INVESTOR PRESENTATION 2018 - Reach, Relevancy and Recurring Revenue DECEMBER 2018 - Rosetta Stone
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INVESTOR PRESENTATION 2018 Reach, Relevancy and Recurring Revenue DECEMBER 2018
Safe Harbors
Forward-Looking Statements additional funds; failure to adapt to and manage technological changes; the risk
This presentation contains forward-looking statements that reflect, when made, our that businesses acquired by us might not perform as expected; the inability to
current views with respect to current events and financial performance. All successfully expand internationally; and the failure to maintain information privacy
statements that address future operating, financial or business performance or our and security, as well as those discussed in our filings with the Securities and
strategies or expectations are forward-looking statements and may include, but are Exchange Commission, including our most recent Annual Report on Form 10-K and
not limited to, statements relating to: our business strategy; guidance or projections our Quarterly Reports on Form 10-Q. New risks and uncertainties arise from time to
related to revenue, Adjusted EBITDA, bookings, and other measures of future time, and it is impossible for us to predict these events or how they may affect us.
economic performance; the contributions and performance of our businesses We disclaim any intention or obligation to update or revise any forward-looking
including acquired businesses and international operations; projections for future statements, whether as a result of new information, future events and/or
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estimates and assumptions. In some cases, you can identify these statements by
forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” Non-GAAP Financial Measures
“anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook,” Today’s presentation and discussion also contain references to non-GAAP financial
or “continue,” and other comparable terminology. Such forward-looking statements measures. The full definition, GAAP comparisons, and reconciliation of those
are subject to many risks, uncertainties and factors relating to our operations and measures are available in this presentation or in our press release which is posted
business environment, which may cause our actual results to be materially different on our website at www.rosettastone.com. Our non-GAAP measures may not be
from any future results expressed or implied by such forward-looking statements. comparable to those used by other companies, and we encourage you to review
Factors that could cause actual results to differ materially from these forward- and understand all our financial reporting before making any investment decision.
looking statements include, but are not limited to, the inability to execute our
business strategy; declining demand for our products; the impact of any revisions to
our pricing strategy; the inability to introduce new products and services; the Immaterial rounding differences may be present in this presentation in order to
effectiveness of our marketing; the adequacy of internally generated funds and conform to reported totals.
existing sources of liquidity, such as bank financing, as well as our ability to raise
| © 2018 Rosetta Stone Ltd. All rights reserved. | 2
Reach, Relevancy and Recurring Revenue
Reach Relevancy Recurring Revenue
Reach Over 5MM Rigorously Researched 100% Subscription-
Discerning Learners and Independently based Business Building
Annually Evaluated Reading Recurring Revenue
Programs and Iconic
Language Brand Drive
Relevancy
| © 2018 Rosetta Stone Ltd. All rights reserved. | 3
We Have Changed Fundamentally
FROM HERE (2014)... ...TO HERE (2018)
800K 756,936
700K
600K
503,471
500K
400K 366,288
300K 213,589
200K
100K 10,911
K
2014 2015 2016 2017 2018 E
CD Unit Sales
Predominantly Consumer Serving Over 5MM Learners Through
Language CD Business Three Different Demanding End Users
(K12, Consumers, Corporate)
| © 2018 Rosetta Stone Ltd. All rights reserved. | 4
We Address Big Societal Needs
Childhood Literacy in the U.S. Second Language Learning Worldwide
• Achievement Gap: 64% of 4th graders are non- • ~$50BN in spend in 2020
proficient readers / 85% of public school • 1.5BN English Language Learners
curriculum delivered via reading
• Literacy is largest area of curriculum spend in US
public schools
1. SOURCE: U.S. Department of education, National Center f or Education Statistics, National Assessment of Educational Progress (NAEP), selected years., 992-2015
Reading Assessments, NAEP Data Explorer. See Digest of Education Statistics 2015, table 221.10.
2. Ambient Insight, The 2015-2020 Worldwide Digital English Language Learning Market, 2016. | © 2018 Rosetta Stone Ltd. All rights reserved. | 5
3. ThoughtCo., How Many People Learn English? An Estimated 1.5 Billion People Are Studying the Language Worldwide, October 08, 2018.
Why We Win – K-12
Best-in-Class Literacy Curriculum and Assessment Portfolio
• 35 years of technology driven experience in K-12 literacy
• Broadest and deepest K-12 Literacy portfolio
Demonstrated Ability to Dramatically Improve Outcomes
• 15 third-party reviewed studies of Literacy efficacy that meet ESSA standards of evidence
• Annual studies indicate students of all abilities make substantial progress in Core5
• Driving consistently high retention (Q3-93%) and renewal rates (Q3-100%)
Marketplace Scale and Leadership
• Served ~13,500 schools and 3.8MM students in the U.S. in 2017/18 school year
• THE Journal Reader’s Choice #1 Overall K-12 Technology – ahead of Google and Apple
| © 2018 Rosetta Stone Ltd. All rights reserved. | 6
Broad and Deep Digital Literacy Portfolio
Students at all levels and grades work at their own pace through personalized learning paths
Grades
PreK-5
Grades
6-12
IMPLEMENTATION
SERVICES
Educator
Data Platform
| © 2018 Rosetta Stone Ltd. All rights reserved. | 7
As Every Student Keystroke or Click is Captured in Our Products,
Teachers are Empowered to Provide Personalized Instruction
Core5 uses its patented Assessment Without Testing to predict the As students progress online, Teachers are provided information on rate and accuracy of
likelihood of meeting year-end benchmarks over 89 separate activity types so they can focus instruction where needed
Teachers are then provided over 400 pages of “skill builders”
for their students to build automaticity
| © 2018 Rosetta Stone Ltd. All rights reserved. | 8
Evidence Based, Research Proven
Published Research: 2006 - 2018
Independent Peer-Reviewed Journal Studies
| © 2018 Rosetta Stone Ltd. All rights reserved. | 9
Efficacy Drives Demand - Utah UTAH RESULTS 2017-18: 194 Schools | 60,000 Students (K-3) 90% of students meeting usage targets are reading on or above grade level.
And Recognized K12 Leadership
2018 Readers Choice Awards
#1 Top Overall Technology
#1 Best Reading Program
#1 Favorite Adaptive/Personalized Learning Tool
#1 Top Educational Game or Gamified Learning Tool
#1 Top Technology Adopted in the Last 12 Months
| © 2018 Rosetta Stone Ltd. All rights reserved. | 11Power of the Literacy Portfolio to Drive Higher LTV
Large Urban District in Wisconsin
2 Core5 unlimited site licenses with
Implementation Services
15 Core5 unlimited site licenses with
Implementation Services
1. ThoughtCo., How Many People Learn English? An Estimated 1.5 Billion People Are
Studying the Language Worldwide, October 08, 2018.
Purchased PowerUp and renewed Core5.
2. Ambient Insight, The 2015-2020 Worldwide Digital English Language Learning
3.
Market, 2016.
34 unlimited site licenses and $300k
EF EPI, reported in Quartz, GLOBISH ON THE RISE: The world is getting better at
annual contract value
English—but some countries are learning faster than others, February 23, 2018.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 12Helping Growth Significantly Outpace the Industry
Bookings and Revenues by Year
($ Millions)
70.0
~60
60.0
~52
50.0 47.5
43.6
40.0 38.4
33.9 34.1
30.0
23.1 21.9
20.0
9.9
10.0
0.0
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018E 1
Bookings Revenues
1 Based on guidance of approaching $60MM in bookings and $52MM in revenues. See appendix for “bookings” definition.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 13With Opportunity for More - Expansion and Greenfield
9%
14% Students
Schools
22% 41% of Schools*
46% of Students*
Districts Within Existing Footprint
Expansion Opportunity:
While we serve 14% of US public
schools, they are in districts that
total over 40% of those schools
*Out of (In US):
103,000 Public Schools; 13,300 Districts
47.4 million Students
| © 2018 Rosetta Stone Ltd. All rights reserved. | 14Next? Leverage K12 Opportunity
Combining Sales Resources (2019) and Investing in New English Learning Product to Build on Opportunity
K-12 Today K-12 Vision 2020
• Literacy sales growing ~25% • Best-in-class Literacy suite and Emerging Bilingual
• Full Literacy product suite product
• 45 Sales people • ~75 highly productive salespeople and world-class
customer success team
• Combined Literacy and K-6 EL with high retention rates
continuing to grow at ~25%
| © 2018 Rosetta Stone Ltd. All rights reserved. | 15Why We Win – Language
Iconic Brand
• ~$1.4BN in sales and marketing spend since 2009 have build brand
• 84% aided awareness in the US; over 3x nearest competitor
Marketplace Leading Technology
• 7K+ hours of CEFR-aligned business and cultural content
• 10K+ virtual tutoring sessions per month
• New Innovation: Seek and Speak, Your Plan, Translation
Scale Across Markets
• Over $120MM in combined 2018 bookings across Consumer and Enterprise & Education
• Substantial ongoing investment in Research & Development to drive future growth
| © 2018 Rosetta Stone Ltd. All rights reserved. | 16Iconic Language Brand… …That Dominates
SOURCE: 2018 Rosetta Stone U.S. brand awareness study
| © 2018 Rosetta Stone Ltd. All rights reserved. | 17With Marketplace Leading Technology
| © 2018 Rosetta Stone Ltd. All rights reserved. | 18Driving 20% Increase in Consumer Subscribers Over LTM
Global Consumer Subscriber Base
(000)
500
447
417
395
400 370
300
200
100
Q4 2017 Q1 2018 Q2 2018 Q3 2018
See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 19Hired World-Class Talent Into Language Business
MATT HULETT DR. LIZ BROOKE JERRY HUANG PHILIP DUNNE
President Chief Learning Officer SVP Strategy and Business SVP Consumer
Development
GREGORY SPILS MARK MOSELEY CHRISTINA KOZLOFF ANDREA RIGGS
VP Product Management VP, IT and Operations VP Brand Head of PR
New in last 3 years
| © 2018 Rosetta Stone Ltd. All rights reserved. | 20To Drive Innovation and Leverage Core Assets
Your Plan
Seek and Speak
Translations
Flash Cards
Grammar
Guides
| © 2018 Rosetta Stone Ltd. All rights reserved. | 21With the Potential to Disrupt All Areas of Language Learning
In a survey of Rosetta Stone Learners in China, Korea and Brazil we
Offline Only eLearning Only found most learners use multiple language products or services.
Use other products too
Virtual Blended
Learning
Use tutoring or other offline
products too
Digital eLearning and January 2018, RST Internal Research of Language Learners
Tutoring Only Tutoring that have used a Rosetta Stone product in 2017. n = 237
| © 2018 Rosetta Stone Ltd. All rights reserved. | 22Next? A Unique & Compelling Solution for International Learners
Professional Tutors:
Live Anywhere on Any
Device Sold and
Delivered Through
Our Software
| © 2018 Rosetta Stone Ltd. All rights reserved. | 23Investment Considerations
• Over 100,000 U.S. Public schools
1. Scalable Opportunities • $50BN Global Language market / 1.5BN Global English Language learners
• 3.8MM Literacy learners / 1MM Enterprise and K-12 Language learners / 0.5MM Consumer
2. Large Current Base:
Language subscribers provide tremendous reach
5MM Learners • Broad range of customers in K12, Consumer and Corporate provides unique insights into needs
3. Uniquely Relevant in the • 84% Aided awareness for Rosetta Stone; over 3X peers
Marketplaces We Serve • 15 third party reviewed studies of Literacy efficacy that meet ESSA standards of evidence
• Methods: ABL (Adaptive Blended Learning), Immersion, Assessment Without Testing
4. Compelling Combination of • Capabilities: True Accent proprietary speech recognition engine, Rosetta Stone animation engine,
Product Assets 10K+ Tutoring Sessions per month
• Content: 7K+ hours of CEFR-aligned language content, Full portfolio of Literacy solutions
• Momentum: Literacy bookings CAGR of 27% since 2014 / Consumer subscriptions increasing
5. Driving Growth Opportunities • Expect: Consolidated bookings and revenue growth in 2019, 1st time since 2014
• Future Upside: K-12 EL and global Consumer English Language learning
• 80% gross margin
6. With Margin Leverage • Leverage in R&D and Sales & Marketing
• Relatively flat G&A
| © 2018 Rosetta Stone Ltd. All rights reserved. | 24FY 2018 Guidance
FY 2017 Actual FY 2018 Guidance
Literacy Language Literacy Language
$MM Segment Segments Consolidated Segment Segments Consolidated
Revenue $43.6 $141.0 $184.6 $52 ~$121 ~$173
Revenue + Change in Deferred
$47.5 $134.5 $182.0 $60 ~$124 ~$184
Revenue1,2
GAAP Net Loss $(1.5) ~$(25)
Adjusted EBITDA $13.3 ~$(2)
Capital Expenditures $12.9 ~$16
Change in Deferred Revenue2 $3.9 $(6.5) $(2.6) ~$8 ~$3 ~$11
Ending Cash Balance $43.0 ~$39
1 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures. | 2 Before $12.9MM from SOURCENEXT in 2017 and $4.5MM in 2018 (Language and Consolidated).
| © 2018 Rosetta Stone Ltd. All rights reserved. | 25Appendix
Definitions – Statistical Measures
Annualized recurring revenue (or “ARR”) is computed using the North America Consumer DTC and Global App Sales CAC: The Customer
annualized value of active subscription arrangements at the end of the Acquisition Cost, or CAC, is an operating metric calculated as the sum of
period. ARR is a performance metric used to assess the health and Consumer GAAP sales and marketing expenses in a period plus affiliate
trajectory of our E&E Language and Literacy segments, which we believe commission expenses that are classified as cost of goods sold, adjusted to
aids investors in understanding our segment results. We present ARR as a reflect the lifetime app store commissions incurred on the initial app sale
statistical measure rather than a non-GAAP financial measure. ARR plus an estimate of app commission expenses on future renewals.
should be viewed independently of revenue and deferred revenue, as
ARR is a performance metric and is not intended to be combined with CAC per Unit is CAC divided by total new unit sales net of returns for
either of these items. North America DTC and Global App sales.
North America Consumer DTC and Global App Sales LTV per Unit: The The LTV-to-CAC ratio is calculated as LTV per Unit divided by CAC per Unit.
Lifetime Value per unit, or LTV per unit, is an operating metric calculated Net LTV Added is calculated as LTV Added minus CAC.
as the combined value of customers' initial purchases plus an estimate of
future renewals based on the median renewal rates observed for recent Prior period amounts have been restated to be comparable to the
renewals of similar products. The per unit metric is expressed as the current period methodology. In addition, prior period LTV, CAC and Net
weighted average LTV per unit of all products sold during a given period. LTV metrics presented for a given period may change over time as the
most current retention experience for that period is used to update the
LTV Added is the LTV per unit multiplied by total new unit sales net calculations of those operating metrics.
of returns.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 27Definitions – Non-GAAP Financial Measures
Bookings represents executed contracts received by the Company that Free cash flow is cash flow from operating activities minus cash used in
are either recorded immediately as revenue or deferred revenue. purchases of property and equipment.
Therefore, sales is an operational metric and in any one period is equal
Segment contribution is calculated as segment revenue less expenses
to revenue plus the change in deferred revenue.
directly incurred by or allocated to the segment. Direct segment
Adjusted EBITDA is GAAP net income/loss plus interest income and expenses include costs and expenses that are directly incurred by or
expense, other income/expense, income tax benefit/expense, allocated to the segment and include materials costs, service costs,
impairment, lease abandonment and termination, depreciation, customer care and coaching costs, sales and marketing expenses, and
amortization, stock-based compensation, restructuring, and strategy and bad debt expense. In addition to the previously referenced expenses, the
cost-reduction related consulting expenses. In addition, Adjusted EBITDA Literacy segment includes direct research and development expenses
excludes "Other" items related to non-restructuring wind down and and Combined Language includes shared research and development
severance costs, and transaction and other costs associated with expenses, costs of revenue, sales and marketing, and general and
mergers and acquisitions, as well as all adjustments related to recording administrative expenses applicable to the Consumer Language and E&E
the non-cash tax valuation allowance for deferred tax assets. Adjusted Language segments. Prior periods have been reclassified to reflect our
EBITDA for prior periods has been revised to conform to current current segment presentation and definition of segment contribution.
definition.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 28Consolidated Highlights – Q3 2018
• Ongoing sales1 growth of 11%, the first YOY sales increase since 2014
• Record Literacy sales of $34 million, more than all of 2015, and up 37% YOY
• Consumer Language sales stable to prior year for the first time since 2014
• E&E sales decline of $2 million YOY
Ongoing Sales1 Adjusted EBITDA2 Cash and Cash Equivalents
3Q17 3Q18 3Q17 3Q18 3Q17 3Q18
$24.9 $34.0 $2.7
$40.1
$19.8 $17.5 $31.8
$16.0 $16.1
-$0.7
1 See Consumer
Appendix E&E
for definitions and reconciliation Literacy
of GAAP to non-GAAP
Financial Measures and Statistical Measures. Prior period ARR has
been updated
1 Before to reflect
SourceNext andcurrent period presentation.
Discontinued FitBrains
2 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 29Adjusted EBITDA and Free Cash Flow1
1 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 30Revenue and Sales1
1 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 31Reconciliation of Revenue and Sales1
1 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 32Segment Contribution1
1 See Appendix for definitions and reconciliation of GAAP to non-GAAP Financial Measures and Statistical Measures.
| © 2018 Rosetta Stone Ltd. All rights reserved. | 33You can also read
