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Rosetta Stone Inc. Reports Second Quarter 2012 Results

Stocks in this article: RST

Swad added, “At our Investor Day in May of this year, I laid out my strategy and priorities for the company, which are (i) leveraging our brand, (ii) innovating our platform and (iii) expanding distribution. I believe that we are executing on that strategy and Rosetta Stone is making progress towards our goals.”

Second Quarter 2012 Operational and Financial Highlights

  • Revenue decreased 9%: Revenue decreased 9% to $60.8 million reflecting the rationalization of less efficient kiosks, lower sales internationally and a decline in the Institutional business because of the non-renewal of the Army and Marines contracts last year.
US$ thousands   Three Months Ended  
June 30,   June 30,
2012 2011 % change
Revenue from:
US Consumer $ 36,895 $ 38,606 -4 %
International Consumer   8,074   12,014 -33 %
Total Consumer 44,969 50,620 -11 %
Institutional   15,843   16,123 -2 %
Total 60,812 66,743 -9 %
 
  • Adjusted EBITDA: Adjusted EBITDA for the second quarter was $1.1 million, an increase of $2.4 million from ($1.3) million in the second quarter of 2011. The improvement in Adjusted EBITDA was predominantly driven by a reduction in sales and marketing expenses, including a decrease in media spending, as well as a decrease in general and administrative expenses. Adjusted EBITDA in the quarter includes approximately $1.7 million of restructuring and other one-time costs.
  • Net Income: Rosetta Stone recorded a net loss of $4.5 million in the second quarter 2012, compared to a net loss of $4.6 million in the second quarter of 2011. Net loss per share was $0.22 unchanged from a net loss of $0.22 per share in the prior year period.
  • Balance Sheet and Cash Flow: Cash, cash equivalents and short-term investments were $120.4 million at June 30, 2012, an increase of $4.1 million compared with $116.3 million at December 31, 2011 and an increase of $5.2 million from the prior year period. The company has no debt. Net cash provided by operating activities in the quarter was $3.4 million compared with ($2.9) million a year ago. Capital expenditures were $1.0 million. Free cash flow for the quarter was $2.4 million, compared with ($5.8) million in the second quarter of 2011.

Financial Outlook

The company is providing the following update to its guidance for the full year 2012:

  • Increasing the bottom end of the range for Adjusted EBITDA* to $6 million for a range of $6 million to $8 million with Adjusted EBITDA margin of approximately 2% to 3% compared with previous guidance of $5 million to $8 million.
  • Capital expenditures of $8 million to $11 million

*Adjusted EBITDA excludes any potential expenses related to the previously disclosed lawsuit seeking to prevent Google Inc. from infringing upon Rosetta Stone's trademarks, and any restructuring costs.

Non-GAAP Financial Measures

This press release contains the non-GAAP financial measure Adjusted EBITDA, which is GAAP net income or loss plus interest expense, income tax expense, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA excludes any potential expenses related to the previously disclosed lawsuit seeking to prevent Google Inc. from infringing upon Rosetta Stone's trademarks, and any restructuring costs. Adjusted EBITDA for prior periods has been revised to conform to current definition. This press release also includes the non-GAAP financial measure “free cash flow,” which is cash flow from operations less cash used in purchases of property and equipment. 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.

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