Rosetta Stone 2014 Annual Report Download - page 10

Table of Contents
We recently announced a strategic reorganization and realignment of our business to accelerate and prioritize our focus on satisfying the needs of more
serious corporate and K-12 learners, and on those who wish to speak and read English. If we do not successfully execute our accelerated strategy, our
revenues and profitability could decline. In connection with the implementation of our revised strategy, we have announced a company realignment plan
that includes changes in our organizational structure and non-voluntary workforce reductions. Significant risks associated with these actions that may impair
our ability to achieve anticipated cost reductions or that may otherwise harm our business include delays in implementation of anticipated workforce
reductions in highly regulated locations outside of the United States, decreases in employee morale and the failure to meet our business goals due to the loss
of employees. In addition, our ability to achieve the anticipated cost savings and other benefits from these actions within the expected time frame is subject
to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If
these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and financial results could be
adversely affected.
Our actual operating results may differ significantly from our guidance.
Historically, our practice has been to release guidance in our quarterly earnings releases, quarterly earnings conference calls, or otherwise, regarding our
future performance that represents our management's estimates as of the date of release. This guidance, which includes forward-looking statements, is based
on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American
Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party confirms or
examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with
respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges, which are intended to provide
a sensitivity analysis as variables are changed but actual results could fall outside of the suggested ranges. The principal reason that we release guidance is to
provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or
reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions in the guidance furnished by us will not
materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the
date of release. Actual results will vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or
otherwise consider, our guidance in making an investment decision in respect of our common stock.
Any failure to successfully implement our strategy or the occurrence of any of the events or circumstances set forth in these "Risk Factors" and
elsewhere in this annual report on Form 10-K could result in the actual operating results being different from our guidance, and such differences may be
adverse and material.
Intense competition in our industry may hinder our ability to attract and retain customers and generate revenue, and may diminish our margins.
The business environment in which we operate is rapidly evolving, highly fragmented and intensely competitive, and we expect competition to persist
and intensify. Increased competition could adversely affect operating results by causing lower demand for our products and services, reduced revenue, more
product returns, price reductions or concessions, reduced gross margins and loss of customers.
Many of our current and potential competitors in the U.S. and internationally have substantially greater financial, technical, sales, marketing and other
resources than we do, as well as greater name recognition in some locations, as well as in some cases, lower costs. Some competitors offer more differentiated
products (for example, online learning as well as physical classrooms and textbooks) that may allow them to more flexibly meet changing consumer
preferences. The resources of our competitors also may enable them to respond more rapidly to new or emerging technologies and changes in customer
requirements and preferences and to offer lower prices than ours or to offer free language-learning software or online services. We may not be able to compete
successfully against current or future competitors.
There are a number of free online language-learning opportunities to learn grammar, pronunciation, vocabulary (including specialties in areas such as
medicine and business), reading, and conversation by means of podcasts and MP3s, mobile applications, audio courses and lessons, videos, games, stories,
news, digital textbooks, and through other means. We estimate that there are thousands of free mobile applications on language-learning; free products are
provided in at least 50 languages by private companies, universities, and government agencies. Low barriers to entry allow start-up companies with
9