☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 20-3289482(State of incorporation)
if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation (§filer,”filer”, “accelerated filer”, “smaller reporting company” and an “emerging growth company” inRule 12b-2 of the Exchange Act.Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐ Page
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September 30, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 70,120 | $ | 82,822 | ||||
Restricted cash | 6,000 | 11,987 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $520 at September 30, 2018 and $634 at December 31, 2017 | 38,571 | 34,461 | ||||||
Income tax refunds receivable | 2,107 | 1,204 | ||||||
Prepaid expenses and other current assets | 7,062 | 5,714 | ||||||
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Total current assets | 123,860 | 136,188 | ||||||
Property and equipment, net | 14,830 | 16,763 | ||||||
Goodwill | 276,798 | 279,131 | ||||||
Intangible assets, net | 76,539 | 84,856 | ||||||
Restricted cash | — | 6,000 | ||||||
Other assets | 7,374 | 3,112 | ||||||
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Total assets | $ | 499,401 | $ | 526,050 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,830 | $ | 1,467 | ||||
Accrued expenses and other current liabilities | 32,408 | 43,096 | ||||||
Accrued income taxes payable | 304 | 522 | ||||||
Deferred revenue | 11,766 | 15,102 | ||||||
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Total current liabilities | 47,308 | 60,187 | ||||||
Revolving line of credit | 80,000 | 93,000 | ||||||
Other long-term liabilities | 3,014 | 6,428 | ||||||
Deferred income taxes | 29,958 | 28,004 | ||||||
Reserve for income taxes | 2,344 | 2,783 | ||||||
Accrued pension benefits | 6,201 | 6,280 | ||||||
Commitments and contingencies(Note 14) | ||||||||
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: 45,773,708 at September 30, 2018 and 44,934,364 at December 31, 2017 | 44 | 44 | ||||||
Additionalpaid-in capital | 313,354 | 298,113 | ||||||
Treasury stock, at cost, 3,914,493 shares at September 30, 2018 and 3,215,644 shares at December 31, 2017 | (72,611 | ) | (64,083 | ) | ||||
Retained earnings | 94,940 | 97,815 | ||||||
Accumulated other comprehensive loss | (5,151 | ) | (2,521 | ) | ||||
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Total stockholders’ equity | 330,576 | 329,368 | ||||||
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Total liabilities and stockholders’ equity | $ | 499,401 | $ | 526,050 | ||||
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June 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 47,763 | $ | 60,106 | ||||
Restricted cash | 6,000 | 6,000 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $555 at June 30, 2019 and $492 at December 31, 2018 | 47,076 | 55,943 | ||||||
Income tax refunds receivable | 6,904 | 5,122 | ||||||
Prepaid expenses and other current assets | 7,634 | 6,473 | ||||||
Total current assets | 115,377 | 133,644 | ||||||
Right of use asset | 14,320 | — | ||||||
Property and equipment, net | 11,850 | 14,105 | ||||||
Goodwill | 275,946 | 276,222 | ||||||
Intangible assets, net | 71,265 | 74,699 | ||||||
Other assets | 15,184 | 8,986 | ||||||
Total assets | $ | 503,942 | $ | 507,656 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,748 | $ | 1,719 | ||||
Accrued expenses and other current liabilities | 33,864 | 43,840 | ||||||
Accrued income taxes payable | 180 | 510 | ||||||
Deferred revenue | 10,777 | 10,337 | ||||||
Lease liability | 3,701 | — | ||||||
Total current liabilities | 50,270 | 56,406 | ||||||
Revolving line of credit | 65,000 | 75,000 | ||||||
Other long-term liabilities | 1,711 | 3,102 | ||||||
Deferred income taxes | 36,891 | 35,083 | ||||||
Reserve for income taxes | — | 2,471 | ||||||
Lease liability | 12,053 | — | ||||||
Accrued pension benefits | 5,956 | 5,888 | ||||||
Commitments and contingencies (Note 15) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value, Authorized shares: 10,000,000; Issued and outstanding: none | — | — | ||||||
Common stock, $0.001 par value, Authorized shares: 250,000,000; Shares issued: 46,464,430 at June 30, 2019 and 45,803,288 at December 31, 2018 | 46 | 46 | ||||||
Additional paid-in capital | 327,918 | 319,486 | ||||||
Treasury stock, at cost, 5,166,895 shares at June 30, 2019 and 4,504,236 shares at December 31, 2018 | (92,747 | ) | (83,518 | ) | ||||
Retained earnings | 102,973 | 99,605 | ||||||
Accumulated other comprehensive loss | (6,129 | ) | (5,913 | ) | ||||
Total stockholders’ equity | 332,061 | 329,706 | ||||||
Total liabilities and stockholders’ equity | $ | 503,942 | $ | 507,656 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
License revenue | $ | 45,831 | $ | 49,913 | $ | 139,791 | $ | 141,083 | ||||||||
Service revenue | 12,138 | 10,594 | 35,548 | 29,690 | ||||||||||||
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Total revenue | 57,969 | 60,507 | 175,339 | 170,773 | ||||||||||||
Cost of revenue—license | 6,947 | 6,782 | 23,841 | 20,745 | ||||||||||||
Cost of revenue—service | 2,448 | 2,937 | 7,946 | 7,893 | ||||||||||||
Cost of revenue—amortization of acquired technology | 859 | 885 | 2,583 | 2,644 | ||||||||||||
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Total cost of revenue | 10,254 | 10,604 | 34,370 | 31,282 | ||||||||||||
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Gross profit | 47,715 | 49,903 | 140,969 | 139,491 | ||||||||||||
Operating expenses: | ||||||||||||||||
Marketing and selling | 18,212 | 22,453 | 58,382 | 66,417 | ||||||||||||
Research and development | 7,680 | 8,997 | 25,432 | 27,778 | ||||||||||||
General and administrative | 10,786 | 11,291 | 38,262 | 34,032 | ||||||||||||
Restructuring | 244 | — | 6,814 | — | ||||||||||||
Amortization of other intangible assets | 851 | 1,021 | 2,840 | 3,051 | ||||||||||||
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Total operating expenses | 37,773 | 43,762 | 131,730 | 131,278 | ||||||||||||
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Income from operations | 9,942 | 6,141 | 9,239 | 8,213 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 959 | 815 | 2,756 | 2,365 | ||||||||||||
Interest income | (133 | ) | (116 | ) | (403 | ) | (309) | |||||||||
Loss (gain) on foreign exchange | 408 | 1,357 | (30 | ) | 4,544 | |||||||||||
(Gain) loss on derivatives | (47 | ) | 119 | (138 | ) | 290 | ||||||||||
Other (income) expense, net | — | (32 | ) | (6 | ) | 24 | ||||||||||
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Total other expense | 1,187 | 2,143 | 2,179 | 6,914 | ||||||||||||
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Income before provision for income taxes | 8,755 | 3,998 | 7,060 | 1,299 | ||||||||||||
Provision for income taxes | 5,434 | 2,737 | 4,243 | 1,609 | ||||||||||||
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Net income (loss) | $ | 3,321 | $ | 1,261 | $ | 2,817 | $ | (310) | ||||||||
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Net income (loss) available to common stockholders—basic | $ | 3,143 | $ | 1,196 | $ | 2,226 | $ | (310) | ||||||||
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Net income (loss) available to common stockholders—diluted | $ | 3,143 | $ | 1,195 | $ | 2,226 | $ | (310) | ||||||||
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Net income (loss) per common share- basic and diluted | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.03 | $ | 0.06 | $ | (0.01) | ||||||||
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Diluted | $ | 0.08 | $ | 0.03 | $ | 0.06 | $ | (0.01) | ||||||||
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Weighted-average number of shares outstanding: | ||||||||||||||||
Basic | 40,512,837 | 39,594,130 | 40,314,169 | 39,576,312 | ||||||||||||
Diluted | 40,609,643 | 39,798,779 | 40,454,518 | 39,576,312 | ||||||||||||
Dividends declared per common share | $ | 0.116 | $ | 0.113 | $ | 0.348 | $ | 0.339 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
License revenue | $ | 54,136 | $ | 48,093 | $ | 96,008 | $ | 93,960 | ||||||||
Service revenue | 9,100 | 12,594 | 18,584 | 23,410 | ||||||||||||
Total revenue | 63,236 | 60,687 | 114,592 | 117,370 | ||||||||||||
Cost of revenue—license | 8,231 | 7,282 | 15,033 | 16,894 | ||||||||||||
Cost of revenue—service | 2,759 | 2,674 | 5,560 | 5,498 | ||||||||||||
Cost of revenue—amortization of acquired technology | 843 | 860 | 1,700 | 1,724 | ||||||||||||
Total cost of revenue | 11,833 | 10,816 | 22,293 | 24,116 | ||||||||||||
Gross profit | 51,403 | 49,871 | 92,299 | 93,254 | ||||||||||||
Operating expenses: | �� | |||||||||||||||
Marketing and selling | 18,570 | 20,081 | 35,700 | 40,170 | ||||||||||||
Research and development | 6,764 | 8,456 | 14,205 | 17,752 | ||||||||||||
General and administrative | 11,588 | 11,858 | 23,607 | 27,476 | ||||||||||||
Restructuring | 32 | 6,376 | 8 | 6,570 | ||||||||||||
Amortization of other intangible assets | 829 | 965 | 1,661 | 1,989 | ||||||||||||
Total operating expenses | 37,783 | 47,736 | 75,181 | 93,957 | ||||||||||||
Income (loss) from operations | 13,620 | 2,135 | 17,118 | (703 | ) | |||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 781 | 945 | 1,689 | 1,797 | ||||||||||||
Interest income | (83 | ) | (146 | ) | (220 | ) | (270 | ) | ||||||||
Other | 239 | (633 | ) | 445 | (535 | ) | ||||||||||
Total other expense, net | 937 | 166 | 1,914 | 992 | ||||||||||||
Income (loss) before provision (benefit) for income taxes | 12,683 | 1,969 | 15,204 | (1,695 | ) | |||||||||||
Provision for (benefit from) income taxes | 2,376 | 1,274 | 2,237 | (1,191 | ) | |||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Net income (loss) available to common stockholders—basic and diluted | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Net income (loss) per common share—basic and diluted | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Weighted-average number of shares outstanding: | ||||||||||||||||
Basic | 40,026,865 | 40,418,308 | 40,015,672 | 40,436,595 | ||||||||||||
Diluted | 40,065,910 | 40,537,852 | 40,066,047 | 40,436,595 |
(LOSS)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) | $ | 3,321 | $ | 1,261 | $ | 2,817 | $ | (310) | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Unrecognized actuarial gain, net of tax of $7, $8, $20 and $23, respectively | 23 | 16 | 64 | 45 | ||||||||||||
Foreign currency translation adjustments, net of tax of $(106), $1,058, $(1,296) and $3,469, respectively | (512 | ) | 2,191 | (2,694 | ) | 6,820 | ||||||||||
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Comprehensive income | $ | 2,832 | $ | 3,468 | $ | 187 | $ | 6,555 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Unrecognized actuarial gain, net of tax of $5, $8, $10 and $13, respectively | 6 | 22 | 22 | 41 | ||||||||||||
Foreign currency translation adjustments, net of tax of $193, ($834), ($83) and ($478), respectively | 579 | (3,507 | ) | (238 | ) | (2,182 | ) | |||||||||
Comprehensive income (loss) | $ | 10,892 | $ | (2,790 | ) | $ | 12,751 | $ | (2,645 | ) | ||||||
For the nine and three months ended September 30, 2018 and 2017
Common Stock | Treasury Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stock- 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 income | 2,817 | 2,817 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—restricted share grants | 496,025 | — | — | — | ||||||||||||||||||||||||||||
—exercised options | 248,276 | — | 3,455 | 3,455 | ||||||||||||||||||||||||||||
—restricted units converted | 95,043 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | — | 291,676 | — | — | ||||||||||||||||||||||||||||
Purchase of treasury stock | — | 326,808 | (6,678 | ) | (6,678 | ) | ||||||||||||||||||||||||||
Shares withheld | 80,365 | (1,850 | ) | (1,850 | ) | |||||||||||||||||||||||||||
Stock based compensation | 11,786 | 11,786 | ||||||||||||||||||||||||||||||
Dividends declared ($0.348 per share) | (14,642 | ) | (14,642 | ) | ||||||||||||||||||||||||||||
Cumulative adjustment, ASC 606 adoption | 8,950 | 8,950 | ||||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 64 | 64 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (2,694 | ) | (2,694 | ) | ||||||||||||||||||||||||||||
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Balance, September 30, 2018 | 45,773,708 | $ | 44 | 3,914,493 | $ | (72,611 | ) | $ | 313,354 | $ | 94,940 | (5,151 | ) | $ | 330,576 | |||||||||||||||||
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Balance, June 30, 2018 | �� | 45,738,183 | $ | 44 | 3,586,782 | $ | (66,581 | ) | $ | 308,952 | $ | 96,477 | $ | (4,662 | ) | $ | 334,230 | |||||||||||||||
Net income | 3,321 | 3,321 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—restricted share grants | 19,150 | — | — | — | ||||||||||||||||||||||||||||
—exercised options | 6,197 | — | 73 | 73 | ||||||||||||||||||||||||||||
—restricted units converted | 10,178 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | — | 29,167 | — | — | ||||||||||||||||||||||||||||
Purchase of treasury stock | — | 282,208 | (5,697 | ) | (5,697 | ) | ||||||||||||||||||||||||||
Shares withheld | 16,336 | (333 | ) | (333 | ) | |||||||||||||||||||||||||||
Stock based compensation | 4,329 | 4,329 | ||||||||||||||||||||||||||||||
Dividends declared ($0.116 per share) | (4,858 | ) | (4,858 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 23 | 23 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (512 | ) | (512 | ) | ||||||||||||||||||||||||||||
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Balance, September 30, 2018 | 45,773,708 | $ | 44 | 3,914,493 | $ | (72,611 | ) | $ | 313,354 | $ | 94,940 | $ | (5,151 | ) | $ | 330,576 | ||||||||||||||||
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MONOTYPE IMAGING HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the nine and three months ended September 30, 2018 and 2017
(in thousands, except share and per share data)
Common Stock | Treasury Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stock- holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2016 | 43,771,600 | $ | 43 | 2,493,174 | $ | (56,232 | ) | $ | 274,946 | $ | 105,718 | $ | (10,497) | $ | 313,978 | |||||||||||||||||
Net income (loss) | (310 | ) | (310 | ) | ||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—restricted share grants | 905,151 | 1 | — | |||||||||||||||||||||||||||||
—exercised options | 107,343 | — | 1,062 | 1,062 | ||||||||||||||||||||||||||||
—restricted units converted | 38,245 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | — | 167,054 | — | — | ||||||||||||||||||||||||||||
Purchase of treasury stock | — | 340,989 | (6,351 | ) | (6,351 | ) | ||||||||||||||||||||||||||
Shares withheld | 39,552 | (776 | ) | (776 | ) | |||||||||||||||||||||||||||
Stock based compensation | 15,392 | 15,392 | ||||||||||||||||||||||||||||||
Dividends declared ($0.339 per share) | (14,180 | ) | (14,180 | ) | ||||||||||||||||||||||||||||
Cumulative adjustment, ASC 606 adoption | 872 | (571 | ) | 301 | ||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 45 | 45 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | 6,820 | 6,820 | ||||||||||||||||||||||||||||||
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Balance, September 30, 2017 | 44,822,339 | $ | 44 | 3,040,769 | $ | (63,359 | ) | $ | 292,272 | $ | 90,657 | $ | (3,632 | ) | $ | 315,982 | ||||||||||||||||
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Balance, June 30, 2017 | 44,666,826 | $ | 44 | 2,763,378 | $ | (58,992 | ) | $ | 286,607 | $ | 94,117 | $ | (5,839 | ) | $ | 315,937 | ||||||||||||||||
Net income | 1,261 | 1,261 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—restricted share grants | 84,055 | — | — | — | ||||||||||||||||||||||||||||
—exercised options | 46,481 | — | 350 | 350 | ||||||||||||||||||||||||||||
—restricted units converted | 24,977 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | — | 37,486 | — | — | ||||||||||||||||||||||||||||
Purchase of treasury stock | — | 232,989 | (4,233 | ) | (4,233 | ) | ||||||||||||||||||||||||||
Shares withheld | 6,916 | (134 | ) | (134 | ) | |||||||||||||||||||||||||||
Stock based compensation | 5,315 | 5,315 | ||||||||||||||||||||||||||||||
Dividends declared ($0.113 per share) | (4,721 | ) | (4,721 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 16 | 16 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | 2,191 | 2,191 | ||||||||||||||||||||||||||||||
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Balance, September 30, 2017 | 44,822,339 | $ | 44 | 3,040,769 | $ | (63,359 | ) | $ | 292,272 | $ | 90,657 | $ | (3,632 | ) | $ | 315,982 | ||||||||||||||||
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Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, March 31, 2019 | 46,397,404 | $ | 46 | 4,955,996 | $ | (91,329 | ) | $ | 324,027 | $ | 97,458 | $ | (6,714 | ) | $ | 323,488 | ||||||||||||||||
Net income | 10,307 | 10,307 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
— exercised options | 1,157 | — | 12 | 12 | ||||||||||||||||||||||||||||
— restricted share grants | 56,706 | — | — | — | ||||||||||||||||||||||||||||
— restricted units converted | 9,163 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 135,736 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 55,428 | (1,088 | ) | (1,088 | ) | |||||||||||||||||||||||||||
Shares withheld | 19,735 | (330 | ) | (330 | ) | |||||||||||||||||||||||||||
Stock based compensation | 3,879 | 3,879 | ||||||||||||||||||||||||||||||
Dividends declared ($0.116 per share) | (4,792 | ) | (4,792 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial income, net of tax | 6 | 6 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | 579 | 579 | ||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 46,464,430 | $ | 46 | 5,166,895 | $ | (92,747 | ) | $ | 327,918 | $ | 102,973 | $ | (6,129 | ) | $ | 332,061 | ||||||||||||||||
Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, March 31, 2018 | 45,588,021 | $ | 44 | 3,419,116 | $ | (65,294 | ) | $ | 305,023 | $ | 100,673 | $ | (1,177 | ) | $ | 339,269 | ||||||||||||||||
Net income | 695 | 695 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 55,258 | — | 734 | 734 | ||||||||||||||||||||||||||||
—restricted share grants | 84,523 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 10,381 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 109,165 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 44,600 | (981 | ) | (981 | ) | |||||||||||||||||||||||||||
Shares withheld | 13,901 | (306 | ) | (306 | ) | |||||||||||||||||||||||||||
Stock based compensation | 3,195 | 3,195 | ||||||||||||||||||||||||||||||
Dividends declared ($0.116 per share) | (4,891 | ) | (4,891 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 22 | 22 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (3,507 | ) | (3,507 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2018 | 45,738,183 | $ | 44 | 3,586,782 | $ | (66,581 | ) | $ | 308,952 | $ | 96,477 | $ | (4,662 | ) | $ | 334,230 |
STOCKHOLDERS’ EQUITY – (Continued)
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 2,817 | $ | (310 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 9,548 | 9,271 | ||||||
Loss on retirement of fixed assets | 11 | 90 | ||||||
Loss on abandonment of product line | 3,223 | — | ||||||
Amortization of deferred financing costs and accreted interest | 165 | 165 | ||||||
Stock based compensation | 11,761 | 15,294 | ||||||
Provision for doubtful accounts | 555 | 734 | ||||||
Deferred income taxes | (790 | ) | (2,982 | ) | ||||
Unrealized currency loss on foreign denominated intercompany transactions | 203 | 3,870 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 2,198 | (3,978 | ) | |||||
Prepaid expenses and other assets | (4,820 | ) | (1,560 | ) | ||||
Accounts payable | 1,395 | (16 | ) | |||||
Accrued income taxes payable | (1,672 | ) | (349 | ) | ||||
Accrued expenses and other liabilities | (12,219 | ) | 162 | |||||
Deferred revenue | (964 | ) | 1,122 | |||||
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Net cash provided by operating activities | 11,411 | 21,513 | ||||||
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Cash flows from investing activities | ||||||||
Purchases of property and equipment | (2,676 | ) | (5,272 | ) | ||||
Purchases of intangible assets | (160 | ) | (54 | ) | ||||
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| |||||
Net cash used in investing activities | (2,836 | ) | (5,326 | ) | ||||
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Cash flows from financing activities | ||||||||
Payments on revolving line of credit | (13,000 | ) | (9,000 | ) | ||||
Common stock dividends paid | (14,494 | ) | (14,030 | ) | ||||
Purchase of treasury stock | (6,651 | ) | (6,446 | ) | ||||
Payments for employee taxes on shares withheld | (1,850 | ) | (776 | ) | ||||
Proceeds from exercises of common stock options | 3,455 | 1,062 | ||||||
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Net cash used in financing activities | (32,540 | ) | (29,190 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | (724 | ) | 1,107 | |||||
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| |||||
Decrease in cash, cash equivalents and restricted cash | (24,689 | ) | (11,896 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 100,809 | 109,426 | ||||||
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Cash, cash equivalents and restricted cash at end of period | $ | 76,120 | $ | 97,530 | ||||
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per share data)
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock- | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2018 | 45,803,288 | $ | 46 | 4,504,236 | $ | (83,518 | ) | $ | 319,486 | $ | 99,605 | $ | (5,913 | ) | $ | 329,706 | ||||||||||||||||
Net income | 12,967 | 12,967 | ||||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 49,643 | — | 334 | 334 | ||||||||||||||||||||||||||||
—restricted share grants | 540,658 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 70,841 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 155,096 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 425,928 | (7,678 | ) | (7,678 | ) | |||||||||||||||||||||||||||
Shares withheld | 81,635 | (1,551 | ) | (1,551 | ) | |||||||||||||||||||||||||||
Stock based compensation | 8,098 | 8,098 | ||||||||||||||||||||||||||||||
Dividends declared ($0.232 per share) | (9,599 | ) | (9,599 | ) | ||||||||||||||||||||||||||||
Unrecognized actuarial income, net of tax | 22 | 22 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (238 | ) | (238 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2019 | 46,464,430 | $ | 46 | 5,166,895 | $ | (92,747 | ) | $ | 327,918 | $ | 102,973 | $ | (6,129 | ) | $ | 332,061 |
Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Additional | Other | Stock | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | holders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2017 | 44,934,364 | $ | 44 | 3,215,644 | $ | (64,083 | ) | $ | 298,113 | $ | 97,815 | $ | (2,521 | ) | $ | 329,368 | ||||||||||||||||
Net loss | (504 | ) | (504 | ) | ||||||||||||||||||||||||||||
Issuance of capital shares | ||||||||||||||||||||||||||||||||
—exercised options | 242,079 | — | 3,383 | 3,383 | ||||||||||||||||||||||||||||
—restricted share grants | 476,875 | — | — | — | ||||||||||||||||||||||||||||
—restricted units converted | 84,865 | — | — | — | ||||||||||||||||||||||||||||
Repurchase of unvested shares of restricted common stock | 262,509 | — | — | |||||||||||||||||||||||||||||
Purchase of treasury stock | 44,600 | (981 | ) | (981 | ) | |||||||||||||||||||||||||||
Shares withheld | 64,029 | (1,517 | ) | (1,517 | ) | |||||||||||||||||||||||||||
Stock based compensation | 7,456 | 7,456 | ||||||||||||||||||||||||||||||
Dividends declared ($0.232 per share) | (9,784 | ) | (9,784 | ) | ||||||||||||||||||||||||||||
Cumulative adjustment, ASC 606 adoption | 8,950 | 8,950 | ||||||||||||||||||||||||||||||
Unrecognized actuarial loss, net of tax | 41 | 41 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net of tax | (2,182 | ) | (2,182 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2018 | 45,738,183 | $ | 44 | 3,586,782 | $ | (66,581 | ) | $ | 308,952 | $ | 96,477 | $ | (4,662 | ) | $ | 334,230 |
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 12,967 | $ | (504 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 6,337 | 6,447 | ||||||
Loss on extinguishment of debt | 34 | — | ||||||
Loss on retirement of assets | 21 | 10 | ||||||
Loss on abandonment of product line | — | 3,223 | ||||||
Amortization of deferred financing costs and accreted interest | 108 | 110 | ||||||
Stock based compensation | 8,098 | 7,435 | ||||||
Provision for doubtful accounts | 229 | 659 | ||||||
Deferred income taxes | 1,829 | (4,603 | ) | |||||
Unrealized currency (gain) on foreign denominated intercompany transactions | (38 | ) | (207 | ) | ||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
Accounts receivable | 8,677 | 4,345 | ||||||
Prepaid expenses and other assets | (7,317 | ) | (3,957 | ) | ||||
Accounts payable | 31 | (108 | ) | |||||
Income tax refunds receivable | (1,782 | ) | — | |||||
Accrued income taxes | (2,793 | ) | (1,013 | ) | ||||
Accrued expenses and other liabilities | (9,760 | ) | (9,801 | ) | ||||
Deferred revenue | 460 | 1,283 | ||||||
Net cash provided by operating activities | 17,101 | 3,319 | ||||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (811 | ) | (2,125 | ) | ||||
Purchases of intangible assets | — | (160 | ) | |||||
Net cash used in investing activities | (811 | ) | (2,285 | ) | ||||
Cash flows from financing activities | ||||||||
Net payments on revolving line of credit | (10,200 | ) | (8,000 | ) | ||||
Proceeds from line of credit, net of issuance costs | 42 | — | ||||||
Common stock dividends paid | (9,598 | ) | (9,604 | ) | ||||
Purchase of treasury stock | (7,678 | ) | (981 | ) | ||||
Payments for employee taxes on shares withheld | (1,551 | ) | (1,517 | ) | ||||
Proceeds from exercises of common stock options | 334 | 3,382 | ||||||
Net cash used in financing activities | (28,651 | ) | (16,720 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | 18 | (304 | ) | |||||
Decrease in cash, cash equivalents and restricted cash | (12,343 | ) | (15,990 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 66,106 | 100,809 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 53,763 | $ | 84,819 | ||||
Noncash transactions: | ||||||||
Borrowing under revolving line of credit | $ | 158 | $ | — |
September
2019
Regulation S-X, Rule 8-03(a)(5) and 10-01(a)(7).
For the three and nine months ended September 30, 2018, we have changed our presentation of revenue to disclose service revenue and cost of service revenue separately from license revenue and cost of license revenue, as service revenue now exceeds the materiality threshold for an individual line item. Prior year amounts were historically reported on a combined basis and have been restated to conform to current presentation.
Highly Inflationary Economy
At September 30, 2018, our wholly-owned Olapic Argentina S.A. subsidiary employs approximately 99 people whose functions mainly include development, sales support and administration. The monthly operations average between $0.4 million and $0.5 million. The Argentinian economy was recently determined
For a highly inflationary economy, we followed the guidance in ASC Topic 830,Foreign Currency Matters, (Subtopic ASC 830-10-45) andarrangements that should be accounted for the change in functional currency from the Argentinian peso to the U.S. dollar effective July 1, 2018. Under this guidance, translation adjustments are not removed from equity, and the translated amountsas leases by lessees. In general, for nonmonetarylease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities aton the endbalance sheet of the prior period becomelessee. Under ASU
3. Recently Issued Accounting Pronouncements
Adopted
Revenue Recognition
In May 2014, the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board jointly issued ASU2014-09,Revenue from Contracts with Customers (Topic 606)(“ASC 606”), which outlines a comprehensive five-step revenue recognition model based on a principle that replaces virtually allbalance sheet amount recorded for existing revenue recognition rules 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. ASU2014-09 also provided the guidance in ASC Topic 340,Other Assets and Deferred Costs—Contracts with Customers (Subtopic340-40), which includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs. The standard requires retrospective application; however, it allows entities to choose either full retrospective adoption, in which the standard is applied to all of the periods presented, or modified retrospective adoption, in which the cumulativecatch-up adjustment to the opening balance of retained earnings is recognizedleases at the date of application, with additional disclosures required to describe these effects.
We adoptedadoption of ASU
The cumulative effect of the adoption on our condensed consolidated balance sheet, by applying the modified retrospective method as of January 1, 2018, is as follows (in thousands):
As Reported | Cumulative Adjustments | As Adjusted | ||||||||||
December 31, 2017 | January 1, 2018 | |||||||||||
Assets: | ||||||||||||
Accounts receivable, net(1) | $ | 34,461 | $ | 7,052 | $ | 41,513 | ||||||
Prepaid expenses and other current assets(2) | 5,714 | 427 | 6,141 | |||||||||
Other assets(3) | 3,112 | 650 | 3,762 | |||||||||
Liabilities: | ||||||||||||
Deferred revenue | 15,102 | (2,923 | ) | 12,179 | ||||||||
Other long-term liabilities(4) | 6,428 | (825 | ) | 5,603 | ||||||||
Deferred income taxes | 28,004 | 2,927 | 30,931 | |||||||||
Stockholders’ equity: | ||||||||||||
Retained earnings | 97,815 | 8,950 | 106,765 |
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In addition, we recognized additional royalty expenses totaling approximately $2.2 million, or $0.05 per share, upon the adoption of ASC 606, as an indirect effect of a change in accounting principle. These amounts are included in cost of revenue – license in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2018.
The following reflects the Company’s condensed consolidated balance sheet and condensed consolidated statement of operations on an as reported basis and as if we had continued to recognize revenue under the guidance of ASC985-605,Software Revenue Recognition, which is also referred to herein as “legacy GAAP” (in thousands):
September 30, 2018 | ||||||||||||
As Reported | Balances without adoption of ASC 606 | Increase (Decrease) | ||||||||||
Assets: | ||||||||||||
Accounts receivable, net | $ | 38,571 | $ | 25,334 | $ | (13,237 | ) | |||||
Prepaid expenses and other current assets | 7,062 | 6,448 | (614 | ) | ||||||||
Other assets | 7,374 | 2,648 | (4,726 | ) | ||||||||
Liabilities: | ||||||||||||
Accrued expenses and other current liabilities | 32,408 | 30,139 | (2,269 | ) | ||||||||
Deferred revenue | 11,766 | 18,827 | 7,061 | |||||||||
Other long-term liabilities | 3,014 | 4,042 | 1,028 | |||||||||
Deferred income taxes | 29,958 | 24,130 | (5,828 | ) | ||||||||
Stockholders’ equity: | ||||||||||||
Retained earnings | 94,940 | 76,371 | (18,569 | ) |
License revenue Cost of revenue—license Marketing and selling Provision for income taxes Net income (loss) Net income (loss)—basic and diluted License revenue Service revenue Cost of revenue—license Marketing and selling Provision for income taxes Net income (loss) Net income (loss)—basic and diluted For the three months ended September 30, 2018 As Reported Balances without
adoption of ASC 606 Increase
(Decrease) $ 45,831 $ 38,954 $ (6,877 ) 6,947 6,877 (70 ) 18,212 18,712 500 5,434 3,801 (1,633 ) 3,321 (2,353 ) (5,674 ) $ 0.08 $ (0.06 ) $ (0.14 ) For the nine months ended September 30, 2018 As Reported Balances without
adoption of ASC 606 Increase
(Decrease) $ 139,791 $ 126,666 $ (13,125 ) 35,548 35,350 (198 ) 23,841 21,572 (2,269 ) 58,382 59,848 1,466 4,243 1,342 (2,901 ) 2,817 (6,802 ) (9,619 ) $ 0.06 $ (0.18) $ (0.24)
The following summarizes the significant changes under ASC 606 as compared to legacy GAAP:
Under legacy GAAP, revenue related to our term licenses that were bundled with service-related performance obligations when vendor-specific objective evidence (“VSOE”) did not exist was required to be recognized ratably over the term of the agreement. Under ASC 606, the Company allocates revenue to each performance obligation in the contract and each performance obligation is accounted for separately; the license revenue is recognized at the time of delivery and the service revenue is recognized over time based on their relative standalone selling prices. The application of this provision is particularly impactful to our new Mosaic product offering which was launched in the first quarter of 2018. This new offering bundles our traditional font licenses with a SaaS based portal, which under legacy GAAP would have been recognized ratably. This provision also has resulted in some revenue from contracts signed prior to 2018 being accelerated and recorded to retained earnings instead of in our operating results in 2018 and beyond.
We have a limited number of contracts in which we offered extended payment terms for term licenses to our customers, including cases in which the license is delivered in full at the beginning of the contract. Under legacy GAAP, revenue was recognized when the payments became due, based upon the requirement that the fee be fixed or determinable. However, under the new guidance, revenue related to such arrangements is accelerated, with revenue related to the license recognized at the time of delivery, less a financing component (interest income) to be recognized over time based on the payment terms. The application of this provision has resulted in revenue from certain contracts signed prior to 2018 being accelerated and recorded to retained earnings instead of in our operating results in 2018 and beyond. This also impacts new contracts that we sign in 2018.
Under legacy GAAP, we recognized royalty revenue when the licensee reported it to us, typically one quarter after royalty-bearing units were shipped, at which time the fee is fixed or determinable. Under ASC 606, we now estimate royalty revenue from our royalty-based licenses in the period that the royalty-bearing event occurs. Thus, revenue from royalties reported to us in the first quarter of 2018 were recorded to retained earnings upon adoption of ASC 606, rather than being recognized as revenue as it would have been under legacy GAAP. This was partially offset by the recognition of revenue in the first quarter of 2018 for estimated royalties that were reported to us in the second quarter of 2018.
ASC 606 requires certain incremental costs related to contract acquisition, such as sales commissions, and contract fulfillment costs to be capitalized and amortized over the expected period of benefit whereas the Company had previously recognized such expenses as incurred.
Please see Note 4 for the Company’s policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.
Statement of Cash Flows
In November 2016, the FASB issued ASU2016-18,Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconcilingbeginning-of-period andend-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted ASU2016-18 on January 1, 2018 and reflected restricted cash and restricted cash equivalents in thebeginning-of-period andend-of-period amounts on the cash flows, on a retrospective basis. As of result of this adoption, thebeginning-of-period amount on the statement of cash flows increased $18.0 million for the nine months ended September 30, 2018 and 2017, respectively, to include restricted cash and restricted cash equivalent balances. Theend-of-period amount on the statement of cash flows increased $6.0 million and $18.0 million for the nine months ended September 30, 2018 and 2017, respectively, to include restricted cash and restricted cash equivalent balances.
Stock Compensation
In May 2017, the FASB issued ASU2016-09,Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.This guidance clarifies when companies would apply modification accounting to changes to the terms or conditions of a stock based payment award. The guidance narrows the definition of a modification. This guidance is effective for annual and interim periods beginning after December 15, 2017. 2018.
Pension Benefits
In March 2017, the FASB issued ASUNo. 2017-07, Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This guidance revises the presentation of the net periodic benefit cost in the income statement. The new standard is effective for annual and interim periods beginning after December 15, 2017. We adopted ASU2017-07 on January 1, 2018 and there was no material impact on our consolidated financial statements.
Pending
Internal Use Software
In August 2018, the FASB issued ASU2018-15,Intangibles – Goodwill and Other –Internal-Use Software (Topic350-40): Customer’s Accounting for Implementation of Cost Incurred in a Cloud Computing Arrangement that is Considered a Service Contact.This update clarifies the accounting for implementation costs related to a cloud computing arrangement that is a service contract previously defined in ASU2015-05. 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 ASU2018-15; however, we dobalance sheet, but did not expect the adoption of this standard to have a material impact on our consolidated financial statements.
Defined Benefit Pension Plan
In August 2018, the FASB issued ASU2018-14,Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance eliminates requirements for certain disclosures and requires certain additional disclosures concerning the company’s defined benefit pension plans and other postretirement plans. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating thestatements of operations or cash flows. The most significant impact of the adoption of ASU2018-14; however, we do not expect
approximately $14.4 million and total lease liabilities of $15.9 million.
Leases
The Company will adopt this ASU on January 1, 2019, and has begun planning forwith early adoption by implementing new lease accounting software, and by working to establish additional changes to our processes and internal controls to ensure all requirementspermitted. We are met upon adoption. The standard allows for a modified retrospective approach or a modified retrospective approach with comparatives under 840 option, where entities would recognize a cumulative effect to retained earnings at the date of adoption without restating prior periods’ balances or disclosures. The Company plans to use the modified retrospective approach with comparatives under 840 option that will not require revising comparative period information or disclosure. We will elect 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. In addition, we are electing the hindsight practical expedient to determine the lease term for existing leases. We will also elect the practical expedient that allows an accounting policy election to exclude right of use assets and lease obligations from the balance sheet for all leases with an initial term of 12 months or less.
Management is continuing to assesscurrently evaluating the impact of the adoption of ASU
We adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under legacy GAAP. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our products and services and will provide financial statement readers with enhanced disclosures.
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 the Three Months Ended September 30, 2018 | For the Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
Creative Professional | OEM | Total | Creative Professional | OEM | Total | |||||||||||||||||||
License revenue: | ||||||||||||||||||||||||
License transferred in point in time | $ | 25,068 | $ | 20,763 | $ | 45,831 | $ | 77,817 | $ | 61,974 | $ | 139,791 | ||||||||||||
Service revenue: | ||||||||||||||||||||||||
Service transferred in point in time | 319 | 238 | 557 | 1,509 | 1,943 | 3,452 | ||||||||||||||||||
Service transferred over time | 10,727 | 854 | 11,581 | 30,203 | 1,893 | 32,096 | ||||||||||||||||||
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Total | $ | 36,114 | $ | 21,855 | $ | 57,969 | $ | 109,529 | $ | 65,810 | $ | 175,339 | ||||||||||||
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|
|
|
|
|
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 | ||||||||||||
2019 and 2018, respectively.
Current | Long-term | Total | ||||||||||
Deferred revenue | $ | 11,766 | $ | 1,427 | $ | 13,193 | ||||||
Unbilled backlog | 6,688 | 2,055 | 8,743 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 18,454 | $ | 3,482 | $ | 21,936 | ||||||
|
|
|
|
|
|
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 | ||||||||||||
appropriate at June 30, 2019 and December 31, 2018.
2019.
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Consolidated balance sheet classification: | ||||||||
Cash and cash equivalents | $ | 47,763 | $ | 75,819 | ||||
Restricted cash, short term | 6,000 | 3,000 | ||||||
Restricted cash, long term | — | 6,000 | ||||||
Total cash, cash equivalents and restricted cash | $ | 53,763 | $ | 84,819 | ||||
Fair Value Measurement at September 30, 2018 | ||||||||||||||||
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 | $ | 28,788 | $ | 28,788 | $ | — | $ | — | ||||||||
Restricted cash equivalents—money market fund | 6,000 | 6,000 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 34,788 | $ | 34,788 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
Assets: Cash equivalents—money market funds Cash equivalents—commercial paper Cash equivalents—corporate bonds Cash equivalents—U.S. government and agency securities Restricted cash equivalents—money market fund Restricted cash equivalents—U.S. government and agency security fund Total current assets Restricted cash equivalents—money market fund Total long term assets Total assets Fair Value Measurement at December 31, 2017 Total Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 2,014 $ 2,014 $ — $ — 16,477 — 16,477 — 1,457 — 1,457 — 10,488 10,488 — — 3,000 3,000 — — 8,987 8,987 — — 42,423 24,489 17,934 — 6,000 6,000 — — 6,000 6,000 — — $ 48,423 $ 30,489 $ 17,934 $ —
Fair Value Measurement at June 30, 2019 | ||||||||||||||||
Total | Quoted Prices (unadjusted) in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents—money market funds | $ | 14,126 | $ | 14,126 | $ | — | $ | — | ||||||||
Cash equivalents—Certificate of Deposit | 578 | 578 | — | — | ||||||||||||
Restricted cash equivalents—money market fund | 6,000 | 6,000 | — | — | ||||||||||||
Total current assets | $ | 20,704 | $ | 20,704 | $ | — | $ | — | ||||||||
Total assets | $ | 20,704 | $ | 20,704 | $ | — | $ | — | ||||||||
Fair Value Measurement at December 31, 2018 | ||||||||||||||||
Total | Quoted Prices (unadjusted) in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents—money market funds | $ | 28,940 | $ | 28,940 | $ | — | $ | — | ||||||||
Restricted cash equivalents—money market fund | 6,000 | 6,000 | — | — | ||||||||||||
Total current assets | $ | 34,940 | $ | 34,940 | $ | — | $ | — | ||||||||
Total assets | $ | 34,940 | $ | 34,940 | $ | — | $ | — | ||||||||
6. Goodwill and
During the quarter ended June 30, 2018, the Company decided to cease sales of certain service offerings that were principally acquired as part of the Company’s acquisition of Swyft Media in January 2015. The decision was made in connection with other restructuring actions tore-align the Company’s product and service offerings. See Note 13 for further details regarding the restructuring plan.
The Company has determined that disposal of the Swyft Media component did not qualify for reporting as a discontinued operation under ASC205-20,Discontinued Operations,as it did not represent a strategic shift in the Company’s operations that had (or will have) a major effect on the Company’s consolidated operations or financial results. As a result of its decision to cease sales of certain service offerings, the Company concluded that the useful life of certain long-lived assets, which represented the intangible assets acquired in the acquisition of Swyft Media, was zero and that there was no ongoing expected future cash flows related to these long-lived assets and no residual value. As a result, such assets were determined to be fully impaired and an impairment charge of approximately $2.6 million, representing the carrying value of these intangible assets, was recorded during the quarter ended June 30, 2018.
The Company evaluated whether the disposal group represented a business under ASU2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business,and determined that it did represent a business requiring goodwill to be allocated to the disposal group. The Company determined the fair value of the disposal group utilizing a revenue multiple market approach and allocated the Company’s goodwill to this disposal group on a relative fair value basis based on the fair value of the disposal group to the Company’s consolidated operations as Company only has a single reporting unit. This resulted in the allocation of $0.6 million of goodwill to the disposal group, which was deemed fully impaired as a result of the disposal. The write down is included in the goodwill table shown below.
Goodwill
The changes in the carrying value of goodwill are as follows (in thousands):
Balance at December 31, 2017 | $ | 279,131 | ||
Foreign currency exchange rate changes | (1,733 | ) | ||
Impairment | (600 | ) | ||
|
| |||
Balance at September 30, 2018 | $ | 276,798 | ||
|
|
Intangible Assets
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||
Weighted- Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||
Customer relationships | 10 | $ | 64,895 | $ | (54,732 | ) | $ | 10,163 | $ | 68,296 | $ | (54,213 | ) | $ | 14,083 | |||||||||||||
Acquired technology | 11 | 68,921 | (51,807 | ) | 17,114 | 69,200 | (48,945 | ) | 20,255 | |||||||||||||||||||
Non-compete agreements | 4 | 13,654 | (13,004 | ) | 650 | 14,632 | (13,470 | ) | 1,162 | |||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
Trademarks | 44,212 | — | 44,212 | 44,956 | — | 44,956 | ||||||||||||||||||||||
Domain names | 4,400 | — | 4,400 | 4,400 | — | 4,400 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 196,082 | $ | (119,543 | ) | $ | 76,539 | $ | 201,484 | $ | (116,628 | ) | $ | 84,856 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
7.
June 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||
Weighted- Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||
Customer relationships | 10 | $ | 64,784 | $ | (56,454 | ) | $ | 8,330 | $ | 64,822 | $ | (55,288 | ) | $ | 9,534 | |||||||||||||
Acquired technology | 11 | 68,773 | (54,704 | ) | 14,069 | 68,823 | (52,747 | ) | 16,076 | |||||||||||||||||||
Non-compete agreements | 4 | 13,626 | (13,239 | ) | 387 | 13,636 | (13,073 | ) | 563 | |||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
Trademarks | 44,079 | — | 44,079 | 44,126 | — | 44,126 | ||||||||||||||||||||||
Domain names | 4,400 | — | 4,400 | 4,400 | — | 4,400 | ||||||||||||||||||||||
Total | $ | 195,662 | $ | (124,397 | ) | $ | 71,265 | $ | 195,807 | $ | (121,108 | ) | $ | 74,699 | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Finance lease cost | $ | — | $ | — | $ | — | $ | — | ||||||||
Operating lease cost | 1,137 | — | 2,291 | — | ||||||||||||
Short-term lease cost | 10 | — | 10 | — | ||||||||||||
Variable lease cost | 107 | — | 159 | — | ||||||||||||
Total lease cost | $ | 1,254 | $ | — | $ | 2,460 | $ | — | ||||||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 1,215 | — | |||||
Right-of-use | ||||||||
Operating leases | 1,890 | — |
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Weighted average remaining lease term: | ||||||||
Operating leases | 4.75 years | — | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 3.92% | — |
2020 | $ | 4,250 | ||
2021 | 3,740 | |||
2022 | 3,543 | |||
2023 | 2,451 | |||
2024 | 1,473 | |||
Thereafter | 1,813 | |||
Total future minimum lease payments | $ | 17,270 | ||
Less: amounts representing interest | (1,516 | ) | ||
Total lease liabilities | $ | 15,754 | ||
Less: current operating lease liability | (3,701 | ) | ||
Long-term operating lease liability | $ | 12,053 | ||
2019 | $ | 4,728 | ||
2020 | 3,131 | |||
2021 | 2,806 | |||
2022 | 2,652 | |||
2023 | 1,256 | |||
Thereafter | 2,004 | |||
Total | $ | 16,577 |
2019.
As of September 30, 2018, The Company is required to pay a commitment fee, based on the maximumconsolidated leverage ratio, permitted was 3.00:1.00equal to 0.175%, 0.20%, 0.225% or 0.25% per annum on the undrawn portion available under the revolving credit facility and variable per annum fees in respect of outstanding letters of credit. In connection with the New Credit Agreement, the Company incurred closing and legal fees of approximately $1.0 million, which have been accounted for as deferred financing costs, that, together with approximately $0.3 million of unamortized deferred financing costs associated with loan syndicate lenders who participated in the new facility, will be amortized to interest expense over the term of the New Credit Agreement. In addition, $34 thousand of unamortized deferred financing costs associated with the
Three Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Provision for income taxes at statutory rate | $ | 1,839 | 21.0 | % | $ | 1,399 | 35.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | (4 | ) | 0.0 | % | (173 | ) | (4.3 | )% | ||||||||
Stock based compensation | 89 | 1.0 | % | 141 | 3.5 | % | ||||||||||
Foreign rate differential | 2,662 | 30.4 | % | (109 | ) | (2.7 | )% | |||||||||
Research credits | (70 | ) | (0.8 | )% | (381 | ) | (9.5 | )% | ||||||||
Permanentnon-deductible acquisition-related expense | 1,302 | 14.9 | % | 1,629 | 40.7 | % | ||||||||||
Net shortfall on stock based compensation | 76 | 0.8 | % | 257 | 6.4 | % | ||||||||||
Reversal of reserve for income taxes | (370 | ) | (4.2 | )% | (66 | ) | (1.6 | )% | ||||||||
Other, net | (90 | ) | (1.0 | )% | 40 | 1.0 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
Reported income tax provision | $ | 5,434 | 62.1 | % | $ | 2,737 | 68.5 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Nine Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Provision for income taxes at statutory rate | $ | 1,483 | 21.0 | % | $ | 455 | 35.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | (55 | ) | (0.8 | )% | (234 | ) | (18.0 | )% | ||||||||
Stock based compensation | 73 | 1.0 | % | 64 | 5.0 | % | ||||||||||
Foreign rate differential | 2,214 | 31.4 | % | (47 | ) | (3.6 | )% | |||||||||
Research credits | (57 | ) | (0.8 | )% | (170 | ) | (13.1 | )% | ||||||||
Permanentnon-deductible acquisition-related expense | 1,061 | 15.0 | % | 727 | 55.9 | % | ||||||||||
Net (windfall) shortfall on stock based compensation | (80 | ) | (1.1 | )% | 799 | 61.5 | % | |||||||||
Reversal of reserve for income taxes | (370 | ) | (5.2 | )% | (66 | ) | (5.1 | )% | ||||||||
Other, net | (26 | ) | (0.4 | )% | 81 | 6.3 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
Reported income tax provision | $ | 4,243 | 60.1 | % | $ | 1,609 | 123.9 | % | ||||||||
|
|
|
|
|
|
|
|
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 disclosed in the Company’s 2017Form 10-K, the Company recorded the tax effects of the 2017 Tax Cuts and Jobs Act (“The Act”) in the consolidated financial statements for the year ended December 31, 2017. The new legislation required the Company to pay tax on the unremitted earnings of its foreign subsidiaries through December 31, 2017. The Company recorded an initial estimate of the tax on unremitted earnings of approximately $0.2 million; however, this amount was offset by available foreign tax credits, and as a result the net estimated amount payable related to the deemed repatriation of foreign earnings was zero. The Company finalized this estimate during the quarter, and there was no change from the initial estimate.
10.assets.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss), as reported | $ | 3,321 | $ | 1,261 | $ | 2,817 | $ | (310 | ) | |||||||
Less: net income (loss) attributable to participating securities | (178 | ) | (65 | ) | (591 | ) | — | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) available to common shareholders—basic | $ | 3,143 | $ | 1,196 | $ | 2,226 | $ | (310 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Basic: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 42,040,716 | 41,750,884 | 42,026,047 | 41,700,355 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (1,527,879 | ) | (2,156,754 | ) | (1,711,878 | ) | (2,124,043 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of common shares used in computing basic net income (loss) per common share | 40,512,837 | 39,594,130 | 40,314,169 | 39,576,312 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per share applicable to common shareholders—basic | $ | 0.08 | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | |||||||
|
|
|
|
|
|
|
|
Numerator: Net income (loss) available to common shareholders—basic Add-back: undistributed earnings allocated to unvested shareholders Less: undistributed earnings reallocated to unvested shareholders Net income (loss) available to common shareholders—diluted Denominator: Diluted: Weighted-average shares of common stock outstanding Less: weighted-average shares of unvested restricted common stock outstanding Weighted-average number of common shares issuable upon exercise of outstanding stock options Weighted-average number of common shares used in computing diluted net income (loss) per common share Net income (loss) per share applicable to common shareholders—diluted Three Months Ended
September 30, Nine Months Ended
September 30, 2018 2017 2018 2017 $ 3,143 $ 1,196 $ 2,226 $ (310 ) — (179 ) — — — 178 — — $ 3,143 $ 1,195 $ 2,226 $ (310 ) Three Months Ended
September 30, Nine Months Ended
September 30, 2018 2017 2018 2017 42,040,716 41,750,884 42,026,047 41,700,355 (1,527,879 ) (2,156,754 ) (1,711,878 ) (2,124,043 ) 96,806 204,649 140,349 — 40,609,643 39,798,779 40,454,518 39,576,312 $ 0.08 $ 0.03 $ 0.06 $ (0.01 )
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss), as reported | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Less: net income (loss) attributable to participating securities | (336 | ) | (29 | ) | (409 | ) | — | |||||||||
Net income (loss) available to common shareholders—basic | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Denominator: | ||||||||||||||||
Basic: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,377,788 | 42,188,672 | 41,321,044 | 42,252,027 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (1,350,923 | ) | (1,770,364 | ) | (1,305,372 | ) | (1,815,432 | ) | ||||||||
Weighted-average number of common shares used in computing basic net income (loss) per common share | 40,026,865 | 40,418,308 | 40,015,672 | 40,436,595 | ||||||||||||
Net income (loss) per share applicable to common shareholders—basic | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | �� | |||||||||||||||
Net income (loss) available to common shareholders—basic | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Add-back: undistributed earnings allocated to unvested shareholders | 180 | — | 107 | — | ||||||||||||
Less: undistributed earnings reallocated to unvested shareholders | (180 | ) | — | (107 | ) | — | ||||||||||
Net income (loss) available to common shareholders—diluted | $ | 9,971 | $ | 666 | $ | 12,558 | $ | (504 | ) | |||||||
Denominator: | ||||||||||||||||
Diluted: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 41,377,788 | 42,188,672 | 41,321,044 | 42,252,027 | ||||||||||||
Less: weighted-average shares of unvested restricted common stock outstanding | (1,350,923 | ) | (1,770,364 | ) | (1,305,372 | ) | (1,815,432 | ) | ||||||||
Weighted-average number of common shares issuable upon exercise of outstanding stock options | 39,045 | 119,544 | 50,375 | — | ||||||||||||
Weighted-average number of common shares used in computing diluted net income (loss) per common share | 40,065,910 | 40,537,852 | 40,066,047 | 40,436,595 | ||||||||||||
Net income (loss) per share applicable to common shareholders—diluted | $ | 0.25 | $ | 0.02 | $ | 0.31 | $ | (0.01 | ) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Options | 506,003 | 633,858 | 488,471 | 824,536 | ||||||||||||
Unvested restricted stock | 535,558 | 566,934 | 420,908 | 652,741 | ||||||||||||
Unvested restricted stock units | 17,248 | 32,971 | 26,645 | 58,674 |
11.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Options | 488,867 | 543,794 | 489,882 | 641,825 | ||||||||||||
Unvested restricted stock | 1,082,601 | 643,109 | 997,436 | 846,046 | ||||||||||||
Unvested restricted stock units | 86,034 | 57,158 | 83,944 | 67,219 |
Stock purchases
Director’s discretion.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Marketing and selling | $ | 2,031 | $ | 2,455 | $ | 4,515 | $ | 7,348 | ||||||||
Research and development | 900 | 1,131 | 2,781 | 3,227 | ||||||||||||
General and administrative | 1,395 | 1,685 | 4,465 | 4,719 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expensed | $ | 4,326 | $ | 5,271 | $ | 11,761 | $ | 15,294 | ||||||||
Property and equipment | 3 | 44 | 24 | 97 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total stock based compensation | $ | 4,329 | $ | 5,315 | $ | 11,785 | $ | 15,391 | ||||||||
|
|
|
|
|
|
|
|
In the three months ended September 30, 2018 and 2017, $3 thousand and $44 thousand, respectively, of stock 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. In the nine months ended September 30, 2018 and 2017, $24 thousand and $97 thousand, respectively, of stock 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. For the nine months ended September 30, 2018, $1.4 million of stock based compensation expense was reversed as a result of forfeitures of awards by employees included in the restructuring plan. Thisnon-recurring amount has been included in restructuring expenses.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Marketing and selling | $ | 1,702 | $ | 2,152 | $ | 3,472 | $ | 3,886 | ||||||||
Research and development | 640 | 893 | 1,362 | 1,881 | ||||||||||||
General and administrative | 1,537 | 1,545 | 3,264 | 3,070 | ||||||||||||
Restructuring | — | (1,402 | ) | — | (1,402 | ) | ||||||||||
Total expensed | $ | 3,879 | $ | 3,188 | $ | 8,098 | $ | 7,435 | ||||||||
Property and equipment | — | 7 | — | 21 | ||||||||||||
Total stock based compensation | $ | 3,879 | $ | 3,195 | $ | 8,098 | $ | 7,456 | ||||||||
12.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Creative Professional | $ | 36,114 | $ | 34,521 | $ | 109,529 | $ | 92,234 | ||||||||
OEM | 21,855 | 25,986 | 65,810 | 78,539 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 57,969 | $ | 60,507 | $ | 175,339 | $ | 170,773 | ||||||||
|
|
|
|
|
|
|
|
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 | ||||||||
Three Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 26,389 | 45.5 | % | $ | 27,951 | 46.2 | % | ||||||||
Japan | 12,847 | 22.2 | 14,963 | 24.7 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 12,809 | 22.1 | 13,952 | 23.1 | ||||||||||||
Rest of World | 5,924 | 10.2 | 3,641 | 6.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 57,969 | 100.0 | % | $ | 60,507 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Nine Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 78,360 | 44.7 | % | $ | 74,631 | 43.7 | % | ||||||||
Japan | 36,217 | 20.7 | 44,278 | 25.9 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 42,873 | 24.4 | 37,392 | 21.9 | ||||||||||||
Rest of World | 17,889 | 10.2 | 14,472 | 8.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 175,339 | 100.0 | % | $ | 170,773 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 34,396 | 54.4 | % | $ | 27,086 | 44.6 | % | ||||||||
Japan | 9,748 | 15.4 | 11,718 | 19.3 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 13,934 | 22.0 | 15,060 | 24.8 | ||||||||||||
Rest of World | 5,158 | 8.2 | 6,823 | 11.3 | ||||||||||||
Total | $ | 63,236 | 100.0 | % | $ | 60,687 | 100.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 57,612 | 50.3 | % | $ | 51,971 | 44.3 | % | ||||||||
Japan | 19,382 | 16.9 | 23,370 | 19.9 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 27,391 | 23.9 | 30,064 | 25.6 | ||||||||||||
Rest of World | 10,207 | 8.9 | 11,965 | 10.2 | ||||||||||||
Total | $ | 114,592 | 100.0 | % | $ | 117,370 | 100.0 | % | ||||||||
September 30, 2018 | December 31, 2017 | |||||||
Long-lived assets: | ||||||||
United States | $ | 305,562 | $ | 314,930 | ||||
United Kingdom | 3,628 | 4,004 | ||||||
Germany | 55,310 | 58,319 | ||||||
Asia (including Japan) | 3,667 | 3,497 | ||||||
|
|
|
| |||||
Total | $ | 368,167 | $ | 380,750 | ||||
|
|
|
|
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 |
The following presents the details of the restructuring expense line item within our consolidated statements of operations (in thousands):
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||
Severance and termination benefits | $ | 177 | $ | 4,403 | ||||
Reversal of stock based compensation expense | — | (1,402 | ) | |||||
Accelerated deferred compensation | — | 523 | ||||||
Office closure | 67 | 67 | ||||||
Intangible assets impairment | — | 2,623 | ||||||
Write off of allocated goodwill | — | 600 | ||||||
|
|
|
| |||||
Total restructuring | $ | 244 | $ | 6,814 | ||||
|
|
|
|
We reversed $1.4$
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 | ||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Severance and termination benefits | $ | 8 | $ | 4,226 | ||||
Reversal of stock based compensation expense | — | (1,402 | ) | |||||
Accelerated deferred compensation | — | 523 | ||||||
Intangible assets impairment | — | 2,623 | ||||||
Write off of allocated goodwill | — | 600 | ||||||
Total restructuring | $ | 8 | $ | 6,570 |
Personnel related | �� | Facilities related | Total | |||||||||
Restructuring reserve at January 1, 2018 | $ | 1,333 | $ | — | $ | 1,333 | ||||||
Restructuring charges | 194 | — | 194 | |||||||||
Cash payments | (985 | ) | — | (985 | ) | |||||||
|
|
|
|
|
| |||||||
Restructuring reserve at March 31, 2018 | 542 | — | 542 | |||||||||
Restructuring charges | 4,031 | — | 4,031 | |||||||||
Cash payments | (479 | ) | — | (479 | ) | |||||||
Foreign currency exchange rate changes | (5 | ) | — | (5 | ) | |||||||
|
|
|
|
|
| |||||||
Restructuring reserve at June 30, 2018 | $ | 4,089 | $ | — | $ | 4,089 | ||||||
Restructuring charges | 177 | 67 | 244 | |||||||||
Cash payments | (1,295 | ) | — | (1,295 | ) | |||||||
Foreign currency exchange rate changes | (24 | ) | — | (24 | ) | |||||||
|
|
|
|
|
| |||||||
Restructuring reserve at September 30, 2018 | $ | 2,947 | $ | 67 | $ | 3,014 | ||||||
|
|
|
|
|
|
Personnel related | ||||
Restructuring reserve at January 1, 2019 | $ | 2,968 | ||
Restructuring charges | (24 | ) | ||
Cash payments | (1,595 | ) | ||
Foreign currency exchange rate changes | (9 | ) | ||
Restructuring reserve at March 31, 2019 | 1,340 | |||
Restructuring charges | 32 | |||
Cash payments | (807 | ) | ||
Foreign currency exchange rate changes | (8 | ) | ||
Restructuring reserve at June 30, 2019 | $ | 557 | ||
14.
15.2018.
Stock Purchase Program
Subsequent to September 30, 2018, the Company purchased 315,000 shares
Dividend Declaration
Monotype
Three Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 26,389 | 45.5 | % | $ | 27,951 | 46.2 | % | ||||||||
Japan | 12,847 | 22.2 | 14,963 | 24.7 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 12,809 | 22.1 | 13,952 | 23.1 | ||||||||||||
Rest of World | 5,924 | 10.2 | 3,641 | 6.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 57,969 | 100.0 | % | $ | 60,507 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Nine Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Sales | % of Total | Sales | % of Total | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
United States | $ | 78,360 | 44.7 | % | $ | 74,631 | 43.7 | % | ||||||||
Japan | 36,217 | 20.7 | 44,278 | 25.9 | ||||||||||||
Europe, Middle East and Africa (EMEA) | 42,873 | 24.4 | 37,392 | 21.9 | ||||||||||||
Rest of World | 17,889 | 10.2 | 14,472 | 8.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 175,339 | 100.0 | % | $ | 170,773 | 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 | % | ||||||||
Creative Professional Revenue
For a description of our Creative Professional revenue and related accounting policy, see Note 4.
OEM Revenue
For a description of our OEM revenue and related accounting policy, see Note 4.
2018.
2018
Three Months Ended September 30, | ||||||||||||
2018 | 2017 | Increase (Decrease) | ||||||||||
License revenue | $ | 45,831 | $ | 49,913 | $ | (4,082 | ) | |||||
Service revenue | 12,138 | 10,594 | 1,544 | |||||||||
Cost of revenue—license | 6,947 | 6,782 | 165 | |||||||||
Cost of revenue—service | 2,448 | 2,937 | (489 | ) |
Three Months Ended June 30, | Increase (Decrease) | |||||||||||
2019 | 2018 | |||||||||||
License revenue | $ | 54,136 | $ | 48,093 | $ | 6,043 | ||||||
Service revenue | 9,100 | 12,594 | (3,494 | ) | ||||||||
Cost of revenue—license | 8,231 | 7,282 | 949 | |||||||||
Cost of revenue—service | 2,759 | 2,674 | 85 |
Service revenue has increased primarily due to the growthlast half of our SaaS-based product offerings, including our Mosaic solution.
2018. Gross profit from license revenue, before amortization of acquired technology, decreased towas consistent at 84.8% from 86.4%, period over period.and 84.9% in the three months ended June 30, 2019 and 2018, respectively. Gross profit from service revenue, before amortization of acquired technology, increaseddecreased to 79.8% and 72.3%.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.
Three Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Revenue: | ||||||||
Creative Professional | 62.3 | % | 57.1 | % | ||||
OEM | 37.7 | 42.9 | ||||||
|
|
|
| |||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 16.2 | 16.0 | ||||||
Cost of revenue—amortization of acquired technology | 1.5 | 1.5 | ||||||
|
|
|
| |||||
Total cost of revenue | 17.7 | 17.5 | ||||||
|
|
|
| |||||
Gross profit | 82.3 | 82.5 | ||||||
Marketing and selling | 31.4 | 37.1 | ||||||
Research and development | 13.2 | 14.9 | ||||||
General and administrative | 18.6 | 18.7 | ||||||
Restructuring | 0.4 | — | ||||||
Amortization of other intangible assets | 1.5 | 1.7 | ||||||
|
|
|
| |||||
Total operating expenses | 65.1 | 72.4 | ||||||
|
|
|
| |||||
Income from operations | 17.2 | 10.1 | ||||||
Interest expense, net | 1.5 | 1.1 | ||||||
Loss on foreign exchange | 0.7 | 2.3 | ||||||
(Gain) loss on derivatives | (0.1 | ) | 0.2 | |||||
Other income | — | (0.1 | ) | |||||
|
|
|
| |||||
Total other expense | 2.1 | 3.5 | ||||||
Income before provision for income taxes | 15.1 | 6.6 | ||||||
Provision for income taxes | 9.4 | 4.5 | ||||||
|
|
|
| |||||
Net income | 5.7 | % | 2.1 | % | ||||
|
|
|
|
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 | % | ||||
Revenues2018.
Market
The following table presents revenue for these two principal markets (in thousands):
Three Months Ended September 30, | Increase (Decrease) | |||||||||||
2018 | 2017 | |||||||||||
Creative Professional | $ | 36,114 | $ | 34,521 | $ | 1,593 | ||||||
OEM | 21,855 | 25,986 | (4,131 | ) | ||||||||
|
|
|
|
|
| |||||||
Total revenue | $ | 57,969 | $ | 60,507 | $ | (2,538 | ) | |||||
|
|
|
|
|
|
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 | ||||||
customers.
higher associated costs with certain of our OEM product mix and partially due to an increase in revenue, period over period.
respectively, a decrease of $0.1 million, or 2.0%.
same period in 2019, mainly due lower margins on OEM revenue, as described above.
2018.
Restructuring.Restructuring expense was $0.2three months ended June 30, 2019, as compared to $6.4 million in the three months ended SeptemberJune 30, 2018, due to additional severance expense and charges associated witha result of the closure of one of our regional offices. There were no similar charges in the same period in 2017.
restructuring action announced June 2018. See Note 14 for further details.
Interest Expense, Net
Interest expense, net of interest income was $0.8 million and $0.7 million in the three months ended September 30, 2018 and 2017, respectively, an increase of $0.1 million, or 18.2%12.6%, mainly due to increases in interest rates on our outstanding borrowings, partially offset by a reduction in the balance outstanding.
Loss on Foreign Exchange
Losses on foreign exchange were $0.4outstanding under our revolving line of credit and partially due to a decrease in interest rates.
Loss (Gain) on Derivatives
Loss (gain) on derivatives was a gain of $47 thousand and a loss of $0.1 million in the three months ended September 30, 2018 and 2017, respectively, a decrease of $0.1 million, due to our30-day forward currency contracts.
The statutoryimpact of foreign earnings increased our effective tax rate by 3.2% in the three months ended September 30, 2018 is 21.0%,second quarter of 2019, as compared to the U.S. statutory tax rate of 35.0%40.1% in the same period in 2017.
Foreign rate differential increased our effective rate 30.4% in the three months ended September 30, 2018, as compared to a decrease of 2.7% in the same period in 2017, due to changes in tax treatment of foreign earnings under The Act. These changes include significant new limitations on theour ability to better utilize foreign tax credits and to limit the effectsamount of U.S. tax related to income subject to the new Global Intangible Low Taxed Income (GILTI)(“GILTI”) provisions. TheseIn the prior period, these provisions haveof the Tax Cuts and Jobs Act (“The Act”) resulted in a significantly higher effective tax rate on foreign earnings.
Non-deductible expenses added 14.9%
In addition, the effective rate for the three months ended September 30, 2018 was reduced by 4.2% for a reduction in reserves resulting from the expiration of statutes of limitations. State and local taxes, net of federal benefit, provided a benefit of 4.3% in the three months ended September 30, 2017, as compared to 0.0% for the three months ended September 30, 2018, mainly due to adjustments to our deferred state tax balances, which resulted from changes in our estimated state tax rate.
valuation allowance.
2018
Nine Months Ended September 30, | ||||||||||||
2018 | 2017 | Increase (Decrease) | ||||||||||
License revenue | $ | 139,791 | $ | 141,083 | $ | (1,292 | ) | |||||
Service revenue | 35,548 | 29,690 | 5,858 | |||||||||
Cost of revenue—license | 23,841 | 20,745 | 3,096 | |||||||||
Cost of revenue—service | 7,946 | 7,893 | 53 |
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 |
Service revenue has 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 the growthsame period in 2018, mainly due to increased customer churn in the last half of our SaaS-based product offerings, including our Mosaic solution.
2018. Gross profit from license revenue, before amortization of acquired technology, decreased to 82.9% from 85.3%, primarily due to additionalnon-recurring royalty expensewas consistent at 84.8% and 84.9% in the ninesix months ended SeptemberJune 30, 2019 and 2018, for which there was no corresponding revenue in the corresponding period in 2017, in accordance with ASC 606.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 2018. See further discussion below for additional information regarding our period over period revenue and cost of revenue. Gross profit from license revenue, before amortization of acquired technology, increased to 77.6%84.3% from 73.4%82.0%. The increase is primarily due to a large agreement with one of our display imaging customers in the six months ended June 30, 2019. Gross profit from service revenue, before amortization of 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.
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Revenue: | ||||||||
Creative Professional | 62.5 | % | 54.0 | % | ||||
OEM | 37.5 | 46.0 | ||||||
|
|
|
| |||||
Total revenue | 100.0 | 100.0 | ||||||
Cost of revenue | 18.1 | 16.8 | ||||||
Cost of revenue—amortization of acquired technology | 1.5 | 1.5 | ||||||
|
|
|
| |||||
Total cost of revenue | 19.6 | 18.3 | ||||||
|
|
|
| |||||
Gross profit | 80.4 | 81.7 | ||||||
Marketing and selling | 33.3 | 38.9 | ||||||
Research and development | 14.5 | 16.3 | ||||||
General and administrative | 21.8 | 19.9 | ||||||
Restructuring | 3.9 | — | ||||||
Amortization of other intangible assets | 1.6 | 1.8 | ||||||
|
|
|
| |||||
Total operating expenses | 75.1 | 76.9 | ||||||
|
|
|
| |||||
Income from operations | 5.3 | 4.8 | ||||||
Interest expense, net | 1.3 | 1.2 | ||||||
Loss on foreign exchange | — | 2.7 | ||||||
(Gain) loss on derivatives | (0.1 | ) | 0.2 | |||||
|
|
|
| |||||
Total other expense | 1.2 | 4.1 | ||||||
Income before provision for income taxes | 4.1 | 0.7 | ||||||
Provision for income taxes | 2.5 | 0.9 | ||||||
|
|
|
| |||||
Net (loss) income | 1.6 | % | (0.2 | %) | ||||
|
|
|
|
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 | )% | ||||
2018.
Market
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||
2018 | 2017 | |||||||||||
Creative Professional | $ | 109,529 | $ | 92,234 | $ | 17,295 | ||||||
OEM | 65,810 | 78,539 | (12,729 | ) | ||||||||
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Total revenue | $ | 175,339 | $ | 170,773 | $ | 4,566 | ||||||
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Six Months Ended June 30, | Increase (Decrease) | |||||||||||
2019 | 2018 | |||||||||||
Creative Professional | $ | 67,988 | $ | 73,415 | $ | (5,427 | ) | |||||
OEM | 46,604 | 43,955 | 2,649 | |||||||||
Total revenue | $ | 114,592 | $ | 117,370 | $ | (2,778 | ) | |||||
2018.
respectively, a decline of 1.1%.
2018.
above.
ended SeptemberJune 30, 2018,2019, as compared to the same period in 2017,2018, due to portfolio decisions around discretionary programs. Software expenses increased $1.1programs, which was partially offset by higher rent expense of $0.3 million stemming from headcount changes, period over period, due to investments in information systems supporting the Creative Professional business. Facilities expense decreased $0.7 million due to the consolidation of certain regional offices in 2017.
period.
2018.
headcount.
Amortization of Other Intangible Assets. Amortization of other intangible assets was $2.8 million and $3.0 million for the nine months ended September 30, 2018 and 2017, respectively, a decrease of $0.2 million, or 7.0%.
(Gain) Loss on Foreign Exchange
(Gain) losses on foreign exchange was a gain of $30 thousand and a loss of $4.5$0.5 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, a decrease of $4.6$0.9 million, primarily the result ofor 176.8%, mainly due to currency fluctuations on our foreign denominated receivables and payables. In the nine months ended September
As a result of the enactment of The Act in December 2017, the statutory tax rate in the nine months ended September 30, 2018 is 21.0%,2019, as compared to the U.S. statutory tax rate of 35.0%26.4% in the same period in 2017.
Foreign rate differential increased our effective rate 31.4% in the nine months ended September 30, 2018, as compared to a decrease of 3.6% in the same period in 2017, due to changes in tax treatment of foreign earnings under The Act. These changes include significant new limitations on theour ability to better utilize foreign tax credits and to limit the effectsamount of U.S. federal tax related to income subject to the new Global Intangible Low Taxed Income (GILTI)GILTI provisions. TheseIn the prior period, these provisions haveof The Act resulted in a significantly higher effective tax rate on foreign earnings.
In addition, a net windfall on stock based compensation resulted in a 1.1% reduction inthose payments, the effective rate for the nine months ended September 30, 2018, as compared to a shortfall rate in the same period in 2017 that resulted in a 61.5% increase in the effective rate. Further, state and local taxes reduced the effective tax rate for the nine months ended September 30, 2017 by 18.0%, as compared to 0.8%total amount of
higher pre-tax income.
2018
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Net cash provided by operating activities | $ | 11,411 | $ | 21,513 | ||||
Net cash used in investing activities | (2,836 | ) | (5,326 | ) | ||||
Net cash used in financing activities | (32,540 | ) | (29,190 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | (724 | ) | 1,107 | |||||
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Total decrease in cash, cash equivalents and restricted cash | $ | (24,689 | ) | $ | (11,896 | ) | ||
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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 | ) | ||
Variations in operating cash flows occur fromtime-to-time because our enterprise customers make upfront payments on subscription revenue. These payments are required under
We generated $21.5 million in cash from operations during the ninesix months ended SeptemberJune 30, 2017. 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, stock based compensation, excess tax benefit on stock options, provision for doubtful accounts, deferred income taxes and unrealized currency gain on foreign denominated intercompany transactions generated $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 $1.4 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.
Investing Activities
During the nine months ended September 30, 2018,2019, we used $2.8$0.8 million in investing activities mainly for the purchase of property and equipment. During the ninesix months ended SeptemberJune 30, 2017,2018, we used $5.3$2.3 million in investing activities mainly for the purchase of property and equipment.
2018.
Credit Facility
On September 15, 2015,2019, the Company entered into a new credit agreement (the “New Credit Agreement”) by and among the Company, the Company’s subsidiary, Monotype Imaging Inc., (“the Borrower”), any financial institution that becomes a Lender (as defined therein) and Silicon Valley Bank of America, N.A., as agent which provides foradministrative agent. Pursuant to the New Credit Agreement the Lenders have agreed to provide the Borrower with a five-year $150.0$200.0 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility permits the Company to request that the Lenders, at their election, increase the secured credit facility to a maximum of $200.0$300.0 million. The Credit Facility is availableprovides more flexibility in addition to an increased borrowing capacity and extended terms, as defined above. The New Credit Agreement replaced the Company’s existing $150.0 million revolving credit facility (the “Original Credit Agreement”) by and between the Company and Silicon Valley Bank. The Original Credit Agreement was terminated effective March 22, 2019 and was scheduled to expire on a revolving basis through September 15, 2020. RepaymentThe Company had $75.0 million outstanding under the Original Credit Agreement at December 31, 2018. Available borrowings under the Original Credit Agreement were reduced by approximately $0.5 million for one standby letter of any amounts borrowed are not required until maturity ofcredit issued in connection with a facility lease agreement, leaving $74.5 million available for borrowings at December 31, 2018. At June 30, 2019, the Company had $65.0 million outstanding under the Credit Facility. However,Available borrowings under the Company may repay any amounts borrowedCredit Facility have been reduced by approximately $0.5 million for one standby letter of credit issued in connection with a facility lease agreement, leaving $134.5 million available for borrowings at any time, without premium or penalty. June 30, 2019.
As of September 30, 2018, the maximum leverage ratio permitted was 3.00:1.00 and our leverage ratio was 1.75:1.00 and the minimum fixed charge coverage ratio was 1.25:1.00 and our fixed charge ratio was 3.62:1.00.judgment defaults. Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the New Credit Agreement to declare all amounts borrowed under the New Credit Agreement, together with accrued interest and fees, to be immediately due and payable. In addition,The obligations of the Borrower under the Credit Facility isFacilities are unconditionally guaranteed by the Company and certain subsidiaries and secured by a lien on substantially all of the Company’spresent and its domestic subsidiaries’ tangiblefuture property and intangible property by a pledge of allassets of the equity interests of the Company’s directCompany and indirect domesticsuch subsidiaries, and by a pledge by the Company’s domestic subsidiaries of 65% of the equity of their direct foreign subsidiaries,in each case, subject to limited exceptions. In addition to other covenants, the New Credit Agreement places limits on the Companyexceptions and its subsidiaries’ ability to incur debt or liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates and alter its business. The Company was in compliance with the covenants under the Credit Facility as of September 30, 2018.
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, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) | $ | 3,321 | $ | 1,261 | $ | 2,817 | $ | (310 | ) | |||||||
Provision for income taxes | 5,434 | 2,737 | 4,243 | 1,609 | ||||||||||||
Interest expense, net | 826 | 699 | 2,353 | 2,056 | ||||||||||||
Depreciation and amortization | 3,101 | 3,098 | 9,548 | 9,271 | ||||||||||||
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EBITDA | $ | 12,682 | $ | 7,795 | $ | 18,961 | $ | 12,626 | ||||||||
Stock based compensation | 4,326 | 5,271 | 11,761 | 15,294 | ||||||||||||
Non-cash add backs | — | — | — | — | ||||||||||||
Restructuring, issuance and cashnon-operating costs | 265 | 202 | 4,682 | 198 | ||||||||||||
Acquisition expenses | — | — | — | — | ||||||||||||
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Adjusted EBITDA(1) | $ | 17,273 | $ | 13,268 | $ | 35,404 | $ | 28,118 | ||||||||
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exclusions.
2019.
In March 2018, we revised our definition ofnon-GAAP net adjusted EBITDA andnon-GAAP earnings per share to exclude the impact ofone-timenon-recurring expenses, such as certain advisor fees, royalty expenses and restructuring expenses. This change more accurately reflects management’s view of the Company’s business and financial performance. The three months and nine months ended September 30, 2017 have been restated for comparison purposes.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) | $ | 3,321 | $ | 1,261 | $ | 2,817 | $ | (310 | ) | |||||||
Interest expense, net | 826 | 699 | 2,353 | 2,056 | ||||||||||||
Other expense (income), net | 361 | 1,444 | (174 | ) | 4,858 | |||||||||||
Provision for income taxes | 5,434 | 2,737 | 4,243 | 1,609 | ||||||||||||
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Income from operations | 9,942 | 6,141 | 9,239 | 8,213 | ||||||||||||
Depreciation and amortization | 3,101 | 3,098 | 9,548 | 9,271 | ||||||||||||
Stock based compensation(1) | 4,326 | 5,271 | 13,163 | 15,294 | ||||||||||||
Acquisition-related compensation(2) | 661 | 1,407 | 2,934 | 4,221 | ||||||||||||
Non-recurring expenses(3) | 244 | 210 | 11,734 | 210 | ||||||||||||
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Net adjusted EBITDA(5) | $ | 18,274 | $ | 16,127 | $ | 46,618 | $ | 37,209 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | 10,307 | $ | 695 | $ | 12,967 | $ | (504 | ) | |||||||
Interest expense, net | 698 | 799 | 1,469 | 1,527 | ||||||||||||
Other (income) expense, net | 239 | (633 | ) | 445 | (535 | ) | ||||||||||
Provision (benefit) for income taxes | 2,376 | 1,274 | 2,237 | (1,191 | ) | |||||||||||
Income (loss) from operations | 13,620 | 2,135 | 17,118 | (703 | ) | |||||||||||
Depreciation and amortization | 3,168 | 3,198 | 6,337 | 6,447 | ||||||||||||
Stock based compensation (1) | 3,879 | 4,590 | 8,098 | 8,837 | ||||||||||||
Acquisition-related compensation (2) | 166 | 1,084 | 333 | 2,273 | ||||||||||||
Non-recurring expenses(3) | 743 | 6,376 | 719 | 11,490 | ||||||||||||
Net adjusted EBITDA (5) | $ | 21,576 | $ | 17,383 | $ | 32,605 | $ | 28,344 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
GAAP income (loss) per diluted share | $ | 0.08 | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | |||||||
Amortization, net of tax of $0.01, $0.03, $0.03 and $0.12, respectively | 0.03 | 0.01 | 0.11 | 0.03 | ||||||||||||
Stock based compensation, net of tax of $0.02, $0.09, $0.06 and $0.31, respectively(1) | 0.09 | 0.04 | 0.27 | 0.07 | ||||||||||||
Acquisition-related compensation, net of tax of $0.00, $0.00, $0.00 and $0.00, respectively(2) | 0.02 | 0.04 | 0.08 | 0.11 | ||||||||||||
Non-recurring expenses, net of tax of $0.00, $0.00, $0.07 and $0.00, respectively(4) | 0.00 | 0.00 | 0.22 | 0.00 | ||||||||||||
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Non-GAAP earnings per diluted share(6) | $ | 0.22 | $ | 0.12 | $ | 0.74 | $ | 0.20 | ||||||||
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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 |
(2) | For the three months ended |
(3) | For the three months ended |
(4) | For the three months ended |
(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 income impact of depreciation and amortization expense and 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. 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. |
(6) |
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Contractual Obligations | Total | July 2019 - June 2020 | July 2020 - June 2022 | July 2012 - June 2024 | Thereafter | |||||||||||||||
Operating leases | $ | 17,270 | $ | 4,250 | $ | 7,283 | $ | 3,924 | $ | 1,813 |
For
total revenue for the three months ended June 30, 2018 or for the six months ended June 30, 2019 or 2018.
As discussed in Note 1, our wholly-owned Olapic Argentina S.A. subsidiary employs approximately 99 people whose functions mainly include development, sales support and administration. The Argentinian economy was recently determined to be highly inflationary. Argentina’s inflation rate reached this threshold with the quarterly period ended June 30, 2018. In accordance with this designation, we were required to apply the guidance in ASC Topic 830,Foreign Currency Matters, (Subtopic ASC 830-10-45-10), and account for a change in functional currency from the Argentinian peso to the U.S. dollar effective July 1, 2018. While we conduct our operation in Argentina Pesos, effective July 1, 2018, the functional currency was changed to the U.S. dollar. The operation is a service center supporting the company’s products and generates no revenue. Thus, the expenses primarily consist of compensation and related costs, totaling approximately $0.4 million to $0.5 million per month. The change in functional currency to U.S. dollars did not have a material impact on our financial position, operating results or cash flows.
comprehensive income.
We conduct a substantial portion of our business outside North America and, as a result, we face diverse risks related to engaging in international business.
We have offices in seven foreign countries and we are dedicating a significant portion of our sales efforts in countries outside North America. We are dependent on international sales for a substantial amount of our total revenue. In 2017 and 2016, approximately 56.9% and 58.3%, respectively, of our total revenue was derived from operations outside the U.S. In the three and nine months ended September 30, 2018, 54.5% and 55.3%, respectively, of our total revenue was derived from operations outside of the U.S. and we expect that international sales will continue to represent a substantial portion of our revenue for the foreseeable future. This future international revenue will depend on the continued use and expansion of our type and technologies, including the licensing of our solutions worldwide.
We are subject to the risks of conducting business internationally, including:
our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent that the United States does, which increases the risk of unauthorized and uncompensated use of our type or technologies;
United States and foreign government trade or tariff restrictions, including those that may impose restrictions on importation of programming, technology or components to or from the United States;
foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the United States;
risks related to fluctuations in foreign currency exchange rates, in particular fluctuations in the exchange rate of the Japanese yen, the European Union’s euro, and the United Kingdom’s pound sterling, including risks related to hedging activities we may undertake;
foreign labor laws, regulations and restrictions;
changes in diplomatic and trade relationships, including the United Kingdom’s decision to leave the European Union, as well as related events;
difficulty in staffing and managing foreign operations;
political instability, natural disasters, war and/or events of terrorism; and
the strength of international economies, including consideration of high inflation rates.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||
July 2, 2018 to July 31, 2018(1)(2)(3) | 77,824 | $ | 18.76 | 69,000 | $ | 22,602,054 | ||||||||||
August 1, 2018 to August 31, 2018(1)(3) | 55,877 | $ | 16.23 | 44,600 | $ | 21,692,774 | ||||||||||
September 3, 2018 to September 28, 2018(1)(2)(3) | 194,010 | $ | 18.81 | 168,608 | $ | 18,321,846 | ||||||||||
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Total | 327,711 | $ | 18.40 | 282,208 | $ | 18,321,846 | ||||||||||
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Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||
April 3, 2019 to April 29, 2019 (1)(2)(3) | 81,496 | $ | 13.88 | 55,428 | $ | 777 | ||||||||||
May 3, 2019 to May 31, 2019 (1) | 33,475 | $ | — | — | $ | — | ||||||||||
June 2, 2019 to June 30, 2019 (1)(2) | 95,928 | $ | 2.96 | — | $ | — | ||||||||||
Total | 210,899 | $ | 6.72 | 55,428 | $ | — | ||||||||||
(1) | The Company repurchased unvested restricted stock in accordance with either the Third Amended and Restated 2007 Stock Option and Incentive Plan, |
(2) | The Company withheld 2,263 shares and |
(3) | The Company purchased shares of common stock in accordance with its share repurchase program announced on May 3, 2018. The Company purchased the shares on the open market at prevailing prices. |
Subsequent to September 30, 2018, the Company purchased 315,092 shares of common stock for $6.3 million, at an average price per share of $19.80 through October 26, 2018. The Company purchased these shares on the open market at prevailing market prices and in accordance with its previously announced share purchase program. At October 26, 2018, $12.0 million remains for future purchase under the share purchase program.
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Exhibit No. | Description | |||
31.1 | ||||
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32.1 | ||||
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101.INS | XBRL Instance Document | |||
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101.SCH | XBRL Taxonomy Extension Schema Document | |||
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
** | Furnished herewith. |
MONOTYPE IMAGING HOLDINGS INC. | ||||||
Date: | By: | / | ||||
Scott E. Landers | ||||||
President, Chief Executive Officer and Director
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(Principal Principal Accounting Officer) |
45