Rosetta Stone : Rosetta Stone Inc. Reports Second Quarter 2013 Results

    Rosetta Stone : Rosetta Stone Inc. Reports Second Quarter 2013 Results

                                                                             

            Rosetta Stone Inc. Reports Second Quarter 2013 Results

              Company Continues Progress in Its Transformation;
        Reports Adjusted EBITDA Growth of Nearly 150% to $2.8 Million

ARLINGTON, VA - August 7, 2013 - Rosetta Stone Inc. (NYSE:RST), a leading
provider of technology-based language-learning solutions, today announced
financial results for the second quarter of 2013, as summarized below:

US$ thousands                       Three Months Ended
except per-share data                    June 30,         %
                                       2013      2012    change
Total revenue                         $62,139   $60,812      2%
Total bookings                        $63,083   $63,043      0%
Net loss                             ($3,557)  ($4,544)     22%
Net loss per share:                   ($0.16)   ($0.22)     27%
Adjusted net loss (1)                  ($839)  ($1,829)     54%
Adjusted net loss per share: (1)      ($0.03)   ($0.09)     66%
Adjusted EBITDA (2)                    $2,786    $1,123    148%
Cash flow from operations              $2,489    $3,412    -27%
Purchases of property and equipment  ($1,684)  ($1,031)    -63%
Free cash flow                           $805    $2,381    -66%

1.Adjusted net income(loss) and adjusted net income (loss) per share exclude
    the impact of items related to its litigation with Google, Inc.,
    restructuring costs as well as all adjustments related to recording the
    non-cash tax valuation allowance for deferred tax assets. Adjusted net
    income(loss) for prior periods has been revised to conform to current
    definition.

2.Adjusted EBITDA is GAAP net income(loss) plus interest income and expense,
    income tax benefit and expense, depreciation, amortization and stock-based
    compensation expenses. Adjusted EBITDA excludes any items related to the
    litigation with Google Inc., and restructuring costs. Adjusted EBITDA for
    prior periods has been revised to conform to current definition.

Definitions and reconciliations for all non-GAAP measures are provided in this
press release.

"I was pleased with our results and would characterize the second quarter as
another quarter where we showed steady progress against our strategy and we
took meaningful actions to improve future results and move us closer to our
2015 targets," said Steve Swad, President and Chief Executive Officer of
Rosetta Stone. Swad added "We continued our shift to digital, with 25% of
Consumer revenue now coming from digital download and Online Learners and
increased our online presence through the acquisition of Livemocha. We grew
our core business, invested in new products and managed expenses, helping us
to deliver impressive growth in Adjusted EBITDA. We also continued to push
our transformation forward by closing kiosks, launching our first set of
travel apps and extending into the digital reading space with the recent
acquisition of Lexia." 

Second Quarter 2013 Operational and Financial Highlights

  *Bookings: Total consolidated bookings of $63.1 million were flat compared
    to the year-ago period. North American Consumer segment ("NA Consumer")
    bookings increased 5% to $39.3 million from $37.3 million primarily
    reflecting stronger performance in both the direct-to-consumer and retail
    sales channels, partially offset by a decline in the kiosk channel, which
    was closed early in the second quarter of 2013. Excluding the kiosk
    channel, NA Consumer bookings increased 15% year-over-year. The Rest of
    World Consumer segment ("ROW Consumer") declined 15%, with results due to
    lower year-over-year bookings in Asia and the UK. In Germany, results
    increased sharply, reflecting the lapping of the one year anniversary of
    the switch to online-only products in that market, while other geographies
    decreased. Bookings in the Global Enterprise & Education ("E&E") segment
    (previously known as the Institutional segment) decreased 4% compared with
    a year-ago, reflecting the absence of network product this quarter
    following the company's decision to curtail selling that product.
    Excluding the impact of de-emphasized network and CD-product sales, core
    E&E bookings increased 4% year-over-year. 

  *Revenue: Total revenue increased 2% year-over-year to $62.1 million from
    $60.8 million. NA Consumer revenue increased 8%, reflecting stronger
    performance in both the direct-to-consumer and retail sales channels. In
    particular, the direct-to-consumer sales channel benefited from
    cross-selling to community members of Livemocha, which the company
    acquired in early April 2013. Excluding kiosk, NA Consumer revenue
    increased 18% year-over-year. ROW Consumer revenue decreased 7% due to
    decreases in Japan and the UK, offset by modest improvement in Germany.
    E&E revenue decreased 7% in the second quarter due mainly to the absence
    of network product sales compared with a year ago. E&E revenue increased
    over 2% year-over-year, excluding the impact of network product sales. 

US$ thousands                          Three Months Ended
                                             June 30,
                                     2013                2012         % change
Revenue from:
 North America Consumer     $     39,934        $             8%
                                                              36,918
 Rest of World Consumer                  7,478               8,053       -7%
   Total Consumer                     47,412              44,971        5%
 Global Enterprise &                    14,727              15,841       -7%
Education
   Total                  $     62,139        $             2%
                                                              60,812

  *Adjusted EBITDA: Adjusted EBITDA for the second quarter increased 148% to
    $2.8 million from $1.1 million. The improvement in Adjusted EBITDA was
    due to an increase in revenue combined with lower operating expenses,
    after adjusting for one-time items. Cost of Goods Sold decreased $1.1
    million due to mix shift to lower-cost digital offerings and lower
    hard-product and studio coaching costs. Sales and marketing expenses
    decreased by $2.0 million. The reduction in sales and marketing expense
    was due to marketing efficiencies and lower kiosk expenses resulting from
    the closing of the company's remaining 56 U.S. kiosk locations in the
    quarter. General and administrative (G&A) expenses increased by $0.7
    million due in part to the addition of Livemocha. Research and
    development costs increased $2.6 million, reflecting the investment being
    made in product development and the additional costs from the Livemocha
    acquisition including product personnel. Adjusted EBITDA includes
    approximately $2.5 million of adjustments, mainly related to severance and
    lease termination costs associated with the shuttering of our U.S. kiosks
    and costs associated with the Livemocha acquisition.

  *Adjusted Net Loss and Adjusted EPS: Adjusted Net Loss was $0.8 million in
    the second quarter of 2013, compared to Adjusted Net Loss of $1.8 million
    in the second quarter of 2012. Adjusted Net Loss per share was $0.03
    compared to an Adjusted Net Loss of $0.09 per share in the prior year
    period.

  *Balance Sheet and Cash Flow: Cash at the end of the quarter was $132.1
    million, a $7.3 million decrease from $139.4 million at March 31, 2013.
    The decrease was mainly due to the company's $8.2 million acquisition,
    net of cash acquired, of Livemocha in the quarter. The balance sheet
    remains debt-free. Deferred revenue increased $1.7 million in the quarter
    to $61.6 million. Free cash flow in the second quarter was $0.8 million
    compared with $2.4 million a year ago. The decline in free cash flow
    reflects a decrease in working capital versus the year ago period and an
    increase in capital expenditures to $1.7 million in the second quarter
    compared with $1.0 million a year ago.

Financial Outlook

With the company's acquisition of Lexia Learning Systems, Inc. on August 1,
2013, the company is subject to purchase accounting adjustments which will
impact the comparability of guidance issued prior to the announcement of the
acquisition. Going forward the company will provide guidance on a pro forma
basis, which excludes the impact of these purchase accounting adjustments.
The company is providing the following guidance for the full year 2013, which
includes the expected contribution from Lexia for the last five months of the
year:

                          Guidance Before  Lexia Acquisition  Updated Guidance
                          Impact of Lexia       Impact
                               Range        5-Month Results        Range
($ Millions)                   Low   High        Range             Low    High
                                                                         
Pro Forma Revenue             $280   $290              $7-$8      $287    $298
Pro Forma Adjusted EBITDA      $16    $18            ($1-$2)       $14     $17
Pro Forma Adjusted Net        ($1)     $1                         ($3)      $0
Income                                               ($1-$2)
Pro Forma Adjusted EPS     ($0.02)  $0.04      ($0.05-$0.10)   ($0.12) ($0.01)
Shares Outstanding (MM)       21.5   21.5                         21.5    21.5
Capital Expenditures            $5     $8                           $5      $8

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 items
    related to the litigation with Google Inc., restructuring costs and
    transaction and other costs associated with mergers and acquisitions.
    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
    items related to the litigation with Google Inc., restructuring costs and
    transaction and other costs associated with mergers and acquisitions as
    well as 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.

  *Pro Forma Revenue is GAAP revenue plus the purchase accounting impact on
    acquired deferred revenue

  *Pro Forma Adjusted EBITDA is Adjusted EBITDA (as defined above) plus the
    purchase accounting impact on acquired deferred revenue less the purchase
    accounting impact on acquired deferred commissions 

  *Pro Forma Adjusted Net Income/(Loss) and Pro Forma Adjusted EPS are
    Adjusted Net Income/(Loss) and Adjusted Net Income/(Loss) per Share (as
    defined above) plus the purchase accounting impact on acquired deferred
    revenue less the purchase accounting impact on acquired deferred
    commissions

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:
     1-877-407-9039 (toll-free) or

    1-201-689-8470 (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 August 21, 2013 via telephone at the following numbers:

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

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

    Pass Code: 418197

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 over 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, Austin, TX, San Francisco,
CA, Seattle, WA, Boston, MA, Tokyo, Seoul, London, Dubai 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 within
the meaning of the Private Securities Litigation Reform Act of 1995, 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," "guidance," "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 solutions;
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 and services; 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 operations and growth plans;
our plans regarding our kiosks and retail relationships; our plans regarding
our E&E 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 realign our cost structure and
revitalize our go-to-market strategy; our plans to transition our distribution
to more online in the Consumer business; our mergers and acquisitions plans;
our plans related to Lexia and Livemocha; our ability to successfully
integrate Lexia and Livemocha into our business; 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, 2012, 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.

Investor Contact:
Steve Somers, CFA
ssomers@rosettastone.com
703-387-5876

Media Contact:
Jonathan Mudd
jmudd@rosettastone.com
571-357-7148

Source: Rosetta Stone Inc.

                              ROSETTA STONE INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share amounts)
                                 (unaudited)
                                        Three Months Ended   Six Months Ended
                                             June 30,            June 30,
                                          2013      2012      2013      2012
Revenue:
 Product                                $35,458   $37,543   $73,049   $85,073
 Subscription and service                26,681    23,269    53,013    45,188
  Total revenue                        62,139    60,812   126,062   130,261
Cost of revenue:
 Cost of product revenue                  6,998     7,122    13,938    16,229
 Cost of subscription and service
revenue                                    3,226     4,198     6,550     8,565
  Total cost of revenue                10,224    11,320    20,488    24,794
Gross profit                              51,915    49,492   105,574   105,467
Operating expenses
 Sales and marketing                     33,144    35,125    70,203    73,529
 Research and development                 9,093     6,493    16,451    12,766
 General and administrative              13,634    12,919    26,222    26,576
 Lease Abandonment                           35      -        828      - 
     Total operating expenses       55,906    54,537   113,704   112,871
Loss from operations                    (3,991)  (5,045)  (8,130)  (7,404)
Other income and (expense):
 Interest income                            43        21       84        99
 Interest expense                          -       -      (45)      - 
 Other income (expense)                     (9)       320       410      (44)
Total other income (expense)                  34       341       449        55
Loss before income taxes                (3,957)  (4,704)  (7,681)  (7,349)
 Income tax (benefit) provision          (400)     (160)      576     (902)
Net loss                                ($3,557)  ($4,544)  ($8,257)  ($6,447)
Net loss per share:
 Basic                                  ($0.16)   ($0.22)   ($0.38)   ($0.31)
 Diluted                                ($0.16)   ($0.22)   ($0.38)   ($0.31)
Common shares and equivalents
outstanding:
 Basic weighted average shares           21,569    20,995    21,465    20,969
 Diluted weighted average shares         21,569    20,995    21,465    20,969

                              ROSETTA STONE INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                   (in thousands, except per share amounts)
                                 (unaudited)
                                                       June 30,   December 31,
                                                         2013         2012
Assets
Current assets:
  Cash and cash equivalents                          $132,070      $148,190
  Restricted cash                                         64           73
  Accounts receivable (net of allowance for
doubtful accounts of $983 and $1,297,
    respectively)                                   41,735       49,946
  Inventory                                            5,939        6,581
  Prepaid expenses and other current assets            7,788        5,204
  Income tax receivable                                  254        1,104
  Deferred income taxes                                  136           79
     Total current assets                         187,986      211,177
Property and equipment, net                              17,134       17,213
Goodwill                                                 39,718       34,896
Intangible assets, net                                   15,952       10,825
Deferred income taxes                                       210          260
Other assets                                              1,335        1,484
     Total assets                                  $262,335      $275,855
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                     $9,344        $6,064
  Accrued compensation                                15,398       16,830
  Other current liabilities                           25,916       36,387
  Deferred revenue                                    56,399       59,195
     Total current liabilities                    107,057      118,476
Deferred revenue                                          5,187        4,221
Deferred income taxes                                     8,954        8,400
Other long-term liabilities                                 863          155
     Total liabilities                            122,061      131,252
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $0.001 par value; 10,000 and
10,000 authorized; zero and zero shares
    issued and outstanding June 30, 2013 and
December 31, 2012, respectively                               -            -
  Non-designated common stock, $0.00005 par value,
190,000 and 190,000 shares
    authorized, 22,535 and 21,951 shares issued
and outstanding at June 30, 2013
    and December 31, 2012, respectively                   2            2
  Additional paid-in capital                         164,982      160,693
  Accumulated loss                                  (25,006)     (16,749)
  Accumulated other comprehensive income                 296          657
     Total stockholders' equity                   140,274      144,603
Total liabilities and stockholders' equity             $262,335     $275,855

                    ROSETTA STONE INC.
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (in thousands)
                       (unaudited)
                                      Three Months Ended   Six Months Ended
                                           June 30,            June 30,
                                        2013       2012      2013       2012
Cash Flows From Operating Activities:
 Net loss                             ($3,557)  ($4,544)   ($8,257)  ($6,447)
 Adjustments to reconcile net loss
to cash provided by (used in)
operating activities,
    net of business acquisitions
  Stock-based compensation expense      2,036    2,096     3,704    3,731
  Bad debt expense                        465      431       227      596
  Depreciation and amortization         2,224    2,046     4,596    4,482
  Deferred income tax benefit           (925)      158     (627)  (1,156)
  Loss on disposal of equipment            64      348       205      380
  Net change in:
   Restricted cash                      (23)        5         9       28
   Accounts receivable               (3,125)  (1,261)     8,010   16,314
   Inventory                           1,298    1,189       552      480
   Prepaid expenses and other
current assets                              (9)      146   (2,568)      649
   Income tax receivable                 398  (1,504)       811  (2,740)
   Other assets                            6      144        10  (1,065)
   Accounts payable                    3,156  (2,281)     2,947  (2,868)
   Accrued compensation                4,853    3,850   (1,559)    1,774
   Other current liabilities         (5,543)      207   (9,796)  (7,813)
   Excess tax benefit from stock
options exercised                          -      (18)       -      (18)
   Other long-term liabilities          (35)        9       336    1,596
   Deferred revenue                    1,206    2,391   (1,747)  (1,855)
     Net cash provided by (used
in) operating activities                 2,489    3,412   (3,147)    6,068
Cash Flows From Investing Activities:
  Purchases of property and
equipment                              (1,684)  (1,031)   (4,212)  (1,998)
  Proceeds from (purchases of)
available-for-sale securities              -     4,805       -     8,112
  Acquisition, net of cash acquired  (8,180)      -    (8,180)      - 
     Net cash (used in)
provided by investing activities      (9,864)    3,774  (12,392)    6,114
Cash Flows From Financing Activities:
  Proceeds from the exercise of
stock options                            1,448      -      1,798      - 
  Repurchase of shares from
exercised stock options                (1,040)      -    (1,040)      - 
  Tax benefit of stock options
exercised                                  -        18       -        18
  Proceeds from equity offering,
net of issuance costs                    (171)      -      (171)      - 
  Payments under capital lease
obligations                                (3)      (1)     (196)      (3)
     Net cash provided by
financing activities                       234       17       391       15
(Decrease) increase in cash and cash
equivalents                            (7,141)    7,203  (15,148)   12,197
Effect of exchange rate changes in
cash and cash equivalents                (100)    (502)     (972)       61
Net (decrease) increase in cash and
cash equivalents                       (7,241)    6,701  (16,120)   12,258
Cash and cash equivalents-beginning
of period                              139,311  112,073   148,190  106,516
Cash and cash equivalents-end of
period                                 $132,070  $118,774   $132,070  $118,774

                             ROSETTA STONE INC.
             Reconciliation of GAAP Net Loss to Adjusted EBITDA
                               (in thousands)
                                (unaudited)
                                      Three Months Ended   Six Months Ended
                                           June 30,            June 30,
                                        2013      2012      2013      2012
GAAP net loss                         ($3,557)  ($4,544)  ($8,257)  ($6,447)
Interest (income)/expense, net           (43)     (21)     (39)     (99)
Income tax (benefit) expense            (400)    (160)      576    (902)
Depreciation and amortization           2,168    2,046    3,924    4,482
Depreciation related to restructuring      56        -      672        -
Stock-based compensation                2,036    2,096    3,704    3,731
Other EBITDA Adjustments                2,526    1,706    4,614    2,093
Adjusted EBITDA*                        $2,786    $1,123    $5,194    $2,858

* 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 items related to the
litigation with Google Inc., restructuring costs and transaction and other
costs associated with mergers and acquisitions. Adjusted EBITDA for prior
periods has been revised to conform to current definition.

                              ROSETTA STONE INC.
             Reconciliation of GAAP Net Loss to Adjusted Net Loss
                   (in thousands, except per share amounts)
                                 (unaudited)
                                        Three Months Ended   Six Months Ended
                                             June 30,            June 30,
                                          2013      2012      2013      2012
GAAP net loss                           ($3,557)  ($4,544)  ($8,257)  ($6,447)
Items related to litigation with
Google, Inc., restructuring and other
related costs, acquisition costs          2,582    1,706    5,286    2,093
Income tax adjustments *                    136    1,009    1,510    1,148
Adjusted net loss                         ($839)  ($1,829)  ($1,461)  ($3,206)
GAAP net loss per share                   (0.16)    (0.22)    (0.38)    (0.31)
Items related to litigation with
Google, Inc. restructuring and other
related costs                              0.12     0.08     0.25     0.10
Income tax adjustments *                   0.01     0.05     0.07     0.05
Adjusted net loss per share **            (0.03)    (0.09)    (0.06)    (0.16)
Basic weighted average shares             21,569    20,995    21,465    20,969
Diluted weighted average shares           21,569    20,995    21,465    20,969

* For adjusted net income(loss) purposes, we use a 39% effective tax rate
which represents the projected, long term effective tax rate on adjusted
pretax income. Our adjusted tax rate assumes full use of loss and credit
carryforwards without reduction for valuation allowances.

** Adjusted net loss and adjusted net loss per share exclude the impact of
items related to its litigation with Google, Inc., restructuring costs and
transaction and other costs associated with mergers and acquisitions as well
as all adjustments related to recording the non-cash tax valuation allowance
for deferred tax assets.

Rosetta Stone
Inc.
Business
Metrics
(in
thousands)
                       Quarter-Ended                              Quarter-Ended                      Quarter-Ended
              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     3/31/13 6/30/13
Net Bookings
by Market
North America
Consumer       29,814  36,828  35,562   55,209 157,413    41,733  37,295  42,283   57,870 179,181    41,303  39,321
Rest of World
Consumer       14,996  12,910  11,945   14,166  54,017    12,550   8,113  10,488   10,034  41,185     8,310   6,879
Worldwide
Consumer       44,810  49,738  47,507   69,375 211,430    54,283  45,408  52,771   67,904 220,366    49,613  46,200
Global
Enterprise
and Education  10,770  16,973  18,555   15,459  61,757    10,984  17,635  19,354   16,423  64,396    10,758  16,883
Total          55,580  66,711  66,062   84,834 273,187    65,267  63,043  72,125   84,327 284,762    60,371  63,083
YoY Growth
(%)
North America
Consumer         -28%     -5%    -14%       6%     -9%      40%      1%     19%       5%     14%      -1%      5%
Rest of World
Consumer          50%     58%     21%      -7%     25%     -16%    -37%    -12%     -29%    -24%     -34%    -15%
Worldwide
Consumer         -13%      6%     -7%       3%     -3%      21%     -9%     11%      -2%      4%      -9%      2%
                                                                                              
Global
Enterprise
and Education     18%     -1%    -17%       7%     -2%       2%      4%      4%       6%      4%      -2%     -4%
Total             -9%      4%    -10%       4%     -2%       17%     -5%      9%      -1%      4%      -8%      0%
% of Total
Net Bookings
North America
Consumer          54%     55%     54%      65%     57%       64%     59%     59%      69%     63%       68%     62%
Rest of World
Consumer          27%     20%     18%      17%     20%       19%     13%     14%      12%     14%       14%     11%
Worldwide
Consumer          81%     75%     72%      82%     77%       83%     72%     73%      81%     77%       82%     73%
Global
Enterprise
and Education     19%     25%     28%      18%     23%       17%     28%     27%      19%     23%       18%     27%
Total            100%    100%    100%     100%    100%      100%    100%    100%     100%    100%      100%    100%
Revenue by
Market
North America
Consumer       28,061  38,606  37,710   53,184 157,561    43,084  36,918  39,878   52,946 172,826    41,385  39,934
Rest of World
Consumer       14,601  12,014  11,002   12,848  50,465    12,204   8,053   9,903   10,088  40,248     8,570   7,478
Worldwide
Consumer       42,662  50,620  48,712   66,032 208,026    55,288  44,971  49,781   63,034 213,074    49,955  47,412
Global
Enterprise
and Education  14,316  16,123  15,490   14,494  60,423    14,161  15,841  14,498   15,667  60,167    13,969  14,727
Total          56,978  66,743  64,202   80,526 268,449    69,449  60,812  64,279   78,701 273,241    63,924  62,139
YoY Growth
(%)
North America
Consumer         -32%      0%      2%      19%     -2%      54%     -4%      6%       0%     10%      -4%      8%
Rest of World
Consumer          49%     57%     13%     -17%     18%     -16%    -33%    -10%     -21%    -20%     -30%     -7%
Worldwide
Consumer         -17%      9%      5%      10%      2%      30%    -11%      2%      -5%      2%     -10%      5%
                                                                                              
Global
Enterprise
and Education     21%     13%      8%       2%     11%      -1%     -2%     -6%       8%      0%      -1%     -7%
Total            -10%     10%      5%       8%      4%       22%     -9%      0%      -2%      2%      -8%      2%
% of Total
Revenue
North America
Consumer          49%     58%     59%      66%     58%       62%     61%     62%      67%     63%       65%     64%
Rest of World
Consumer          26%     18%     17%      16%     19%       18%     13%     15%      13%     15%       13%     12%
Worldwide
Consumer          75%     76%     76%      82%     77%       80%     74%     77%      80%     78%       78%     76%
Global
Enterprise
and Education     25%     24%     24%      18%     23%       20%     26%     23%      20%     22%       22%     24%
Total            100%    100%    100%     100%    100%      100%    100%    100%     100%    100%      100%    100%
Unit Metrics
Product Unit
Volume
(thousands)     108.5   140.0   134.3    202.9   585.8     143.0   129.7   146.5    210.7   629.8     141.8   148.6
Paid Online
Learners
(thousands)      16.4    17.1    21.5     26.6    26.6      41.2    48.7    57.4     68.4    68.4      80.6    85.1
YoY Growth
(%)
Product Units    -14%     24%     14%      20%     11%       32%     -7%      9%       4%      8%       -1%     15%
Paid Online
Learners          30%     20%     21%      58%     58%      151%    185%    167%     157%    157%       95%     75%
                                                                                                        
Average Net
Revenue Per
Unit ($)                                                                                                
Average Net
Revenue per
Product Unit     $379    $349    $346     $313    $341      $367    $319    $313     $277    $315      $312    $275
Average Net
Revenue per
Online
Learner
(monthly)         $30     $34     $39      $36     $35       $28     $27     $24      $24     $26       $26     $25
YoY Growth
(%)
Average Net
Revenue per
Product Unit      -4%    -12%     -9%      -9%     -9%       -3%     -9%     -9%     -11%     -8%      -15%    -14%
Average Net
Revenue per
Online
Learner          -10%     -2%     10%       3%      0%       -6%    -22%    -37%     -32%    -25%       -7%     -6%
# of Kiosks
(end of
period)
       North
      America     144     117     114      103     103        57      56      57       57      57        56    - 
    Europe       15      16      14       13      13         1       1       1        1       1      -        0
Asia Pacific
                  78      76      69       58      58        44      42      39       29      29        22      20
  Total # of
  Kiosks (end
   of period)     237     209     197      174     174       102      99      97       87      87        78      20
                                                                                            
Revenues by
Geography                                                                                    
                                                                                             
United States  41,271  53,418  51,708   65,725 212,122   54,914  50,810  52,167   65,856 223,747    52,791  52,163
International  15,707  13,325  12,494   14,801  56,327   14,535  10,002  12,112   12,845  49,494    11,133   9,976
Total          56,978  66,743  64,202   80,526 268,449   69,449  60,812  64,279   78,701 273,241    63,924  62,139
                                                                                             
Revenues by
Geography (as
a %)                                                                                         
United States     72%     80%     81%      82%     79%      79%     84%     81%      84%     82%       83%     84%
International     28%     20%     19%      18%     21%      21%     16%     19%      16%     18%       17%     16%
Total            100%    100%    100%     100%    100%     100%    100%    100%     100%    100%      100%    100%
                                                                                             
                                                                                               

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