Rosetta Stone Inc. - Supplemental Information Second Quarter 2020

Rosetta Stone has prepared the following supplemental information regarding the results for the second quarter ended June 30, 2020, to provide shareholders and analysts more detail to help understand and analyze our results in conjunction with our earnings release, conference call and supplemental earnings slides. This supplemental information will

not be read on the conference call.

The conference call will begin at 5:00 p.m. ET on Thursday, August 6, 2020, and will include brief opening comments followed by questions and answers. 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 11:59 p.m. ET on Thursday, August 13, 2020. Investors may dial into the replay using 1-412-317- 6671 and passcode 10146277.

Please see the section "Definition of Operational Metrics, Segment Measures, and Non- GAAP Financial Measures" at the end of this document for an explanation of what our non-GAAP financial measures are and how they are computed.

Q2 2020 Revenue

Total revenue in second quarter 2020 grew $3.3 million, or 7%, to $49.2 million, compared to $45.9 million in second quarter 2019.

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Rosetta Stone Inc. - Supplemental Information Second Quarter 2020

  • The Literacy segment had a strong quarter with revenue increasing $2.7 million, or 18% year-over-year, reflecting a consistently strong dollar renewal rate of 104%. Based on our work with
    customers we believe unit retention will ultimately be strong as well, but the rate within the quarter was positively distorted by our decision to support customers, in part through our Learn From Home program, as they dealt with the impact of COVID-19 by not shutting off access when their licenses expired. Consequently, we are not reporting what would not be a meaningful retention
    rate for Q2, but intend to do so again following Q3. Bookings increased to $19.2 million, or 59% year-over-year, driven by approximately $3.7 million in bookings from new opportunities in Texas, as well as expansions that benefited from the
    "Learn From Home" initiative that began in March for all Lexia customers as schools closed due to the COVID-19 pandemic.
  • Consumer Language segment revenue increased $1.4 million, or 9% year-over- year, reflecting the recognition of sales growth efforts made in prior quarters. Consumer Language bookings increased $13.4 million, or 92% year-over-year, primarily due to the sale of Lifetime Unlimited subscriptions in the Web channel

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Second Quarter 2020

driven in part by people looking for self-improvement alternatives as they spent more time at home as a result of the COVID-19 pandemic.

  • Education and Enterprise ("E&E") Language segment revenue declined $0.9 million, or 6% year-over-year, due to lower bookings in recent periods. E&E Language bookings decreased $3.2 million, or 21% year-over-year, due to lower bookings in the Enterprise and Education portions of the segment.
  • Note: Consumer and consolidated bookings referenced above and throughout this supplemental information are before $0.5 million in SOURCENEXT bookings that occurred in Q2 2019.

Q2 2020 Net Loss

The Company reported a Q2 2020 net loss of $3.6 million, or $(0.15) per diluted share, compared to a net loss of $2.8 million, or $(0.12) per diluted share, in the prior year. The year-over-year increase in net loss was due to higher operating expenses across all categories in conjunction with higher revenue being offset by an increase in the cost of revenue as the Company focused on supporting sharply increased bookings demand since Q2 2019. Total operating expenses increased $1.0 million, or 2% year-over-year, to $41.1 million, primarily due to higher commission expense and higher variable compensation expense on the higher bookings since Q2 2019. Note, most expenses are reported as incurred whereas the significant increase in bookings will be realized over time as revenue.

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Rosetta Stone Inc. - Supplemental Information

Second Quarter 2020

Annualized Recurring Revenue

Q2 2020 ARR Performance Metrics

Q2 2019

Q2 2020

Literacy

$52.7MM

$62.9MM

E&E Language

$53.5MM

$53.8MM

Annualized Recurring Revenue - or "ARR" - which is computed using the annualized value of subscriptions at the end of the period, separate from services like training and implementation. ARR is a performance metric used to assess the health and trajectory of our E&E Language and Literacy segments, which we believe cuts through the differences in the types of licenses and deal sizes in our businesses and aids in understanding our segment results. We present ARR as a statistical measure rather than a non-GAAP financial measure. ARR should be viewed independently of revenue and deferred revenue - as ARR is a performance metric and is not intended to be combined with either of these items.

ARR for the Literacy segment at June 30, 2020, was up $10.2 million, or 19% year-over- year to $62.9 million. Growth in this business continues to be driven by strong retention and renewal rates and new bookings from its direct salesforce. E&E Language segment ARR was up $0.3 million, essentially flat year-over-year to $53.8 million.

Q2 2020 Segment Contribution

Literacy segment contribution was $3.0 million, or 17% of segment revenue, compared to $2.4 million, or 16% of segment revenue, in the prior year period. The improvement in segment contribution was primarily due to higher revenue, driven by an increase in bookings, compared to the same period last year. This was partially offset by higher sales and marketing expense as a result of increases in sales and sales support (up 14% to $8.6 million), and research and development expense (up 28% to $2.9 million). Note that on a

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Second Quarter 2020

cash basis, the higher R&D expense running through the income statement was partially offset by lower capitalized R&D, due to the nature of the development work being performed in 2020.

One note of clarification about the segment contribution data for the E&E Language segment, the Consumer Language segment and the two Language segments combined. Language Research & Development (R&D) expense is a shared service cost that is not allocated to either Language segment, but is included in combined Language - therefore, it is the combined Language view that is comparable to the Lexia segment contribution.

The combined Language segments contribution improved to $7.3 million (23% of the total combined Language segment revenue), compared to $6.1 million (20% of the total combined Language segment revenue), in the prior year period.

The E&E Language segment contribution margin before shared Language R&D expense declined to $5.5 million (or 40% of segment revenue), compared to $5.8 million (or 40% of segment revenue), in the prior year period. The decrease was primarily due to a decline in revenue of $0.9 million and an increase in cost of goods sold of $1.0 million associated with increases in support headcount, which was more than offset by a decrease in sales and marketing expense of $1.5 million.

Consumer Language segment contribution margin before shared Language R&D expense improved to $4.5 million (or 25% of segment revenue), compared to $3.6 million (or 22% of segment revenue), in the prior year period. The increase was primarily related to the increase in revenue, which was partially offset by an increase in sales and marketing expenses. Consumer revenue will lag the increase in recent bookings as much

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Rosetta Stone Inc. - Supplemental Information

Second Quarter 2020

of the increase in bookings was associated with the sale of Lifetime subscriptions which are recognized into revenue over 24 months.

Gross profit increased to $37.8 million, or 77% of revenue in Q2 2020, from $37.1 million, or 81% of revenue in the prior year period. The year-over-year decline as a percentage of revenue was primarily due to an increase in cost of revenue, including $1.2 million in payroll and benefits resulting from headcount changes in the customer support and operations teams and approximately $0.9 million higher non-cash amortization of previously capitalized product development costs.

Lifetime Value ("LTV") added was $23.0 million in Q2 2020, an increase of $10.7 million from Q2 2019. The year-over-year increase reflects efficient Consumer marketing dollar spend for longer-duration new unit subscription sales in prior quarters. Note that Consumer LTV per unit in Q2 2020 was $160 compared to $151 in Q2 2019.

Q2 2020 Operating Expenses

Total operating expenses increased $1.0 million, or 2% year-over-year to $41.1 million in Q2 2020, driven by higher research and development expenses as we continued to invest in the growth of the business. General and administrative expenses also increased year-over-year due to higher variable compensation expense on higher funding levels as compared to 2019.

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Second Quarter 2020

Q2 2020 Selected Balance Sheet Data

Deferred revenue totaled $174.1 million at June 30, 2020, down seasonally from $177.6 million at December 31, 2019. Of the June 30, 2020 total deferred revenue balance, $109.3 million, or approximately 63%, was short-term and will be recognized as revenue over the next 12 months. Excluding SOURCENEXT and non-core custom content, short- term deferred revenue at June 30, 2020 was approximately 75% of total deferred revenue.

The chart above depicts the Q2 2020 deferred revenue balance by the segment components, with separate disclosure of the SOURCENEXT and non-core custom content components within the Consumer Language and E&E Language segments, respectively. Note that the vast majority of the cash received to date from our 2017 long- term royalty agreement with SOURCENEXT was recorded as deferred revenue, with nearly all of that classified as noncurrent as it is being recognized over 20 years.

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Second Quarter 2020

The following chart depicts the 8-quarter trend in deferred revenue, with the separation of short-term,long-term and the amounts that were attributable to the SOURCENEXT transaction and non-core custom content transactions.

As of June 30, 2020, the Company had $31.3 million of cash and cash equivalents and no debt outstanding. The ending cash balance was up approximately $20.4 million compared to the year-ago period before $9.9 million in short-term debt outstanding at June 30,

2019. Cash and cash equivalents was down $3.9 million sequentially from March 31, 2020.

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Rosetta Stone Inc. - Supplemental Information Second Quarter 2020

Non-GAAP Financial Measures

The reconciliation of the GAAP metrics to the non-GAAP financial measures can be found at the end of this document. Adjusted EBITDA was $4.1 million, compared to Adjusted EBITDA of $2.0 million in the year-ago period.

Net cash used by operating activities this past quarter was $0.3 million, compared to net cash used by operating activities of $14.8 million in Q2 2019. Capital expenditures, which primarily relate to capitalized labor on product and IT projects, totaled $3.8 million, a decrease from $5.0 million in Q2 2019. Lexia drove the majority of the decrease in capital expenditures year-over-year, a result of more R&D being expensed in the P&L reflecting the completion and release of several large product updates in 2019. Free cash flow was an outflow of $4.1 million, compared to an outflow of $19.8 million in the year-ago period.

Financial Outlook - Full Year 2020

Turning to guidance and starting with revenue, we now expect consolidated revenue for the year to be $190 to $200 million, on total bookings of $216 to $229 million. That would be 7% higher than 2019 at the midpoint on revenue and 13% higher on bookings.

In the Literacy segment we are raising our revenue guidance to a range of $72 to $76 million, an increase of $3.5 million at the midpoint. We are raising our full year Literacy segment bookings outlook to $87 to $93 million, up from approximately $81 to $86 million previously. This represents bookings growth of 27% to 36% over 2019.

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Rosetta Stone Inc. - Supplemental Information Second Quarter 2020

The factors impacting our outlook for the Literacy segment include the opportunities to expand relationships with existing customers, in part created by the Learn From Home program, and the need both existing and new customers have for solutions to support remote or hybrid learning. This is being helped by our ability to follow through on a growing number of large opportunities as a result of the strategic sales account realignment announced earlier in the year. Finally, we will see additional bookings in Texas during the second half, but the majority of the Texas impact likely came in Q2. We still expect net new business in new districts to be more difficult in 2020 than we might have otherwise seen before the pandemic. We have focused our marketing and sales efforts in line with the belief that existing customers are a greater opportunity for us this year.

Looking into 2021, we see opportunities to drive growth as districts develop a deeper appreciation for the efficacy of our solutions, but a variety of factors may lower our bookings growth rate. We are seeing in 2020 an acceleration in new and upsell business growth driven by districts' urgent need to plan for fully remote or hybrid learning. We don't know if this same level of urgency will persist next year. In addition, a somewhat larger than typical dollar amount of our contracts in the Literacy segment this year have been multi-year in nature driven by adoption sales in Texas. We do not expect this level of multi-year adoption bookings to continue next year. Finally, although we like our relative positioning within ed tech, if school budgets are reduced because of declining tax revenue, K-12 education providers will be negatively impacted.

Turning to our Language business, in Consumer we are raising our full year revenue guidance to a range of $69 to $72 million as we now expect full year Consumer bookings of $88 to $92 million, up from $75 to $78 million previously, and $67 to $69 million at the beginning of the year. This guidance assumes that year-over-year bookings growth

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Second Quarter 2020

slows in the second half of 2020 compared to earlier in the year, and that marketing efficiency declines in the back-half as the positive impact from people learning while quarantined at home fades. We also expect Consumer's year-over-year bookings growth in the back-half to be lower as we lap the original introduction of the Lifetime product on the web which began to ramp up in Q4 of 2019.

At the bookings midpoint this translates to 36% growth for the full year.

With the success of Lifetime Unlimited, the majority of the bookings performance this year will be recognized as revenues in 2021 and into 2022. And while we will benefit from this revenue in future years, we expect bookings next year to be negatively impacted relative to this year as people return to work and the quarantine driven sales we are seeing this year fades.

The strength we are seeing in other parts of the business this year will be partially offset by the pressure we continue to see in our Enterprise and Education Language segment. While K-12 Language Education is performing in line with our expectations and Enterprise has seen some stability more recently, we are expecting full year revenue to be in a range of $49 to $52 million - $1 million lower on each end versus our prior guidance, on lower Enterprise bookings due to the impacts from the pandemic. Recovery in Enterprise will be tied in part to a recovery in the economy.

Turning to profitability, we are improving our guidance for full year net income to a loss of $20 to $22 million, raised from our prior guidance of a loss of $22 to $24 million. We are also raising our guidance for full year Adjusted EBITDA to approximately $8 to $12 million - up from $5 to $8 million previously. The stronger than previously expected bookings we are seeing this year are not directly turning into significantly better GAAP performance in 2020 because, while bookings are recognized as revenues over the life of

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Second Quarter 2020

the underlying subscriptions and contracts, expenses are largely recognized upfront. This includes variable compensation for our noncommissioned employees where we are accruing potential bonus payments at a higher rate in line with higher performance. This higher accrual will be offset during the year by lower operating expenses as we have been diligent in managing costs during the pandemic, including the cost management actions, and certain other costs, like travel, have been naturally lower. We are also expecting approximately $1.2 million higher non-cash depreciation in the second half related to the release of Rosetta Stone English versus the same prior-year period.

We are raising our guidance for operating cash flow to $29 to $34 million, up from $14 to $18 million previously. The improved outlook for operating cash flow is largely due to the higher bookings delivered in the first half of 2020 by the Consumer segment, and the expected higher bookings in the Literacy segment throughout the year. This guidance continues to assume that we could see slower collections of accounts receivable, either because we proactively offer our customers more time to pay, or they simply pay slower than normal. We have not yet seen this in a material way but would like to be prepared if it occurs.

We expect capital expenditures to be approximately $16-17 million and that we will have approximately $13-17 million of cash flow after cap ex this year.

We expect a year end cash balance of approximately $55 to $60 million with no debt.

Financial Outlook - Q3 2020

Like last quarter, we have decided temporarily to provide guidance for the quarter we are in, in addition to the full year. We hope this provides more clarity during a tumultuous year. We expect strong year-over-year bookings growth in Q3 in our Literacy segment as

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Second Quarter 2020

districts seem to be accelerating decision making to prepare for a variety of back-to- school scenarios. Our performance quarter-to-date and the current pipeline make us comfortable with our outlook for Q3 in Literacy. We also anticipate good bookings performance in Q3 in Consumer Language, although year-over-year growth rates will decline relative to the first two quarters as the impact of the people learning from home in quarantine declines. On the downside, we will have a significant year-over-year bookings decline in the E&E segment driven by the Enterprise portion of the business due in large part to the absence of the $7.4 million custom content deal signed in Q3 2019, as well as ongoing impacts from the pandemic.

On a consolidated basis, we expect total Q3 revenue of approximately $48 million, up approximately 5% from last year, a GAAP net loss of approximately $7 million and positive $2 million in adjusted EBITDA.

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Second Quarter 2020

Definitions - Statistical Measures

  • Annualized recurring revenue (or "ARR") is computed using the annualized value of active subscription arrangements at the end of the period. ARR is a performance metric used to assess the health and trajectory of our E&E Language and Literacy segments, which we believe aids investors in understanding our segment results. We present ARR as a statistical measure rather than a non-GAAP financial measure. ARR should be viewed independently of revenue and deferred revenue, as ARR is a performance metric and is not intended to be combined with either of these items.
  • North America Consumer DTC and Global App Sales LTV per Unit - The Lifetime Value per unit, or LTV per unit, is an operating metric calculated as the combined value of customers' initial purchases plus an estimate of future renewals based on the median renewal rates observed for recent renewals of similar products. The per unit metric is expressed as the weighted average LTV per unit of all products sold during a given period.
  • LTV Added is the LTV per unit multiplied by total new unit sales net of returns.
  • North America Consumer DTC and Global App Sales CAC - The Customer Acquisition Cost, or CAC, is an operating metric calculated as the sum of Consumer GAAP sales and marketing expenses in a period plus affiliate commission expenses that are classified as cost of goods sold, adjusted to reflect the lifetime app store commissions incurred on the initial app sale plus an estimate of app commission expenses on future renewals.
  • CAC per Unit is CAC divided by total new unit sales net of returns for North America DTC and Global App sales.
  • The LTV-to-CAC ratio is calculated as LTV per Unit divided by CAC per Unit.
  • Net LTV Added is calculated as LTV Added minus CAC.
  • Retention is a customer-based metric based on whether a customer was retained from a prior period to the current period. Renewal is an annualized dollar-based metric (of the dollars available to renew) and includes upsells.
  • Prior period amounts have been restated to be comparable to the current period methodology. In addition, prior period LTV, CAC Net LTV, retention and renewal metrics presented for a given period may change over time as the most current experience for that period is used to update the calculations of those operating metrics.

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Definitions - Operational Metrics, Segment Measures, and Non-GAAP Financial Measures

  • 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 current definition
  • Free cash flow is a non-GAAP Financial Measure of is 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, costs of revenue, sales and marketing, and general and administrative 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.

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Second Quarter 2020

Adjusted EBITDA and Free Cash Flow

Amounts ($000)

Quarterly

Quarterly

1Q19

2Q19

3Q19

4Q19

FY19

1Q20

2Q20

GAAP net loss

$

(544)

$

(2,807)

$

(2,917)

$

(6,688)

$

(12,956)

$

(6,181)

$

(3,586 )

Total other non-operating expense (income), net

(769)

(429)

146

753

(299)

(34)

26

Income tax expense (benefit)

(170

)

175

(93

)

405

317

380

223

Depreciation and amortization

3,529

3,457

3,938

4,257

15,181

4,420

4,351

Stock-based compensation

1,220

1,356

1,412

371

4,359

2,261

3,009

Other EBITDA adjustments

53

269

(22)

(8)

292

327

104

Adjusted EBITDA

$

3,319

$

2,021

$

2,464

$

(910

)

$

6,894

$

1,173

$

4,127

Amounts ($000)

Quarterly

Quarterly

1Q19

2Q19

3Q19

4Q19

FY19

1Q20

2Q20

Net cash (used in)/provided by operating activities

$

(6,567)

$

(14,847)

$

29,072

$

9,533

$

17,191

$

(3,482)

$

(323 )

Purchases of property and equipment

(4,714

)

(4,995

)

(4,011

)

(3,046

)

(16,766

)

(3,786

)

(3,806

)

Free Cash Flow

$

(11,281)

$

(19,842)

$

25,061

$

6,487

$

425

$

(7,268)

$

(4,129 )

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Rosetta Stone Inc. - Supplemental Information

Second Quarter 2020

Revenue and Bookings

Amounts ($000)

Quarterly

Quarterly

1Q19

2Q19

3Q19

4Q19

FY19

1Q20

2Q20

Revenue

Literacy

$

14,806

$

15,101

$

15,587

$

17,131

$

62,625

$

17,486

$

17,814

E&E Language

Enterprise

8,021

7,871

7,819

8,185

31,896

6,985

7,593

North America K-12

6,422

6,631

6,255

5,608

24,916

6,567

6,047

Total 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 Language

29,805

30,841

29,869

29,562

120,077

29,693

31,381

Total Revenue

$

44,611

$

45,942

$

45,456

$

46,693

$

182,702

$

47,179

$

49,195

Bookings

Literacy

$

4,511

$

12,089

$

40,984

$

10,843

$

68,427

$

5,481

$

19,208

E&E Language

Enterprise

5,622

7,421

15,397

10,353

38,793

3,499

5,843

North America K-12

2,020

7,938

8,798

4,581

23,337

2,037

6,307

Total E&E Language

7,642

15,359

24,195

14,934

62,130

5,536

12,150

Consumer Language

15,827

15,071

16,278

19,700

66,876

22,550

27,936

Less: Adjustment for SOURCENEXT

-

499

-

-

499

-

-

Subtotal for Consumer, before

SOURCENEXT

15,827

14,572

16,278

19,700

66,377

22,550

27,936

Subtotal for Language, before

SOURCENEXT

23,469

29,931

40,473

34,634

128,507

28,086

40,086

Total Bookings, before SOURCENEXT

$

27,980

$

42,020

$

81,457

$

45,477

$

196,934

$

33,567

$

59,294

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Second Quarter 2020

Reconciliation of Revenue and Bookings

Amounts ($000)

Quarterly

Quarterly

1Q19

2Q19

3Q19

4Q19

FY19

1Q20

2Q20

Reconciliation of Revenue to Bookings

Literacy

Segment revenue

$

14,806

$

15,101

$

15,587

$

17,131

$

62,625

$

17,486

$

17,814

Segment change in deferred revenue

(10,295

)

(3,012

)

25,397

(6,288

)

5,802

(12,005

)

1,394

Bookings

$

4,511

$

12,089

$

40,984

$

10,843

$

68,427

$

5,481

$

19,208

E&E Language

Segment revenue

$

14,443

$

14,502

$

14,074

$

13,793

$

56,812

$

13,552

$

13,640

Segment change in deferred revenue

(6,801)

857

10,121

1,141

5,318

(8,016)

(1,490 )

Bookings

$

7,642

$

15,359

$

24,195

$

14,934

$

62,130

$

5,536

$

12,150

Consumer Language

Segment revenue

$

15,362

$

16,339

$

15,795

$

15,769

$

63,265

$

16,141

$

17,741

Segment change in deferred revenue

465

(1,268

)

483

3,931

3,611

6,409

10,195

Adjustment for SOURCENEXT

-

(499)

-

-

(499)

-

-

Bookings, before SOURCENEXT

$

15,827

$

14,572

$

16,278

$

19,700

$

66,377

$

22,550

$

27,936

Total revenue

$

44,611

$

45,942

$

45,456

$

46,693

$

182,702

$

47,179

$

49,195

Change in deferred revenue

(16,631)

(3,423)

36,001

(1,216)

14,731

(13,612)

10,099

Adjustment for SOURCENEXT

-

(499

)

-

-

(499

)

-

-

Total bookings, before SOURCENEXT

$

27,980

$

42,020

$

81,457

$

45,477

$

196,934

$

33,567

$

59,294

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Second Quarter 2020

Segment Contribution

Amounts ($000)

Quarterly

Quarterly

1Q19

2Q19

3Q19

4Q19

FY19

1Q20

2Q20

Revenue:

Literacy segment

$

14,806

$

15,101

$

15,587

$

17,131

$

62,625

$

17,486

$

17,814

E&E Language segment

14,443

14,502

14,074

13,793

56,812

13,552

13,640

Consumer Language segment

15,362

16,339

15,795

15,769

63,265

16,141

17,741

Shared services

-

-

-

-

-

-

-

Combined Language

29,805

30,841

29,869

29,562

120,077

29,693

31,381

Total revenue

$

44,611

$

45,942

$

45,456

$

46,693

$

182,702

$

47,179

$

49,195

Segment contribution

Literacy segment

$

3,013

$

2,371

$

2,087

$

2,624

$

10,095

$

2,817

$

3,048

E&E Language segment

6,107

5,848

5,679

5,101

22,735

5,498

5,486

Consumer Language segment

4,548

3,649

4,093

2,693

14,983

2,910

4,512

Shared services

(3,680

)

(3,387

)

(3,003

)

(4,541

)

(14,611

)

(3,185

)

(2,662

)

Combined Language

6,975

6,110

6,769

3,253

23,107

5,223

7,336

Total segment contribution

$

9,988

$

8,481

$

8,856

$

5,877

$

33,202

$

8,040

$

10,384

Segment contribution margin percentage:

Literacy segment

20

%

16

%

13

%

15

%

16

%

16

%

17

%

E&E Language segment

42%

40%

40%

37%

40%

41%

40%

Consumer Language segment

30

%

22

%

26

%

17

%

24

%

18

%

25

%

Combined Language

23%

20%

23%

11%

19%

18%

23%

Page 19 of 19

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Rosetta Stone Inc. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 August 2020 20:58:08 UTC