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Rosetta Stone (RST) Post Q4 Loss of $1.01/Share; Plans Realignment

March 11, 2015 4:17 PM EDT

Rosetta Stone (NYSE: RST) reported Q4 EPS of ($1.01), $0.88 worse than the analyst estimate of ($0.13). Revenue for the quarter came in at $79.26 million versus the consensus estimate of $81.3 million.

Strategic Reorganization and Realignment to Focus on E&E

The Company is refocusing its corporate strategy and realigning resources around its Global E&E segment in order to pursue the most attractive opportunities for enhancing shareholder value. To accomplish this, the Company is prioritizing the needs of educators and corporations, where the most profitable growth potential is anticipated. This decision follows several months of close collaboration between management and a leading education consulting firm hired to perform a thorough review of Rosetta Stone’s strategy, with active oversight from the board. The Company will carry this focus over to the Consumer business as well, where it will focus on the more serious learner to complement the Global E&E segment and fully leverage the brand.

This program will lower costs and reduce global non-E&E headcount approximately 15%, resulting in annual expense reductions of approximately $50 million. Specifically, the Company’s expense optimization will target Consumer sales and marketing, Consumer product investment, and G&A costs. These cost savings will be reinvested into growing the Global E&E segment and are expected to largely offset declines in the Consumer segment. These actions will result in an estimated $7 million charge in the first quarter 2015, largely reflecting cash separation payments. In addition, the Company has recorded a non-cash charge of $18.0 million in the fourth quarter 2014 to impair the carrying value of goodwill associated with the NA Consumer segment.

In discussing the reorganization and realignment, Swad said: “Effective today, we are increasing the responsibility of Judy Verses, President of our Enterprise & Education segment, to include all of the functions necessary for success in the E&E marketplace. Specifically, Nick Macey, our Chief Product Officer, will now report to Judy. Nick Gaehde, who runs Lexia, is increasing his responsibilities to include the language portion of our K-12 business and will now lead our Literacy and Language business in the K-12 space. Rob Mercer, who previously ran E&E Language sales for the Americas, will assume responsibility for the Global Enterprise portion of the business, which includes the Americas, EMEA and China. In addition, our IT and Business Development teams will also now fall under Judy’s leadership. These changes are expected to enable stronger alignment between product development, marketing, sales and customer service, as well as capture integration opportunities, to ensure both success and accountability.”

In discussing the increased focus on E&E, Verses said: “Our reorganized team will have the people, capital and focus necessary to win in the Corporate and K-12 marketplace. With our successful acquisition of Lexia, we have witnessed the power of aligning all of the resources necessary to provide outstanding outcomes for customers in the E&E space. With the assets and capabilities of Rosetta Stone united behind our E&E business, we look forward to driving similar results with all our Enterprise and Education customers.”

For earnings history and earnings-related data on Rosetta Stone (RST) click here.



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