Rosetta Stone 2013 Annual Report Download - page 52
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Table of Contents
Product revenue
$180,919
66.2%
$195,382
72.8%
$(14,463)
(7.4)%
Subscription and service revenue
92,322
33.8%
73,067
27.2%
19,255
26.4 %
Total revenue
$273,241
100.0%
$268,449
100.0%
$4,792
1.8 %
Product Revenue
Product revenue decreased $14.5 million to $180.9 million during the year ended December 31, 2012 from $195.4 million during the year ended
December 31, 2011. The decrease in product revenue is caused by a $4.9 million decrease in Global Enterprise & Education product revenues as a result of a
shift from sales of product licenses to sales of renewing online subscriptions as well as due to a decline in Federal stimulus funding which drove sales of our
network CD product. Consumer product revenue decreased $9.6 million driven by lower prices on our Rosetta Stone Version 4 product software
bundle.
Subscription and Service Revenue
Subscription and service revenue increased $19.3 million, or 26%, to $92.3 million for the year ended December 31, 2012. The increase in
subscription and service revenues was due to a $14.6 million increase in consumer online service revenue related to Version 4 as well as a growing
base of exclusively online subscription sales. Global Enterprise & Education subscription and service revenues also increased $4.6 million related to growth
in the enterprise and education customer base with renewing online subscriptions.
We are currently evaluating changes to our products. If we implement additional subscription-based services, it could result in lower revenues over the
next twelve months as revenues would be spread over the subscription period. There was an $11.5 million increase in deferred revenue during the year ended
December 31, 2012, which is primarily related to increased sales of exclusively online subscriptions. In particular, we sold $0.8 million of online subscription
products to Barnes & Noble, as part of our strategy to expand our offerings of online subscription services.
The following table sets forth cost of product revenue and subscription and service revenue, as well as gross profit for the years ended December 31,
2012 and 2011:
Product
$180,919
$195,382
$(14,463)
(7.4)%
Subscription and service
92,322
73,067
19,255
26.4 %
Total revenue
273,241
268,449
4,792
1.8 %
Cost of product revenue
33,684
36,497
(2,813)
(7.7)%
Cost of subscription and service revenue
15,226
12,619
2,607
20.7 %
Total cost of revenue
48,910
49,116
(206)
(0.4)%
$224,331
$219,333
$4,998
2.3 %
Gross margin percentages
82.1%
81.7%
0.4%
Cost of Product Revenue
Cost of product revenue for the year ended December 31, 2012 was $33.7 million, a decrease of $2.8 million, or 8% from the year ended December 31,
2011. As a percentage of product revenue, cost of product revenue remained at 19% for the year ended December 31, 2012 compared to the prior year period.
The dollar decrease in cost was primarily attributable to a $0.7 million decrease in inventory obsolescence and scrap associated with the international Version 4
launches in the prior year period as well as a $2.2 million decrease in our hard product inventory costs. We are exploring the possibility of
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