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Q2 Revenue Grows 7% Fueled by Literacy and Consumer Language Bookings growth of 59% and 92%, Respectively
Second Quarter 2020 Highlights
- Consolidated revenue increased 7% year over year to
$49.2 million . - Revenue at
Lexia Learning ("Lexia"), the Company's Literacy segment, increased 18% year-over-year to$17.8 million . - Revenue within the Consumer Language segment increased 9% year-over-year to
$17.7 million . - Revenue within the Enterprise & Education (“E&E”) Language segment decreased 6% year-over-year to
$13.6 million . - Consolidated second quarter net loss was
$3.6 million , an increase from the net loss of$2.8 million in the same quarter a year ago, driven by an increase in operating expense. - Consolidated bookings were
$59.3 million , an increase of 41% versus the second quarter of 2019, driven by 92% growth in Consumer bookings and 59% growth in Literacy bookings. - Adjusted EBITDA, a non-GAAP financial measure, was
$4.1 million in the second quarter 2020, an increase from$2.0 million in the year-ago period. - At
June 30, 2020 the Company had cash and cash equivalents of$31.3 million and no debt outstanding. - Note: Consumer and consolidated bookings referenced above and throughout this release are before
$0.5 million in SourceNext bookings that occurred in Q2 2019.
“During this unprecedented time, the Rosetta Stone team delivered outstanding second quarter results, highlighted by 41% growth year-over-year in consolidated bookings, which included a 59% increase in our Literacy segment and 92% growth in our Consumer Language segment. Our commitment to put the customer first, coupled with extremely compelling K-12 and Language product and service offerings, are clearly resonating in the marketplace,” said
Second Quarter 2020 Review
Revenue: Total revenue in the second quarter of 2020 was
Revenue at Lexia increased 18% year-over-year to $17.8 million. The increase in Lexia revenues was a result of continued demand for its product portfolio and the concentrated efforts of a focused direct sales team. Literacy bookings increased
Consumer Language segment revenue increased 9% year-over-year to $17.7 million, reflecting the recognition of sales growth efforts made in prior quarters. Consumer Language bookings increased
E&E Language segment revenue decreased 6% year-over-year to $13.6 million. E&E language bookings decreased
US$ thousands, except for percentages
Three months ended |
||||||||||||||||||||
2020 | Mix % | 2019 | Mix % | % change | ||||||||||||||||
Revenue from: | ||||||||||||||||||||
Literacy | $ | 17,814 | 36 | % | $ | 15,101 | 33 | % | 18 | % | ||||||||||
E&E Language | 13,640 | 28 | % | 14,502 | 32 | % | (6 | )% | ||||||||||||
Consumer Language | 17,741 | 36 | % | 16,339 | 35 | % | 9 | % | ||||||||||||
Total Revenue | $ | 49,195 | 100 | % | $ | 45,942 | 100 | % | 7 | % |
Net Loss: In the second quarter 2020, the Company reported a net loss of
Balance Sheet: The Company ended the second quarter 2020 with cash and cash equivalents of $31.3 million and no debt outstanding, versus
Free Cash Flow and Adjusted EBITDA: Net cash used in operating activities was
Adjusted EBITDA, a non-GAAP financial measure, was $4.1 million in the second quarter 2020, an increase compared to
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 1-412-317-6026 (toll / international) or 1-877-300-8521 (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
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 impact of the COVID-19 pandemic on the global economy; 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
Operational Metrics, Segment Measures, and Non-GAAP Financial Measures
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in
- 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 a non-GAAP Financial Measure of 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 a non-GAAP Financial Measure of 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. Segment contribution is a segment measure of profitability determined consistent with Accounting Standards Codification 280.
The definitions, GAAP comparisons, and reconciliation of non-GAAP 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
Founded in 1992, Rosetta Stone's language division uses advanced digital technology to help all types of learners read, write and speak more than 30 languages, including several endangered languages.
For more information, visit www.rosettastone.com. "Rosetta Stone" is a registered trademark or trademark of
Investors:
Addo Investor Relations
1-310-829-5400
IR@rosettastone.com
Media Contact:
1-917-572-5555
ariggs@rosettastone.com
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
As of | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 31,259 | $ | 43,010 | |||
Restricted cash | 65 | 54 | |||||
Accounts receivable (net of allowance for doubtful accounts of |
27,003 | 22,919 | |||||
Inventory | 1,270 | 1,545 | |||||
Deferred sales commissions | 10,730 | 11,558 | |||||
Prepaid expenses and other current assets | 3,957 | 4,172 | |||||
Total current assets | 74,284 | 83,258 | |||||
Deferred sales commissions | 8,121 | 7,682 | |||||
Property and equipment, net | 38,787 | 39,251 | |||||
Operating lease right-of-use assets | 5,013 | 5,818 | |||||
Intangible assets, net | 13,555 | 14,317 | |||||
49,057 | 48,958 | ||||||
Other assets | 2,186 | 1,823 | |||||
Total assets | $ | 191,003 | $ | 201,107 | |||
Liabilities and stockholders' deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 4,727 | $ | 7,534 | |||
Accrued compensation | 12,470 | 9,854 | |||||
Income tax payable | 169 | 78 | |||||
Operating lease liabilities | 1,436 | 1,455 | |||||
Other current liabilities | 11,483 | 13,090 | |||||
Deferred revenue | 109,288 | 119,851 | |||||
Total current liabilities | 139,573 | 151,862 | |||||
Deferred revenue | 64,815 | 57,766 | |||||
Deferred income taxes | 2,723 | 2,590 | |||||
Operating lease liabilities | 3,458 | 4,167 | |||||
Other long-term liabilities | 675 | 914 | |||||
Total liabilities | 211,244 | 217,299 | |||||
Commitments and contingencies | |||||||
Stockholders' deficit: | |||||||
Preferred stock, |
— | — | |||||
Non-designated common stock, and 24,604 and 24,060 shares outstanding, at |
2 | 2 | |||||
Additional paid-in capital | 216,295 | 210,846 | |||||
(11,435 | ) | (11,435 | ) | ||||
Accumulated loss | (222,240 | ) | (212,548 | ) | |||
Accumulated other comprehensive loss | (2,863 | ) | (3,057 | ) | |||
Total stockholders' deficit | (20,241 | ) | (16,192 | ) | |||
Total liabilities and stockholders' deficit | $ | 191,003 | $ | 201,107 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | $ | 49,195 | $ | 45,942 | $ | 96,374 | $ | 90,553 | |||||||
Cost of revenue | 11,436 | 8,861 | 22,537 | 17,287 | |||||||||||
Gross profit | 37,759 | 37,081 | 73,837 | 73,266 | |||||||||||
Operating expenses | |||||||||||||||
Sales and marketing | 25,974 | 25,800 | 51,408 | 49,038 | |||||||||||
Research and development | 6,177 | 5,776 | 13,094 | 11,514 | |||||||||||
General and administrative | 8,945 | 8,566 | 18,507 | 17,258 | |||||||||||
Total operating expenses | 41,096 | 40,142 | 83,009 | 77,810 | |||||||||||
Loss from operations | (3,337 | ) | (3,061 | ) | (9,172 | ) | (4,544 | ) | |||||||
Other income and (expense): | |||||||||||||||
Interest income | 10 | 9 | 26 | 42 | |||||||||||
Interest expense | (54 | ) | (99 | ) | (107 | ) | (159 | ) | |||||||
Other income and (expense) | 18 | 519 | 89 | 1,315 | |||||||||||
Total other income and (expense) | (26 | ) | 429 | 8 | 1,198 | ||||||||||
Loss before income taxes | (3,363 | ) | (2,632 | ) | (9,164 | ) | (3,346 | ) | |||||||
Income tax expense | 223 | 175 | 603 | 5 | |||||||||||
Net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Loss per share: | |||||||||||||||
Basic | $ | (0.15 | ) | $ | (0.12 | ) | $ | (0.41 | ) | $ | (0.14 | ) | |||
Diluted | $ | (0.15 | ) | $ | (0.12 | ) | $ | (0.41 | ) | $ | (0.14 | ) | |||
Common shares and equivalents outstanding: | |||||||||||||||
Basic weighted average shares | 24,103 | 23,455 | 23,953 | 23,247 | |||||||||||
Diluted weighted average shares | 24,103 | 23,455 | 23,953 | 23,247 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Non-cash adjustments to reconcile net loss to cash used in operating activities: | |||||||||||||||
Stock-based compensation expense | 3,009 | 1,356 | 5,270 | 2,576 | |||||||||||
(Gain) loss on foreign currency transactions | (32 | ) | (517 | ) | (10 | ) | 191 | ||||||||
Bad debt expense | 78 | 136 | 336 | 123 | |||||||||||
Depreciation and amortization | 4,351 | 3,457 | 8,771 | 6,986 | |||||||||||
Operating lease costs | 514 | 533 | 1,049 | 1,059 | |||||||||||
Deferred income tax expense (benefit) | 139 | 77 | 254 | (515 | ) | ||||||||||
(Gain) loss on disposal or sale of assets | — | 1 | — | (1,394 | ) | ||||||||||
Amortization of deferred financing costs | 11 | 19 | 30 | 33 | |||||||||||
Net change in: | |||||||||||||||
Accounts receivable | (11,707 | ) | (12,063 | ) | (4,625 | ) | (3,826 | ) | |||||||
Inventory | 107 | 111 | 275 | (718 | ) | ||||||||||
Deferred sales commissions | (1,208 | ) | 335 | 371 | 2,332 | ||||||||||
Prepaid expenses and other current assets | (83 | ) | (30 | ) | 114 | (819 | ) | ||||||||
Income tax receivable or payable | 20 | (320 | ) | 91 | (49 | ) | |||||||||
Other assets | (379 | ) | (233 | ) | (450 | ) | (89 | ) | |||||||
Accounts payable | (2,107 | ) | 1,129 | (2,792 | ) | (466 | ) | ||||||||
Accrued compensation | 217 | (3,468 | ) | 2,395 | (1,027 | ) | |||||||||
Other current liabilities | 733 | 1,298 | (1,201 | ) | (1,324 | ) | |||||||||
Operating lease liabilities | (491 | ) | (516 | ) | (969 | ) | (1,060 | ) | |||||||
Other long-term liabilities | — | — | — | (31 | ) | ||||||||||
Deferred revenue | 10,091 | (3,345 | ) | (2,947 | ) | (20,045 | ) | ||||||||
Net cash used in operating activities | (323 | ) | (14,847 | ) | (3,805 | ) | (21,414 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Purchases of property and equipment | (3,806 | ) | (4,995 | ) | (7,592 | ) | (9,709 | ) | |||||||
Proceeds from sale of assets | — | 400 | — | 1,396 | |||||||||||
Net cash used in investing activities | (3,806 | ) | (4,595 | ) | (7,592 | ) | (8,313 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Proceeds from the exercise of stock options | 368 | 2,143 | 410 | 2,887 | |||||||||||
Proceeds from borrowings under credit facility | — | 10,500 | — | 10,500 | |||||||||||
Repayments of borrowings under credit facility | — | (600 | ) | — | (600 | ) | |||||||||
Payment of deferred financing costs | — | (45 | ) | (66 | ) | (47 | ) | ||||||||
Payments under financing lease liabilities | (56 | ) | (112 | ) | (171 | ) | (222 | ) | |||||||
Net cash provided by financing activities | 312 | 11,886 | 173 | 12,518 | |||||||||||
Decrease in cash, cash equivalents, and restricted cash | (3,817 | ) | (7,556 | ) | (11,224 | ) | (17,209 | ) | |||||||
Effect of exchange rate changes in cash, cash equivalents, and restricted cash | (30 | ) | 21 | (516 | ) | (159 | ) | ||||||||
Net decrease in cash, cash equivalents, and restricted cash | (3,847 | ) | (7,535 | ) | (11,740 | ) | (17,368 | ) | |||||||
Cash, cash equivalents, and restricted cash—beginning of period | 35,171 | 28,341 | 43,064 | 38,174 | |||||||||||
Cash, cash equivalents, and restricted cash—end of period | $ | 31,324 | $ | 20,806 | $ | 31,324 | $ | 20,806 |
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in thousands)
(unaudited)
Three months ended |
Six months ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
GAAP net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Total other non-operating (income) and expense, net | 26 | (429 | ) | (8 | ) | (1,198 | ) | ||||||||
Income tax expense | 223 | 175 | 603 | 5 | |||||||||||
Depreciation and amortization | 4,351 | 3,457 | 8,771 | 6,986 | |||||||||||
Stock-based compensation expense | 3,009 | 1,356 | 5,270 | 2,576 | |||||||||||
Other EBITDA adjustments | 104 | 269 | 431 | 322 | |||||||||||
Adjusted EBITDA* | $ | 4,127 | $ | 2,021 | $ | 5,300 | $ | 5,340 |
* 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.
RECONCILIATION OF CASH USED IN OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Three months ended |
Six months ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net cash used in operating activities | $ | (323 | ) | $ | (14,847 | ) | $ | (3,805 | ) | $ | (21,414 | ) | |||
Purchases of property and equipment | (3,806 | ) | (4,995 | ) | (7,592 | ) | (9,709 | ) | |||||||
Free cash flow * | $ | (4,129 | ) | $ | (19,842 | ) | $ | (11,397 | ) | $ | (31,123 | ) |
* Free cash flow is cash flow from operations minus cash used in purchases of property and equipment.
Supplemental Information
(unaudited)
Quarter-Ended | Year Ended | Quarter-Ended | |||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||
Revenue by Segment (in thousands, except percentages) | |||||||||||||||||||||
Literacy | 14,806 | 15,101 | 15,587 | 17,131 | 62,625 | 17,486 | 17,814 | ||||||||||||||
E&E Language | 14,443 | 14,502 | 14,074 | 13,793 | 56,812 | 13,552 | 13,640 | ||||||||||||||
Consumer Language | 15,362 | 16,339 | 15,795 | 15,769 | 63,265 | 16,141 | 17,741 | ||||||||||||||
Total | 44,611 | 45,942 | 45,456 | 46,693 | 182,702 | 47,179 | 49,195 | ||||||||||||||
YoY Growth (%) | |||||||||||||||||||||
Literacy | 20 | % | 19 | % | 18 | % | 18 | % | 19 | % | 18 | % | 18 | % | |||||||
E&E Language | (6 | )% | (6 | )% | (6 | )% | (5 | )% | (6 | )% | (6 | )% | (6 | )% | |||||||
Consumer Language | 2 | % | 6 | % | 9 | % | 2 | % | 5 | % | 5 | % | 9 | % | |||||||
Total | 4 | % | 6 | % | 6 | % | 5 | % | 5 | % | 6 | % | 7 | % | |||||||
% of Total Revenue | |||||||||||||||||||||
Literacy | 33 | % | 33 | % | 34 | % | 37 | % | 34 | % | 37 | % | 36 | % | |||||||
E&E Language | 32 | % | 32 | % | 31 | % | 29 | % | 31 | % | 29 | % | 28 | % | |||||||
Consumer Language | 35 | % | 35 | % | 35 | % | 34 | % | 35 | % | 34 | % | 36 | % | |||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||
Revenues by Geography | |||||||||||||||||||||
39,830 | 41,179 | 40,891 | 42,180 | 164,080 | 42,529 | 44,415 | |||||||||||||||
International | 4,781 | 4,763 | 4,565 | 4,513 | 18,622 | 4,650 | 4,780 | ||||||||||||||
Total | 44,611 | 45,942 | 45,456 | 46,693 | 182,702 | 47,179 | 49,195 | ||||||||||||||
Revenues by Geography (as a %) | |||||||||||||||||||||
89 | % | 90 | % | 90 | % | 90 | % | 90 | % | 90 | % | 90 | % | ||||||||
International | 11 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | |||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Prior period data has been modified where applicable to conform to current presentation for comparative purposes. Immaterial rounding differences may be present in this data in order to conform to Financial Statement totals.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
As of | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 31,259 | $ | 43,010 | |||
Restricted cash | 65 | 54 | |||||
Accounts receivable (net of allowance for doubtful accounts of respectively) |
27,003 | 22,919 | |||||
Inventory | 1,270 | 1,545 | |||||
Deferred sales commissions | 10,730 | 11,558 | |||||
Prepaid expenses and other current assets | 3,957 | 4,172 | |||||
Total current assets | 74,284 | 83,258 | |||||
Deferred sales commissions | 8,121 | 7,682 | |||||
Property and equipment, net | 38,787 | 39,251 | |||||
Operating lease right-of-use assets | 5,013 | 5,818 | |||||
Intangible assets, net | 13,555 | 14,317 | |||||
49,057 | 48,958 | ||||||
Other assets | 2,186 | 1,823 | |||||
Total assets | $ | 191,003 | $ | 201,107 | |||
Liabilities and stockholders' deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 4,727 | $ | 7,534 | |||
Accrued compensation | 12,470 | 9,854 | |||||
Income tax payable | 169 | 78 | |||||
Operating lease liabilities | 1,436 | 1,455 | |||||
Other current liabilities | 11,483 | 13,090 | |||||
Deferred revenue | 109,288 | 119,851 | |||||
Total current liabilities | 139,573 | 151,862 | |||||
Deferred revenue | 64,815 | 57,766 | |||||
Deferred income taxes | 2,723 | 2,590 | |||||
Operating lease liabilities | 3,458 | 4,167 | |||||
Other long-term liabilities | 675 | 914 | |||||
Total liabilities | 211,244 | 217,299 | |||||
Commitments and contingencies | |||||||
Stockholders' deficit: | |||||||
Preferred stock, outstanding at |
— | — | |||||
Non-designated common stock, and 24,604 and 24,060 shares outstanding, at |
2 | 2 | |||||
Additional paid-in capital | 216,295 | 210,846 | |||||
(11,435 | ) | (11,435 | ) | ||||
Accumulated loss | (222,240 | ) | (212,548 | ) | |||
Accumulated other comprehensive loss | (2,863 | ) | (3,057 | ) | |||
Total stockholders' deficit | (20,241 | ) | (16,192 | ) | |||
Total liabilities and stockholders' deficit | $ | 191,003 | $ | 201,107 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three months ended |
Six months ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | $ | 49,195 | $ | 45,942 | $ | 96,374 | $ | 90,553 | |||||||
Cost of revenue | 11,436 | 8,861 | 22,537 | 17,287 | |||||||||||
Gross profit | 37,759 | 37,081 | 73,837 | 73,266 | |||||||||||
Operating expenses | |||||||||||||||
Sales and marketing | 25,974 | 25,800 | 51,408 | 49,038 | |||||||||||
Research and development | 6,177 | 5,776 | 13,094 | 11,514 | |||||||||||
General and administrative | 8,945 | 8,566 | 18,507 | 17,258 | |||||||||||
Total operating expenses | 41,096 | 40,142 | 83,009 | 77,810 | |||||||||||
Loss from operations | (3,337 | ) | (3,061 | ) | (9,172 | ) | (4,544 | ) | |||||||
Other income and (expense): | |||||||||||||||
Interest income | 10 | 9 | 26 | 42 | |||||||||||
Interest expense | (54 | ) | (99 | ) | (107 | ) | (159 | ) | |||||||
Other income and (expense) | 18 | 519 | 89 | 1,315 | |||||||||||
Total other income and (expense) | (26 | ) | 429 | 8 | 1,198 | ||||||||||
Loss before income taxes | (3,363 | ) | (2,632 | ) | (9,164 | ) | (3,346 | ) | |||||||
Income tax expense | 223 | 175 | 603 | 5 | |||||||||||
Net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Loss per share: | |||||||||||||||
Basic | $ | (0.15 | ) | $ | (0.12 | ) | $ | (0.41 | ) | $ | (0.14 | ) | |||
Diluted | $ | (0.15 | ) | $ | (0.12 | ) | $ | (0.41 | ) | $ | (0.14 | ) | |||
Common shares and equivalents outstanding: | |||||||||||||||
Basic weighted average shares | 24,103 | 23,455 | 23,953 | 23,247 | |||||||||||
Diluted weighted average shares | 24,103 | 23,455 | 23,953 | 23,247 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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2020 | 2019 | 2020 | 2019 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Non-cash adjustments to reconcile net loss to cash used in operating activities: | |||||||||||||||
Stock-based compensation expense | 3,009 | 1,356 | 5,270 | 2,576 | |||||||||||
(Gain) loss on foreign currency transactions | (32 | ) | (517 | ) | (10 | ) | 191 | ||||||||
Bad debt expense | 78 | 136 | 336 | 123 | |||||||||||
Depreciation and amortization | 4,351 | 3,457 | 8,771 | 6,986 | |||||||||||
Operating lease costs | 514 | 533 | 1,049 | 1,059 | |||||||||||
Deferred income tax expense (benefit) | 139 | 77 | 254 | (515 | ) | ||||||||||
(Gain) loss on disposal or sale of assets | — | 1 | — | (1,394 | ) | ||||||||||
Amortization of deferred financing costs | 11 | 19 | 30 | 33 | |||||||||||
Net change in: | |||||||||||||||
Accounts receivable | (11,707 | ) | (12,063 | ) | (4,625 | ) | (3,826 | ) | |||||||
Inventory | 107 | 111 | 275 | (718 | ) | ||||||||||
Deferred sales commissions | (1,208 | ) | 335 | 371 | 2,332 | ||||||||||
Prepaid expenses and other current assets | (83 | ) | (30 | ) | 114 | (819 | ) | ||||||||
Income tax receivable or payable | 20 | (320 | ) | 91 | (49 | ) | |||||||||
Other assets | (379 | ) | (233 | ) | (450 | ) | (89 | ) | |||||||
Accounts payable | (2,107 | ) | 1,129 | (2,792 | ) | (466 | ) | ||||||||
Accrued compensation | 217 | (3,468 | ) | 2,395 | (1,027 | ) | |||||||||
Other current liabilities | 733 | 1,298 | (1,201 | ) | (1,324 | ) | |||||||||
Operating lease liabilities | (491 | ) | (516 | ) | (969 | ) | (1,060 | ) | |||||||
Other long-term liabilities | — | — | — | (31 | ) | ||||||||||
Deferred revenue | 10,091 | (3,345 | ) | (2,947 | ) | (20,045 | ) | ||||||||
Net cash used in operating activities | (323 | ) | (14,847 | ) | (3,805 | ) | (21,414 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Purchases of property and equipment | (3,806 | ) | (4,995 | ) | (7,592 | ) | (9,709 | ) | |||||||
Proceeds from sale of assets | — | 400 | — | 1,396 | |||||||||||
Net cash used in investing activities | (3,806 | ) | (4,595 | ) | (7,592 | ) | (8,313 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Proceeds from the exercise of stock options | 368 | 2,143 | 410 | 2,887 | |||||||||||
Proceeds from borrowings under credit facility | — | 10,500 | — | 10,500 | |||||||||||
Repayments of borrowings under credit facility | — | (600 | ) | — | (600 | ) | |||||||||
Payment of deferred financing costs | — | (45 | ) | (66 | ) | (47 | ) | ||||||||
Payments under financing lease liabilities | (56 | ) | (112 | ) | (171 | ) | (222 | ) | |||||||
Net cash provided by financing activities | 312 | 11,886 | 173 | 12,518 | |||||||||||
Decrease in cash, cash equivalents, and restricted cash | (3,817 | ) | (7,556 | ) | (11,224 | ) | (17,209 | ) | |||||||
Effect of exchange rate changes in cash, cash equivalents, and restricted cash | (30 | ) | 21 | (516 | ) | (159 | ) | ||||||||
Net decrease in cash, cash equivalents, and restricted cash | (3,847 | ) | (7,535 | ) | (11,740 | ) | (17,368 | ) | |||||||
Cash, cash equivalents, and restricted cash—beginning of period | 35,171 | 28,341 | 43,064 | 38,174 | |||||||||||
Cash, cash equivalents, and restricted cash—end of period | $ | 31,324 | $ | 20,806 | $ | 31,324 | $ | 20,806 |
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in thousands)
(unaudited)
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2020 | 2019 | 2020 | 2019 | ||||||||||||
GAAP net loss | $ | (3,586 | ) | $ | (2,807 | ) | $ | (9,767 | ) | $ | (3,351 | ) | |||
Total other non-operating (income) and expense, net | 26 | (429 | ) | (8 | ) | (1,198 | ) | ||||||||
Income tax expense | 223 | 175 | 603 | 5 | |||||||||||
Depreciation and amortization | 4,351 | 3,457 | 8,771 | 6,986 | |||||||||||
Stock-based compensation expense | 3,009 | 1,356 | 5,270 | 2,576 | |||||||||||
Other EBITDA adjustments | 104 | 269 | 431 | 322 | |||||||||||
Adjusted EBITDA* | $ | 4,127 | $ | 2,021 | $ | 5,300 | $ | 5,340 |
* 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.
RECONCILIATION OF CASH USED IN OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
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2020 | 2019 | 2020 | 2019 | ||||||||||||
Net cash used in operating activities | $ | (323 | ) | $ | (14,847 | ) | $ | (3,805 | ) | $ | (21,414 | ) | |||
Purchases of property and equipment | (3,806 | ) | (4,995 | ) | (7,592 | ) | (9,709 | ) | |||||||
Free cash flow * | $ | (4,129 | ) | $ | (19,842 | ) | $ | (11,397 | ) | $ | (31,123 | ) |
* Free cash flow is cash flow from operations minus cash used in purchases of property and equipment.
Supplemental Information
(unaudited)
Quarter-Ended | Year Ended | Quarter-Ended | ||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||
Revenue by Segment (in thousands, except percentages) | ||||||||||||||||||||
Literacy | 14,806 | 15,101 | 15,587 | 17,131 | 62,625 | 17,486 | 17,814 | |||||||||||||
E&E Language | 14,443 | 14,502 | 14,074 | 13,793 | 56,812 | 13,552 | 13,640 | |||||||||||||
Consumer Language | 15,362 | 16,339 | 15,795 | 15,769 | 63,265 | 16,141 | 17,741 | |||||||||||||
Total | 44,611 | 45,942 | 45,456 | 46,693 | 182,702 | 47,179 | 49,195 | |||||||||||||
YoY Growth (%) | ||||||||||||||||||||
Literacy | 20 | % | 19 | % | 18 | % | 18 | % | 19 | % | 18 | % | 18 | % | ||||||
E&E Language | (6 | )% | (6 | )% | (6 | )% | (5 | )% | (6 | )% | (6 | )% | (6 | )% | ||||||
Consumer Language | 2 | % | 6 | % | 9 | % | 2 | % | 5 | % | 5 | % | 9 | % | ||||||
Total | 4 | % | 6 | % | 6 | % | 5 | % | 5 | % | 6 | % | 7 | % | ||||||
% of Total Revenue | ||||||||||||||||||||
Literacy | 33 | % | 33 | % | 34 | % | 37 | % | 34 | % | 37 | % | 36 | % | ||||||
E&E Language | 32 | % | 32 | % | 31 | % | 29 | % | 31 | % | 29 | % | 28 | % | ||||||
Consumer Language | 35 | % | 35 | % | 35 | % | 34 | % | 35 | % | 34 | % | 36 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||
Revenues by Geography | ||||||||||||||||||||
39,830 | 41,179 | 40,891 | 42,180 | 164,080 | 42,529 | 44,415 | ||||||||||||||
International | 4,781 | 4,763 | 4,565 | 4,513 | 18,622 | 4,650 | 4,780 | |||||||||||||
Total | 44,611 | 45,942 | 45,456 | 46,693 | 182,702 | 47,179 | 49,195 | |||||||||||||
Revenues by Geography (as a %) | ||||||||||||||||||||
89 | % | 90 | % | 90 | % | 90 | % | 90 | % | 90 | % | 90 | % | |||||||
International | 11 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Prior period data has been modified where applicable to conform to current presentation for comparative purposes. Immaterial rounding differences may be present in this data in order to conform to Financial Statement totals.