8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

November 6, 2013

Rosetta Stone Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-34283	043837082
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

1919 North Lynn St., 7th Fl., Arlington, Virginia 22209

(Address of principal executive offices, including zip code)

800-788-0822

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On November 6, 2013, Rosetta Stone Inc. announced its financial results for the fiscal third quarter ended September 30, 2013.  A copy of the press release is furnished as Exhibit 99.1 to this report.  In addition, a copy of the presentation slides which will be discussed during the company’s earnings call at 4:30 p.m. Eastern Time on Wednesday, November 6, 2013 is attached to this report as Exhibit 99.2 and incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including the exhibits, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD Disclosure.

See “Item 2.02 Results of Operations and Financial Condition” above.

Item 9.01. Financial Statements and Exhibits.

(d)	Exhibits.
99.1	Press Release dated November 6, 2013.
99.2	Presentation slides from the Rosetta Stone Inc. webcast of its fiscal third quarter ended September 30, 2013 earnings call held on November 6, 2013, furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  November 6, 2013
	By:	/s/ Michael C. Wu
		Name: Michael C. Wu
		Title:  General Counsel and Secretary

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EXHIBIT INDEX

Exhibit  No.	Description
99.1	Press Release dated November 6, 2013.
99.2	Presentation slides from the Rosetta Stone Inc. webcast of its fiscal third quarter ended September 30, 2013 earnings call held on November 6, 2013, furnished herewith.

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EX-99.1

Exhibit 99.1

Rosetta Stone Inc. Reports Third Quarter 2013 Results

Results Reflect Continued Business Transformation;

Reaffirms Pro Forma Adjusted EBITDA Guidance Range for Full-Year 2013

ARLINGTON, VA — November 6, 2013 — Rosetta Stone Inc. (NYSE:RST), a leading provider of technology-based language-learning and reading solutions, today announced financial results for the third quarter of 2013, as summarized below:

	Three Months Ended
US$ thousands	September 30,						%
except per-share data	2013			2012			change
	(As Adjusted) *
Total revenue	$	60,872		$	64,279		-5	%
Total bookings	$	70,694		$	72,125		-2	%
Pro forma revenue	$	63,778		$	64,279		-1	%
Net loss	$	(4,169	)	$	(32,063	)	87	%
Net loss per share	$	(0.19	)	$	(1.52	)	87	%
Pro forma adjusted net loss	$	(2,721	)	$	(1,265	)	-115	%
Pro forma adjusted net loss per share	$	(0.12	)	$	(0.06	)	-100	%
Pro forma adjusted EBITDA	$	(618	)	$	2,110		-129	%
Cash flow from operations	$	(587	)	$	5,424		-111	%
Purchases of property and equipment	$	(2,203	)	$	(941	)	-134	%
Free cash flow	$	(2,790	)	$	4,483		-162	%

* Certain amounts have been adjusted for the retrospective change in accounting principle for sales commissions.

Definitions and reconciliations for all non-GAAP measures are provided in this press release.

“Although the third quarter’s performance was mixed we continued to move our long term strategy forward by growing our SaaS business in our Enterprise & Education segment, continuing to shift our consumer business to more digital, introducing literacy and language products into the Kids’ space and expanding our retail distribution and presence in iOS and Android ecosystems.  In addition, the Lexia acquisition moved us beyond language, broadening our product portfolio into a natural adjacency with reading,” said Steve Swad, President and CEO of Rosetta Stone.  Swad continued, “However, lower pricing and softness in our retail channel resulted in a decline in Pro

Forma Adjusted EBITDA.  Despite the results in the quarter, we believe that the underlying transformation of the business is intact and we still expect to deliver full-year Pro Forma Adjusted EBITDA within our previous guidance range.”

Third Quarter 2013 Operational and Financial Highlights

·Bookings: Total consolidated bookings of $70.7 million decreased 2% compared to the year-ago period.  North American Consumer segment (“NA Consumer”) bookings decreased 9% to $38.6 million from $42.3 million, mainly reflecting the absence of the sales from our NA kiosk channel, which was closed early in the second quarter of 2013.  Excluding the kiosk channel, NA Consumer bookings were flat year-over-year.  The Rest of World Consumer segment (“ROW Consumer”) declined 29%, primarily reflecting on-going declines in Asia, partially offset by growth in Germany.  Bookings in the Global Enterprise & Education (“E&E”) segment increased 27% compared with a year-ago.  E&E bookings include two months of results from the acquisition of Lexia Learning.  Core E&E bookings, which are before Lexia and exclude de-emphasized network product increased 7% year-over-year.

·Revenue: Total revenue decreased 5% year-over-year to $60.9 million from $64.3 million.  NA Consumer revenue decreased 3%, reflecting the absence of sales from the kiosk channel and softer retail channel performance, partially offset by growth in  the direct-to-consumer channel.  The direct-to-consumer sales channel continued to benefit from cross-selling to community members of Livemocha.  Excluding kiosk, core NA Consumer revenue increased 6% year-over-year.  ROW Consumer revenue decreased 28% due mainly to decreases in Japan and Korea, partially offset by growth in Germany.  E&E revenue grew 4% in the third quarter compared with a year ago.

	Three Months Ended
	September 30,				%
US$ thousands	2013		2012		change
Revenue from:
North America Consumer	$	38,699	$	39,878	-3	%
Rest of World Consumer	7,165		9,903		-28	%
Total Consumer	45,864		49,781		-8	%
Global Enterprise and Education	15,008		14,498		4	%
Total	$	60,872	$	64,279	-5	%

·Pro Forma Adjusted EBITDA: Pro Forma Adjusted EBITDA for the third quarter decreased 129% to ($0.6) million from $2.1 million.  The decline was due to the decrease in revenue, which was partially offset by lower cost of goods sold, sales & marketing and general and administrative expenses.  Cost of goods sold decreased

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$0.4 million due to lower revenues and mix shift to lower-cost digital offerings and lower hard-product and studio coaching costs.  Sales and marketing (S&M) expenses decreased by $2.0 million.  The reduction in sales and marketing expense was primarily due to the absence of NA Consumer kiosk expenses.  General and administrative (G&A) expenses also decreased by $0.5 million due to continued cost control efforts even as the third quarter 2013 results included expenses from the addition of Livemocha and Lexia.  Offsetting the decreases in S&M and G&A expenses was a $3.6 million increase in research and development costs, reflecting the continued investment being made in product development as well as the additional costs from the Livemocha and Lexia acquisitions.  Pro Forma Adjusted EBITDA includes approximately $0.5 million of adjustments, mainly related to severance and restructuring costs.

·Pro Forma Adjusted Net Loss and Pro Forma Adjusted EPS: Pro Forma Adjusted Net Loss was $2.7 million in the third quarter of 2013, compared to Pro Forma Adjusted Net Loss of $1.3 million in the third quarter of 2012.  Pro Forma Adjusted Net Loss per share was $0.12 compared to a Pro Forma Adjusted Net Loss of $0.06 per share in the prior year period.

·Balance Sheet and Cash Flow: Cash at the end of the quarter was $113.2 million, a $18.9 million decrease from $132.1 million at June 30, 2013.  The decrease was mainly due to the company’s acquisition of Lexia for $22.5 million, net of cash acquired, closing adjustments and holdback.  The balance sheet remains strong, with no debt.  Deferred revenue increased $11.0 million in the quarter to $72.6 million, including the addition of $1.2 million of deferred revenue from the acquisition of Lexia.  Free cash flow in the third quarter was ($2.8) million compared with $4.5 million a year ago.  The decline in free cash flow reflects the negative Pro Forma Adjusted EBITDA and a decrease in working capital, offset in part by the increase in deferred revenue versus the year ago period and an increase in capital expenditures to $2.2 million in the third quarter compared with $0.9 million a year ago.

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Guidance

Based on the company’s year-to-date performance and outlook for the fourth quarter, the company is revising its guidance for Pro Forma Revenue, but maintaining its other financial guidance metrics.

2013 Guidance

Pro Forma Revenue	$270MM to $280MM
Pro Forma Adjusted EBITDA	$14MM to $17MM
Pro Forma Adjusted Net Income/(Loss)	$(3MM) to $0MM
Pro Forma Adjusted EPS	$(0.12) to $(0.01)
Shares outstanding	~22.0MM
Capital Expenditures	$5MM to $8MM

Non-GAAP Financial Measures

This press release contains several non-GAAP financial measures.

·Adjusted EBITDA is GAAP net income or loss plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expenses.  Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring costs and transaction and other costs associated with mergers and acquisitions. Adjusted EBITDA for prior periods has been revised to conform to current definition.

·Adjusted net loss and adjusted net loss per share exclude the impact of items related to the litigation with Google Inc., restructuring 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.

·Free cash flow is cash flow from operations less cash used in purchases of property and equipment.

·Bookings represent executed sales contracts received by the Company that are either recorded immediately as revenue or as deferred revenue.

·Pro Forma Revenue is GAAP revenue plus the purchase accounting impact on acquired deferred revenue.

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·Pro forma adjusted EBITDA is GAAP net income/(loss) plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expenses.  Pro forma adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring 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, plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions. Pro forma adjusted EBITDA for prior periods has been revised to conform to current definition.

·Pro forma adjusted net income/(loss) and pro forma adjusted net income (loss) per share exclude the impact of items related to its litigation with Google Inc., restructuring 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, plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions.  Pro forma adjusted net income/(loss) and pro forma adjusted EPS for prior periods has been revised to conform to current definition.

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.

Management typically excludes the amounts described below when evaluating the Company’s operating performance and believes that the resulting non-GAAP measures are useful to investors and financial analysts in assessing the Company’s operating performance, due to the following factors:

·Amortization of Acquired Intangibles. Amortization costs and the related tax effects are fixed at the time of an acquisition, and then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition.

·Stock-based Compensation. Although stock-based compensation is an important aspect of compensation of the Company’s employees and executives, stock-based compensation expense is generally fixed at the time of grant, then amortized over a period of several years after the grant of the stock-based instrument, and generally

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cannot be changed or influenced by management after the grant.  In addition, the impact of shares granted under these plans is considered in the Company’s EPS calculation to the extent the shares are dilutive.

·Bookings. Although revenue is an important aspect of measuring Company performance, the Company believes total sales bookings can be a valuable indicator of the Company’s performance.  The Company is transitioning to a greater amount of subscription sales, which results in an increasing portion of sales being recorded as deferred revenue.

Management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.  The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements.  In addition, they are subject to inherent limitations, because they reflect the exercise of judgments by management about which expenses and items of income are excluded from these non-GAAP financial measures and may not be calculated in the same manner as other companies’ similarly titled non-GAAP measures.

In order to compensate for these limitations, management presents its non-GAAP financial measures in connection with its GAAP results.  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, and not to rely on any single financial measure to evaluate the company’s business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP measures used in this press release are included at the end of this release.

Investor Webcast

This news release and the accompanying tables should be read in conjunction with the additional content that is available on the company’s website.

In conjunction with this announcement, Rosetta Stone will host a webcast today at 4:30 p.m. eastern time (ET) to discuss the results and the company’s business outlook. The webcast will be available live on the Investor Relations page of the company’s website at http://investors.rosettastone.com.

Investors may also dial in to the conference line using one of the following numbers:

1-877-407-9039 (toll-free) or

1-201-689-8470 (toll/international)

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A recorded replay of the webcast will be available on the “Investor Relations” page of the company’s web site http://investors.rosettastone.com after the live discussion.  The replay will also be available beginning at 7:30PM ET until November 20, 2013 at 11:59 pm ET via telephone at the following numbers:

1-877-870-5176 (toll-free) or

1-858-384-5517 (toll/international)

Pass Code: 13572591

About Rosetta Stone

Rosetta Stone Inc. (NYSE: RST) is dedicated to changing the way the world learns. The company’s innovative technology-driven language and reading solutions are used by thousands of schools, businesses, government organizations and millions of individuals around the world. Founded in 1992, Rosetta Stone pioneered the use of interactive software to accelerate language learning. Today the company offers courses in 30 languages, from the most commonly spoken (such as English, Spanish and Mandarin) to the less prominent (including Swahili, Swedish and Tagalog). In 2013, Rosetta Stone expanded beyond language and deeper into education-technology with its acquisitions of Livemocha and Lexia Learning. Rosetta Stone is based in Arlington, VA, and has offices in Harrisonburg, VA, Boulder, CO, Austin, TX, San Francisco, CA, Seattle, WA, Concord, MA, Tokyo, Seoul, London, Dubai and Sao Paulo.

“Rosetta Stone” is a registered trademark or trademark of Rosetta Stone Ltd. in the United States and other countries.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for future financial performance and operating targets, and our long-term growth prospects.  In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “project,” “believe,” “plan,” “expect,” “anticipate,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “seek,” “may,” “likely,”  “will,” “financial outlook,” “guidance,” “strategy,” or “continue.”  These forward-looking statements reflect the company’s current views with respect to future events and are subject to certain risks, uncertainties, and assumptions.  A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including demand for language learning solutions; the advantages of our products, services, technology, brand and business model as compared to others; our strategic focus; our ability to maintain effective internal controls or to remediate material weaknesses; our cash needs and expectations regarding cash flow from operations; our product development plans; the appeal and efficacy of our products and services; our expectations regarding capturing lifetime value and a broader range of market segments through such offerings; our plans regarding expansion of our marketing initiatives and sales force; our international operations and

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growth plans; our plans regarding our retail relationships; our plans regarding our E&E business; the impact of any revisions to our pricing strategy; our ability to manage and grow our business and execute our business strategy; our financial performance; our actions to realign our cost structure and revitalize our go-to-market strategy; our plans to transition our distribution to more online in the Consumer business; our mergers and acquisitions plans; our plans related to Lexia and Livemocha; our ability to successfully integrate Lexia and Livemocha into our business; adverse trends in general economic conditions and the other factors described more fully in the company’s filings with the U.S. Securities and Exchange Commission (SEC), including the company’s annual report on Form 10-K for the fiscal year ended December 31, 2012, which is on file with the SEC.  The company assumes no obligation to update the information in this communication, except as otherwise required by law.  Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

Investor Contact:	Media Contact:
Steve Somers, CFA	Jonathan Mudd
ssomers@rosettastone.com	jmudd@rosettastone.com
703-387-5876	571-357-7148

Source: Rosetta Stone Inc.

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ROSETTA STONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
				(As Adjusted)*						(As Adjusted)*
Revenue:
Product	$	34,038		$	42,462		$	107,087		$	127,534
Subscription and service	26,834			21,817			79,847			67,006
Total revenue	60,872			64,279			186,934			194,540
Cost of revenue:
Cost of product revenue	7,325			7,858			21,263			24,087
Cost of subscription and service revenue	3,419			3,327			9,969			11,892
Total cost of revenue	10,744			11,185			31,232			35,979
Gross profit	50,128			53,094			155,702			158,561
Operating expenses
Sales and marketing	34,844			36,830			104,904			110,518
Research and development	8,797			5,177			25,248			17,944
General and administrative	13,987			14,474			40,209			41,050
Lease abandonment	7			—			835			—
Total operating expenses	57,635			56,481			171,196			169,512
Loss from operations	(7,507		)	(3,387		)	(15,494		)	(10,951		)
Other income and (expense):
Interest income	21			42			105			141
Interest expense	(9		)	—			(54		)	—
Other income (expense)	(305		)	(27		)	105			(71		)
Total other income (expense)	(293		)	15			156			70
Loss before income taxes	(7,800		)	(3,372		)	(15,338		)	(10,881		)
Income tax (benefit) provision	(3,631		)	28,691			(3,052		)	27,739
Net loss	$	(4,169	)	$	(32,063	)	$	(12,286	)	$	(38,620	)
Net loss per share:
Basic	$	(0.19	)	$	(1.52	)	$	(0.57	)	$	(1.84	)
Diluted	$	(0.19	)	$	(1.52	)	$	(0.57	)	$	(1.84	)
Common shares and equivalents outstanding:
Basic weighted average shares	21,827			21,073			21,587			21,004
Diluted weighted average shares	21,827			21,073			21,587			21,004

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

ROSETTA STONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	September 30,			December 31,
	2013			2012
				(As Adjusted)*
Assets
Current assets:
Cash and cash equivalents	$	113,104		$	148,190
Restricted cash	82			73
Accounts receivable (net of allowance for doubtful accounts of $1,182 and $1,297, respectively)	46,339			49,946
Inventory	7,038			6,581
Prepaid expenses and other current assets	10,391			8,651
Income tax receivable	648			1,104
Deferred income taxes	79			30
Total current assets	177,681			214,575
Property and equipment, net	18,029			17,213
Goodwill	49,972			34,896
Intangible assets, net	29,801			10,825
Deferred income taxes	218			257
Other assets	3,225			1,680
Total assets	$	278,926		$	279,446
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,588		$	6,064
Accrued compensation	13,094			16,830
Other current liabilities	30,482			36,387
Deferred revenue	62,168			59,195
Total current liabilities	113,332			118,476
Deferred revenue	10,463			4,221
Deferred income taxes	9,251			8,400
Other long-term liabilities	2,627			155
Total liabilities	135,673			131,252
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 and 10,000 authorized; zero and zero shares issued and outstanding September 30, 2013 and December 31, 2012, respectively	—			—
Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares authorized, 22,650 and 21,951 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	2			2
Additional paid-in capital	168,026			160,693
Accumulated loss	(25,444		)	(13,158		)
Accumulated other comprehensive income	669			657
Total stockholders’ equity	143,253			148,194
Total liabilities and stockholders’ equity	$	278,926		$	279,446

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

ROSETTA STONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
				(As Adjusted)*						(As Adjusted)*
Cash Flows From Operating Activities:
Net loss	$	(4,169	)	$	(32,063	)	$	(12,286	)	$	(38,620	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities, net of business acquisitions
Stock-based compensation expense	2,525			2,477			6,229			6,208
Bad debt expense	455			739			682			1,335
Depreciation and amortization	2,409			1,748			7,005			6,230
Deferred income tax provision (benefit)	(3,904		)	27,052			(4,527		)	25,846
Loss on disposal of equipment	41			372			246			752
Net change in:
Restricted cash	(18		)	(13		)	(9		)	15
Accounts receivable	(2,338		)	(5,165		)	5,672			11,149
Inventory	(1,058		)	(479		)	(506		)	1
Prepaid expenses and other current assets	1,150			(128		)	(1,593		)	662
Income tax receivable	(420		)	660			391			(2,080		)
Other assets	(1,703		)	968			(1,662		)	(78		)
Accounts payable	(1,986		)	2,491			961			(377		)
Accrued compensation	(2,621		)	(298		)	(4,180		)	1,476
Other current liabilities	1,704			1,123			(8,092		)	(6,690		)
Excess tax benefit from stock options exercised	—			18			—			—
Other long-term liabilities	(7		)	(1,640		)	329			(44		)
Deferred revenue	9,353			7,562			7,606			5,707
Net cash (used in) provided by operating activities	(587		)	5,424			(3,734		)	11,492
Cash Flows From Investing Activities:
Purchases of property and equipment	(2,203		)	(941		)	(6,415		)	(2,939		)
Proceeds from (purchases of) available-for-sale securities	—			1,599			—			9,711
Acquisitions, net of cash acquired	(17,495		)	—			(25,675		)	—
Net cash (used in) provided by investing activities	(19,698		)	658			(32,090		)	6,772
Cash Flows From Financing Activities:
Proceeds from the exercise of stock options	581			830			2,379			830
Repurchase of shares from exercised stock options	—			—			(1,040		)	—
Tax benefit of stock options exercised	—			(18		)	—			—
Proceeds from equity offering, net of issuance costs	(57		)	—			(228		)	—
Payments under capital lease obligations	(17		)	(2		)	(213		)	(5		)
Net cash provided by financing activities	507			810			898			825
(Decrease) increase in cash and cash equivalents	(19,778		)	6,892			(34,926		)	19,089
Effect of exchange rate changes in cash and cash equivalents	812			380			(160		)	441
Net (decrease) increase in cash and cash equivalents	(18,966		)	7,272			(35,086		)	19,530
Cash and cash equivalents—beginning of period	132,070			118,774			148,190			106,516
Cash and cash equivalents—end of period	$	113,104		$	126,046		$	113,104		$	126,046

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

ROSETTA STONE INC.

Reconciliation of GAAP Net Loss to Adjusted EBITDA and Pro Forma Adjusted EBITDA

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
				(As Adjusted)*						(As Adjusted)*
GAAP net loss	$	(4,169	)	$	(32,063	)	$	(12,286	)	$	(38,620	)
Interest (income)/expense, net	(12		)	(42		)	(51		)	(141		)
Income tax (benefit) expense	(3,631		)	28,691			(3,052		)	27,739
Depreciation and amortization	2,414			1,748			6,338			6,230
Depreciation related to restructuring	(5		)	—			667			—
Stock-based compensation	2,525			2,477			6,229			6,208
Other EBITDA adjustments	565			1,299			5,178			3,392
Adjusted EBITDA**	$	(2,313	)	$	2,110		$	3,023		$	4,808
Purchase accounting impact on acquired deferred revenue	2,906			—			3,217			—
Purchase accounting impact on acquired deferred commissions	(1,211		)	—			(1,211		)	—
Pro Forma Adjusted EBITDA***	$	(618	)	$	2,110		$	5,029		$	4,808

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

** Adjusted EBITDA is GAAP net income or loss plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring costs and transaction and other costs associated with mergers and acquisitions. Adjusted EBITDA for prior periods has been revised to conform to current definition.

*** Pro Forma Adjusted EBITDA is Adjusted EBITDA plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions.

ROSETTA STONE INC.

Reconciliation of GAAP Net Loss to Adjusted Net Loss and Pro Forma Adjusted Net Loss

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
				(As Adjusted) *						(As Adjusted) *
GAAP net loss	$	(4,169	)	$	(32,063	)	$	(12,286	)	$	(38,620	)
Items related to litigation with Google Inc., restructuring and other related costs, and acquisition costs	560			1,299			5,845			3,392
Income tax adjustments **	(807		)	29,499			650			30,660
Adjusted net loss ***	$	(4,416	)	$	(1,265	)	$	(5,791	)	$	(4,568	)
Purchase accounting impact on acquired deferred revenue	2,906			—			3,217			—
Purchase accounting impact on acquired deferred commissions	(1,211		)	—			(1,211		)	—
Pro forma adjusted net loss ****	$	(2,721	)	$	(1,265	)	$	(3,785	)	$	(4,568	)
GAAP net loss per share	$	(0.19	)	$	(1.52	)	$	(0.57	)	$	(1.84	)
Items related to litigation with Google Inc. restructuring and other related costs	0.03			0.06			0.27			0.16
Income tax adjustments **	(0.04		)	1.40			0.03			1.46
Adjusted net loss per share ***	$	(0.20	)	$	(0.06	)	$	(0.27	)	$	(0.22	)
Purchase accounting impact on acquired deferred revenue	0.13			—			0.15			—
Purchase accounting impact on acquired deferred commissions	(0.06		)	—			(0.06		)	—
Pro forma adjusted net loss per share ****	$	(0.12	)	$	(0.06	)	$	(0.18	)	$	(0.22	)
Basic weighted average shares	21,827			21,073			21,587			21,004
Diluted weighted average shares	21,827			21,073			21,587			21,004

* Certain amounts have beeen adjusted for the restrospective change in accounting principle for sales commissions.

** For adjusted net income (loss) and pro forma adjusted net income (loss) purposes, we use a 39% effective tax rate which represents the projected, long term effective tax rate on adjusted pretax income. Our adjusted tax rate assumes full use of loss and credit carryforwards without reduction for valuation allowances.

*** Adjusted net loss and adjusted net loss per share exclude the impact of items related to its litigation with Google Inc., restructuring 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.

**** Pro forma adjusted net loss and pro forma adjusted net loss per share are adjusted net loss and adjusted net loss per share plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions.

Rosetta Stone Inc.

Business Metrics

(in thousands)

	Quarter-Ended										Quarter-Ended										Quarter-Ended
	3/31/11		6/30/11		9/30/11		12/31/11		2011		3/31/12		6/30/12		9/30/12		12/31/12		2012		3/31/13		6/30/13		9/30/13
Net Bookings by Market
North America Consumer	29,814		36,828		35,562		55,209		157,413		41,733		37,295		42,283		57,870		179,181		41,303		39,321		38,629
Rest of World Consumer	14,996		12,910		11,945		14,166		54,017		12,550		8,113		10,488		10,034		41,185		8,310		6,879		7,471
Worldwide Consumer	44,810		49,738		47,507		69,375		211,430		54,283		45,408		52,771		67,904		220,366		49,613		46,200		46,100
Global Enterprise and Education	10,770		16,973		18,555		15,459		61,757		10,984		17,635		19,354		16,423		64,396		10,758		16,883		24,594
Total	55,580		66,711		66,062		84,834		273,187		65,267		63,043		72,125		84,327		284,762		60,371		63,083		70,694
YoY Growth (%)
North America Consumer	-28	%	-5	%	-14	%	6	%	-9	%	40	%	1	%	19	%	5	%	14	%	-1	%	5	%	-9	%
Rest of World Consumer	50	%	58	%	21	%	-7	%	25	%	-16	%	-37	%	-12	%	-29	%	-24	%	-34	%	-15	%	-29	%
Worldwide Consumer	-13	%	6	%	-7	%	3	%	-3	%	21	%	-9	%	11	%	-2	%	4	%	-9	%	2	%	-13	%
Global Enterprise and Education	18	%	-1	%	-17	%	7	%	-2	%	2	%	4	%	4	%	6	%	4	%	-2	%	-4	%	27	%
Total	-9	%	4	%	-10	%	4	%	-2	%	17	%	-5	%	9	%	-1	%	4	%	-8	%	0	%	-2	%
% of Total Net Bookings
North America Consumer	54	%	55	%	54	%	65	%	57	%	64	%	59	%	59	%	69	%	63	%	68	%	62	%	55	%
Rest of World Consumer	27	%	20	%	18	%	17	%	20	%	19	%	13	%	14	%	12	%	14	%	14	%	11	%	14	%
Worldwide Consumer	81	%	75	%	72	%	82	%	77	%	83	%	72	%	73	%	81	%	77	%	82	%	73	%	65	%
Global Enterprise and Education	19	%	25	%	28	%	18	%	23	%	17	%	28	%	27	%	19	%	23	%	18	%	27	%	35	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Revenue by Market
North America Consumer	28,061		38,606		37,710		53,184		157,561		43,084		36,918		39,878		52,946		172,826		41,385		39,934		38,699
Rest of World Consumer	14,601		12,014		11,002		12,848		50,465		12,204		8,053		9,903		10,088		40,248		8,570		7,478		7,165
Worldwide Consumer	42,662		50,620		48,712		66,032		208,026		55,288		44,971		49,781		63,034		213,074		49,955		47,412		45,864
Global Enterprise and Education	14,316		16,123		15,490		14,494		60,423		14,161		15,841		14,498		15,667		60,167		13,969		14,727		15,008
Total	56,978		66,743		64,202		80,526		268,449		69,449		60,812		64,279		78,701		273,241		63,924		62,139		60,872
YoY Growth (%)
North America Consumer	-32	%	0	%	2	%	19	%	-2	%	54	%	-4	%	6	%	0	%	10	%	-4	%	8	%	-3	%
Rest of World Consumer	49	%	57	%	13	%	-17	%	18	%	-16	%	-33	%	-10	%	-21	%	-20	%	-30	%	-7	%	-28	%
Worldwide Consumer	-17	%	9	%	5	%	10	%	2	%	30	%	-11	%	2	%	-5	%	2	%	-10	%	5	%	-8	%
Global Enterprise and Education	21	%	13	%	8	%	2	%	11	%	-1	%	-2	%	-6	%	8	%	0	%	-1	%	-7	%	4	%
Total	-10	%	10	%	5	%	8	%	4	%	22	%	-9	%	0	%	-2	%	2	%	-8	%	2	%	-5	%
% of Total Revenue
North America Consumer	49	%	58	%	59	%	66	%	58	%	62	%	61	%	62	%	67	%	63	%	65	%	64	%	64	%
Rest of World Consumer	26	%	18	%	17	%	16	%	19	%	18	%	13	%	15	%	13	%	15	%	13	%	12	%	12	%
Worldwide Consumer	75	%	76	%	76	%	82	%	77	%	80	%	74	%	77	%	80	%	78	%	78	%	76	%	75	%
Global Enterprise and Education	25	%	24	%	24	%	18	%	23	%	20	%	26	%	23	%	20	%	22	%	22	%	24	%	25	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

	Quarter-Ended															Quarter-Ended															Quarter-Ended
	3/31/11			6/30/11			9/30/11			12/31/11			2011			3/31/12			6/30/12			9/30/12			12/31/12			2012			3/31/13			6/30/13			9/30/13
Unit Metrics
Product Unit Volume (thousands)	108.5			140.0			134.3			202.9			585.8			143.0			129.7			146.5			210.7			629.8			141.8			148.6			157.7
Paid Online Learners (thousands)	16.4			17.1			21.5			26.6			26.6			41.2			48.7			57.4			68.4			68.4			80.6			85.1			88.6
YoY Growth (%)
Product Units	-14		%	24		%	14		%	20		%	11		%	32		%	-7		%	9		%	4		%	8		%	-1		%	15		%	8		%
Paid Online Learners	30		%	20		%	21		%	58		%	58		%	151		%	185		%	167		%	157		%	157		%	95		%	75		%	54		%
Average Net Revenue Per Unit ($)
Average Net Revenue per Product Unit	$	379		$	349		$	346		$	313		$	341		$	367		$	319		$	313		$	277		$	315		$	312		$	275		$	250
Average Net Revenue per Online Learner (monthly)	$	30		$	34		$	39		$	36		$	35		$	28		$	27		$	24		$	24		$	26		$	26		$	25		$	24
YoY Growth (%)
Average Net Revenue per Product Unit	-4		%	-12		%	-9		%	-9		%	-9		%	-3		%	-9		%	-9		%	-11		%	-8		%	-15		%	-14		%	-20		%
Average Net Revenue per Online Learner	-10		%	-2		%	10		%	3		%	0		%	-6		%	-22		%	-37		%	-32		%	-25		%	-7		%	-6		%	-1		%
# of Kiosks (end of period)
North America	144			117			114			103			103			57			56			57			57			57			56			—			—
Europe	15			16			14			13			13			1			1			1			1			1			—			—			—
Asia Pacific	78			76			69			58			58			44			42			39			29			29			22			20			9
Total # of Kiosks (end of period)	237			209			197			174			174			102			99			97			87			87			78			20			9
Revenues by Geography
United States	41,271			53,418			51,708			65,725			212,122			54,914			50,810			52,167			65,856			223,747			52,791			52,163			51,013
International	15,707			13,325			12,494			14,801			56,327			14,535			10,002			12,112			12,845			49,494			11,133			9,976			9,859
Total	56,978			66,743			64,202			80,526			268,449			69,449			60,812			64,279			78,701			273,241			63,924			62,139			60,872
Revenues by Geography (as a %)
United States	72		%	80		%	81		%	82		%	79		%	79		%	84		%	81		%	84		%	82		%	83		%	84		%	84		%
International	28		%	20		%	19		%	18		%	21		%	21		%	16		%	19		%	16		%	18		%	17		%	16		%	16		%
Total	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%	100		%

ROSETTA STONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - AS RESTATED

(in thousands)

(unaudited)

	As of December 31, 2012									As of March 31, 2013									As of June 30, 2013									As of September 30, 2013
	As Previously Reported			Impact of Commission Adjustment			As Adjusted *			As Previously Reported			Impact of Commission Adjustment			As Adjusted *			As Previously Reported			Impact of Commission Adjustment			As Adjusted *			Computed under Prior Method			Impact of Commission Adjustment			As Adjusted *
Prepaid expenses and other current assets	$	5,204		$	3,447		$	8,651		$	7,722		$	3,333		$	11,055		$	7,788		$	3,622		$	11,410		$	6,457		$	3,934		$	10,391
Deferred income taxes (current)	$	79		$	(49	)	$	30		$	75		$	(44	)	$	31		$	136		$	(57	)	$	79		$	141		$	(62	)	$	79
Total current assets	$	211,177		$	3,398		$	214,575		$	193,869		$	3,289		$	197,158		$	187,986		$	3,565		$	191,551		$	173,809		$	3,872		$	177,681
Other assets	$	1,484		$	196		$	1,680		$	1,389		$	97		$	1,486		$	1,335		$	165		$	1,500		$	3,060		$	165		$	3,225
Deferred income taxes (non-current)	$	260		$	(3	)	$	257		$	250		$	—		$	250		$	210		$	—		$	210		$	221		$	(3	)	$	218
Total assets	$	275,855		$	3,591		$	279,446		$	258,290		$	3,386		$	261,676		$	262,335		$	3,730		$	266,065		$	274,892		$	4,034		$	278,926
Accumulated loss	$	(16,749	)	$	3,591		$	(13,158	)	$	(21,449	)	$	3,386		$	(18,063	)	$	(25,006	)	$	3,730		$	(21,276	)	$	(29,478	)	$	4,034		$	(25,444	)
Total stockholders’ equity	$	144,603		$	3,591		$	148,194		$	141,440		$	3,386		$	144,826		$	140,274		$	3,730		$	144,004		$	139,219		$	4,034		$	143,253
Total liabilities and stockholders’ equity	$	275,855		$	3,591		$	279,446		$	258,290		$	3,386		$	261,676		$	262,335		$	3,730		$	266,065		$	274,892		$	4,034		$	278,926

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

ROSETTA STONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - AS RESTATED

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31, 2012									Three Months Ended June 30, 2012									Three Months Ended September 30, 2012
	As Previously Reported			Impact of Commission Adjustment			As Adjusted *			As Previously Reported			Impact of Commission Adjustment			As Adjusted *			As Previously Reported			Impact of Commission Adjustment			As Adjusted *
Sales and marketing	$	38,404		$	166		$	38,570		$	35,125		$	(6	)	$	35,119		$	37,113		$	(283	)	$	36,830
Income (loss) from operations	$	(2,359	)	$	(166	)	$	(2,525	)	$	(5,045	)	$	6		$	(5,039	)	$	(3,670	)	$	283		$	(3,387	)
Income tax provisions (benefit)	$	(742	)	$	(66	)	$	(808	)	$	(160	)	$	16		$	(144	)	$	29,735		$	(1,044	)	$	28,691
Net income (loss)	$	(1,903	)	$	(100	)	$	(2,003	)	$	(4,544	)	$	(10	)	$	(4,554	)	$	(33,390	)	$	1,327		$	(32,063	)
Basic net income (loss) per share	$	(0.09	)	$	(0.01	)	$	(0.10	)	$	(0.22	)	$	0.00		$	(0.22	)	$	(1.58	)	$	0.06		$	(1.52	)
Diluted net income (loss) per share	$	(0.09	)	$	(0.01	)	$	(0.10	)	$	(0.22	)	$	0.00		$	(0.22	)	$	(1.58	)	$	0.06		$	(1.52	)
Shares used in computing basic net income (loss) per share	20,942			—			20,942			20,995			—			20,995			21,073			—			21,073
Shares used in computing diluted net income (loss) per share	20,942			—			20,942			20,995			—			20,995			21,073			—			21,073

	Three Months Ended December 31, 2012							Twelve Months Ended December 31, 2012
	As Previously Reported		Impact of Commission Adjustment			As Adjusted		As Previously Reported			Impact of Commission Adjustment			As Adjusted
Sales and marketing	$	41,005	$	(641	)	$	40,364	$	151,647		$	(764	)	$	150,883
Income (loss) from operations	$	5,044	$	641		$	5,685	$	(6,030	)	$	764		$	(5,266	)
Income tax provisions (benefit)	$	1,158	$	12		$	1,170	$	29,991		$	(1,082	)	$	28,909
Net income (loss)	$	4,006	$	629		$	4,635	$	(35,831	)	$	1,846		$	(33,985	)
Basic net income (loss) per share	$	0.19	$	0.03		$	0.22	$	(1.70	)	$	0.09		$	(1.61	)
Diluted net income (loss) per share	$	0.18	$	0.03		$	0.21	$	(1.70	)	$	0.09		$	(1.61	)
Shares used in computing basic net income (loss) per share	21,166		—			21,166		21,045			—			21,045
Shares used in computing diluted net income (loss) per share	21,828		—			21,828		21,045			—			21,045

	Three Months Ended March 31, 2013									Three Months Ended June 30, 2013									Three Months Ended September 30, 2013
	As Previously Reported			Impact of Commission Adjustment			As Adjusted			As Previously Reported			Impact of Commission Adjustment			As Adjusted			Computed under Prior Method			Impact of Commission Adjustment			As Reported
Sales and marketing	$	37,060		$	213		$	37,273		$	33,144		$	(357	)	$	32,787		$	35,156		$	(312	)	$	34,844
Income (loss) from operations	$	(4,138	)	$	(213	)	$	(4,351	)	$	(3,991	)	$	357		$	(3,634	)	$	(7,819	)	$	312		$	(7,507	)
Income tax provisions (benefit)	$	977		$	(9	)	$	968		$	(400	)	$	13		$	(387	)	$	(3,640	)	$	9		$	(3,631	)
Net income (loss)	$	(4,700	)	$	(204	)	$	(4,904	)	$	(3,557	)	$	344		$	(3,213	)	$	(4,472	)	$	303		$	(4,169	)
Basic net income (loss) per share	$	(0.22	)	$	(0.01	)	$	(0.23	)	$	(0.16	)	$	0.01		$	(0.15	)	$	(0.20	)	$	0.01		$	(0.19	)
Diluted net income (loss) per share	$	(0.22	)	$	(0.01	)	$	(0.23	)	$	(0.16	)	$	0.01		$	(0.15	)	$	(0.20	)	$	0.01		$	(0.19	)
Shares used in computing basic net income (loss) per share	21,360			—			21,360			21,569			—			21,569			21,827			—			21,827
Shares used in computing diluted net income (loss) per share	21,360			—			21,360			21,569			—			21,569			21,827			—			21,827

* Certain amounts have been adjusted for the restrospective change in accounting principle for sales commissions.

EX-99.2

Exhibit 99.2

Third Quarter 2013 Results November 6, 2013

Certain information contained in this presentation and certain comments today constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company's current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including demand for our language learning solutions; the advantages of our products, services, technology, brand and business model as compared to others; our strategic focus; our ability to maintain effective internal controls or to remediate material weaknesses; our cash needs and expectations regarding cash flow from operations; our product development plans; the appeal and efficacy of our products and services; our expectations regarding capturing lifetime value and a broader range of market segments through such offerings; our plans regarding expansion of our marketing initiatives and sales force; our international operations and growth plans; our plans regarding our kiosks and retail relationships; our plans regarding our Enterprise and Education business; the impact of any revisions to our pricing strategy; our ability to manage and grow our business and execute our business strategy; our financial performance; our actions to realign our cost structure and revitalizing our go-to-market strategy; our plans to transition our distribution to more online in the consumer business; our mergers and acquisitions plans; our plans with respect to Lexia and Livemocha; our ability to successfully integrate Lexia and Livemocha into our business; adverse trends in general economic conditions and the other factors including the “Risk Factors” more fully described in the Company's filings with the U.S. Securities and Exchange Commission (SEC), including the Company’s annual report on Form 10-K for the year period ended December 31, 2012, which is on file with the SEC. We encourage you to review those factors before making any investment decision. You should not place undue reliance on forward-looking statements because they involve factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements. Today’s presentation and discussion also contains references to non-GAAP financial measures. The full definition and reconciliation of those measures is available in our Form 8-K filed with the SEC on November 6, 2013. 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. 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. Our definitions of non-GAAP measures may not be comparable to the definitions used by other companies, and we encourage you to review and understand all our financial reporting before making any investment decision. Safe Harbor 2

 Steve Swad President & Chief Executive Officer 3Q13 Review

3Q13 Review – Mixed Results but Continued Transformation Progress Rosetta Stone Inc. © 2013 4 Core bookings are E&E bookings excluding network and before Lexia. PF refers to Pro Forma wherever noted throughout the presentation. Please see the Appendix for definitions of non-GAAP metrics.

2013 Outlook – Maintaining Full Year PF Adjusted EBITDA Guidance of $14MM to $17MM; Lowering Full Year PF Revenue Guidance to $270MM to $280MM Rosetta Stone Inc. © 2013 5

3Q13 Financial Review 6

Total -1% Core2 0% Consolidated Bookings and Pro Forma Revenue1 Bookings Pro Forma Revenue Please see the Appendix for definitions of non-GAAP metrics Core Bookings and Core PF Revenue excludes N.A. Kiosk and E&E network sales and are before Lexia $ millions Rosetta Stone Inc. © 2013 7 Total -2% Core2 -3%

Core Bookings & Revenue1,2 8 3Q12 3Q13 Yr/Yr % Change RS Before Lexia Lexia Pro Forma RST RS Before Lexia Lexia Pro Forma RST RS Before Lexia Lexia Pro Forma RST Core Bookings Total Core Bookings $67.9 n/a $67.9 $66.0 $4.2 $70.3 -3% n/a 4% Core N.A. Consumer Bookings $38.4 n/a $38.4 $38.3 n/a $38.3 0% n/a 0% ROW Consumer Bookings $10.5 n/a $10.5 $7.5 n/a $7.5 -29% n/a -29% Core E&E Bookings $19.0 n/a $19.0 $20.3 $4.2 $24.5 7% n/a 29% Core Revenue Total Core Revenue $59.8 n/a $59.8 $59.9 $3.0 $62.8 0% n/a 5% Core N.A. Consumer Revenue $35.8 n/a $35.8 $38.0 n/a $38.0 6% n/a 6% ROW Consumer Revenue $9.9 n/a $9.9 $7.2 n/a $7.2 -28% n/a -28% Core E&E Revenue $14.2 n/a $14.2 $14.7 $3.0 $17.6 4% n/a 25% Please see the Appendix for definitions of non-GAAP metrics Core Bookings and Revenue excludes N.A. Kiosk and E&E network sales and are before Lexia

Bookings1 by Segment $ millions North America Consumer Total -3% Core2 0% Total 27% Core3 7% Rest of World Consumer Enterprise & Education Total -29% Rosetta Stone Inc. © 2013 9 Please see the Appendix for definitions of non-GAAP metrics Core Bookings are North American Consumer excluding Kiosk bookings Core Bookings are E&E bookings excluding network bookings and before Lexia

Consolidated PF Adjusted EBITDA1 and Margin Declined 10 Please see the Appendix for definitions of non-GAAP metrics.

PF Adjusted EBITDA and Free Cash Flow PF Adjusted EBITDA1 Free Cash Flow1 $ millions Rosetta Stone Inc. © 2013 11 129 % Yr/Yr -162 % Yr/Yr Please see the Appendix for definitions of non-GAAP metrics.

Deferred Revenue and Cash Balances Reflect Acquisitions $ millions Deferred Revenue Ending Cash 26 % Yr/Yr -10% Yr/Yr Rosetta Stone Inc. © 2013 12

Product Units and Paid Online Learners Product Units and ARPU1 Paid Online Learners and ARPU1 Rosetta Stone Inc. © 2013 ARPU is defined as average revenue per unit. 13 Product Units increased 8% year-over-year, driven by Digital Downloads 20% Product ARPU decline, of which 400 bps was due to channel mix shift Online Learners grew 54% year-over-year with stable ARPU

Consumer Online + Digital Download Growing: Now 30% of Consumer Revenue Percentages may not add to 100% due to rounding 14 8% 30%

Summary Balance Sheet 6/30/2013 9/30/2013 Cash, cash equivalents & ST investments $132.1 $113.2 Accounts receivable, net $41.7 $46.3 Inventory $5.9 $7.0 Total assets $262.3 $278.9 Deferred revenue $61.6 $72.6 Total debt - - Total liabilities $122.1 $135.7 Equity $140.3 $143.3 Total liabilities and stockholders’ equity $262.3 $278.9 $ millions Balance Sheet Remains Strong Rosetta Stone Inc. © 2013 15

Financial Outlook Please see the Appendix for definitions of non-GAAP metrics; Rosetta Stone provides guidance and pro forma results excluding purchasing accounting for comparability For adjusted net income/(loss) purposes, we use a 39% effective tax rate which represents the projected, long term effective tax rate. Our adjusted tax rate assumes full use of loss and credit carry-forwards without reduction for valuation allowances. 16 FY 2013 Guidance1,2,3 Pro Forma Revenue $270MM to $280MM Pro Forma Adjusted EBITDA $14MM to $17MM PF Adjusted Net Income/(Loss) ($3MM) to $0MM PF Adjusted Net Loss per share ($0.12) to ($0.01) Weighted Average Shares Outstanding ~21.7MM Capital Expenditures $5MM to $8MM

Appendix

Non-GAAP Metric Definitions Adjusted EBITDA is GAAP net income or loss plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring costs and transaction and other costs associated with mergers and acquisitions. Adjusted net income/(loss) and adjusted net income/(loss) per share exclude the impact of items related to its litigation with Google Inc., restructuring 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. Free cash flow is cash flow from operations less cash used in purchases of property and equipment. Bookings represent executed sales contracts received by the Company that are either recorded immediately as revenue or as deferred revenue. Pro Forma Revenue is GAAP revenue plus the purchase accounting impact on acquired deferred revenue. Pro Forma Adjusted EBITDA is Adjusted EBITDA (as defined above) plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions. Pro Forma Adjusted Net Income/(Loss) and Pro Forma Adjusted EPS are Adjusted Net Income/(Loss) and Adjusted Net Income/(Loss) per Share (as defined above) plus the purchase accounting impact on acquired deferred revenue less the purchase accounting impact on acquired deferred commissions. 18