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Monotype Imaging Holdings Inc (NASDAQ:TYPE)FY 2019 Earnings Conference CallFeb. 15, 2019, 8:30 a.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:
Operator
Good day, ladies and gentlemen. Welcome to Monotype's Fourth Quarter and Year-End 2018 Financial Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference maybe recorded.
I would now like to turn the call over to Chris Brooks, Vice President of Finance and Investor Relations. Sir, you may begin.
Chris Brooks -- Vice President of Finance and Investor Relations
Thank you. Good morning, everyone, and thank you for joining us for Monotype's fourth quarter and full-year 2018 financial conference call. With me this morning are Scott Landers, President and Chief Executive Officer, and Tony Callini, Executive 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 fourth quarter and full-year 2018 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 15, 2019.
The 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 2018 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 non-GAAP 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.
Finally, a link to today's call can be found under Events in the Investors section of our website at monotype.com. The call will be archived on our website for one year.
And now, I'd like to turn the call over to Scott Landers, Scott?
Scott Landers -- President and Chief Executive Officer
Good morning and thanks for joining us. 2018 was an exceptional year. We exceeded our initial EBITDA guidance by $10 million. Top line revenue was driven by 22% growth in Creative Professional, our largest growth opportunity, which now represents about two-thirds of revenue.
Over the last four years, we have strategically shifted the business from primarily serving a small group of OEM manufacturers to one that addresses the needs of thousands of brands and millions of creative professionals worldwide.
For context, Creative Professional has grown by double-digits in each of the last eight years. This shift was planned. We analyzed markets, took stock of our capabilities and built a stronger company to serve our customers. We added new enterprise sales, marketing and product development capabilities, while managing the downturn in our most mature market -- printers.
2018 marks an important turning point for our business as the EBITDA-generating ability of our investments has now come to fruition. We eclipsed an important milestone, surpassing the 2014 high watermark in EBITDA.
More importantly, we exit the year with a more diverse and healthy portfolio, now anchored by two-thirds of our business in the Creative Professional space. In fact, our Creative Professional revenue has more than doubled over the last four years from $77 million to $159 million.
There is no question that we are delivering real customer value and helping customers maximize engagement in today's digital, mobile and global landscape.
Now, turning to our financial performance. Q4 revenue was $71.4 million, which is a 10% increase year-over-year. In Q4, non-GAAP net adjusted EBITDA increased 44% to $26.8 million. Full-year revenue grew 5% to $246.7 million and non-GAAP net adjusted EBITDA was $73.4 million or 30% of revenue.
Our EBITDA performance was very strong, exceeding our initial guidance by $10 million. The acceleration of operating leverage in our Creative Professional business allowed us to increase our profit guidance twice and, ultimately, beat our increased expectations.
In the fourth quarter, we saw sustained top line momentum in our core Creative Professional business. We also closed a large deal with a Fortune 100 company that opted to standardize on our IP for their brand needs via perpetual enterprise agreement.
The incremental impact on Q4 and full-year revenue and EBITDA is approximately $5 million. However, even without that, our financial results would still have reached the upper end of our most recent guidance range.
Drilling down into revenue, Creative Professional continued its strong growth, increasing 29% to $49.6 million in Q4 and 22% to $159.1 million for the full year.
OEM revenue finished at $21.8 million, an 18% decrease in Q4, and $87.6 million, down 17% for the full year, primarily due to one-time printer fees in 2017.
Moving to our business highlights. Starting with Creative Professional, our enterprise sales team had another strong quarter, demonstrating our unique ability to meet the branding needs of the Global 2000. We are also excited about the success of our newly released Mosaic offering.
Mosaic is the platform that enterprises can rely on to discover new fonts and experiment with new designs, knowing that our flexible licensing model lets them easily integrate our IP into their branding strategies. In Q4, we announced platform enhancements, such as the ability to upload and manage a user's complete collection of fonts, including non-Monotype funds, as well as a refreshed user interface and new collaboration features.
Less than one year since the launch of Mosaic, more than 250 of our enterprise customers have added the platform to support their team's creative process, allowing them to maximize the value of their font investment and improve productivity.
Enterprise sales revenue increased 45% in Q4 and 36% for the full year. In fact, our enterprise sales team closed almost 150 deals of at least $100,000 in 2018. This represents a 30% increase in the number of deals and an even larger increase in value generated. We consider this an important metric as it reflects customers who have chosen our solutions for broad-based enterprisewide deployment and across multiple use cases, including desktop, Web, apps and digital ads.
Now, turning to digital commerce. While our business declined slightly in the quarter, it continues to be strategic and provides a growing lead source to our enterprise sales team. In 2018, we implemented a new strategy where inside sales engages with the customer when they're shopping carts value becomes meaningful, With the goal of helping the customer identify the full breadth of their needs and choose the best solutions to meet them.
This year, we generated more than 250 enterprise leads that began on our digital commerce site and we're beginning to see the strategy have an impact on our enterprise sales activity and revenue.
Our ultimate goal is to identify creatives who work directly for our brand or are working under a brand mandate and engage in a way that delivers the most value and least friction. Strategically, we will focus on moving our best digital commerce customers to an enterprise relationship where they can extract continuous value from an offering like Mosaic. With these strategies, we will maximize our impact on our customers' business and in return on the lifetime value of the customer.
From a partner perspective, 2018 was a great year. We signed and expanded several new global partnerships, including Founder, SoftBank, Microsoft, Adobe and Envato, extending our ability to get important IP into the hands of creative professionals. We began to recognize revenue from these relationships in Q4 and anticipate partner revenue will grow in 2019. Our digital commerce sites and our partnering efforts are critical for us to achieve maximum market penetration.
Part of the continuous value we bring to the market is the new and innovative designs from our world class type design team. This year, we released a steady stream of type phase offerings, like our Walbaum, Madera and Unitext designs.
In Q4, we announced a major release from the Monotype studio with the Neue Frutiger World typeface, an expansive family designed for global branding and corporate identity that supports more than 150 languages. This typeface pairs with our new Chinese, Japanese and Korean designs, reinforcing our differentiation as being the go-to font partner for global brand consistency.
In addition, we were recognized by Communication Arts in its 9th Annual Typography competition. Monotype's Walbaum and Tencent Sans typefaces were both selected as winners of these important industry awards.
Now, turning to our Olapic offering. A couple of years ago, we set out to leverage our leadership position with Global 2000 brands and drive more customer value. Today, customers can turn to Monotype for both their type and visual marketing needs. We now have more than 60 customers who use both our type and Olapic offerings for brand expression.
Financially, year-over-year, revenue grew. However, ARR declined 14%. As expected, ARR from key verticals performed the best, but was offset by higher churn in non-key verticals. On the last call, we talked about the disruption caused by the acceleration of Instagram API changes and overall concerns with privacy, including the implementation of GDPR.
The disruption provided an opportunity for us to further differentiate ourselves in the marketplace. Our customer success, moderation, engineering, sales and support teams worked tirelessly to ensure our customers could meet their content needs through this transition period.
We believe that much of this transition is behind us and we are seeing early signs of normal customer behavior returning. From a customer vertical perspective, our portfolio is on more solid footing with nearly 90% of the overall business comprised of our key vertical markets.
In 2019, we expect revenue to be down slightly to flat with revenue growth resuming in 2020. As a reminder, we are running this business to a breakeven target and we'll continue to do so in 2019.
Now turning to OEM. Overall, OEM results were down as expected, primarily due to the printer business, which had headwinds from one-time fees recorded in 2017. We have been working hard behind the scenes to reinvigorate this part of the business. We see the opportunity for OEM to return to modest growth based on the combination of work we have done on several fronts.
First, from a risk perspective, we expect printer declines to slow over time as our customers adjust to the new industry norms and take advantage of more flexible IP licensing terms provided in our contracts.
Next, from a growth perspective, we continue to build the bigger foundation for automotive growth over the long term. In 2018, we made great progress in developing new partnerships with tier one automotive suppliers, which we believe will enable us to expand our revenue opportunity with Asian auto manufacturers.
Finally, we also made a significant shift in 2018, building a new capability to add value on top of open source font rendering with our launch of M-Kit. This new approach significantly expands our serviceable market, enabling us to target any device built on open source. Our M-Kit offering enables brands to deliver crisp, dynamic text on any screen, providing significant enhancements to legibility in 2D and 3D environments, as well as streamlining the delivery and efficiency of global language support.
Overall, OEM continues to be an important part of our business and we look forward to expanding the value we provide and returning to modest growth over the long term. As we exit 2018, our business has transformed. We've turned the corner and have shifted the majority of our portfolio, from one serving mature markets to now serving growing markets. In doing so, we have learned where our value resonates the most and where we have differentiation in the marketplace.
With that in mind, let me tee up some areas of strategic focus as we enter 2019. We will continue to serve the needs of Global 2000 brands by taking advantage of momentum within the enterprise, delivering the products and services that allow for brand expression and differentiation. We've exceeded our expectations in this market and believe our longer-term revenue opportunity could be larger than originally anticipated.
A key catalyst could be a product like Mosaic, which improves the workflow of our current customers, but could also unlock new opportunities with other Global 2000 and mid-market brands. Another catalyst could be our ability to expand our go-to-market success globally using what we've learned in the US, UK and Germany. In 2019, we expect to extend our reach one step further geographically in the regions that present significant opportunities to support creative professionals, including China, France and Canada.
With respect to Olapic, we believe our value proposition still holds true. Brands need more content, and that content needs to be authentic and deliver substantial ROI. Olapic meets that need.
Lastly, we will continue to optimize our go-to-market strategy by balancing our direct presence, our digital commerce channels and the reach of our partners to ensure we can most efficiently serve Global 2000 brands, the mid-market and the millions of creative professionals around the world. As we enter this next phase of growth in Creative Professional, we will calibrate our investments to maximize our market penetration and EBITDA-generating ability over the long term.
Now, moving to guidance. At a high level, we expect our 2019 growth prospects to be consistent with our view from the last call. And Tony will provide the details shortly.
To summarize, we're excited by what we accomplished in 2018 and are encouraged to see our hard work paying off. We're looking forward to another great year in 2019. And now, I'll turn the call over to Tony. Tony?
Tony Callini -- Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Thanks, Scott. Entering 2018, we talked a lot about leveraging our prior investments and remaining laser focused on expanding profitability margins through both revenue conversion and driving efficiency across the organization. That healthy balance between sustained growth and profitability is foundational to how we think about investments and strategy.
We're pleased to have accomplished these goals this past year and we believe our latest financial results reflect a very strong finish to a year of steady quarterly execution and profit margin expansion.
Now, turning to the results. Q4 revenue of $71.4 million increased 10% year-over-year and exceeded the top end of our guidance range by $3.7 million. At the same time, non-GAAP net adjusted EBITDA of $26.8 million or 37.5% of revenue exceeded the top of the guidance range by $4.8 million. This represents a 44% increase in profitability as compared to $18.6 million or 28.7% of revenue in the fourth quarter last year.
Q4 Creative Professional revenue of $49.6 million increased 29%, led by continued traction with enterprise sales customers and the approximately $5 million incremental impact from the large perpetual deal that Scott referenced earlier. As expected, fourth quarter OEM revenue of $21.8 million declined by 18%, largely due to last year's one-time printer revenue.
Gross profit margin for the quarter was 85.1%, reflecting a better-than-expected product mix. It may be helpful to view the fourth quarter and full-year results after normalizing for both the incremental impact of the large perpetual deal in 2018 and the one-time printer revenue in 2017.
As a reminder, last year, we recorded one-time printer revenue of $3.1 million in Q4 and $9.2 million for the full year. Adjusting for these items, revenue grew by 7% for both Q4 and the full year.
Normalized EBITDA grew by 41% in Q4 and 47% for the full year, reflecting a significant operating leverage improvement the team has achieved over the past two years.
Operating expenses of $45.5 million were $3 million or 6% lower than the prior year, reflecting the impact of prior efficiency programs and a sustained focus on optimizing operating costs.
Additionally, as part of our ongoing efficiency efforts, during Q4, we initiated a smaller cost savings action expected to result in about $3 million in annual savings, with the corresponding one-time cash cost of $1 million and non-cash cost of $1.8 million. Excluding these non-recurring costs, operating expenses decreased $2.6 million or 6%.
Fourth quarter GAAP net income was $9.5 million as compared to $11.9 million in Q4 of last year. Net income per diluted share was $0.23 as compared to $0.28 last Q4. Non-GAAP earnings per diluted share was $0.45 compared to $0.51 last year.
The decrease from last year is attributable to the impact of adopting the new tax reform legislation, which generated a one-time benefit of about $5.4 million last Q4. While the adoption of the new tax laws has been disruptive to our effective rate, we're beginning to see that rate return to more historical levels as we exit 2018. Our effective tax rate this quarter was about 35%, which brings our annual rate down to about 43%. Further, our 2018 cash tax rate came in at about 16%, which is lower than our traditional cash tax rate because we're able to utilize certain tax net operating losses.
Turning to the balance sheet, cash and cash equivalents at the end of Q4 was $60.1 million, a decrease of $22.7 million from the end of 2017, largely reflecting the more than $36.7 million returned to shareholders through our dividend and share repurchase programs, partially offset by cash generated from operations.
This quarter, we generated $11.4 million of cash from operations, which was consistent with the same period last year. For the full year, cash from operations of $22.8 million was reduced by approximately $19 million of non-recurring cash payments, of which about two-thirds was related to deferred acquisition consideration. After adjusting for these one-time items, cash from operations would have been about $41 million, an increase of 17% over the prior year.
I should highlight that our cash flows from operations is currently being impacted by two items, which has led to an increase in receivables, especially at the end of the quarter. First is a residual impact of the new revenue rules, which require us to recognize OEM royalty revenue the quarter before we typically receive the cash.
Second is the growth of the enterprise business, particularly in relation to the OEM and DC businesses. We extend typical commercial credit terms to both our enterprise type and Olapic customers, whereas we'd often recognize revenue in the same quarter the cash was collected from OEM and DC customers.
While total receivables have increased, the quality of receivables remains strong and we expect the changes in working capital to revert to more traditional levels in 2019, increasing our operating cash flow as a percentage of profitability.
Q4 non-operating uses of cash include $5 million of debt repayments and $4.9 million for our quarterly dividends. In Q2 of this year, we announced a $25 million equity buyback program. And during Q4, we repurchased approximately 560,000 shares for a total consideration of $10.7 million, bringing our full-year total to 890,000 shares for a cumulative consideration of $17.3 million. As of the end of January, we have another $5.7 million remaining on the authorization.
As a matter of practice, we regularly evaluate a variety of capital allocation alternatives, including dividends, stock repurchases, debt repayment, reinvestment in the company, and M&A activities. Our goal is to balance our capital needs, while providing a good return to shareholders. as we have historically.
Accordingly, our Board has decided that maintaining the current annual dividend rate of $0.464 per share, which carries a higher yield than in the past is the best approach for driving optimal long-term total shareholder return.
Now, before I review our 2019 financial guidance, let me touch on modeling considerations for this coming year. We are pleased that, unlike 2018, there's only one item to discuss, as we're now beyond any material lingering impact of one-time printer revenue and the new revenue recognition rules. In addition, our effective tax rate is beginning to return to more traditional levels.
It's important to note that, while we do from time to time enjoy deals that are materially higher than our average deal size, it is difficult to predict when or how large these transactions may be. As a result, we exclude them from consideration when completing internal planning or providing financial guidance.
Accordingly, there is about $5 million of revenue in 2018 from the large perpetual transaction that Scott discussed earlier that we would not expect to repeat in 2019. Therefore, as we think about 2019 growth expectations of the business, we exclude the impact of this deal.
Now, turning to our 2019 guidance. During our last earnings call, we provided a high-level framework for expected revenue growth and profitability in 2019, including ranges of growth percentages and non-GAAP net adjusted EBITDA margins.
Based on our full-year guidance at that time, these would have calculated out to about $244 million to $258 million of revenue and non-GAAP net adjusted EBITDA of about $70 million to $80 million.
Based on our momentum coming out of 2018 and visibility into incremental operational efficiencies, we are tightening the revenue range to $247 million to $257 million and the non-GAAP net adjusted EBITDA range to $71.5 million to $78.5 million. After normalizing for the roughly $5 million impact from the large enterprise deal in Q4, this computes out to 2% to 6% revenue growth, profitability growth of 5% to 15%, and non-GAAP net adjusted EBITDA margins of 29% to 31%.
We expect 2019 gross profit margins between 80% and 82% and operating expenses between $158 million and $161 million. We anticipate non-GAAP diluted EPS to be between $1.18 and $1.30 and GAAP diluted EPS to be between $0.72 and $0.84.
For the first quarter of 2019, we expect revenue of $55.5 million to $59.5 million, gross profit margins between 80% and 82%, and operating expenses between $39 million and $41 million.
We anticipate non-GAAP net adjusted EBITDA to be between $12.5 million and $15.5 million, non-GAAP diluted EPS to be between $0.19 and $0.25, and GAAP diluted EPS to be between $0.07 and $0.13.
Finally, as I mentioned earlier, we are beginning to see our effective tax rate normalize as US-based income grows and certain non-deductible expenses roll off or become less impactful.
As a result, we estimate that our 2019 effective tax rate will be approximately 28% to 30%. We do anticipate this rate will continue to decrease over the next few years landing ultimately in the mid-20s.
In closing, we're excited about the progress we've made in 2018. Looking forward to 2019, we'll continue to focus on execution as profitability outpaces revenue growth and creating enhanced long-term shareholder value.
And now, I'll turn the call over to the operator to begin the Q&A. Operator?
Operator
(Operator Instructions) Our first name comes from the line of Jackson Ader from J.P. Morgan. You may begin.
Jackson Ader -- J.P. Morgan -- Analyst
Great, thanks. Good morning, everyone.
Scott Landers -- President and Chief Executive Officer
Good morning.
Jackson Ader -- J.P. Morgan -- Analyst
So, a question on the large perpetual deal. Was the Mosaic portal at all a part of that deal? Or was it just straight Creative Professional font, $5 million?
Scott Landers -- President and Chief Executive Officer
I'm not positive on it. I believe it was. If Mosaic was a part of that, Jackson, that would be still going on as a subscription. So, what happens with these larger deals -- and having been here 10-plus years now -- every few years, you get one, right?
So, one of the great things for a brand working with us is we have the flexibility to license our IP in many different ways, right? 99% of the company's choose in this new world to do it on an annual subscription basis, where it encapsulates their desktop, their Web, their apps and their digital ad needs. But, on occasion, some of these much larger companies, who in particular have a very large capital budget, when they undergo a project, they say we really want to have perpetual rights to this. And then, we'll end up giving them some custom pricing.
When you think about that type of a deal from a lifetime value of the customer perspective, it's pretty much equal, right, because if you're going to go perpetual as they are, it's a multiplier on what that annual fee would be. And, historically, over time, it usually works out to something pretty close because, typically, brands will make a new substantial investment behind their brand every 5 years to 10 years.
Jackson Ader -- J.P. Morgan -- Analyst
Okay. All right. I got you. And just as we look at -- and I totally understand that you're excluding these types of deals from guidance. But can you give us a sense for maybe the pipeline of these types of deals, how it's trended over the last couple of years.
And then also, is it your expectation that maybe the Fortune 100 is more likely to go this route rather than kind of the enterprise license agreement you've been soaking (ph)?
Scott Landers -- President and Chief Executive Officer
No. If you look at our large deals, and I think this quarter we talked about having more than 150 over $100,000, they are pretty much all with the Fortune 500 and they're all signing up in that annual way. I think the last one we had like this, Jackson, may have been around 2015. And so, it really is once every couple of three years. Again, we remain flexible, try and be open with our customers, do a lot of listening, to then ultimately find out not only which product, but which business model will suit them.
Our preference, obviously, as a public company, is you always like them to come in on an annual basis, but we are not going to say no to a customer if this is what worked best within their budget framework and within their own strategy.
Jackson Ader -- J.P. Morgan -- Analyst
Sure. Okay, that makes sense. Thank you.
Scott Landers -- President and Chief Executive Officer
I would just -- I know you may be off the line, but just another follow-up. One of the things we look at is what percentage of our revenue is recurring or renewable and predictable. These types of deals, you can almost put them in the same bucket when we do a custom deal, right? So, sometimes, we'll do some very large customer engagements. And our metrics around the amount of our revenue that is renewable has actually increased. So, don't think that this deal has all of a sudden upset our typical metrics around recurring revenue. And for us, it still continues to push north of 70%.
Jackson Ader -- J.P. Morgan -- Analyst
Okay, awesome. Thanks for the color.
Chris Brooks -- Vice President of Finance and Investor Relations
Thank you.
Operator
And our next question comes from line of Steven Frankel from Dougherty. You may begin.
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
So, first, just a high-level question. You've done a good job in 2018 in driving margin expansion. There's not a ton factored into the 2019 guidance. Maybe a little more if we take out that $5 million. But kind of what incremental levers are there to get more margin expansion from here? Is it really revenue? So, it's you've got to find a way to grow revenue in excess of your guidance to try to get a breakout in margins from here?
Scott Landers -- President and Chief Executive Officer
Yeah. I think -- Steve, how are you? I think there is always a couple of ways, right? The fun way is revenue, right? So, our goal is to continue to move the business forward. One of the things we mentioned in the prepared remarks is we think the opportunity around the enterprise mix should be bigger than when we started this a few years ago. And so, we have now several points of leverage that I'll highlight for you.
First, if you went back a few years ago, we did not have an enterprise go-to-market capability, right? Now, we sit here with a fully ramped-up and trained, fully stratified enterprise sales team, all the way down from field sales down to business development representatives. We have great marketing in the field, great lead generation programs. We also understand which parts of our business can feed other parts, right? So, we know the huge piece of leverage that we talked about on the call today could actually be our digital commerce business actually providing real leads into the enterprise.
Another thing we have that's scalable is we actually have a SaaS product today for type, which didn't exist 18 months ago, right? So, our Mosaic offering presents a great opportunity to scale. And this has actually increased -- not only scale, but increase our market share. That is a product that we can take to the 55% of the Global 2000 who don't work with us today, right? There is an ingress point. Doesn't matter what they're using for branding. We can provide them a great platform to explore creativity for their other creative needs. And it also provides a product that we can take down market, again, that's a product that's already built.
Another point of leverage longer-term would be Olapic, right? So, we had some disruption in that market. But as we look at those 60 customers who now use both type and Olapic and how we've been able to cross-sell and also the ROI that Olapic's best customers are getting, we think that's a point of leverage going forward.
And then, lastly, again, these are all things we wouldn't have been able to talk about in detail two years ago, we now have a great partner network, right? A few years ago, we said we can't do all of this ourselves. And now, if you look, we're pretty much partnering everywhere around the globe and across all of the critical ecosystems where creatives may play.
So, as we move forward, 2019, you've got to back out the deals, that mid-single-digit growth with some expanding EBITDA margins. As we move forward in 2020, what our mission is is to return this business back to that high-single-digit, low double-digit growth. We still have some work to do, but we have some really good ideas, but now a really strong platform in which we would say go into phase two of this journey that we're on.
Tony Callini -- Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Yeah. Steve, I think when we think about investments, it's the same -- it's the same philosophy that we've had for quite some time now, which is balancing the growth with the profitability, right? And I think if you were to normalize and take out the noise -- and I tried to lay this out on the call -- and take the one-times out of last year and the perpetual deal, we went from 21-ish-percent in '17 to 28% in '18 and guiding now to 29% to 30%. So, I think a lot of the heavylift -- the really heavylifting is behind us. But make no mistake, we're continuing to be very efficient with how we look at the operations and we think about capital allocation and investment.
So, we still stick to the long-term guidance that we gave before, which is we think this should be a 32% to 36% business. We're really pleased with the progress we've made. And I would expect that you'll probably see it in more incremental chunks going forward over the next couple of years as opposed to the big forward that we made from '17 to '18.
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
Okay. And you talked about the e-commerce business kind of using the higher value baskets as a funnel for enterprise, which makes a lot of sense. You had multiple tweaks throughout the last year plus on trying to fix the everyday smaller basket size business. Has that market just moved away from you and more toward open source, and so your real opportunity here is use e-commerce as a funnel for bigger enterprise deals?
Scott Landers -- President and Chief Executive Officer
Yeah. I think it's a combination of both. I would say -- and, Steve, we've talked about this in the past -- the market tailwinds that we're experiencing with Global 2000 brands, those same things don't exist within the digital commerce customer base as a whole. So, you're right. You have open source fonts. We're partnering with folks like Adobe on a pilot basis, right? Adobe is providing value to font foundries, but they're including those fonts in a subscription to the creative. So, even in the best of our models, and we've talked about this business, we say returning this to modest growth, right? So, at best, it's a couple of 3 percentage point grower for us. And I don't think that's changed materially.
I'd say, in 2018, we came a long way because we had to do some retooling of the sites themselves and our engineering and the folks that run that digital commerce team have done a nice job, so that now we are ticking along and we can provide nice customer value. I do think, though, if you look longer-term, the bigger opportunity is probably 50% of the people who buy on a digital commerce site come from a brand or come from an agency. And what's different today than in the past is if we had intercepted or engaged with that customer, we never had a product like Mosaic before to move them over to, right?
So, if we can mine our digital commerce site and find out that 25 people from company ABC have been buying one-offs, there's probably a good chance that that customer who maybe has 200 creatives would be a great prospect for Mosaic. So, still time to tell, but very different market dynamics on what's fueling Global 2000 versus the environment on digital commerce.
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
And where are you in penetrating the agencies with Mosaic?
Scott Landers -- President and Chief Executive Officer
So, we're actually just getting started with that. It is a huge initiative for us in 2019. We know that agencies influence 85% of branding decisions that are made. Now, with that said, Steve, we have worked with these major agencies for decades, right, and a very, very high percentage of them. So, now, what we're looking to do is now extend that relationship and see if something like Mosaic, which we believe would be a huge value to their creatives, who are designing and doing mock-ups for brands, to kind of standardize on across the enterprise. So, that is a big initiative for us for 2019. And we'll probably give some color on that when we get out a couple of three quarters from now.
I was just going to say, the agencies themselves won't be a massive revenue opportunity, but what it does is ensures that more and more of the Global 2000 branding decisions that are made can be made, hopefully, with our IP or our expertise at the table.
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
Yeah. And then, on the OEM printer side, could you ballpark for us what comes up for renewal in 2019 and kind of what's factored in your guidance in terms of a recurring revenue renewal rate?
Scott Landers -- President and Chief Executive Officer
Yes. So, there's not a huge amount. So, the renewals pretty much occur in Q4 2019, I think, through Q2, Q3 of 2020. So, it's not a large percentage. I can just tell you the way that we -- our mental model for printer is that we're in that mid-single-digit decline and then it can be plus or minus a few percentage points because the team is still serving those customers, right? And they may be selling them other technologies or there could be some disruptions within accounts. So, we would assume a mid-single-digit decline in any given year. It could be plus or minus a few points.
With that said, it's been a few years now since this decline started. We do believe there is a bottom, right? We do think, at the end of the day, as that market shakes out, instead of 10 or 11 really strong folks, there maybe 6, 7, 8. And this still is a really nice business for us that, ultimately, bottoms, flattens out and maybe grows slightly. But we're probably still a couple of three years away from that.
One of the last points I'll make on printer is one of the things we talked about was providing a license agreement for them that would encourage them to take our product and put it in more places. One of the things we were notified of this year is one of the major printer manufacturers has decided to take our font IP and move it down market into their portfolio, which is significant, right? It now means from a unit perspective -- not that we're getting paid for per unit, but that from a unit perspective, we're adding a lot more value across a much higher number of units that are in the marketplace. So, so far, this strategy feels like it's working. But, again, I think when we renew it, it will be a case-by-case basis with customers. And, overall, we're thinking mid-single-digit decline.
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
Okay, great. Thank you.
Operator
(Operator Instructions) Thank you. Our next question comes from line of Zach Cummins from B.Riley FBR. You may begin.
Zach Cummins -- B. Riley FBR -- Analyst
Hi, good morning. Thanks for taking my questions. And congrats on the strong Q4 results. Yeah, just looking at your pipeline for the enterprise sales team within the Creative Professional side, I know you had the large deal here in Q4, but did you pull forward any deals or did you deplete any of the potential pipeline as you're moving forward and looking into 2019?
Scott Landers -- President and Chief Executive Officer
No. It's normal course, right? I think one of the things we tried to point out on the script was if we didn't have that big deal, it was still an amazing quarter. And we would have come in at the high end of our guidance range, which we upped twice during the year.
So, our team, our enterprise sales team and all the folks that support them did a great job executing as there was nothing abnormal there. I'd say from -- overall, from pipeline, this momentum, and we kind of echoed this in the prepared statement, the momentum continues. The numbers are now much larger than they used to be. And one of the things we're thinking, as you get into 2020 and beyond, is maybe this could actually be bigger than we thought.
And so, a couple of areas we teed up, Zach, were geographic expansion, right? We have a nice OEM kind of focus in Asia, but we've been testing out Creative Professional. We did several million dollars with major brands in China in 2018. We had a partner in China who was clamoring for our technology to provide it to the everyday creatives. So, that's an area we're going to do a little bit more in 2019.
And if we're right, that could become a really, really good thing for us longer term. We're not prepared to say it's going to be massive, but it's worth exploring. And kind of similar things we're doing in France and Canada and across the board. So, no, the enterprise feels good.
The one thing that is unique, this isn't a pure SaaS model. It is enterprise sales. So, you'll see from our results that Q4s have been really good, right? Usually, the beginning of a year is a little bit slower, right? Q3, when everyone is on vacation, can be a little bit slower. So, we're adjusting to that kind of seasonality, but we've now got three years of experience there and we would expect to be able to predict where we're going on an annual basis.
Zach Cummins -- B. Riley FBR -- Analyst
Great. That's really helpful. And then, in terms of Olapic, I know it's the declining ARR this year. It's going to be impacting revenues next year. But did I hear this correctly that you're just going to try to run that on a breakeven basis going forward or could there be some potential profitability where it's actually contributing to the adjusted EBITDA line going forward?
Scott Landers -- President and Chief Executive Officer
Yeah. No, long term, we would expect this to be an EBITDA-producing element of our business. That running to breakeven was really here in the short term, right? So, from an investor perspective, right, a couple of years ago, there had been some disruption where the growth rate had slowed. We had committed to investors that that was going to be a breakeven type business. That's in and around where we were in 2018. We'll continue that approach in 2019.
What I would say with Olapic is it is really interesting. When you look at their best customers, which I won't list, but they are the who's who, you use their products, you go to their hotels, you buy their apparel, the ROI for those customers is really, really good and the value this provides. And so, we're encouraged that we continue to see the best data coming out of those eight key verticals. We're also encouraged that if you look at the market opportunity just in those eight key verticals, it's about $200 million or more, right? And if we're 20-ish million type of a business, that leaves plenty of room without having new verticals having to come online.
But make no mistake, 2018, with that disruption in particular around the Instagram API changes, it was significant for that industry, right? What we're proud of is some of the competitors, actually, they had to turn their products off, right? They couldn't work, right? But we use kind of our manpower and expertise that we didn't let any of our customers -- we didn't let it impact their ability to provide more compelling and great content, right, to drive their business during that period. And at this point, kind of the technology has caught up, right? Everything is back and it's working. And now, we get back to growth and driving real customer value, and not just helping them adapt to the new norm. So, that's our thoughts on Olapic.
Zach Cummins -- B. Riley FBR -- Analyst
Understood. That's helpful. And then, just one final question for me. Tony, could you provide a little more detail around the $3 million cost savings action that was executed in 4Q?
Tony Callini -- Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Yeah. Really, what it was is this kind of a continuation of our efforts around driving more efficient (inaudible). It's a pretty small program. So, just as we went through our annual budgeting process, like we always do, we take a look at the portfolio mix. We see areas for efficiency and we've just put a fairly small program together on it.
So, like I said, I think a lot of the heavylifting is behind us. You'll start to see those savings bleed through in 2019 for sure, but we're going to be continuing to look at the operating model going forward.
Scott Landers -- President and Chief Executive Officer
Yeah. Zach, I'll just add a little bit to that. Tony and his team -- and you've got to give him a lot of credit and how they've been able to work us through. And it really will pickup in this portfolio management piece. We now have a lot of clarity, right? In 2015, when we set on this new course, we knew that we had the majority of our revenue in mature markets, and we had an idea of where it could go. We're three years in that phase one that we've turned the corner, if you will, is what we talked about in the script.
So, the clarity now of what's resonating with our customers, we can clearly look where we're spending the money, what the ROI is, right? Let's do less of what's not making a difference and let's do more of what's making a difference. And Tony and his team is working cross-functionally to help us through that. And I think we deserve a little bit of a pat on the back here because not only have we streamlined the operations to align with the customer value, but we've also driven the topline during that period without fail. And we'll continue to do that as markets evolve.
Zach Cummins -- B. Riley FBR -- Analyst
Great. Well, thanks for taking my questions. And congrats again on a strong Q4 and best of luck in 2019.
Chris Brooks -- Vice President of Finance and Investor Relations
Great. Thanks, Zach.
Scott Landers -- President and Chief Executive Officer
Thank you.
Operator
And our next question comes from the line of Glenn Mattson from Ladenburg Thalmann. You may begin.
Glenn G. Mattson, Jr. -- Ladenburg Thalmann -- Analyst
Hi. Just two quick ones. One on Olapic, I might have missed this, but you guys talked about the ARR being down, but that was because of these things like GDPR and Instagram and stuff. But you said higher churn in the non-key verticals, but that the key verticals weren't (ph) better. But were the key verticals kind of -- were they directionally positive or negative for the year? Just clarify on that.
Scott Landers -- President and Chief Executive Officer
No, I think we look at those key verticals as directionally positive, Glenn. We don't go down to that level, but our conviction around what we can do in those verticals and seeing the behavior of our customers -- that's where you have customers that have been spending significant six figures -- in some cases, seven figures -- for now multiple years in a row, right? That's where you have the data point, starting with the customer in the US and seeing him expand into Europe and Asia-Pacific and going multi-channel.
So, I think I just want to -- just for full disclosure here, I think there was actually two issues. One is that this market was evolving so fast, there were customers in verticals that were experimenting with this that were going to churn regardless of the disruption, right? And we were experiencing that before any API changes from Instagram or something like GDPR. And then, GDPR only makes it worse, right? So, it helps flush out those non-key verticals. But at this point, we think we can control our own destiny as we move forward, knock on wood that we don't have any other major disruptions and continue to push that business forward.
Glenn G. Mattson, Jr. -- Ladenburg Thalmann -- Analyst
Okay. And then on the -- as it relates to cash flow and balance sheet, so the increase in receivables this year was a draw on cash. So, that's, Tony. you said going to reverse. So, free cash flow will be stronger in '19. So, would your goal be then to -- now that the stock buyback is getting toward the end, what's the goal with the cash flow as you go forward beyond the dividend, if you had to rank them between paying down debt, increasing the buyback or acquisitions.
Tony Callini -- Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Yeah. I think, Glenn, like we said on the prepared comments, we balance all those things. And I think, obviously, we've reupped the dividend for another year, keeping it flat, which is a great yield. I think with the stock buyback program, we've been pretty opportunistic and we bought back a ton of shares over the past six months. And I think we'll continue to do that evaluation. Certainly, as I mentioned, investments in the business is another thing we're looking at as we're embarking on this next phase and looking to expand upon these growth opportunities. So, those are the features on the debt side.
I would expect that we can probably continue at least in the near term to keep ratcheting that down by roughly $5 million, which we've done the last three quarters. I guess that would go up a little bit over 2018. But this is something that we really review on an ongoing basis. So, it's based on whatever the factors are that we're kind of seeing at that time.
But what I can say for now is we reupped the dividend. Again, been really opportunistic on the stock buyback side. We'll continue to look at that and keep all those same principles in mind.
Glenn G. Mattson, Jr. -- Ladenburg Thalmann -- Analyst
Okay, great. That's it from me. Thanks, guys.
Chris Brooks -- Vice President of Finance and Investor Relations
Thank you.
Operator
Thank you. And I'm showing no further questions in the queue. I'd like to turn the call back to Scott Landers, Chief Executive Officer, for closing remarks.
Scott Landers -- President and Chief Executive Officer
Great. Thanks for joining us today. We appreciate the support from shareholders. A special thank you to our employees from around the globe for giving us a great 2018 that we got to share with everybody today. And we look forward to talking to you in a few months. Take care.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.
Duration: 51 minutes
Call participants:
Chris Brooks -- Vice President of Finance and Investor Relations
Scott Landers -- President and Chief Executive Officer
Tony Callini -- Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Jackson Ader -- J.P. Morgan -- Analyst
Steven Bruce Frankel -- Dougherty & Company LLC -- Analyst
Zach Cummins -- B. Riley FBR -- Analyst
Glenn G. Mattson, Jr. -- Ladenburg Thalmann -- Analyst
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