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Third quarter 2008 highlights:
- Revenue of $27.3 million increased four percent year-over-year as a result of increased OEM and e-commerce revenues, offset by a decline in certain portions of Creative Professional revenue.
- Non-GAAP adjusted EBITDA grew 15 percent year-over-year to $11.9 million, or 44 percent of revenue.
- Cash flow from operations was $7.1 million for the third quarter and $24.6 million on a year to date basis, an increase of 35 percent compared to the first nine months of 2007.
"We continued to deliver strong profitability and cash flow, despite modest sales growth," said Doug Shaw, president and chief executive officer. "During the third quarter, our OEM business grew in line with our expectations and our e-commerce revenue continued to grow at double digit rates. However, our remaining Creative Professional revenue was negatively impacted by the softening economy.
"We believe Monotype Imaging is well positioned to weather the economic challenges based on our strong market leadership position, attractive business model and progress against our strategic growth initiatives."
Scott Landers, senior vice president and chief financial officer, said "Non-GAAP adjusted EBITDA margins were strong at 44 percent. This reflects the leverage in our business model, our ability to generate cash flow and our commitment to manage the business for high levels of profitability. We continue to make progress against our long-term strategic growth opportunities, and we plan to fund the majority of these investments through ongoing operational efficiencies."
Operating results
Revenue for the third quarter of 2008 was $27.3 million, an increase of four percent compared to $26.2 million in the third quarter of 2007. Net income for the third quarter of 2008 was $4.4 million, compared to net income of $1.5 million for the prior year period. Earnings per diluted share for the third quarter of 2008 were $0.12 compared to a loss per diluted share of $0.09 in the third quarter of 2007. The third quarter of 2007 included a $3.9 million reduction to net income available to common shareholders for accretion of convertible redeemable preferred stock. All convertible redeemable preferred stock was converted to common and redeemable preferred stock, and the redeemable preferred stock was redeemed in connection with the company's initial public offering in July, 2007.
In the third quarter of 2008, non-GAAP adjusted EBITDA was $11.9 million, up 15 percent over non-GAAP adjusted EBITDA of $10.3 million in the third quarter of last year.
A reconciliation of GAAP net income to non-GAAP adjusted EBITDA for the three and nine months ended Sept. 30, and 2007 is provided in the financial tables that accompany this release.
Cash, cash flow and debt balances
At the end of the third quarter of 2008, Monotype Imaging had cash and cash equivalents of $28.0 million, an $8.4 million increase compared to $19.6 million as of Dec. 31, 2007. The company's outstanding debt has been reduced from $131.4 million to $116.1 million over the same time period. During the first nine months of fiscal 2008, the company generated $24.6 million of cash from operations, a portion of which was used to repay $15.9 million of debt.
Company announced restructuring
As part of a larger initiative to gain operational efficiencies in order to increase investment into long-term growth opportunities, the company announced the redeployment of resources, as well as a small workforce reduction. These actions will allow the company to fund investment without significantly increasing the company's cost base. Monotype Imaging expects to incur a severance expense of approximately $900,000 in the fourth quarter of 2008 in connection with this workforce reduction.
Financial outlook
The company currently expects full year 2008 revenue to be in the range of $110.5 million to $112 million, which represents an annual growth rate of five to seven percent. The adjustment relative to previous revenue guidance of $112 million to $116 million is related to the anticipated second half revenue short fall in portions of Monotype Imaging's Creative Professional business.
The company expects full year 2008 non-GAAP adjusted EBITDA to be in the range of $47.4 million to $48.9 million, which includes approximately $900,000 in fourth quarter severance charges, $1.2 million in secondary offering expenses primarily incurred in the first half of 2008, and approximately $500,000 in non-cash foreign exchange gains on the company's intercompany loan. GAAP fully diluted earnings per share is expected to be in the range of $0.40 to $0.43. The GAAP fully diluted earnings per share guidance assumes an anticipated effective tax rate of 39 percent for the full year 2008.
The company currently anticipates that it will generate approximately $30 million in cash from operations for the fiscal year.
A reconciliation of forecasted GAAP net income to forecasted non-GAAP adjusted EBITDA for the full year ending Dec. 31, is provided in the financial tables that accompany this release.
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