Rosetta Stone Inc. (NYSE:RST), a world leader in technology-based
learning solutions, today announced financial results for the third
quarter ended September 30, 2017. Revenue totaled $46.2 million,
down 5% from $48.7 million in the year-ago period. The third
quarter net loss improved to $3.2 million, or $(0.14) per diluted
share, which included pre-tax charges of $1.9 million for inventory
obsolescence (in cost of product revenue) associated with the
switch from packaged perpetual products to subscription-based
offerings and restructuring charges totaling $0.2 million. In the
year-ago period, the Company had a net loss of $5.5 million, or
$(0.25) per diluted share, which included pre-tax charges of $1.0
million (non-cash) for impairment and restructuring charges of $0.2
million.
Third Quarter 2017 Overview
- Revenue at Lexia, the Company’s Literacy segment, grew 26%
year-over-year to a record high $11.0 million. Adjusting for the
impact of purchase accounting, third quarter 2017 revenue at Lexia
was $11.4 million and the revenue growth rate was 17%
year-over-year. Revenue growth was driven in part by a 39%
year-over-year increase in third quarter sales.
- Total operating expenses decreased 12% year-over-year,
reflecting a 13% reduction in sales and marketing expense and a 9%
reduction in general and administrative expense. The year-over-year
improvement marked the Company's 11th consecutive quarter of lower
operating expenses. Total operating expenses of $39.1 million in
the third quarter 2017 included restructuring charges of $0.2
million and total operating expenses of $44.5 million in the
year-ago period included a $1.0 million (non-cash) impairment
charge and restructuring charges of $0.2 million.
- The Company had zero debt outstanding and ended the quarter
with cash and cash equivalents of $40.1 million at
September 30, 2017. Compared to June 30, 2017, cash and cash
equivalents increased $13.8 million, reflecting the continued
growth in the mix of education marketplace sales, which are
seasonally strongest in the third quarter.
“The third quarter marked another important step on our path
toward future growth and leveraging the Company's greatly reduced
cost structure to improve bottom-line results. Lexia had a great
quarter with sales up 39% year-over-year in the important back to
school period. Lexia now accounts for nearly one-quarter of total
revenue, up from 18% in the year-ago period and up from less than
5% of the mix in the same period of 2014,” said John Hass,
Chairman, President and Chief Executive Officer. “In addition, we
continue to build momentum as we work to complete the
transformation of the Company to a SaaS-business with the
transition of our Consumer Language retail channel partners to
subscription-based products. On a year-to-date basis, these efforts
have successfully reduced non-recurring product-based sales to less
than 15% of the Company's total revenue mix."
Third Quarter 2017 Review
Revenue: Total revenue decreased $2.5
million year-over-year to $46.2 million in the third quarter 2017,
reflecting declines in the Company's Language segments. Revenue at
Lexia grew 26% year-over-year to a record high $11.0 million,
driven in part by a 39% year-over-year increase in third quarter
sales. The revenue growth rate includes the benefit of purchase
accounting impacts on acquired deferred revenue, as noted
above.
Enterprise & Education ("E&E") Language segment revenue
decreased $1.8 million or 10% year-over-year to $16.5 million in
the third quarter 2017. The majority of the decline reflected the
Company's strategic decision to exit certain geographies and
customer lines on a direct sales basis and reduce overall selling
expense, which was part of the E&E Language restructuring
announced in March 2016. E&E Language revenue from continuing
geographies declined $0.8 million or 5% year-over-year.
Consumer segment revenue decreased $2.9 million or 14%
year-over-year to $18.6 million in the third quarter. The decline
was due to a $5.5 million reduction in product revenue, reflecting
both the shift to SaaS-based revenue in the DTC channel and lower
unit sales in the retail channel as our partners prepared for the
conversion to sell the Company's subscription-based offerings
starting in the fourth quarter of 2017. The Company expects to
complete the retail channel conversion during the first half of
2018. Subscription and service revenue increased $2.6 million or
19%, reflecting a record high 384,000 paid subscribers, up 100,000
or 35% year-over-year. The migration to a SaaS-based model in the
Consumer segment has enabled the Company to offer an increased mix
of lower-cost, shorter initial duration subscriptions;
subscriptions with a duration of one year or less totaled 59% of
the subscription unit mix sold in the third quarter 2017, up from
24% in the same quarter last year.
US$ thousands, except for percentages
|
|
Three Months Ended September 30, |
|
|
|
|
2017 |
|
Mix % |
|
2016 |
|
Mix % |
|
% change |
Revenue from: |
|
|
|
|
|
|
|
|
|
|
Literacy |
|
$ |
11,028 |
|
|
24 |
% |
|
$ |
8,786 |
|
|
18 |
% |
|
26 |
% |
E&E
Language |
|
16,529 |
|
|
36 |
% |
|
18,336 |
|
|
38 |
% |
|
(10 |
)% |
Consumer |
|
18,649 |
|
|
40 |
% |
|
21,571 |
|
|
44 |
% |
|
(14 |
)% |
Total |
|
$ |
46,206 |
|
|
100 |
% |
|
$ |
48,693 |
|
|
100 |
% |
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss: In the third quarter of 2017
the Company reported a net loss of $3.2 million or $(0.14) per
diluted share, which included pre-tax charges of $1.9 million for
inventory obsolescence, included in cost of product revenue,
associated with the switch from packaged perpetual products to
subscription-based offerings in the Consumer retail channel and
restructuring charges of $0.2 million. In the comparable period a
year ago, the Company incurred a net loss of $5.5 million or
$(0.25) per diluted share, which included pre-tax charges of $1.0
million for impairment (non-cash) and $0.2 million for
restructuring.
Total operating expenses decreased $5.4 million or 12%
year-over-year to $39.1 million in the third quarter 2017. Net of a
$1.0 million (non-cash) impairment charge related to capitalized
software in the third quarter 2016 and restructuring expenses of
$0.2 million in both the third quarter 2016 and the third quarter
2017, total selling, administrative and research expenses decreased
$4.3 million or 10% year-over-year.
Balance Sheet: As of September 30,
2017, the Company had zero debt and a cash and cash equivalents
balance of $40.1 million, which included a $1.5 million receipt
from SOURCENEXT in the third quarter 2017. On a year-to-date basis,
a total of $13.0 million has been received from SOURCENEXT for the
previously announced strategic partnership agreement in Japan.
Deferred revenue increased to a record high $150.9 million at
September 30, 2017, up $16.3 million sequentially and up $9.4
million compared to $141.5 million at December 31, 2016. The
balance includes $12.6 million from the SOURCENEXT transaction,
which is substantially long-term. Short-term deferred revenue of
$113.9 million at September 30, 2017, or approximately 76% of
the total balance, will be recognized as revenue over the next 12
months.
Free Cash Flow and Adjusted EBITDA: Free
cash flow, a non-GAAP financial measure, was $13.8 million in the
third quarter 2017, up $11.0 million compared to $2.8 million in
the third quarter 2016. Third quarter 2017 free cash flow was also
up $27.3 million sequentially compared to negative $13.5 million in
the second quarter 2017, in part due to the seasonality of our
business. The year-over-year improvement in free cash flow reflects
the Company's lower net loss, plus favorable changes in working
capital and a 5% reduction in capital expenditures. The Company's
capital expenditures primarily relate to capitalized labor on
product and IT projects.
Adjusted EBITDA, a non-GAAP financial measure, improved to $2.7
million in the third quarter, compared to $2.4 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.
With the continued growth at Lexia and the increasing mix of sales
from the education marketplace, which is seasonally strongest in
the third quarter, it is expected that the majority of the
Company's second half positive cash flow will be generated in the
third quarter.
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
1-778-331-2160 (toll / international) or 1-855-327-6837
(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 November 9. Investors may dial into the
replay using 1-412-317-6671 and passcode 10003711.
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 (or "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 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 (or "Sales") 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.
Investors:Frank
Milanoir@rosettastone.com703-387-5876
Media Contact:Michelle
Alvarezmalvarez@rosettastone.com703-387-5862
ROSETTA STONE INC.CONSOLIDATED
BALANCE SHEETS(in thousands, except per share
amounts)(unaudited) |
|
|
|
September 30, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
40,147 |
|
|
$ |
36,195 |
|
Restricted cash |
|
49 |
|
|
402 |
|
Accounts
receivable (net of allowance for doubtful accounts of $617 and
$1,072, at September 30, 2017 and December 31, 2016,
respectively) |
|
29,801 |
|
|
31,788 |
|
Inventory |
|
4,194 |
|
|
6,767 |
|
Deferred
sales commissions |
|
14,443 |
|
|
14,085 |
|
Prepaid
expenses and other current assets |
|
4,870 |
|
|
3,813 |
|
Total
current assets |
|
93,504 |
|
|
93,050 |
|
Deferred sales
commissions |
|
3,498 |
|
|
4,143 |
|
Property and equipment,
net |
|
28,822 |
|
|
24,795 |
|
Goodwill |
|
49,654 |
|
|
48,251 |
|
Intangible assets,
net |
|
20,138 |
|
|
22,753 |
|
Other assets |
|
1,142 |
|
|
1,318 |
|
Total assets |
|
$ |
196,758 |
|
|
$ |
194,310 |
|
Liabilities and
stockholders' deficit |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
8,661 |
|
|
$ |
10,684 |
|
Accrued
compensation |
|
11,313 |
|
|
10,777 |
|
Income
tax payable |
|
533 |
|
|
785 |
|
Obligations under capital lease |
|
440 |
|
|
532 |
|
Other
current liabilities |
|
16,755 |
|
|
22,150 |
|
Deferred
revenue |
|
113,932 |
|
|
113,821 |
|
Total
current liabilities |
|
151,634 |
|
|
158,749 |
|
Deferred revenue |
|
36,961 |
|
|
27,636 |
|
Deferred income
taxes |
|
7,132 |
|
|
6,173 |
|
Obligations under
capital lease |
|
1,934 |
|
|
2,027 |
|
Other long-term
liabilities |
|
524 |
|
|
1,384 |
|
Total liabilities |
|
198,185 |
|
|
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 September 30, 2017 and
December 31, 2016, respectively |
|
— |
|
|
— |
|
Non-designated common stock, $0.00005 par value, 190,000 and
190,000 shares authorized, 23,800 and 23,451 shares issued and
22,800 and 22,451 shares outstanding at September 30, 2017 and
December 31, 2016, respectively |
|
2 |
|
|
2 |
|
Additional paid-in capital |
|
194,348 |
|
|
190,827 |
|
Accumulated loss |
|
(181,256 |
) |
|
(177,344 |
) |
Accumulated other comprehensive loss |
|
(3,086 |
) |
|
(3,709 |
) |
Treasury
stock, at cost, 1,000 and 1,000 shares at September 30, 2017 and
December 31, 2016, respectively |
|
(11,435 |
) |
|
(11,435 |
) |
Total stockholders' deficit |
|
(1,427 |
) |
|
(1,659 |
) |
Total
liabilities and stockholders' deficit |
|
$ |
196,758 |
|
|
$ |
194,310 |
|
ROSETTA STONE
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS(in thousands, except per share
amounts)(unaudited) |
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenue: |
|
|
|
|
|
|
|
|
Subscription and service |
|
$ |
42,117 |
|
|
$ |
39,027 |
|
|
$ |
125,552 |
|
|
$ |
114,755 |
|
Product |
|
4,089 |
|
|
9,666 |
|
|
14,252 |
|
|
27,656 |
|
Total
revenue |
|
46,206 |
|
|
48,693 |
|
|
139,804 |
|
|
142,411 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Cost of
subscription and service revenue |
|
6,499 |
|
|
5,910 |
|
|
19,091 |
|
|
16,888 |
|
Cost of
product revenue |
|
2,949 |
|
|
2,461 |
|
|
6,089 |
|
|
7,495 |
|
Total
cost of revenue |
|
9,448 |
|
|
8,371 |
|
|
25,180 |
|
|
24,383 |
|
Gross profit |
|
36,758 |
|
|
40,322 |
|
|
114,624 |
|
|
118,028 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Sales and
marketing |
|
23,654 |
|
|
27,161 |
|
|
71,859 |
|
|
86,694 |
|
Research
and development |
|
6,381 |
|
|
6,347 |
|
|
19,143 |
|
|
19,666 |
|
General
and administrative |
|
9,035 |
|
|
9,969 |
|
|
25,654 |
|
|
30,864 |
|
Impairment |
|
— |
|
|
1,028 |
|
|
— |
|
|
3,930 |
|
Lease
abandonment and termination |
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
Total
operating expenses |
|
39,070 |
|
|
44,505 |
|
|
116,656 |
|
|
141,184 |
|
Loss from
operations |
|
(2,312 |
) |
|
(4,183 |
) |
|
(2,032 |
) |
|
(23,156 |
) |
Other income and
(expense): |
|
|
|
|
|
|
|
|
Interest
income |
|
13 |
|
|
11 |
|
|
43 |
|
|
34 |
|
Interest
expense |
|
(138 |
) |
|
(120 |
) |
|
(383 |
) |
|
(353 |
) |
Other
income and (expense) |
|
85 |
|
|
633 |
|
|
821 |
|
|
2,788 |
|
Total other income and
(expense) |
|
(40 |
) |
|
524 |
|
|
481 |
|
|
2,469 |
|
Loss before income
taxes |
|
(2,352 |
) |
|
(3,659 |
) |
|
(1,551 |
) |
|
(20,687 |
) |
Income
tax expense |
|
879 |
|
|
1,793 |
|
|
2,361 |
|
|
1,250 |
|
Net loss |
|
$ |
(3,231 |
) |
|
$ |
(5,452 |
) |
|
$ |
(3,912 |
) |
|
$ |
(21,937 |
) |
Loss per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.14 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.18 |
) |
|
$ |
(1.00 |
) |
Diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.18 |
) |
|
$ |
(1.00 |
) |
Common shares and
equivalents outstanding: |
|
|
|
|
|
|
|
|
Basic
weighted average shares |
|
22,285 |
|
|
21,993 |
|
|
22,220 |
|
|
21,936 |
|
Diluted
weighted average shares |
|
22,285 |
|
|
21,993 |
|
|
22,220 |
|
|
21,936 |
|
ROSETTA STONE
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS(in thousands)(unaudited) |
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(3,231 |
) |
|
$ |
(5,452 |
) |
|
$ |
(3,912 |
) |
|
$ |
(21,937 |
) |
Adjustments to reconcile net loss to cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
1,552 |
|
|
1,639 |
|
|
3,058 |
|
|
3,457 |
|
Gain on
foreign currency transactions |
|
(9 |
) |
|
(488 |
) |
|
(461 |
) |
|
(2,831 |
) |
Bad debt
(recovery) expense |
|
157 |
|
|
191 |
|
|
(143 |
) |
|
471 |
|
Depreciation and amortization |
|
3,015 |
|
|
3,226 |
|
|
9,077 |
|
|
9,812 |
|
Deferred
income tax expense |
|
333 |
|
|
349 |
|
|
963 |
|
|
857 |
|
Loss on
disposal of equipment |
|
5 |
|
|
96 |
|
|
5 |
|
|
132 |
|
Amortization of deferred financing fees |
|
82 |
|
|
71 |
|
|
238 |
|
|
203 |
|
Loss on
impairment |
|
— |
|
|
1,028 |
|
|
— |
|
|
3,930 |
|
Loss from
equity method investments |
|
— |
|
|
6 |
|
|
100 |
|
|
46 |
|
Gain on
sale of subsidiary |
|
— |
|
|
— |
|
|
(506 |
) |
|
— |
|
Net
change in: |
|
|
|
|
|
|
|
|
Restricted cash |
|
(7 |
) |
|
6 |
|
|
365 |
|
|
(354 |
) |
Accounts
receivable |
|
(1,837 |
) |
|
(3,177 |
) |
|
2,358 |
|
|
8,912 |
|
Inventory |
|
1,673 |
|
|
(101 |
) |
|
2,605 |
|
|
(723 |
) |
Deferred
sales commissions |
|
(1,806 |
) |
|
(1,429 |
) |
|
321 |
|
|
552 |
|
Prepaid
expenses and other current assets |
|
(209 |
) |
|
998 |
|
|
(880 |
) |
|
(705 |
) |
Income
tax receivable or payable |
|
(51 |
) |
|
1,238 |
|
|
(296 |
) |
|
48 |
|
Other
assets |
|
(125 |
) |
|
39 |
|
|
67 |
|
|
365 |
|
Accounts
payable |
|
(830 |
) |
|
707 |
|
|
(2,084 |
) |
|
(923 |
) |
Accrued
compensation |
|
3,842 |
|
|
1,762 |
|
|
445 |
|
|
3,423 |
|
Other
current liabilities |
|
(849 |
) |
|
(7,156 |
) |
|
(6,501 |
) |
|
(13,077 |
) |
Other
long-term liabilities |
|
(265 |
) |
|
206 |
|
|
(750 |
) |
|
43 |
|
Deferred
revenue |
|
15,865 |
|
|
12,720 |
|
|
8,608 |
|
|
2,353 |
|
Net cash
provided by (used in) operating activities |
|
17,305 |
|
|
6,479 |
|
|
12,677 |
|
|
(5,946 |
) |
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
(3,510 |
) |
|
(3,694 |
) |
|
(8,903 |
) |
|
(9,628 |
) |
Proceeds
from sale of fixed assets |
|
— |
|
|
— |
|
|
2 |
|
|
38 |
|
Proceeds
from the sale of subsidiary |
|
— |
|
|
— |
|
|
110 |
|
|
— |
|
Net cash
used in investing activities |
|
(3,510 |
) |
|
(3,694 |
) |
|
(8,791 |
) |
|
(9,590 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options |
|
22 |
|
|
10 |
|
|
463 |
|
|
47 |
|
Payment
of deferred financing costs |
|
(89 |
) |
|
(82 |
) |
|
(232 |
) |
|
(182 |
) |
Payments
under capital lease obligations |
|
(109 |
) |
|
(102 |
) |
|
(453 |
) |
|
(440 |
) |
Net cash
used in financing activities |
|
(176 |
) |
|
(174 |
) |
|
(222 |
) |
|
(575 |
) |
Increase (decrease) in
cash and cash equivalents |
|
13,619 |
|
|
2,611 |
|
|
3,664 |
|
|
(16,111 |
) |
Effect of exchange rate
changes in cash and cash equivalents |
|
161 |
|
|
(95 |
) |
|
288 |
|
|
550 |
|
Net increase (decrease)
in cash and cash equivalents |
|
13,780 |
|
|
2,516 |
|
|
3,952 |
|
|
(15,561 |
) |
Cash and cash
equivalents—beginning of period |
|
26,367 |
|
|
29,705 |
|
|
36,195 |
|
|
47,782 |
|
Cash and cash
equivalents—end of period |
|
$ |
40,147 |
|
|
$ |
32,221 |
|
|
$ |
40,147 |
|
|
$ |
32,221 |
|
ROSETTA STONE
INC.Reconciliation of GAAP Net Loss to Adjusted
EBITDA(in
thousands)(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
GAAP net loss |
|
$ |
(3,231 |
) |
|
|
$ |
(5,452 |
) |
|
|
$ |
(3,912 |
) |
|
|
$ |
(21,937 |
) |
Total other
non-operating income, net |
|
40 |
|
|
|
(524 |
) |
|
|
(481 |
) |
|
|
(2,469 |
) |
|
Income tax expense
(benefit) |
|
879 |
|
|
|
1,793 |
|
|
|
2,361 |
|
|
|
1,250 |
|
|
Impairment |
|
— |
|
|
|
1,028 |
|
|
|
— |
|
|
|
3,930 |
|
|
Depreciation and
amortization |
|
3,015 |
|
|
|
3,226 |
|
|
|
9,077 |
|
|
|
9,812 |
|
|
Stock-based
compensation |
|
1,552 |
|
|
|
1,639 |
|
|
|
3,058 |
|
|
|
3,457 |
|
|
Restructuring
expenses |
|
196 |
|
|
|
162 |
|
|
|
1,181 |
|
|
|
5,183 |
|
|
Lease abandonment and
termination |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
Strategy consulting
expense |
|
— |
|
|
|
458 |
|
|
|
169 |
|
|
|
1,379 |
|
|
Other EBITDA
adjustments |
|
248 |
|
|
|
85 |
|
|
|
303 |
|
|
|
272 |
|
|
Adjusted EBITDA* |
|
$ |
2,699 |
|
|
|
$ |
2,415 |
|
|
|
$ |
11,756 |
|
|
|
$ |
907 |
|
|
* 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 (Used in)
Operating Activities to Free Cash Flow(in
thousands)(unaudited) |
|
|
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net cash provided by
(used in) operating activities |
|
$ |
17,305 |
|
|
$ |
6,479 |
|
|
$ |
12,677 |
|
|
$ |
(5,946) |
Purchases of property
and equipment |
|
(3,510 |
) |
|
(3,694 |
) |
|
(8,903 |
) |
|
(9,628 |
) |
Free cash
flow* |
|
$ |
13,795 |
|
|
$ |
2,785 |
|
|
$ |
3,774 |
|
|
$ |
(15,574 |
) |
* 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 |
|
Sep 30 2017 |
Revenue by Segment (in thousands, except
percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Literacy |
|
7,577 |
|
|
7,950 |
|
|
8,786 |
|
|
9,810 |
|
|
34,123 |
|
|
10,170 |
|
|
10,370 |
|
|
11,028 |
|
Enterprise
& Education Language |
|
18,331 |
|
|
17,490 |
|
|
18,336 |
|
|
17,926 |
|
|
72,083 |
|
|
16,500 |
|
|
17,260 |
|
|
16,529 |
|
Consumer |
|
22,094 |
|
|
20,276 |
|
|
21,571 |
|
|
23,942 |
|
|
87,883 |
|
|
21,023 |
|
|
18,275 |
|
|
18,649 |
|
Total |
|
48,002 |
|
|
45,716 |
|
|
48,693 |
|
|
51,678 |
|
|
194,089 |
|
|
47,693 |
|
|
45,905 |
|
|
46,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YoY Growth (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Literacy |
|
82 |
% |
|
68 |
% |
|
52 |
% |
|
35 |
% |
|
56 |
% |
|
34 |
% |
|
30 |
% |
|
26 |
% |
Enterprise
& Education Language |
|
(4 |
)% |
|
(6 |
)% |
|
(6 |
)% |
|
(6 |
)% |
|
(5 |
)% |
|
(10 |
)% |
|
(1 |
)% |
|
(10 |
)% |
Consumer |
|
(37 |
)% |
|
(28 |
)% |
|
(12 |
)% |
|
(25 |
)% |
|
(27 |
)% |
|
(5 |
)% |
|
(10 |
)% |
|
(14 |
)% |
Total |
|
(18 |
)% |
|
(11 |
)% |
|
(2 |
)% |
|
(11 |
)% |
|
(11 |
)% |
|
(1 |
)% |
|
— |
% |
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Total Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Literacy |
|
16 |
% |
|
17 |
% |
|
18 |
% |
|
19 |
% |
|
18 |
% |
|
21 |
% |
|
22 |
% |
|
24 |
% |
Enterprise
& Education Language |
|
38 |
% |
|
38 |
% |
|
38 |
% |
|
35 |
% |
|
37 |
% |
|
35 |
% |
|
38 |
% |
|
36 |
% |
Consumer |
|
46 |
% |
|
45 |
% |
|
44 |
% |
|
46 |
% |
|
45 |
% |
|
44 |
% |
|
40 |
% |
|
40 |
% |
Total |
|
100 |
% |
|
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 |
|
|
39,661 |
|
International |
|
8,207 |
|
|
8,090 |
|
|
7,651 |
|
|
7,326 |
|
|
31,274 |
|
|
6,452 |
|
|
6,521 |
|
|
6,545 |
|
Total |
|
48,002 |
|
|
45,716 |
|
|
48,693 |
|
|
51,678 |
|
|
194,089 |
|
|
47,693 |
|
|
45,905 |
|
|
46,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Geography (as a %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
83 |
% |
|
82 |
% |
|
84 |
% |
|
86 |
% |
|
84 |
% |
|
86 |
% |
|
86 |
% |
|
86 |
% |
International |
|
17 |
% |
|
18 |
% |
|
16 |
% |
|
14 |
% |
|
16 |
% |
|
14 |
% |
|
14 |
% |
|
14 |
% |
Total |
|
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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