RST
$11.25
Rosetta Stone
($.07)
(.62%)
Earnings Details
4th Quarter December 2016
Tuesday, March 14, 2017 4:15:17 PM
Tweet Share Watch
Summary

Rosetta Stone (RST) Recent Earnings

Rosetta Stone (RST) reported a 4th Quarter December 2016 loss of $0.20 per share on revenue of $51.7 million. on revenue of $48.1 million. Revenue fell 10.9% compared to the same quarter a year ago.

Rosetta Stone Inc is a provider of technology-based language learning solutions. The Company offers courses in formats, including online subscriptions, digital downloads, mobile apps, and perpetual CD packages.

Results
Reported Earnings
($0.20)
Earnings Whisper
-
Consensus Estimate
Reported Revenue
$51.7 Mil
Revenue Estimate
$48.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Rosetta Stone Inc. Reports Fourth Quarter and Full Year 2016 Results

Rosetta Stone Inc. (RST), a world leader in technology-based learning solutions, today announced financial results for the fourth quarter and full year ended December 31, 2016. Revenue in the fourth quarter 2016 totaled $51.7 million, down 11% from $58.0 million in the year-ago period. Fourth quarter 2016 net loss totaled $5.6 million, an improvement of 51% compared to the net loss of $11.4 million in the year-ago period. Included in the fourth quarter 2016 net loss were lease termination costs totaling $1.6 million. Included in the fourth quarter 2015 net loss were impairment charges and lease termination costs totaling $6.0 million. Earnings per diluted share in the fourth quarter 2016 totaled $(0.25), an improvement of 52% compared to $(0.52) per diluted share in the fourth quarter 2015.

Fourth Quarter 2016 Overview

Revenue at Lexia Learning ("Lexia"), the Company’s Literacy segment, increased 35% year-over-year to a record high $9.8 million.

Total operating expenses decreased $13.0 million or 22% year-over-year to $45.5 million, representing the eighth consecutive quarter of year-over-year expense reductions. Total operating expenses included $1.6 million of lease termination costs in the fourth quarter 2016 and $6.0 million of impairment charges and lease termination costs in the year-ago period

Net loss improved 51% and EPS improved 52% year-over-year to $5.6 million or $(0.25) per diluted share

Adjusted EBITDA, a non-GAAP financial measure, improved $1.9 million year-over-year to $3.5 million

Cash and cash equivalents increased $4.0 million sequentially to $36.2 million at December 31, 2016, with zero debt outstanding.

"Over the course of 2016 we continued our work to right-size the Company and position it for growth by investing in Lexia and launching Catalyst, our new Enterprise Language product," said John Hass, Chairman, President and Chief Executive Officer. "The restructuring process that began in March 2015 is nearing completion, having reduced expenses for eight consecutive quarters on a year-over-year basis. Importantly, even as we have focused our business and reduced costs, we have made targeted investments, especially in building out Lexia’s distribution and support infrastructure, that will be a large source of future growth."

Announcement of New Japanese Partnership

The Company has entered into a series of agreements with SOURCENEXT Corporation ("SOURCENEXT"), the leading software distributor in Japan. "Today I am happy to announce a new partnership with SOURCENEXT, Japan’s leading software publisher and distributor, to better serve the needs of learners in Japan. This agreement illustrates the enduring value of our brand and intellectual property."

As part of the agreement Rosetta Stone will provide SOURCENEXT a perpetual, exclusive license of certain brands and trademarks, including the primary Rosetta Stone brand, and product code for exclusive use in the consumer and enterprise language and education space in Japan. Rosetta Stone is receiving $13.5 million before certain adjustments, and is guaranteed a minimum of an additional $6 million over the next ten years. Finally, as part of the agreements, Rosetta Stone will have the first right to license and sell any products developed by SOURCENEXT under the Rosetta Stone trademark in territories outside of Japan.

Fourth Quarter 2016 Review

Revenue: Total revenue was down 11% year-over-year to $51.7 million, due to a 25% year-over-year decline in Consumer segment revenue to $24.0 million in the fourth quarter 2016. The decline in Consumer revenue reflects management’s strategy to purposely scale-back the size and enhance the profitability of that business.

Enterprise & Education ("E&E") Language segment revenue decreased 6% year-over-year to $17.9 million in the fourth quarter 2016. The decline was driven by the restructuring of the E&E Language segment, initiated in March 2016, which had the effect of exiting the Enterprise segment’s direct sales and marketing presence in several countries, including China, Brazil and France. The Company has reentered, or intends to reenter in the future, certain of these markets through agreements with local resellers. E&E Language segment revenue before the countries that were exited decreased 3%.

Revenue at Lexia increased 35% year-over-year to $9.8 million in the fourth quarter 2016. Adjusting for the impact of purchase accounting, Lexia’s revenue would have been $10.5 million in the fourth quarter compared to $8.8 million in the year-ago period, and Lexia’s pro forma growth rate would have been 19% year-over-year. Lexia’s revenue growth was due to strong demand for its Core5 literacy curriculum product, and continued high renewal rates. The Company continues to invest to support the long-term growth of Lexia, including expanding the size of its direct sales force and the portfolio of products and services it provides to schools.

US$ thousands, except for percentages

Three Months Ended
December 31,
2016
Mix %
2015
Mix %
% change
Revenue from:
Consumer
$
23,942
46
%
$
31,749
55
%
(25
)%
E&E Language
17,926
35
%
19,025
33
%
(6
)%
Literacy
9,810
19
%
7,241
12
%
35
%
Total
$
51,678
100 %
$
58,015
100 %
(11
)%

Net Loss: The fourth quarter 2016 net loss improved 51% and EPS improved 52% year-over-year to $5.6 million or $(0.25) per diluted share, compared to the net loss of $11.4 million or $(0.52) per diluted share, in the year-ago period. Included in the fourth quarter 2016 net loss were lease termination costs totaling $1.6 million. Included in the fourth quarter 2015 net loss were non-cash impairment charges of $5.9 million, which included a $5.6 million partial goodwill impairment charge associated with the Company’s Fit Brains business, and lease termination costs totaling $0.1 million

Selling, administrative and research expenses combined totaled $43.9 million in the fourth quarter 2016, down $8.6 million or 16%, compared to $52.5 million in the year-ago period. The most significant reduction was sales and marketing expense, which decreased $7.5 million or 21% year-over-year, primarily due to lower media spending in the Consumer segment.

Full Year 2016 Review

Revenue: Full year 2016 revenue totaled $194.1 million, down 11% from $217.7 million in 2015. The decline primarily reflected lower Consumer segment revenue, which was down 27% to $87.9 million in 2016, compared to $119.6 million in 2015.

Revenue in the E&E Language segment totaled $72.1 million in 2016, down 5% compared to $76.1 million in 2015. The reduction was driven by the restructuring of the E&E Language segment, initiated in March 2016, which had the effect of exiting the Enterprise segment’s direct sales and marketing presence in several countries, including China, Brazil and France. E&E Language segment revenue before the countries that were exited decreased 2%.

Lexia’s revenue totaled $34.1 million in 2016, up 56% from $21.9 million in 2015. Adjusting for the impact of purchase accounting, Lexia’s revenue would have been $38.4 million in 2016 compared to $29.8 million a year ago, and Lexia’s pro forma growth rate would have been 29% year-over-year.

US$ thousands, except for percentages

Twelve Months Ended
December 31,
2016
Mix %
2015
Mix %
% change
Revenue from:
Consumer
$
87,883
45
%
$
119,613
55
%
(27
)%
E&E Language
72,083
37
%
76,129
35
%
(5
)%
Literacy
34,123
18
%
21,928
10
%
56
%
Total
$
194,089
100 %
$
217,670
100 %
(11
)%

Net Loss: Full year 2016 net loss totaled $27.6 million, an improvement of $19.2 million or 41% compared to the net loss of $46.8 million in 2015. Earnings per diluted share in 2016 totaled $(1.25), an improvement of $0.92 or 42% compared to $(2.17) per diluted share in 2015. Included in the net losses were non-cash impairment charges of $3.9 million and lease termination expenses of $1.6 million in 2016. In 2015, the Company recorded non-cash impairment charges of $6.8 million and lease termination expenses of $0.1 million.

The 2016 impairment charges included a $1.0 million charge for capitalized R&D and a $2.9 million charge to impair the remaining goodwill and other intangible assets related to the Company’s Fit Brains business. By comparison, the Company incurred a $1.1 million charge for capitalized R&D and recorded a partial goodwill impairment charge of $5.6 million for the Fit Brains business in 2015.

Selling, administrative and research expenses combined totaled $181.1 million in 2016, a decrease of $35.0 million or 16% compared to $216.1 million in 2015. The improvement reflects the combined effects of cost savings initiatives announced since March 2015. The majority of the operating expense decline was in sales and marketing expense, which declined $21.7 million or 16% to $114.3 million in 2016, compared to $136.1 million in 2015. In addition, general and administrative expense declined $9.6 million or 19% to $40.5 million in 2016, compared to $50.1 million in 2015.

Balance Sheet: The Company had zero debt and a cash and cash equivalents balance of $36.2 million at December 31, 2016. Deferred revenue totaled $141.5 million at December 31, 2016, compared to $142.7 million at December 31, 2015. Short-term deferred revenue, which will be recognized as revenue over the next 12 months, totaled $113.8 million, or approximately 80% of the total December 31, 2016 balance. Subsequent to year-end in March 2017, the Company amended its $25 million credit facility to extend the maturity date to April 2020.

Free Cash Flow and Adjusted EBITDA: Free cash flow, a non-GAAP financial measure, was $4.3 million in the fourth quarter 2016, compared to $12.1 million in the same period a year ago. For the full year 2016, free cash flow totaled $(11.3) million, compared to $(14.5) million in 2015. 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 in the second half of the year.

Adjusted EBITDA, a non-GAAP financial measure, was $3.5 million in the fourth quarter, an improvement of $1.9 million compared to $1.6 million in the year-ago period. For the full year, Adjusted EBITDA totaled $4.4 million in 2016, compared to $(7.0) million in 2015.

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 1-201-689-8470 (toll / international) or 1-877-407-9039 (toll-free). A live webcast will also be available in the investor relations section of the Company’s website at http://investors.rosettastone.com. A replay will be made available soon after the live conference call is completed and will remain available until midnight on March 21. Investors may dial into the replay using 1-412-317-6671 and passcode 13655713.

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," or "projects." These statements may include, but are not limited to, statements relating to: our business strategy; guidance or projections related to revenue, Adjusted EBITDA, bookings, 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, as such factors may be updated from time to time.

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 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 and expense, impairment, depreciation, amortization, stock-based compensation, and restructuring expenses. In addition, Adjusted EBITDA excludes "Other" items related to the litigation with Google Inc., consulting and other related costs associated with the development and implementation of the accelerated strategy and cost reductions, 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 includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, customer care and coaching costs, sales and marketing expenses, and bad debt expense.

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. (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.

ROSETTA STONE INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
As of December 31,
2016
2015
Assets
Current assets:
Cash and cash equivalents
$
36,195
$
47,782
Restricted cash
402
80
Accounts receivable (net of allowance for doubtful accounts of $1,072 and $1,196, at December 31, 2016 and December 31, 2015, respectively)
31,788
47,327
Inventory
6,767
7,333
Deferred sales commissions
14,085
13,526
Prepaid expenses and other current assets
3,813
3,612
Total current assets
93,050
119,660
Deferred sales commissions
4,143
5,614
Property and equipment, net
24,795
22,532
Goodwill
48,251
50,280
Intangible assets, net
22,753
28,244
Other assets
1,318
2,213
Total assets
$
194,310
$
228,543
Liabilities and stockholders’ (deficit) equity
Current liabilities:
Accounts payable
$
10,684
$
10,778
Accrued compensation
10,777
8,201
Income tax payable
785
121
Obligations under capital lease
532
521
Other current liabilities
22,150
35,318
Deferred revenue
113,821
106,868
Total current liabilities
158,749
161,807
Deferred revenue
27,636
35,880
Deferred income taxes
6,173
4,998
Obligations under capital lease
2,027
2,622
Other long-term liabilities
1,384
826
Total liabilities
195,969
206,133
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value; 10,000 and 10,000 shares authorized, zero and zero shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
--
--
Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares authorized, 23,451 and 23,150 shares issued and 22,451 and 22,150 shares outstanding at December 31, 2016 and December 31, 2015, respectively
2
2
Additional paid-in capital
190,827
185,863
Treasury stock, at cost; 1,000 and 1,000 shares at December 31, 2016 and December 31, 2015, respectively
(11,435
)
(11,435
)
Accumulated loss
(177,344
)
(149,794
)
Accumulated other comprehensive loss
(3,709
)
(2,226
)
Total stockholders’ (deficit) equity
(1,659
)
22,410
Total liabilities and stockholders’ (deficit) equity
$
194,310
$
228,543
ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Revenue:
Subscription and service
$
39,581
$
40,134
$
154,336
$
151,701
Product
12,097
17,881
39,753
65,969
Total revenue
51,678
58,015
194,089
217,670
Cost of revenue:
Cost of subscription and service revenue
6,788
5,369
23,676
21,629
Cost of product revenue
3,150
4,170
10,645
16,898
Total cost of revenue
9,938
9,539
34,321
38,527
Gross profit
41,740
48,476
159,768
179,143
Operating expenses
Sales and marketing
27,646
35,145
114,340
136,084
Research and development
6,607
6,958
26,273
29,939
General and administrative
9,637
10,397
40,501
50,124
Impairment
--
5,945
3,930
6,754
Lease abandonment and termination
1,614
55
1,644
55
Total operating expenses
45,504
58,500
186,688
222,956
Loss from operations
(3,764
)
(10,024
)
(26,920
)
(43,813
)
Other income and (expense):
Interest income
12
11
46
23
Interest expense
(117
)
(107
)
(470
)
(378
)
Other income and (expense)
(491
)
(204
)
2,297
(1,469
)
Total other income and (expense)
(596
)
(300
)
1,873
(1,824
)
Loss before income taxes
(4,360
)
(10,324
)
(25,047
)
(45,637
)
Income tax expense
1,253
1,112
2,503
1,159
Net loss
$
(5,613 )
$
(11,436 )
$
(27,550 )
$
(46,796 )
Loss per share:
Basic
$
(0.25
)
$
(0.52
)
$
(1.25
)
$
(2.17
)
Diluted
$
(0.25
)
$
(0.52
)
$
(1.25
)
$
(2.17
)
Common shares and equivalents outstanding:
Basic weighted average shares
22,065
21,801
21,969
21,571
Diluted weighted average shares
22,065
21,801
21,969
21,571
ROSETTA STONE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(5,613 )
$
(11,436 )
$
(27,550 )
$
(46,796 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Stock-based compensation expense
1,449
1,826
4,906
7,195
Loss (gain) on foreign currency transactions
382
126
(2,449
)
1,471
Bad debt expense
238
54
709
1,657
Depreciation and amortization
3,510
3,485
13,322
13,660
Deferred income tax expense
305
277
1,162
849
Loss (gain) on disposal of equipment
47
(71
)
179
(15
)
Amortization of deferred financing costs
71
56
274
160
Loss on impairment
--
5,945
3,930
6,754
(Gain) loss from equity method investments
(1
)
32
45
23
Gain on divestiture of subsidiary
--
--
--
(660
)
Net change in:
Restricted cash
(24
)
40
(378
)
43
Accounts receivable
5,769
36
14,681
26,376
Inventory
1,261
378
538
(1,253
)
Deferred sales commissions
367
180
919
(4,121
)
Prepaid expenses and other current assets
538
1,140
(167
)
1,080
Income tax receivable or payable
671
1,505
719
568
Other assets
303
(479
)
668
(684
)
Accounts payable
849
294
(74
)
(8,636
)
Accrued compensation
(722
)
(511
)
2,701
(5,485
)
Other current liabilities
(184
)
7,158
(13,261
)
(14,223
)
Other long-term liabilities
515
(68
)
558
(486
)
Deferred revenue
(2,545
)
3,761
(192
)
16,878
Net cash provided by (used in) operating activities
7,186
13,728
1,240
(5,645
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(2,886
)
(1,651
)
(12,514
)
(8,856
)
Proceeds from sale of fixed assets
--
1,642
38
1,642
Acquisitions, net of cash acquired
--
--
--
(1,688
)
Net cash outflow from divestiture of subsidiary
--
--
--
(186
)
Other investing activities
--
--
--
(286
)
Net cash used in investing activities
(2,886
)
(9
)
(12,476
)
(9,374
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options
11
--
58
114
Payment of deferred financing costs
(1
)
(5
)
(183
)
(130
)
Payments under capital lease obligations
(93
)
(243
)
(533
)
(711
)
Net cash used in financing activities
(83
)
(248
)
(658
)
(727
)
Increase (decrease) in cash and cash equivalents
4,217
13,471
(11,894
)
(15,746
)
Effect of exchange rate changes in cash and cash equivalents
(243
)
(56
)
307
(1,129
)
Net increase (decrease) in cash and cash equivalents
3,974
13,415
(11,587
)
(16,875
)
Cash and cash equivalents--beginning of period
32,221
34,367
47,782
64,657
Cash and cash equivalents--end of period
$
36,195
$
47,782
$
36,195
$
47,782
ROSETTA STONE INC.
Reconciliation of GAAP Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
GAAP net loss
$
(5,613 )
$
(11,436 )
$
(27,550 )
$
(46,796 )
Total other non-operating (income) and expense, net
596
300
(1,873
)
1,824
Income tax expense
1,253
1,112
2,503
1,159
Impairment
--
5,945
3,930
6,754
Depreciation and amortization
3,510
3,485
13,322
13,660
Stock-based compensation expense
1,449
1,826
4,906
6,147
Stock-based compensation expense related to restructuring
--
--
--
1,048
Restructuring expenses (reversal)
10
(18
)
5,193
7,743
Other EBITDA adjustments
2,247
376
3,928
1,500
Adjusted EBITDA*
$
3,452
$
1,590
$
4,359
$
(6,961
)

* Adjusted EBITDA is GAAP net income/(loss) plus interest income and expense, other income/expense, income tax benefit and expense, impairment, depreciation, amortization, stock-based compensation, and restructuring expenses. In addition, Adjusted EBITDA excludes "Other" items related to the litigation with Google Inc., consulting and other related costs associated with the development and implementation of the accelerated strategy and cost reductions, non-restructuring wind down and severance costs, severance costs, and transaction and other costs associated with mergers and acquisitions, as well as all adjustments related to recording the non-cash tax valuation allowance for deferred tax assets. Adjusted EBITDA for prior periods has been revised to conform to the current definition.

ROSETTA STONE INC.
Reconciliation of Cash Provided by (Used In) Operating Activities to Free Cash Flow
(in thousands)
(unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Net cash provided by (used in) operating activities
$
7,186
$
13,728
$
1,240
$
(5,645
)
Purchases of property and equipment
(2,886
)
(1,651
)
(12,514
)
(8,856
)
Free cash flow *
$
4,300
$
12,077
$
(11,274 )
$
(14,501 )

* 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
Quarter-Ended
Year
Ended
Ended
Mar 31
Jun 30
Sep 30
Dec 31
Dec 31
Mar 31
Jun 30
Sep 30
Dec 31
Dec 31
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
Revenue by Segment (in thousands, except percentages)
Enterprise & Education Language
18,998
18,558
19,548
19,025
76,129
18,331
17,490
18,336
17,926
72,083
Literacy
4,170
4,733
5,784
7,241
21,928
7,577
7,950
8,786
9,810
34,123
Consumer
35,274
28,120
24,470
31,749
119,613
22,094
20,276
21,571
23,942
87,883
Total
58,442
51,411
49,802
58,015
217,670
48,002
45,716
48,693
51,678
194,089
YoY Growth (%)
Enterprise & Education Language
15
%
6
%
(1
)%
(10
)%
2
%
(4
)%
(6
)%
(6
)%
(6
)%
(5
)%
Literacy
196
%
146
%
103
%
94
%
121
%
82
%
68
%
52
%
35
%
56
%
Consumer
(18
)%
(26
)%
(42
)%
(42
)%
(32
)%
(37
)%
(28
)%
(12
)%
(25
)%
(27
)%
Total
(4
)%
(10
)%
(23
)%
(27
)%
(17
)%
(18
)%
(11
)%
(2
)%
(11
)%
(11
)%
% of Total Revenue
Enterprise & Education Language
33
%
36
%
39
%
33
%
35
%
38
%
38
%
38
%
35
%
37
%
Literacy
7
%
9
%
12
%
12
%
10
%
16
%
17
%
18
%
19
%
18
%
Consumer
60
%
55
%
49
%
55
%
55
%
46
%
45
%
44
%
46
%
45
%
Total
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
Revenues by Geography (in thousands, except percentages)
United States
46,189
41,539
40,639
49,599
177,966
39,795
37,626
41,042
44,352
162,815
International
12,253
9,872
9,163
8,416
39,704
8,207
8,090
7,651
7,326
31,274
Total
58,442
51,411
49,802
58,015
217,670
48,002
45,716
48,693
51,678
194,089
Revenues by Geography (as a %)
United States
79
%
81
%
82
%
85
%
82
%
83
%
82
%
84
%
86
%
84
%
International
21
%
19
%
18
%
15
%
18
%
17
%
18
%
16
%
14
%
16
%
Total
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%

Prior period data has been modified where applicable to conform to current presentation for comparative purposes. Immaterial rounding differences may be present in this data in order to conform to Financial Statement totals.

Investors:
Frank Milano
ir@rosettastone.com
703-387-5876
Media Contact:
Michelle Alvarez
malvarez@rosettastone.com
703-387-5862

https://resource.globenewswire.com/Resource/Download/18d9f67a-96ef-488d-8bef-cb043bfabc2d?size=1

<img src="http://www.globenewswire.com/newsroom/ti?ndecode=MTUwIzY3MTAyNzI=" alt="" width="1" height="1"/>