ARLINGTON, Va., March 06, 2019 (GLOBE NEWSWIRE) -- Rosetta Stone Inc. (NYSE:RST), a world leader in technology-based learning solutions, today announced financial results for the fourth quarter and full year ended December 31, 2018.
Fourth Quarter 2018 Highlights
- Revenue at Lexia Learning ("Lexia"), the Company's Literacy segment, increased 20% year-over-year to a record high $14.5 million.
- Revenue within the Consumer Language segment declined 13% year-over-year to $15.5 million. The expected revenue decline reflects the transition to a full subscription model in which revenue is recognized ratably over the subscription period, which was completed in the first quarter 2018. Consumer Lifetime Value (“LTV”) added was $58.9 million in the full year 2018, an increase of 6% from the year-ago period.
- Revenue within the Enterprise & Education (“E&E”) Language segment decreased 3% year-over-year to $14.6 million, the lowest year-over-year decline in 6 quarters.
- Total operating expenses increased 1% year-over-year, to $39.2 million.
- At December 31, 2018 the Company had zero debt outstanding and cash and cash equivalents totaled $38.1 million.
“2018 was a transformative year for Rosetta Stone, marked by exceptional growth in our Literacy business, re-imaged products in our Language business and the completion of the transition of our company to subscription sales,” said John Hass, Chairman and Chief Executive Officer. “The result is a more balanced, and better positioned Rosetta Stone, with a future clearly focused on leveraging our two biggest assets - our growing presence in U.S. K12 schools and our iconic brand.”
Mr. Hass continued, “The fourth quarter of 2018 was the inflection point we have been working towards. As we look ahead, we are excited to continue our transformation into a global leader in digital learning solutions that served over five million paid learners in 2018. We expect our focus will result in a company with accelerating growth and expanding margins that will become more apparent as we move through 2019.”
Fourth Quarter 2018 Review
Revenue: Total revenue in the fourth quarter was $44.6 million, compared to $44.8 million in the fourth quarter 2017, as growth in the Company’s Literacy Segment was offset by a decline in the Company’s Consumer Language segment, largely the result of the transition from perpetual product sales to subscription-based sales. Revenue before Fit Brains, which was decommissioned mid-2018, grew slightly year-over-year in the fourth quarter for the first time since 2014.
Revenue at Lexia increased 20% year-over-year to $14.5 million. Lexia's sustained revenue growth reflects strong demand for its product portfolio, high retention rates, and increased effectiveness of the Company's direct sales force. Literacy bookings grew 13% over the prior year period reflecting a consistently high renewal rate of 100% in the current period. It also reflected a continuing trend of both new and renewal bookings moving to the third calendar quarter which is the beginning of the school operating year.
E&E Language segment revenue decreased 3% year-over-year to $14.6 million. E&E language bookings decreased $1.6 million, or 9% year-over-year, with lower bookings from our reseller channel.
Consumer Language segment revenue declined 13% year-over-year to $15.5 million. The decline was driven by the SaaS transition across all channels in the segment. Subscribers grew 32% year-over-year to 487,000 at December 31, 2018. Subscriber growth was largely driven by the inclusion of lower priced, shorter initial duration subscriptions in the Company’s portfolio. Subscriptions with a duration of one year or less totaled 44% of the subscription unit mix at the end of the fourth quarter 2018, up from 34% at the end of the same quarter last year. Consumer Language bookings before prior-year SOURCENEXT and Fit Brains, which has been decommissioned, totaled $17.2 million in Q4 2018, down from $18.6 million in Q4 2017.
US$ thousands, except for percentages
| Three Months Ended December 31, | ||||||||||||||||||||
| 2018 | Mix % | 2017 | Mix % | % change | ||||||||||||||||
| Revenue from: | ||||||||||||||||||||
| Literacy | $ | 14,472 | 32 | % | $ | 12,040 | 27 | % | 20 | % | ||||||||||
| E&E Language | 14,594 | 33 | % | 14,978 | 33 | % | (3 | )% | ||||||||||||
| Consumer Language | 15,508 | 35 | % | 17,771 | 40 | % | (13 | )% | ||||||||||||
| Total Revenue | $ | 44,574 | 100 | % | $ | 44,789 | 100 | % | (0 | )% | ||||||||||
Net (Loss) Income: In the fourth quarter 2018, the Company reported a net loss of $4.4 million, or $(0.19) per diluted share. In the comparable period a year ago, the Company reported net income of $2.4 million, or $0.10 per diluted share. Included in net income for the fourth quarter 2017 was a one-time, non-cash $5.5 million tax benefit associated with the Tax Cuts and Jobs Act.
Total operating expenses increased $0.3 million, or 1% year-over-year, to $39.2 million as increased investment in sales and marketing and research and development expenses were partially offset by declines in general and administrative expense.
Full Year 2018 Review
Revenue: Full year 2018 revenue totaled $173.6 million, down 6% from $184.6 million in 2017, as growth in the Company’s Lexia segment was more than offset by declines in the Company’s Consumer Language and E&E Language segments.
Revenue at Lexia totaled $52.8 million in 2018, up 21% from $43.6 million in 2017. Literacy bookings grew 23% over the prior year reflecting a consistently high renewal rate of 100% in 2018.
Revenue in the E&E Language segment totaled $60.4 million in 2018, down 7% compared to $65.3 million in 2017. The decrease reflects lower performance from non-strategic affiliate sales channels and a decline in K-12 education bookings.
Consumer Language segment revenue was down 20% to $60.5 million in 2018, compared to $75.7 million in 2017, reflecting both the shift to SaaS-based revenue in the DTC channel and lower unit sales in the retail channel following the conversion of various retail partners to sell the Company's subscriptions. The percent of perpetual sales units in 2018 was 3%, compared to 46% last year. The percent of full year bookings recognized as revenue in the year declined to 46% in 2018, compared to 54% in 2017. Consumer Language bookings before prior-year SOURCENEXT and Fit Brains, which has been decommissioned, totaled $63.1 million for the full year 2018, down from $67.6 million in the prior year.
US$ thousands, except for percentages
| Twelve Months Ended December 31, | ||||||||||||||||||||
| 2018 | Mix % | 2017 | Mix % | % change | ||||||||||||||||
| Revenue from: | ||||||||||||||||||||
| Literacy | $ | 52,766 | 30 | % | $ | 43,608 | 24 | % | 21 | % | ||||||||||
| E&E Language | 60,376 | 35 | % | 65,267 | 35 | % | (7 | )% | ||||||||||||
| Consumer Language | 60,492 | 35 | % | 75,718 | 41 | % | (20 | )% | ||||||||||||
| Total Revenue | $ | 173,634 | 100 | % | $ | 184,593 | 100 | % | (6 | )% | ||||||||||
Net Loss: Full year 2018 net loss totaled $21.5 million, or $(0.95) per diluted share, compared to a net loss of $1.5 million, or $(0.07) per diluted share in 2017. Included in the 2017 net loss was a one-time, non-cash $5.5 million tax benefit associated with the Tax Cuts and Jobs Act.
Total operating expenses increased $1.9 million, or 1%, to $157.3 million, as increased investment in sales and marketing and research and development were partially offset by declines in general and administrative expenses.
Balance Sheet: The Company had cash and cash equivalents of $38.1 million and zero debt at December 31, 2018. Deferred revenue totaled $162.9 million at December 31, 2018, compared to $151.3 million at December 31, 2017. Short-term deferred revenue, which will be recognized as revenue over the next 12 months, totaled $113.4 million, or approximately 70% of the total December 31, 2018 balance.
Free Cash Flow and Adjusted EBITDA: Free cash flow, a non-GAAP financial measure, was $5.5 million in the fourth quarter 2018, compared to $2.6 million in the same period a year ago. For the full year 2018, free cash flow was $6.4 million outflow compared to $6.0 million inflow for the full year 2017. Included in the full year 2017 free cash flow was $13.2 million received from the transaction with SOURCENEXT.
Adjusted EBITDA, a non-GAAP financial measure, was $0.7 million in the fourth quarter 2018, a decline of $0.9 million, compared to $1.6 million in the year-ago period. For the full year, Adjusted EBITDA was $0.2 million, compared to $13.3 million in 2017.
2019 Outlook
The Company is providing the following guidance for the full year ending December 31, 2019:
| Full Year 2018 Actual | Full Year 2019 Guidance | ||
| Revenue | $173.6 | ~$191.0 | |
| Literacy Revenue | $52.8 | ~63.0 | |
| Language Revenue | $120.8 | ~$128.0 | |
| Net Loss | $(21.5) | ~$(15.0) | |
| Adjusted EBITDA | $0.2 | ~$8.0 | |
| Operating Cash Flow1 | $10.4 | ~$19.0 | |
| Capital Expenditures | $16.9 | ~$20.0 | |
| Ending Cash Balance2 | $38.1 | ~$38.0 | |
1 Includes approximately $4.5 million of SOURCENEXT cash receipts in 2018.
2 Assumes no debt.
Additionally, the Company is providing first quarter 2019 guidance for consolidated revenue of $43 to $44 million, net loss of $5 to $6 million, break-even Adjusted EBITDA, operating cash outflow of $19 million and capital expenditures of $5 million. The first quarter represents the Company’s seasonal low point with 14% of the expected bookings for the year. Revenue growth and operating profitability are expected to accelerate through 2019, in-line with seasonal bookings growth.
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 business 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 in the investor relations section 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 March 13. Investors may dial into the replay using 1-412-317-6671 and passcode 13686922.
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, sales, 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 Annual Report on Form 10-K for the year ended December 31, 2018, and those updated from time to time in our future reports filed with the Securities and Exchange Commission.
Non-GAAP Financial and Statistical 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 represents executed contracts received by the Company that are either recorded immediately as revenue or deferred revenue. Therefore, bookings is an operational metric and in any one period is equal to revenue plus the change in 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 E&E Language segments. Prior periods have been reclassified to reflect our current segment presentation and definition of segment contribution.
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.
In addition, this press release contains references to the following statistical measures:
- North America Consumer DTC and Global App Sales LTV per Unit: The Lifetime Value per unit, or LTV per unit, is an operating metric calculated as the combined value of customers' initial purchases plus an estimate of future renewals based on the median renewal rates observed for recent renewals of similar products. The per unit metric is expressed as the weighted average LTV per unit of all products sold during a given period
- LTV Added is the LTV per unit multiplied by total new unit sales net of returns.
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.
Investors:
Laura Bainbridge / Jason Terry
Addo Investor Relations
1-310-829-5400
IR@rosettastone.com
Media Contact:
Andrea Riggs
1-917-572-5555
ariggs@rosettastone.com
ROSETTA STONE INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 38,092 | $ | 42,964 | ||||
| Restricted cash | 82 | 72 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $372 and $375, at | ||||||||
| December 31, 2018 and December 31, 2017, respectively) | 21,950 | 24,517 | ||||||
| Inventory | 933 | 3,536 | ||||||
| Deferred sales commissions | 11,597 | 14,466 | ||||||
| Prepaid expenses and other current assets | 4,041 | 4,543 | ||||||
| Total current assets | 76,695 | 90,098 | ||||||
| Deferred sales commissions | 6,933 | 3,306 | ||||||
| Property and equipment, net | 36,405 | 30,649 | ||||||
| Goodwill | 49,239 | 49,857 | ||||||
| Intangible assets, net | 15,850 | 19,184 | ||||||
| Other assets | 2,136 | 1,661 | ||||||
| Total assets | $ | 187,258 | $ | 194,755 | ||||
| Liabilities and stockholders' (deficit) equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 8,938 | $ | 8,984 | ||||
| Accrued compensation | 9,046 | 10,948 | ||||||
| Income tax payable | 328 | 384 | ||||||
| Obligations under capital lease | 450 | 450 | ||||||
| Other current liabilities | 13,475 | 16,454 | ||||||
| Deferred revenue | 113,378 | 110,670 | ||||||
| Total current liabilities | 145,615 | 147,890 | ||||||
| Deferred revenue | 49,507 | 40,593 | ||||||
| Deferred income taxes | 2,776 | 1,968 | ||||||
| Obligations under capital lease | 1,337 | 1,850 | ||||||
| Other long-term liabilities | 31 | 31 | ||||||
| Total liabilities | 199,266 | 192,332 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' (deficit) equity: | ||||||||
| Preferred stock, $0.001 par value; 10,000 and 10,000 shares authorized, zero and zero | ||||||||
| shares issued and outstanding at December 31, 2018 and December 31, 2017, | ||||||||
| respectively) | — | — | ||||||
| Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares | ||||||||
| authorized, 24,426 and 23,783 shares issued, and 23,426 and 22,783 shares | ||||||||
| outstanding, at December 31, 2018 and December 31, 2017, respectively) | 2 | 2 | ||||||
| Additional paid-in capital | 202,355 | 195,644 | ||||||
| Treasury stock, at cost; 1,000 and 1,000 shares at December 31, 2018 and | ||||||||
| December 31, 2017, respectively) | (11,435 | ) | (11,435 | ) | ||||
| Accumulated loss | (199,592 | ) | (178,890 | ) | ||||
| Accumulated other comprehensive loss | (3,338 | ) | (2,898 | ) | ||||
| Total stockholders' (deficit) equity | (12,008 | ) | 2,423 | |||||
| Total liabilities and stockholders' (deficit) equity | $ | 187,258 | $ | 194,755 | ||||
ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue: | ||||||||||||||||
| Subscription and service | $ | 43,983 | $ | 42,890 | $ | 170,685 | $ | 168,442 | ||||||||
| Product | 591 | 1,899 | 2,949 | 16,151 | ||||||||||||
| Total revenue | 44,574 | 44,789 | 173,634 | 184,593 | ||||||||||||
| Cost of revenue: | ||||||||||||||||
| Cost of subscription and service revenue | 9,174 | 6,991 | 32,010 | 26,082 | ||||||||||||
| Cost of product revenue | 616 | 1,450 | 3,912 | 7,539 | ||||||||||||
| Total cost of revenue | 9,790 | 8,441 | 35,922 | 33,621 | ||||||||||||
| Gross profit | 34,784 | 36,348 | 137,712 | 150,972 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | 24,898 | 24,801 | 98,911 | 96,660 | ||||||||||||
| Research and development | 6,420 | 5,604 | 25,210 | 24,747 | ||||||||||||
| General and administrative | 7,844 | 8,412 | 33,210 | 34,066 | ||||||||||||
| Total operating expenses | 39,162 | 38,817 | 157,331 | 155,473 | ||||||||||||
| Loss from operations | (4,378 | ) | (2,469 | ) | (19,619 | ) | (4,501 | ) | ||||||||
| Other income and (expense): | ||||||||||||||||
| Interest income | 32 | 23 | 103 | 66 | ||||||||||||
| Interest expense | (67 | ) | (108 | ) | (313 | ) | (491 | ) | ||||||||
| Other income and (expense) | 295 | 60 | 165 | 881 | ||||||||||||
| Total other income and (expense) | 260 | (25 | ) | (45 | ) | 456 | ||||||||||
| Loss before income taxes | (4,118 | ) | (2,494 | ) | (19,664 | ) | (4,045 | ) | ||||||||
| Income tax expense (benefit) | 306 | (4,860 | ) | 1,809 | (2,499 | ) | ||||||||||
| Net (loss) income | $ | (4,424 | ) | $ | 2,366 | $ | (21,473 | ) | $ | (1,546 | ) | |||||
| (Loss) earnings per share: | ||||||||||||||||
| Basic | $ | (0.19 | ) | $ | 0.11 | $ | (0.95 | ) | $ | (0.07 | ) | |||||
| Diluted | $ | (0.19 | ) | $ | 0.10 | $ | (0.95 | ) | $ | (0.07 | ) | |||||
| Common shares and equivalents outstanding: | ||||||||||||||||
| Basic weighted average shares | 22,877 | 22,316 | 22,705 | 22,244 | ||||||||||||
| Diluted weighted average shares | 22,877 | 23,248 | 22,705 | 22,244 | ||||||||||||
ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net (loss) income | $ | (4,424 | ) | $ | 2,366 | $ | (21,473 | ) | $ | (1,546 | ) | |||||
| Adjustments to reconcile net (loss) income to cash provided by | ||||||||||||||||
| operating activities: | ||||||||||||||||
| Stock-based compensation expense | 1,087 | 1,083 | 4,475 | 4,141 | ||||||||||||
| Gain on foreign currency transactions | (324 | ) | (112 | ) | (298 | ) | (573 | ) | ||||||||
| Bad debt expense (recovery) | 58 | 92 | 168 | (51 | ) | |||||||||||
| Depreciation and amortization | 3,725 | 2,932 | 14,616 | 12,009 | ||||||||||||
| Deferred income tax expense (benefit) | 355 | (5,164 | ) | 792 | (4,201 | ) | ||||||||||
| Loss (gain) on disposal of equipment | 9 | (10 | ) | 21 | (5 | ) | ||||||||||
| Amortization of deferred financing costs | 12 | 58 | 114 | 296 | ||||||||||||
| Loss from equity method investments | — | — | — | 100 | ||||||||||||
| Gain on divestiture of subsidiary | — | — | — | (506 | ) | |||||||||||
| Net change in: | ||||||||||||||||
| Accounts receivable | 10,533 | 5,226 | 2,219 | 7,584 | ||||||||||||
| Inventory | 747 | 661 | 2,603 | 3,266 | ||||||||||||
| Deferred sales commissions | 412 | 170 | (781 | ) | 491 | |||||||||||
| Prepaid expenses and other current assets | (500 | ) | 276 | 375 | (604 | ) | ||||||||||
| Income tax receivable or payable | 337 | (151 | ) | (60 | ) | (447 | ) | |||||||||
| Other assets | (118 | ) | (522 | ) | (525 | ) | (455 | ) | ||||||||
| Accounts payable | 40 | 319 | 4 | (1,765 | ) | |||||||||||
| Accrued compensation | (884 | ) | (376 | ) | (1,863 | ) | 69 | |||||||||
| Other current liabilities | 1,084 | 51 | (2,885 | ) | (6,450 | ) | ||||||||||
| Other long-term liabilities | — | (493 | ) | — | (1,243 | ) | ||||||||||
| Deferred revenue | (1,443 | ) | 242 | 12,941 | 8,850 | |||||||||||
| Net cash provided by operating activities | 10,706 | 6,648 | 10,443 | 18,960 | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Purchases of property and equipment | (5,189 | ) | (4,041 | ) | (16,889 | ) | (12,944 | ) | ||||||||
| Proceeds from sale of fixed assets | — | 10 | 17 | 12 | ||||||||||||
| Proceeds on divestiture of subsidiary | — | — | — | 110 | ||||||||||||
| Net cash used in investing activities | (5,189 | ) | (4,031 | ) | (16,872 | ) | (12,822 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from the exercise of stock options | 689 | 213 | 2,236 | 676 | ||||||||||||
| Payment of deferred financing costs | — | — | (4 | ) | (232 | ) | ||||||||||
| Payments under capital lease obligations | (105 | ) | (109 | ) | (441 | ) | (562 | ) | ||||||||
| Net cash provided by (used in) financing activities | 584 | 104 | 1,791 | (118 | ) | |||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | 6,101 | 2,721 | (4,638 | ) | 6,020 | |||||||||||
| Effect of exchange rate changes in cash, cash equivalents, and | ||||||||||||||||
| restricted cash | 176 | 119 | (224 | ) | 419 | |||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 6,277 | 2,840 | (4,862 | ) | 6,439 | |||||||||||
| Cash, cash equivalents, and restricted cash—beginning of period | 31,897 | 40,196 | 43,036 | 36,597 | ||||||||||||
| Cash, cash equivalents, and restricted cash—end of period | $ | 38,174 | $ | 43,036 | $ | 38,174 | $ | 43,036 | ||||||||
ROSETTA STONE INC.
Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA
(in thousands)
(unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| GAAP net (loss) income | $ | (4,424 | ) | $ | 2,366 | $ | (21,473 | ) | $ | (1,546 | ) | |||||
| Total other non-operating (income) and expense, net | (260 | ) | 25 | 45 | (456 | ) | ||||||||||
| Income tax expense (benefit) | 306 | (4,860 | ) | 1,809 | (2,499 | ) | ||||||||||
| Depreciation and amortization | 3,725 | 2,932 | 14,616 | 12,009 | ||||||||||||
| Stock-based compensation expense | 1,087 | 1,083 | 4,475 | 4,141 | ||||||||||||
| Restructuring expense | (3 | ) | 26 | (3 | ) | 1,207 | ||||||||||
| Strategy consulting expense | — | — | — | 169 | ||||||||||||
| Other EBITDA adjustments | 252 | (7 | ) | 681 | 296 | |||||||||||
| Adjusted EBITDA* | $ | 683 | $ | 1,565 | $ | 150 | $ | 13,321 | ||||||||
* 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 Provided by Operating Activities to Free Cash Flow
(in thousands)
(unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net cash provided by operating activities | $ | 10,706 | $ | 6,648 | $ | 10,443 | $ | 18,960 | ||||||||
| Purchases of property and equipment | (5,189 | ) | (4,041 | ) | (16,889 | ) | (12,944 | ) | ||||||||
| Free cash flow * | $ | 5,517 | $ | 2,607 | $ | (6,446 | ) | $ | 6,016 | |||||||
* 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 | Year Ended | |||||||||||||||||||||||||||||||||||||
| Mar 31 | Jun 30 | Sep 30 | Dec 31 | Dec 31 | Mar 31 | Jun 30 | Sep 30 | Dec 31 | Dec 31 | |||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2017 | 2018 | 2018 | 2018 | 2018 | 2018 | |||||||||||||||||||||||||||||||
| Revenue by Segment (in thousands, | ||||||||||||||||||||||||||||||||||||||||
| except percentages) | ||||||||||||||||||||||||||||||||||||||||
| Literacy | 10,170 | 10,370 | 11,028 | 12,040 | 43,608 | 12,384 | 12,695 | 13,215 | 14,472 | 52,766 | ||||||||||||||||||||||||||||||
| E&E Language | 16,500 | 17,260 | 16,529 | 14,978 | 65,267 | 15,436 | 15,356 | 14,990 | 14,594 | 60,376 | ||||||||||||||||||||||||||||||
| Consumer Language | 21,023 | 18,275 | 18,649 | 17,771 | 75,718 | 14,988 | 15,451 | 14,545 | 15,508 | 60,492 | ||||||||||||||||||||||||||||||
| Total | 47,693 | 45,905 | 46,206 | 44,789 | 184,593 | 42,808 | 43,502 | 42,750 | 44,574 | 173,634 | ||||||||||||||||||||||||||||||
| YoY Growth (%) | ||||||||||||||||||||||||||||||||||||||||
| Literacy | 34 | % | 30 | % | 26 | % | 23 | % | 28 | % | 22 | % | 22 | % | 20 | % | 20 | % | 21 | % | ||||||||||||||||||||
| E&E Language | (10 | )% | (1 | )% | (10 | )% | (16 | )% | (9 | )% | (6 | )% | (11 | )% | (9 | )% | (3 | )% | (7 | )% | ||||||||||||||||||||
| Consumer Language | (5 | )% | (10 | )% | (14 | )% | (26 | )% | (14 | )% | (29 | )% | (15 | )% | (22 | )% | (13 | )% | (20 | )% | ||||||||||||||||||||
| Total | (1 | )% | — | (5 | )% | (13 | )% | (5 | )% | (10 | )% | (5 | )% | (7 | )% | (0 | )% | (6 | )% | |||||||||||||||||||||
| % of Total Revenue | ||||||||||||||||||||||||||||||||||||||||
| Literacy | 21 | % | 22 | % | 24 | % | 27 | % | 24 | % | 29 | % | 29 | % | 31 | % | 32 | % | 30 | % | ||||||||||||||||||||
| E&E Language | 35 | % | 38 | % | 36 | % | 33 | % | 35 | % | 36 | % | 35 | % | 35 | % | 33 | % | 35 | % | ||||||||||||||||||||
| Consumer Language | 44 | % | 40 | % | 40 | % | 40 | % | 41 | % | 35 | % | 36 | % | 34 | % | 35 | % | 35 | % | ||||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||
| Revenues by Geography | ||||||||||||||||||||||||||||||||||||||||
| United States | 41,241 | 39,384 | 39,661 | 38,539 | 158,825 | 36,965 | 37,759 | 37,747 | 39,936 | 152,407 | ||||||||||||||||||||||||||||||
| International | 6,452 | 6,521 | 6,545 | 6,250 | 25,768 | 5,843 | 5,743 | 5,003 | 4,638 | 21,227 | ||||||||||||||||||||||||||||||
| Total | 47,693 | 45,905 | 46,206 | 44,789 | 184,593 | 42,808 | 43,502 | 42,750 | 44,574 | 173,634 | ||||||||||||||||||||||||||||||
| Revenues by Geography (as a %) | ||||||||||||||||||||||||||||||||||||||||
| United States | 86 | % | 86 | % | 86 | % | 86 | % | 86 | % | 86 | % | 87 | % | 88 | % | 90 | % | 88 | % | ||||||||||||||||||||
| International | 14 | % | 14 | % | 14 | % | 14 | % | 14 | % | 14 | % | 13 | % | 12 | % | 10 | % | 12 | % | ||||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 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.