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): May 7, 2014

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 May 7, 2014, Rosetta Stone Inc. announced its financial results for the fiscal first quarter ended March 31, 2014.  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, May 7, 2014 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 May 7, 2014.
99.2	Presentation slides from the Rosetta Stone Inc. webcast of its fiscal first quarter ended March 31, 2014 earnings call held on May 7, 2014, 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:  May 7, 2014
	By:	/s/ Bruce C. Ghrist
		Name: Bruce C. Ghrist
		Title:  Acting General Counsel and Secretary

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EXHIBIT INDEX

ExhibitNo.	Description
99.1	Press Release dated May 7, 2014.
99.2	Presentation slides from the Rosetta Stone Inc. webcast of its fiscal first quarter ended March 31, 2014 earnings call held on May 7, 2014, furnished herewith.

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EX-99.1

Exhibit 99.1

Rosetta Stone Inc. Reports First Quarter 2014 Results

70% Growth in Enterprise and Education Business Reflects Continued Momentum in the Company’s Transformation

ARLINGTON, VA — May 7, 2014 — Rosetta Stone Inc. (NYSE:RST), a leading provider of technology-based language-learning, reading and brain fitness solutions, today announced financial results for the first quarter of 2014.

·Company demonstrates continued progress and growth in Enterprise & Education (“E&E”) business with 70% bookings growth

·Results from acquisitions on track and meeting or exceeding plans

·Consumer business trending similar to last year but beginning to leverage marketing capabilities, including acceleration of Fit Brains results

·Excluding the shuttered North American Kiosk channel, total bookings of $61.2 million grew 6%, while total revenue was down 1% to $60.8 million

·Adjusted EBITDA of ($6.7) million versus guidance of ($8-$10) million

·Confirms full year 2014 guidance

“The first quarter further demonstrated that we are making solid progress in transforming Rosetta Stone,” said Steve Swad, President and Chief Executive Officer of Rosetta Stone.  Swad continued, “The expanded product portfolio from acquisitions and new development helped generate solid 70% bookings growth in our E&E segment.  I was particularly encouraged by the immediate contribution from sales of the Tell Me More product and strong growth from Lexia Learning.  Our Consumer business continued to reflect the effects of varying channel performance with the web channel continuing to drive positive results but retail creating significant drag on overall results.  The addition of Fit Brains to the Rosetta Stone portfolio and our ability to accelerate their performance was evidence that we can leverage our marketing platform and cross-sell to our growing user base, now over 9 million.”

First Quarter 2014 Operational and Financial Highlights

Bookings: Total consolidated bookings, excluding the shuttered North American Kiosk channel, increased 6% to $61.2 million from $57.8 million in the year-ago period. North American Consumer segment (“NA Consumer”) bookings excluding Kiosk decreased 7% to $36.1 million from $38.8 million, primarily reflecting a $4.0 million or 47% decrease in retail channel bookings.  Bookings from the direct-to-consumer (“DTC”)

channel were flat, while bookings from Fit Brains added an incremental $1.4 million to NA Consumer.  Rest of World (“ROW”) Consumer segment bookings declined 18%, primarily reflecting decreases in Asia as the company downsized these markets in the first quarter, partially offset by $0.3 million of incremental bookings from third-party partner sales.  Bookings in the Global Enterprise & Education (“E&E”) segment increased 70% compared with a year-ago.  Bookings from E&E Language decreased 4% on a pro forma basis while bookings from Lexia increased 35% on a pro forma basis compared with the first quarter of 2013.

US$ thousands

	Three Months Ended
	March 31,
	2014		2013		% change
Bookings from:
N.A. Consumer ex Kiosk	$	36,141	$	38,758	-7	%
Rest of World Consumer	6,817		8,310		-18	%
Global Enterprise and Education	18,282		10,758		70	%
Total ex N.A. Kiosk	$	61,240	$	57,826	6	%
Total	$	61,240	$	60,371	1	%

Revenue: Total revenue excluding the shuttered North American Kiosk channel decreased 1% year-over-year to $60.8 million from $61.4 million.  NA Consumer revenue excluding Kiosk decreased 7%, primarily reflecting weakness in the retail channel, which declined 37%, and a 1% decrease in DTC.  Fit Brains contributed $0.2 million during the quarter.  ROW Consumer revenue decreased 22% due mainly to decreases in Japan and Korea.  E&E revenue grew 28% in the first quarter compared with a year ago.

US$ thousands

	Three Months Ended
	March 31,
	2014		2013		% change
Revenue from:
N.A. Consumer ex Kiosk	$	36,214	$	38,859	-7	%
Rest of World Consumer	6,669		8,570		-22	%
Global Enterprise and Education	17,882		13,969		28	%
Total ex N.A. Kiosk	$	60,765	$	61,397	-1	%
Total	$	60,765	$	63,924	-5	%

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·Adjusted EBITDA: Adjusted EBITDA in the first quarter was negative $6.7 million vs. negative $1.1 million a year ago.  The decrease in the quarter is mainly due to the $4.0 million decrease in retail bookings and the inclusion of the results from acquisitions this quarter, which operated at a seasonal loss in the first quarter.  These decreases were partially offset by contribution from higher bookings from acquisitions and benefits from restructurings in Japan and Korea in the ROW Consumer segment.  In connection with the downsizing of its operations in Asia in the first quarter, the company recorded a $2.2 million non-cash goodwill impairment charge for the ROW Consumer segment, which is excluded from Adjusted EBITDA.

·Balance Sheet and Cash Flow: Cash at the end of the quarter was $56.0 million compared with $98.8 million at 12/31/13.  The decrease in cash was mainly due to the acquisition of Tell Me More S.A. of $28.0MM, the negative Adjusted EBITDA in the quarter and other one-time cash expenses for restructurings, severance and acquisition transaction and integration expenses.  Deferred revenue increased $2.7 million in the quarter to $81.5 million compared with $78.9 at 12/31/13.  Free cash flow in the first quarter was negative $15.0 million compared with negative $8.2 million a year ago.  The decline in free cash flow reflects the lower Adjusted EBITDA, higher one-time items of $4.1 million vs. $0.8 million a year ago and a decrease in working capital, which was partially offset by a decrease in capital expenditures to $1.4 million in the first quarter compared with $2.5 million a year ago.

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Guidance

The company is maintaining its guidance for the full year 2014 as follows:

FY 2014 Guidance

	Amount/Range	Commentary
Consolidated Bookings	$315MM to $325MM	Mid-single digit % growth
Adjusted EBITDA	$18MM to $22MM	~5% margin
Shares outstanding	~22MM
Capital Expenditures	$10MM to $14MM	Acquisition Integrations
Long-term effective tax rate	39%

Non-GAAP Financial Measures

This press release contains several non-GAAP financial measures.

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

·Adjusted EBITDA is GAAP net income/(loss) plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expense, goodwill impairment plus the change in deferred revenue (excluding acquired deferred revenue) less the change in deferred commissions.  In addition, Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring and related wind down costs, severance costs and transaction and other costs associated with mergers and acquisitions as well as all adjustments related to recording the non-cash tax valuation allowance for deferred tax assets. Adjusted EBITDA for prior periods has been revised to conform to current definition.

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

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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 and education-technology 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 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

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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.

Earnings Results 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 an Earnings Results webcast today at 4:30pm eastern time (ET) during which time there will be a discussion of 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.

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.

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, Lexia Learning, Vivity Labs, and Tell Me More. Rosetta Stone is based in Arlington, VA, and has offices around the world.

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Cautionary Statement Regarding Forward-Looking Statements

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; 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 ability to expand our product offerings beyond our core adult-focused language learning solutions, including the launch of Kids reading and brain fitness; our ability to introduce successfully Lexia’s Core5 reading product to the consumer market; our ability to expand our offerings to more devices and apps, our ability to identify and successfully close and integrate additional acquisition targets; our plans with respect to and our ability to successfully integrate Lexia, Livemocha, Tell Me More and Vivity 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, 2013, 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 May 7, 2014.  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.

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Investor Contact:	Media Contact:
Steve Somers, CFA	Jonathan Mudd
Vice President, Corporate Development &	jmudd@rosettastone.com
Investor Relations	571-357-7148
ssomers@rosettastone.com
703-387-5876

Source: Rosetta Stone Inc.

ROSETTA STONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	March 31,			December 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	55,974		$	98,825
Restricted cash	50			12,424
Accounts receivable (net of allowance for doubtful accounts of $1,542 and $1,000, respectively)	44,932			60,342
Inventory	8,416			6,639
Prepaid expenses and other current assets	13,257			12,294
Income tax receivable	947			197
Total current assets	123,576			190,721
Property and equipment, net	23,350			17,766
Goodwill	78,560			50,059
Intangible assets, net	39,610			29,006
Other assets	3,317			3,224
Total assets	$	268,413		$	290,776
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,740		$	10,326
Accrued compensation	11,461			16,380
Obligations under capital lease	667			256
Other current liabilities	33,497			41,936
Deferred revenue	68,861			67,173
Total current liabilities	126,226			136,071
Deferred revenue	12,681			11,684
Deferred income taxes	10,548			9,022
Obligations under capital lease	4,092			217
Other long-term liabilities	2,369			2,539
Total liabilities	155,916			159,533
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 and 10,000 authorized; zero and zero shares issued and outstanding March 31, 2014 and December 31, 2013, respectively	—			—
Non-designated common stock, $0.00005 par value, 190,000 and 190,000 shares authorized, 22,832 and 22,588 shares issued and 21,832 and 21,588 shares outstanding at March 31, 2014 and December 31, 2013, respectively	2			2
Additional paid-in capital	172,982			171,123
Accumulated loss	(49,533		)	(29,292		)
Accumulated other comprehensive income	481			845
Treasury stock, at cost, 1,000 shares at March 31, 2014 and 1,000 shares at December 31, 2013	(11,435		)	(11,435		)
Total stockholders’ equity	112,497			131,243
Total liabilities and stockholders’ equity	$	268,413		$	290,776

ROSETTA STONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	March 31,
	2014			2013
				(As Adjusted)*
Revenue:
Product	$	32,371		$	37,592
Subscription and service	28,394			26,332
Total revenue	60,765			63,924
Cost of revenue:
Cost of product revenue	7,824			6,940
Cost of subscription and service revenue	4,347			3,324
Total cost of revenue	12,171			10,264
Gross profit	48,594			53,660
Operating expenses
Sales and marketing	39,096			37,273
Research and development	8,773			7,357
General and administrative	16,054			12,588
Goodwill impairment	2,199			—
Lease abandonment	3,571			793
Total operating expenses	69,693			58,011
Loss from operations	(21,099		)	(4,351		)
Other income and (expense):
Interest income	5			41
Interest expense	(56		)	(45		)
Other income (expense)	226			419
Total other income	175			415
Loss before income taxes	(20,924		)	(3,936		)
Income tax (benefit) provision	(683		)	968
Net loss	$	(20,241	)	$	(4,904	)
Net loss per share:
Basic	$	(0.96	)	$	(0.23	)
Diluted	$	(0.96	)	$	(0.23	)
Common shares and equivalents outstanding:
Basic weighted average shares	21,125			21,360
Diluted weighted average shares	21,125			21,360

* 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
	March 31,
	2014			2013
				(As Adjusted)*
Cash Flows From Operating Activities:
Net loss	$	(20,241	)	$	(4,904	)
Adjustments to reconcile net loss to cash used in operating activities, net of business acquisitions:
Stock-based compensation expense	1,406			1,668
Bad debt expense	957			(238		)
Depreciation and amortization	3,434			2,372
Deferred income tax provision (benefit)	(756		)	289
Loss on disposal of equipment	106			141
Goodwill impairment	2,199			—
Net change in:
Restricted cash	60			32
Accounts receivable	17,916			11,135
Inventory	(1,034		)	(746		)
Prepaid expenses and other current assets	(213		)	(2,446		)
Income tax receivable	(639		)	413
Other assets	62			105
Accounts payable	512			(209		)
Accrued compensation	(8,123		)	(6,412		)
Other current liabilities	(9,461		)	(4,253		)
Excess tax benefit from stock options exercised	—			—
Other long-term liabilities	(172		)	371
Deferred revenue	358			(2,953		)
Net cash used in operating activities	(13,629		)	(5,635		)
Cash Flows From Investing Activities:
Purchases of property and equipment	(1,366		)	(2,528		)
Decrease in restricted cash related to Vivity Labs acquisition	12,314			—
Acquisitions, net of cash acquired	(40,161		)	—
Net cash used in investing activities	(29,213		)	(2,528		)
Cash Flows From Financing Activities:
Proceeds from the exercise of stock options	454			349
Payments under capital lease obligations	(61		)	(193		)
Net cash provided by financing activities	393			156
Decrease in cash and cash equivalents	(42,449		)	(8,007		)
Effect of exchange rate changes in cash and cash equivalents	(402		)	(872		)
Net decrease in cash and cash equivalents	(42,851		)	(8,879		)
Cash and cash equivalents—beginning of period	98,825			148,190
Cash and cash equivalents—end of period	$	55,974		$	139,311

* 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

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2014			2013
				(As Adjusted)*
GAAP net loss	$	(20,241	)	$	(4,904	)
Interest (income)/expense, net	51			4
Income tax (benefit) expense	(683		)	968
Depreciation and amortization	3,372			1,757
Depreciation related to restructuring	62			615
Goodwill impairment	2,199			—
Stock-based compensation	1,406			1,668
Other EBITDA adjustments	8,006			2,088
Change in deferred revenue	475			(3,553		)
Change in deferred commission	(1,377		)	213
Adjusted EBITDA**	$	(6,730	)	$	(1,144	)

* Certain amounts have been adjusted for the retrospective 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, goodwill impairment, and stock-based compensation expenses, plus the change in deferred revenue excluding increases in deferred revenue from acquisitions less the change in deferred commissions. Adjusted EBITDA excludes the change in deferred commissions, any items related to the litigation with Google Inc., restructuring and related wind down costs, severance costs, and transaction and other costs associated with mergers and acquisitions. Adjusted EBITDA for prior periods has been revised to conform to the current definition.

Rosetta Stone Inc.

Business Metrics

(in thousands)

	Quarter-Ended										Quarter-Ended
	3/31/13		6/30/13		9/30/13		12/31/13		2013		3/31/14
Net Bookings by Market
North America Consumer	41,303		39,321		38,629		52,620		171,873		36,141
Rest of World Consumer	8,310		6,879		7,471		7,300		29,960		6,817
Worldwide Consumer	49,613		46,200		46,100		59,920		201,833		42,958
Global Enterprise and Education	10,758		16,883		24,594		24,067		76,302		18,282
Total	60,371		63,083		70,694		83,987		278,135		61,240
YoY Growth (%)
North America Consumer	-1	%	5	%	-9	%	-9	%	-4	%	-12	%
Rest of World Consumer	-34	%	-15	%	-29	%	-27	%	-27	%	-18	%
Worldwide Consumer	-9	%	2	%	-13	%	-12	%	-8	%	-13	%
Global Enterprise and Education	-2	%	-4	%	27	%	47	%	18	%	70	%
Total	-8	%	0	%	-2	%	0	%	-2	%	1	%
% of Total Net Bookings
North America Consumer	68	%	62	%	55	%	63	%	62	%	59	%
Rest of World Consumer	14	%	11	%	10	%	9	%	11	%	11	%
Worldwide Consumer	82	%	73	%	65	%	71	%	73	%	70	%
Global Enterprise and Education	18	%	27	%	35	%	29	%	27	%	30	%
Total	100	%	100	%	100	%	100	%	100	%	100	%
Revenue by Market
North America Consumer	41,385		39,934		38,699		53,998		174,016		36,214
Rest of World Consumer	8,570		7,478		7,165		7,207		30,420		6,669
Worldwide Consumer	49,955		47,412		45,864		61,205		204,436		42,883
Global Enterprise and Education	13,969		14,727		15,008		16,505		60,209		17,882
Total	63,924		62,139		60,872		77,710		264,645		60,765
YoY Growth (%)
North America Consumer	-4	%	8	%	-3	%	2	%	1	%	-12	%
Rest of World Consumer	-30	%	-7	%	-28	%	-29	%	-24	%	-22	%
Worldwide Consumer	-10	%	5	%	-8	%	-3	%	-4	%	-14	%
Global Enterprise and Education	-1	%	-7	%	4	%	5	%	0	%	28	%
Total	-8	%	2	%	-5	%	-1	%	-3	%	-5	%
% of Total Revenue
North America Consumer	65	%	64	%	64	%	69	%	66	%	60	%
Rest of World Consumer	13	%	12	%	11	%	9	%	11	%	11	%
Worldwide Consumer	78	%	76	%	75	%	79	%	77	%	71	%
Global Enterprise and Education	22	%	24	%	25	%	21	%	23	%	29	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

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

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	Quarter-Ended															Quarter-Ended
	3/31/13			6/30/13			9/30/13			12/31/13			2013			3/31/14
Unit Metrics
Product Unit Volume (thousands)	141.8			148.6			157.7			233.5			681.6			132.6
Paid Online Learners (thousands)	80.6			85.1			88.6			94.1			94.1			100.4
YoY Growth (%)
Product Units	-1		%	15		%	8		%	11		%	8		%	-6		%
Paid Online Learners	95		%	75		%	54		%	38		%	38		%	25		%
Average Net Revenue Per Unit ($)
Average Net Revenue per Product Unit	$	312		$	275		$	250		$	234		$	263		$	273
Average Net Revenue per Online Learner (monthly)	$	26		$	25		$	24		$	23		$	25		$	22
YoY Growth (%)
Average Net Revenue per Product Unit	-15		%	-14		%	-20		%	-15		%	-16		%	-13		%
Average Net Revenue per Online Learner	-7		%	-6		%	-1		%	-5		%	-3		%	-15		%
# of Kiosks (end of period)
North America	56			—			—			—			—			—
Europe	—			—			—			—			—			—
Asia Pacific	22			20			9			3			3			—
Total # of Kiosks (end of period)	78			20			9			3			3			—
Revenues by Geography
United States	52,791			52,163			51,013			67,485			223,451			49,410
International	11,133			9,976			9,859			10,226			41,194			11,355
Total	63,924			62,139			60,872			77,710			264,645			60,765
Revenues by Geography (as a %)
United States	83		%	84		%	84		%	87		%	82		%	81		%
International	17		%	16		%	16		%	13		%	18		%	19		%
Total	100		%	100		%	100		%	100		%	100		%	100		%

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

6

EX-99.2

Exhibit 99.2

1Q14 Earnings Results May 7, 2014

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; 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 ability to expand our product offerings beyond our core adult-focused language learning solutions, including the launch of Kids reading and brain fitness; our ability to introduce successfully Lexia’s Core5 reading product to the consumer market; our ability to expand our offerings to more devices and apps, our ability to identify and successfully close and integrate additional acquisition targets; our plans with respect to and our ability to successfully integrate Lexia, Livemocha, Tell Me More and Vivity 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, 2013, 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 May 7, 2014. 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 Safe Harbor

1Q14 Business Review Steve Swad, President & CEO

1Q14 Business Review

70% bookings growth in 1Q14 Driven by acquisitions Lexia growing subscription sales and increasing penetration Encouraging cross-sell of Tell Me More product by RS sales force Good customer acceptance and increasing pipeline of business E&E Business Growing Please see the Appendix for definitions of non-GAAP metrics

Integration of Tell Me More proceeding well Combined sales mgmt. and forces and merged CRMs Rolled out new product positioning, pricing and branding forthcoming Enhanced Tell Me More product with new UI/UX for cleaner interface and improved user experience Fit Brains delivered strong bookings Accelerated downloads and rankings Lexia bookings growing at high double-digit rates Acquisitions Performing Well Please see the Appendix for definitions of non-GAAP metrics

Continue to manage channel shift Growing web channel Weak retail channel Shifting away from call center activity towards web and mobile Growing digital user base Online Learners + Digital downloads now almost 40% of Consumer revenue Continue to broaden customer base for multi-product sales opportunities N.A. Consumer

1Q14 Financial Review Tom Pierno, CFO

Total bookings1 of $61MM in line with guidance Global E&E bookings1 grew 70% Lexia and Language businesses up ~35% each Core NA Consumer bookings2 down 7% Growing web channel Weak retail channel ROW Consumer bookings down 18% Due to downsizing of Asian operations Adjusted EBITDA ($6.7MM) vs. ($1.1MM) better than guidance of ($8MM-$10MM) Reflects weak retail channel and impact of seasonal losses from acquisitions 1Q14 Key Themes Please see the Appendix for definitions of non-GAAP metrics Core Bookings are North American Consumer excluding Kiosk bookings

Driven by acquisitions PF Language -4% PF Lexia +35% Cross-selling within Language Growing mix of Lexia subscriptions E&E Bookings Drivers Bookings2,3 Total 70% Language 36% Please see the Appendix for definitions of non-GAAP metrics Language includes legacy Rosetta Stone plus Tell Me More bookings Assumes Rosetta Stone acquired Lexia and Tell Me More at 1/1/13

DTC Flat, but web growing Web-channel growth >10% Call center down 30% Absence of Kiosk bookings Weakness in retail channel Acquisition of Fit Brains added $1.4MM N.A. Consumer Bookings Drivers 1Q14 Bookings1 Total Core2 -7% Retail -47% Please see the Appendix for definitions of non-GAAP metrics Core bookings are total N.A. Bookings excluding Kiosk

1Q14 Consumer Product Units and Paid Online Learners Product Units & ARPU1 Paid Online Learners & ARPU1 Rosetta Stone Inc. © 2013 ARPU is defined as average revenue per unit. Product Units decreased 6% year-over-year in 1Q, due to absence of kiosk 25% Growth in Online Learners ARPU declined slightly in 1Q14

220% growth in digital downloads 25% growth in Online Learners Growth in digital driven primarily in Web channel Online + Digital Download: Now >40% of Consumer Revenue Percentages may not add to 100% due to rounding 20% 42%

$5.6MM Decline in Adjusted EBITDA driven by: ~$4MM decline in N.A. retail channel Inclusion of results this quarter from acquisitions that operated at a seasonal loss 1Q14 Adjusted EBITDA Adjusted EBITDA $5.6MM Yr/Yr Please see the Appendix for definitions of non-GAAP metrics

Total 36% Reflects growth in E&E bookings Modest acquired deferred revenue Deferred Revenue Grew by ~$22MM Deferred Revenue Rosetta Stone Inc. © 2013

Cash Generation Metrics Adjusted EBITDA Less Capex1 Rosetta Stone Inc. © 2013 -120% Yr/Yr Please see the Appendix for definitions of non-GAAP metrics. Free Cash Flow1 -84% Yr/Yr -48% Yr/Yr Adjusted FCF

Confirming 2014 Consolidated Financial Outlook Please see the Appendix for definitions of non-GAAP metrics; Bookings growth comment reflects run-rate growth assuming that acquisitions were included in Rosetta Stone’s 2013 bookings FY 2014 Guidance1,2 Amount/Range Commentary Consolidated Bookings $315MM to $325MM Mid-single digit % growth Adjusted EBITDA $18MM to $22MM ~5% margin Shares outstanding ~22MM Capital Expenditures $10MM to $14MM Increase due to Acquisitions & Integration Long-term effective tax rate 39%

Key Themes

Appendix

Bookings represent executed sales contracts received by the Company that are either recorded immediately as revenue or as deferred revenue. Adjusted EBITDA is GAAP net income/(loss) plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expense, goodwill impairment plus the change in deferred revenue (excluding acquired deferred revenue) less the change in deferred commissions. In addition, Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring and related wind down costs, severance costs and transaction and other costs associated with mergers and acquisitions as well as all adjustments related to recording the non-cash tax valuation allowance for deferred tax assets. Adjusted EBITDA for prior periods has been revised to conform to current definition. Free cash flow is cash flow from operations less cash used in purchases of property and equipment. Non-GAAP Metric Definitions

Economic Income Statement1,2 Please see the Appendix for definitions of non-GAAP metrics Economic Income Statement reflects income statement based on bookings and expense lines adjusted for one-time items ($ Millions) 1Q13 2Q13 3Q13 4Q13 FY13 1Q14 Bookings $ 60.4 100% $ 63.1 100% $ 70.7 100% $ 84.3 100% $ 278.5 100% $ 61.2 100% Cost of Goods Sold $ 10.1 17% $ 10.0 16% $ 10.4 15% $ 14.1 17% $ 44.6 16% $ 11.3 18% Gross Profit $ 50.3 83% $ 53.1 84% $ 60.3 85% $ 70.2 83% $ 233.9 84% $ 49.9 82% Operating Expenses: Sales & Marketing $ 36.0 60% $ 31.3 50% $ 35.8 51% $ 42.3 50% $ 145.4 52% $ 37.3 61% Research & Development $ 6.1 10% $ 7.6 12% $ 8.2 12% $ 8.0 9% $ 29.9 11% $ 7.8 13% General & Administrative $ 9.7 16% $ 10.4 17% $ 10.5 15% $ 12.3 15% $ 42.9 15% $ 11.7 19% Total Operating Expenses $ 51.8 86% $ 49.3 78% $ 54.4 77% $ 62.6 74% $ 218.2 78% $ 56.8 93% Operating Income $ (1.6) -3% $ 3.7 6% $ 5.9 8% $ 7.6 9% $ 15.7 6% $ (6.9) -11% Other Income/(Expense) $ 0.4 1% $ (0.0) 0% $ (0.3) 0% $ 0.3 0% $ 0.4 0% $ 0.1 0% Adjusted EBITDA $ (1.1) -2% $ 3.7 6% $ 5.6 8% $ 7.9 9% $ 16.1 6% $ (6.7) -11%

Segment Contribution -31% Margin2 -800 bps 1Q14 Segment Contribution1 Segment Contribution 70% Margin 0 bps E&E N.A. Consumer Segment Contribution is based on bookings Segment Contribution Margin is Segment Contribution as a percentage of Segment Bookings