Monotype Imaging Holdings' (TYPE) CEO Doug Shaw on Q2 2014 Results - Earnings Call Transcript

Jul.28.14 | About: Monotype Imaging (TYPE)

Start Time: 08:37

End Time: 09:13

Monotype Imaging Holdings Inc. (NASDAQ:TYPE)

Q2 2014 Earnings Conference Call

July 28, 2014 08:30 AM ET

Executives

Doug Shaw - President and CEO

Scott Landers - SVP and CFO

Chris Brooks - Director of FP&A

Analysts

Sterling Auty - JPMorgan

Matthew Kempler - Sidoti & Company

Steven Frankel - Dougherty & Company

Kevin Liu - B. Riley & Co.

Operator

Good day and welcome to Monotype’s Q2 2014 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Chris Brooks. Please go ahead.

Chris Brooks

Good morning everyone. I’m Chris Brooks, Director of FP&A here at Monotype. Thank you for joining us for Monotype’s second quarter 2014 financial conference call. With me this morning are Doug Shaw, President and Chief Executive Officer; and Scott Landers, Senior Vice President and Chief Financial Officer.

Before we begin, I’d like to remind everyone that matters we’re discussing today and the information contained in the press release issued by the Company earlier this morning announcing our second quarter 2014 financial results that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements including predictions, estimates, expectations and other forward-looking statements generally identifiable by the use of the word believes, will, expects or similar expressions are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly participants on today’s call are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of today’s date, July 28, 2014. Information on the potential factors and detailed risks that could affect the Company’s actual results of operations is included in the Company’s filings with the SEC. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our second quarter press release or on this morning’s conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I’d like to remind you that today’s discussion will include references to net adjusted EBITDA and non-GAAP diluted EPS, which are intended to serve as a further complement to our results provided in accordance with Generally Accepted Accounting Principles. A reconciliation of these non-GAAP measures can be found in our press release.

In addition, a link to today’s call can be found under Events and the Investor Section of our Web site at www.monotype.com. The call will be archived on our Web site for one year.

And now I’d like to turn the call over to Doug Shaw. Doug?

Doug Shaw

Hello and thank you for joining us this morning. Monotype had a strong second quarter. As we capitalize on a continued momentum, particularly, in our Creative Professional business. Brands today recognize that the world is mobile with every screen and opportunity to make a high quality branded impact. As our results reflect, customers are turning to Monotype to help them harness opportunities in an increasingly digital world.

For the quarter, revenue was $45 million, up 9% year-over-year. Net adjusted EBITDA was $18.5 million or 41% of revenue. In Creative Professional, we achieved a record $18.3 million in revenue, up 25%, and OEM gained 1% to finish at $26.7 million.

Turning to highlights, we experienced further acceleration across Creative Professional. Web fonts saw continued growth as we signed new customers including Visa, Nestea, Bacardi, New Castle Beer, Rabobank,, Penguin Books USA and even the personal blog of Bill Gates.

Customers like these recognize the challenges and expressing their brands across an expanding digital landscape where variables like screen size, device, resolution and form factor can compromise brand fidelity. To overcome type related complexities, brands need the right combination of type, tools, flexibility, and know-how. That’s were we come in.

During the quarter, we signed new agreements with some of the world’s top agencies and brands, providing holistic font solutions to meet today’s digital and print needs. We also built in flexibility to meet evolving requirements, such as support the current and future apps and e-pubs. In this way we’re helping brands to future proof the digital strategy as they move forward. Our pipeline is growing.

Looking ahead, we believe we’re well positioned to provide an even broader value proposition, one that helps customers to deliver responsive branding across multiple devices in support of digital marketing campaigns. For example, during the quarter we announced our partnership with Celtra, the company behind AdCreator, the first HTML 5 cross-screen technology for brand advertising.

AdCreator is used by agencies, media suppliers, and brands across the globe to create serve and measure the success of display ads across smartphones, tablets and the desktop. Ads created with Celtra solution have been built for major brands worldwide. And now AdCreator integrates the ability to create rich media dynamic ads using Web fonts from Monotype, including some of the most popular type styles used in branding and advertising like Helvetica, Frutiger and Trade Gothic. We are excited about our partnership with Celtra, as it represents one of our first steps in moving our mobile ad strategy forward.

During last month’s Analyst Day, Celtra was part of our panel discussion on digital advertising, which also include experts from AOL, eMarketer, Samsung, and our own responsive design expert Mark Boulton. The panel reaffirmed HTML 5 as the essential platform for the Web with Web fonts playing a critical role in creating immersive, interactive rich advertising experiences to built one-time and then deployed across all devices and platforms. With Web fonts representing a key growth initiative, beginning with Web sites and now migrating to digital ads and email marketing, we see expanding opportunities ahead.

As you saw from our announcement a couple of weeks ago, we’re excited about our acquisition of FontShop, a premier type foundry. In addition to FontShop International of Berlin and its office in San Francisco, the transaction included the prestigious FontFont library and 13 typefaces, design directed by Erik Spiekermann, co-founder of FontShop.

Erik is a respected authority on type and design, as well as the principal designer of some of the world’s most popular branded typefaces like Meta. The addition of FontShop provides expanded opportunities to grow our customer base and IP and to provide even more value to Creative Professionals, particularly in Germany one of the world’s strongest design regions.

We had passionate employees who share a deep commitment to type, the FontShop and FontFont e-commerce sites, complimentary expertise and excellent relationships with designers and foundries. FontShop has also made significant contributions for the graphic design community towards strong social presence in its international TYPO events, which bring together luminaries and future influencers to talk about type and design.

We’re excited to bring these assets into our portfolio, which together with initiatives like Brand Perfect, in our award winning Pencil to Pixel events, strengthen our ability to educate, inspire and make important typographic connections across the globe.

Turning to OEM, our second quarter results came in as expected. We saw continued momentum in embedded devices and we expanded within existing accounts like Amazon, which introduced the Amazon Fire Phone and the Fire TV, both of which use our fonts. However, our OEM performance was offset by the timing of ISV related revenue.

Our print business turned in a solid performance. As the industry saw a continued growth in multi function printers, and increased penetration in emerging markets. In automotive our footprint now extends beyond cars to commercial trucks, and we continue to advance deployments within major manufacturers and top key suppliers.

During the quarter, we announced a new streamlined methodology for testing the legibility of typefaces under glance-like conditions. Developed in partnership with the MIT AgeLab and our own Dr. Nadine Chahine, the new approach features the use of a standard desktop computer. Using this methodology, results were broadly consistent with the driver simulator study, we completed in 2012, showing that a humanist typeface could be read in less time than a square grotesque design. The new approach was also used in a range of Chinese typefaces, marking up first study of this kind for non-Latin typeface.

Moving ahead, we believe the streamlined technology based on psychophysical techniques will help to accelerate future further studies and legibility. Testing is simple, inexpensive and hosts potential value for identifying the best typefaces for quick glance reading on devices like medical apparatus, smartphones and dashboards.

We believe this new approach holds promise in researching legibility for the Internet of Things with the emergence of connected everyday objects like thermostats, wearable items and monitoring devices.

Now, I’d like to provide some high-level thoughts for the third quarter and the rest of the year. Our guidance includes the impact of the FontShop acquisition. For the third quarter, we expect total revenue of $46 million to $48 million, which represents growth of approximately 16%. We anticipate net adjusted EBITDA to be in the range of $17 million to $18.5 million.

For the full-year, our outlook now calls for revenue in the range of $184 million to $189 million or revenue growth between 10% to 13%. We now expect net adjusted EBITDA to be in the range of $73 million to $77 million, which represents a margin of approximately 40%.Overall, we’re confident that our value proposition designed to help brands leverage every opportunity to make a high quality impact, positions us for long-term growth.

Now, I’d like to turn the call over to Scott. Scott?

Scott Landers

Thank you, Doug, and good morning, everyone. I’d like to start by reviewing Monotype’s financial results and then provide more detail on our outlook for 2014. Revenue for the second quarter was $45 million, up 9% compared to the prior year. Our second quarter was highlighted by another record performance from our Creative Professional business.

Creative Professional revenue increased 25% to $18.3 million. Our business continues to perform across all sales channels and licensing options. Our direct sales channel in particular saw very strong growth as major brands and publishers adopt our comprehensive solutions to meet their businesses digital and print needs. Web publishing remains a majority catalyst and we continue to expect 2014 Web font revenue of approximately $17 million.

OEM revenue grew 1% to $26.7 million. Lower growth was expected in the second quarter due to the timing of ISP related revenue relative to the prior year. Our printer business continues to perform and device categories like automotive and TV are providing revenue acceleration. In the third quarter, we expect ISV as well as our total OEM business to generate a meaningful growth.

Now let’s turn to cost and margins. Gross profit margin for the quarter was 81% of sales, which is on the low-end of our typical range. Operating expenses increased 9% to $23.7 million. As noted on prior calls, we’re investing an additional sales, marketing, and technical resources in support of our long-term strategy.

Now turning to profits and cash flow. Operating income was $12.8 million or 28% of revenue. GAAP net income for the second quarter was $7.7 million. Earnings per diluted share was $0.19 and non-GAAP earnings per diluted share was $0.27. Net adjusted EBITDA was $18.5 million, which represents a 41% margin.

Cash flow from operations was $13.4 million for the second quarter. During the quarter, we spend approximately $17 million on share repurchases, which brings our total to $26.1 million since the programs inception in December 2013. In the first half of the fiscal year, we returned more than $29 million to shareholders through a combination of our dividend and share repurchase programs.

Turning to the balance sheet, at quarter-end cash and cash equivalents stood at $80.8 million and total debt outstanding was zero. Our next quarterly dividend in October will be $0.08 per share, consistent with the prior quarter.

Before I turn to guidance, I’d like to touch on the FontShop acquisition. The acquisition built upon our core value proposition of type, technology, and expertise. And we believe that makes us even stronger as we pursue our growth strategy in Creative Professional.

FontShop generates annual revenues of approximately $9 million and net adjusted EBITDA margins of 15% to 20% or approximately $1.5 million. We expect to incur a transaction and integration costs of $3 million to $3.5 million over a 12 month period. For the remainder of 2014, we expect FontShop to add $4 million of revenue and negative net adjusted EBITDA of $1.5 million, which includes $2.1 million of transaction and integration costs.

Now turning to guidance, 2014 expectations for organic operations remain the same in all adjustments related to the FontShop transaction. For the third quarter, we anticipate total revenue of $46 million to $48 million, which represents growth of approximately16%. We expect gross profit margins to approximate 82% and operating expenses to be approximately $27 million.

We expect net adjusted EBITDA to be in the range of $17 million to $18.5 million, non-GAAP diluted EPS of $0.26 to $0.28 and GAAP diluted EPS of $0.17 to $0.19. Our third quarter guidance includes transaction and integration costs of $1.3 million, which has a negative 300 basis point impact on net adjusted EBITDA margin and $0.02 impact on EPS measures.

For the full-year 2014, we now expect revenue growth of 10% to 13%, which equates to revenue of $184 million to $189 million. We expect gross profit margins to approximate 82% to 83% and operating expenses to be approximately $102 million. We expect net adjusted EBITDA to be in the range of $73 million to $77 million, non-GAAP diluted EPS of a $1.10 to a $1.16 and GAAP diluted EPS of $0.78 to $0.84.

Our full-year guidance includes transaction and integration costs of $2.1 million, which has a negative 100 basis point impact on net adjusted EBITDA and $0.03 impact on EPS measures. In closing, we’re off to a strong first half of 2014. Our business is performing. New markets are validating our growth strategies, and we continue to fortify the business with complementary acquisitions.

With that, we’ll turn the call over to the operator to begin the question and answer session. Operator?

Question-and-Answer-Session

Operator

Thank you. (Operator Instructions) And our first question. Caller, go ahead.

Sterling Auty - JPMorgan

Hi, it’s Sterling Auty from JPMorgan. Just maybe one to start off with the acquisition impact on margins. You kind of gave us the immediate margin, but how do you think about the longer term opportunity to grow those margins, and how do you think about the type of events and what that might do to the margins longer term?

Scott Landers

Sterling, how are you? Great question. So, the FontShop acquisition is right in our sweet spot, so these are -- we’ve done several tuck-in acquisitions where we’ve acquired font related IP, and this one really looks like all the rest. So, initially they may come with EBITDA margins anywhere from maybe 5% to 25%. And then typically over time and over time means, I would say the first 24 months we’re able to leverage those acquisitions so that our model returns to that 40 plus percent EBITDA margin. In our case we have been running at about that 42% EBITDA margin. So, here we would expect the same thing which created that the font IP that they own is really relevant in the market place particularly in a corporate brand. So, we think that, that can be leveraged on our website as well as through our direct sales force. With regards to TYPO event, I’ll maybe let Doug touch a little bit on the quality, but these are fantastic. So, we absolutely intend to continue to invest in those. And believe it or not, there are -- in some ways a net neutral expense item. Because they’re so popular the registration fees for those offset in off a lot of the cost. But we absolutely want to continue those strategically.

Doug Shaw

Yes, from an inner standpoint what we’re so impressed with the TYPO is, it really tackles each year a different design issue, a graphic design issue. So, its not strictly type, it is about challenges from maybe people moving from print to digital or web design or maybe digital advertising, whatever hot topics or a relevant point for the industry to talk about graphic communication, and the biggest one is the one in Berlin. They also have shows in San Francisco, and in London. So our plan is to continue to boost those up. What is nice as Scott mentioned is they pay for themselves and actually I think what happens is, the revenue -- while the revenue we get for people that attend the show actually comes with a negative expense. So, it truly is neutral from a P&L standpoint. So, it’s a win all the way around, from an industry standpoint and from a P&L standpoint.

Scott Landers

Yes. I’ll just -- one last thing on the TYPO event. It’s absolutely aligned where we think going as a company over the last few years with our own programs like Brand Perfect and Pencil to Pixel. It’s not really about Monotype, it’s about the community, and starting a conversation about the larger issues that the creators maybe facing. So, again its not just type, it’s certainly not about our IP, it’s about the creative community at large.

Sterling Auty - JPMorgan

Great. And then maybe one follow-up. Can you talk to us a little bit on the OEM front? You mentioned the timing of some ISV revenue. Can you just remind us what causes that timing, and as you take a step back and maybe a step up and look at the full-year revenue growth from OEM. How should we think about kind of where we are this year relative to last year, and any comments you might be willing to give in terms of no acceleration or holding this kind of growth rate as we move forward?

Scott Landers

So let me start with the full-year. Certainly from the full-year our OEM is going to do exactly what we thought, and you referred to our investor presentation we have a long-term CAGR out there 5% to 10%, and we expect OEM to be in that range. We don’t guide specifically to the percentage point Sterling on an annual basis, but it should absolutely fall into that range. From a timing perspective, there’s two things that can really impact our ISV business.

On an annual basis, we have talked about how some our larger ISVs will have services work that we perform, and those can trend upward and downward based on where they are in their refresh cycle. So last year as an example it was a slower year from an ISV perspective. In this year maybe about the same, maybe a little bit up from just the normal run rate business from those customers. When you get within a year, we do have timing issues relating to a couple of ISVs that get larger payments from their customers. And if you go back over the last few years in some quarters we received those payments in Q2, and in some quarters we received those payments in Q3. So, this year last years payment was in Q2, and this year we’re going to get the payment in Q3. So, it is clearly the timing of an annual payment that we get from an ISV customer.

Sterling Auty - JPMorgan

Great. Thank you.

Operator

Moving on, we’ll take our next question. Caller, go ahead.

Matthew Kempler - Sidoti & Company

Hi, it’s Matthew Kempler from Sidoti.

Doug Shaw

Hi, Matt.

Matthew Kempler - Sidoti & Company

So, I wanted to follow-up on the Creative Professional side. The 25% growth, was this some timing of some large deals on the direct sales side or do you experience an overall acceleration in that segment of the business, and if so what can you point to for that?

Doug Shaw

Yes, we’re really, really happen with the business and what we’ve guided to in the past is an annual growth rate of 15% to 20%. So we’re staying with that mantra. That’s what we see up there. It can be lumpy, and now the good news it’s lumpy at a high level and so this 25% growth, yes there were a couple of big deals that came in. A lot of them were recurring annual payment, so we happen to get them into Q2. But just really happy with the pipeline, it’s growing with helping customers move from Print to Digital. And as Scott mentioned in his prepared remarks it’s across all channels, so our website is doing great. Particularly our end user, our outbound sales force had a really, really strong quarter. So, overall very happy with how it’s performing. But I wouldn’t put 25% as the new norm. We’re still in that 15% to 20% from an annual standpoint.

Scott Landers

Matt, I would just add a couple of things, and we don’t disclose this metric specifically, but we do track large orders which we consider over $20,000 and thus continue to ramp both sequentially and on a year-over-year basis which again gives credence to the work that our direct sales force is doing. And I think as Doug mentioned, the larger deals and the recurring nature of those deals which absolutely supports where we’re trying to go as a company which is to be a valued partner for our customers. And as Doug said they had so many needs now versus maybe just their desktop needs several years ago that we’re one the few companies from an IP perspective to have the flexibility to solve all of their needs, and so that strategy is playing out real well for us.

Matthew Kempler - Sidoti & Company

Okay, thank you. And then you mentioned the first commercial truck customer. Could you discuss a little bit more about the commercial truck market? What that might add to the overall opportunity and how you view penetration into that market?

Scott Landers

Yes. Frankly we kind of -- when we look at the opportunity, we put commercial trucks and cars lets say in the same basket. And the numbers we use internally are something like 80 million cars/trucks a year. So, the specific customer won't allow us to use their name. But I really wouldn’t say we’re breaking into a new segment. Its just proliferation within dashboards, be it a car or a truck. And so it’s a nice win for us and hopefully it will spread across our product lines.

Doug Shaw

Matt, one of things we’re looking at in automotive is, if you take the customer wins that we currently have today and you look at the total units that those customers ship collectively they ship about 30 million automobiles per year. So, that excites us because we’re obviously not in 30 million automobiles today, but if we’re able to provide value with each of our existing customer and ultimately get broadly to play within those accounts it provides a really nice runway for our automotive business.

Matthew Kempler - Sidoti & Company

Okay. And maybe since you touched on that, Apple and Google have announced solutions for the automotive market. How does that tie into what Monotype is doing there?

Doug Shaw

Yes, so from our standpoint its Google’s continued effort to offer font solutions within the android environment. And it’s a series of Asian languages that Microsoft -- not Microsoft, Adobe supported Google with. When we look at the offering, it’s a nice base offering somewhat to what they’re doing with Droid and the other fonts in the Latin world. We really do think this opportunity is for us to add value with things like compression technology. So we have a piece of technology called Dynamic Subsetting, and if this ends up being used on the web we think we can help our customers or if this ends up being embedded in a device in a cell phone or an eBook or whatever, we’ve got compression technology that can make it smaller. So, it’s a big font, it’s a large font as far as number of characters, language support, but it’s really the continuation of an existing strategy.

Scott Landers

I think Matt, were you specifically asking about autos there?

Matthew Kempler - Sidoti & Company

Yes, I’m more curious I guess, related to the automotive display solutions that some of the other companies had talked about?

Doug Shaw

I think what we’re seeing there is, the solutions by Apple and Google they would be maybe the second options because for it to actually view the phone within the screen and that rendering technology that the auto guys use would still exist.

Matthew Kempler - Sidoti & Company

Understood. Okay, and then lastly you mentioned that TV again is validating the diversification strategy. Are there any updates that you can provide about how we’re progressing in that market?

Doug Shaw

Just one announcement of the Amazon TV Fireside, and we continue to work with the companies that have announced before, the LG’s, the Samsung’s and so on.

Matthew Kempler - Sidoti & Company

Okay. Thank you.

Doug Shaw

Actually, I have also one thing, what is encouraging is I read an article not too long ago from Business Insider that talked about, by the year 2017 something like 73% of TVs will be Smart TVs. Which of course means internet enabled though, and what we hope that means is that people will be using TV to do more surfing the web, you’ll be exposed to more just digital ads, maybe when you check your email which means more text intensive and that’s of course what we do. So it feels like over the next several years there’ll be more and more demand for high quality text solutions on TVs.

Matthew Kempler - Sidoti & Company

Okay, that’s helpful. Thank you.

Doug Shaw

Okay.

Operator

Moving on we’ll take our next question.

Steven Frankel - Dougherty & Company

Good morning. Doug, on the automobile market, how does your penetration of existing customer’s models change in the upcoming 2015 year this fall?

Doug Shaw

Frankly, I know that by customer -- the certain customers we talked about in the past that Ford is a customer that’s been open with us as far as penetration across their product lines both in the U.S. and in Europe. This other customers frankly that are not as forthcoming with their product plans. So in some cases frankly we find out once they’re out there. But I do not know of anybody who has licensed us for the 2014 version that is not carrying it over to the future generation. It doesn’t make a lot of sense in our minds to have multiple font suppliers, so the goal is at least stay in the models we’re in or the platforms and then spread out. But I don’t really know Steve, for a lot of them how pervasive we’ll be other than its intuitive that we will spread over time.

Steven Frankel - Dougherty & Company

Okay. And then on the direct business, could you give us an update on where you are in getting more Pearson like deals. Obviously I realize Pearson maybe a bit of a special animal, and that’s a really big deal. But in terms of getting these large recurring revenue contracts with customers that used to buy bits and pieces from you.

Doug Shaw

Yes, it’s up significantly. There were three, four significant -- we called significant deals in Q2. One of which we talked about was Penguin books and the script, others don’t want us to use their names quite yet. What is really gratifying is that, what they’re asking for is they need text solutions today for their print needs, for their digital needs, and frankly for their future needs. And so in some cases they don’t know exactly where they’re taking their product lines or their opportunities. So, what we’re trying to do is anticipate where they’re taking their products, try to make these reoccurring business models and so in the script I used the word future proof. So, it’s a little bit of a departure for us. I’m trying to give our customers the flexibility that, hey look, we want to go up to this target market, our current agreements with Monotype allows us to do it, I understand how much it costs and go forward. So I can't give you specifics other than the momentum it’s picking up and the pipeline is deeper in Q2 particularly with a really good quarter with signing up some big players in the publishing market, meaning print and digital.

Steven Frankel - Dougherty & Company

Perfect. Thank you so much.

Doug Shaw

Great.

Operator

(Operator Instructions) And we’ll take our next question. Caller, go ahead.

Kevin Liu - B. Riley & Co.

Hi, good morning. Kevin Liu with B. Riley. I wanted to ask a couple of questions on the auto side. First half coming into the year, I think you had triple the number of auto OEMs historically. Could you talk a little bit about how those advance relative to your expectations, and maybe any sort of indication as to the sort of revenue growth you have coming out of the segment? And then secondly, I heard you mention the commercial trucking opportunity within the script. So, I was just curious if that was included within the OEMs you had previously or if this a new or a partnership you might have struck in Q2?

Scott Landers

Yes, Kevin its Scott. So, the one that we announced on the commercial truck side is new. Of course when we go into a given year we assume that we are going to get some new customers along the way. But we really considered the commercial truck opportunity as Doug noted been within the total automotive expectation. As far as the revenues go, I believe we said this year we expect this to be $5 million revenue stream, last year it was 3-ish and we’re on track to hit that number. So that feels good. And again one of the things that I like is, if you look at the customers that we have, if we were to get broadly deployed across auto units, automotive to be $15 million revenue steam. Now we know that won't be the case, but there’s new customers we have which is a revenue source and it’s also the opportunity to spread within account. So we like the auto opportunity, and I had hoped really when we got into it that it could be $5 million to $10 million, and if everything went fantastic and we fully penetrated to what we think the opportunity will be, it could be a $20 million revenue steam.

Doug Shaw

And maybe just to parlay a little bit on that, Scott is, I think we’ve been open with you Kevin and the others that our initial design wins were in the U.S. with Ford, Chrysler, GM; then we made some progress in Europe, but frankly we’re disappointed with how we were doing in Japan. That is starting to turn for us. We made some changes or additions from a sales standpoint, so I think we’ve got a really professional sales team. But frankly this MIT study, the one we did in 2012 and now the refresh we just completed has really got some great traction. And what we’re finding is, should they like our typefaces, should we offer some technology? But frankly the expertise we bring helping with, let’s say a major Japanese car manufacturer, evaluate their current offering and help them understand the strengths and weaknesses of that. And in one case, that we’re making a lot of progress on, they’ve seem to (indiscernible) and say boy, I can really see where Monotype can bring significant advantages to my worldwide font solutions. So, that MIT study helped a lot. And boy, to get our type experts in front of their engineers, their usability folks has really gained some nice traction particularly in Japan, some in Korea and other markets, but particularly Japan.

Kevin Liu - B. Riley & Co.

Got it. And just one question on FontShop, could you talk a little bit about the revenue contribution expected for Q3 or then maybe more generally just if we should factor in any sort of seasonality in terms of the $9 million in annualized revenues?

Scott Landers

Yes, we’ve talked about it being $4 million for the back half of the year. So, we’re thinking about $2 million each in the third and fourth quarter. We’ll see how the seasonality plays out, but we also said that it was about $9 million business. So we’re assuming that summer -- in the summer months in Q3, and in Q4 with the holidays it’s a little bit seasonally slower like we see in our own business from a sequential basis. So, it should run the same from a seasonality perspective.

Kevin Liu - B. Riley & Co.

Okay. Thank you.

Operator

There are no more questions in the queue. I will turn the call back over to Doug Shaw for any additional or closing remarks.

Doug Shaw

Okay. Well, I like to thank you all for joining us today. We had a strong second quarter driven by accelerated growth in Creative Professional. We acquired FontShop and believe the acquisition will position us to be an even stronger company. Have a great day and we look forward to speaking with you soon. Take care.

Operator

Ladies and gentlemen that does conclude today's presentation. Thank you for your participation.

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Monotype Imaging (NASDAQ:TYPE): Q2 EPS of $0.27 in-line. Revenue of $45M (+9.5% Y/Y) beats by $0.06M.