Rosetta Stone Reports Net Income as Pivot to SaaS Model Continues

Earlier this month, language software company Rosetta Stone Inc. (NYSE: RST) reported total revenue of $44.8 million in Q4 2017, a 13 percent decrease

Subscription News: Rosetta Stone Reports Net Income as Pivot to SaaS Model Continues

Source: Rosetta Stone

Earlier this month, language software company Rosetta Stone Inc. (NYSE: RST) reported total revenue of $44.8 million in Q4 2017, a 13 percent decrease over Q4 2016 income of $51.7 million. Despite lower total revenue in the fourth quarter, Rosetta Stone reported net income of $2.4 million, or $0.10 per diluted share, a significant increase over a net loss of $5.6 million, or $(0.25) per diluted share, in the fourth quarter of 2016. 

‘The fourth quarter and full year 2017 results represent the continuation of an improving trend at Rosetta Stone, reflecting strong growth at Lexia, the near completion of our transition to a 100%-subscription model in our Consumer Language segment, and continued expense reductions,’ said John Hass, Chairman, president and CEO, in a news release

‘Over the past three years, we have done the hard work and made the appropriate investments to position all of our businesses for sales growth in 2018. Sales growth, which as we approach a near 100% subscription-based business, should be more stable and predictable than in the past,’ Hass added.

Subscription News: Rosetta Stone Reports Net Income as Pivot to SaaS Model Continues

Source: Rosetta Stone

Other fourth quarter highlights include:

  • Revenue from Literacy grew 23 percent to $12.0 million.
  • Consumer Language revenue dropped 26 percent to $17.8 million, representing the shift toward a 100-percent SaaS-based model in the company’s direct-to-consumer channels.
  • The number of Consumer Language subscribers increased 16 percent to approximately 370,000 at year end.
  • Enterprise & Education Language revenue dropped 16 percent to $15.0 million, due largely to a decision to exit direct sales and marketing in China, Brazil and France as part of the company’s restructuring.
  • Literacy represents 27 percent of total revenue, E&E Language is 33 percent of total revenue, and Consumer Language represents 40 percent of total revenue.
  • Total operating expenses decreased $6.7 million, or 15 percent, to $38.8 million, the company’s 12th consecutive quarter of expense reductions.

Full year 2017 highlights include:

  • Full year 2017 revenue was $184.6 million, a 5 percent decrease from $194.1 million in 2016. This includes an increase of $14.1 million, or 9 percent, in subscription and service revenue.
  • Revenue at Lexia was $43.6 million, a 28 percent increase from $34.1 million in 2016.
  • E&E Language revenue was $65.3 million in 2017, down 9 percent over the prior year.
  • Consumer Language revenue was $75.7 million, a 14 percent decrease, as the company continued its shift to a 100 percent SaaS-based revenue model for direct-to-consumer channels.
  • The company’s net loss for the year was $155.5 million, a decrease of $25.6 million, or 14 percent, compared to the net loss of $181.1 million in 2016.
  • At year end, the company had cash and cash equivalents of $43.0 million and no debt.
  • Deferred revenue at year end was $151.3 million, compared to $141.5 million at the end of 2016.

Founded in 1992, Rosetta Stone’s language division uses cloud-based digital solutions to help learners read, write and speak more than 30 languages. Based in Arlington, Virginia, Rosetta Stone has served more than 12,000 corporations, 9,000 public and nonprofit organizations, 22,000 educational institutions and millions of learners around the world. In 2013, the company began its transition to a cloud-based business model. It also acquired Lexia Learning, a creator of English literacy products.

Investors didn’t have a strong reaction to the 2017 financials. On March 7, the day financials were released, Rosetta Stone’s stock was valued at $14.14 per share. As of 4:02 p.m. EDT yesterday, stock was valued at $13.40. While that represents a bit of a dip, a year ago, on March 21, 2017, stock was valued at $9.30 per share.

Subscription News: Rosetta Stone Reports Net Income as Pivot to SaaS Model Continues

Source: Google Finance

Insider Take:

For the year, Rosetta Stone took a big hit financially, with a huge net loss. However, that net loss was an improvement over 2016. For the quarter, the company finished in the black. The change in the company’s financial picture is due to two primary factors: the transition to an SaaS-based model which reduces product sales but increases subscription revenue over time and a consistent reduction in expenses. Both will ultimately serve the company well long term, but the short term is a little more concerning.

That said, the company has $43.0 million in cash and cash equivalents, deferred revenue just under the company’s net loss for the year and no debt. Those factors will help the company remain afloat as the transition from product sales to SaaS revenue evens out.

Up Next

Register Now For Email Subscription News Updates!

Search this site

You May Be Interested in: