Monotype Imaging Holdings' (TYPE) CEO Doug Shaw on Q4 2015 Results - Earnings Call Transcript

| About: Monotype Imaging (TYPE)

Monotype Imaging Holdings Inc. (NASDAQ:TYPE)

Q4 2015 Earnings Conference Call

February 11, 2016 08:30 AM ET

Executives

Chris Brooks - Director of IR

Scott Landers - President and CEO

Joe Hill - CFO, Treasurer and Assistant Secretary

Analysts

Steven Frankel - Dougherty & Co.

Allen Klee - Sidoti & Company

Kevin Liu - B. Riley & Company

Operator

Good morning. My name is Jessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Monotype Fourth Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions].

Thank you. Mr. Chris Brooks, Director of Investor Relations you may begin your conference.

Chris Brooks

Thank you, Jessa. Good morning everyone I’m Chris Brooks, Director of FP&A and Investor Relations here at Monotype. Thank you for joining us for Monotype’s fourth quarter and full year 2015 financial conference call. With me this morning are Scott Landers, President and Chief Executive Officer; and Joe Hill, 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 fourth quarter and full year 2015 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, February 11, 2016. 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 fourth quarter and full year 2015 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 in the Investors section of our website at www.monotype.com. The call will be archived on our website for one year.

And now I’d like to turn the call over Scott Landers. Scott?

Scott Landers

Hello and thank you for joining us this morning. This is my first call as President and CEO of Monotype. I’m excited to be leading such a great company and I’m optimistic about our future.

Monotype is uniquely qualified to give brands of boys in today’s dynamic multi-screen world. Most important I am fortunate to be surrounded by experienced leaders, a supportive Board and nearly 500 dedicated employees worldwide.

2015 was pivotal year for Monotype tapped by a record performance in the fourth quarter. Revenue was $50.6 million, a 9% increase year-over-year eclipsing the high end of our guidance range. For the first time in our history we exceeded $50 million in quarterly revenue. Net adjusted EBITDA was $20.7 million or 41% of revenue our highest quarterly EBITDA margin of the year.

Revenue for the year was $192.4 million, a 4% increase and above the high end of our guidance range. Non-GAAP net adjusted EBITDA was $71 million or 37% of revenue. We absorbed an expected slowdown in printer shipments and we’re able to end the year strong as we continue to execute on strategic growth factors and Creative Professional, which we believe represent a key pathway to Monotype’s future growth.

Looking back on 2015, we continue to align the business with our markets evolving needs. Brands are facing an increasingly changing world driven by the explosion of devices that relay on content delivered and consumed from the cloud. Digital content has become central to our daily lives and continues to open new opportunities for Monotype.

Text an essential component of this digital content is increasingly cloud delivered through Web Fonts, which enable brands to achieve a consistent look and feel across multiple consumer touch points. Web Fonts continue to evolve as an important design asset for empowering brand expression. Today we provide customers with multiple ways to deploy Web Fonts through offerings like subscriptions, flexible licensing options and customized solutions. We’re encouraged by the Web Font adoption curve we seen over the past several years particularly at the enterprise level.

We continue to see momentum in branded expression in the form of personalized content that shared in places like social and mobile messaging apps. According to E-Marketer mobile messaging apps are used by more than 1 billion people worldwide, a number that’s expected to double within the next two years. And according to Flurry Insights, mobile app usage grew 58% from 2014 with personalization app use sky rocketing 332%.

Moving ahead we’ve built on what we’ve learned in the past year to deliver even more value over the long-term, evolving mediums like social, mobile and the cloud are transforming how the world communicates. And this has changed how we view our business and the opportunities ahead.

In Creative Professional we offer brand a pilot of options that bring content to life and enable individuals to express themselves. Acquiring Swyft at the beginning of 2015 has helped us move into new areas that benefit both brands and consumers. Through creative assets like branded keyboards, emoji, videos and fonts. Brands and advertisers are able to engage millennials in young consumers in new ways.

In OEM we can help customers capitalize on the internet of things both on the device and more significantly the content delivered to these devices. To reach in new and engaging ways. For example at CES we saw a number of manufacturers feature connected devices like refrigerators, automobiles and fitness trackers. With the goal of making them part of our broader ecosystem aimed at enhancing our lifestyles.

Our aim is to provide holistic solutions that enable OEMs to shape and deliver next generation user experiences across these ecosystems. All of which are focused on enabling consumers to better engage with products, brands and each other. In anticipation of future opportunities and the developments we’re seeing in our markets, we’ve broaden our vision statement. Today, our vision is to empower expression and engagement. An outside in view of how we can help customers ranging from individuals to large brands. Type technology and expertise continue to be the foundation of what we do and it also allows us to expand into new markets and capitalize on new opportunities.

Now I’ll touch on a few key highlights for the quarter and the year. In 2015 we achieved $21 million in Web Font revenue exceeding our target. We entered what was a nascent market five years ago and since then have helped customers evolve from testing Web Fonts and properties like microsites to now deploying Web Fonts across our global properties. Nike for example started with a small commitment for a single website in 2011 and soon began to expand into other mediums. Today the company uses our Web Fonts across multiple sites as well as several apps worldwide. Nike is a great example of how we increased our value as customers' needs evolve. It shows how our early investment in a growth market can develop overtime and offer meaningful returns as that market hit the tipping point.

We released a wide range of typefaces including, Noya Haas Unica, Kairos and Zapfino Arabic. Inspired by both customer request and a broader market desire to make some of the older classic designs available and relevant in the digital era. In November we introduced the Eric Gill series one of our most significant typeface releases ever. Featuring a remastering of a classic Gill Sans and Juana typefaces and the addition of Juana Sans Nova. This launch included a well-received exhibition in London where more than 2,700 visitors had rarely seen archived materials from Gills and took part in workshops, presentations and an interactive type installations.

In Q4 we engaged with Fitbit helping them to bring beautiful scalable type to a lineup of wearable devices. We believe this represents an important proof point of the additional opportunities to bring clarity and constancy to the Internet of Things.

Finally we’re excited about the opportunity Swyft presents. Holiday and Express, Virgin Active and Molson Canadian are a few of the brands that recently leveraged the Swyft mobile engagement platform. While Emoji have played a significant role in the growth of this emerging market. Our focus is to help brands and advertisers by creating new and effective ways for brands to engage their customers.

In Q4 Swyft introduced a number of new mobile ad units designed to help brands reach upto 1 billion active monthly users within the Swyft network. The new ad units provide access to a variety of content offering such emoji, stickers, gifts, photo frames, photo filters, videos and chat pages.

As we enter 2016 we’re very excited to bring expanded value to customers in new ways. Last month we announced a new subscription services for desktop fonts making is easier for a wide range of customers to have instant access to thousands of high quality typefaces. Including some of the world’s most popular designs of all time. With companies like [indiscernible] taking the lead with cloud based services, we’ve learned that millions of creators are embracing subscription models. We believe our new subscriptions are a natural extension to our existing licensing options. And an attractive way to get more people to easily use Monotype fonts at a very affordable price point.

Now I’d like to provide some high level thoughts on our financial outlook for 2016. Our outlook is trending towards the low end of the initial view we shared in October. Our original view assumed that printer stability experienced in the second half of 2015 would continue into 2016. Since that time, market conditions have softened and we now expect printer units to decline in 2016.

For 2016, we are expecting 5% to 8% top-line growth. We expect OEM to be flat to slightly down with growth in displays in ISB offset by printer weakness. We anticipate Creative Professional to grow 15% to 20%. Creative Professional still in the early days of a content revolution and we expect to drive meaningful customer value across many use cases. We expect net adjusted EBITDA margins to approximately 36% in line with our continued strategy to invest in the growth areas of our business.

At this point, I’d like to turn the call over to Joe to review our financial results, Joe?

Joe Hill

Thank you, Scott and good morning, everybody. I’d like to start by reviewing Monotype’s financial performance, provide more detail on our outlook for the first quarter and full year. We had a strong finish to the year with Q4 revenue of $50.6 million 9% above the prior year or approximately 11% on a constant currency basis. Our Creative Professional business continued to perform very well and revenue increased 17% to $24.4 million. This was driven primarily by strong growth from our direct sales channel, which continue to sign global brands to large recurring deals. This part of our Creative Professional business typically accelerates in the second half of the year and 2015 followed this pattern.

OEM revenue increased 3% from the prior year to $26.2 million. Within OEM, ISV was strong and our display business turning good results in growth categories such as automotive. Gross profit margins for the quarter was 82% of sales slightly higher than the prior year. Operating expenses totaled $31.6 million and this included $4.2 million of acquisition related contingent consideration expense. Excluding this item, core operating expenses increased 12% over the prior year, largely due to investments in sales and marketing, investments in infrastructure and acquired operating expenses.

GAAP net income for the fourth quarter was $4.9 million, earnings per diluted share were $0.12 and non-GAAP earnings per diluted share were $0.30. As a reminder the $4.2 million of acquisition related contingent consideration expense was not deductible for income tax purposes resulting in a higher than usual GAAP tax rate impacting net income and GAAP earnings per diluted share. However it is important to note that the company benefits from a significantly lower cash tax rate, which is about one third lower than our GAAP tax rate. Net adjusted EBITDA was $20.7 million, a 41% margin and 15% growth over the prior year.

Turning to our full year results, revenue increased 4% to $192.4 million or approximately 7% on a constant currency basis. Creative Professional revenue increased 14% to $88.1 million. Growth was primarily driven by large investments from our corporate branding customers. We continue to see an increase in velocity and deal size as brands turn to us to fulfill a broader range of need.

OEM revenue declined 3% to $104.3 million. This decline was driven by lower printer units in the first half of the year due to economic conditions primarily in China. Newer market categories such as automotive continue to perform well for us. Gross profit margins for the year was 82% consistent with the prior year.

Operating expenses increased 12% excluding acquisition related contingent consideration expense. We are investing in long-term opportunity now driving our top-line results. Organically, we’re investing in sales personnel, sales training and product marketing. Acquisitions like Font Shop and Swyft helped to round out our presence geographically and from an offering perspective.

In addition, we’re investing in an infrastructure such as ERP and facilities to strengthen our foundation to support future growth. Earning per diluted share were $0.65 and non-GAAP earning per diluted share were $1.12. Net adjusted EBITDA was $71 million, a 37% of margin.

Now turning to the balance sheet, cash and cash equivalents at year-end was $87.5 million and cash from operations was $53.4 million. Our year-end cash balance was reduced by $9.3 million from the acceleration of the Swyft earn out we announced in November. The $9.3 million is now classified on the balance sheet under restricted cash.

In 2015 we returned nearly $34 million to shareholders through dividends and share repurchases, used $29 million on acquisitions and acquisition related transactions and invested $9 million on our infrastructure such as ERP and office build outs. We remain confident in our business model the key feature of which is strong cash flow generation. We also remain committed to allocating a portion of our free cash flow to return to shareholders. And our Board has approved a 10% increase in our quarterly dividend. Our next dividend payable in April will be $0.11 per share.

Now I’d like to turn to 2016 guidance. As Scott noted since our last call, we have seen market conditions weaken particularly impacting our printer business. We are adjusting our expectations for 2016. We now expect top-line revenue growth of 5% to 8%. Creative Professional should see 15% to 20% growth year-over-year and we expect OEM to be flat to down due to slower printer unit shipments.

For the first quarter, we anticipate revenue of $48 million to $51 million. We expect gross profit margins to approximate 82% and the operating expenses to be approximately $32 million, inclusive of $600,000 of acquisition related contingent consideration expense. We expect net adjusted EBITDA to be in the range of $15 million to $17.5 million, non-GAAP diluted EPS of $0.23 to $0.27 and GAAP diluted EPS of $0.11 to $0.15.

For fiscal 2016 we anticipate revenue of $202 million to $208 million. We expect gross profit margins to approximately 82% and the operating expenses to be approximately $123 million, inclusive of $2.3 million of acquisition related contingent consideration expense. We expect net adjusted EBITDA to be in the range of $72 million to $77 million, non-GAAP diluted EPS of $1.08 to $1.16 and GAAP diluted EPS is $0.63 to $0.71.

From a seasonal standpoint, we expect Creative Professional to build sequentially similar to 2015. We also expect operating margins to improve with revenue through the year, as our operating expenses are typically higher in the first half of the year. Overall we are excited about of future here at Monotype and look forward to sharing our progress throughout the year.

With that we will turn the call over to the operator to begin the question-and-answer session. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Steven Frankel from Dougherty and Company. Please go ahead.

Steven Frankel

Good morning, Scott. Let’s start with the printer OEM weakness, could you give us more details on geographically where it’s coming from? And in your guidance for ‘16 what are you assuming for your printer revenue in terms of shrinkage?

Scott Landers

Yeah so Steve just to go back to the beginning of last year we originally saw some softness coming out of Europe and then China. And so I still believe Europe actually last year was in a position where it was declining and as you know China which represents 20% of the overall printer unit shipments went from I think a mid-teens growth down to a mid-single-digit growth, which significantly impacted where the market was going. We saw signs of improvement throughout the year. So sequentially those losses narrowed and actually in Q4 we actually saw a slight improvement in our printer revenue.

But here we enter Q1 there has been a renewed decline. And really it’s pretty wide spread I would say China now is probably down to a low-single-digit grower where most of the growth is coming from. And then you’re seeing declines across here in North America and certainly in pockets of Europe. So as we go into next year, it wouldn’t surprise us if printer unit shipments were down mid-single-digits for the full year.

Steven Frankel

And what does that imply with your revenue if they’re down mid-single-digits would you be down that much, would you be down little more?

Scott Landers

Yeah so we’re basically trending the market here right. So this is a units issue, I don’t think you need to Monotype. So if the market is going down in that mid-single-digit range we should follow it. Now what we’re doing you know that’s now only a third of our business. So what we’re focusing on Steve is continuing the execution across the remainder of our enterprise, which is you know goes from the devices in Creative Professional where we’re seeing the most momentum. But hopefully that gives you a sense on the printer side of the exposure. And we’ve built that into guidance.

Steven Frankel

Thanks. And this week was another week where there was news about the add ecosystem getting rid of flash. So like an update on where you think your customers are on this transition to HTML 5 based adds and why if that happens. Do they want to pay for your Web Font versus using one of the free fonts that are available when they go to do ads?

Scott Landers

Great so yeah we’ve seen a lot of traction on the HTML 5 front I think it really started in mid-last year where a bunch of folks came out and said they were no longer supporting the flash environment strongly encouraging people to move to HTML 5 and we’ve really seen that transition begin to occur within our customer base. So if we go back a few years we were primarily evangelizing to the brands on the importance of having brand consistency no matter where their brand is displayed, whether it’s in print, whether it’s on the website, or whether it’s in advertising.

And really what has to happen was the ecosystem had to catch up so all those folks making authoring tools needed to bring HTML 5 capabilities to the designers hand and we’ve seen that overtime. So there has been a few key data points I want to update you on, I believe we’re now working with eight different partners where our Web Font platform is embedded into their authoring tool, but also the shift is been on the customer side. So since all this news has come to the forum in folks like Google have just came out like you said last week our customers instead of waiting to listen to us, they are coming to us now saying hey we think 2016 is the year how can you help us?

Are we licensed properly for our fonts, can you recommend different tools we can use or can you sit down with our agency and strategize about how we can take this forward in fact I think in Q4 it wasn’t a big deal, but we got our first inbound deal of any size for HTML 5 advertising from a brand.

And as you know the importance of this is that with HTML 5 what the brand is able to do is use that content, develop that content once and HTML 5 will paint all the various screens for them versus in the old way they have to redo that content several times. So using HTML 5 and using our fonts we’ll make sure that their brand looks great and consistent. If they chose not to use us if they didn’t want to pay us and they compromised their brand by using an open source font or a system font they would really be comprising the look and feel of their brand identity, which in today’s world where you’re only seeing the brand in digital probably isn’t a good move.

Steven Frankel

Okay. And one last before I turn it over. You’ve talked in the past that this was a pivotal point with Swyft going from one-off test to trying to get into more regular campaigns with customers, could you give us an update on where you believe you are in that process?

Scott Landers

Yeah so I would say we’ve checked two of the three boxes, so what’s good is that we’re seeing existing customers come back and overall we’re seeing deal sizes from an RFP perspective get bigger, which is great. What we’re still not seeing though is companies come in and say, hey let me commit a larger amount of spend for you and lets go and map out the next 12 months' worth of campaigns if you will. So we’re still not at the point where we’re getting meaningful chunks of what we would consider predictable revenue.

Now what we’ve tried to do and the way we’re reviewing Swyft Steve is we’ll continue to press on the path that they’ve been on, but we also think they have ingrained points [ph] of solving a larger problem. And that larger problem is how do brands engage with consumers in the new world. So taking Swyft now broadening that offering to more of a platform where we’re not just offering stickers, but we’re offering different themes and video and the like. We’re looking to really be the brands’ partner and allowing them to put their brand to content in the hands of consumers where they wanted, when they wanted and the right type of content.

It’s almost as if this stuff is categorized as advertising, but from the individual and the consumer perspective the goal is to have it not feel like advertising at all, it’s branded content that they want to use. So I’d say two good signs and that we’re getting some repeat business and that the deal sizes are getting bigger, but there is still that last hurdle where we can get many customers to really sign up for a larger committed amount per year, we still…

Steven Frankel

And where are those average deal sizes today and where were they when you acquire the company?

Scott Landers

Yeah, I mean I think they can range even in the early days you could see individual deal sizes getting up into the nice six figure range, but they could also a lot of these test to invest can be 2000, 5,000, 10,000 I think what we’re seeing is more of them trending up into nice five figure and more six figure deals and less of single thousand deals, as a general rule.

Steven Frankel

Okay, great. Thank you.

Operator

Your next question comes from the line of Allen Klee from Sidoti. Please go ahead.

Allen Klee

Yes hi. For Web Fonts do you have any view on how that market can grow in 2016?

Scott Landers

Hi Allen, how are you? So great question on Web Fonts, so I will back up for a second and say we are thrilled at how the Web Font adoption has gone and just to remind folks who haven’t been with us for that long we originally thought that Web Fonts could be a $30 million to $50 million opportunity, just solving the website problem and this year ending the year at $21 million, we’re about halfway there and that feels really good. One other point I would make is in order for us to really capture the second half of this Web Font growth we had to see a transition from people just coming on to our e-commerce site, licensing web fonts at $10 a month for maybe a microsite and we really had to see this transition over to the enterprise and we certainly done that and it’s really what’s been fueling our growth, our enterprise sales force is doing terrific and that Nike example we gave in the script is really being repeated across lots of enterprise customers.

So, we certainly feel we’re on track to hitting our original goal. We are not going to be forecasting out Web Fonts any longer from an individual component perspective. One of the things we’ve done and you’ve heard us talk about is, we are now signing up large enterprises for customized deals. There are so many used cases that we can now solve for our brand and the good news is that they are inviting us in and they are sharing their print plans with us, we’re talking about their website, we’re going through their app strategy and now we’re beginning to talk about digital advertising.

And what our goal is, is just to create a customized license for an annual fee that has certain governors on it. And so at this point we’re no longer going to be speaking to it in particular what we do is still a huge driver to that enterprise strategy.

That’s a big catalyst on what’s fueling the Creative Professional 15% to 20% growth.

Allen Klee

And within Creative Professional, what other areas are you expecting growth?

Scott Landers

So, there is -- it’s the early days we don’t have very much money built in but the next wave here would be HTML 5 advertising so it’s taking that same Web Font value proposition now and extending it to the digital ad used case versus the website used case. We just launched a new subscription model called monotype library subscription that we think can be an interesting think longer-term, this isn’t a replacement for our desktop offering but it’s a next generation offering that we’re offering in addition to the perpetual licensing.

I think Swyft is another catalyst within that CP portfolio where we would expect growth. And then there is also the Internet of Things, I don’t think there as high as percentage of revenue from a growth perspective, but we’re seeing some nice traction within the Internet of Things and some of the adoption of our spark technology.

Allen Klee

Okay, great. And then can you just comment on the auto segment any new things happening there and your outlook?

Scott Landers

Yeah, so I think we’re now actually up to working with 14 manufacturers, I can’t list them out specifically, but I will tell you a few years ago Alan, when we talked most of our activity was here with the U.S. based manufacturers and today as we sit here three or four later, we’ve got really solid representation in the U.S., in Asia and in Europe. So, that business has been a nice growth catalyst for us it’s in excess of $5 million today, it seems as though our pricing which is $0.50 ballpark per car is continuing to resonate and I think we’ve got enough breadth of customer sign up today, I think the next wave of growth is going to be dependent on our ability to get those individual customers to ship us in more units.

So if you look across those 14 customers, we may ship them anywhere from 5% to 50% of their units and what we’ve got to do now is continue to show our value and hopefully as they bring more screens to all of their models and they unify the brand look and feel that’s on that screen across all of their models it presents an opportunity for us to now spread out within those accounts. So that’s still a big focus area for us and we’re really pleased on where we are so far.

Allen Klee

Okay. And last question, last quarter you highlighted that ISP helped to outperform in the CP segment and I’m just wondering if you can try to help us understand of what are the drivers to continue that for 2016?

Scott Landers

Yeah, so from an ISP perspective that’s categorized in our OEM business and we’ve talked about that as a long-term grower at about 3% to 5%. But there are times whether quarters or years where that can have a really nice impact on our business as some of the major players invest in their operating systems and their platforms. So obviously the bigger players are the folks like Google and Microsoft and Apple. But we’re also working with a whole host of the software folks.

So that’s been a really a nice boost for us in the second half of the year. And it’s really important strategically. So whether or not you’re talking about the big operating systems guys or folks like SAP and Oracle or even folks that are creating apps. Because in some ways they look a lot like ISVs or gaming folks. It’s important for us to be across all of those different customer accounts because those are the folks that put fonts in the hands of the everyday user everyday.

Right and so by working with them we ensure that billions of people whether they know it or not are working with Monotype IP. And the other big thing that drives it there is we’re also able to make significant improvements to them by adding different tools to help them within their workflow. So hopefully that gives you some color.

Allen Klee

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Kevin Liu from B. Riley and Company. Please go ahead.

Kevin Liu

Hi, good morning. Just on the topic of Web Fonts along with some of these more custom licensing arrangements. It does sound like you are willing to bundle them together. Can you just talk about how you get some incremental growth out of that if a customer were to extend say Web Font usage in other areas? And then do you consider Web Fonts for display ads as kind of a separate licensing keys that one typically be included in these arrangements.

Scott Landers

Hi, Kevin how are you? So yes we would, when we go and do enterprise deals and I’ll give a shout out to Doug here the first time he is not on the call. But Doug ingrained in the company years ago that when we’re doing these broader licenses that we should only be licensing for things we can specifically see today, right. So we usually do not grant license rights for different used cases that may come down the road because then to your point we reduced the opportunity to drive more value as they’re getting more value from us.

So the strategy of our enterprise sales team as they do these deals is the first identify what are those specific used cases where the fonts will travel. And then we’ll create a customized agreement to give them the flexibility to do their best work across all of those used cases. So in an example like this if we had done a deal two years ago we would have not given them the right do digital advertising. Right because that were still in an unknown quantity, pricing was unknown how the technology would be used would be unknown, the different people that would have to play in the ecosystem would be unknown.

So the first thing we have available to us Kevin is as new used cases come online, those can be additive to that customer agreement and can drive the value up. The other thing that we look at is that some of these things are being are price based on a per use basis per download, or per user. Those governors typically still exist. So in many cases we will still for licensing for x amount per year that will be up to so many downloads or upto so many users. So if their business is double it creates an opportunity for us to grow with the customer. Does that make sense?

Kevin Liu

Sure it does, it’s very helpful. And then just the quick follow-up on the display ad side then. You talked a little bit about pricing and I think previously on the enterprise side anyway you guys strictly aim for kind of a $0.04 per thousand impression type metric. As you know how these eight partners signed up and you have that first inbound deal, how do you see pricing holding up relative to what you saw on the enterprise side?

Scott Landers

Yeah I still think it’s too early to tell. I wouldn’t be surprised in the beginning if it holds up as the same pricing as website, it’s almost now I guess to when brands first tested Web Fonts and just did it on a micro site, it’s likely that we may get our first engagement with the brands maybe through their agency just on one or two small campaign. And so that feed to us maybe $800 or maybe $10,000.

I think when we’re going to be able to test the pricing is similar to do Web Fonts for websites when across the entire enterprise. Now you’re talking to someone at a BP or C level within Nike that it’s okay. We’re going to put this everywhere what should the pricing be. So I think that’s still on to come. We’re assuming in the models that we’ve talked to you folks about, Kevin that there is a 5X compression 5X to 10X compression in pricing, but we’ll see and we’ll keep you updated as we go.

It seems like a reasonable piece. I do just want to make the point because we’ve talked a lot about HTML 5 because it’s so important to our long-term. And this 2016 guidance is very little built in for HTML 5. There is still a bunch of unknowns and our hope is now that it appears that the log jam is broken in the marketplace that each quarter we can give you more data points of actual activity within our forward loans with customers.

Kevin Liu

Got it. And then just lastly from growth outlook perspective guidance certainly looks consistent with what folks were expecting before. Just in terms of the incremental EBITDA margins on that though. It seemed a little bit lower than what we would expect anyway. Are you just continuing to invest in some of the areas that hadn’t been leveraged yet or maybe you could talk a little bit about where your new investment dollars are going?

Joe Hill

So good morning Kevin this is Joe. If we look at the EBITDA and we’ve talked about in 2015 our investments in areas of growth which we’re excited about because we’re seeing those areas of investment giving us good indicators on performance. And as we’ve been saying we are continuing in 2016 in invest in those same areas. Investing in our sales and marketing efforts, investing in our infrastructure. And the same type of investments we’ve been making we are continuing to make it. And we think it's important for the growth of the company to keep that investment going right now.

Scott Landers

Kevin it’s Scott. It’s really an interesting time, I mean if you look at our business we’ve got a wonderful printer business, but it’s an annuity business for us. And what we’re really focused on is everything else. So I think when periods where printers are growing modestly all of the financial metrics are just going -- are we going to look just fine in years that printer struggle is going to put pressure on us from a profitability perspective because to Joe’s point all of the new money in investment is going on all the rest of the business, which we’re happy about from an investment perspective is if you look at our financial statements we’ve demonstrated our success in those markets over the last five years. Certainly on early days on displays and now big time with Creative Professional. So we’ll continue to keep the pedals of the metal there because that’s the right thing for us and the shareholders long-term.

Kevin Liu

Understood, congrats on a strong Q4 and good luck this year.

Scott Landers

Great, thank you Kevin.

Operator

There are no further questions at this time I turn the call back over to the presenters.

Scott Landers

Great, thank you and thank you for joining us today. We had a solid year capped by a record fourth quarter. We enter 2016 in a stronger position to capitalize on multiple opportunities on our path to empowering expression and engagement. Thanks again and have a great day.

Operator

And this concludes today’s conference call. You may now disconnect.

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