[August 05, 2014] |
|
Rosetta Stone Inc. Reports Second Quarter 2014 Results
ARLINGTON, Va. --(Business Wire)--
Rosetta Stone Inc. (NYSE:RST), a leading provider of technology-based
language-learning, reading and brain fitness solutions, today announced
financial results for the second quarter of 2014.
-
Transformation continues to move forward
-
Enterprise & Education ("E&E") business improves with accelerating 73%
bookings growth and 8% pro forma growth
-
Integration of acquisitions is proceeding as planned and acquired
businesses are contributing to bookings gains
-
Consumer business still negatively impacted by soft retail and call
center channels
-
Delivered financial results in line with guidance
-
Confirming full-year 2014 guidance
"The second quarter reflected further evidence of the transformation
underway at Rosetta Stone," stated Steve Swad, President and Chief
Executive Officer. "With accelerating growth in our E&E segment, we
started to see the positive results of our increased focus on this
business, in both language and literacy. These results give us
confidence that we are on a path to accelerate E&E growth further in the
second half of the year. In North America Consumer, we are still
fighting headwinds caused by channel shift and pricing pressure, but we
made strides towards expanding our ecosystem of consumers across
language and brain fitness. We are excited about how our expanding
consumer portfolio, with the addition of Fit Brains and the late 2014
introduction of Rosetta Stone Reading for Kids, should stabilize and
incrementally grow our Consumer business."
Second Quarter 2014 Operational and Financial Highlights
Bookings: Total consolidated bookings, excluding the shuttered
North American Kiosk channel, increased 10% to $69.0 million from $62.5
million in the year-ago period. Bookings in the Global Enterprise &
Education ("E&E") segment increased 73% compared with a year-ago. Pro
forma E&E bookings increased 8% versus a year-ago. Within E&E, language
bookings increased 2% on a pro forma basis while bookings from Literacy
increased 38% on a pro forma basis compared with the second quarter of
2013. North America Consumer segment ("NA Consumer") bookings excluding
Kiosk decreased 10% to $34.8 million from $38.7 million, reflecting a
$3.2 million decrease in retail channel bookings and a decline in call
center bookings. Web channel bookings increased slightly in the quarter,
while bookings from Fit Brains added an incremental $1.2 million to NA
Consumer. Rest of World ("ROW") Consumer segment bookings declined 27%,
primarily reflecting the downsizing of operations in Asia in the first
quarter of 2014.
|
US$ thousands
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
2013
|
|
% change
|
Bookings from:
|
|
|
|
|
|
|
|
|
N.A. Consumer ex Kiosk
|
|
$
|
34,816
|
|
|
$
|
38,746
|
|
|
(10
|
)%
|
Rest of World Consumer
|
|
5,018
|
|
|
6,879
|
|
|
(27
|
)%
|
Global Enterprise and Education
|
|
29,171
|
|
|
16,883
|
|
|
73
|
%
|
Total ex N.A. Kiosk
|
|
$
|
69,005
|
|
|
$
|
62,508
|
|
|
10
|
%
|
Total
|
|
$
|
69,005
|
|
|
$
|
63,083
|
|
|
9
|
%
|
|
Revenue: Total revenue excluding North American Kiosk channel
revenues, which was shuttered in April of 2013, decreased $3.9 million
or 6% to $57.3 million from $61.2 million. E&E revenue grew 32% in the
second quarter compared with a year ago. NA Consumer revenue excluding
Kiosk decreased 17% to $32.4 million, primarily reflecting weakness in
the retail and call center channels. Fit Brains contributed $0.5 million
during the quarter. ROW Consumer revenue decreased 27% due mainly to the
downsizing in Asia in the first quarter of 2014.
|
US$ thousands
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
2013
|
|
% change
|
Revenue from:
|
|
|
|
|
|
|
|
|
N.A. Consumer ex Kiosk
|
|
$
|
32,434
|
|
|
$
|
39,021
|
|
|
(17
|
)%
|
Rest of World Consumer
|
|
5,467
|
|
|
7,478
|
|
|
(27
|
)%
|
Global Enterprise and Education
|
|
19,414
|
|
|
14,727
|
|
|
32
|
%
|
Total ex N.A. Kiosk
|
|
$
|
57,315
|
|
|
$
|
61,226
|
|
|
(6
|
)%
|
Total
|
|
$
|
57,315
|
|
|
$
|
62,139
|
|
|
(8
|
)%
|
|
-
Adjusted EBITDA: Adjusted EBITDA in the second quarter was
negative $0.1 million vs. $3.7 million a year ago. The decrease in
Adjusted EBITDA compared with 2Q13 primarily reflects the lower
contribution from N.A. Consumer, partially offset by an increase in
contribution from E&E. The lower contribution from N.A. Consumer is
primarily due to the $4.5 million of lower bookings in the quarter,
predominantly from the retail channel, combined with higher sales &
marketing costs of approximately $2.4 million. The net effect is a
$6.5 million decrease in segment contribution from N.A. Consumer. This
was partially offset by a $3.7 million increase in segment
contribution from E&E. Contribution from ROW Consumer was unchanged
with the prior year period.
-
Balance Sheet and Cash Flow: Cash at the end of the quarter was
$46.8 million compared with $56.0 million at 3/31/14. The company
continued to have no debt. Deferred revenue of $93.2 million increased
$11.7 million in the quarter compared with $81.5 million at 3/31/14
and increased $31.2 million compared with $61.6 million a year ago,
reflecting the growth in E&E over the past year. Over 80% of this
deferred revenue balance is short term and will be recognized over the
next 12 months. Free cash flow in the second quarter was negative $7.7
million compared with positive $0.8 million a year ago, but was a
sequential improvement of $7.3 million from the first quarter of 2014.
The decline in free cash flow reflects the impact of lower Adjusted
EBITDA, a $1.5 million increase in capital expenditures to $3.2
million, and an increase in working capital. A cash payment of $1.7
million related to the holdback for the Lexia acquisition was paid in
the quarter.
Guidance
The company is maintaining its guidance for the full year 2014 as
follows:
|
FY 2014 Guidance
|
|
|
|
Amount/Range
|
|
Commentary
|
Consolidated Bookings
|
|
$315MM to $325MM
|
|
Mid-single digit % growth
|
|
|
|
|
|
Adjusted EBITDA
|
|
$18MM to $22MM
|
|
~5% margin
|
|
|
|
|
|
Shares outstanding
|
|
~22MM
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
$10MM to $14MM
|
|
Acquisition Integrations
|
|
|
|
|
|
Long-term effective tax rate
|
|
39%
|
|
|
|
Non-GAAP Financial Measures
This press release contains several non-GAAP financial measures.
-
Bookings represent executed sales contracts received by the Company
that are either recorded immediately as revenue or as deferred revenue.
-
Adjusted EBITDA is GAAP net income/(loss) plus interest income and
expense, income tax benefit and expense, depreciation, amortization
and stock-based compensation expense, goodwill impairment plus the
change in deferred revenue (excluding acquired deferred revenue) less
the change in deferred commissions. In addition, Adjusted
EBITDA excludes any items related to the litigation with Google Inc.,
restructuring and related wind down costs, severance 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. Adjusted EBITDA for prior
periods has been revised to conform to current definition.
-
Free cash flow is cash flow from operations less cash used in
purchases of property and equipment.
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 and education-technology companies, many of
which present similar non-GAAP financial measures to investors.
Management typically excludes the amounts described below 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.
Earnings Results 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 an
Earnings Results webcast today at 5:00 pm eastern time (ET) during which
time there will be a discussion of 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.
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.
About Rosetta Stone
Rosetta Stone Inc. (NYSE:RST) is dedicated to changing the way the world
learns. The company's innovative technology-driven language, reading and
brain fitness solutions are used by thousands of schools, businesses,
government organizations and millions of individuals around the world.
Founded in 1992, Rosetta Stone pioneered the use of interactive software
to accelerate language learning. Today the company offers courses in 30
languages, from the most commonly spoken (such as English, Spanish and
Mandarin) to the less prominent (including Swahili, Swedish and
Tagalog). Since 2013, Rosetta Stone has expanded beyond language and
deeper into education-technology with its acquisitions of Livemocha,
Lexia Learning, Vivity Labs, and Tell Me More. Rosetta Stone is based in
Arlington, VA, and has offices around the world.
Cautionary Statement Regarding Forward-Looking Statements
Certain information contained in this presentation and certain comments
today constitute forward-looking statements for purposes of the safe
harbor provisions of The Private Securities Litigation Reform Act of
1995. 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 our 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; our
international operations and growth plans; our plans regarding our
kiosks and retail relationships; our plans regarding our Enterprise and
Education 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 revitalizing our go-to-market strategy; our plans to
transition our distribution to more online in the consumer business; our
ability to expand our product offerings beyond our core adult-focused
language learning solutions, including the launch of Kids reading and
brain fitness; our ability to introduce successfully Lexia's Core5
reading product to the consumer market; our ability to expand our
offerings to more devices and apps, our ability to identify and
successfully close and integrate additional acquisition targets; our
plans with respect to and our ability to successfully integrate Lexia,
Livemocha, Tell Me More and Vivity into our business; adverse trends in
general economic conditions and the other factors including the "Risk
Factors" more fully described 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 year period ended December 31, 2013, which
is on file with the SEC. We encourage you to review those factors before
making any investment decision. You should not place undue reliance on
forward-looking statements because they involve factors that are, in
some cases, beyond our control and that could materially affect actual
results, levels of activity, performance, or achievements.
Today's presentation and discussion also contains references to non-GAAP
financial measures. The full definition and reconciliation of those
measures is available in our Form 8-K filed with the SEC on August 5,
2014. 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. 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. Our definitions of
non-GAAP measures may not be comparable to the definitions used by other
companies, and we encourage you to review and understand all our
financial reporting before making any investment decision.
|
ROSETTA STONE INC.
|
CONSOLIDATED BALANCE SHEETS
|
(in thousands, except per share amounts)
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,839
|
|
|
$
|
98,825
|
|
Restricted cash
|
|
93
|
|
|
12,424
|
|
Accounts receivable (net of allowance for doubtful accounts of
$1,545 and $1,000, respectively)
|
|
49,643
|
|
|
60,342
|
|
Inventory, net
|
|
7,552
|
|
|
6,639
|
|
Prepaid expenses and other current assets
|
|
14,668
|
|
|
12,294
|
|
Income tax receivable
|
|
963
|
|
|
197
|
|
Total current assets
|
|
119,758
|
|
|
190,721
|
|
Property and equipment, net
|
|
24,651
|
|
|
17,766
|
|
Goodwill
|
|
78,684
|
|
|
50,059
|
|
Intangible assets, net
|
|
38,507
|
|
|
29,006
|
|
Other assets
|
|
4,315
|
|
|
3,224
|
|
Total assets
|
|
$
|
265,915
|
|
|
$
|
290,776
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,577
|
|
|
$
|
10,326
|
|
Accrued compensation
|
|
15,895
|
|
|
16,380
|
|
Obligations under capital lease
|
|
653
|
|
|
256
|
|
Other current liabilities
|
|
29,417
|
|
|
41,936
|
|
Deferred revenue
|
|
76,346
|
|
|
67,173
|
|
Total current liabilities
|
|
132,888
|
|
|
136,071
|
|
Deferred revenue
|
|
16,880
|
|
|
11,684
|
|
Deferred income taxes
|
|
10,936
|
|
|
9,022
|
|
Obligations under capital lease
|
|
3,769
|
|
|
217
|
|
Other long-term liabilities
|
|
2,291
|
|
|
2,539
|
|
Total liabilities
|
|
166,764
|
|
|
159,533
|
|
Commitments and contingencies
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000 and 10,000 shares
authorized, zero and zero shares issued and outstanding at June 30,
2014 and December 31, 2013, respectively
|
|
-
|
|
|
-
|
|
Non-designated common stock, $0.00005 par value, 190,000 and 190,000
shares authorized, 22,832 and 22,588 shares issued and 21,832 and
21,588 shares outstanding at June 30, 2014 and December 31, 2013,
respectively
|
|
2
|
|
|
2
|
|
Additional paid-in capital
|
|
175,124
|
|
|
171,123
|
|
Accumulated loss
|
|
(65,284
|
)
|
|
(29,292
|
)
|
Accumulated other comprehensive income
|
|
744
|
|
|
845
|
|
Treasury stock, at cost, 1,000 shares at June 30, 2014 and 1,000
shares at December 31, 2013
|
|
(11,435
|
)
|
|
(11,435
|
)
|
Total stockholders' equity
|
|
99,151
|
|
|
131,243
|
|
Total liabilities and stockholders' equity
|
|
$
|
265,915
|
|
|
$
|
290,776
|
|
|
|
ROSETTA STONE INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(in thousands, except per share amounts)
|
(unaudited)
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
(As Adjusted)*
|
|
|
|
|
(As Adjusted)*
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
28,125
|
|
|
$
|
35,458
|
|
|
$
|
60,497
|
|
|
$
|
73,049
|
|
Subscription and service
|
|
29,190
|
|
|
26,681
|
|
|
57,583
|
|
|
53,013
|
|
Total revenue
|
|
57,315
|
|
|
62,139
|
|
|
118,080
|
|
|
126,062
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
7,269
|
|
|
6,998
|
|
|
15,093
|
|
|
13,938
|
|
Cost of subscription and service revenue
|
|
4,691
|
|
|
3,226
|
|
|
9,038
|
|
|
6,550
|
|
Total cost of revenue
|
|
11,960
|
|
|
10,224
|
|
|
24,131
|
|
|
20,488
|
|
Gross profit
|
|
45,355
|
|
|
51,915
|
|
|
93,949
|
|
|
105,574
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
37,833
|
|
|
32,787
|
|
|
76,930
|
|
|
70,059
|
|
Research and development
|
|
8,368
|
|
|
9,093
|
|
|
17,142
|
|
|
16,451
|
|
General and administrative
|
|
14,002
|
|
|
13,634
|
|
|
30,055
|
|
|
26,222
|
|
Goodwill impairment
|
|
-
|
|
|
-
|
|
|
2,199
|
|
|
-
|
|
Lease abandonment and termination
|
|
118
|
|
|
35
|
|
|
3,688
|
|
|
828
|
|
Total operating expenses
|
|
60,321
|
|
|
55,549
|
|
|
130,014
|
|
|
113,560
|
|
Loss from operations
|
|
(14,966
|
)
|
|
(3,634
|
)
|
|
(36,065
|
)
|
|
(7,986
|
)
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
5
|
|
|
43
|
|
|
10
|
|
|
84
|
|
Interest expense
|
|
(50
|
)
|
|
-
|
|
|
(106
|
)
|
|
(45
|
)
|
Other income and (expense)
|
|
(248
|
)
|
|
(9
|
)
|
|
(22
|
)
|
|
410
|
|
Total other income (expense)
|
|
(293
|
)
|
|
34
|
|
|
(118
|
)
|
|
449
|
|
Loss before income taxes
|
|
(15,259
|
)
|
|
(3,600
|
)
|
|
(36,183
|
)
|
|
(7,537
|
)
|
Income tax (benefit) expense
|
|
491
|
|
|
(387
|
)
|
|
(191
|
)
|
|
580
|
|
Net loss
|
|
$
|
(15,750
|
)
|
|
$
|
(3,213
|
)
|
|
$
|
(35,992
|
)
|
|
$
|
(8,117
|
)
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.74
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.38
|
)
|
Diluted
|
|
$
|
(0.74
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.38
|
)
|
Common shares and equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
21,252
|
|
|
21,569
|
|
|
21,188
|
|
|
21,465
|
|
Diluted weighted average shares
|
|
21,252
|
|
|
21,569
|
|
|
21,188
|
|
|
21,465
|
|
______________________________________________
|
* Certain amounts have been adjusted for the retrospective change
in accounting principle for sales commissions.
|
|
|
ROSETTA STONE INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(in thousands)
|
(unaudited)
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
(As Adjusted)*
|
|
|
|
|
(As Adjusted)*
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,750
|
)
|
|
$
|
(3,213
|
)
|
|
$
|
(35,992
|
)
|
|
$
|
(8,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
1,953
|
|
|
2,036
|
|
|
3,359
|
|
|
3,704
|
|
Bad debt expense
|
|
515
|
|
|
465
|
|
|
1,472
|
|
|
227
|
|
Depreciation and amortization
|
|
3,460
|
|
|
2,224
|
|
|
6,894
|
|
|
4,596
|
|
Deferred income tax expense (benefit)
|
|
292
|
|
|
(912
|
)
|
|
(464
|
)
|
|
(623
|
)
|
Loss on disposal of equipment
|
|
3
|
|
|
64
|
|
|
109
|
|
|
205
|
|
Loss on goodwill impairment
|
|
-
|
|
|
-
|
|
|
2,199
|
|
|
-
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
(43
|
)
|
|
(23
|
)
|
|
17
|
|
|
9
|
|
Accounts receivable
|
|
(5,064
|
)
|
|
(3,125
|
)
|
|
12,852
|
|
|
8,010
|
|
Inventory
|
|
687
|
|
|
1,298
|
|
|
(347
|
)
|
|
552
|
|
Prepaid expenses and other current assets
|
|
(1,640
|
)
|
|
(298
|
)
|
|
(1,853
|
)
|
|
(2,744
|
)
|
Income tax receivable
|
|
(13
|
)
|
|
398
|
|
|
(652
|
)
|
|
811
|
|
Other assets
|
|
(983
|
)
|
|
(63
|
)
|
|
(921
|
)
|
|
42
|
|
Accounts payable
|
|
(1,192
|
)
|
|
3,156
|
|
|
(680
|
)
|
|
2,947
|
|
Accrued compensation
|
|
4,666
|
|
|
4,853
|
|
|
(3,457
|
)
|
|
(1,559
|
)
|
Other current liabilities
|
|
(2,592
|
)
|
|
(5,543
|
)
|
|
(12,053
|
)
|
|
(9,796
|
)
|
Other long term liabilities
|
|
(78
|
)
|
|
(35
|
)
|
|
(250
|
)
|
|
336
|
|
Deferred revenue
|
|
11,305
|
|
|
1,206
|
|
|
11,663
|
|
|
(1,747
|
)
|
Net cash provided by (used in) operating activities
|
|
(4,474
|
)
|
|
2,488
|
|
|
(18,104
|
)
|
|
(3,147
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(3,178
|
)
|
|
(1,684
|
)
|
|
(4,544
|
)
|
|
(4,212
|
)
|
Decrease in restricted cash for Vivity acquisition
|
|
-
|
|
|
-
|
|
|
12,314
|
|
|
-
|
|
Acquisitions, net of cash acquired
|
|
(1,526
|
)
|
|
(8,180
|
)
|
|
(41,687
|
)
|
|
(8,180
|
)
|
Net cash used in investing activities
|
|
(4,704
|
)
|
|
(9,864
|
)
|
|
(33,917
|
)
|
|
(12,392
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
188
|
|
|
1,448
|
|
|
642
|
|
|
1,798
|
|
Repurchase of shares from exercised stock options
|
|
-
|
|
|
(1,040
|
)
|
|
-
|
|
|
(1,040
|
)
|
Proceeds from equity offering, net of issuance costs
|
|
-
|
|
|
(171
|
)
|
|
-
|
|
|
(171
|
)
|
Payments under capital lease obligations
|
|
(305
|
)
|
|
(3
|
)
|
|
(366
|
)
|
|
(196
|
)
|
Net cash provided by (used in) financing activities
|
|
(117
|
)
|
|
234
|
|
|
276
|
|
|
391
|
|
Decrease in cash and cash equivalents
|
|
(9,295
|
)
|
|
(5,869
|
)
|
|
(51,745
|
)
|
|
(15,148
|
)
|
Effect of exchange rate changes in cash and cash equivalents
|
|
160
|
|
|
(100
|
)
|
|
(241
|
)
|
|
(972
|
)
|
Net decrease in cash and cash equivalents
|
|
(9,135
|
)
|
|
(5,969
|
)
|
|
(51,986
|
)
|
|
(16,120
|
)
|
Cash and cash equivalents-beginning of period
|
|
55,974
|
|
|
139,311
|
|
|
98,825
|
|
|
148,190
|
|
Cash and cash equivalents-end of period
|
|
$
|
46,839
|
|
|
$
|
132,070
|
|
|
$
|
46,839
|
|
|
$
|
132,070
|
|
______________________________________________
|
* Certain amounts have been adjusted for the retrospective change
in accounting principle for sales commissions.
|
|
|
ROSETTA STONE INC.
|
Reconciliation of GAAP Net Loss to Adjusted EBITDA
|
(in thousands)
|
(unaudited)
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
(As Adjusted)*
|
|
|
|
|
(As Adjusted)*
|
GAAP net loss
|
|
$
|
(15,750
|
)
|
|
$
|
(3,213
|
)
|
|
$
|
(35,992
|
)
|
|
$
|
(8,117
|
)
|
Interest (income)/expense, net
|
|
45
|
|
|
(43
|
)
|
|
97
|
|
|
(39
|
)
|
Income tax (benefit) expense
|
|
491
|
|
|
(387
|
)
|
|
(191
|
)
|
|
580
|
|
Depreciation and amortization
|
|
3,431
|
|
|
2,168
|
|
|
6,802
|
|
|
3,924
|
|
Depreciation related to restructuring
|
|
30
|
|
|
56
|
|
|
92
|
|
|
672
|
|
Goodwill impairment
|
|
-
|
|
|
-
|
|
|
2,199
|
|
|
-
|
|
Stock-based compensation
|
|
1,953
|
|
|
2,036
|
|
|
3,359
|
|
|
3,704
|
|
Other EBITDA adjustments
|
|
561
|
|
|
2,526
|
|
|
8,567
|
|
|
4,614
|
|
Change in deferred revenue
|
|
11,689
|
|
|
929
|
|
|
12,165
|
|
|
(2,624
|
)
|
Change in deferred commission
|
|
(2,556
|
)
|
|
(357
|
)
|
|
(3,933
|
)
|
|
(144
|
)
|
Adjusted EBITDA**
|
|
$
|
(106
|
)
|
|
$
|
3,715
|
|
|
$
|
(6,835
|
)
|
|
$
|
2,570
|
|
______________________________________________
|
* Certain amounts have been adjusted for the retrospective change in
accounting principle for sales commissions.
|
** Adjusted EBITDA is GAAP net income or loss plus interest income
and expense, income tax benefit and expense, depreciation,
amortization, goodwill impairment, and stock-based compensation
expenses, plus the change in deferred revenue excluding increases in
deferred revenue from acquisitions less the change in deferred
commissions. Adjusted EBITDA excludes the change in deferred
commissions, any items related to the litigation with Google Inc.,
restructuring and related wind down costs, severance costs, and
transaction and other costs associated with mergers and
acquisitions. Adjusted EBITDA for prior periods has been revised to
conform to the current definition.
|
|
|
ROSETTA STONE INC.
|
Reconciliation of Cash Provided by (Used in) Operating Activities
to Free Cash Flow
|
(in thousands)
|
(unaudited)
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
(As Adjusted)*
|
|
|
|
|
(As Adjusted)*
|
Net cash provided by (used in) operating activities
|
|
$
|
(4,474
|
)
|
|
$
|
2,488
|
|
|
$
|
(18,104
|
)
|
|
$
|
(3,147
|
)
|
Purchases of property and equipment
|
|
(3,178
|
)
|
|
(1,684
|
)
|
|
(4,544
|
)
|
|
(4,212
|
)
|
Free cash flow**
|
|
$
|
(7,652
|
)
|
|
$
|
804
|
|
|
$
|
(22,648
|
)
|
|
$
|
(7,359
|
)
|
* Certain amounts have been adjusted for the retrospective change in
accounting principle for sales commissions.
|
** Free cash flow is cash flow from operations less cash used
in purchases of property and equipment.
|
|
|
Rosetta Stone Inc.
|
Business Metrics
|
(in thousands)
|
|
|
|
Quarter-Ended
|
|
|
|
|
Quarter-Ended
|
|
|
3/31/2013
|
|
6/30/2013
|
|
9/30/2013
|
|
12/31/2013
|
|
2013
|
|
3/31/2014
|
|
6/30/2014
|
Net Bookings by Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
41,303
|
|
|
39,321
|
|
|
38,629
|
|
|
52,620
|
|
|
171,873
|
|
|
36,141
|
|
|
34,816
|
|
Rest of World Consumer
|
|
8,310
|
|
|
6,879
|
|
|
7,471
|
|
|
7,300
|
|
|
29,960
|
|
|
6,817
|
|
|
5,018
|
|
Worldwide Consumer
|
|
49,613
|
|
|
46,200
|
|
|
46,100
|
|
|
59,920
|
|
|
201,833
|
|
|
42,958
|
|
|
39,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
10,758
|
|
|
16,883
|
|
|
24,594
|
|
|
24,067
|
|
|
76,302
|
|
|
18,282
|
|
|
29,171
|
|
Total
|
|
60,371
|
|
|
63,083
|
|
|
70,694
|
|
|
83,987
|
|
|
278,135
|
|
|
61,240
|
|
|
69,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YoY Growth (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
(1
|
)%
|
|
5
|
%
|
|
(9
|
)%
|
|
(9
|
)%
|
|
(4
|
)%
|
|
(12
|
)%
|
|
(11
|
)%
|
Rest of World Consumer
|
|
(34
|
)%
|
|
(15
|
)%
|
|
(29
|
)%
|
|
(27
|
)%
|
|
(27
|
)%
|
|
(18
|
)%
|
|
(27
|
)%
|
Worldwide Consumer
|
|
(9
|
)%
|
|
2
|
%
|
|
(13
|
)%
|
|
(12
|
)%
|
|
(8
|
)%
|
|
(13
|
)%
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
(2
|
)%
|
|
(4
|
)%
|
|
27
|
%
|
|
47
|
%
|
|
18
|
%
|
|
70
|
%
|
|
73
|
%
|
Total
|
|
(8
|
)%
|
|
-
|
%
|
|
(2
|
)%
|
|
-
|
%
|
|
(2
|
)%
|
|
1
|
%
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Bookings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
68
|
%
|
|
62
|
%
|
|
55
|
%
|
|
63
|
%
|
|
62
|
%
|
|
59
|
%
|
|
50
|
%
|
Rest of World Consumer
|
|
14
|
%
|
|
11
|
%
|
|
10
|
%
|
|
9
|
%
|
|
11
|
%
|
|
11
|
%
|
|
7
|
%
|
Worldwide Consumer
|
|
82
|
%
|
|
73
|
%
|
|
65
|
%
|
|
72
|
%
|
|
73
|
%
|
|
70
|
%
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
18
|
%
|
|
27
|
%
|
|
35
|
%
|
|
29
|
%
|
|
27
|
%
|
|
30
|
%
|
|
42
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
41,385
|
|
|
39,934
|
|
|
38,699
|
|
|
53,998
|
|
|
174,016
|
|
|
36,214
|
|
|
32,434
|
|
Rest of World Consumer
|
|
8,570
|
|
|
7,478
|
|
|
7,165
|
|
|
7,207
|
|
|
30,420
|
|
|
6,669
|
|
|
5,467
|
|
Worldwide Consumer
|
|
49,955
|
|
|
47,412
|
|
|
45,864
|
|
|
61,205
|
|
|
204,436
|
|
|
42,883
|
|
|
37,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
13,969
|
|
|
14,727
|
|
|
15,008
|
|
|
16,505
|
|
|
60,209
|
|
|
17,882
|
|
|
19,414
|
|
Total
|
|
63,924
|
|
|
62,139
|
|
|
60,872
|
|
|
77,710
|
|
|
264,645
|
|
|
60,765
|
|
|
57,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YoY Growth (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
(4
|
)%
|
|
8
|
%
|
|
(3
|
)%
|
|
2
|
%
|
|
1
|
%
|
|
(12
|
)%
|
|
(19
|
)%
|
Rest of World Consumer
|
|
(30
|
)%
|
|
(7
|
)%
|
|
(28
|
)%
|
|
(29
|
)%
|
|
(24
|
)%
|
|
(22
|
)%
|
|
(27
|
)%
|
Worldwide Consumer
|
|
(10
|
)%
|
|
5
|
%
|
|
(8
|
)%
|
|
(3
|
)%
|
|
(4
|
)%
|
|
(14
|
)%
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
(1
|
)%
|
|
(7
|
)%
|
|
4
|
%
|
|
5
|
%
|
|
-
|
%
|
|
28
|
%
|
|
32
|
%
|
Total
|
|
(8
|
)%
|
|
2
|
%
|
|
(5
|
)%
|
|
(1
|
)%
|
|
(3
|
)%
|
|
(5
|
)%
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Consumer
|
|
65
|
%
|
|
64
|
%
|
|
64
|
%
|
|
69
|
%
|
|
66
|
%
|
|
60
|
%
|
|
56
|
%
|
Rest of World Consumer
|
|
13
|
%
|
|
12
|
%
|
|
11
|
%
|
|
9
|
%
|
|
11
|
%
|
|
11
|
%
|
|
10
|
%
|
Worldwide Consumer
|
|
78
|
%
|
|
76
|
%
|
|
75
|
%
|
|
78
|
%
|
|
77
|
%
|
|
71
|
%
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Enterprise and Education
|
|
22
|
%
|
|
24
|
%
|
|
25
|
%
|
|
21
|
%
|
|
23
|
%
|
|
29
|
%
|
|
34
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
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.
|
|
|
Quarter-Ended
|
|
|
|
|
Quarter-Ended
|
|
|
3/31/2013
|
|
6/30/2013
|
|
9/30/2013
|
|
12/31/2013
|
|
2013
|
|
3/31/2014
|
|
6/30/2014
|
Unit Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Unit Volume (thousands)
|
|
141.8
|
|
|
148.6
|
|
|
157.7
|
|
|
233.5
|
|
|
681.6
|
|
|
132.6
|
|
|
130.4
|
|
Paid Online Learners (thousands)
|
|
80.6
|
|
|
85.1
|
|
|
88.6
|
|
|
94.1
|
|
|
94.1
|
|
|
100.4
|
|
|
108.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YoY Growth (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Units
|
|
(1
|
)%
|
|
15
|
%
|
|
8
|
%
|
|
11
|
%
|
|
8
|
%
|
|
(6
|
)%
|
|
(12
|
)%
|
Paid Online Learners
|
|
95
|
%
|
|
75
|
%
|
|
54
|
%
|
|
38
|
%
|
|
38
|
%
|
|
25
|
%
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Net Revenue Per Unit ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Net Revenue per Product Unit
|
|
$
|
312
|
|
|
$
|
275
|
|
|
$
|
250
|
|
|
$
|
234
|
|
|
$
|
263
|
|
|
$
|
273
|
|
|
$
|
238
|
|
Average Net Revenue per Online Learner (monthly)
|
|
$
|
26
|
|
|
$
|
25
|
|
|
$
|
24
|
|
|
$
|
23
|
|
|
$
|
25
|
|
|
$
|
22
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YoY Growth (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Net Revenue per Product Unit
|
|
(15
|
)%
|
|
(14
|
)%
|
|
(20
|
)%
|
|
(15
|
)%
|
|
(16
|
)%
|
|
(13
|
)%
|
|
(13
|
)%
|
Average Net Revenue per Online Learner
|
|
(7
|
)%
|
|
(6
|
)%
|
|
(1
|
)%
|
|
(5
|
)%
|
|
(30
|
)%
|
|
(15
|
)%
|
|
(24
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
52,791
|
|
|
52,163
|
|
|
51,013
|
|
|
67,485
|
|
|
223,451
|
|
|
49,410
|
|
|
46,637
|
|
International
|
|
11,133
|
|
|
9,976
|
|
|
9,859
|
|
|
10,226
|
|
|
41,194
|
|
|
11,355
|
|
|
10,678
|
|
Total
|
|
63,924
|
|
|
62,139
|
|
|
60,872
|
|
|
77,711
|
|
|
264,645
|
|
|
60,765
|
|
|
57,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Geography (as a %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
83
|
%
|
|
84
|
%
|
|
84
|
%
|
|
87
|
%
|
|
82
|
%
|
|
81
|
%
|
|
81
|
%
|
International
|
|
17
|
%
|
|
16
|
%
|
|
16
|
%
|
|
13
|
%
|
|
18
|
%
|
|
19
|
%
|
|
19
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
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.
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|