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Rosetta Stone Inc. Reports Third Quarter 2012 Results



  Rosetta Stone Inc. Reports Third Quarter 2012 Results

   Company Delivers $1.8 million of Adjusted EBITDA and 9% Bookings Growth

Business Wire

ARLINGTON, Va. -- November 07, 2012

Rosetta Stone Inc. (NYSE:RST), a leading provider of technology-based
language-learning solutions, today announced financial results for the third
quarter 2012, as summarized below:

                                                           
US$ thousands                         Three Months Ended
except per-share data                 September 30,         %
                                      2012       2011       change
Total revenue                         $64,279    $64,202    0%
Bookings^1                            $72,125    $66,062    9%
                                                             
Net loss                              (33,390)   (1,177)    -2,737%
Net loss per share                    $(1.58)    $(0.06)    -2,533%
                                                             
Adjusted Net loss^1,^2                (1,748)    (1,177)    -49%
Adjusted Net loss per share^1,2       $(0.08)    $(0.06)    -33%
                                                             
Adjusted EBITDA^1                     $1,827     $(1,791)   202%
                                                             
Cash flow from operations             5,424      (2,010)    370%
Purchases of property and equipment   (941)      (2,443)    -61%
Free cash flow^1                      4,483      (4,453)    201%
                                                             

^1Definitions and reconciliations for all non-GAAP measures are provided in
this press release.
^2 Excludes impact of legal expenses related to the lawsuit against Google,
Inc. and all adjustments related to recording a non-cash tax valuation
allowance for deferred tax assets.

Steve Swad, President and Chief Executive Officer of Rosetta Stone, said, “We
had a good third quarter with bookings up 9% year-over-year with double-digit
growth in our consumer business and single-digit growth in our institutional
business. We also did a better job managing our expenses and we made progress
shifting the business online with over 57,000 consumer Online Learners and
over 80% of our institutional business online.” Swad added, “We grew consumer
Online Learners by 115% since the beginning of the year and by 167% versus
this time last year. We operated more efficiently and lowered expenses,
including reducing our kiosk expenses and lowering our international media
spend which allowed us to deliver Adjusted EBITDA of $1.8 million, more than
double the $1.8 million loss a year ago.”

Third Quarter 2012 Operational and Financial Highlights

  * Bookings grew 9%: Total bookings increased 9% year-over-year to $72.1
    million from $66.1 million. The increase reflected an 11% increase in
    Consumer bookings as well as 4% growth in Institutional bookings related
    to signing new and renewal deals that will be recognized over time. Growth
    in Consumer bookings was due entirely to an 18% increase in the US, offset
    by a 10% decrease in International compared with last year.
  * Revenue up slightly: Consolidated revenue of $64.3 million increased
    slightly from $64.2 million a year ago. US Consumer revenue increased 5%
    reflecting double-digit growth in the company’s direct-to-consumer (DTC)
    channel, offset by lower contribution from the kiosk channel as the
    company operated 60 fewer kiosks on average. International Consumer
    revenue declined 8% primarily due to a decrease in revenues from Japan, in
    part the result of operating fewer kiosks, and lower sales in Germany,
    reflecting the shift to an online-only model, partially offset by an
    increase in Korea from increased sales in the home shopping TV channel.
    The Institutional business decreased 6% mainly due to the non-renewal of
    the Army and Marines contracts last year, partially offset by increases in
    Corporate and International.

                                                        
US$ thousands            Three Months Ended
                         September 30,   September 30,   %
                         2012            2011            change
Revenue from:
US Consumer              $39,681         $37,710         5%
International Consumer   10,094          11,002          -8%
Total Consumer           49,775          48,712          2%
Institutional            14,504          15,490          -6%
Total                    64,279          64,202          0%
                                                          

  * Adjusted EBITDA: Adjusted EBITDA for the third quarter was $1.8 million,
    an increase of $3.6 million from ($1.8) million in the third quarter of
    2011. The improvement in Adjusted EBITDA was mainly due to the small
    increase in revenues combined with a 7% or $2.7 million reduction in sales
    and marketing, partially offset by a $0.4 million increase in general and
    administrative (G&A) expenses and an increase in research and development
    costs.
  * Valuation Allowance for Deferred Tax Assets: The Company recorded a
    non-cash charge of $25.6 million in the third quarter of 2012 to establish
    a valuation allowance against its deferred tax assets (“DTAs”) primarily
    in the United States. In accordance with US GAAP, Rosetta Stone evaluates
    its DTAs quarterly to determine if valuation allowances are required. This
    determination was based on several factors, including whether the company
    had a three-year historical cumulative pre-tax loss, which the Company
    crossed in the third quarter, and as a result, the Company recorded a
    non-cash charge to income tax expense. Establishment of this valuation
    allowance does not preclude the company from utilizing the DTAs in the
    future to reduce cash tax payments.
  * Net Income: Rosetta Stone recorded a net loss of $33.4 million in the
    third quarter 2012, compared to a net loss of $1.2 million in the third
    quarter of 2011. Net loss per share was $1.58 compared to a net loss of
    $0.06 per share in the prior year period. Net loss for the quarter
    included the impact of the valuation allowance established against its
    deferred tax assets. Excluding the impact of this valuation allowance and
    Google-related legal costs of $1.0 million, Adjusted net loss was $1.7
    million compared to a loss of $1.2 million a year ago while Adjusted net
    loss per share was $0.08 compared with $0.06 net loss per share a year
    ago.
  * Balance Sheet and Cash Flow: Cash, cash equivalents and short-term
    investments were $126.1 million at September 30, 2012, an increase of $9.8
    million compared with $116.3 million at December 31, 2011 and an increase
    of $14.8 million from the prior year period. The company has no debt. Net
    cash provided by operating activities in the quarter was $5.4 million
    compared with ($2.0) million a year ago. Capital expenditures were $0.9
    million. Free cash flow for the quarter was $4.5 million, compared with
    ($4.5) million in the third quarter of 2011.

Financial Outlook

The company is providing the following update to its guidance for the full
year 2012:

  * Increasing the range of Adjusted EBITDA* by $2 million to $8 million to
    $10 million from $6 million to $8 million.
  * Maintaining the range of Adjusted net loss** at $6 million to $4 million,
    but improving Adjusted net loss per share** to a range of $0.20 to $0.30.
    These figures exclude the Google legal expenses and all adjustments
    related to recording the valuation allowance so that they are comparable
    to our previous guidance of a net loss of $4 million to $6 million and net
    loss per share of $0.20 to $0.33.
  * Lowering the range for capital expenditures to $5 million to $8 million
    compared with previous guidance of $8 million to $11 million.

*Adjusted EBITDA excludes legal expenses related to the lawsuit against Google
Inc. and any restructuring costs.

**Adjusted net loss and Adjusted net loss per share exclude the impact of
legal expenses related to the lawsuit against Google, Inc. and all adjustments
related to recording the non-cash tax valuation allowance for deferred tax
assets.

Non-GAAP Financial Measures

This press release contains several non-GAAP financial measures. Adjusted
EBITDA is GAAP net income or loss plus interest income and expense, income tax
benefit and expense, depreciation, amortization and stock-based compensation
expenses. Adjusted EBITDA excludes any expenses related to the lawsuit against
Google Inc., and any restructuring costs. Adjusted EBITDA for prior periods
has been revised to conform to current definition. Adjusted net loss and
adjusted net loss per share exclude the impact of legal expenses related to
its lawsuit against Google, Inc. and all adjustments related to recording the
non-cash tax valuation allowance for deferred tax assets. Free cash flow is
cash flow from operations less cash used in purchases of property and
equipment. Bookings represent executed sales contracts received by the Company
that are either recorded immediately as revenue or as deferred revenue.
Management believes that these non-GAAP measures of financial results provide
useful information to investors regarding certain financial and business
trends relating to the Company’s financial condition and results of
operations. Management uses these non-GAAP measures to compare the Company's
performance to that of prior periods for trend analyses, for purposes of
determining executive incentive compensation, and for budgeting and planning
purposes. These measures are used in monthly financial reports prepared for
management and in quarterly financial reports presented to the Company's board
of directors. Management believes that the use of these non-GAAP financial
measures provides an additional tool for investors to use in evaluating
ongoing operating results and trends and in comparing the Company's financial
measures with other software companies, many of which present similar non-GAAP
financial measures to investors.

Management typically excludes the amounts described above when evaluating the
Company’s operating performance and believes that the resulting non-GAAP
measures are useful to investors and financial analysts in assessing the
Company’s operating performance due to the following factors:

  * Amortization of Acquired Intangibles. Amortization costs and the related
    tax effects are fixed at the time of an acquisition, and then amortized
    over a period of several years after the acquisition and generally cannot
    be changed or influenced by management after the acquisition.
  * Stock-based Compensation. Although stock-based compensation is an
    important aspect of compensation of the Company’s employees and
    executives, stock-based compensation expense is generally fixed at the
    time of grant, then amortized over a period of several years after the
    grant of the stock-based instrument, and generally cannot be changed or
    influenced by management after the grant. In addition, the impact of
    shares granted under these plans is considered in the Company’s EPS
    calculation to the extent the shares are dilutive.
  * Bookings. Although revenue is an important aspect of measuring Company
    performance, the Company believes total sales bookings can be a valuable
    indicator of the Company's performance. The Company is transitioning to a
    greater amount of subscription sales, which results in an increasing
    portion of sales being recorded as deferred revenue.

Management does not consider these non-GAAP measures in isolation or as an
alternative to financial measures determined in accordance with GAAP. The
principal limitation of these non-GAAP financial measures is that they exclude
significant expenses and income that are required by GAAP to be recorded in
the Company's financial statements. In addition, they are subject to inherent
limitations, because they reflect the exercise of judgments by management
about which expenses and items of income are excluded from these non-GAAP
financial measures and may not be calculated in the same manner as other
companies’ similarly titled non-GAAP measures.

In order to compensate for these limitations, management presents its non-GAAP
financial measures in connection with its GAAP results. The company urges
investors to review the reconciliation of its non-GAAP financial measures to
the comparable GAAP financial measures, which it includes in press releases
announcing earnings information, including this press release, and not to rely
on any single financial measure to evaluate the company's business.

Reconciliation tables of the most comparable GAAP financial measures to the
non-GAAP measures used in this press release are included at the end of this
release.

Investor Webcast

This news release and the accompanying tables should be read in conjunction
with the additional content that is available on the company’s website.

In conjunction with this announcement, Rosetta Stone will host a webcast today
at 4:30 p.m. eastern time (ET) to discuss the results and the company’s
business outlook. The webcast will be available live on the Investor Relations
page of the company’s website at http://investors.rosettastone.com.

Investors may also dial in to the conference line using one of the following
numbers:

1-877-407-4018 (toll-free) or

1-201-689-8471 (toll/international)

A recorded replay of the webcast will be available on the “Investor Relations”
page of the company’s web site http://investors.rosettastone.com after the
live discussion. The replay will also be available beginning at 7:30PM ET
until November 21, 2012 via telephone at the following numbers:

1-877-870-5176 (toll-free) or

1-858-384-5517 (toll/international)

Pass Code: 403092

About Rosetta Stone

Rosetta Stone Inc. provides cutting-edge interactive technology that is
changing the way the world learns languages. The company’s proprietary
learning techniques—acclaimed for their power to unlock the natural
language-learning ability in everyone—are used by schools, businesses,
government organizations and millions of individuals around the world. Rosetta
Stone offers courses in 30 languages, from the most commonly spoken (like
English, Spanish and Mandarin) to the less prominent (including Swahili,
Swedish and Tagalog). The company was founded in 1992 on the core beliefs that
learning to speak a language should be a natural and instinctive process, and
that interactive technology can activate the language immersion method
powerfully for learners of any age. Rosetta Stone is based in Arlington, VA.,
and has offices in Harrisonburg, VA, Boulder, CO, Tokyo, Seoul, London, and
Sao Paulo.

“Rosetta Stone” is a registered trademark or trademark of Rosetta Stone Ltd.
in the United States and other countries.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release are forward-looking statements,
including our guidance for future financial performance and operating targets,
and our long-term growth prospects. In this context, forward-looking
statements often address our expected future business and financial
performance, and often contain words such as “project,” “believe,” “plan,”
“expect,” “anticipate,” “estimate,” “intend,” “should,” “would,” “could,”
“potentially,” “seek,” “may,” “likely,” “will,” “financial outlook,”
“strategy,” or “continue.” These forward-looking statements reflect the
company's current views with respect to future events and are subject to
certain risks, uncertainties, and assumptions. A number of important factors
could cause actual results or events to differ materially from those indicated
by such forward-looking statements, including demand for language learning
software; the advantages of our products, services, technology, brand and
business model as compared to others; our strategic focus; our ability to
maintain effective internal controls or to remediate material weaknesses; our
cash needs and expectations regarding cash flow from operations; our product
development plans; the appeal and efficacy of our products; our expectations
regarding capturing lifetime value and a broader range of market segments
through such offerings; our plans regarding expansion of our marketing
initiatives and sales force; our international expansion and growth plans; our
plans regarding our kiosks and retail relationships; our plans regarding our
Institutional business; the impact of any revisions to our pricing strategy;
our ability to manage and grow our business and execute our business strategy;
our financial performance; our actions to stabilize our business in the U.S.
consumer market including realigning our cost structure and revitalizing our
go-to-market strategy; our plans to transition our distribution to more online
in the consumer space; adverse trends in general economic conditions and the
other factors described more fully in the company's filings with the U.S.
Securities and Exchange Commission (SEC), including the company’s annual
report on Form 10-K for the fiscal year ended December 31, 2011, which is on
file with the SEC. The company assumes no obligation to update the information
in this communication, except as otherwise required by law. Readers are
cautioned not to place undue reliance on these forward-looking statements that
speak only as of the date hereof.

                                                                   
ROSETTA STONE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
                                                                     
                                                                     
                              Three Months Ended       Nine Months Ended
                              September 30,            September 30,
                              2012         2011        2012         2011
Revenue:
Product                       $ 42,462     $ 44,183    $ 127,534    $ 134,541
Subscription and service        21,817       20,019      67,006       53,381
Total revenue                   64,279       64,202      194,540      187,922
                                                                     
Cost of revenue:
Cost of product revenue         7,858        7,862       24,087       25,430
Cost of subscription and        3,327        3,447       11,892       8,861
service revenue
Total cost of revenue           11,185       11,309      35,979       34,291
                                                                     
Gross profit                    53,094       52,893      158,561      153,631
                                                                     
Operating expenses
Sales and marketing             37,113       39,821      110,641      118,175
Research and development        5,177        4,991       17,944       17,829
General and administrative      14,474       14,115      41,050       42,731
Total operating expenses        56,764       58,927      169,635      178,735
                                                                     
Loss from operations            (3,670)      (6,034)     (11,074)     (25,104)
                                                                     
Other income and (expense):
Interest income                 42           62          141          224
Interest expense                -            (1)         -            (5)
Other income (expense)          (27)         34          (71)         83
Total other income              15           95          70           302
(expense)
                                                                     
Loss before income taxes        (3,655)      (5,939)     (11,004)     (24,802)
Income tax expense              29,735       (4,762)     28,833       (9,794)
(benefit)
                                                                     
Net loss                      $ (33,390)   $ (1,177)   $ (39,837)   $ (15,008)
                                                                     
Net loss per share:
Basic                         $ (1.58)     $ (0.06)    $ (1.90)     $ (0.72)
Diluted                       $ (1.58)     $ (0.06)    $ (1.90)     $ (0.72)
                                                                     
Common shares and
equivalents outstanding:
Basic weighted average          21,073       20,780      21,004       20,724
shares
Diluted weighted average        21,073       20,780      21,004       20,724
shares

                                                                 
ROSETTA STONE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
                                                   September 30   December 31,
                                                   2012           2011
                                                                   
                                                                   
Assets
Current assets:
Cash and cash equivalents                          $  126,046     $   106,516
Restricted cash                                       58              74
Short term investments                                -               9,711
Accounts receivable (net of allowance for
doubtful accounts of $1,299 and $1,951,               39,685          51,997
respectively)
Inventory                                             6,765           6,723
Prepaid expenses and other current assets             6,306           7,081
Income tax receivable                                 9,750           7,678
Deferred income taxes                                 13              10,985
Total current assets                                  188,623         200,765
                                                                   
Property and equipment, net                           16,983          20,869
Goodwill                                              34,867          34,841
Intangible assets, net                                10,835          10,865
Deferred income taxes                                 123             8,038
Other assets                                          1,884           1,803
Total assets                                       $  253,315     $   277,181
                                                                   
Liabilities and stockholders' equity
Current liabilities:
Accounts payable                                   $  6,959       $   7,291
Accrued compensation                                  13,211          11,703
Other current liabilities                             28,407          34,911
Deferred revenue                                      53,787          49,375
Total current liabilities                             102,364         103,280
                                                                   
Deferred revenue                                      4,002           2,520
Deferred income taxes                                 8,102           -
Other long-term liabilities                           213             176
Total liabilities                                     114,681         105,976
                                                                   
Commitments and contingencies
                                                                   
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000 and
10,000 authorized; zero and zero shares issued        —               —
and outstanding September 30, 2012 and December
31, 2011, respectively
Non-designated common stock, $0.00005 par value,
190,000 and 190,000 shares authorized, 21,839
and 21,258 shares issued and outstanding at           2               2
September 30, 2012 and December 31, 2011,
respectively
Additional paid-in capital                            158,861         151,823
Accumulated income (loss)                             (20,755 )       19,082
Accumulated other comprehensive income                526             298
Total stockholders' equity                            138,634         171,205
Total liabilities and stockholders' equity         $  253,315     $   277,181
                                                                   

                                                                  
ROSETTA STONE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                                                                    
                         Three Months Ended          Nine Months Ended
                         September 30,               September 30,
                         2012          2011          2012          2011
                                                                    
Cash Flows From
Operating Activities:
Net loss                   (33,390 )     (1,177  )     (39,837 )     (15,008 )
Adjustments to
reconcile net loss to
cash provided by (used
in) operating
activities
Stock-based                2,477         1,836         6,208         4,977
compensation expense
Bad debt expense           739           401           1,335         709
Depreciation and           1,748         2,184         6,230         6,439
amortization
Deferred income tax        28,096        (2,493  )     26,940        471
benefit
Loss on sales of           372           2             752           18
equipment
Net change in:
Restricted cash            (13     )     (4      )     15            19
Accounts receivable        (5,165  )     4,358         11,149        12,345
Inventory                  (479    )     1,121         1             1,361
Prepaid expenses and       136           820           785           1,371
other current assets
Income tax receivable      660           (3,991  )     (2,080  )     (12,232 )
Other assets               987           1,108         (78     )     (208    )
Accounts payable           2,491         (2,019  )     (377    )     738
Accrued compensation       (298    )     (1,859  )     1,476         (1,462  )
Other current              1,123         (4,069  )     (6,690  )     (3,712  )
liabilities
Excess tax benefit
from stock options         18            (334    )     -             (365    )
exercised
Other long-term            (1,640  )     164           (44     )     152
liabilities
Deferred revenue           7,562         1,942         5,707         370      
Net cash provided by
(used in) operating        5,424         (2,010  )     11,492        (4,017  )
activities
                                                                    
Cash Flows From
Investing Activities:
Purchases of property      (941    )     (2,443  )     (2,939  )     (7,908  )
and equipment
Proceeds from
(purchases of)             1,599         105           9,711         (1,801  )
available-for-sale
securities
Acquisition, net of        -             -             -             (75     )
cash acquired
Net cash provided by
(used in) investing        658           (2,338  )     6,772         (9,784  )
activities
                                                                    
Cash Flows From
Financing Activities:
Proceeds from the
exercise of stock          830           559           830           639
options
Tax benefit of stock       (18     )     334           -             365
options exercised
Payments under capital     (2      )     (1      )     (5      )     (6      )
lease obligations
Net cash provided by       810           892           825           998      
financing activities
                                                                    
Increase (decrease) in
cash and cash              6,892         (3,456  )     19,089        (12,803 )
equivalents
                                                                    
Effect of exchange
rate changes in cash       380           (291    )     441           114      
and cash equivalents
                                                                    
Net increase
(decrease) in cash and     7,272         (3,747  )     19,530        (12,689 )
cash equivalents
                                                                    
Cash and cash
equivalents—beginning      118,774       106,814       106,516       115,756  
of period
                                                                    
Cash and cash
equivalents—end of       $ 126,046     $ 103,067     $ 126,046     $ 103,067  
period
                                                                    

                                                                  
ROSETTA STONE INC.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
                                                                    
                                                                    
                          Three Months Ended         Nine Months Ended
                          September 30,              September 30,
                            2012          2011         2012          2011     
                                                                    
Net loss                  $ (33,390 )   $ (1,177 )   $ (39,837 )   $ (15,008 )
Interest                    (42     )     (61    )     (141    )     (219    )
(income)/expense, net
Income tax expense          29,735        (4,762 )     28,833        (9,794  )
(benefit)
Depreciation and            1,748         2,184        6,230         6,439
amortization
Stock-based                 2,477         1,836        6,208         4,977
compensation
Other EBITDA                1,299         189          3,392         443      
Adjustments
                                                                    
Adjusted EBITDA*          $ 1,827       $ (1,791 )   $ 4,685       $ (13,162 )
                                                                              

*Adjusted EBITDA equals GAAP net income or loss plus interest income and
expense, income tax benefit and expense, depreciation, amortization,
stock-based compensation expenses, restructuring costs and any expenses
related to the previously disclosed lawsuit against Google, Inc.
Prior period Adjusted EBITDA has been conformed to current definition.

                                                               
ROSETTA STONE INC.
Reconciliation of Net Loss to Adjusted Net Loss
(in thousands except per share amounts)
(unaudited)
                                                                 
                                                                 
                   Three Months Ended             Nine Months Ended
                   September 30,                  September 30,
                   2012                           2012
                                 Adjusted                       Adjusted
                   Net loss      Loss per share   Net Loss      Loss per share
Net loss as        $ (33,390 )   $   (1.58   )    $ (39,837 )   $   (1.90   )
reported
Expenses related
to Google            966         $   0.05           1,096       $   0.05
lawsuit
Income taxes -
valuation            30,676      $   1.46           32,301      $   1.54
allowance
                                                                 
                                                                 
Adjusted Net       $ (1,748  )   $   (0.08   )    $ (6,440  )   $   (0.31   )
Loss*
                                                                             

*Adjusted Net Loss equals GAAP net loss adjusted for expenses related to the
lawsuit against Google, Inc. and all impacts related to recording the
valuation allowance.

                                                                                                                                                                     
Rosetta Stone Inc.
Business Metrics
(in thousands)
                                                                                                                                                            
                Quarter-Ended                                         Quarter-Ended                                          Quarter-Ended
                                                                                                                                                                       
                3/31/10   6/30/10   9/30/10   12/31/10   2010         3/31/11   6/30/11   9/30/11   12/31/11   2011          3/31/12   6/30/12   9/30/12   12/31/12   2012
Net Bookings
by Market
                                                                                                                                                                       
US Consumer     41,631    38,746    41,138    52,243     173,758      29,814    36,828    35,562    54,786     156,990       41,237    37,240    42,042
International   10,029    8,177     9,860     15,176     43,242       14,996    12,910    11,945    14,589     54,440        13,046    8,168     10,729                
Consumer
Worldwide       51,660    46,923    50,998    67,419     217,000      44,810    49,738    47,507    69,375     211,430       54,283    45,408    52,771
Consumer
                                                                                                                                                                       
Worldwide       9,108     17,110    22,307    14,395     62,920       10,770    16,973    18,555    15,459     61,757        10,984    17,635    19,354                
Institutional
Total           60,768    64,033    73,305    81,814     279,920      55,580    66,711    66,062    84,834     273,187       65,267    63,043    72,125                
                                                                                                                                                                       
YoY Growth
(%)
US Consumer     6%        -9%       -19%      -11%       -9%          -28%      -5%       -14%      5%         -10%          38%       1%        18%
International   304%      168%      135%      93%        146%         50%       58%       21%       -4%        26%           -13%      -37%      -10%                  
Consumer
Worldwide       23%       3%        -7%       1%         4%           -13%      6%        -7%       3%         -3%           21%       -9%       11%
Consumer
                                                                                                                                                                       
Worldwide       8%        28%       5%        37%        18%          18%       -1%       -17%      7%         -2%           2%        4%        4%                    
Institutional
Total           21%       9%        -4%       6%         7%           -9%       4%        -10%      4%         -2%           17%       -5%       9%                    
                                                                                                                                                                       
% of Total
Net Bookings
US Consumer     69%       60%       56%       64%        62%          54%       55%       54%       65%        57%           63%       59%       58%
International   16%       13%       14%       18%        15%          27%       20%       18%       17%        20%           20%       13%       15%                   
Consumer
Worldwide       85%       73%       70%       82%        78%          81%       75%       72%       82%        77%           83%       72%       73%
Consumer
                                                                                                                                                                       
Worldwide       15%       27%       30%       18%        23%          19%       25%       28%       18%        23%           17%       28%       27%                   
Institutional
Total           100%      100%      100%      100%       100%         100%      100%      100%      100%       100%          100%      100%      100%                  
                                                                                                                                                                       
                                                                                                                                                                       
Revenue by
Market
                                                                                                                                                                       
US Consumer     41,407    38,748    36,902    44,516     161,573      28,061    38,606    37,710    52,794     157,171       42,671    36,895    39,681
International   9,815     7,651     9,708     15,516     42,690       14,601    12,014    11,002    13,238     50,855        12,617    8,074     10,094                
Consumer
Worldwide       51,222    46,399    46,610    60,032     204,263      42,662    50,620    48,712    66,032     208,026       55,288    44,969    49,775
Consumer
                                                                                                                                                                       
Worldwide       11,792    14,249    14,316    14,248     54,605       14,316    16,123    15,490    14,494     60,423        14,161    15,843    14,504                
Institutional
Total           63,014    60,648    60,926    74,280     258,868      56,978    66,743    64,202    80,526     268,449       69,449    60,812    64,279                
                                                                                                                                                                       
YoY Growth
(%)
US Consumer     5%        -8%       -28%      -25%       -16%         -32%      0%        2%        19%        -3%           52%       -4%       5%
International   297%      154%      137%      101%       147%         49%       57%       13%       -15%       19%           -14%      -33%      -8%                   
Consumer
Worldwide       22%       3%        -16%      -10%       -2%          -17%      9%        5%        10%        2%            30%       -11%      2%
Consumer
                                                                                                                                                                       
Worldwide       39%       23%       21%       26%        26%          21%       13%       8%        2%         11%           -1%       -2%       -6%                   
Institutional
Total           25%       7%        -9%       -5%        3%           -10%      10%       5%        8%         4%            22%       -9%       0%                    
                                                                                                                                                                       
% of Total
Revenue
US Consumer     66%       64%       61%       60%        62%          49%       58%       59%       66%        58%           62%       61%       62%
International   15%       13%       16%       21%        17%          26%       18%       17%       16%        19%           18%       13%       15%                   
Consumer
Worldwide       81%       77%       77%       81%        79%          75%       76%       76%       82%        77%           80%       74%       77%
Consumer
                                                                                                                                                                       
Worldwide       19%       23%       23%       19%        21%          25%       24%       24%       18%        23%           20%       26%       23%                   
Institutional
Total           100%      100%      100%      100%       100%         100%      100%      100%      100%       100%          100%      100%      100%                  
                                                                                                                                                                       
                                                                                                                                                                       
Consumer
Revenue by
Channel
                                                                                                                                                                       
DTC             31,026    25,142    27,500    34,496     118,164      31,856    30,984    31,177    42,368     136,385       36,839    30,951    35,130
Kiosk           9,391     8,683     7,392     9,533      34,999       7,312     7,368     6,987     8,504      30,171        6,483     4,564     4,103
Global Retail   9,608     11,200    9,832     15,413     46,053       2,585     10,752    9,015     14,265     36,616        10,999    8,122     8,911
Home School     1,197     1,374     1,886     590        5,047        909       1,516     1,533     895        4,854         967       1,332     1,631                 
Total           51,222    46,399    46,610    60,032     204,263      42,662    50,620    48,712    66,032     208,026       55,288    44,969    49,775                
                                                                                                                                                                       
YoY Growth
(%)
DTC             24%       -5%       -6%       -2%        2%           3%        23%       13%       23%        15%           16%       0%        13%
Kiosk           14%       -7%       -25%      -28%       -14%         -22%      -15%      -5%       -11%       -14%          -11%      -38%      -41%
Global Retail   34%       46%       -27%      -12%       0%           -73%      -4%       -8%       -7%        -20%          325%      -24%      -1%
Home School     -19%      -12%      -28%      -50%       -26%         -24%      10%       -19%      52%        -4%           6%        -12%      6%                    
Total           22%       3%        -16%      -10%       -2%          -17%      9%        5%        10%        2%            30%       -11%      2%                    
                                                                                                                                                                       
% of Total
Consumer
Revenue
DTC             61%       54%       59%       57%        58%          75%       61%       64%       64%        66%           66%       69%       71%
Kiosk           18%       19%       16%       16%        17%          17%       15%       14%       13%        15%           12%       10%       8%
Global Retail   19%       24%       21%       26%        23%          6%        21%       19%       22%        17%           20%       18%       18%
Home School     2%        3%        4%        1%         2%           2%        3%        3%        1%         2%            2%        3%        3%                    
Total           100%      100%      100%      100%       100%         100%      100%      100%      100%       100%          100%      100%      100%                  
                                                                                                                                                                       
                                                                                                                                                                       
Unit Metrics
                                                                                                                                                                       
Product Unit
Volume          126.3     112.9     117.6     169.7      526.5        108.5     140.0     134.3     202.9      585.8         143.0     129.7     146.5
(thousands)
Paid Online
Learners        12.6      14.2      17.7      16.8       16.8         16.4      17.1      21.5      26.6       26.6          41.2      48.7      57.4
(thousands)
                                                                                                                                                                       
YoY Growth
(%)
Product Units                                                         -14%      24%       14%       20%        11%           32%       -7%       9%
Paid Online                                                           30%       20%       21%       58%        58%           151%      185%      167%
Learners
                                                                                                                                                                       
Average Net
Revenue Per
Unit ($)
Average Net
Revenue per     $395      $398      $382      $343       $376         $379      $349      $346      $313       $341          $367      $319      $313
Product Unit
Average Net
Revenue per
Online          $33       $35       $35       $35        $33          $30       $34       $39       $36        $31           $28       $27       $24
Learner
(monthly)
                                                                                                                                                                       
YoY Growth
(%)
Average Net
Revenue per                                                           -4%       -12%      -9%       -9%        -9%           -3%       -9%       -9%
Product Unit
Average Net
Revenue per                                                           -10%      -2%       10%       3%         -7%           -6%       -22%      -37%
Online
Learner
                           
                                                                                                                                                                       
# of Kiosks
(end of
period)
                                                                                                                                                                       
US              190       186       180       173        173          144       117       114       103        103           57        56        57
Europe          9         10        13        15         15           15        16        14        13         13            1         1         1
Asia Pacific    41        50        64        71         71           78        76        69        58         58            44        42        39
Total # of
Kiosks (end     240       246       257       259        259          237       209       197       174        174           102       99        97
of period)
                                                                                                                                                                       
Revenues by
Geography
                                                                                                                                                                       
United States   52,476    52,139    50,390    57,624     212,629      41,271    53,418    51,708    65,725     212,122       54,914    50,810    52,167
International   10,538    8,509     10,536    16,656     46,239       15,707    13,325    12,494    14,801     56,327        14,535    10,002    12,112                
Total           63,014    60,648    60,926    74,280     258,868      56,978    66,743    64,202    80,526     268,449       69,449    60,812    64,279                
                                                                                                                                                                       
Revenues by
Geography (as
a %)
United States   83%       86%       83%       78%        82%          72%       80%       81%       82%        79%           79%       84%       81%
International   17%       14%       17%       22%        18%          28%       20%       19%       18%        21%           21%       16%       19%                   
Total           100%      100%      100%      100%       100%         100%      100%      100%      100%       100%          100%      100%      100%                  
                                                                                                                                                                       
                                                                                                                                                                       
                                                                                                                                                                       
                                                                                                                                                                       
                                                                                                                                                                       
                                                                                                                                                                       
Checks
Consumer        0         0         0         0          0            0         0         0         0          0             0         0         0
Revenue
Total Revenue   0         0         0         0          0            0         0         0         0          0             0         0         0
                                                                                                                                                                       
                                                                                                                                                                       
Prior period data has been modified where applicable to conform to current presentation for comparative purposes.
Immaterial rounding differences may be present in this data in order to conform to Financial Statement totals.

Contact:

Rosetta Stone Inc.
Investor Contact:
Steve Somers, CFA
703-387-5876
ssomers@rosettastone.com
or
Media Contact:
Jonathan Mudd
571-357-7148
jmudd@rosettastone.com
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