring plan. In the six months ended June

2019

, the severance and termination accrual was reduced based on the completion of certain final termination agreements. This restructuring plan was completed by December

2018

, other than the payment of deferred termination benefits to certain terminated employees.

The Company continued to refine its cost structure, and in December 2018, implemented a restructuring plan in an effort to improve operational efficiencies. The plan provided for the elimination of 15 positions worldwide, including the positions held by

two

of the Olapic founders. To date, the Company recorded charges of approximately $1.0 million for severance and termination benefits associated with this plan and $0.9 million of accelerated expense associated with the final deferred compensation payment in connection with the departure of those founders. In addition, $0.9 million was recorded for additional stock based compensation expense associated with the acceleration of the vesting of those departing founders’ equity grants in accordance with the separation agreements. This restructuring plan was completed in the second quarter of 2019, other than the payment of deferred termination benefits to certain terminated employees.

The following presents the details of the restructuring expense line item within our consolidated statements of operations (in thousands):


	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

Forward Looking Statements and Projections

This Quarterly Report on Form
10-Q
contains ~~forward-looking~~forward looking statements. ~~Forward-looking~~Forward looking statements relate to future events or our future financial performance. We generally identify ~~forward-looking~~forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these ~~forward-looking~~forward looking statements largely on our current expectations and projections about future events and financial

trends that we believe may affect our business, results of operations and financial condition. The outcome of the events described in these forward looking statements is subject to risks, uncertainties and other factors described in “Risks Factors” in our Annual Report on Form

10-K

for the year ended December 31, 2018, as well as those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Quarterly Report on Form
10-Q.
Accordingly, you should not rely upon ~~forward-looking~~forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the ~~forward-looking~~forward looking statements will be achieved or occur, and actual results could differ materially from those projected in the ~~forward-looking~~forward looking statements. The ~~forward-looking~~forward looking statements made in this Quarterly Report on Form
10-Q
relate only to events as of the date on which the statements are made. We undertake no obligation to update any ~~forward-looking~~forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Overview

~~Monotype empowers~~

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

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

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

our embedded solutions support compelling user interfaces. We offer more than ~~99,000~~13,000 typeface designs, and include some of the world’s most widely used designs, such as the Times New Roman

, Helvetica^{®
, Frutiger^{®
, ITC Franklin Gothic™Gothic™
, FF Meta and Droid™ Droid™
typefaces, and support more than 250 Latin andnon-Latin
languages. Oure-commerce
websites, includingmyfonts.com, fonts.com, linotype.com,
andfontshop.com,and linotype.com,
which attracted more than 50 million 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.}}

Sources of Revenue

We derive revenue from two principal sources: licensing our ~~fonts~~design assets and technology to brands and creative professionals, which we refer to as ~~our~~ Creative Professional revenue, and licensing our text imaging solutions to consumer device manufacturers and independent software vendors, which we refer to as ~~our~~ OEM revenue. We derive our Creative Professional revenue primarily from brands, agencies, publishers, corporations, enterprises, small businesses and individuals. We derive our OEM revenue primarily from consumer device manufacturers. Our Creative Professional and OEM revenues are both comprised of license and service revenues. We classify cloud-based subscriptions and other services, such as font related services, custom font design and post contract support as service revenue. All other revenue is classified as license revenue. We operate our business based on our two principal markets, Creative Professional and OEM, which is the basis for the following discussion of operating results.

Some of our revenue streams, particularly project-related and custom font design service revenue where spending is largely discretionary in nature, have historically been, and we expect them to continue to be in the future, susceptible to weakening economic conditions.

~~Effective as~~

Geographic revenue, ~~has been changed to better align with our business operates. As a result, we now report revenue~~which is based on the geographic location of our customers, rather than based on the location of our subsidiary receiving such revenue. For example, licenses may be sold to large international companies which may be headquartered in the Republic of Korea, but the sales are received and recorded by our subsidiary located in the United States. Historically, such revenues would be included in the revenue for the United Statesis in the table below, whereas for our new presentation, such revenues would be reported in the Republic of Korea and included in the revenue for Rest of World in the table below. Geographic revenue for the three months and nine months ended September 30, 2016, has been recast to conform to this presentation.

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

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	%

For the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, revenue from customers outside the United States comprised ~~53.8%~~45.6% and ~~51.9%~~55.4%, respectively, of our total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, revenue from customers outside the United States comprised ~~56.3%~~49.7% and ~~57.5%~~55.7%, respectively, of our total revenue. We expect that sales ~~by our~~to international ~~subsidiaries~~customers will continue to represent a substantial portion of our revenue for the foreseeable future. Future international revenue will depend on the continued use and expansion of our products worldwide.

We derive a significant portion of ~~our~~ OEM revenue from a limited number of customers, in particular manufacturers of laser printers and consumer electronic devices. For the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, our top ten licensees by revenue, most of which are OEM customers, accounted for approximately ~~27.5%~~34.9% and ~~33.5%~~23.8% of ~~our~~ total revenue, respectively. One customer accounted for 14.9% of total revenue for the three months ended June 30, 2019. No one customer accounted for more than 10% of total revenue for the three months ended June 30, 2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, our top ten licensees by revenue accounted for approximately ~~28.4%~~28.6% and ~~30.9%~~22.2% of ~~our~~ total revenue, respectively. ~~Although no~~No one customer accounted for more than 10% of ~~our total~~ revenue for the ~~three months or nine~~six months ended ~~September~~June 30, ~~2017~~2019 or ~~2016, if~~2018. If we are unable to maintain relationships with major customers or establish relationships with new customers, our licensing revenue will be adversely affected.

~~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.

Cost of Revenue

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

Cost of revenue also includes amortization of acquired technology, which we amortize over 7 to 15 years. For purposes of amortizing acquired technology, we estimate the remaining useful life of the technology based upon various considerations, including our knowledge of the technology and the way our customers use it. We use the straight-line method to amortize ~~our~~ acquired technology. There is no reliable evidence to suggest that we should expect any other pattern of amortization than an even pattern, and we believe this best reflects the expected pattern of economic usage.

Gross Profit

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

customers. ~~Our~~ Creative Professional revenue is growing at a faster rate than ~~our~~ OEM revenue. We expect these trends to continue. Our gross profit is subject to variability from

period-to-period,

depending on the product mix and the level of custom font design and SaaS based service revenue.

Critical Accounting Policies

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

Information about our critical accounting policies may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies,” included in our Annual Report on Form

10-K

for the year ended December 31, ~~2016, except for the adoption as of January 1, 2017, of guidance in ASU 2016-09 as more fully described in Note 3 to the accompanying unaudited condensed consolidated quarterly statements.~~

2018.

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2017~~2019 Compared to Three Months Ended ~~September~~June 30, ~~2016~~

2018

Revenue and cost of revenue, bifurcated into license and service, is as follows:


	Three Months Ended June 30,				Increase (Decrease)
	2019		2018		Increase (Decrease)
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

License revenue increased primarily due to a large multi-year agreement with one of our display imaging customers signed in the second quarter of 2019. This was partially offset by a decline in printer revenue. Service revenue decreased in the three months ended June 30, 2019, as compared to the same period in 2018, mainly due to increased customer churn in the last half of 2018. Gross profit from license revenue, before amortization of acquired technology, was consistent at 84.8% and 84.9% in the three months ended June 30, 2019 and 2018, respectively. Gross profit from service revenue, before amortization of acquired technology, decreased to 69.7% in the second quarter of 2019, as compared to 78.8% in the same period in 2018. See further discussion below for additional information regarding our period over period revenue and cost of revenue.

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

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

   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 discussion compares the three months ended June 30, 2019 with the three months ended June 30, 2018.

Revenue by ~~Market.~~Market

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

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

   Three Months Ended
September 30,    Increase
   2017    2016
Creative Professional
   $ 34,521    $ 27,798    $ 6,723
OEM
   25,986    24,431    1,555






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

Revenue

Revenue was ~~$60.5~~$63.2 million and ~~$52.2~~$60.7 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, an increase of ~~$8.3~~$2.5 million, or ~~15.9%~~4.2%.

Creative Professional revenue ~~increased $6.7~~was $35.2 million ~~or 24.2%, to $34.5~~and $38.4 million infor the three months ended ~~September~~June 30, ~~2017, as compared~~2019 and 2018, respectively, a decrease of $3.2 million, or 8.3%, due to ~~$27.8~~a decline in certain SAAS-based revenue and

web-based

sales mainly due to increased customer churn in the last half of 2018, partially offset by growth in sales to enterprise customers.

OEM revenue increased $5.8 million, inor 25.8%, to $28.0 million for the three months ended ~~September~~June 30, ~~2016, mainly due to continued growth in sales of recurring licenses and revenue~~2019, from ~~Olapic.~~

~~OEM revenue was $26.0~~$22.2 million ~~and $24.4 million in~~for the three months ended ~~September~~June 30, ~~2017 and 2016, respectively, an~~2018. 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 ~~increased~~decreased period over period partially due to ~~$2.0 million of one-time benefits as we continue to convert customers to~~lower 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 from~~duration of fixed-fee term licenses with our ~~display imaging consumer electronic OEM customers, partially offset by decreased revenue from our independent software vendor~~ customers.

Cost of Revenue and Gross Profit

Cost of revenue, excluding amortization of acquired technology, was ~~$9.7~~$11.0 million and ~~$8.5~~$10.0 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, an increase of ~~$1.2~~$1.0 million, or ~~13.4%~~10.4%. ~~In the third quarter~~As a percentage of ~~2017,~~sales, cost of revenue, excluding amortization of acquired technology, ~~included lower~~was 17.4% and 16.4% of total revenue in the three months ended June 30, 2019 and 2018, respectively. The increase in cost of revenue, excluding amortization of acquired technology, is mainly due to higher associated costs with certain of our OEM ~~business, as a result of the one-time benefit of converting customers~~product mix and partially due to ~~fixed fee contracts. This was partially offset by a full quarter of costs from our Olapic business, as compared to the same~~an increase in revenue, period ~~in 2016. We acquired Olapic on August 9, 2016.~~

over period.

The portion of cost of revenue consisting of amortization of acquired technology ~~decreased $0.4~~was $0.8 million ~~or 33.3%, to~~and $0.9 million for the three months ended ~~September~~June 30, ~~2017, as compared to $1.3~~2019 and 2018, respectively, a decrease of $0.1 million, ~~for the three months ended September 30, 2016, primarily due to an asset that became fully amortized in October 2016.~~

or 2.0%.

Gross profit in the three months ended ~~September~~June 30, ~~2017 increased 1.4 percentage points~~2019 decreased 0.9% to ~~82.5%~~81.3% of sales, as compared to ~~81.1%~~82.2% of sales in the same period in 2019, mainly due lower margins on OEM revenue, as described above.

Operating Expenses

Marketing and Selling.

Marketing and selling expense was $18.6 million and $20.1 million in the three months ended ~~September~~June 30, ~~2016. In~~2019 and 2018, respectively, a decrease of $1.5 million, or 7.5%. Personnel and personnel related expenses decreased $1.5 million, period over period, mainly due to our restructuring actions in the ~~third~~second and fourth quarters of 2018. Targeted marketing spending decreased in the second quarter of ~~2017,~~2019, as compared to the same period in ~~2016, our gross profit included higher margins from our OEM business, as a result of the one-time benefit, described above, partially~~2018, due to portfolio decisions around discretionary programs, which was offset by ~~a full quarter of Olapic, which provides a lower gross profit percentage than our other product lines. We acquired Olapic on August 9, 2016.~~

~~Operating Expenses~~

~~Marketing~~higher rent expense stemming from headcount changes, period over period.

Research and ~~Selling.~~~~Marketing~~Development.

Research and ~~selling~~development expense ~~increased $6.0~~decreased $1.7 million, or ~~35.8%~~20.0%, to ~~$22.5~~$6.8 million in the three months ended ~~September~~June 30, ~~2017,~~2019, as compared to $16.5 million in the same period in 2016. Personnel and personnel related expenses increased $4.5 million due to additional headcount mainly from our acquisition of Olapic and targeted hiring in our direct sales organization, and increased variable compensation due to the increased revenue, period over period. Increased rent and software expense, mainly due to increased headcount, contributed $1.0 million to the overall increase in marketing and selling expense, in the third quarter of 2017, as compared to the same period in 2016. Targeted marketing spending increased $0.3 million in the third quarter of 2017, as compared to the same period in 2016, mainly due to our acquisition of Olapic and the timing of other marketing activities.

~~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 ~~September~~June 30, ~~2017, as compared~~2018, mainly due to ~~$7.8~~lower 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 $11.6 million and $11.9 million in the three months ended ~~September~~June 30, ~~2016. Personnel~~2019 and personnel related expenses increased $1.1 million due to increased headcount in connection with our acquisition of Olapic, net of a reduction for capitalized personnel costs for development projects and an increase in personnel costs classified as cost of sales for custom font development in the third quarter of 2017, as compared to the same period in 2016.

~~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, due~~2018, 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.

Restructuring.

Restructuring expense decreased $6.3 million, or 99.5%, to $32 thousand in the three months ended June 30, 2019, as compared to $6.4 million in the three months ended June 30, 2018, a result of the restructuring action announced June 2018. See Note 14 for further details.

Amortization of Other Intangible Assets.

Amortization of other intangible assets was $0.8 million and $1.0 million ~~and $0.9 million in~~for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$0.1~~$0.2 million, or ~~8.4%.~~

14.1%, mainly due to the write off intangible assets associated with the Swyft business in the second quarter of 2018.

Interest Expense, Net

Interest expense, net of interest income was $0.7 million and ~~$0.4~~$0.8 million infor the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$0.3~~$0.1 million, or 12.6%, mainly due to a ~~full quarter of interest expense on our borrowings~~reduction in the balance outstanding under our revolving line of credit ~~for the acquisition~~and partially due to a decrease in interest rates.

Other

Other was an expense of ~~Olapic on August 9, 2016.~~

~~Loss on Foreign Exchange~~

~~Losses on foreign exchange were $1.4~~$0.2 million and ~~$0.4~~income of $0.6 million infor the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$1.0~~$0.8 million, ~~primarily the result of~~or 137.8%, mainly due to currency fluctuations on our foreign denominated receivables and payables. In

Provision for (Benefit from) Income Taxes

For the three months ended ~~September~~June 30, ~~2017, the loss was primarily due to the strengthening of the Euro, as compared to the U.S. dollar, on U.S. dollar denominated receivables held by our foreign subsidiaries.~~

~~Loss (Gain) on Derivatives~~

~~Loss (gain) on derivatives was a loss of $0.1 million~~2019 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:

The ~~increase in~~impact of foreign earnings increased our effective tax rate ~~for~~by 3.2% in the ~~three months ended September 30, 2017 included 40.7% for non-deductible expenses,~~second quarter of 2019, as compared to 17.6% for the same period in 2016. The increase is due to non-deductible deferred compensation associated with the Olapic acquisition. The effective tax rate for the three months ended September 30, 2017 included an expense of 6.4% related to a net shortfall on stock compensation. We adopted ASU 2016-09,~~Improvements to Employee Share-Based Payments~~ ~~on January 1, 2017 which specifies that all tax effects related to share based payments will be recorded through the income statement. There was no similar item~~40.1% in the same period in ~~2016, as these items were recorded~~2018, due to ~~equity prior~~our ability to better utilize foreign tax credits and to limit the amount of U.S. tax related to income subject to the ~~adoption~~Global Intangible Low Taxed Income (“GILTI”) provisions. In the prior period, these provisions of ~~this standard.~~ the Tax Cuts and Jobs Act (“The Act”) resulted in a significantly higher effective tax rate on foreign earnings due to limitations on the Company’s ability to utilize foreign tax credits.

The Company has reflected a reduction in its valuation allowance for ~~the third quarter of 2017 included~~foreign tax credits, resulting in a benefit of ~~9.5%~~10.2%, related to the amount of foreign tax credit carryforwards that the Company is estimating that it will be able to utilize based on 2019 taxable income. In the same period in 2018, there was no change to the valuation allowance.

Results of Operations for ~~research credits,~~the Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Revenue and cost of revenue, bifurcated into license and service, is as follows:


	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

License revenue increased primarily due a large multi-year agreement with one of our display imaging customers mostly offset by a decline in printer revenue. Service revenue decreased in the six months ended June 30, 2019, as compared to ~~2.8%~~the same period in 2018, mainly due to increased customer churn in the last half of 2018. Gross profit from license revenue, before amortization of acquired technology, was consistent at 84.8% and 84.9% in the six months ended June 30, 2019 and 2018, respectively. Gross profit from service revenue, before amortization of acquired technology, decreased to 69.7% in the first half of 2019, as compared to 78.8% in the same period in ~~2016. State~~2018. See further discussion below for additional information regarding our period over period revenue and ~~local income taxes, net~~cost of ~~federal tax benefit, provided~~revenue. Gross profit from license revenue, before amortization of acquired technology, increased to 84.3% from 82.0%. The increase is primarily due to a ~~benefit~~large agreement with one of ~~4.3%~~our display imaging customers in the ~~third quarter~~six months ended June 30, 2019. Gross profit from service revenue, before amortization of ~~2017, as compared~~acquired technology, decreased to 70.1% from 76.5%. See further discussion below for additional information regarding our period over period revenue and cost of revenue.

While revenue from services has grown to a ~~charge~~level of ~~10.9% in~~significance requiring separate disclosure, we continue to operate our business based on our two principal markets, Creative Professional and OEM, which is the ~~same period in 2016, mainly due to adjustments to our deferred state tax balances, which resulted from changes in our estimated state tax rate.~~

~~Results of Operations~~basis for the ~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

following discussion of operating results.

The following table sets forth items in the condensed consolidated

year-to-date ~~statements~~

statement of operations as a percentage of sales for the periods indicated:

   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 )


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
)%

The following discussion compares the six months ended June 30, 2019 with the six months ended June 30, 2018.

Revenue by ~~Market.~~Market

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

   Nine Months Ended
September 30,    Increase
   2017    2016
Creative Professional
   $ 92,234    $ 75,170    $ 17,064
OEM
   78,539    75,634    2,905






Total revenue
   $ 170,773    $ 150,804    $ 19,969

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
)

Revenue

Revenue was ~~$170.8~~$114.6 million and ~~$150.8~~$117.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$20.0~~$2.8 million, or ~~13.2%~~2.4%.

Creative Professional revenue ~~increased $17.1~~was $68.0 million ~~or 22.7%, to $92.2~~and $73.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to ~~$75.2 million in~~ the same period in ~~2016,~~2018, a decrease of $5.4 million, or 7.4%, due to a decline in certain SAAS-based revenue and

web-based

sales mainly due to ~~revenue from Olapic and continued growth~~increased customer churn in ~~sales~~the last half of ~~recurring licenses and digital ad revenue.~~

2018.

OEM revenue was ~~$78.5~~$46.6 million and ~~$75.6~~$44.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively,~~2019, as compared to the same period in 2018, an increase of ~~$2.9~~$2.6 million, or ~~3.8%.~~6.0%, primarily as a result of earning a fixed fee upon delivery of a large multi-year license contract with one of our display imaging customers. This increase was partially offset by a decline in printer revenue. Revenue from our printer imaging ~~electronic~~ OEM customers ~~increased~~decreased period over period partially due to ~~$6.1 million of one-time benefits as we continue to convert customers to~~lower 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 from~~duration of fixed-fee term licenses with our ~~display imaging consumer electronic OEM customers, partially offset by decreased revenue from our independent software vendor~~ customers.

Cost of Revenue and Gross Profit

Cost of revenue excluding amortization of acquired technology ~~was $28.6~~decreased $1.8 million, ~~and $24.4~~or 8.0%, to $20.6 million ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively, an increase of $4.2~~2019 as compared to $22.4 million ~~or 17.0%. The increase~~ in ~~cost of revenue, excluding amortization of acquired technology, is partially due to both product mix and an increase in revenue, period over period.~~the six months ended June 30, 2018. In the ~~nine months ended September 30, 2017, cost~~first half of ~~revenue included a full nine months~~2018, there was $2.2 million of

non-recurring

royalty expense in connection with the adoption of ASC 606, which was partially offset by higher associated costs ~~from our Olapic business which we acquired on August 9, 2016 and a larger proportion of~~with our Creative Professional revenue ~~as compared to~~in the ~~same period in 2016.~~first half of 2019. As a percentage of ~~revenue,~~sales, cost of revenue, excluding amortization of acquired technology, was ~~16.8%~~18.0% and ~~16.2%~~19.1% of total revenue in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively.~~

2018, respectively, a decline of 1.1%.

Amortization of acquired technology was ~~$2.6 million and $3.6~~unchanged at $1.7 million for both the ~~nine~~six months ~~ended September~~periods June 30, ~~2017~~2019 and ~~2016, respectively, a decrease of $1.0 million, or 26.3%, primarily due to an asset that became fully amortized in October 2016.~~

2018.

Gross profit was ~~81.7%~~80.5% and ~~81.4%~~79.5% of sales in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, an increase of ~~0.3~~1.0 percentage ~~points, mainly due to variations~~point. The increase in ~~product mix, net of decreased amortization of acquired technology. In~~gross profit in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to the same period in ~~2016, our gross profit included a higher proportion of~~2018, was primarily due to the

one-time

additional

non-recurring

royalty expense in the prior period that did not occur in the current period, partially offset by lower margins on Creative Professional revenue, in our mix of total revenue which typically has a higher associated cost than OEM, partially offset by improved margins on our Creative Professional revenue with enterprise customers. Our Creative Professional revenue has grown organically and from the acquisition of Olapic. In the nine months ended September 30, 2017, Creative Professional revenue increased as ~~a percentage of total revenue to 54.0% of total revenue, as compared to 49.8% of total revenue in the same period in 2016.~~

described above.

Operating Expenses

Marketing and Selling.

Marketing and selling expense ~~increased $21.1~~was $35.7 million ~~or 46.7%, to $66.4 million for the nine months ended September 30, 2017, as compared to $45.3~~and $40.2 million in the ~~same period in 2016.~~six months ended June 30, 2019 and 2018, a decrease of $4.5 million, or 11.1%. Personnel and personnel related expenses ~~increased $17.1~~decreased $3.9 million in ~~period over period, mainly from our acquisition~~the first half of Olapic and targeted hiring in our direct sales organization, and increased variable compensation due to the increased revenue, period over period. Increased software and rent expense, primarily due to increased headcount, contributed $2.7 million to the overall increase in marketing and selling expense, in the nine months ended September 30, 2017,2019, as compared to the same period in ~~2016. Marketing spending increased $0.6 million, period over period, primarily~~2018, mainly due to lower headcount during the first half of 2019 from our ~~acquisition~~restructuring actions in the second and fourth quarters of ~~Olapic and targeted campaigns. Consulting expenses increased $0.6~~2018. Targeted marketing spending decreased $0.7 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to the same period in ~~2016,~~2018, due to ~~the timing~~portfolio decisions around discretionary programs, which was partially offset by higher rent expense of ~~activities.~~

$0.3 million stemming from headcount changes, period over period.

Research and Development.

Research and development expense ~~increased $6.7~~decreased $3.6 million, or ~~31.6%~~20.0%, to ~~$27.8~~$14.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to ~~$21.1~~$17.8 million ~~for~~in the ~~nine months ended September 30, 2016.~~same period in 2018 primarily due to lower personnel expenses. Personnel and personnel related expenses ~~increased $5.4~~decreased $3.4 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to the same period in ~~2016,~~2018, mainly due to ~~increased~~lower headcount in connection with our acquisition of Olapic, net of a reduction for capitalized personnel costs for development projects and an increase in personnel costs classified as cost of sales for custom font developmentfrom restructuring actions in the ~~third quarter~~second and fourth quarters of ~~2017,~~2018.

General and Administrative.

General and administrative expense decreased $3.9 million, or 14.1% to $23.6 million in the six months ended June 30, 2019, as compared to $27.5 million in the same period in 2018. Outside consulting and legal expenses decreased $2.8 million in the six months ended June 30, 2019, as compared to the same period in ~~2016. Increased infrastructure expenses contributed $0.7 million~~2018, primarily due to the ~~increase~~additional expenses incurred in ~~research and development,~~the prior period ~~over period, a result of increased headcount and the addition of Olapic. Consulting~~related to shareholder activities. Personnel expenses ~~increased $0.4~~decreased $1.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to the same period in ~~2016.~~

~~General and Administrative.~~ ~~General and administrative~~2018, mainly due to lower headcount.

Restructuring.

Restructuring expense ~~increased $5.2~~decreased $6.6 million, or ~~18.0%~~99.9%, to ~~$34.0~~$8 thousand in the six months ended June 30, 2019, as compared to $6.6 million in the ~~nine~~six months ended ~~September~~June 30, 2017, as compared to $28.8 million in the nine months ended September 30, 2016. Personnel and personnel related expenses increased $3.0 million in the nine months ended September 30, 2017, as compared to the same period in 2016, primarily the2018, a result of ~~key hiring and~~ the ~~addition of Olapic. Software and depreciation expense together increased $1.9 million, period over period, mainly due to the addition of Olapic.~~

restructuring action announced June 2018. See Note 14 for further details.

Amortization of Other Intangible Assets.

Amortization of other intangible assets was ~~$3.0~~$1.7 million and ~~$2.4~~$2.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$0.6~~$0.3 million, or ~~26.2%~~16.5%, mainly due to ~~our acquisition~~the write off intangible assets associated with the Swyft business in the second quarter of ~~Olapic.~~

2018.

Interest Expense, Net

Interest expense, net of interest income was ~~$2.0~~unchanged at $1.5 million for both the six months ended June 30, 2019 and 2018.

Other

Other was an expense of $0.4 million and ~~$0.5 million in the nine months ended September 30, 2017 and 2016, respectively, an increase~~income of ~~$1.5 million, mainly due to nine months of interest expense on our borrowings under our revolving line of credit for the acquisition of Olapic on August 9, 2016.~~

~~Loss on Foreign Exchange~~

~~Losses on foreign exchange were $4.5 million and $0.8~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, ~~an increase~~a decrease of ~~$3.7~~$0.9 million, ~~primarily the result of~~or 176.8%, mainly due to currency fluctuations on our foreign denominated receivables and payables. ~~In the nine months ended September~~

30 ~~2017, the loss was mainly attributed to the strengthening~~

Provision for Income Taxes

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, our effective tax rate was ~~123.9%~~a provision of 14.7% and ~~40.1%~~a provision of 70.3%, ~~respectively.~~ respectively, primarily due to the following:

The ~~increase in~~impact of foreign earnings increased our effective tax rate by 3.3% in the six months ended June 30, 2019, as compared to 26.4% in the same period in 2018, due to our ability to better utilize foreign tax credits and to limit the amount of U.S. federal tax related to income subject to the GILTI provisions. In the prior period, these provisions of The Act resulted in a significantly higher effective tax rate on foreign earnings due to limitations on the Company’s ability to utilize foreign tax credits.

The Company has reflected a reduction in its valuation allowance for foreign tax credits, resulting in a benefit of 10.2%, related to the amount of foreign tax credit carryforwards that the Company is estimating that it will be able to utilize based on 2019 taxable income. There was no such reduction in the prior period.

Non-deductible

expenses added 2.2% to the effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017 included 55.9% for non-deductible expenses,~~2019, as compared to ~~5.5%~~14.2% for the same period in ~~2016. The increase is due to non-deductible~~2018, a result of the acceleration of the final payment of deferred compensation ~~associated with the Olapic acquisition and also due~~ to the ~~fact that~~founders of Swyft in June 2018 and to two of the founders of Olapic in December 2018. As a result of those payments, the total amount of

non-deductible

compensation in the current period is reduced. In addition, the impact of ~~the non-deductible expenses~~these items as a percentage of pre-tax income is ~~higher in 2017 as compared~~lower due to ~~2016, as a result of the decrease in overall~~higher pre-tax income. ~~The effective tax rate for the nine months ended September 30, 2017 included an expense of 61.5% related to a net shortfall on stock compensation. We adopted ASU 2016-09,~~~~Improvements to Employee Share-Based Payments~~ on January 1, 2017 which specifies that all tax effects related to share based payments will be recorded through the income statement. There was no similar item in the same period in 2016, as these items were recorded to equity prior to the adoption of this standard. State and local income taxes, net of federal tax benefit, provided a benefit of 18.0% in the nine months ended September 30, 2017, as compared to a charge of 3.4% in the same period in 2016, mainly due to adjustments to our deferred state tax balances, which resulted from changes in our estimated state tax rate.

Recently Issued Accounting Pronouncements

Information concerning recently issued accounting pronouncements may be found in Note 3 to our unaudited condensed consolidated financial statements included in this Quarterly Report onForm

10-Q.

Liquidity and Capital Resources

Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~

2018

Since our inception, we have financed our operations primarily through cash from operations, private and public stock sales and long-term debt arrangements, as described below. We believe our existing cash and cash equivalents, ~~our~~ cash flow from operating activities and available bank borrowings will be sufficient to meet our anticipated cash needs for at least one year from the issuance of these financial statements. At ~~September~~June 30, ~~2017,~~2019, our principal sources of liquidity were cash and cash equivalents totaling ~~$79.5~~$47.8 million and a ~~$150.0~~$200.0 million revolving credit facility, of which there was ~~$96.0~~$65.0 million of outstanding borrowings. On ~~August 30, 2016,~~May 3, 2018, our Board of Directors approved a share repurchase program of up to $25.0 million of our outstanding common stock, which ~~permits~~permitted purchases through ~~December 31, 2017.~~June 7, 2019. In the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, we used ~~$6.4~~$7.7 million in cash to purchase the remaining shares outstanding under the ~~plan and in the year ended December 31, 2016, we used $5.6 million in cash to purchase shares under the~~ plan. ~~At September 30, 2017, the plan has $12.9 million available for future purchases. Olapic has, and will continue to operate at a net loss in the near term.~~ Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion and future acquisitions we might undertake.

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

   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
)

Operating Activities

We generated $17.1 million in cash from operations during the six months ended June 30, 2019. Net income, after adjusting for non-cash items such as depreciation and amortization, loss on extinguishment of debt, loss on retirement of assets, amortization of deferred financing costs, accreted interest, stock based compensation, provision for doubtful accounts, deferred income taxes, and unrealized currency gain on foreign denominated intercompany transactions, generated $29.6 million in cash. Decreased accrued expenses used $9.7 million in cash, primarily a result of the payment of 2018 accrued variable compensation. Increased deferred revenue and decreased accounts receivable generated $9.1 million in cash as a result of customer payments received. Prepaid expenses and other assets used $7.3 million in cash, mainly due to an increase in long-term unbilled receivables from a large multi-year customer agreement, in

addition to $0.2 million of prepaid software license renewals and $0.9 million of capitalized financing costs in connection with the new Credit Facility. Increased tax refunds receivable combined with decreased accrued income taxes used $4.6 million during the six months ended June 30, 2019.

Variations in operating cash flows occur from

time-to-time,

because our enterprise customers make upfront payments on subscription ~~revenue.~~revenue or conversely may enter into multi-year license agreements with future billing installments of the earned consideration. These payments are required under the terms of our license agreements and can cause large fluctuations in accounts receivable, other assets and deferred revenue. The timing and extent of such payments may significantly impact our cash balances.

We generated ~~$20.7~~$3.3 million in cash from operations during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Net ~~income, after adjusting for depreciation and amortization,~~ loss, on retirement of fixed assets, loss on debt extinguishment, amortization of deferred financing costs and accretion of interest, share based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes and unrealized currency gain on foreign denominated intercompany transactions generated $26.1 million in cash. Increased prepaid expenses and other assets combined with decreased accounts payable, offset by an increase in accrued expenses and other liabilities, used $2.2 million, which is mainly due to the timing of payments. Accrued income taxes used $0.3 million during the nine months ended September 30, 2017. Increased accounts receivable, coupled with decreased deferred revenue used $2.9 million net in cash, which is mainly due to the timing of customer payments.

~~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, ~~share~~loss on retirement of fixed assets, stock based compensation, ~~excess tax benefit on stock options,~~ provision for doubtful accounts, deferred income taxes and unrealized currency ~~gain~~loss on foreign denominated intercompany transactions generated ~~$38.9~~$9.3 million in cash. The

non-cash

impairment of Swyft related intangible assets added back $3.2 million.

Accrued expenses and accounts payable used $9.9 million, inclusive of large

non-recurring

payments of deferred compensation of $7.0 million, additional royalty payments resulting from the adoption of ASC 606 of $2.1 million and payment of investor relations advisor fees of $2.2 million. In ~~connection with the acquisition of Olapic Inc. on August 9, 2016,~~addition we ~~used $9.0 million to fund an escrow account to be used for future payments due in 2018~~paid 2017 accrued variable compensation, offset by additional restructuring accruals. Decreased deferred revenue and ~~2019 under the Merger Agreement. Accrued income taxes generated $0.9 million during the nine months ended September 30, 2016. Deferred revenue, net of~~ increased accounts receivable generated ~~$1.5~~$5.6 million ~~net~~ in cash, ~~which is~~primarily a result of customer payments received, net of an increase in unbilled receivables due to the adoption of ASC 606. Increased prepaid expense and other assets used $4.0 million in cash, mainly due to ~~the timing of a large~~an increase in long term unbilled receivables and capitalized contract ~~signing. Increases in accrued expenses and other liabilities, and prepaid expenses and other assets, combined with a decrease in accounts payable used $0.4 million net in cash, which is mainly due~~costs related to the ~~timing~~adoption of ~~payments.~~

ASC 606. Accrued income taxes used $1.0 million during the six months ended June 30, 2018.

Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, we used ~~$5.3~~$0.8 million in investing activities mainly for the purchase of property and equipment. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, we used ~~$122.0~~$2.3 million in investing activities mainly for the purchase of ~~$1.6 million of~~ property and ~~equipment and $120.4 million for acquisitions.~~

equipment.

Financing Activities

Cash used in financing activities ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was ~~$28.4~~$28.7 million. We received cash from the ~~exercises~~exercise of stock options of ~~$1.0~~$0.3 million. We paid cash dividends of ~~$14.0~~$9.6 million, and paid ~~$9.0~~$10.2 million on our outstanding revolving line of credit. We also purchased ~~$6.4~~$7.7 million in treasury stock and paid $1.5 million in employee taxes on shares withheld in the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2019. Cash ~~generated from~~used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 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 ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

2018.

Dividends

On ~~July 26, 2017~~April 18, 2019, our Board of Directors approved a $0.113 per share or $4.7 million, quarterly cash dividend on our outstanding common stock. The record date was October 2, 2017 and the dividend was paid to shareholders of record on October 20, 2017. We anticipate this to be a recurring quarterly dividend with future payments and record dates, subject to board approval. On October 26, 2017, the Company’s Board of Directors approved a $0.113$0.116 per share quarterly cash dividend on our outstanding common stock. The record date ~~is set for January 2, 2018~~was July 1, 2019 and the dividend ~~is payable~~was paid to shareholders of record on ~~January~~July 19, 2019.

Credit Facility

On March 22, ~~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 for~~administrative 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 available~~provides 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. ~~Repayment~~The 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 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 $65.0 million outstanding under the Credit Facility. ~~However,~~Available borrowings under the ~~Company may repay any amounts borrowed~~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 $134.5 million available for borrowings at ~~any time, without premium or penalty.~~

June 30, 2019.

Borrowings under the Credit Facility bear interest through March 21, 2024 at a variable rate ~~not less than zero based upon,~~per annum equal to LIBOR plus between 1.0% and 1.625%, or at the ~~Company’s~~Borrower’s option, ~~either LIBOR or~~ the higher of (i) the prime rate as ~~published in the Wall Street Journal,~~announced by Bank of America and (ii) 0.5% plus the overnight federal funds rate, plus in each case, ~~an applicable margin. The applicable~~between 0.0% and 0.625%, with the exact interest rate margin ~~for LIBOR loans,~~determined based on the ~~applicable~~consolidated leverage ~~ratio, is 1.25%, 1.50% or 1.75% per annum, and the applicable margin for base rate loans, based on the applicable leverage ratio, is either 0.25%, 0.50% or 0.75%% per annum.~~ratio. At ~~September~~June 30, ~~2017,~~2019, our rate, inclusive of applicable margins, was ~~2.8%~~3.3% for ~~LIBOR, and at~~LIBOR. At December 31, ~~2016,~~2018, our rate under the Original Credit Agreement, inclusive of applicable margins, was ~~2.5%~~4.3% for LIBOR. The Company ~~had~~is required to pay a commitment fee, based on the consolidated leverage ratio, equal 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 ~~borrowings~~letters of credit. In connection with the New Credit Agreement, the Company incurred closing and legal fees of approximately $0.9 million, which have been accounted for as deferred financing costs and will be amortized to interest expense over the term of the New Credit Agreement. In addition, $34.0 thousand of unamortized deferred financing costs associated with the

pro-rata

share of prior loan syndicate lenders that did not participate in the new facility were written off and charged to other expense in the first quarter of 2019.

The New Credit Agreement includes financial covenants which require the Company to maintain (i) a consolidated leverage ratio of no greater than 3.25 to 1.0 or, upon a qualified acquisition subject to certain conditions, 3.75 to 1.0 and (ii) a minimum consolidated interest coverage ratio of 3.00 to 1.0. At June 30, 2019, our consolidated leverage ratio was 0.59 to 1.0 and our consolidated interest coverage ratio was 21.38 to 1.0. The New Credit Agreement also contains customary affirmative and negative covenants for transactions of this type and other affirmative and negative covenants agreed to by the parties, including, among others, limits on the Company and its subsidiaries’ ability to incur debt or liens, engage in sale-leaseback transactions, make loans, investments and acquisitions, incur additional indebtedness, engage in mergers, enter into asset sales, transact with affiliates and alter its business. Adjusted EBITDA, under the Credit Facility, is defined as consolidated net earnings (or loss), plus net interest expense, income taxes, depreciation and amortization, and share based compensation expense, plus acquisition expenses not to exceed $2.0 million, minus capitalized research and development expense, plus restructuring, issuance costs, cash

non-operating

costs and other expenses or losses minus cash

non-operating

gains and other

non-cash

gains; provided, however that the aggregate of ~~$96.0 million at September 30, 2017,~~all cash

non-operating

expense shall not exceed 10% of Consolidated EBITDA. The New Credit Agreement also provides for a number of customary events of default, including, among others, payment, bankruptcy, covenant, representation and ~~$105.0 million at December 31, 2016. The Credit Facility has $0.5 million reserved for one stand-by letter~~warranty, change of ~~credit in connection with a facility lease agreement, leaving $53.5 million~~control and ~~$44.5 million available for borrowing at September 30, 2017 and December 31, 2016, respectively.~~

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 is~~Facilities are unconditionally guaranteed by the Company and certain subsidiaries and secured by a lien on substantially all of the ~~Company’s~~present and ~~its domestic subsidiaries’ tangible~~future property and ~~intangible property by a pledge of all~~assets of the ~~equity interests of the Company’s direct~~Company and ~~indirect domestic~~such 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 Company~~exceptions 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

~~(1)~~

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). Adjusted EBITDA as an operating performance measure has material limitations since it excludes the statement of operations impact of depreciation and amortization expense, interest expense, net, the provision (benefit) for income taxes and share based compensation and therefore does not represent an accurate measure of profitability, particularly in situations where a company is highly leveraged or has a disadvantageous tax structure. We have significant intangible assets and amortization expense is a meaningful element in our financial statements and therefore its exclusion from Adjusted EBITDA is a material limitation. We have a significant amount of debt and we have had a significant amount of debt in the past, and interest expense is a necessary element of our costs and therefore its exclusion from Adjusted EBITDA is a material limitation. We generally incur significant U.S. federal, state and foreign income taxes each year and the provision for income taxes is a necessary element of our costs and therefore its exclusion from Adjusted EBITDA is a material limitation. Share based compensation and the associated expense has a meaningful impact on our financial statements. Non-cash expenses, restructuring, issuance and cash non-operating expenses have a meaningful impact on our financial statements. Therefore, their exclusion from Adjusted EBITDA is a material limitation. As a result, Adjusted EBITDA should be evaluated in conjunction with net income for complete analysis of our profitability, as net income includes the financial statement impact of these items and is the most directly comparable GAAP operating performance measure to Adjusted EBITDA. As Adjusted EBITDA is not defined by GAAP, our definition of 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 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.

exclusions.

The Credit Facility also contains provisions for an increased interest rate during periods of default. We do not believe that these covenants will affect our ability to operate our business, and we were in compliance with ~~the~~all covenants under our Credit Facility as of ~~September~~June 30, ~~2017.~~

2019.

Non-GAAP

Measures

In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA as discussed above, we ~~rely internally on certain measures~~discuss a key measure that ~~are~~is not calculated according to GAAP. This

non-GAAP

measure is net adjusted EBITDA, which is defined as ~~net~~income (loss) ~~income~~from operations before ~~interest expense, net, other (income) expense, net, provision for income taxes,~~ depreciation, amortization of acquired intangible assets, ~~and share~~stock based compensation expense, acquisition-related compensation and

one-time

non-recurring

expenses. We use net adjusted EBITDA as a principal indicator of the operating performance of our business. We use net adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining bonus compensation for our employees based on operating performance and evaluating short-term and long-term operating trends in our operations. We believe that net adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from

period-to-period

without direct correlation to underlying operating performance. We believe that these

non-GAAP

financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our net adjusted EBITDA may be valuable indicators of our operating performance.

In our quarterly earnings press releases and conference calls, in addition to Adjusted EBITDA and net adjusted EBITDA as discussed above, we discuss another key measure that is not calculated according to GAAP. 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, stock based compensation expenses, acquisition-related compensation and

one-time

non-recurring

expenses. We use

non-GAAP

earnings per diluted share as one of our principal indicators of the operating performance of our business. We use

non-GAAP

earnings per diluted shares in internal forecasts, supplementing the financial results and forecasts reported to our board of directors and evaluating short-

term and long-term operating trends in our operations. We believe that

non-GAAP

earnings per diluted share permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from

period-to-period

without direct correlation to underlying operating performance. We believe that these

non-GAAP

earnings per diluted share may be valuable indicators of our operating performance.

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

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 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 ~~September~~June 30, ~~2017 and 2016,~~2018, $1.4 million, or $0.03 per share, of stock based compensation expense was reversed as a result of forfeitures of awards by employees included in the restructuring plan. This

non-recurring

amount has been included in restructuring expenses.

(2)

For the three months ended June 30, 2019, the amount includes ~~$0.5~~$0.2 million, ~~and $0.6 million, respectively,~~or $0.00 per share, of expense associated with the deferred compensation arrangement resulting from ~~an amendment to~~ the ~~Swyft Merger Agreement and $0.9 million and $0.5 million, respectively, of expense associated with the deferred compensation arrangement with the founders of~~ Olapic ~~in connection with the~~ acquisition. For the ~~nine~~three months ended ~~September~~June 30, ~~2017 and 2016,~~2018, the amount includes ~~$1.6~~$0.9 million, ~~and $1.7 million, respectively,~~or $0.02 per share, of expense associated with the deferred compensation arrangement resulting from ~~an amendment to~~ the ~~Swyft Merger Agreement~~Olapic acquisition and ~~$2.6~~$0.2 million, ~~and $0.5 million, respectively,~~or $0.01 per share, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement. For the six months ended June 30, 2019, the amount includes $0.3 million, or $0.01 per share, of expense associated with the ~~founders~~deferred compensation arrangement resulting from the Olapic acquisition. For the six months ended June 30, 2018, the amount includes $1.8 million, or $0.04 per share, of ~~Olapic in connection~~expense associated with the ~~acquisition.~~deferred compensation arrangement resulting from the Olapic acquisition and $0.5 million, or $0.01 per share, of expense associated with the deferred compensation arrangement resulting from the Amendment to the Swyft Merger Agreement.

~~(2)~~(3)

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

(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 ~~operations~~income impact of depreciation and amortization expense and ~~share~~stock based compensation and therefore does not represent an accurate measure of profitability. We have significant intangible assets and amortization expense is a meaningful element in our financial statements and therefore its exclusion from net adjusted EBITDA is a material limitation. ~~Share~~Stock based compensation and the associated expense has a meaningful impact on our financial statements and therefore its exclusion from net adjusted EBITDA is a material limitation.

Non-recurring

expenses, such as certain advisor fees, royalty expenses and restructuring expenses, have a meaningful impact on our financial statements and therefore its exclusion from net adjusted EBITDA is a material limitation. As a result, 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








Non-GAAP earnings per diluted share⁽²⁾
   $ 0.12    $ 0.18    $ 0.20    $ 0.70

~~(1)~~(6)

For the three months ended September 30, 2017 and 2016, the amount includes $0.5 million, or $0.01 per share, and $0.6 million, or $0.02 per share, respectively, of expense associated with the deferred compensation arrangement resulting from an amendment to the Swyft Merger Agreement and $0.9 million, or $0.02 per share, and $0.5 million, or $0.01 per share, respectively, of expense associated with the deferred compensation arrangement with the founders of Olapic in connection with the acquisition. For the nine months ended September 30, 2017 and 2016, the amount includes $1.6 million, or $0.04 per share, and $1.7 million, or $0.04 per share, respectively, of expense associated with the deferred compensation arrangement resulting from an amendment to the Swyft Merger Agreement and $2.6 million, or $0.07 per share, and $0.5 million, or $0.01 per share, respectively, of expense associated with the deferred compensation arrangement with the founders of Olapic in connection with the acquisition.

~~(2)~~

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 ~~operations~~income impact of amortization expense and ~~share~~stock based compensation, and therefore, does not represent ~~an accurate~~a GAAP measure of profitability. We have significant intangible assets and amortization expense is a meaningful element in our financial statements and therefore its exclusion from

non-GAAP

earnings per diluted share is a material limitation. ~~Share~~Stock based compensation and the associated expense has a meaningful impact on our financial statements and therefore its exclusion from

non-GAAP ~~diluted~~

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 from

non-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 from

non-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 to

non-GAAP

earnings per diluted share. As

non-GAAP

earnings per diluted share is not defined by GAAP, our definition of

non-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 that

non-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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Concentration of Revenue and Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Cash equivalents consist primarily of bank ~~deposits and certain investments, such as commercial paper, corporate securities and municipal securities, with maturities less than 90 days at the date of purchase.~~deposits. Deposits of cash held outside the United States totaled approximately ~~$18.5~~$19.1 million and ~~$16.4~~$21.1 million at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

We grant credit to customers in the ordinary course of business. Credit evaluations are performed on an ongoing basis to reduce credit risk, and no collateral is required from our customers. An allowance for uncollectible accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and credit evaluation. As of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016, none of our customers~~2018, one customer individually accounted for ~~10% or more~~12.5% and 10.8% of our gross accounts ~~receivable.~~receivable, respectively. Due to the nature of our quarterly revenue streams derived from royalty revenue, it is not unusual for our accounts receivable balances to include a few customers with large balances. Historically, we have not recorded material losses due to customers’ nonpayment. Our Creative Professional business consists of a higher volume of lower dollar value transactions. Accordingly, as the percent of Creative Professional revenue increases in relation to total revenue, we expect the average time to collect our accounts receivables, and our overall accounts receivables balances, to increase.

~~For~~

One customer accounted for 14.9% of total revenue for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017 and 2016, no~~2019. No one customer accounted for more than 10% of ~~our revenue.~~

total revenue for the three months ended June 30, 2018 or for the six months ended June 30, 2019 or 2018.

Interest Rate Risk

Our exposure to market risk associated with changes in interest rates relates primarily to our long-term debt. At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company had borrowings under our revolving Credit Facility of ~~$96.0~~$65.0 million and ~~$105.0~~$75.0 million, respectively. The interest rate on our Credit Facility fluctuates with either the prime rate or the LIBOR interest rate and at ~~September~~June 30, ~~2017~~2019, our rate, inclusive of applicable margins, was ~~2.8%~~3.3% for LIBOR. AFor the six months ended June 30, 2019, a 10% increase in the rate would have increased our annual interest expense by ~~$0.1~~$0.2 million.

Foreign Currency Exchange Rate Risk

In accordance with ASC Topic No. 830,

Foreign Currency Matters

, or ASC 830, all assets and liabilities of our foreign subsidiaries whose functional currency is a currency other than U.S. dollars are translated into U.S. dollars at an exchange rate as of the balance sheet ~~date.~~date or historical rates, as appropriate. Revenue and expenses of these subsidiaries are translated at the average monthly exchange rates. The resulting translation adjustments as calculated from the translation of our foreign subsidiaries to U.S. dollars are recorded as a separate component of ~~stockholders’ equity.~~ comprehensive income.

For the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, revenue from customers outside the United States, primarily EMEA and Japan, comprised ~~53.8%~~45.6% and ~~51.9%~~55.4%, respectively, of our total revenue. ~~The~~An effect of a 10% strengthening of the British pound sterling, the Euro, Japanese yen ~~and~~and/or Argentine peso, relative to the U.S. dollar, would have decreased our revenues by ~~$2.3~~$1.8 million, decreased expenses by ~~$2.7~~$1.8 million and ~~increased~~left operating income ~~by $0.5 million~~unchanged for the three months ended ~~September~~June 30, ~~2017.~~2019. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, revenue from customers outside the United States, primarily EMEA and Japan, comprised ~~56.3%~~49.7% and ~~57.5%~~55.7%, respectively, of our total revenue. ~~The~~An effect of a 10% strengthening of the British pound sterling, the Euro, Japanese yen ~~and~~and/or Argentine peso, relative to the U.S. dollar, would have decreased our revenues by ~~$6.7~~$3.5 million, decreased expenses by ~~$7.8~~$3.5 million and ~~increased~~left operating income ~~by $1.2 million~~unchanged for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. The sensitivity analysis assumes that all currencies move in the same direction at the same time and the ratio of

non-U.S.

dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels.

We incur foreign currency exchange gains and losses related to certain customers that are invoiced in U.S. dollars, but who have the option to make an equivalent payment in their own functional currencies at a specified exchange rate as of a specified date. In the period from that date until payment in the customer’s functional currency is received and converted into U.S. dollars, we can incur realized gains and losses. We also incur foreign currency exchange gains and losses on certain intercompany assets and liabilities denominated in foreign currencies. We are currently utilizing

30-day

forward contracts to mitigate our exposure on these currency fluctuations. Any increase or decrease in the fair value of the forward contracts is offset by the change in the value of the hedged assets of our consolidated foreign affiliate. At ~~September~~June 30, ~~2017,~~2019, we had one

30-day

forward contract to sell ~~2.6~~2.7 million British ~~pounds~~pound sterling and to purchase $3.4 million that together, had an immaterial fair ~~value, and at~~value. At December 31, ~~2016,~~2018, we had one

30-day

forward contract to sell ~~2.8~~2.7 million British ~~pounds~~pound sterling and to purchase $3.4 million that together, had an immaterial fair value.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2019. The term “disclosure controls and procedures,” as defined in Rules

13a-15(e)

and

15d-15(e)

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

Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2019, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act) that occurred during and as of the fiscal quarter ended ~~September~~June 30, ~~2017~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~Except as noted below, there~~

There are no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form

10-K

for the year ended December 31, ~~2016.~~

~~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.

2018.

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

~~(a)~~

~~Unregistered Sales of Equity Securities~~

(a)

Unregistered Sales of Equity Securities

None.

~~(b)~~ ~~Use of proceeds~~

(b)

Use of proceeds

Not applicable.

~~(c)~~

~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~

(c)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about purchases by the Company during the quarter ended ~~September~~June 30, ~~2017~~2019 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Monotype Imaging Holdings Inc. Purchases of Equity Securities

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





Total
   277,391    $ 13.72    232,989    $ 12,943,743


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 ~~at zero cost~~ in accordance with either the Third Amended and Restated 2007 Stock Option and Incentive Plan, ~~(“2007~~“2007 Award Plan”), or the ~~Second Amended and Restated~~ 2010 Inducement ~~Plan (“2010 Inducement Plan”).~~Plan. The price paid by the Company was determined pursuant to the terms of either the 2007 Award Plan or the 2010 Inducement Plan and related restricted stock agreements.

(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 ~~August 30, 2016.~~May 3, 2018. The Company purchased the shares on the open market at prevailing prices.

~~(3)~~

~~The Company withheld 505 shares and 6,916 shares of vested restricted stock for payment of taxes associated with the vesting in July and September, respectively.~~

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety ~~Disclosure~~

~~None.~~

Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Quarterly Report onForm

10-Q

and such Exhibit Index is incorporated herein by reference.


					Page
Part I. Financial Information						2

Item 1.	Condensed Consolidated Financial Statements (Unaudited)					2

		•		Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018		2

		•~~Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016~~		2

	• Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		3

		•		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		4

		•		Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018		5

		•		Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		57


	•		Notes to Condensed Consolidated Financial Statements		68

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations					23
					17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk					36
					31

Item 4.	Controls and Procedures					37
						32

Part II. Other Information			3237

~~Item 1.~~	~~Legal Proceedings~~						32

Item ~~1A.~~ 1.	~~Risk Factors~~Legal Proceedings					37
					32

Item 2. 1A.	Risk Factors					37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					37
					32

Item 3.	Defaults Upon Senior Securities					38
					33

Item 4.	Mine Safety Disclosures					38
					33

Item 5.	Other Information					38
					33

Item 6.	Exhibits					38
						33

Exhibit Index			3439

~~Signatures~~			35
Signatures						40

	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, 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 paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,215		—
Right-of-use assets obtained in exchange for lease obligations:
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%		—


	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

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

Total assets	$	521,281		$	525,020

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

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	)

Total stockholders’ equity		315,982			313,978

Total liabilities and stockholders’ equity	$	521,281		$	525,020


	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

Total cost of revenue		10,604			9,861			31,282			28,030

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

Total operating expenses		43,762			36,613			131,278			97,639

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	)

Total other expense		2,143			623			6,914			1,028

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

Net income (loss)	$	1,261		$	2,425		$	(310	)	$	14,436

Net income (loss) available to common stockholders—basic	$	1,196		$	2,341		$	(310	)	$	13,982

Net income (loss) available to common stockholders—diluted	$	1,195		$	2,340		$	(310	)	$	13,983

Net income (loss) per common share:
Basic	$	0.03		$	0.06		$	(0.01	)	$	0.36

Diluted	$	0.03		$	0.06		$	(0.01	)	$	0.35

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


	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

	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


	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


	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


	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


	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		—		—

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		—		—

Total long-term financial assets		17,990		17,990		—		—

Total	$	58,421	$	31,749	$	26,672	$	—


	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

Total			$	201,115	$	(114,560	)	$	86,555	$	198,541	$	(107,824	)	$	90,717


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


	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	%


	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


	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	%


	Three Months Ended September 30,				Increase
	2017		2016
Creative Professional	$	34,521	$	27,798	$	6,723
OEM		25,986		24,431		1,555

Total revenue	$	60,507	$	52,229	$	8,278


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


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

Total		277,391	$	13.72		232,989	$	12,943,743


~~Exhibit~~ ~~No.~~		~~Description~~
Exhibit No.			Description
~~31.1~~
	31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer.*

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

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

~~101.INS~~
	101.INS		XBRL Instance Document

~~101.SCH~~
	101.SCH		XBRL Taxonomy Extension Schema Document

~~101.CAL~~
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~
	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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