ARLINGTON, Va., Aug. 08, 2017 (GLOBE NEWSWIRE) -- Rosetta Stone Inc. (NYSE:RST), a world leader in technology-based learning solutions, today announced financial results for the second quarter ended June 30, 2017. Revenue in the second quarter 2017 totaled $45.9 million, up from $45.7 million in the year-ago period. The second quarter net loss totaled $1.1 million, or $(0.05) per diluted share. In the year-ago period, the Company had a net loss of $9.0 million, or $(0.41) per diluted share, which included (pre-tax) restructuring and impairment charges totaling $5.4 million.
Second Quarter 2017 Overview
- Total revenue was essentially flat year-over-year at $45.9 million
- Revenue at Lexia, the Company’s Literacy segment, grew 30% year-over-year to a record high $10.4 million. Adjusting for the impact of purchase accounting on Lexia's revenue, second quarter 2017 revenue would have been $10.9 million and growth would have been 19% year-over-year
- Total operating expenses decreased $9.6 million or 20% year-over-year, representing the Company's tenth consecutive quarter of year-over-year expense reductions. Total operating expenses included a $2.9 million impairment charge in the second quarter 2016, and restructuring charges of $0.2 million and $2.0 million incurred in the second quarter 2017 and 2016, respectively
- The Company had zero debt outstanding and ended the quarter with cash and cash equivalents of $26.4 million at June 30, 2017
“The second quarter was a period of continued progress, with relatively flat year-over-year revenue for the second consecutive quarter, after substantial restructuring that characterized the past two years,” said John Hass, Chairman, President and Chief Executive Officer. “Through our turnaround efforts we have focused the Company on our best products in our most attractive markets and establishing a more efficient infrastructure, which we believe has put us on the path to profitable future growth.
“To help accelerate our progress, I am excited to announce the hiring of Matt Hulett as President of Language,” Hass said. “Matt is an innovative business and product development executive with wide-ranging and relevant SaaS-experience in both consumer and enterprise businesses. Matt will oversee all areas of our language businesses working closely with our leadership team to continue to drive Rosetta Stone forward.”
Second Quarter 2017 Review
Revenue: Total revenue increased $0.2 million year-over-year to $45.9 million in the second quarter 2017. Revenue at Lexia, the Company's Literacy segment, grew 30% year-over-year to a record high $10.4 million. Adjusting for the impact of purchase accounting, Lexia's revenue would have been $10.9 million in the second quarter 2017 compared to $9.2 million in the year-ago period, and Lexia's pro forma revenue growth rate would have been 19% year-over-year.
Enterprise & Education ("E&E") Language segment revenue decreased 1% year-over-year to $17.3 million in the second quarter 2017. The strategic decision to exit certain geographies on a direct sales basis, which was part of the E&E Language restructuring announced in March 2016, represented a year-over-year decline of $0.8 million or 35%; revenue from continuing E&E Language geographies was up $0.6 million or 4% year-over-year.
Consumer segment revenue decreased $2.0 million or 10% year-over-year to $18.3 million in the second quarter 2017, reflecting an increased mix of shorter-duration subscriptions, which the Company began testing in the fall of 2016. The number of paid subscribers increased to 375,000, up 38% year-over-year. Subscriptions with a duration of one year or less totaled 42% of the units sold mix in the second quarter 2017, up from 5% in the same quarter last year.
US$ thousands, except for percentages
| Three Months Ended June 30, | |||||||||||||||||
| 2017 | Mix % | 2016 | Mix % | % change | |||||||||||||
| Revenue from: | |||||||||||||||||
| Literacy | $ | 10,370 | 22 | % | $ | 7,950 | 17 | % | 30 | % | |||||||
| E&E Language | 17,260 | 38 | % | 17,490 | 38 | % | (1 | )% | |||||||||
| Consumer | 18,275 | 40 | % | 20,276 | 45 | % | (10 | )% | |||||||||
| Total | $ | 45,905 | 100 | % | $ | 45,716 | 100 | % | — | % | |||||||
Net Loss: In the second quarter of 2017 the Company reported a net loss of $1.1 million or $(0.05) per diluted share, which included a pre-tax restructuring charge of $0.2 million. In the comparable period a year ago, the Company incurred a net loss of $9.0 million or $(0.41) per diluted share, which included pre-tax charges of $2.9 million for impairment (non-cash) and $2.5 million for restructuring.
Total operating expenses decreased $9.6 million or 20% year-over-year to $39.0 million in the second quarter 2017, which included $2.9 million of impairment in the second quarter 2016. Restructuring expenses of $0.2 million were incurred in the second quarter 2017 and $2.0 million of the total $2.5 million in restructuring expense was included in operating expense in the second quarter 2016. Year-over-year decreases were realized in all three major operating expense categories in the second quarter 2017, with sales and marketing expenses down $4.7 million or 16%, research and development expenses down $0.4 million or 6%, and general and administrative expenses down $1.5 million or 15%. Due to the timing of the E&E Language segment restructuring, the Company expects the magnitude of future operating expense reductions will narrow through the second half of 2017.
Balance Sheet: The Company had zero debt and a cash and cash equivalents balance of $26.4 million at June 30, 2017, which included the receipt of $11.5 million from the previously announced strategic partnership agreement in Japan. Deferred revenue decreased to $134.5 million at June 30, 2017, compared to $141.5 million at December 31, 2016. Short-term deferred revenue, which will be recognized as revenue over the next 12 months, totaled $98.6 million or approximately 73% of the total June 30, 2017 balance.
Free Cash Flow and Adjusted EBITDA: Free cash flow, a non-GAAP financial measure, was $(13.5) million in the second quarter 2017, compared to $(13.2) million in the second quarter 2016. Adjusted EBITDA, a non-GAAP financial measure, improved to $3.9 million in the second quarter, compared to $0.1 million in the year-ago period. The Company's cash flow has historically been seasonal, with a net use of cash during the first half of the year and positive cash generation during the second half of the year.
Earnings Conference Call
In conjunction with this announcement, Rosetta Stone will host a conference call today at 5:00 p.m. ET during which time there will be a discussion of the results and the Company's 2017 outlook. Investors may dial into the live conference call using 1-201-689-8470 (toll / international) or 1-877-407-9039 (toll-free). A live webcast will also be available on the Investor Relations page of the Company's website at http://investors.rosettastone.com. A replay will be made available soon after the live conference call is completed and will remain available until midnight on August 15. Investors may dial into the replay using 1-412-317-6671 and passcode 13667313.
Caution on Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by non-historical statements and often include words such as "outlook," "potential," "believes," "expects," "anticipates," "estimates," "intends," "plans," "seeks" or words of similar meaning, or future-looking or conditional verbs, such as "will," "should," "could," "may," "might, " "aims," "intends," "projects," or similar words or phrases. These statements may include, but are not limited to, statements relating to: our business strategy; guidance or projections related to revenue, Adjusted EBITDA, bookings, and other measures of future economic performance; the contributions and performance of our businesses including acquired businesses and international operations; projections for future capital expenditures; and other guidance, projections, plans, objectives, and related estimates and assumptions. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances. In addition, forward-looking statements are based on the Company’s current assumptions, expectations and beliefs and are subject to certain risks and uncertainties that could cause actual results to differ materially from our present expectations or projections. Some important factors that could cause actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to: the risk that we are unable to execute our business strategy; declining demand for our language learning solutions; the risk that we are not able to manage and grow our business; the impact of any revisions to our pricing strategy; the risk that we might not succeed in introducing and producing new products and services; the impact of foreign exchange fluctuations; the adequacy of internally generated funds and existing sources of liquidity, such as bank financing, as well as our ability to raise additional funds; the risk that we cannot effectively adapt to and manage complex and numerous technologies; the risk that businesses acquired by us might not perform as expected; and the risk that we are not able to successfully expand internationally. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements, risks and uncertainties that are more fully described in the Company's filings with the U.S. Securities and Exchange Commission (SEC), including those described under the section entitled “Risk Factors” in the Company’s most recent quarterly Form 10-Q filings and Annual Report on Form 10-K for the year ended December 31, 2016, and those updated from time to time in our future reports filed with the Securities and Exchange Commission.
Non-GAAP Financial Measures
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses, and this press release contains references to, the non-GAAP financial measures of financial performance listed below.
- 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, other income/expense, income tax benefit/expense, impairment, lease abandonment and termination, depreciation, amortization, stock-based compensation, restructuring, and strategy and cost-reduction related consulting expenses. In addition, Adjusted EBITDA excludes "Other" items related to non-restructuring wind down and 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 operating activities minus cash used in purchases of property and equipment.
- Segment contribution is calculated as segment revenue less expenses directly incurred by or allocated to the segment. Direct segment expenses include costs and expenses that are directly incurred by or allocated to the segment and include materials costs, service costs, customer care and coaching costs, sales and marketing expenses, and bad debt expense. In addition to the previously referenced expenses, the Literacy segment includes direct research and development expenses and Combined Language includes shared research and development expenses, cost of revenue, and sales and marketing expenses applicable to the Consumer Language and Enterprise & Education Language segments.
The definitions, GAAP comparisons, and reconciliation of those measures with the most directly comparable GAAP financial measures are available in this press release or in the corresponding earnings presentation, which are posted on our website at www.rosettastone.com.
Management believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations, enabling a better understanding of the long-term performance of the Company’s business. Management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, 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 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.
The presentation of this additional financial information is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. 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, or in corresponding earnings presentations, and not to rely on any single financial measure to evaluate the Company’s business. The Company’s non-GAAP measures may not be comparable to those used by other companies, and we encourage you to review and understand all our financial reporting before making any investment decision.
About Rosetta Stone Inc.
Rosetta Stone Inc. (NYSE:RST) is dedicated to changing people’s lives through the power of language and literacy education. The company’s innovative digital solutions drive positive learning outcomes for the inspired learner at home or in schools and workplaces around the world.
Founded in 1992, Rosetta Stone’s language division uses cloud-based solutions to help all types of learners read, write, and speak more than 30 languages. Lexia Learning, Rosetta Stone's literacy education division, was founded more than 30 years ago and is a leader in the literacy education space. Today, Lexia helps students build fundamental reading skills through its rigorously researched, independently evaluated, and widely respected instruction and assessment programs.
For more information, visit www.rosettastone.com. “Rosetta Stone” is a registered trademark or trademark of Rosetta Stone Ltd. in the United States and other countries.
| ROSETTA STONE INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands, except per share amounts) | ||||||||
| (unaudited) | ||||||||
| June 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 26,367 | $ | 36,195 | ||||
| Restricted cash | 41 | 402 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $547 and $1,072, at June 30, 2017 and December 31, 2016, respectively) | 27,980 | 31,788 | ||||||
| Inventory | 5,851 | 6,767 | ||||||
| Deferred sales commissions | 12,631 | 14,085 | ||||||
| Prepaid expenses and other current assets | 4,626 | 3,813 | ||||||
| Total current assets | 77,496 | 93,050 | ||||||
| Deferred sales commissions | 3,488 | 4,143 | ||||||
| Property and equipment, net | 26,670 | 24,795 | ||||||
| Goodwill | 49,197 | 48,251 | ||||||
| Intangible assets, net | 21,037 | 22,753 | ||||||
| Other assets | 1,014 | 1,318 | ||||||
| Total assets | $ | 178,902 | $ | 194,310 | ||||
| Liabilities and stockholders' deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 9,476 | $ | 10,684 | ||||
| Accrued compensation | 7,444 | 10,777 | ||||||
| Income tax payable | 564 | 785 | ||||||
| Obligations under capital lease | 422 | 532 | ||||||
| Other current liabilities | 16,943 | 22,150 | ||||||
| Deferred revenue | 98,582 | 113,821 | ||||||
| Total current liabilities | 133,431 | 158,749 | ||||||
| Deferred revenue | 35,965 | 27,636 | ||||||
| Deferred income taxes | 6,801 | 6,173 | ||||||
| Obligations under capital lease | 1,975 | 2,027 | ||||||
| Other long-term liabilities | 789 | 1,384 | ||||||
| Total liabilities | 178,961 | 195,969 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $0.001 par value; 10,000 and 10,000 shares authorized, zero and zero shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively | — | — | ||||||
| Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares authorized, 23,790 and 23,451 shares issued and 22,790 and 22,451 shares outstanding at June 30, 2017 and December 31, 2016, respectively | 2 | 2 | ||||||
| Additional paid-in capital | 192,774 | 190,827 | ||||||
| Accumulated loss | (178,025 | ) | (177,344 | ) | ||||
| Accumulated other comprehensive loss | (3,375 | ) | (3,709 | ) | ||||
| Treasury stock, at cost, 1,000 and 1,000 shares at June 30, 2017 and December 31, 2016, respectively | (11,435 | ) | (11,435 | ) | ||||
| Total stockholders' deficit | (59 | ) | (1,659 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 178,902 | $ | 194,310 | ||||
| ROSETTA STONE INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: | ||||||||||||||||
| Subscription and service | $ | 41,985 | $ | 37,757 | $ | 83,435 | $ | 75,728 | ||||||||
| Product | 3,920 | 7,959 | 10,163 | 17,990 | ||||||||||||
| Total revenue | 45,905 | 45,716 | 93,598 | 93,718 | ||||||||||||
| Cost of revenue: | ||||||||||||||||
| Cost of subscription and service revenue | 6,058 | 5,575 | 12,592 | 10,978 | ||||||||||||
| Cost of product revenue | 1,533 | 2,389 | 3,140 | 5,034 | ||||||||||||
| Total cost of revenue | 7,591 | 7,964 | 15,732 | 16,012 | ||||||||||||
| Gross profit | 38,314 | 37,752 | 77,866 | 77,706 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 24,037 | 28,740 | 48,205 | 59,533 | ||||||||||||
| Research and development | 6,348 | 6,748 | 12,762 | 13,319 | ||||||||||||
| General and administrative | 8,594 | 10,118 | 16,619 | 20,895 | ||||||||||||
| Impairment | — | 2,902 | — | 2,902 | ||||||||||||
| Lease abandonment and termination | — | 30 | — | 30 | ||||||||||||
| Total operating expenses | 38,979 | 48,538 | 77,586 | 96,679 | ||||||||||||
| Income (loss) from operations | (665 | ) | (10,786 | ) | 280 | (18,973 | ) | |||||||||
| Other income and (expense): | ||||||||||||||||
| Interest income | 17 | 10 | 30 | 23 | ||||||||||||
| Interest expense | (130 | ) | (121 | ) | (245 | ) | (233 | ) | ||||||||
| Other income and (expense) | 425 | 927 | 736 | 2,155 | ||||||||||||
| Total other income and (expense) | 312 | 816 | 521 | 1,945 | ||||||||||||
| Income (loss) before income taxes | (353 | ) | (9,970 | ) | 801 | (17,028 | ) | |||||||||
| Income tax expense (benefit) | 782 | (992 | ) | 1,482 | (543 | ) | ||||||||||
| Net loss | $ | (1,135 | ) | $ | (8,978 | ) | $ | (681 | ) | $ | (16,485 | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic | $ | (0.05 | ) | $ | (0.41 | ) | $ | (0.03 | ) | $ | (0.75 | ) | ||||
| Diluted | $ | (0.05 | ) | $ | (0.41 | ) | $ | (0.03 | ) | $ | (0.75 | ) | ||||
| Common shares and equivalents outstanding: | ||||||||||||||||
| Basic weighted average shares | 22,248 | 21,948 | 22,187 | 21,908 | ||||||||||||
| Diluted weighted average shares | 22,248 | 21,948 | 22,187 | 21,908 | ||||||||||||
| ROSETTA STONE INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (1,135 | ) | $ | (8,978 | ) | $ | (681 | ) | $ | (16,485 | ) | ||||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||||||||
| Stock-based compensation expense | 1,359 | 1,397 | 1,506 | 1,818 | ||||||||||||
| Gain on foreign currency transactions | (175 | ) | (818 | ) | (452 | ) | (2,343 | ) | ||||||||
| Bad debt (recovery) expense | 64 | 89 | (300 | ) | 280 | |||||||||||
| Depreciation and amortization | 2,987 | 3,178 | 6,062 | 6,586 | ||||||||||||
| Deferred income tax expense | 330 | 336 | 630 | 508 | ||||||||||||
| Loss on disposal of equipment | 1 | 36 | — | 36 | ||||||||||||
| Amortization of deferred financing fees | 85 | 70 | 156 | 132 | ||||||||||||
| Loss on impairment | — | 2,902 | — | 2,902 | ||||||||||||
| Loss from equity method investments | 105 | 13 | 100 | 40 | ||||||||||||
| Gain on sale of subsidiary | (506 | ) | — | (506 | ) | — | ||||||||||
| Net change in: | ||||||||||||||||
| Restricted cash | 359 | (401 | ) | 372 | (360 | ) | ||||||||||
| Accounts receivable | (6,993 | ) | (5,466 | ) | 4,195 | 12,089 | ||||||||||
| Inventory | 571 | (738 | ) | 932 | (622 | ) | ||||||||||
| Deferred sales commissions | 539 | 198 | 2,127 | 1,981 | ||||||||||||
| Prepaid expenses and other current assets | 136 | (372 | ) | (671 | ) | (1,703 | ) | |||||||||
| Income tax receivable or payable | 292 | (1,527 | ) | (245 | ) | (1,190 | ) | |||||||||
| Other assets | 190 | 238 | 192 | 326 | ||||||||||||
| Accounts payable | 426 | (2,199 | ) | (1,254 | ) | (1,630 | ) | |||||||||
| Accrued compensation | (5,128 | ) | (649 | ) | (3,397 | ) | 1,661 | |||||||||
| Other current liabilities | (2,663 | ) | 2,268 | (5,652 | ) | (5,921 | ) | |||||||||
| Other long-term liabilities | (9,247 | ) | (64 | ) | (485 | ) | (163 | ) | ||||||||
| Deferred revenue | 8,006 | 608 | (7,257 | ) | (10,367 | ) | ||||||||||
| Net cash used in operating activities | (10,397 | ) | (9,879 | ) | (4,628 | ) | (12,425 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Purchases of property and equipment | (3,080 | ) | (3,348 | ) | (5,393 | ) | (5,934 | ) | ||||||||
| Proceeds from sale of fixed assets | — | 38 | 2 | 38 | ||||||||||||
| Proceeds from the sale of subsidiary | 110 | — | 110 | — | ||||||||||||
| Net cash used in investing activities | (2,970 | ) | (3,310 | ) | (5,281 | ) | (5,896 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from the exercise of stock options | 367 | 8 | 441 | 37 | ||||||||||||
| Payment of deferred financing costs | (143 | ) | — | (143 | ) | (100 | ) | |||||||||
| Payments under capital lease obligations | (102 | ) | (94 | ) | (344 | ) | (338 | ) | ||||||||
| Net cash (used in) provided by financing activities | 122 | (86 | ) | (46 | ) | (401 | ) | |||||||||
| Decrease in cash and cash equivalents | (13,245 | ) | (13,275 | ) | (9,955 | ) | (18,722 | ) | ||||||||
| Effect of exchange rate changes in cash and cash equivalents | (101 | ) | (15 | ) | 127 | 645 | ||||||||||
| Net decrease in cash and cash equivalents | (13,346 | ) | (13,290 | ) | (9,828 | ) | (18,077 | ) | ||||||||
| Cash and cash equivalents—beginning of period | 39,713 | 42,995 | 36,195 | 47,782 | ||||||||||||
| Cash and cash equivalents—end of period | $ | 26,367 | $ | 29,705 | $ | 26,367 | $ | 29,705 | ||||||||
| ROSETTA STONE INC. | ||||||||||||||||
| Reconciliation of GAAP Net Loss to Adjusted EBITDA | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| GAAP net loss | $ | (1,135 | ) | $ | (8,978 | ) | $ | (681 | ) | $ | (16,485 | ) | ||||
| Total other non-operating income, net | (312 | ) | (816 | ) | (521 | ) | (1,945 | ) | ||||||||
| Income tax expense (benefit) | 782 | (992 | ) | 1,482 | (543 | ) | ||||||||||
| Impairment | — | 2,902 | — | 2,902 | ||||||||||||
| Depreciation and amortization | 2,987 | 3,178 | 6,062 | 6,586 | ||||||||||||
| Stock-based compensation | 1,359 | 1,397 | 1,506 | 1,818 | ||||||||||||
| Restructuring expenses | 205 | 2,512 | 985 | 5,021 | ||||||||||||
| Lease abandonment and termination | — | 30 | — | 30 | ||||||||||||
| Strategy consulting expense | — | 519 | 169 | 921 | ||||||||||||
| Other EBITDA adjustments | 16 | 304 | 55 | 187 | ||||||||||||
| Adjusted EBITDA* | $ | 3,902 | $ | 56 | $ | 9,057 | $ | (1,508 | ) | |||||||
* Adjusted EBITDA is GAAP net income/loss plus interest income and expense, other income/expense, income tax benefit/expense, impairment, lease abandonment and termination, depreciation, amortization, stock-based compensation, restructuring, and strategy and cost-reduction related consulting expenses. In addition, Adjusted EBITDA excludes “Other” items related to non-restructuring wind down and 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.
| ROSETTA STONE INC. Reconciliation of Cash Used in Operating Activities to Free Cash Flow (in thousands) (unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net cash used in operating activities | $ | (10,397 | ) | $ | (9,879 | ) | $ | (4,628 | ) | $ | (12,425 | ) | ||||
| Purchases of property and equipment | (3,080 | ) | (3,348 | ) | (5,393 | ) | (5,934 | ) | ||||||||
| Free cash flow* | $ | (13,477 | ) | $ | (13,227 | ) | $ | (10,021 | ) | $ | (18,359 | ) | ||||
* Free cash flow is cash flow from operations minus cash used in purchases of property and equipment.
Rosetta Stone Inc.
Supplemental Information
(unaudited)
| Quarter-Ended | Year Ended | Quarter-Ended | |||||||||||||||||||
| Mar 31 2016 | Jun 30 2016 | Sep 30 2016 | Dec 31 2016 | Dec 31 2016 | Mar 31 2017 | Jun 30 2017 | |||||||||||||||
| Revenue by Segment (in thousands, except percentages) | |||||||||||||||||||||
| Literacy | 7,577 | 7,950 | 8,786 | 9,810 | 34,123 | 10,170 | 10,370 | ||||||||||||||
| Enterprise & Education Language | 18,331 | 17,490 | 18,336 | 17,926 | 72,083 | 16,500 | 17,260 | ||||||||||||||
| Consumer | 22,094 | 20,276 | 21,571 | 23,942 | 87,883 | 21,023 | 18,275 | ||||||||||||||
| Total | 48,002 | 45,716 | 48,693 | 51,678 | 194,089 | 47,693 | 45,905 | ||||||||||||||
| YoY Growth (%) | |||||||||||||||||||||
| Literacy | 82 | % | 68 | % | 52 | % | 35 | % | 56 | % | 34 | % | 30 | % | |||||||
| Enterprise & Education Language | (4 | )% | (6 | )% | (6 | )% | (6 | )% | (5 | )% | (10 | )% | (1 | )% | |||||||
| Consumer | (37 | )% | (28 | )% | (12 | )% | (25 | )% | (27 | )% | (5 | )% | (10 | )% | |||||||
| Total | (18 | )% | (11 | )% | (2 | )% | (11 | )% | (11 | )% | (1 | )% | — | % | |||||||
| % of Total Revenue | |||||||||||||||||||||
| Literacy | 16 | % | 17 | % | 18 | % | 19 | % | 18 | % | 21 | % | 22 | % | |||||||
| Enterprise & Education Language | 38 | % | 38 | % | 38 | % | 35 | % | 37 | % | 35 | % | 38 | % | |||||||
| Consumer | 46 | % | 45 | % | 44 | % | 46 | % | 45 | % | 44 | % | 40 | % | |||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||
| Revenues by Geography | |||||||||||||||||||||
| United States | 39,795 | 37,626 | 41,042 | 44,352 | 162,815 | 41,241 | 39,384 | ||||||||||||||
| International | 8,207 | 8,090 | 7,651 | 7,326 | 31,274 | 6,452 | 6,521 | ||||||||||||||
| Total | 48,002 | 45,716 | 48,693 | 51,678 | 194,089 | 47,693 | 45,905 | ||||||||||||||
| Revenues by Geography (as a %) | |||||||||||||||||||||
| United States | 83 | % | 82 | % | 84 | % | 86 | % | 84 | % | 86 | % | 86 | % | |||||||
| International | 17 | % | 18 | % | 16 | % | 14 | % | 16 | % | 14 | % | 14 | % | |||||||
| 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.
CONTACT: Investors: Frank Milano ir@rosettastone.com 703-387-5876 Media Contact: Michelle Alvarez malvarez@rosettastone.com 703-387-5862
