Rosetta Stone 2009 Annual Report Download - page 56

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Table of Contents
Comparison of the Year Ended December 31, 2009 and the Year Ended December 31, 2008
Year Ended December 31,
2009 2008 Change % Change
(dollars in thousands)
Product revenue $ 218,549 86.6% $ 184,182 88.0% $ 34,367 18.7%
Subscription and service revenue 33,722 13.4% 25,198 12.0% $ 8,524 33.8%
Total revenue $ 252,271 100.0% $ 209,380 100.0% $ 42,891 20.5%
Revenue by sales channel:
Direct-to-consumer $ 114,002 45.2% $ 96,702 46.2% $ 17,300 17.9%
Kiosk 40,418 16.0% 36,314 17.3% $ 4,104 11.3%
Retail 44,850 17.8% 34,638 16.5% $ 10,212 29.5%
Total consumer 199,270 79.0% 167,654 80.1% 31,616 18.9%
Institutional 53,001 21.0% 41,726 19.9% $ 11,275 27.0%
Total revenue $ 252,271 100.0% $ 209,380 100.0% $ 42,891 20.5%
Revenue
Total revenue for the year ended December 31, 2009 was $252.3 million, an increase of $42.9 million, or 21%, from the year ended December 31, 2008.
Consumer
Consumer revenue was $199.3 million for the year ended December 31, 2009 an increase of $31.6 million, or 19%, from the year ended December 31,
2008. The increase in consumer revenue was attributable to a 14% increase in unit sales, which resulted in a $23.8 million increase in revenue, combined with
a 4% increase in the average selling price of each unit, which accounted for a $7.8 million increase in revenue. Unit growth was driven by the planned
expansion of our direct marketing programs, as well as growth in our retail distribution network. Direct advertising expenses increased 25% to $42.4 million
during the year ended December 31, 2009, while the number of kiosks increased from 150 to 242 from December 31, 2008 to December 31, 2009. Our 2008
revenue includes a $2.6 million initial stocking order we received from Barnes & Noble in June 2008 to support their expansion of our product line to over
650 of their stores nationally. We did not have any such large initial stocking orders in 2009.
Product revenue represented 96% of total consumer revenue for the year ended December 31, 2009, with the balance attributable to subscription and
service revenue. We intend to begin bundling time-based subscription licenses of our web-based TOTALe services with perpetual licenses of our Rosetta
Stone Version 3 language learning solutions in the U.S. consumer market during the third quarter of 2010 with the planned launch of Rosetta Stone Version 4
TOTALe. As a result, we will be deferring approximately 20% - 25% of each of these bundled sales. We will recognize the deferred revenue over the term of
the subscription license in accordance with Accounting Standards Codification subtopic 985-605, Software: Revenue Recognition.
Institutional
Institutional revenue was $53.0 million for the year ended December 31, 2009, an increase of $11.3 million, or 27%, compared to the year ended
December 31, 2008. The increase in institutional revenue was primarily due to the expansion of our direct sales force. As a result, we had a $4.8 million
increase in education revenue, a $3.9 million increase in government revenue and a $2.0 million increase in corporate revenue.
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