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Rosetta Stone Inc. Reports Fourth Quarter and Full Year 2019 Results

Revenue growth continues as Literacy revenue grew 18% vs. prior year to record quarterly levels

ARLINGTON, Va., March 11, 2020 (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, 2019.

Fourth Quarter 2019 Highlights

  • Consolidated revenue increased 5% year-over-year to $46.7 million.
  • Revenue at Lexia Learning ("Lexia"), the Company's Literacy segment, increased 18% year-over-year to a record $17.1 million.
  • Revenue within the Consumer Language segment increased 2% year-over-year to $15.8 million.
  • Revenue within the Enterprise & Education (“E&E”) Language segment decreased 5% year-over-year to $13.8 million.
  • Consolidated fourth quarter net loss was $6.7 million, up from a net loss of $4.4 million in the same quarter a year ago,  driven by higher consolidated revenues which were more than offset by increased operating expenses related to investments made in R&D to support upcoming products, increased variable incentive compensation expenses, a decrease in other income primarily related to foreign currency losses on intercompany debt, and an increase in amortization expense associated with previously capitalized product development costs.
  • Consolidated bookings were $45.5 million, an increase of 6% versus the fourth quarter of 2018.
  • Adjusted EBITDA, a non-GAAP financial measure, was negative $0.9 million in the fourth quarter 2019, compared to $0.7 million in the year-ago period. Adjusted EBITDA for the full year was $6.9 million in 2019, an improvement compared to break-even ($0.2 million) in 2018.
  • Free cash flow, a non-GAAP financial measure, was $6.5 million in the fourth quarter of 2019, compared to $5.5 million in the same period a year ago.
  • At December 31, 2019 the Company had no debt outstanding and cash and cash equivalents totaled $43.0 million.

“2019 was a solid year for Rosetta Stone as we saw the continued strong performance of our Literacy business and growth in our Consumer Language business,” said John Hass, Chairman and Chief Executive Officer.  “We were especially pleased that Consumer Language bookings grew by 14% during the seasonally important fourth quarter on the strength of revitalized products and by providing good value for our learners.  The improving balance in our business is something we will invest behind during 2020.”

Mr. Hass continued, “In 2020, our priorities include refreshing what the Rosetta Stone brand means for learners, focusing a larger K-12 sales team on expanding existing customer relationships and building new ones, and, later this summer, successfully launching Rosetta Stone English, our new product for emergent English learners in K-6. Also, during these uncertain times caused by the COVID-19 virus, we will continue to support the learning needs of our customers using our digital products by providing distance learning opportunities if they are disrupted by office or school closures.”

Fourth Quarter 2019 Review

Revenue: Total revenue in the fourth quarter of 2019 was $46.7 million, compared to $44.6 million in the fourth quarter of 2018, primarily due to an increase in Lexia and Consumer Language revenue, partially offset by a slight decline in E&E Language revenue.

Revenue at Lexia increased 18% year-over-year to $17.1 million. The increase in Lexia revenues was a result of continued demand for its product portfolio and the concentrated efforts of a direct sales team, as well as a seasonal shift of both new and renewal bookings moving to the fourth calendar quarter, which is the beginning of the school operating year.  Literacy bookings increased by 11% over the prior year period on a consistently high renewal rate of 103% and a solid retention rate of 87%.

Consumer Language segment revenue increased $0.3 million, or 2%, year-over-year to $15.8 million, reflecting a 14% increase in bookings during the quarter over the same period in 2018 driven by sales of  Rosetta Stone apps. Bookings also increased due to the sale of lifetime subscriptions in the Web channel, but because those sales are recognized as revenue over 24-months, they did not have a significant impact on revenue in Q4 2019.  Subscribers grew 15% year-over-year to 552,000 at December 31, 2019. Subscriber growth was largely driven by an increase in longer duration initial subscriptions.  Subscriptions with a duration of one year or less totaled 39% of the subscription unit mix at the end of the fourth quarter 2019, down from 44% at the end of the same quarter last year.  Consumer Language bookings totaled $19.7 million in Q4 2019, up year-over-year from $17.2 million.

E&E Language segment revenue decreased 5% year-over-year to $13.8 million. E&E Language bookings decreased $1.0 million, or 6% year-over-year, primarily driven by the absence of non-core custom content bookings in the current year quarter; before custom content, E&E Language bookings increased $0.9 million or 7%, as higher bookings in Europe were partially offset by lower bookings from K-12 Language and North America Corporate.

 
US$ thousands, except for percentages
    Three Months Ended December 31,          
    2019     Mix %     2018     Mix %     % change  
Revenue from:                                        
Literacy   $ 17,131       37 %   $ 14,472       32 %     18 %
E&E Language     13,793       29 %     14,594       33 %     (5 )%
Consumer Language     15,769       34 %     15,508       35 %     2 %
Total Revenue   $ 46,693       100 %   $ 44,574       100 %     5 %
                                         

Net Loss:  In the fourth quarter 2019, the Company reported a net loss of $6.7 million, or $(0.28) per diluted share.  In the comparable period a year ago, the Company reported a net loss of $4.4 million, or $(0.19) per diluted share. The increase in net loss of $2.3 million was driven by higher consolidated revenues of $2.1 million which were more than offset by increased operating expenses related to investments made into R&D of $1.2 million to support upcoming products, increased variable incentive compensation expenses of $1.1 million, a decrease in other income primarily related to foreign currency losses on intercompany debt of $1.0 million, and an increase in amortization expense associated with previously capitalized costs of $0.9 million.

Full Year 2019 Highlights

  • Consolidated revenue increased 5% year-over-year to $182.7 million.
  • Revenue at Lexia increased 19% year-over-year to a record $62.6 million.
  • Revenue within the Consumer Language segment increased 5% year-over-year to $63.3 million.
  • Revenue within the E&E Language segment decreased 6% year-over-year to $56.8 million.
  • Consolidated full year net loss was $13.0 million, an improvement from a net loss of $21.5 million in 2018, driven by higher consolidated revenues and gross profit as well as a decrease in income tax expense. Operating expenses for the year were close to flat.
  • Consolidated bookings before SOURCENEXT were $196.9 million, an increase of 9% versus 2018.
  • Adjusted EBITDA, a non-GAAP financial measure, was $6.9 million in 2019, an improvement from $0.2 million in 2018.
  • Free cash flow, a non-GAAP financial measure, was $0.4 million in 2019, compared to negative $6.4 million in the year ago period.

Full Year 2019 Review

Revenue: Total revenue in 2019 was $182.7 million, compared to $173.6 million in 2018, primarily due to an increase in Lexia and Consumer Language revenue, partially offset by a slight decline in E&E Language revenue.

Revenue at Lexia increased 19% year-over-year to $62.6 million. Literacy bookings grew 17% over the prior year driven by a consistently high renewal rate over 100% in 2019.

Consumer Language segment revenue increased $2.8 million, or 5%, year-over-year to $63.3 million, reflecting a higher mix of more expensive, longer duration subscriptions being sold during 2019.  Long term subscribers grew by 24% during the year, while short term subscribers grew by 2%, reflecting an ongoing mix shift within the subscriber base.  Consumer Language bookings, before SOURCENEXT, totaled $66.4 million for the full year 2019, up from $63.5 million in the prior year.

E&E Language segment revenue decreased 6% year-over-year to $56.8 million primarily in the North America K-12 sales channel. E&E Language bookings increased $2.9 million, or 5% year-over-year, driven mainly by a large, long-term custom content deal in the third quarter of 2019 and strength in the North American Enterprise market.

 
US$ thousands, except for percentages
    Twelve Months Ended December 31,          
    2019     Mix %     2018     Mix %     % change  
Revenue from:                                        
Literacy   $ 62,625       34 %   $ 52,766       30 %     19 %
E&E Language     56,812       31 %     60,376       35 %     (6 )%
Consumer Language     63,265       35 %     60,492       35 %     5 %
Total Revenue   $ 182,702       100 %   $ 173,634       100 %     5 %
                                         

Net Loss:  Full year 2019 net loss totaled $13.0 million, or $(0.55) per diluted share, compared to a net loss of $21.5 million, or $(0.95) per diluted share in 2018.  Included in that is a provision for income taxes for the 2019 year of $0.3 million compared to $1.8 million for the full year of 2018.  The improvement in the net loss of $8.5 million is primarily due to the increased revenues of $9.1 million, partially offset by increases in operating expenses. Operating expenses for the year totaled $158.4 million, up slightly from $157.3 million for 2018, mostly due to increases in sales and marketing and general and administrative expenses of 1% and 3%, respectively.

Balance Sheet: The Company had cash and cash equivalents of $43.0 million and no debt outstanding at December 31, 2019. Deferred revenue totaled $177.6 million at December 31, 2019, compared to $162.9 million at December 31, 2018. Short-term deferred revenue, which will be recognized as revenue over the next 12 months, totaled $119.9 million, or approximately 67% of the total December 31, 2019 balance.

Free Cash Flow and Adjusted EBITDA: Net cash provided by operating activities was $9.5 million in the fourth quarter of 2019 compared to $10.7 million in the fourth quarter last year. Free cash flow, a non-GAAP financial measure, was $6.5 million in the fourth quarter 2019, compared to $5.5 million in the same period a year ago. For full year 2019, net cash provided by operating activities was $17.2 million in 2019 compared to $10.4 million in the prior year. Free cash flow, a non-GAAP financial measure, was $0.4 million in 2019, compared to negative $6.4 million in the year ago period.

Adjusted EBITDA, a non-GAAP financial measure, was negative $0.9 million in the fourth quarter 2019, compared to $0.7 million in the year-ago period. Adjusted EBITDA for the full year was $6.9 million in 2019, an improvement compared to break-even ($0.2 million) in 2018.

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 11:59 p.m. ET on Wednesday, March 18, 2020. Investors may dial into the replay using 1-412-317-6671 and passcode 13699344.

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 literacy or 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, 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 the 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.

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, including several endangered 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:
Lasse Glassen / 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,  
    2019     2018  
Assets                
Current assets:                
Cash and cash equivalents   $ 43,010     $ 38,092  
Restricted cash     54       82  
Accounts receivable (net of allowance for doubtful accounts of $510 and $372 at December 31, 2019 and December 31, 2018, respectively)     22,919       21,950  
Inventory     1,545       933  
Deferred sales commissions     11,558       11,597  
Prepaid expenses and other current assets     4,172       4,041  
Total current assets     83,258       76,695  
Deferred sales commissions     7,682       6,933  
Property and equipment, net     39,251       36,405  
Operating lease right-of-use assets     5,818        
Intangible assets, net     14,317       15,850  
Goodwill     48,958       49,239  
Other assets     1,823       2,136  
Total assets   $ 201,107     $ 187,258  
Liabilities and stockholders' deficit                
Current liabilities:                
Accounts payable   $ 7,534     $ 8,938  
Accrued compensation     9,854       9,046  
Income tax payable     78       328  
Operating lease liabilities     1,455        
Other current liabilities     13,090       13,925  
Deferred revenue     119,851       113,378  
Total current liabilities     151,862       145,615  
Deferred revenue     57,766       49,507  
Deferred income taxes     2,590       2,776  
Operating lease liabilities     4,167       -  
Other long-term liabilities     914       1,368  
Total liabilities     217,299       199,266  
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 December 31, 2019 and December 31, 2018, respectively)            
Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares authorized, 25,060 and 24,426 shares issued, and 24,060 and 23,426 shares outstanding, at December 31, 2019 and December 31, 2018, respectively)     2       2  
Additional paid-in capital     210,846       202,355  
Treasury stock, at cost; 1,000 and 1,000 shares at December 31, 2019 and
December 31, 2018, respectively)
    (11,435 )     (11,435 )
Accumulated loss     (212,548 )     (199,592 )
Accumulated other comprehensive loss     (3,057 )     (3,338 )
Total stockholders' deficit     (16,192 )     (12,008 )
Total liabilities and stockholders' deficit   $ 201,107     $ 187,258  
                 


ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited) 
 
    Three Months Ended     Twelve Months Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
Revenue   $ 46,693     $ 44,574     $ 182,702     $ 173,634  
Cost of revenue     10,558       9,790       37,261       35,922  
Gross profit     36,135       34,784       145,441       137,712  
Operating expenses                                
Sales and marketing     25,834       24,898       99,572       98,911  
Research and development     7,479       6,420       24,510       25,210  
General and administrative     8,352       7,844       34,297       33,210  
Total operating expenses     41,665       39,162       158,379       157,331  
Loss from operations     (5,530 )     (4,378 )     (12,938 )     (19,619 )
Other income and (expense):                                
Interest income     13       32       61       103  
Interest expense     (38 )     (67 )     (316 )     (313 )
Other income and (expense)     (728 )     295       554       165  
Total other income and (expense)     (753 )     260       299       (45 )
Loss before income taxes     (6,283 )     (4,118 )     (12,639 )     (19,664 )
Income tax expense     405       306       317       1,809  
Net loss   $ (6,688 )   $ (4,424 )   $ (12,956 )   $ (21,473 )
Loss per share:                                
Basic   $ (0.28 )   $ (0.19 )   $ (0.55 )   $ (0.95 )
Diluted   $ (0.28 )   $ (0.19 )   $ (0.55 )   $ (0.95 )
Common shares and equivalents outstanding:                                
Basic weighted average shares     23,666       22,877       23,444       22,705  
Diluted weighted average shares     23,666       22,877       23,444       22,705  
                                 


ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 
    Three Months Ended     Twelve Months Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                                
Net loss   $ (6,688 )   $ (4,424 )   $ (12,956 )   $ (21,473 )
Non-cash adjustments to reconcile net loss to cash provided by operating activities:                                
Stock-based compensation expense     371       1,087       4,359       4,475  
Loss (gain) on foreign currency transactions     418       (324 )     619       (298 )
Bad debt expense     105       58       393       168  
Depreciation and amortization     4,257       3,725       15,181       14,616  
Operating lease costs     553             2,157        
Deferred income tax (benefit) expense     334       355       (376 )     792  
(Gain) loss on disposal or sale of assets           9       (1,389 )     21  
Amortization of deferred financing costs     17       12       68       114  
Net change in:                                
 Accounts receivable     10,202       10,533       (1,350 )     2,219  
 Inventory     (22 )     747       (611 )     2,603  
 Deferred sales commissions     425       412       (713 )     (781 )
 Prepaid expenses and other current assets     761       (500 )     (278 )     375  
 Income tax receivable or payable     (115 )     337       (254 )     (60 )
 Other assets     (109 )     (118 )     133       (525 )
 Accounts payable     (1,244 )     40       (1,406 )     4  
 Accrued compensation     933       (884 )     1,389       (1,863 )
 Other current liabilities     1,723       1,084       (175 )     (2,885 )
 Operating lease liabilities     (676 )           (2,251 )      
 Other long-term liabilities                 (31 )      
 Deferred revenue     (1,712 )     (1,443 )     14,682       12,941  
    Net cash provided by operating activities     9,533       10,706       17,191       10,443  
CASH FLOWS FROM INVESTING ACTIVITIES:                                
Purchases of property and equipment     (3,046 )     (5,189 )     (16,766 )     (16,889 )
Proceeds from sale of assets                 1,396       17  
   Net cash used in investing activities     (3,046 )     (5,189 )     (15,370 )     (16,872 )
CASH FLOWS FROM FINANCING ACTIVITIES:                                
Proceeds from the exercise of stock options           689       3,556       2,236  
Proceeds from borrowings under credit facility                 10,500        
Repayments of borrowings under credit facility                 (10,500 )      
Payment of deferred financing costs                 (47 )     (4 )
Payments under financing lease liabilities     (113 )     (105 )     (444 )     (441 )
   Net cash provided by (used in) financing activities     (113 )     584       3,065       1,791  
Increase (decrease) in cash, cash equivalents, and restricted cash     6,374       6,101       4,886       (4,638 )
Effect of exchange rate changes in cash, cash equivalents, and restricted cash     440       176       4       (224 )
Net increase (decrease) in cash, cash equivalents, and restricted cash     6,814       6,277       4,890       (4,862 )
Cash, cash equivalents, and restricted cash—beginning of period     36,250       31,897       38,174       43,036  
Cash, cash equivalents, and restricted cash—end of period   $ 43,064     $ 38,174     $ 43,064     $ 38,174  
                                 


ROSETTA STONE INC.
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in thousands)
(unaudited)
 
    Three Months Ended     Twelve Months Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
GAAP net loss   $ (6,688 )   $ (4,424 )   $ (12,956 )   $ (21,473 )
Total other non-operating (income) and expense, net     753       (260 )     (299 )     45  
Income tax expense     405       306       317       1,809  
Depreciation and amortization     4,257       3,725       15,181       14,616  
Stock-based compensation expense     371       1,087       4,359       4,475  
Restructuring expense           (3 )           (3 )
Other EBITDA adjustments     (8 )     252       292       681  
Adjusted EBITDA*   $ (910 )   $ 683     $ 6,894     $ 150  

* 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 the 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,  
    2019     2018     2019     2018  
Net cash provided by operating activities   $ 9,533     $ 10,706     $ 17,191     $ 10,443  
Purchases of property and equipment     (3,046 )     (5,189 )     (16,766 )     (16,889 )
Free cash flow *   $ 6,487     $ 5,517     $ 425     $ (6,446 )

* 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  
  2018     2018     2018     2018     2018     2019     2019     2019     2019     2019  
Revenue by Segment (in thousands, except percentages)                                                                              
                                                                               
Literacy   12,384       12,695       13,215       14,472       52,766       14,806       15,101       15,587       17,131       62,625  
E&E Language   15,436       15,356       14,990       14,594       60,376       14,443       14,502       14,074       13,793       56,812  
Consumer Language   14,988       15,451       14,545       15,508       60,492       15,362       16,339       15,795       15,769       63,265  
Total   42,808       43,502       42,750       44,574       173,634       44,611       45,942       45,456       46,693       182,702  
                                                                               
YoY Growth (%)                                                                              
Literacy   22 %     22 %     20 %     20 %     21 %     20 %     19 %     18 %     18 %     19 %
E&E Language   (6 )%     (11 )%     (9 )%     (3 )%     (7 )%     (6 )%     (6 )%     (6 )%     (5 )%     (6 )%
Consumer Language   (29 )%     (15 )%     (22 )%     (13 )%     (20 )%     2 %     6 %     9 %     2 %     5 %
Total   (10 )%     (5 )%     (7 )%           (6 )%     4 %     6 %     6 %     5 %     5 %
                                                                               
% of Total Revenue                                                                              
Literacy   29 %     29 %     31 %     32 %     30 %     33 %     33 %     34 %     37 %     34 %
E&E Language   36 %     35 %     35 %     33 %     35 %     32 %     32 %     31 %     29 %     31 %
Consumer Language   35 %     36 %     34 %     35 %     35 %     34 %     35 %     35 %     34 %     35 %
Total   100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %
                                                                               
Revenues by Geography                                                                              
                                                                               
United States   36,965       37,759       37,747       39,936       152,407       39,830       41,179       40,891       42,180       164,080  
International   5,843       5,743       5,003       4,638       21,227       4,781       4,763       4,565       4,513       18,622  
Total   42,808       43,502       42,750       44,574       173,634       44,611       45,942       45,456       46,693       182,702  
                                                                               
Revenues by Geography (as a %)                                                                              
United States   86 %     87 %     88 %     90 %     88 %     89 %     90 %     90 %     90 %     90 %
International   14 %     13 %     12 %     10 %     12 %     11 %     10 %     10 %     10 %     10 %
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.

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