Rosetta Stone 2013 Annual Report Download - page 45

Table of Contents
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Our revenue decreased to $264.6 million for the year ended December 31, 2013 from $273.2 million for the year ended December 31, 2012. The change
in revenue is due to a decrease in ROW Consumer revenues of $9.8 million, partially offset by a $1.2 million increase in North American Consumer
revenues. Global Enterprise & Education revenues were essentially flat year over year. Bookings, calculated as revenue plus the change in deferred revenue,
decreased to $278.1 million for the year ended December 31, 2013 from $284.8 million for the year ended December 31, 2012. The decline was due to a $7.3
million decrease in North America Consumer bookings and a $11.2 million decrease in ROW Consumer bookings, offset by an increase of $11.9 million in
worldwide Global Enterprise & Education bookings compared to the prior year.
We reported an operating loss of $18.4 million for the year ended December 31, 2013 compared to an operating loss of $5.3 million for the year ended
December 31, 2012. The increase in operating loss was due to a decrease in gross profit of $5.4 million, driven by an $8.6 million decrease in revenue,
partially offset by a $3.2 million decrease in cost of revenue. Operating expenses increased $7.8 million due to an increase of $10.5 million in research and
development, an increase of $1.1 million in general and administrative expenses and an increase of $0.8 million in lease abandonment expense, partially offset
by a decrease of $4.8 million in sales and marketing expenses.
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The following table sets forth revenue for each of our three operating segments for the years ended December 31, 2013 and 2012:
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

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
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North America Consumer
$ 174,016
65.7%
$172,826
63.3%
$1,190
0.7 %
Rest of World Consumer
30,420
11.5%
40,248
14.7%
$(9,828)
(24.4)%
Global Enterprise & Education
60,209
22.8%
60,167
22.0%
$42
0.1 %
Total Revenue
$264,645
100.0%
$273,241
100.0%
$(8,596)
(3.1)%
North America Consumer revenue increased $1.2 million, or 1%, from the year ended December 31, 2012 to the year ended December 31, 2013, the
result of increases in revenue from our direct-to-consumer and retail sales channels of $12.6 million and $1.3 million, respectively, offset by reductions of
$11.8 million and $1.0 million in revenue from our kiosk and homeschool sales channels, respectively. In the second quarter of 2013 we closed our entire
kiosk sales channel in the U.S. North America Consumer bookings, calculated as North America Consumer revenue plus the change in North America
consumer deferred revenue, decreased $7.3 million to $171.9 million for the year ended December 31, 2013 from $179.2 million for the year ended
December 31, 2012. The year-over-year variance by sales channel includes decreases of $12.0 million, $2.5 million and $0.9 million in our kiosk, retail and
homeschool sales channels, respectively, partially offset by an increase of $8.1 million in our direct-to-consumer channel. During 2013 we focused on driving
customers to purchase through our direct-to-consumer channel, particularly through our website. Lower pricing is one tactic we used to increase sales volume
in this channel. Although we successfully increased volume and bookings in our direct-to-consumer channel year-over-year, the decrease in overall pricing
combined with the closure of our U.S. kiosks resulted in lower North America Consumer bookings year-over-year. We expect that the trend of lowering prices
resulting in increased unit volume and overall increased sales will continue.
ROW Consumer revenue decreased $9.8 million, or 24%, from the year ended December 31, 2012 to the year ended December 31, 2013. ROW
Consumer revenue decreased $5.8 million, $3.7 million and $2.0 million in Korea, Japan, and the UK, respectively, offset by an increase of $1.7 million in
Germany. ROW Consumer bookings, calculated as ROW Consumer revenue plus the change in ROW Consumer deferred revenue, decreased to $30.0 million
for the year ended December 31, 2013 from $41.2 million for the year ended December 31, 2012. Bookings decreased $5.0 million, $4.7 million, and $2.3
million in Korea, Japan and the UK, respectively, offset by an increase of $0.6 million in Germany. On January 10, 2014, we announced plans to streamline
our Japan and Korea operations. We will use a partner model to continue to serve the Japanese market and will reorganize our Korea operations to focus more
directly on further scaling the Proctor Assisted Learning (“PAL”) channel. The increase in revenue and bookings in Germany is due to the increase in sales of
downloads of our perpetual software.
Global Enterprise & Education revenue was $60.2 million for the years ended December 31, 2013 and December 31, 2012. Within the U.S., enterprise
and education revenue decreased $1.6 million due to decreases of $2.2 million and $1.7 million in our government and education channels, respectively,
offset by an increase of $1.2 million in revenue from Lexia,
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