Total Revenue of $78.3 million, Up 18% from Fourth Quarter 2008GAAP Net Income of $0.58 Per Share, Up 100% from Fourth Quarter of 2008International Revenue Growth of More Than 160% Over Fourth Quarter of 2008, and 76% Over Third Quarter of 2009Full Year Adjusted EBITDA of $48.7 million, Up 34% from 2008Rosetta Stone's Next Generation Language-Learning Solution Expected to Be Launched in Third Quarter of 2010ARLINGTON, Va., Feb 25, 2010 (BUSINESS WIRE) -- Rosetta Stone Inc. (NYSE:RST), a leading provider of technology-based
language learning solutions, today reported record revenues and earnings
for its fourth quarter and year ended December 31, 2009, and announced
plans to release the next generation of its award-winning
language-learning solution in the third quarter of 2010. The company
also provided financial guidance for the first quarter and full-year
2010.
Total revenue for the fourth quarter of 2009 was $78.3 million, an
increase of 18%, compared to $66.3 million in the prior-year period.
Adjusted EBITDA for the fourth quarter was $21.4 million, an increase of
84% over the $11.6 million reported in the prior-year period. Non-GAAP
net income was $12.8 million, or $0.61 per share, an increase of 85%
over the $0.33 per share reported in the fourth quarter of 2008. GAAP
net income for the fourth quarter was $12.2 million, or $0.58 per share,
an increase of 100% over the $0.29 per share reported in the fourth
quarter of 2008.
Total revenue for the year was $252.3 million, an increase of 20% over
the $209.4 million reported in the prior-year period. Adjusted EBITDA
for the year was $48.7 million, an increase of 34% over the $36.4
million reported in the prior-year period. Non-GAAP net income was $27.5
million, or $1.38 per share, an increase of 39% over the $0.99 per share
reported in 2008. GAAP net income for the year was $13.4 million, or
$0.67 per share, as compared to $13.9 million, or $0.82 per share
reported in 2008. For the full-year 2009, free cash flow was a record
$32.7 million, up from the $11.3 million generated in 2008.
A reconciliation of GAAP to non-GAAP results, as well as an explanation
of these measures, is provided below.
"Strong demand from both consumers and institutions for our
industry-leading language-learning solution drove record revenues and
earnings in Rosetta Stone's fourth quarter," said Tom Adams, president
and chief executive officer. "Rosetta Stone's consumer business
delivered solid results on the back of record demand, including unit
volume that was 13% above the fourth quarter of last year. Our
international businesses saw accelerated growth of more than 160% from
the same period last year and represented 11% of total revenue for the
quarter. The rapid adoption of our innovative products internationally
positions Rosetta Stone well to become the world's leading
language-learning platform."
Fourth Quarter 2009 Operational and
Financial Highlights
- Revenue Mix - Product revenue for the fourth quarter was $68.9
million, or 88% of total revenues, while subscription and service
revenue was $9.4 million, representing the remaining 12% of total
revenues. Consumer revenue grew 16% over the fourth quarter of 2008 to
$65.1 million and represented 83% of total revenues. Institutional
revenue grew 29% over the fourth quarter of 2008 to $13.2 million over
the same period, representing the remaining 17% of total revenues.
- International Growth - International accounted for 11% of the
company's total revenue in the fourth quarter, up from 5% in the same
period last year. Rosetta Stone's international revenue grew to $8.5
million, or 76% over the third quarter of 2009 and more than 160% over
the fourth quarter of 2008.
- Average Sales Price Per Unit and Unit Volume - Total unit
volume increased 13% on a year-over-year basis. Average sales price
per unit increased 3% on a year-over-year basis, from $331 to $342,
however, the average price sales per unit through our direct channels
grew 7% primarily due to greater sales of bundled products.
- GAAP and non-GAAP Operating Income - GAAP operating income for
the fourth quarter was $18.8 million. Non-GAAP operating income, which
excludes stock-based compensation expense and amortization of
intangibles, was $19.8 million for the fourth quarter of 2009, or 25%
of revenues.
- Adjusted EBITDA - Adjusted EBITDA, which excludes the impact of
stock-based compensation expense, was $21.4 million, or 27% of
revenues, for the fourth quarter of 2009.
- Deferred Revenue - Deferred revenue was $26.1 million, a
decrease of $1.1 million from the end of the third quarter of 2009.
- Cash and Cash Equivalents - At December 31, 2009, cash and cash
equivalents were $95.2 million, an increase of $24.0 million from
September 30, 2009.
Launch of Next Generation Language
Learning Solution Scheduled for Third Quarter
Rosetta Stone today also announced that Rosetta Stone(R) Version 4 TOTALe(TM),
the next generation of its award-winning and critically acclaimed
language-learning solution, has been scheduled for release in the third
quarter of 2010. Features of Rosetta Stone Version 4 TOTALe will include:
-
The combination of Rosetta Stone's industry-leading language-learning
course with live online conversational coaching sessions facilitated
by native speakers offered though Rosetta Studio(TM), along with access
to Rosetta World(R), the company's online language-learning community.
-
The product will be offered as a single solution and delivered
throughout Rosetta Stone's U.S. retail distribution network. Rosetta
Stone customers who have purchased Version 3 software products will
have the opportunity to purchase an upgrade to Rosetta Stone Version 4
TOTALe upon its release.
Rosetta Stone Version 4 TOTALe is expected to be priced at a slight
premium to Rosetta Stone's current Version 3 software products, making
them affordable for the consumer while offering better long-term
economics for the company.
In conjunction with the overall Rosetta Stone Version 4 TOTALe launch,
the company is also planning to release an introductory offering at a
sub-$200 price point. This introductory solution will enable a new
segment of learners to experience Rosetta Stone.
In addition to launching Rosetta Stone Version 4 TOTALe in the second
half of 2010, Rosetta Stone is developing an iPhone/mobile application,
the project name for which is "Rosetta Stone Mini," designed to appeal
to an emerging part of the market, including providing travelers with a
sub-two-hour learning experience in a new language.
"With versions of TOTALe online since August 2009, and having received
stellar reviews from customers and major media outlets and tested by a
third-party for its efficacy, we are preparing to launch in the third
quarter Rosetta Stone Version 4 TOTALe, a single-solution offering that
adds live conversational practice and social learning activities to our
core language-learning course," said Adams. "From a technological
perspective, Rosetta Stone Version 4 TOTALe will integrate
locally-installed versions of our products with online socialization
features, enabling learners to receive the best of both offline and
online worlds. We are excited to launch a platform that will provide
even more predictable, controllable user outcomes, and create long-term
relationships with language learners. We also look forward to addressing
an even broader audience with our planned Rosetta Stone Version 4 TOTALe
introductory offering and our 'Rosetta Stone Mini' application for the
iPhone and related mobile devices."
Financial Outlook for the First
Quarter and Full-Year 2010
Rosetta Stone today provided financial guidance for the first quarter
and full-year 2010.
First Quarter 2010:
-
Total revenue of $58 million to $60 million, with total sales bookings
of approximately the same amount
-
Non-GAAP diluted net income per share of $0.07 to $0.09, and GAAP
diluted net income per share of $0.04 to $0.06
-
Operating EBITDA (Adjusted EBITDA plus the change in deferred revenue)
of $3.1 million to $3.6 million
-
Diluted weighted-average shares outstanding of approximately 21.2
million
Rosetta Stone's guidance regarding first quarter 2010 GAAP net income
reflects the expectation that it will incur approximately $4.0 million
in litigation expenses related to its previously disclosed lawsuit
seeking to prevent Google Inc. from infringing upon Rosetta Stone's
trademarks, including a trial which is expected to be held in the second
quarter.
Full-Year 2010:
-
Total revenue of $286 million to $299 million, with total sales
bookings of between $310 million and $325 million
-
Non-GAAP diluted net income per share of $0.90 to $1.00, and GAAP
diluted net income per share of $0.78 to $0.88
-
Operating EBITDA of $58 million to $65 million
-
Diluted weighted-average shares outstanding of approximately 21.5
million
Rosetta Stone's expectations regarding 2010 GAAP net income reflect the
following anticipated expenses:
-
Expenses associated with the launch of the Rosetta Stone Version 4
TOTALe product offering of approximately $7.5 million during the
second and third quarters of 2010. These expenses represent the
non-recurring marketing expenses related to market launch activities,
as well as the write-off of obsolete inventory as the company replaces
its Version 3 packaging with Rosetta Stone Version 4 TOTALe packaging.
-
Litigation expenses of approximately $6.0 million related to the
company's previously disclosed lawsuit seeking to prevent Google Inc.
from infringing upon Rosetta Stone's trademarks.
Non-GAAP Financial Measures
This press release contains five non-GAAP financial measures: non-GAAP
net income, non-GAAP net income per share, Adjusted EBITDA, Operating
EBITDA and non-GAAP operating income. These measures differ from GAAP in
that they exclude amortization primarily related to acquired
intangibles, stock-based compensation expenses, IPO-related compensation
expenses, and fees associated with the company's canceled secondary
stock offering in August 2009. Adjusted EBITDA is GAAP net income or
loss plus interest expense, income tax expense, depreciation,
amortization and stock-based compensation expenses, IPO-related
compensation expenses and fees associated with the company's canceled
secondary stock offering in August 2009. Operating EBITDA is Adjusted
EBITDA plus the change in deferred revenue. An additional non-GAAP
financial measure in this press release is total sales bookings, which
represents executed sales contracts received by the company that are
either recorded immediately as revenue or as deferred revenue. In
addition, constant currency represents revenues with the cost/benefit of
currency movements removed. Management uses the measure so that business
results can be viewed without the impact of fluctuations in foreign
currency exchange rates, thereby facilitating period-to-period
comparisons of Rosetta Stone's international business performance.
Management believes that these non-GAAP measures of financial results
provide useful information to investors regarding certain financial and
business trends relating to the company's financial condition and
results of operations. Management uses these non-GAAP measures to
compare the company's performance to that of prior periods for trend
analyses, for purposes of determining executive incentive compensation,
and for budgeting and planning purposes. These measures are used in
monthly financial reports prepared for management and in quarterly
financial reports presented to the company's Board of Directors.
Management believes that the use of these non-GAAP financial measures
provides an additional tool for investors to use in evaluating ongoing
operating results and trends and in comparing the company's financial
measures with other software companies, many of which present similar
non-GAAP financial measures to investors.
Management typically excludes the amounts described above when
evaluating the company's operating performance and believes that the
resulting non-GAAP measures are useful to investors and financial
analysts in assessing the company's operating performance due to the
following factors:
- Amortization of Acquired Intangibles. Amortization costs and
the related tax effects are fixed at the time of an acquisition, and
then amortized over a period of several years after the acquisition
and generally cannot be changed or influenced by management after the
acquisition.
- Stock-based Compensation. Although stock-based compensation is
an important aspect of compensation of the company's employees and
executives, stock-based compensation expense is generally fixed at the
time of grant, then amortized over a period of several years after the
grant of the stock-based instrument, and generally cannot be changed
or influenced by management after the grant.
- IPO-related Compensation. Although the IPO-related compensation
was an important aspect of compensation for the company's key
employees that played a material role in the growth and success of the
company, it was an award that was triggered by the company's initial
public offering in April 2009.
- Fees Associated with Canceled Secondary Stock Offering. As part
of a canceled secondary stock offering in August 2009 the company
incurred certain legal, accounting, and printing expenses that are
one-time in nature and not reflective of the company's underlying
performance.
- Total Sales Bookings. Although revenues are an important aspect
of measuring company performance, the company believes total sales
bookings will better reflect the company's performance as the company
transitions to a greater amount of subscription sales resulting in the
recording of increased deferred revenue to be recognized in periods
after the initial sales are completed.
- Deferred Revenue. At the time a customer enters into a binding
subscription agreement, the company classifies the amounts received,
as well as the amounts on billed and uncollected amounts due from
customers, in advance of revenue recognition as deferred revenue. As
the company transitions to a greater amount of subscription sales the
company believes its GAAP earnings will no longer be reflective of the
company's underlying performance and as such believes adding the
changes in deferred revenue to its Adjusted EBITDA will better reflect
the company's operating performance.
Management does not consider these non-GAAP measures in isolation or as
an alternative to financial measures determined in accordance with GAAP.
The principal limitation of these non-GAAP financial measures is that
they exclude significant expenses and income that are required by GAAP
to be recorded in the company's financial statements. In addition, they
are subject to inherent limitations, because they reflect the exercise
of judgments by management about which expenses and items of income are
excluded from these non-GAAP financial measures and may not be
calculated in the same manner as other companies' similarly titled
non-GAAP measures.
In order to compensate for these limitations, management presents its
non-GAAP financial measures in connection with its GAAP results. Rosetta
Stone urges investors to review the reconciliation of its non-GAAP
financial measures to the comparable GAAP financial measures, which it
includes in press releases announcing earnings information, including
this press release, and not to rely on any single financial measure to
evaluate the company's business.
Reconciliation tables of the most comparable GAAP financial measures to
the non-GAAP measures used in this press release are included at the end
of this release.
Webcast and Conference Call
This news release and the accompanying tables should be read in
conjunction with the additional content that is available on the
company's website, which includes supplemental financial information as
well as a webcast of a conference call that the company will host to
discuss the fourth quarter 2009 financial results and its outlook for
fiscal year 2010. The conference call is scheduled for February 25, 2010
at 4:30 p.m. eastern time (ET).
To access this call, dial 888-542-1104 (domestic) or 719-457-2558
(international). Additionally, a live webcast of the conference call
will be available at http://investors.RosettaStone.com.
Please access the web site at least 15 minutes prior to the start of the
call to register and download and install any necessary software.
Following the conference call, a replay will be available until March
11, 2010 at 888-203-1112 (domestic) or 719-457-0820 (international). The
replay pass code is 4809607. The webcast of this conference call will be
archived. Individuals can access the webcast, as well as the press
release and supplemental financial information, at http://investors.RosettaStone.com.
About Rosetta Stone
Rosetta Stone Inc. is changing the way the world learns languages.
Rosetta Stone provides interactive solutions that are acclaimed for the
speed and power to unlock the natural language-learning ability in
everyone. Available in more than 30 languages, Rosetta Stone
language-learning solutions are used by schools, organizations and
millions of individuals in over 150 countries throughout the world. The
company was founded in 1992 on the core beliefs that learning a language
should be natural and instinctive and that interactive technology can
replicate and activate the immersion method powerfully for learners of
any age. The company is based in Arlington, Va. For more information,
visit RosettaStone.com.
"Rosetta Stone", "TOTALe", "Rosetta World" and "Rosetta Studio" are
trademarks of Rosetta Stone Ltd.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this press release are forward-looking statements,
including our guidance for the first quarter of 2010 and the full year
2010, our long-term growth prospects, the expected release dates of
Rosetta Stone Version 4 TOTALe and "Rosetta Stone Mini", the costs of
our launch of Rosetta Stone Version 4 TOTALe and our litigation with
Google. In this context, forward-looking statements often address our
expected future business and financial performance, and often contain
words such as "project," "believe," "plan," "expect," "anticipate,"
"estimate," "intend," "should," "would," "could," "potentially," "seek,"
"may," or "will." These forward-looking statements reflect the company's
current views with respect to future events and are subject to certain
risks, uncertainties, and assumptions. A number of important factors
could cause actual results or events to differ materially from those
indicated by such forward-looking statements, including: demand for
language learning software; the advantages of our products, technology,
brand and business model as compared to others; our ability to maintain
effective internal controls or to remediate material weaknesses; our
cash needs and expectations regarding cash flow from operations; our
product development plans, including our plans to introduce Rosetta
Stone Version 4 TOTALe and the "Rosetta Stone Mini"; our plans regarding
expansion of our marketing initiatives and sales force; our
international expansion plans; our plans to increase our kiosks and
retail relationships; our ability to manage and grow our business and
execute our business strategy; our financial performance; the general
economic downturn and related impact on consumer spending in particular;
the costs associated with our lawsuit against Google, seeking to prevent
Google from infringing upon our trademarks; and the costs associated
with being a public company and the other factors described more fully
in the company's filings with the Securities and Exchange Commission,
including the company's quarterly report on Form 10-Q for the quarterly
period ended September 30, 2009, filed with the U.S. Securities and
Exchange Commission on November 13, 2009. The company assumes no
obligation to update the information in this communication, except as
otherwise required by law. Readers are cautioned not to place undue
reliance on these forward-looking statements that speak only as of the
date hereof.
|
|
|
|
|
|
|
|
|
ROSETTA STONE INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
68,886
|
|
|
$
|
59,195
|
|
|
$
|
218,549
|
|
|
$
|
184,182
|
|
Subscription and service
|
|
|
9,425
|
|
|
|
7,055
|
|
|
|
33,722
|
|
|
|
25,198
|
|
Total revenue
|
|
|
78,311
|
|
|
|
66,250
|
|
|
|
252,271
|
|
|
|
209,380
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
9,330
|
|
|
|
8,670
|
|
|
|
30,264
|
|
|
|
26,539
|
|
Cost of subscription and service revenue
|
|
|
959
|
|
|
|
349
|
|
|
|
3,163
|
|
|
|
2,137
|
|
Total cost of revenue
|
|
|
10,289
|
|
|
|
9,019
|
|
|
|
33,427
|
|
|
|
28,676
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
68,022
|
|
|
|
57,231
|
|
|
|
218,844
|
|
|
|
180,704
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
31,876
|
|
|
|
27,875
|
|
|
|
114,899
|
|
|
|
93,384
|
|
Research and development
|
|
|
5,170
|
|
|
|
5,078
|
|
|
|
26,239
|
|
|
|
18,387
|
|
General and administrative
|
|
|
12,207
|
|
|
|
13,305
|
|
|
|
57,174
|
|
|
|
39,577
|
|
Lease Abandonment
|
|
|
-
|
|
|
|
1,831
|
|
|
|
-
|
|
|
|
1,831
|
|
Total operating expenses
|
|
|
49,253
|
|
|
|
48,089
|
|
|
|
198,312
|
|
|
|
153,179
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
18,769
|
|
|
|
9,142
|
|
|
|
20,532
|
|
|
|
27,525
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
50
|
|
|
|
31
|
|
|
|
159
|
|
|
|
454
|
|
Interest expense
|
|
|
(8
|
)
|
|
|
(177
|
)
|
|
|
(356
|
)
|
|
|
(891
|
)
|
Other income
|
|
|
31
|
|
|
|
159
|
|
|
|
112
|
|
|
|
239
|
|
Total other income (expense)
|
|
|
73
|
|
|
|
13
|
|
|
|
(85
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
18,842
|
|
|
|
9,155
|
|
|
|
20,447
|
|
|
|
27,327
|
|
Income tax provision
|
|
|
6,685
|
|
|
|
4,213
|
|
|
|
7,084
|
|
|
|
13,435
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,157
|
|
|
$
|
4,942
|
|
|
$
|
13,363
|
|
|
$
|
13,892
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
$
|
2.55
|
|
|
$
|
0.89
|
|
|
$
|
7.29
|
|
Diluted
|
|
$
|
0.58
|
|
|
$
|
0.29
|
|
|
$
|
0.67
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
Common shares and equivalents outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
20,216
|
|
|
|
1,936
|
|
|
|
14,990
|
|
|
|
1,905
|
|
Diluted weighted average shares
|
|
|
20,968
|
|
|
|
17,043
|
|
|
|
19,930
|
|
|
|
16,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROSETTA STONE INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except per share amounts) |
|
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
95,188
|
|
|
$
|
30,626
|
|
Restricted cash
|
|
|
50
|
|
|
|
34
|
|
Accounts receivable (net of allowance for doubtful accounts of
$1,349 and $1,103, respectively)
|
|
|
37,400
|
|
|
|
26,497
|
|
Inventory, net
|
|
|
8,984
|
|
|
|
4,912
|
|
Prepaid expenses and other current assets
|
|
|
7,447
|
|
|
|
6,598
|
|
Deferred income taxes
|
|
|
6,020
|
|
|
|
2,282
|
|
Total current assets
|
|
|
155,089
|
|
|
|
70,949
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
18,374
|
|
|
|
15,727
|
|
Goodwill
|
|
|
34,838
|
|
|
|
34,199
|
|
Intangible assets, net
|
|
|
10,704
|
|
|
|
10,645
|
|
Deferred income taxes
|
|
|
5,565
|
|
|
|
6,828
|
|
Other assets
|
|
|
872
|
|
|
|
470
|
|
Total assets |
|
$
|
225,442
|
|
|
$
|
138,818
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,605
|
|
|
$
|
3,207
|
|
Accrued compensation
|
|
|
10,463
|
|
|
|
8,570
|
|
Other current liabilities
|
|
|
25,638
|
|
|
|
20,021
|
|
Deferred revenue
|
|
|
24,291
|
|
|
|
14,382
|
|
Income Tax Payable
|
|
|
4,184
|
|
|
|
1,332
|
|
Current maturities of long-term debt - related party
|
|
|
-
|
|
|
|
4,250
|
|
Total current liabilities
|
|
|
66,181
|
|
|
|
51,762
|
|
|
|
|
|
|
|
|
|
|
Long-term debt - related parties
|
|
|
-
|
|
|
|
5,660
|
|
Deferred revenue
|
|
|
1,815
|
|
|
|
1,362
|
|
Other long-term liabilities
|
|
|
1,011
|
|
|
|
963
|
|
Total liabilities |
|
|
69,007
|
|
|
|
59,747
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Class A, Series A-1 Convertible Preferred Stock, $0.001 par value;
zero and 269 shares authorized; zero and 269 shares issued and
outstanding at December 31, 2009 and December 31, 2008,
respectively
|
|
|
-
|
|
|
|
26,876
|
|
Class A, Series A-2 Convertible Preferred Stock, $0.001 par value;
zero and 178 shares authorized; zero and 178 shares issued and
outstanding at December 31, 2009 and December 31, 2008,
respectively
|
|
|
-
|
|
|
|
17,820
|
|
Class B Convertible Preferred Stock, $0.001 par value; zero and
115 shares authorized; zero and 111 shares issued and outstanding
at December 31, 2009 and December 31, 2008, respectively
|
|
|
-
|
|
|
|
11,341
|
|
Preferred Stock, $0.001 par value; 10,000 and zero shares
authorized; zero and zero shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively
|
|
|
-
|
|
|
|
-
|
|
Class A Convertible Common Stock, $0.00005 par value; zero and 900
shares authorized; zero and zero shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively
|
|
|
-
|
|
|
|
-
|
|
Class B Convertible Common Stock,$0.00005 par value; zero and
20,000 shares authorized; zero and zero shares issued and
outstanding at December 31, 2009 and December 31, 2008,
respectively
|
|
|
-
|
|
|
|
-
|
|
Non-designated common stock, $0.00005 par value; 190,000 and
39,100 shares authorized; 20,440 and 1,936 shares issued and
outstanding at December 31, 2009 and December 31, 2008,
respectively
|
|
|
2
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
130,872
|
|
|
|
10,814
|
|
Accumulated income
|
|
|
25,785
|
|
|
|
12,422
|
|
Accumulated other comprehensive loss
|
|
|
(224
|
)
|
|
|
(203
|
)
|
Total stockholders' equity |
|
|
156,435
|
|
|
|
79,071
|
|
Total liabilities and stockholders' equity |
|
$
|
225,442
|
|
|
$
|
138,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROSETTA STONE INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
December 31, 2009 |
|
December 31, 2008 |
|
|
GAAP |
|
Adjustments |
|
non-GAAP |
|
GAAP |
|
Adjustments |
|
non-GAAP |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
68,886
|
|
|
$
|
-
|
|
|
$
|
68,886
|
|
|
$
|
59,195
|
|
|
$
|
-
|
|
|
$
|
59,195
|
|
Subscription and service
|
|
|
9,425
|
|
|
|
-
|
|
|
|
9,425
|
|
|
|
7,055
|
|
|
|
-
|
|
|
|
7,055
|
|
Total revenue
|
|
|
78,311
|
|
|
|
-
|
|
|
|
78,311
|
|
|
|
66,250
|
|
|
|
-
|
|
|
|
66,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue (1) |
|
|
9,330
|
|
|
|
(12
|
)
|
|
|
9,318
|
|
|
|
8,670
|
|
|
|
(1
|
)
|
|
|
8,669
|
|
Cost of subscription and service revenue
|
|
|
959
|
|
|
|
-
|
|
|
|
959
|
|
|
|
349
|
|
|
|
-
|
|
|
|
349
|
|
Total cost of revenue
|
|
|
10,289
|
|
|
|
(12
|
)
|
|
|
10,277
|
|
|
|
9,019
|
|
|
|
(1
|
)
|
|
|
9,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
68,022
|
|
|
|
12
|
|
|
|
68,034
|
|
|
|
57,231
|
|
|
|
1
|
|
|
|
57,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(2) |
|
|
31,876
|
|
|
|
(157
|
)
|
|
|
31,719
|
|
|
|
27,875
|
|
|
|
(792
|
)
|
|
|
27,083
|
|
Research and development(3) |
|
|
5,170
|
|
|
|
(294
|
)
|
|
|
4,876
|
|
|
|
5,078
|
|
|
|
(138
|
)
|
|
|
4,940
|
|
General and administrative(4) |
|
|
12,207
|
|
|
|
(593
|
)
|
|
|
11,614
|
|
|
|
13,305
|
|
|
|
(270
|
)
|
|
|
13,035
|
|
Lease Abandonment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,831
|
|
|
|
-
|
|
|
|
1,831
|
|
Total operating expenses
|
|
|
49,253
|
|
|
|
(1,044
|
)
|
|
|
48,209
|
|
|
|
48,089
|
|
|
|
(1,200
|
)
|
|
|
46,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
18,769
|
|
|
|
1,056
|
|
|
|
19,825
|
|
|
|
9,142
|
|
|
|
1,201
|
|
|
|
10,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
|
|
31
|
|
|
|
-
|
|
|
|
31
|
|
Interest expense
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(177
|
)
|
|
|
-
|
|
|
|
(177
|
)
|
Other income
|
|
|
31
|
|
|
|
-
|
|
|
|
31
|
|
|
|
159
|
|
|
|
-
|
|
|
|
159
|
|
Total other income (expense)
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
18,842
|
|
|
|
1,056
|
|
|
|
19,898
|
|
|
|
9,155
|
|
|
|
1,201
|
|
|
|
10,356
|
|
Income tax provision (5) |
|
|
6,685
|
|
|
|
396
|
|
|
|
7,081
|
|
|
|
4,213
|
|
|
|
450
|
|
|
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,157
|
|
|
$
|
660
|
|
|
$
|
12,817
|
|
|
$
|
4,942
|
|
|
$
|
751
|
|
|
$
|
5,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
|
|
|
|
$
|
0.63
|
|
|
$
|
2.55
|
|
|
|
|
|
|
$
|
2.94
|
|
Diluted
|
|
$
|
0.58
|
|
|
|
|
|
|
$
|
0.61
|
|
|
$
|
0.29
|
|
|
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
20,216
|
|
|
|
|
|
|
|
20,216
|
|
|
|
1,936
|
|
|
|
|
|
|
|
1,936
|
|
Diluted weighted average shares
|
|
|
20,968
|
|
|
|
|
|
|
|
20,968
|
|
|
|
17,043
|
|
|
|
|
|
|
|
17,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stock based compensation expense of $12 and $1 in 2009
and 2008, respectively
|
(2)
|
|
Represents stock based compensation expense of $157 and $41 in
2009 and 2008, respectively and amortization of intangible expense
of $0 and $751 in 2009 and 2008, respectively
|
(3)
|
|
Represents stock based compensation expense of $294 and $138 in
2009 and 2008, respectively
|
(4)
|
|
Represents stock based compensation expense of $593 and $270 in
2009 and 2008, respectively
|
(5)
|
|
Non-GAAP tax rate of 37.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROSETTA STONE INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
GAAP
|
|
Adjustments
|
|
non-GAAP
|
|
GAAP
|
|
Adjustments
|
|
non-GAAP
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
218,549
|
|
|
$
|
-
|
|
|
$
|
218,549
|
|
|
$
|
184,182
|
|
|
$
|
-
|
|
|
$
|
184,182
|
|
Subscription and service
|
|
|
33,722
|
|
|
|
-
|
|
|
|
33,722
|
|
|
|
25,198
|
|
|
|
-
|
|
|
|
25,198
|
|
Total revenue
|
|
|
252,271
|
|
|
|
-
|
|
|
|
252,271
|
|
|
|
209,380
|
|
|
|
-
|
|
|
|
209,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue (1) |
|
|
30,264
|
|
|
|
(34
|
)
|
|
|
30,230
|
|
|
|
26,539
|
|
|
|
(15
|
)
|
|
|
26,524
|
|
Cost of subscription and service revenue
|
|
|
3,163
|
|
|
|
-
|
|
|
|
3,163
|
|
|
|
2,137
|
|
|
|
-
|
|
|
|
2,137
|
|
Total cost of revenue
|
|
|
33,427
|
|
|
|
(34
|
)
|
|
|
33,393
|
|
|
|
28,676
|
|
|
|
(15
|
)
|
|
|
28,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
218,844
|
|
|
|
34
|
|
|
|
218,878
|
|
|
|
180,704
|
|
|
|
15
|
|
|
|
180,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(2) |
|
|
114,899
|
|
|
|
(1,046
|
)
|
|
|
113,853
|
|
|
|
93,384
|
|
|
|
(3,156
|
)
|
|
|
90,228
|
|
Research and development(3) |
|
|
26,239
|
|
|
|
(6,031
|
)
|
|
|
20,208
|
|
|
|
18,387
|
|
|
|
(482
|
)
|
|
|
17,905
|
|
General and administrative(4) |
|
|
57,174
|
|
|
|
(15,518
|
)
|
|
|
41,656
|
|
|
|
39,577
|
|
|
|
(953
|
)
|
|
|
38,624
|
|
Lease Abandonment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,831
|
|
|
|
-
|
|
|
|
1,831
|
|
Total operating expenses
|
|
|
198,312
|
|
|
|
(22,595
|
)
|
|
|
175,717
|
|
|
|
153,179
|
|
|
|
(4,591
|
)
|
|
|
148,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,532
|
|
|
|
22,629
|
|
|
|
43,161
|
|
|
|
27,525
|
|
|
|
4,606
|
|
|
|
32,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
159
|
|
|
|
-
|
|
|
|
159
|
|
|
|
454
|
|
|
|
-
|
|
|
|
454
|
|
Interest expense
|
|
|
(356
|
)
|
|
|
-
|
|
|
|
(356
|
)
|
|
|
(891
|
)
|
|
|
-
|
|
|
|
(891
|
)
|
Other income
|
|
|
112
|
|
|
|
-
|
|
|
|
112
|
|
|
|
239
|
|
|
|
-
|
|
|
|
239
|
|
Total other income (expense)
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
(198
|
)
|
|
|
-
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
20,447
|
|
|
|
22,629
|
|
|
|
43,076
|
|
|
|
27,327
|
|
|
|
4,606
|
|
|
|
31,933
|
|
Income tax provision (5) |
|
|
7,084
|
|
|
|
8,486
|
|
|
|
15,570
|
|
|
|
13,435
|
|
|
|
1,727
|
|
|
|
15,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,363
|
|
|
$
|
14,143
|
|
|
$
|
27,506
|
|
|
$
|
13,892
|
|
|
$
|
2,879
|
|
|
$
|
16,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.89
|
|
|
|
|
|
|
$
|
1.83
|
|
|
$
|
7.29
|
|
|
|
|
|
|
$
|
8.80
|
|
Diluted
|
|
$
|
0.67
|
|
|
|
|
|
|
$
|
1.38
|
|
|
$
|
0.82
|
|
|
|
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and equivalents outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
14,990
|
|
|
|
|
|
|
|
14,990
|
|
|
|
1,905
|
|
|
|
|
|
|
|
1,905
|
|
Diluted weighted average shares
|
|
|
19,930
|
|
|
|
|
|
|
|
19,930
|
|
|
|
16,924
|
|
|
|
|
|
|
|
16,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stock based compensation expense of $34 and $2 in 2009
and 2008, respectively as well as amortization of intangibles
expense of $13 in 2008.
|
(2)
|
|
Represents stock based compensation expense of $627 and $153 in
2009 and 2008, respectively as well as IPO related compensation
expense of $377 in 2009 and amortization of intangibles expense of
$42 and $3,003 in 2009 and 2008, respectively.
|
(3)
|
|
Represents stock based compensation expense of $998 and $482 in
2009 and 2008, respectively as well as IPO related compensation
expense of $5,033 in 2009.
|
(4)
|
|
Represents stock based compensation expense of $1,956 and $953 in
2009 and 2008, respectively, as well as IPO related compensation
expense of $13,393 in 2009 and $169 of fees associated with the
company's canceled secondary stock offering
|
(5)
|
|
Non-GAAP tax rate of 37.5%
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 (in thousands)
|
|
|
Stock
|
|
IPO related
|
|
|
Compensation
|
|
Compensation
|
|
|
Expense |
|
Expense |
Cost of product revenue
|
|
34
|
|
-
|
Sales and marketing
|
|
627
|
|
377
|
Research and development
|
|
998
|
|
5,033
|
General and administrative
|
|
1,956
|
|
13,393
|
Total
|
|
3,615
|
|
18,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROSETTA STONE INC. |
Reconciliation of Net Income to Adjusted EBITDA |
(in thousands) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,157
|
|
|
$
|
4,942
|
|
$
|
13,363
|
|
$
|
13,892
|
Interest expense, net
|
|
|
(42
|
)
|
|
|
146
|
|
|
197
|
|
|
437
|
Income tax expense
|
|
|
6,685
|
|
|
|
4,213
|
|
|
7,084
|
|
|
13,435
|
Depreciation and amortization
|
|
|
1,514
|
|
|
|
1,851
|
|
|
5,428
|
|
|
7,075
|
Stock-based and IPO-related compensation
|
|
|
1,056
|
|
|
|
450
|
|
|
22,418
|
|
|
1,590
|
Fees associated with canceled secondary stock offering
|
|
|
-
|
|
|
|
-
|
|
|
169
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
21,370
|
|
|
$
|
11,602
|
|
$
|
48,659
|
|
$
|
36,429
|
|
|
|
|
|
|
|
|
|

SOURCE: Rosetta Stone Inc.
Rosetta Stone Inc. Investor Contact: Christopher Martin, 703-387-5927 cmartin@rosettastone.com or Media Contact: Reilly Brennan, 703-387-5863 rbrennan@rosettastone.com
|