Monotype Announces Fourth Quarter and Full-Year 2018 Results

Company Posts Record Performance, and Exceeds Revenue and
Profitability Expectations

WOBURN, Mass.–(BUSINESS WIRE)–Monotype Imaging Holdings Inc. (Nasdaq: TYPE) today announced financial
results for the fourth quarter and full year ended December 31, 2018.

Fourth quarter 2018 highlights

• Revenue for the quarter was $71.4 million, an increase of 10% year
  over year.
• Creative Professional revenue was $49.6 million, up 29% year over year.
• Net income was $9.5 million; Non-GAAP net adjusted EBITDA was $26.8
  million, a 44% increase year over year, or 37.5% of revenue.

Full-year 2018 highlights

• Revenue for the year was $246.7 million, an increase of 5% year over
  year.
• Creative Professional revenue was $159.1 million, up 22% year over
  year.
• Net income was $12.3 million; Non-GAAP net adjusted EBITDA was $73.4
  million, a 31% increase year over year, or 29.7% of revenue.
• Cash and cash equivalents stood at $60.1 million.

“We ended the year with a very strong fourth quarter, capping off the
most successful year in company history,” said Scott Landers, president
and CEO of Monotype. “The investments we’ve made in our enterprise
sales, design, marketing and engineering capabilities have had a
positive effect on our top and bottom line results. Our efforts continue
to translate into tangible customer value. Our ability to execute over
the past few years has enabled us to transform our business from one
serving mainly mature markets to now one solidly rooted in growing
markets.”

Tony Callini, executive vice president and chief financial officer of
Monotype, said, “We are very pleased with our performance in 2018. We
exceeded the high end of our guidance for net adjusted EBITDA, as well
as the previous high-water mark from 2014, reflecting improved
operational leverage across the portfolio. We will continue to operate
with a focus on enhancing profitability while growing revenue and
returning value to shareholders.”

Fourth quarter 2018 operating results
Revenue for the
quarter increased 10% to $71.4 million, compared to $65.0 million for
the fourth quarter of 2017. Creative Professional revenue was $49.6
million, a 29% increase from the fourth quarter of 2017. OEM revenue was
$21.8 million, a decrease of 18% from the same period in 2017, as
expected.

Gross margin for the quarter was 85.1% compared to 83.1% in the prior
year quarter.

Net income was $9.5 million, compared to net income of $11.9 million in
the fourth quarter of 2017. Earnings per diluted share was $0.23,
compared to earnings per diluted share of $0.28 in the prior year.

Non-GAAP net income, which excludes the amortization of intangible
assets, stock-based compensation expense, acquisition-related
compensation expense, and non-recurring expenses, net of taxes, was
$18.2 million, compared to $20.3 million in the fourth quarter of 2017.
Non-GAAP earnings per diluted share were $0.45 in the fourth quarter of
2018, compared to $0.51 in the prior year period.

Non-GAAP net adjusted EBITDA was $26.8 million, or 37.5% of revenue,
compared to $18.6 million in the fourth quarter of 2017. In the first
quarter of 2018, Monotype updated its definition of non-GAAP net
adjusted EBITDA to include the add back of non-recurring expense to GAAP
income (loss) from operations. Accordingly, all non-GAAP financial
measures have been recast for the three months and year ended December
31, 2017, to add back certain advisor fees and restructuring expenses
included in non-recurring expenses.

Full-year 2018 operating results
Revenue for the year was
$246.7 million, an increase of 5% compared to $235.8 million for 2017.
Creative Professional revenue was $159.1 million, an increase of 22%
year over year. OEM revenue was $87.6 million, down 17% year over year,
as expected.

Net income for 2018 was $12.3 million, compared to net income of $11.6
million for the prior year. Earnings per diluted share were $0.29,
compared to earnings per diluted share of $0.27 in 2017.

Non-GAAP net income, which excludes the amortization of intangible
assets, stock based compensation expense, and acquisition-related
compensation expense, net of taxes, was $47.3 million, compared to $37.9
million in 2017. Non-GAAP earnings per diluted share were $1.17,
compared to $0.95 in 2017.

The company’s 2018 effective tax rate was approximately 43%.

Non-GAAP net adjusted EBITDA was $73.4 million, or 29.7% of revenue,
compared to non-GAAP net adjusted EBITDA of $55.8 million in 2017.

A reconciliation of GAAP measures to non-GAAP measures for the three
months and years ended December 31, 2018 and 2017 is provided in the
financial tables that accompany this release.

Cash and cash flow
Monotype had cash and cash equivalents of
$60.1 million as of December 31, 2018, compared to $70.1 million as of
September 30, 2018 and $82.8 million as of December 31, 2017. The
company generated $11.4 million of cash from operations in the fourth
quarter of 2018, consistent with the same period last year. During the
fourth quarter of 2018, the company repaid $5.0 million on its
outstanding revolving line of credit.

In the fourth quarter of 2018, Monotype repurchased approximately
560,000 shares of common stock on the open market at prevailing market
prices, for a total consideration of $10.7 million. For the full year,
Monotype repurchased approximately 890,000 shares of common stock on the
open market at prevailing market prices for a cumulative consideration
of $17.3 million.

Quarterly dividend
Monotype’s most recent dividend payment
of $0.116 per share was paid on January 22, 2019, to shareholders of
record as of the close of business on January 2, 2019. A dividend of
$0.116 cents per share will be paid on April 18, 2019, to shareholders
of record as of the close of business on April 1, 2019.

Financial outlook
Monotype’s first quarter and full-year
2019 financial guidance are set forth in the following tables:

Conference call details
Monotype will host a conference call
on Friday, February 15, 2019, at 8:30 a.m. EST to discuss the company’s
fourth quarter and full-year 2018 results and business outlook for 2019.
Individuals who are interested in listening to the audio webcast should
log on to the Investors portion of the Company section of the Monotype
website at www.monotype.com.
The live call can also be accessed by dialing (855) 312-5713 (domestic)
or (703) 925-2611 (international) using passcode 8298138. If individuals
are unable to listen to the live call, the audio webcast will be
archived in the Investors portion of the company’s website for one year.

Non-GAAP financial measures
This press release contains
non-GAAP financial measures under the rules of the U.S. Securities and
Exchange Commission. This non-GAAP information supplements and is not
intended to represent a measure of performance in accordance with
disclosures required by generally accepted accounting principles.
Non-GAAP financial measures are used internally to manage the business,
such as in establishing an annual operating budget and in reporting to
lenders. Non-GAAP financial measures are used by Monotype management in
its operating and financial decision-making because management believes
these measures reflect ongoing business in a manner that allows
meaningful period-to-period comparisons. Accordingly, Monotype believes
it is useful for investors and others to review both GAAP and non-GAAP
measures in order to (a) understand and evaluate current operating
performance and future prospects in the same manner as management does,
and (b) compare in a consistent manner the company’s current financial
results with past financial results. The primary limitations associated
with the use of non-GAAP financial measures are that these measures may
not be directly comparable to the amounts reported by other companies
and they do not include all items of income and expense that affect
operations. Monotype management compensates for these limitations by
considering the company’s financial results and outlook as determined in
accordance with GAAP and by providing a detailed reconciliation of the
non-GAAP financial measures to the most directly comparable GAAP
measures in the tables attached to this press release.

Forward-Looking Statements
This release may contain
forward-looking statements including those related to future revenues
and operating results; the growth of the company’s business; anticipated
savings, costs and expenses resulting from the company’s restructuring
actions and changes to the company’s product portfolio; the impact of
the company’s revenue recognition policy; the impact of federal tax
reform legislation; the execution of the company’s capital allocation
and funding strategies; and anticipated business momentum that involve
risks and uncertainties that could cause the company’s actual results to
differ materially. Factors that might cause or contribute to such
differences include, but are not limited to risks associated with
changes in the economic climate including decreased demand for the
company’s products or products that incorporate the company’s solutions;
risks associated with the company’s ability to adapt products or
services to new markets and to anticipate and quickly respond to
evolving technologies and customer requirements; risks associated with
the company’s development of and the market acceptance of new products,
product features or services; risks associated with the anticipated cost
savings and expenses from the company’s restructuring actions and wind
down of certain of the company’s products including that such savings
and expenses are not as predicted; risks associated with increased
competition in markets the company serves, including the risks that
increased competition may result in the company’s inability to gain new
customers, retain existing customers or may force the company to reduce
prices; risks associated with the ownership and enforcement of the
company’s intellectual property; and risks associated with geopolitical
conditions and changes in the financial markets. Additional disclosure
regarding these and other risks faced by the company is available in the
company’s public filings with the Securities and Exchange Commission,
including the risk factors included in the company’s Annual Report on
Form 10-K for the year ended December 31, 2017 and subsequent filings.
The forward-looking financial information set forth in this release
reflects estimates based on information available at this time. These
amounts could differ from actual reported amounts to be included in the
company’s future earnings releases and public filings. While the company
may elect to update forward-looking statements at some point in the
future, the company specifically disclaims any obligation to do so, even
if an estimate changes.

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

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

(1) Net adjusted EBITDA has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.

(2) For the three months ended December 31, 2018, the amount excludes a
$0.9 million non-recurring increase for acceleration of awards by
employees included in the restructuring plan. For the year ended
December 31, 2018, the amount excludes a $0.9 million non-recurring
increase for acceleration and a $1.4 million non-recurring reduction for
forfeiture of awards by employees included in the restructuring plan.
These amounts are included in non-recurring expenses.

(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million and $0.9 million, respectively, of expense
associated with the deferred compensation arrangements with the founders
of Olapic in connection with the acquisition and $0 and $0.6 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.
For the years ended December 31, 2018 and 2017, the amount includes $2.8
million and $3.5 million, respectively, of expense associated with the
deferred compensation arrangements with the founders of Olapic in
connection with the acquisition and $0.5 million and $2.2 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.

(4) For the three months ended December 31, 2018, the amount includes
$2.8 million of restructuring expenses. For the three months ended
December 31, 2017, the amount includes $0.5 million of certain advisor
fees related to shareholder activities and $3.2 million of restructuring
expenses. For the year ended December 31, 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 $9.6 million of
restructuring expenses. For the year ended December 31, 2017, the amount
includes $0.7 million of certain advisor fees related to shareholder
activities and $3.2 million of restructuring expenses.

(1) Non-GAAP net income has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.

(2) For the three months ended December 31, 2018, the amount excludes a
$0.8 million, net of tax, non-recurring increase for acceleration of
awards by employees included in the restructuring plan. For the year
ended December 31, 2018, the amount excludes a $0.7 million, net of tax,
non-recurring increase for acceleration and a $1.2 million, net of tax,
non-recurring reduction for forfeiture of awards by employees included
in the restructuring plan. These amounts are included in non-recurring
expenses.

(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million and $0.9 million, respectively, of expense
associated with the deferred compensation arrangements with the founders
of Olapic in connection with the acquisition and $0 and $0.6 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.
For the years ended December 31, 2018 and 2017, the amount includes $2.8
million and $3.5 million, respectively, of expense associated with the
deferred compensation arrangements with the founders of Olapic in
connection with the acquisition and $0.5 million and $2.2 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.

(4) For the three months ended December 31, 2018, the amount includes
$2.5 million, net of tax, of restructuring expenses. For the three
months ended December 31, 2017, the amount includes $0.3 million, net of
tax, of certain advisor fees related to shareholder activities and $2.0
million, net of tax, of restructuring expenses. For the year ended
December 31, 2018, the amount includes $2.2 million, net of tax, of
certain advisor fees related to shareholder activities, $1.7 million,
net of tax, of royalty expenses, recorded in cost of sales, associated
with revenue that was not recognized under ASC 606 and $7.5 million, net
of tax, of restructuring expenses. For the year ended December 31, 2017,
the amount includes $0.5 million, net of tax, of certain advisor fees
related to shareholder activities and $2.0 million, net of tax, of
restructuring expenses.

(1) Non-GAAP net income has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.

(2) For the three months ended December 31, 2018, the amount excludes a
$0.8 million, or $0.02 per share, net of tax, non-recurring increase for
acceleration of awards by employees included in the restructuring plan.
For the year ended December 31, 2018, the amount excludes a $0.7
million, or $0.02 per share, net of tax, non-recurring increase for
acceleration and a $1.2 million, or $0.03 per share, net of tax,
non-recurring reduction for forfeiture of awards by employees included
in the restructuring plan. These amounts are included in non-recurring
expenses.

(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million, or $0.01 per share and $0.9 million, or $0.02 per
share, respectively, of expense associated with the deferred
compensation arrangements with the founders of Olapic in connection with
the acquisition and $0, or $0.00 per share, and $0.6 million, or $0.02
per share, respectively, of expense associated with the deferred
compensation arrangements resulting from an amendment to the Swyft
Merger Agreement. For the years ended December 31, 2018 and 2017, the
amount includes $2.8 million, or $0.07 per share and $3.5 million, or
$0.09 per share, respectively, of expense associated with the deferred
compensation arrangements with the founders of Olapic in connection with
the acquisition and $0.

Contacts

Investor Relations:
Chris Brooks
Monotype
ir@monotype.com

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