Q4 2019 Earnings Call

March 11, 2020

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Greetings, welcome to the Rosetta Stone Incorporated fourth quarter 2019 earnings conference call at this time. All participants are in a listen-only mode a question answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press * 0 on your telephone keypad, please note. This conference is being recorded. I will now turn the conference over to your host Jason Terry wage relations Mister Terry, you may begin

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Thank you. Good afternoon. Everyone. Welcome to Rosetta Stone fourth quarter and 2019 earnings conference call speaking on the call today will be John half chairman and CEO dedicated and Matthew co-presidents of Rosetta Stone. Additionally Tampere know the company's Chief Financial Officer will be available during the Q&A portion of today's call.

You're supposed to the investor relations section of our website at Rosetta Stone. The earnings release and a slide presentation which accompanies today's call. We've also posted supplemental information and Analysis on our website. I want to remind everyone to add the hallways. There will be elements in today's presentation which are forward-looking and are based on our best view of the world and our business as we see them today bought these statements are subject to a number of risks and uncertainties that could cause actual results to differ materially a description of these risks and uncertainties and other factors that can affect our financial results are included in our most recent annual report on form 10-K and quarterly reports on form 10-q.

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greetings, welcome to the Rosetta Stone Incorporated fourth quarter 2019 earnings conference call at this time. All participants are in a listen-only mode a question answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press * 0 on your telephone keypad, please note. This conference is being recorded. I will now turn the conference over to your host Jason Terry and bath relations Mister Terry you may begin

Expressly disclaim any obligation to update or revise any forward-looking statements except as required by law today's presentation and discussion also contains references to non-gaap financial measures wage definition Gap comparisons, and a Reconciliation of those measures are available in the apprehension presentation and press release and we'll now turn the call over to John.

Good afternoon, and thank you for joining the call. We have a lot to talk about to please turn the site 3 and then we'll Begin by walking you through an overview of our Consolidated fourth quarter in your end result.

Thank you. Good afternoon. Everyone. Welcome to Rosetta Stone fourth quarter and 2019 earnings conference call speaking on the call today will be John half chairman and CEO dedicated and co-president upper register additionally Tampere know the company's Chief Financial Officer will be available during the Q&A portion of today's call.

19 is a significant progress across all of venison confirming that the efforts to restructure. Our business are behind us 2018 was the first year since before 2014 in which each of our segments group producing Consolidated looking for a 9% our literacy segment led the way if you're going to particular by increasing contributions from Power UP, but for the first time in many years both language language segments also contributed to growth and would point in particular to the very strong fourth-quarter performance package. I have consumer language with bookings grow by 14% over Q4 2018.

We're supposed to the investor relations section of our website at Rosetta Stone to earnings release and a slide presentation which accompanies today's call. We've also posted supplemental information and found on our website at 1 to remind everyone to add the hallways. There will be elements in today's presentation, which are forward-looking and are based on our best view of the world and our business as we see them today. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially a description of these risks and uncertainties and other factors that can affect our financial results are included in our most recent annual report on form 10-K and quarterly reports on form 10-q. We expressly disclaim any obligation to update or revise any forward-looking statements except as required by law today's presentation and discussion also contains references to non-gaap financial measures the full definition Gap comparison and a Reconciliation wage.

On a Consolidated basis fourth-quarter and full-year revenue grew by 5% over the same period in 2018. This girl's help Drive Improvement in both adjusted either down and not come to the full year. Net income for the quarter was the loss of six point five million compared to a loss of four point four million in the same period in 2018 and for the full year net income was about thirteen million compared to a loss of twenty one point five million in 2018.

Those measures are available in the upper mention presentation and press release. I will now turn the call over to John.

Good afternoon, and thank you for joining the call. We have a lot to talk about some please turn the site 3 and I will Begin by walking you through an overview of our Consolidated fourth quarter in your end result.

Adjusted ebitda for the quarter was -2.9 Million compared to positive point seven million in the same period in 2018 and for the full year. It was 6.9 wage compared to point two million in 2018. We ended the year with the cash balance and forty-three million dollars and no debt 2019 was a very good and important. Please turn this light for

2019 was the year of significant progress across all the medicine confirming that the efforts to restructure our business or behind us 2018 was the first year since birth 2014 in which each of our segments group producing Consolidated looking to 9% our literacy segment led the way if you have any particular by increasing contributions from Power UP, but for the first time in many years both language language segments also contributed to growth I would point in particular to the very strong fourth-quarter. Perfect. I consider language with bookings grow by 14% over Q4 2018.

on a consolidated

Now what's a great set of solutions producing terrific outcomes for Learners meaningful growth opportunities in both our K-12 and language businesses and a strong balance sheet. We are excited to move forward and begin to realize the benefits of the Investments. We've been making in the business benefits that in products like power up and our soon-to-be-released kasich's English learning solution or as you're just beginning to realize their potential or not yet even been released. It's just Layton opportunity as well as the opportunity. We see in other assets like the Rosetta Stone brand they get us to talk about the future before we go further. I would like you to know that after seeking input from our shareholders we have decided to recommend in this year's proxy and amendments or Charter that what she wants to eliminate or current classified board structure. We believe that the stability afforded by a classified board served as well as a relatively new public company. That is we have matured.

Faces fourth quarter and full-year revenue grew by 5% over the same. Since 2018 this growth help Drive Improvement in both adjusted ebitda down the net income for the full year. Net income for the quarter was a loss of six point five million compared to a loss of four point four million in the same period in 2018 and for the full year net income was a loss of $13 compared to a loss of twenty one point five million in 2018.

Adjusted ebitda for the quarter was -9 million compared to positive point seven million in the same period in 2018 and for the full year. It was 6.9 wage compared to two million in 2018. We ended the year with the cash balance and forty-three million dollars and no debt 2019 was a very good and important for us, please turn to slide for.

You're holding Focus before we believe that it is no longer necessary.

I also need to let you know that we have decided to postpone are investigating previously scheduled for each April 15th. There is much we might to share with you and we want to do that in-person Thursday. We have heard from many that might not be possible right now. So we're looking to move investor day to the summer. I also need the team right now focused on everything that's happening in the business and with our club we will get back to you with the David soon as we can reasonably do so. Now let's take a closer look at the performance of each of the businesses beginning with Lexia and for that I will have that phone over connect.

Now what's a great set of solutions producing terrific outcomes for Learners meaningful growth opportunities in both our K-12 and language businesses and a strong balance sheet. We are excited to move forward and begin to realize the benefits of the Investments. We've been making in the business benefits that in products like power up and our soon-to-be-released kasich's English learning solution, or they're just beginning to realize their potential or if not yet even been released. It's this latent opportunity as well as the opportunity. We see in other assets like the Rosetta Stone brand they get us to talk about the future before we go further. I would like you to know that after seeking input from our shareholders we have decided to recommend in this year's proxy and amendments or Charter that what she wants to eliminate or current classified board structure.

Thanks, John. Please turn to slide 5 in our literacy segment Revenue in the quarter was a 17.1 million an increase of 18% over the same period in two thousand a month for the full year Revenue increased sixty two point six million or 19% higher than 2018 bookings were ten point eight million in the fourth quarter an increase of Life over the same period in 2018 while full-year bookings were sixty eight point four million an increase of 17% from 2018 while a new customer came through on both absolute and percentage basis the 2019. We have not achieved the expectations of the original except for ourselves in a moment. I will talk about why and what we're doing to better realize the opportunity we have

Please turn to slide to 6.

We believe that the stability afforded by a classified board served as well as a relatively new public company. That is we have matured and built a strong shareholding Focus board. We believe that it may be necessary. I also need to let you know that we have decided to postpone our investor day previously scheduled for each April fifteen, there's much we want to share with you and we love to do that in person. We have heard from many that that might not be possible right now. So we're looking to move investor day to the summer. I also need the team right now focused on everything that's happening in the business and with our customers. We will get back to you with the date as soon as we can reasonably do so. Now let's take a closer look at the performance of each of the businesses beginning of Life and for that I will hand the microphone over to Nick

Annual recurring Revenue r a r r Seventeen percent consistent with bookings growth are are is driven by our ability to maintain and grow the dollars. We receive from existing customers off new sales as we've discussed previously retention rate which for us are based and don't reflect the size of the account Trent down during 2019 primarily due to turn over the last couple of years and smaller accounts including the large number of accounts that have come that have been coming off of grandfathered pricing left over from one leg be a transition from perceptual to subscription. Same thing. We want to do a better more efficient job of managing these smaller accounts, but now that we better understand the underlying reason this is not a trend that concerns us.

Thanks, John. Please turn to slide 5 in our literacy segment Revenue in the quarter was a 17.1 million an increase of 18% over the same period in 2018 for the full year Revenue increased sixty two point six million or 19% higher than 2018 bookings were ten point eight million in the fourth quarter an increase of 11% over the same period in 2018 while full-year bookings were sixty eight point four million an increase of 17% from 2018 while a new customer bookings crew cab salute and percentage basis and 2019. We have not achieved the expectations. We originally set for ourselves in a moment. I will talk about why and what we're doing to better realize the opportunities we have

2019 dollar based renewal continue to be strong and consistent with prior year that said we expected more from a renewal pool during the year as we introduced price increases that were taught the whole school licenses and certain annual service and implementation plans.

While in many cases the price increases were accepted by our customers more often than we expected schools or districts manage their expenses by shifting to lower price service packages that maintain a higher price price point.

Please turn to slide.

Just had the benefit of improving margin on those bookings for us as we were delivering fewer in-person services for the same dollar amount, but it has not increased bookings as much as planned in the services had been maintained and the price increase path sort of please turn to slide seven and I will talk about our expanding portfolio solutions that will help drive through.

Annual recurring Revenue r a r r Seventeen percent consistent with bookings growth are our is driven by our ability to maintain and grow the dollars. We receive from existing customers off new sales as we have discussed previously retention rates, which for us are unit-based and don't reflect the size of the account Trend it down during 2019 primarily due to turn over the last couple of years in smaller accounts, including the large number of accounts that have come that have been coming off of grandfathered pricing left over from one Lexia transition from Perpetual to subscription. Same thing. We want to do a better more efficient job of managing these smaller accounts, but now that we better understand the underlying reason this is not a trend that concerns us.

The first is the clear success of power up remember it was just a short time ago that we had only one literacy curriculum product in 2018. We talked to you as we introduced power up about how it affected it along with Core 5 to allow us to serve critical literacy needs from kindergarten through high school and which fundamentally broaden our dialogue with school districts and keeping our impact you can see the effect of power of introduction on the slide since the launch of power up in January of 2018. It has driven rapid expansion in the number of customers using more than one product.

2019 dollar based renewal continue to be strong and consistent with prior years that said we expected more from a renewal pool during the year as we introduce price increases that were taught the whole school licenses and certain annual service and implementation plans.

Power up is also driving.

Hello salesman many cases the first product we introduced into the school system that's using one of our competitors Solutions in their elementary school buildings. It's an effective wedge that will allow us to walk down into elementary school buildings over time, especially as we demonstrate its effectiveness.

just had the benefit of improving margin on those bookings for us as we were delivering fewer in-person services for the same dollar amount, but it has not increased bookings as much as planned to Services had been maintained and the price increase pass through

By the end of last month power was being used in over 6,000 school buildings both on a stand-alone basis and in combination with glorified. This is a 70% increase over February of 2018 a ticket of of the largely unmet need we saw in the marketplace to help the broad population of struggling readers and their teachers in middle school and high schools and we are now beginning to see compelling evidence that our ability to develop highly effective control products that produce positive changes for students and their schools is not limited to court files. Please turn to slide eight.

please turn to five seven and I will talk about her expanding portfolio solutions. That would help Drive growth.

The first is to clear success of power up remember it was just a short time ago that we had only one literacy curriculum product in 2018. We talked to you as we introduced power up about how it affected it along with Core 5 to allow us to serve critical literacy needs from kindergarten through high school and which fundamentally broaden our dialogue with school districts and keeping our impact you can see the effect of power of introduction on this slide since the launch of power up in January of 2018. It has driven rapid expansion in the number of customers using more than one product.

In January our first study looking at the effectiveness of power preceding s r rating of draw which is the highest rating under the guidelines of Ethics. The federal government's every student feedback. It's very difficult to achieve. In fact given the effect seen in the studies power up is now listed on the website of evidence for Essa the organization that provides clear and authoritative information on projects that meet the evidence standard as the most effective secondary literacy intervention among the programs listed. This is a special distinction earned by a product barely to 6:00. We always believed power up would be able to help the two thirds of older students that are struggling to read that we've built for but to have independent validation as the most effective secondary live or the intervention. It's something we're very proud of

Power up is also driving Standalone. Salesman many cases the first product we introduced into the school system that's using one of our competitors Solutions in their Elementary School building. It's an effect of that will allow us to move down into elementary school buildings over time, especially as we demonstrate its effectiveness.

With Core 5 and power. We now have two successful validated products that are highly complementary this puts us in a much stronger position as a company than when we were a one-product company even one product as good as qualified. And now we have a great opportunity to make it three, please turn to slide 9.

By the end of last month power was being used in over 6,000 school buildings both on a stand-alone basis and in combination with glorified. This is a 70% increase over February of 2018 and indicative of the largely unmet need we saw in the marketplace to help the broad population of struggling readers and their teachers in middle school and high schools and we are now beginning to see compelling evidence that our ability to develop highly effective control products that produce positive changes for students and their schools is not limited to Core5. Please turn to slide eight.

A successful Court filing power up demonstrate for very good at identifying large areas of underserved need and K-12 and building products that meet these critical needs by delivering adaptive Perfect Solutions that benefit students while providing their teachers the data and information. They require all in a way that accelerates learning helping emergent bilingual Learners Achieve Language Proficiency in English the next area where focused on as a reminder. This is the fastest-growing K-12 student population in the u.s. Currently around 10% of students, but expected to grow the 25,000 2025. We believe there's an opportunity to dramatically improve instruction for these English as a second language Learners in the United States and potentially around the world.

In January our first study looking at the effectiveness of power preceding enter rating of strong, which is the highest rating under the guidelines of essence the federal government. Every student succeeds Act is very difficult to achieve. In fact given the effects seen in the study power up is now listed on the website of evidence for Essa the organization that provides clear and assorted information on programs that meet the evidence standards as the most effective secondary literacy intervention among the programs listed. This is a special distinction earned by a product barely two years from its launch. We always believed power up would be able to help the two thirds of older students that are struggling to read that we've built for but to have independent validation as the most effective secondary literacy intervention. It's something we're very proud of

Our solution for kasich's emergent bilinguals will be called Rosetta Stone English leveraging the power of our brand to drive awareness and confidence in a language development solution Rosetta Stone English break new ground and a part of the marketplace that is still largely print-based and unable to adequately meet the needs of these learners.

Is that a something?

Later. Early February. This is abroad program standing over thirty schools across eight key States, including California, Florida, Texas and North Carolina and Reaching Across a 2000.

So far the feedback is very promising with this expanding portfolio products. We're also focused on ensuring the sales force is structured and supported to achieve our growth targets, please turn this light off.

Has been powered up demonstrates were very good at identifying large areas of underserved need and K-12 and building products that meet these critical needs by delivering adaptive Perfect Solutions that benefit students while providing their teachers the data and information. They require all in a way that accelerates learning helping emergent bilingual Learners Achieve Language Proficiency in English, because the next area we're focused on as a reminder. This is the fastest-growing K-12 student population in the u.s. Currently around 10% of students, but expected to go in 25 or $25. Will you believe there's an opportunity to dramatically improve instruction for these English as a second language Learners in the United States and potentially around the world.

You will receive booking despite growing more than it did in the prior three years in both absolute and percentage terms did not meet our expectations while we operate in a competitive Marketplace and don't believe this is an opportunity that problem as mentioned on our third quarter call. We spoke to lower-than-expected new sales and two areas Texas and large or what we refer to as national accounts these continue to be improved exciting opportunity and we believe we have the right position to drive growth in the market as it develops further as in the case of Texas and as a relationships with sure and expand as in the case of national wage

In fact, the Secondary School portion of the Texas literacy adoption were power up as a great fit begin this year.

Our solution for cayde-6 emergent bilinguals will be called Rosetta Stone English leveraging the power of our brand to drive awareness and confidence in a language development solution. Rosetta Stone will break new ground in a part of the marketplace that it's still largely print-based and unable to adequately meet the needs of these Learners Rosetta Stone English entered its data. In early February month. This is abroad program spanning over thirty schools across eight key States, including California, Florida, Texas and North Carolina and reaching approximately two thousand students.

But it shown on this slide. We expect the majority of our opportunity to continue to come from focusing on the district. We are already in and where we can demonstrate positive outcomes the opportunity represented here at home, but we need to adjust how we're going after it.

Please turn slide 11.

So far the feedback is very promising with this expanding portfolio product. We're also focused on ensuring the sales force is structured and supported to achieve our growth targets. Please turn to slide off.

Historically in large part to focus on up-sell opportunities with current customers Regional sales managers have managed a team that includes both account Executives. Those field-based sales reps that are working with the face and district and generally focus on larger accounts and account managers for more like an inside sales team and generally focus on smaller accounts as we've grown the volume of lower opportunity that customers have built up under our sales team decreasing the time available for regional sales managers and their account Executives to prospect for new business and drive larger expansions. In fact managed approximately $4,600 renewal in our Direct business this year.

New literacies bookings despite growing more than it did in the prior three years in both absolute and percentage terms did not meet our expectations while we operate in a competitive Marketplace and don't believe this is an opportunity just as mentioned on our third quarter call. We booked lower-than-expected new sales and two areas, Texas and large or what we refer to as national accounts these continue to be improved an exciting opportunity and we believe we have the right position to drive growth in the market as it develops further as in the case of Texas and as a relationship switcher and expand as in the case of national wage.

In fact the second.

During school portion of the Texas literacy adoption were power up as a great fit begins this year.

To address this and realize more of our growth potential we've accelerated the evolution of our literacy sales and marketing organizations to significantly increase its capacity for new business and high-value expansion renewal balm more efficiently managing are large volume of smaller accounts with more limited expansion potential earlier this year. We move account managers out from under our regional sales office and place that team under two newly-created Regional inside sales managers this account manager Group, which we are also growing is now entirely focused on the large volume of small opportunity customers.

Critically, these smaller account responsibilities to an inside sales team is allowing our fields in Regional sales managers work more closely with their account Executives for all the focus more productively on the larger New Opportunities and strategic renewals. We're also increasing the size of our field sales team.

Historically in large part to focus on up-sell opportunities with current customers Regional sales managers have managed a team that included both account Executives. Those field-based sales reps that are working with the face and district and generally focus on larger accounts and account managers for more like an inside sales team and generally focus on smaller accounts as we ground the volume of lower opportunity that customers have built up under our sales team decreasing the time available for regional sales managers and their account Executives to prospect for new business and drive larger expansions. In fact managed approximately 4,600 renewal in our Direct business this year.

Prove the efficiency of all of our sales professionals. We are more than doubling our account Specialist Team this team support transactional elements of the process of the sales team can focus on reaching out to our customers and strengthen existing customer relationships.

These steps taken together have significantly increased our capacity to drive the engagement and focus necessary to manage renewals, but also growing new business more rapidly. This is not important Investments that will reduce earnings in 2020, but with that in place, it should allow us to scale faster and efficiently let's now turn to our language of business and I'll hand it off to map.

To threats and realize more of our growth potential we've accelerated the evolution of our literacy sales and marketing organization to significantly increase its capacity for new business and high-value expansion pack and Renewables while more efficiently managing are large volume of smaller accounts with more limited expansion potential earlier this year. We move account managers out from under our regional sales office in place that team under two newly-created Regional inside sales managers this account manager Group, which we are also growing is now entirely focused on the large volume of small opportunity customers.

Critically, these reassignments a smaller account responsibility into an inside sales team is allowing are field-based Regional sales managers to work more closely with their account Executives for all the focus more productively on the larger New Opportunities and strategic renewals. We're also increasing the size of our feet steel sales team.

Thank you, Nick moving to slide twelve. We had a solid fourth-quarter in both our consumer and Enterprise and education language businesses, including the first year of growth since before 2014 wage board quarter, excluding custom content Enterprise bookings were 10.7 billion vs. 9.3 million in the same. In 2018. The growth an Enterprise was more than offset by the year of a year off and custom content within the period and lower K-12 language booking resulting in total E&E bookings of 14.9 million down 1 million from the same prior-year quarter for the year. However, total bookings and IMI were two point eight million higher than in the prior year driven by the large custom content deal in Q3 and improved performance in our corporate vertical during the quarter the corporate office close another seven-figure contract. This Global deal for a european-based company was the third million dollar or greater Enterprise contract signed in the last two years.

And finally to improve the efficiency of all of our sales professionals. We are more than doubling our account Specialist Team this team support from transactional elements of the process. So that sales teams info on reaching out to new customers and strengthen existing customer relationships.

These steps taken together have significantly increased our capacity to drive the engagement and focus necessary to manage renewals, but also growing new business more rapidly. This is not important investment that will reduce earnings in 2020, but with that in place, it should allow us to scale faster and efficiently let's now turn to our language of business and I'll hand it off to map.

We continue to see additional expansion opportunities in our large pool of global 1000 account who currently have a low dollar value relationship with us, please turn to slide 13-month consumer had a very strong fourth-quarter with bookings growth of two point five million or 14% over the fourth quarter of 2018 driven by Rosetta Stone app sales bookings also incurred due to the sale of Lifetime subscriptions in the Web Channel, but because those sales are recognized as Revenue over 24 months, they did not have a significant impact on revenue and key for 2019.

Revenues and the quarter were 15.8 million an increase of 2% over the same period in 2018 for the full-year consumer language Revenue was 63.3 Million vs. 6.5 million in 2018 while bookings before Source next in the year increased by 5% to 66.4 million as John said before this is the first year that consumer things and revenue have grown since 2014.

Taking it moving to slide twelve. We had a solid fourth-quarter in both our consumer and Enterprise and education language businesses, including the first year of growth since before 2014 in a quarter, excluding custom content Enterprise bookings were 10.7 billion vs. 9.3 million in the same. In 2018. The growth in Enterprise was more than offset by the year of a year off and custom content within the period and lower K-12 language bookings resulting in total any bookings of 14.9 million down 1 million from the same prior-year quarter for the year. However, total bookings and IMI were two point eight million higher than in the prior year during by the large custom content deal in Q3 and improved performance in our corporate vertical during the quarter the corporate office closed another seven-figure contract. This Global deal for a european-based company was the third million dollar or greater Enterprise contract signed in the last two years.

Total contribution from the language businesses after the shared cost of our Indian it was three point three million in the fourth quarter and 23.1 million for the full year.

Trying to slide 14 the strong fourth-quarter performance in consumer was driven in part by strong sales of longer-term subscriptions in particular Our Lifetime products.

we continue to see

Channel expansion opportunities in our large pool of global 1000 account who currently have a low dollar value relationship with us, please turn to slide 13.

We are finding that the lifetime product is attractive to a distinct customer segments that wants to commit to learning a new language, but it's put off by finite subscription offers that are at odds with the investment in time. They know will be required month. We recognize that lifetime sales eliminate the opportunity for future renewals from these customers and have priced the price accordingly to capture an LTV that is as high or higher than we would otherwise expect realize over time from future renewals of shorter-term subscription products.

Consumer had a very strong fourth-quarter with bookings growth of two point five million or 14% over the fourth quarter of 2018 driven by Rosetta Stone app sales bookings also increased the sale of Lifetime subscriptions in the Web Channel, but because those sales are recognized as Revenue over 24 months, they did not have a significant impact on revenue and key for 2019.

Sales of white men subscriptions drove an increase in the average initial sales price from $103 in both the third quarter of 2019 and the fourth quarter 2018. $220 Thursday 4th quarter of 2019.

Revenues and the quarter were 15.8 million an increase of 2% over the same period in 2018 for the full-year consumer language Revenue was 63.3 Million vs. 60.5 million in 2018 while bookings before Source next in the year increased by 5% to 66.4 million as John said before this is the first year that consumer bookings and revenue have grown since 2014.

Total contribution from the language business is after the shared cost of our Indian. It was three point three million in the fourth quarter and 23.1 million for the full year.

And well-met LTD was relatively flat year-over-year. We recognized more of that TV upfront maximizing its benefit to us turning to slide fifteen. We see a logical bike rack of our customer base into those looking to try language learning and who are most likely to purchase a free month of initial subscriptions vs. Committed Learners who are more likely to buy a 24 month or lifetime subscription consequently. We are adjusting our offerings to create more value for each type of learner to better meet these objectives in February. For example, we added a significant upgrade to our long-term subscription offerings for the the first time for all subscriptions, 12 months and longer Learners have access to all of the twenty five languages in our catalog with the single purchase.

Frank a slide fourteen the strong fourth-quarter performance in consumer was driven in part by strong sales of longer-term subscriptions in particular Our Lifetime products.

We are finding that the lifetime product is attractive to a distinct customer segments that wants to commit to learning a new language, but it's put off by finite subscription offers that are at odds with the investment in time. They know will be required. We recognize that lifetime sales eliminate the opportunity for future renewal from these customers and have priced across accordingly to capture an LTV that is as high or higher than we would otherwise expect to realize over time from future renewals of shorter-term subscription products.

We call this Rosetta Stone unlimited. Now. We learner who buys a lifetime subscription will have the option to learn any language now or in the future, please license subscriptions carry a typical average sales price per unit wage approximately $189 vs $36 for a 3-month subscription reflective of the tremendous value. We are offering and the value we offer Learners will only grow in twenty-twenty. We have a number of exciting features that will be willing out early this year and that we will talk about on future calls and share when we get to investor think it is great to accelerate the pace of innovation and language now that our platform consolidation a flashing work is behind us, please turn to slide sixteen.

Sales of Life manage subscriptions drove an increase in the average initial sales price from $103 in both the third quarter of 2019 and the fourth quarter 2018 $250 in the fourth quarter of 2018.

As we begin to see Vitality returning to our consumer language business. We made the decision earlier this year to broaden our variable marketing include more topic badal offline Market.

And well-met was relatively flat year-over-year. We recognized more of that TV up front and maximizing its benefit to us turning to slide fifteen. We see a logical bifurcation of our country into those looking to try language learning and who are most likely to purchase a 3-month initial subscription versus committed Learners who are more likely to buy a 24 month or lifetime subscription contract only. We are adjusting our offerings to create more value for each type of learner to better meet these objectives in February. For example, we added a significant upgrade to our long-term subscription offerings for the first time frame subscription, 12 months and longer Learners have access to all of the twenty five languages in our catalog with the single purchase.

I have talked in the past about the enormous power of the Rosetta Stone brand, but frankly, we haven't done much to actively leverage it over the last five years. We spent almost no money on offline brand marketing. I can have a good return but longer payback instead virtually. All of our media spend was focus on faster payback performance digital marketing where a dollar invested relatively quickly produced bookings were down a dollar eighty on average. We are now excited to resume investing in a profitable long-term growth in our language business. You will recall we did a three City brand marketing test in 2019, utilizing the learning from that test to expand in sharply focus our Branch been naturally during 2020. We do not intend to be or given the strength of our brand do we need to be a prolific offline advertisers, but we want our presence again that will broaden our customer reach and refresh what Rosetta Stone means in the mind of a language learner.

We call this Rosetta Stone and limit now we learner who buys a lifetime subscription will have the option to learn any language now or in the future these lifetime subscriptions carry a typical average sales price per unit of $189 vs $36 for a 3-month subscription reflective of the tremendous value. We are offering and the value we offer Learners will only grow in twenty-twenty. We have a number of exciting features that will be willing out early this year and that we will talk about on future calls and share when we get to investor think it is great to accelerate the pace of innovation and language now that our platform consolidation and long-lasting work is behind us. Please turn to slide sixteen.

because top of funnel advertising bill

Open page back over time. We are not expecting a positive return on media for this portion of our marketing spending twenty twenty consequently. It will lower the contribution from consumer relative to what it would have been had. We not going to invest in our future growth. We're taking a measured approach to this as an investment and our confidence of return will build and pay off over time based on our prior experience and a recent testing we've done with that off. Please turn the slide 17 and John will walk through our financial Outlook and share a few closing comments.

To see if I tality returning to our consumer language business. We made the decision earlier this year to broaden our variable marketing expand to include more top of funnel offline marketing.

Thank you. Matt giving everything that has happened including the last few days. It is critical to provide context for Outlook for this year with a few thoughts about nineteen month and its potential influence on our business in 2020 and over time.

Is it regarding the impact to the virus directly or two priorities are the health and safety of our employees and continuing to support our customers and Learners during this uncertain and difficult. Our employees. We have restricted travel in are taking precautions to promote a safe work environment including if necessary temporarily closing offices long as we have in Seattle, which as you know has been Ground Zero here in the US.

We are now excited to resume investing in profitable long-term growth in our language business. You will recall we did a free City brand marketing test in 2019. We are utilizing the learning from that time to expand in sharply focus our Branch been naturally during 2020. We do not intend to be nor given the strength of our brand do we need to be a prolific offline Advertiser, but we want to build a presence again that will broaden a customer reach and refresh what Rosetta Stone means in the mind of a language learner.

For customers all of our Solutions can be used by Learners including those in K-12 and Enterprise remotely. We are working hard to ensure that we support our school and corporate customers are disrupted by closures to ensure that learning continues. We are confident. We will be a great partner during what will be a challenging. For many.

Because top of funnel advertising bills and pays back over time. We are not expecting a positive return on media for this portion of our marketing spending twenty twenty consequently. It will lower the contribution from consumer to what it would have been had. We not chosen to invest in our future growth. We're taking a measured approach to this as an investment and our confidence of return will build and pay off over time based on our prior experience and a recent thing we've done with that. Please turn the slide 17 and John will walk through our financial Outlook and share a few closing comments.

If we consider the potential Financial impact of this on our business, it is important to take it balanced long-term view, especially it's so much is not yet known.

Thank you. Matt giving everything that has happened including the last few days. It is critical to provide context for Outlook for this year with a few thoughts about 2018 and its potential influence on our business in 20 20 in overtime as it regards to the impact of the virus directly or two priorities are the health and safety of our choice and continuing to support our customers and Learners during this uncertain and difficult. Our employees. We have restricted travel in are taking precautions to promote a safe environment including if necessary temporarily closing offices as we have in Seattle, which as you know has been Ground Zero here in the US.

And the intermediate-term I firmly believe the disruption caused by the virus will raise awareness of the benefits of Blended learning Solutions, like ours consider for example, the advantages of an online coach for corporate customer vs. Sending an executive to a Language Center for bringing a tutor into your office or the ability to have a young students continue to learn to read at home using our software purchased by their District in the event of a school closure. These are real tangible advantages to our Solutions walk outside. We need to be cautious and balanced in the near-term uncertainty slowing economic growth or customer distraction could impact parts of our business by pro-life customer's decision-making or even reducing learning budgets.

For customers all of our Solutions can be used by Learners including those in K-12 and Enterprise remotely. We are working hard to ensure that we support our school with other customers if they are disrupted by closures to ensure that learning continues we are confident. We will be a great partner during what will be a challenging. For many years.

In our K-12 business, we are confident of our ability to retain and even expand our relationships with existing customers, even the remote learning ability to provide wage but it's possible we can find it somewhat more difficult to Drive New Growth for a. If potential customers are focused and managing the immediate implications of the virus.

As we consider the potential Financial impact of this on our business. It is important to take Advanced long-term view, especially it's so much is not yet known.

Be clear.

and the intermediate-term

We have not yet seen any evidence exists, but we would be remiss if we weren't planning for it this in our desire to achieve guidance in this important. Let us to re-examine the the primary guidance for 2020 that we shared in November and include a more conservative range.

I firmly believe the disruption caused by the virus will raise awareness of the benefits of Blended learning Solutions, like ours consider for example, the advantages of an online coverage for corporate customer vs. Sending an executive to a Language Center for bringing a tutor into your office or the ability to have a young student to continue to learn to read off using our software purchased by their District in the event of a school closure. These are real tangible advantages to our Solutions.

20/20 we are now guiding to Consolidated Revenue growth of 3 to 7% were approximately 189 million to $195 a month through a combination of twelve to fourteen percent Revenue growth literacy unexpected booking for that 20 to 25% 427 percent of Revenue growth in a consumer relatively flat booking through and if you load single digit percentage decline in revenues for eating on a larger expected to decrease in bookings.

That side we need to be cautious and balanced in the near-term uncertainty slowing economic growth or customer distraction could impact parts of our business by rep and customers decision-making or even reducing learning budgets.

Well, look for strong booking person that everything is driven by expected continued high-dollar renewal rates from existing customers. Its third year of power up in the investment. We're making the segment and more productively Focus went to sales and marketing organizations with Nick talked about

In our K-12 business, we are confident of our ability to retain and even expand our relationships with existing customers given the remote learning ability to be provide but it's possible we can find it somewhat more difficult to Drive New Growth for a. If potential customers are focused and managing the immediate implications of the virus.

this Outlook is more tempered than before the part because while we expect there may be good opportunity for growth with existing customers in this environment. We don't yet know what the impact if any from disruption and distraction related to the virus will be a new business.

Be clear. We have not yet seen meaningful evidence exists, but we would be remiss if we weren't planning for it this and our desire to achieve guidance in this important Year. Let us to re-examine the preliminary guidance for 2020 that we shared in November and include a more conservative range.

Included in literacy segment guidance is a little less than 2 million dollars of bookings from a Rosetta Stone English all of which we, in the second half of the year after its release.

Good part of this in 2020 is expected to come from a renewal of existing any segment Rosetta Stone language customers.

In 2020. We are now guiding to Consolidated Revenue growth of 3 to 7% were approximately 189 million to $195 a month through a combination of twelve to fourteen percent Revenue growth and literacy unexpected bookings groups of 20 to 25% 427 percent of Revenue growth in a consumer relatively flat booking trips and in low single-digit percentage decline in revenues for any on a larger expected to decrease in bookings.

Literacy sign up Revenue expectations for 2024 also affected by lower than originally expected bookings in 2019 and secondly because we expect Approximately 80% of total nearly all of literacy bookings growth to occur in the second half of the year. The impact of literacy is looking through this year on Consolidated Revenue 20/20 is dead.

Well, look for strong bookings open that everything is driven by expected continued high-dollar renewal rates from existing customers. Its third year of power up in the investment. We're making the segment in more productively focused like the sales and marketing organization. Did Nick talked about it.

Consumer Revenue in 2020 is now expected to be slightly higher than you previously thought you did a strong performance in to for a 2019. We haven't changed our consumer booking office cuz we want to see how new products like R unlimited languages offering that Matt talked about that are off to a good start in 2020 perform over a longer period

This Outlook is more tempered than before the part because while we expect there may be good opportunity for growth with existing customers in this environment. We don't yet know what the impact if any from disruption and distraction related to the virus will be a new business.

We continue to expect to decline in any book instant. The lower expected bookings from custom content projects. Remember, we had a custom content deal of over seven million dollars in 2019 month and declines in our K-12 language courses in part and some of its renewal business moves to the literacy segment with the introduction of Rosetta Stone English.

Included in literacy segment guidance is a little less than 2 million dollars of bookings from a Rosetta Stone English all of which would, in the second half of the year after its original release.

Good.

turn into

20/20 is expected to come from a renewal of existing any segment Rosetta Stone language customers.

We now expect adjusted ebitda of approximately 3 million to 5 million and operating cash flow is expected to be $14 to $16 importantly two million dollars of them both either an operating cash flow from our preliminary guidance in December is the result of moving to million dollars for product development costs that were previously expected to be Capital R&D where they will be expensed. We now expect Capital expenditures to be approximately $17 down from prior guidance of 18 to 20 million years that we will be approximately cash flow break-even year.

Literacy segment Revenue expectations for 2020 we're also affected by lower than originally expected bookings in 2019 and secondly because we expect Approximately 80% of total and nearly all of literacy bookings growth to occur in the second half of the year the impact of literacies bookings gross this year on Consolidated Revenue in 2020 is dead.

Consumer Revenue in 2020 is now expected to be slightly higher than we previously thought you did a strong performance in Q4 2019. We haven't changed our consumer bookings growth rate for years cuz we want to see how new products like R unlimited languages offering that Matt talked about that are off to a good start in 2020 perform over a longer period

The total expected cash flows a few million less than we previously anticipated but we see an opportunity to invest behind the strong performance. We were seeing and consumer and we want to be a little more conservative in our life in the current environment. We have offset a portion of this with expense reduction elsewhere.

we continue to expect to decline in any book in suits and lower expected bookings from custom content projects. Remember, we had a custom content deal of over seven million dollars in 2019 month and declines in our K-12 language business in part is some of its renewal business moves to literacy segment with the introduction of Rosetta Stone English.

As we reflect the current uncertainty in our bookings and revenue Outlook. It will also be mindful of our expenses as the year progresses cuz we learn more about the environment of which we are operating. We will adjust as necessary with the goal of continuing to invest in the future while remaining approximately cash flow break-even this year.

As we look Beyond 20 20 in the current disruption, you see no meaningful change to the booking strengthen our business continued strong growth Alexia driven by the foundation of four or five months rolling contributions from power out in the introduction of Rosetta Stone English, mid-to-high single-digit growth in consumer language and flat bookings in Easy language is growth in Enterprise. That vanish ranking K12 language program, please turn the slight eighteen and I will talk about two months.

Turn into profitability. We now expect adjusted either down for approximately 3 million to 5 million and operating cash flow is expected to be $14 to $16 importantly two million dollars of the reduction of both either an operating cash flow from our preliminary guidance in December is the result of moving two million dollars for product development costs that were previously expected to be capitalized the R&D where they will be expensed. We now expect Capital expenditures to be approximately $17 down from prior guidance of 18 to 20 million and that we will be approximately cash flow break-even from year. The total expected cash flow is a few million less than we previously anticipated but we see an opportunity to invest in a strong performance. We were seeing and consumer and we want to be a little more conservative in our bookings Outlook in the current environment.

Given how closer to the end of the quarter you would like to share outlook for 200. I would remind everyone that our first quarter is very small with approx 15% of expected bookings for the month. This is a special education Literacy for bookings are expected to be relatively flat with Q on a 2019 and represent approximately 5% of total literacy bookings for 20. We continue to see strong performance in q1 a consumer language and believe this provides us a great backdrop as we begin to acquaint people with the New Jersey through incremental brand advertisers.

We have also had a portion of this with expense reduction elsewhere.

As we reflect the current uncertainty in our bookings and revenue Outlook. We will also be mindful of our expenses as the year progresses as we learn more about the environment of which we are operating we will adjust as necessary with the goal of continuing to invest in the future while remaining approximately cash flow break-even this year.

as we look Beyond 20 20 in the current disruption, you see no meaningful change to the booking strengthen our business continued strong growth Alexia driven by the foundation of core 5 with brown contributions from Power UP in the introduction of Rosetta Stone English, mid-to-high single-digit growth in consumer language and flat bookings in any language is Grossinger Enterprises drinking K-12 language business, please turn the slight eighteen and I will talk about q1

On a Consolidated basis, we expect total que and revenue approaching $46 slightly up from last year the gaap net loss of approximately $7 a month break even adjusted ebitda the decline of approximately three million versus the prior-year to our typical first half use of cash. We will again have some season of borrowing off in 2019. We expect that positive net cash at all times and intend to end the year with no debt as implied by our full-year guidance. We expect Revenue growth and operating off to accelerate as we move through 2020 in line with the seasonal bookings growth in our business to wrap up a proud of the progress of humans made of the last five years, but this is not important year with priorities that include refreshing the understanding of what Rosetta Stone can be for someone looking to learn a language.

closer to the end of the quarter

You would like to share outlook for 200. I would remind everyone that our first quarter is very small with approx 15% of expected bookings for the Year. This is especially the case off for bookings are expected to be relatively flat with you on a 2019 and represent approximately 5% of total literacy bookings for 2020.

focusing in larger case

Call sales team and renewing and expanding existing customers and driving new business growth and later this summer successfully launching Rosetta Stone English. These are challenging times per month with everyone affected. But I know our team will be there to support Learners and develop stronger customer relationships built on trust commitment and delivering Gray.

We continue to see strong performance in q1 a consumer language and believe this provides us a great backdrop as we begin to acquaint people with the new Rosetta Stone through incremental brand advertising.

On a Consolidated basis, we expect total que and revenue approaching $46 slightly up from last year the Gap net loss of approximately 7 million month break even adjusted ebitda or decline of approximately 3 million versus the prior-year to our typical first half use of cash. We will again have some seasonal borrowings back in 2019. We expect to have positive net cash and all times and intend to end the year with no debt as implied by our full-year guidance. We expect Revenue growth and operating off to accelerate as we move through 2020 in line with the seasonal bookings growth in our business.

At the same time, there's much to be excited about the growth and newly validated efficacy of power up becoming introduction of Rosetta Stone English the first product that would bring together with all that we do best across the company the chance to reinvigorate the great Rosetta Stone brand and begin to invest behind consumer again, and knowing that we will support our customers offer private events, wherever they want or need to learn in the interim. We will communicate with you. Regularly. We will keep you updated on the progress against our priorities and we look forward to seeing many of you in person at investor that we would now be happy to take your questions.

At this time, we will be conducting a question answer session. If you would like to ask you a question, please press press star one on your telephone keypad. A confirmation tone will indicate your line as in the question queue. You may press star to if you would like if your question from the Q4 participants using speaker equipment and maybe necessary to pick up your handset before pressing the star key. One moment, please while we pull for questions.

Wrap up a proud of the progress. The team has made over the last five years, but this is an important year with priorities that include refreshing the understanding of what Rosetta Stone can be someone looking to learn a language focusing in larger cage will sales team on renewing and expanding existing customers and driving new business growth and later this summer successfully logged in English. These are challenging times formatting and our thoughts are with everyone affected but I know our team will be there to support Learners and develop stronger customer relationships built on trust commitment and delivering great outcomes.

Our first question is from Alex Paris Berrington research. Please proceed with your question.

Good afternoon, everyone.

Hi Chris. Hi. I'm sure you're asked this question a lot is you added some great color in your commentary on what you're doing with regard to the business in reaction to Cove in nineteen as we look at nineteen. Has there been any change or how should we think about the priorities money for Capital allocation or preservation through this fiscal year and following up on Cove in nineteen has have you changed at all your sales team and and or Direction in the midst of this uncertain environments?

At the same time there is much to be excited about the growth and newly validated efficacy of power up becoming introduction of Rosetta Stone English the first product that would bring together with all that we do best across the company the chance to reinvigorate the great Rosetta Stone brand and begin to invest behind consumer again, and knowing that we will support our customers suck karona Pirates events, wherever they want when you pull in the interim, we will communicate with you. Regularly. We will keep you updated on the progress against our priorities, and we look forward to seeing many of you in person at investor that we would now be happy to take your questions.

At this time, we will be conducting a question answer session. If you would like to ask you a question, please press press star one on your telephone keypad. A confirmation tone will indicate your line as in the question queue. You may press star to if you would like your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. One moment, please while we pull for questions.

Yeah. No. Those are very good questions Chris. Thank you for asking. Then. We have a lot of variable expense in the you know, really across the company primarily off the market and we have that in the consumer business and that can met can speak to that will tell you right now. We are seeing a very strong environment in the consumer until you know, the plan is to continue to lean into that and we can watch that really on a daily basis, you know, it's supposed to some of our other businesses which have a longer pipeline jobs where we we we really have to be thinking out quarters, but the consumer business we're able to track very closely and we're feeling very good about the performance of that business, but even now and all that Nick and Matt add to this as a regards the K-12 investment, we are absolutely committed to that. We are certainly mindful dead.

Our first question is from Alex Paris Berrington research. Please proceed with your question.

Good afternoon, everyone.

Hi. Hey Chris. Hi. I'm sure you're asked this question a lot is you added some great color in your commentary on what you're doing with regard to the business in real life into Cove in nineteen as we look at nineteen. Has there been any change or how should we think about the priorities for Capital allocation a reservation through this fiscal year and following up on Cove in nineteen has have you changed at all your sales team expansion and or Direction in the midst of this uncertain environment?

The opportunity that you see in the business both this year and longer.

Term, we absolutely believe that all this is a terrible humanitarian crisis and we will do everything we can to support our team and our customers that when we come through the opportunity for us will be as great or greater than it is ever been and we want to make sure that we are there with the right products and the right customers and write customer relationships to agent in you to drive that that said, you know, we will of course be mindful of expenses. You heard me commit to you know, trying to keep this company at the very least cash flow break-even time of the year. I think that's important. We certainly have more than sufficient liquidity to back us up based on everything that we say. We've renewed our credit line and off and it it that was done prior to you know, the most recent events. And so we feel we feel very good about it.

Yeah. No. Those are very good questions Chris. Thank you for asking though. We have a lot of variable expense and you know really across the company primarily interested in marketing. We have that in the consumer business in that can that can speak to that will tell you right now we are seeing a very strong environment in the consumer until you know, the plan is to continue to lean into that and we can watch that really on a daily basis, you know as opposed to some of our other businesses which have a longer pipeline jobs where we we we really have to be thinking out quarters, but the consumer business we're able to track very closely and we're feeling very good about the performance of that business, but even now and I'll let Nick and Matt add to this as a regards the K-12 investment. We are absolutely committed to that. We are certainly mindful dead.

But we will be thoughtful.

That's great very helpful and shifting to opportunity perhaps an update on how the launch of the K-5 Solutions going so fast in quarter any idea if this point is early in the year as to how much of a contributor it could be to incremental growth. And would you like to talk about Rosetta Stone English for a moment in the bed? Sure. I would be glad to hi Chris. So it's John mentioned and I mentioned in the presentation. We launched Rosetta Stone English about three weeks ago now and it are are seeing strong use in about 30 schools with about two thousand students and key States across the country and are really happy with the response. We're seeing in the engagement both from students and from Educators really highlights. The fact that they're just is not a good product.

The opportunity that we see in the business but this year and longer-term. We absolutely believe that this is a terrible humanitarian crisis and we will do everything wage to support our team and our customers when we come through it the opportunity for us will be as great or greater than it has ever been and we want to make sure that we are their home with the right products and the right customers and the right customer relationships to continue to drive that that said, you know, we will of course be mindful of expenses. You heard me commit to, you know, try to keep this company at the very least cash flow break-even during the course of the year. I think that's important. We certainly have more than sufficient liquidity to back us up based off everything that we say, we renewed our credit line and actually expanded it that was done prior to you know, the most recent events. And so we feel we feel dead.

About it, but we will be thoughtful.

On the digital side to support those learners, but we are being fairly conservative in terms of what we are expecting from a contribution standpoint this year. We have approximately two million dollars in the back half of the year that is tied to Rosetta Stone English and obviously introducing it to Summer really just capturing half from the half of the year and the beginning of the next school year. So the real growth Rosetta Stone English is going to be in 2021 Chris just to make sure you you understand when that's just watch that was the beta launch and it said the actual commercial lines is not till later in the summer.

That's great very helpful and shifting to opportunity perhaps an update on how the launch of the K-5 solution is going so far off recorder any idea at this point. It's early in the year as to how much of a contributor it could be to incremental growth. And would you like to talk about Rosetta Stone English for a moment in the beta? Sure, I would be glad to hi Chris. So it's John mentioned and I mentioned in the presentation. We launched Rosetta Stone English about three weeks ago now and it are are seeing strong use in about 30 schools with about two thousand students and key States across the country and are really happy with the response. We're seeing in the engagement both from students and from Educators really highlights. The fact that they're just is not a good product dead.

Got it. Got it. All very helpful. And I look forward to that and any updates on the state of Texas. I know we talked about it on the last call. That should get more contribute more of a contributor this fiscal year. I assume and uh, I'm assuming your progress is still moving. Well in States like Utah New York City in Arizona, you know, first of all, I'll I'll talk about Texas as we you know talked about on our third quarter call, you know, Texas was slower to materialize and the first year than we had expected last year was really the 2019 adoption year, which was focused on the elementary school Market 2020 is the secondary school adoption and we're seeing some really strong acceptance and and reaction to our power up product in the secondary school market and are really pleased with the pipeline that's developing there.

On the digital side the support those learning.

But we are being fairly conservative in terms of what we are expecting from a contribution standpoint this year. We have approximately two million dollars in the back half of the year that is tied to Rosetta Stone English and obviously introducing it to Summer really just capturing half of the half of the year and the beginning of the next school year. So the real growth Rosetta Stone English is going to be in 2021 is Chris just to make sure you you understand when Nick says watch that was the beta launch off and it said the actual commercial launch is not till later in the summer.

You know other targets States obviously Utah is a is an important state and customer for us. We're continuing to work closely both with the State Department of Education as well as individual districts who are implementing our programs and are now in over sixty percent of the elementary school buildings in that state and they're seeing great engagement and great progress for those Learners and continue to look at specific state where there's either legislative activity or specific funding in place where we can Target our national strategy game.

Great. Thank you for the color. I appreciate it. I'll hop back in the queue.

home

Got it. Got it. All very helpful. And I look forward to that and any updates on the state of Texas. I know we talked about it on the last call that should have more more of a contributor this fiscal year. I assume and uh, I'm assuming your progress is still moving. Well in States like Utah New York City in Arizona, you know, first of all, I'll I'll talk about Texas as we you know talked about on our third quarter call, you know, Texas was slower to materialize and the first year than we had expected last year was really the 2019 adoption year which was focused on the elementary school Market 2020 is the secondary school adoption and we're seeing some really strong acceptance and and reaction to our power up product in the secondary school market and are really pleased with the pipeline that's developing their dead.

Yes.

Dead dead dead dead.

Our next question is from Steve and Frank Doherty. Please proceed with your question. Good afternoon Nicolas. Let's go back to the bookings situation again. And you know, I took three there clearly were some issues and Texas being one big one but you guys seen fairly confident that you had some business slip into Q4 that you should be able to capture and and you could do something North as seventy million in bookings for the full year and you came in call it 3 million short or short of that month. You did mention some pricing issue on realized prices that would seem to be not the explanation for all of the shortfalls. So I'm wondering what else happened. Thank you for and do you have the right bodies in place?

Thursday

In terms of you know other targets States obviously Utah is a is an important state and customer for us. We're continuing to work closely both with the State Department of Education as well as individual districts who are implementing our programs and are now in over sixty percent of the elementary school buildings in that state and they're seeing great engagement ring great progress for those Learners and continue to look at specific States where there's either legislative activity or specific funding in place where we can Target our national strategy.

Thursday

dead dead dead.

Great. Thank you for the color. I appreciate it. I'll hop back in the queue.

That the exit in 2020. Yeah. Thanks to you appreciate the question. So, you know as I said from the the previous question, you know, obviously in 2019, we had more expectations for our performance around new business and and especially in Texas and our national strategy initiative than than we actually delivered that being said and and we saw, you know things that slipped into the fourth quarter where we felt confident that they were going to come in actually slip into two thousand twenty. Eighth. Um, we were hopeful given what we saw on the pipeline that they would close by the end of the year, but I think what we're seeing is schools now shifting their focus to 2025. The good news is a lot of the districts that we had in the pipeline in the fourth quarter of 2019 are in the pipeline for 2020 and not only in the pipeline wage.

home

Our next question is from Steve and Frank Doherty. Please proceed with your question. Good afternoon Nicolas. Let's go back to the bookings situation again. And you know, I took three there clearly were some issues and Texas being one big one but you guys seem fairly confident that you had some business slip into Q4 that you should be able to capture and and you could do something North as seventy million in bookings for the full year and you came in call it 3 million short or short of that month. You did mention some pricing issue on Realize prices that would seem to be not the explanation for all of the shortfalls. So I'm wondering what else happens. Thank you for and do you have the right bodies in place?

But because of the secondary adoption growing in size momentum those still will be second and third quarter sales, but we're really pleased with the strength that we see there.

that the exit into

Thursday

off

Okay, and then in terms of the the bodies you have the talent you have and the shift of the bodies over from any money given all the Dynamics in this market. How confident are you that you have the team that can hit the ground running in 2020 and have this not be a rerun of what we saw last year. Yep. So the things that we we've changed in terms of our sales Channel structure. I think our direct result of some of the challenges we saw in 2019. They wage changes that we knew we needed to make overtime. And in this case we've accelerated those channels shifts. It's really about focusing those larger opportunities and expansion opportunities into the hands of our account Executives and our regional sales managers and reducing the span of control for those Regional sales managers wage.

Thursday

Yeah, thanks Steve appreciate the question. So, you know as I said from the the previous question, you know, obviously in 2019, we had more expectations for our performance around new business and and especially in Texas and our national strategy initiative. Then then we actually delivered that being said and and we saw, you know things that slipped into the fourth quarter where we felt confident that they were going to come in actually slip into 2020. We were hopeful thought we saw on the pipeline that they would close by the end of the year, but I think what we're seeing is schools now shifting their focus to 2020. The good news is a lot of the same tricks that we had in the pipeline in the fourth quarter of 2019 are in the pipeline for 2020 and not only in the pipeline but because of the secondary wage

off off

So they have time to work those lots.

Thursday

The option, um growing in size momentum those still will be second and third quarter sales, but we're really pleased with the strength that we see there.

Opportunities and work with those account Executives at the same time. We've now put in place to new Regional inside sales managers with an inside sales team underneath it that can handle that high-volume low-value customer segments quite honestly, one of the things in in the fourth quarter of 2019 that we saw was just the volume of business that continued just wasn't able to be managed by the team. We had in place given the fact that they had too many opportunities. So the structure we have now an additional capacity and and talent that's already in place and continuing to build I feel is the right structure not just for 2020 but to drive a fork into the future.

wage

Greetings, welcome to the Rosetta Stone Incorporated fourth quarter 2019 earnings conference call at this time. All participants are in a listen-only mode a question answer session will follow the formal presentation Cowboy. If anyone should require operator assistance during the conference, please press * 0 and a telephone keypad, please note. This conference is being recorded. I will now turn the conference over to your host Jason Terry walk-ins. Mr. Terry you may begin

Okay, and then in terms of the the bodies you have the talent you have and the shift of the bodies over from E&E off all the Dynamics in this market. How confident are you that you have the team that can hit the ground running in 2020 and have this not be a rerun of what we saw last year. Yep. So the things that we we've changed in terms of our sales Channel structure. I think our direct result of some of the challenges we saw in 2019. They wage changes that we knew we needed to make overtime. And in this case we've accelerated those channels shifts. It's really about focusing those larger opportunities and expansion opportunities into the hands of our account Executives and our regional sales managers and reducing the span of control for those Regional sales managers wage.

Good afternoon, everyone. Welcome to Rosetta Stone fourth quarter and 2019 earnings conference call speaking on the call today will be John half chairman and CEO and Nikita and masculine president of Rosetta Stone. Additionally Tampere know the company's Chief Financial Officer will be available during the Q&A portion of today's call.

You're supposed to the investor relations section of our website at Rosetta Stone to earnings release and a slide presentation which accompanies today's call. We've also posted supplemental information and found on our website. I want to remind everyone that as always there will be elements in today's presentation which are forward-looking and are based on our best view of the world and our business has receive them today. These statements are subject to a number of risks and uncertainties that could cause an actual results to differ materially a description of these risks and uncertainties and other factors that can affect our financial results are included in our most recent annual report on form 10-K and quarterly reports on form 10-q.

Okay, and then is this shift to the higher dollar lifetime or a longer-term subscriptions wage is that in part a reflection of the seasonality in the business and that's a great gift to keep to give the people or is this your conscious strategy now to focus on a selling that set of customers which difference you from your competitors? That's a great question. We do lean into the fact that we're a premium brand and that we have added more utility q1 to allow consumers that basically have the Netflix of language learning. So adding twenty five languages to all long-term Subs in the fourth quarter is more of a mix shift as we mentioned on the lifetime skew this was actually better than our expectations. Obviously, you saw the quarter results. We've been pretty pragmatic in terms of how we're guiding into that for 2020. Yep.

Expressly disclaim any obligation to update or revise any forward-looking statements except as required by law today's presentation and discussion also contains references to non-gaap financial measures off the full definition Gap comparison and a Reconciliation of those measures are available for the aforementioned presentation and press release. I will now turn the call over to John.

2019 was the year of significant progress is possible all of medicine confirming that the efforts to restructure. Our business are behind us 2019 was the first year in spring 2014 in which each of our segments group producing Consolidated looking for a 9% on literacy segment. Led the way if you have any particular by increasing contributions from Power UP, but for the first time in many years both language language segments also contributed to growth and would point in particular to the very strong fourth-quarter Thursday. I have consumer language itself bookings grow by 14% over Q4 2018.

So they have time to work those larger opportunities and work with those account Executives at the same time. We've now put in place to new Regional inside sales managers with an inside sales team underneath it that can handle that high-volume low-value customer segments quite honestly, one of the things in in the fourth quarter of 2019 that we saw was just the volume of business that continued just wasn't able to be managed by the team. We had in place give them the fact that they had too many opportunities. So the structure we have now and the additional capacity and and talent that's already in place and continuing to build I feel is the right structure not just for 2020 choice but to drive us forward into the future.

It's too early to tell but John implied on the call from we're we're having a good q1 as well. And so strategically we are leaning into long-term and we are leaning into adding a utility and more value for long-term subscribers, and we're able to see that we're getting higher growth LTV and more value out of this customers.

On a Consolidated basis fourth-quarter and full-year revenue grew by 5% over the same. Since 2018 Deuce Grill help Drive Improvement in both adjusted either down and income from four-year that income for the quarter was the loss of six point five million compared to a loss of four point four million in the same period in 2018 and for the full year net income was down to thirteen million compared to a loss of 21.5 million and 2018.

okay, and then

Okay, and and how much are you going to spend on this offline marketing and and maybe where you spending it? Are you are you hitting the

Adjusted ebitda for the quarter was -2.9 Million compared to positive point seven million in the same period in 2018 and for the full year. It was 6.9 wage compared to point two million in 2018. We ended the year with the cash balance of 43 million dollars and no debt 2019 was a very good and important. Please turn the slide for

Now, what's a great?

Solutions producing terrific out into learning meaningful growth opportunities in both our K-12 and language businesses in a strong balance sheet. We are excited to move forward and began to realize the benefits of the Investments. We've been making in the business benefits that in products like power up and our soon-to-be-released kasich's English learning solution, or either just beginning to realize our potential or if not yet even been released. It's just latent opportunity as well as the opportunity. We see in other assets like the Rosetta Stone Brian to get us excited about the future of

Is this shift to the higher dollar lifetime or a longer-term subscriptions? Is that a part a reflection of the seasonality in the business and that's a great gift to keep to give to people or is this your conscious strategy now to focus on selling that same customers which you from your competitors. That's a great question. We do lean into the fact that we're a premium brand and that we have added more utility in q12 to allow consumers that basically have the Netflix of language learning. So adding twenty five languages to all long-term Subs in the fourth quarter is more of a mix shift as we mentioned on the light bulb you this was actually better than our expectations. Obviously, you saw the quarter results. We've been pretty pragmatic in terms of how we're guiding into that for twenty twenty because it's too early to Thursday.

Avon Market radio and what's the strategy with these dollars? Yeah. It's a great question. So as you know, we typically focused very specifically on quit pay back within a quarter digital performance-based marketing. We haven't really flexed their muscles as a large percentage of our overall marketing budget in terms of variable marketing towards non-performance media. We're going to lean into offline TV and digital connected TV as a let's call it low double-digit spend against the overall durable marketing. So a little bit bigger than what we did last Q2 2019, but we'll lean into that and test into it just like we do everything else.

Before we go further. I would like you to know that if they're seeking input from our shareholders we have decided to recommend in this year's proxy and amendments or Charter that will allow us to eliminate or cross classified board structure. We believe that the stability afforded by a classified board served as well as a relatively new public company. That is we have matured and built a strong Schierholtz. We believe it is no longer necessary. I also need to let you know that we have decided to postpone our investor day previously scheduled for April fifteenth birthday is much we want to share with you and we want to do that in person. We have heard from many that that might not be possible right now. So we're looking to move investor days cuz it's summer. I also need not seem right now focused on everything that's happening in the business and with our customers.

and that was low double digits is a

Percent of the variable Market. Okay. So can you give us a ballpark of how many millions of dollars that is it? I'm just trying to parse.

We will get back to you as soon as we can reasonably do so. Now let's take a closer. Look at the performance of each of the businesses beginning with Lexia and for that I will hand the microphone off.

But as John implied on the call, we're we're having a good q1 as well. And so strategically we are leaning into long-term and we are leaning in to add morning utility and value for long-term subscribers, and we're able to see that we're getting higher growth LTV and more value out of this customers.

Thanks, John. Please turn to slide 5 in our literacy segment Revenue in the quarter was a 17.1 million an increase of 18% over the same period in 2018 for the full year Revenue increased sixty two point six million or 19% higher than 2018 bookings were ten point eight million in the fourth quarter an increase of 11% over the same period in 2018 while full-year booking for sixty eight point four million an increase of 17% from 2018 while a new customer bookings. Absolute and percentage basis in 2019. We have not achieved the expectations. We originally set for ourselves in a moment. I will talk about why and what we're doing to better realize the opportunities we have

Your your reduction in adjusted ebitda relative to the last time you gave guidance you have you were helpful with the two million that came out of the R&D accounts change. And so I'd love to know what this piece is. Yeah. We're in the three to four million range.

Okay, and and how much are you going to spend on this offline marketing and and maybe where you spending it? Are you are you hitting the

of incremental

Okay.

Please turn to slide six.

Annual recurring Revenue r a r r Seventeen percent consistent with looking for a r r is driven by our ability to maintain and grow the dollars we receive from existing customers faith in sales as we've discussed previously retention rates which for us are good base and don't reflect the size of the account Trend it down during 2019 primarily due to turn over the last couple of years and smaller accounts including the large number of accounts that have come that have been coming off of grandfathered pricing left over from one Lake Kia transition from Perpetual to subscription. Same thing. We want to do a better more efficient job of managing these smaller accounts, but now that we better understand the underlying reasons, this is not a trend that concerns us.

Avon Market radio and what's the strategy with these dollars? Yeah. It's a great question. So as you know, we typically focused very specifically on quick pay back within a quarter digital performance-based marketing. We haven't really flexed their muscles as a large percentage of our overall marketing budget in terms of variable marketing towards non-performance media. We're going to lean into offline TV and digital connected TV as a let's call it low double-digit spend against the overall durable marketing. So a little bigger than what we did last Q2 2019, but we'll lean into that and test into it just like we do everything else.

In 2019.

Dollar based for new continue to be strong and consistent with prior year that said we expected more from a renewal pool during the year as we introduce price increases that were targeted to full School license and certain annual service and implementation plans.

And you know, I guess I'm focused on that $2000000 expectation for ESL. Are you just trying to set them are really low or now that you've gotten deeper into the product. You think that the sales process might be a little more complicated than you originally thought and it maybe takes two to three years for this product to ramp meaningfully. Yeah, I don't think so Steve. It's really mostly the fact that we are launching it, you know halfway through the year. And so the fact that it's not commercially available until back to school means that we're not able to demonstrate it and provide proof of efficacy and everything else. That's cool. We want to see and when they're adopting a program. So we're being careful in the first year. I do believe that we you know, we feel very confident in our ability to

please turn to slide seven and I will talk about her expanding portfolio solution that will help drive through.

The first is to clear success of power up remember it was just a short time ago that we had only one literacy curriculum product in 2018. We talked to you as we introduced power up about how it affected it along with Core 5 to allow us to serve critical literacies from kindergarten through high school and which fundamentally broaden our dialogue with school districts and keeping our impact you can see the effects of power of introduction on the slide since the launch of power up in January of 2018. It has driven rapid expansion in the number of customers using more than one product.

And that was low double digits is a percent of the variable marketing. Okay. So can you give us a ballpark of how many millions of dollars that is? I'm just trying to parse your your reduction in adjusted ebitda relative to the last time you gave guidance you you were helpful with the two million that came off of the R&D accounting change. And so I'd love to know what this piece is. Yeah. We're in the three to four million range.

Power up is also driving Standalone. Salesman many cases the first product be introduced into a school system that's using one of our competitors Solutions in their elementary school buildings. It's an effect that will allow us to move down into elementary school buildings over time, especially as we demonstrate its effectiveness.

of incremental

Okay.

By the end of last month power up was being used in over 6,000 school buildings both on a stand-alone basis and in combination with glorified. This is a 70% increase over February of 2018 a ticket of of the largely unmet need we saw in the marketplace to help the broad population of struggling readers and their teachers in middle school and high schools and we are now beginning to see compelling evidence that our ability to develop highly effective control products that produce positive changes for students and their schools is not limited to koe V. Please turn to slide eight.

Launch that product the go-to-market plans are incredibly exciting and our sales team is is in place and I think incredibly excited about the opportunity just bring that product to you know, current customers who are using the Legacy language product in that market segment that new customers as well where they haven't been able to make inroads as I said, you know on the left question the the big growth will come in 2021 and for those schools that today are buying Rosetta Stone Thursday the 1st and the any group to try to do this. Is there a discount for me to make that swap or a wage make that transaction that that upgrade kind of easy or or or are you kind of going at this is this is a rip and replace cuz it's a superior product and and no one's going to get you know an easy birth.

In January our first study looking at the effectiveness of power preceding s r rating of strong which is the highest rating under the guidelines of Essa. The federal government's every student succeeds a cult. It's very difficult to achieve. In fact given the effects seen in the study of power up is now listed on the website of evidence for the organization that provides clear and authoritative information on projects that meet the evidence standard as the most effective secondary literacy intervention among the programs listed. This is a special distinction earned by a product barely two years from its launch. We always believed power up would be able to help the 2/3 and older students that are struggling to read that was built for but to have independent validation as the most effective secondary live or is something we're very proud of

And you know, I guess focused on that $2000000 expectation for ESL. Are you just trying to set them are really low or now that you've gotten deeper into the product. Do you think that the sales process might be a little more complicated than you originally thought and it maybe takes two to three years for this product to ramp meaningfully. Yeah, I don't think so Steve. It's really mostly the fact that we are launching it, you know halfway through the year. And so the fact that it's not commercially available until back to school means that we're not able to demonstrate it and provide proof of efficacy and everything else. That's cool. We want to see and when they're adopting a program. So we're being careful in the first year. I do believe that we you know, we feel very confident in our ability to

with Core 5

We now have two successful validated products that are highly complementary this puts us in a much stronger position as a company than when we were a one-product company even one product is good. And now we have a great opportunity to make it three, please turn to slide 9.

And power up demonstrate for very good at identifying large areas underserved need in K-12 and building products that meet these critical needs by delivering adaptive Perfect Solutions that benefit students while providing their teachers the data and information. They require all in a way that accelerates learning helping emergent bilingual Learners Achieve Language Proficiency in English the next area where focused on as a reminder. This is the fastest-growing K-12 student population in the u.s. Currently around 10% of students, but expected to go 25 or have the 25 we believe there's an opportunity to dramatically improve instruction for the English as a second language Learners in the United States and potentially around the world.

Right. It's a much better product. It's the first product that we built for those Young Learners and it's the first product we built that brings together home, you know, our literacy expertise and language expertise. So the percentage of customers we actually have in the elementary school Market cuz that product was never designed for that market segment is fairly small. So half of the business will be renewals from the Legacy products and half will be new business.

Launch that product the go-to-market plan.

Okay, great. Thanks.

Y'all jump back in the queue?

Our next question is from Ryan McDonald needleman Company. Please proceed with your question.

Rosetta Stone English entered as beta. Early February. This is abroad program standing over thirty schools across eight key States, including California, Florida, Texas and North Carolina reaching approximately two thousand students.

Incredibly exciting. Um, and our sales team is is in place and I think incredibly excited about the opportunity to bring that product back to you know, current customers who are using the Legacy language product in that market segment that new customers as well where they haven't been able to make inroads. But as I said, you know on the last month, um question the the big growth will come in 2021 and for those schools that today are buying Rosetta Stone through the 1st of the month to try to do this. Is there a discount for me to make that swap or a way to make that transaction that that up a great kind of easy or or or are you kind of going at this is this is a rip and replace cuz it's a superior product and and no one's going to get you know an easy upgrade path, right? It's a dog.

A good afternoon. Everyone is we're looking at the guidance more broadly. Can you handicap a little bit as you look at sort of the change last quarter this quarter about what the mix and the guy down is between sort of lower expectations or or under performance. Maybe if you want to call it that in 2019 versus concerns and impact from covad 19 and 20 forty six months.

Despite growing more than it did in the prior three years in both absolute and percentage terms did not meet our expectations while we operate in a competitive Marketplace and don't believe this is an opportunity just as mentioned on a third-quarter call. We booked lower-than-expected new sales and two areas, Texas and large or what we refer to as national accounts these continue to be important exciting opportunity and we believe we have the right position to drive growth in the market as it develops further as in the case of Texas and as our relationships with sure and expand as in the case of national wage.

In fact, the Secondary School portion of the Texas literacy adoption were power up as a great fit begins this year.

But it shown on this slide. We expect the majority of our opportunity to continue to come from focusing on the district. We are already in and where we can demonstrate positive outcomes the opportunity to represent here at home, but we need to adjust power going after us.

Please turn to slide 11.

Sure. So part of the guide down is you know the investment in the brand spend that we've decided we want to lean into giving the performance that we're seeing in consumer the opportunity to develop that as a very valuable asset here that will benefit all of this business. Even on Rosetta Stone English in life. K12 business will benefit from that from that brand spend at least indirectly part of it is the r e class from capex to R&D and then push the guide down on the revenue side is kind of net the language business. It comes out more or less flat. It's principally from Lexus, you know, a few million dollars of that is because of a slightly lower jump off point and a few million dollars of that is because we want to be dead.

historic

In large part to focus on up-sell opportunities with current customers Regional sales managers have managed a team that includes both account Executives. Those field-based sales reps that are working face-to-face and generally focus on larger account an account manager or more like an inside sales team and generally focus on smaller accounts as we ground the volume of lower opportunity customers homes built up under our sales team decreasing gave time available for regional sales managers and their account Executives to prospect for new business and drive larger expansions. In fact, we will manage 4,600 renewal in our Direct business this year.

Much better product. It's the first product that we built for those Young Learners and it's the first product we built that brings together, you know, our literacy expertise and Lounge expertise. So the percentage of customers we actually have in the elementary school Market cuz that product was never designed for that market segment is fairly small. So half of the business will be renewal from the Legacy products and half will be new business.

Okay, great. Thank you. I'll jump back in the queue.

To drug test and realizes more of our growth potential we've accelerated the evolution of our literacy sales and marketing organization to significantly increase its capacity for new business and high-value expansion renewal balm more efficiently managing our large volume of smaller accounts with more limited expansion potential earlier this year. We move account managers out from under our regional sales office and place that team under two newly-created Regional inside sales managers this account manager Group, which we are also growing is now entirely focused on the large volume of small opportunity customers.

Our next question is from Ryan McDonald Needham & Company. Please proceed with your question.

Critically, these reassignments a smaller account responsibility into an inside sales team is allowing our fields in Regional sales managers work more closely with their account Executives for all the focus more productively on the larger New Opportunities and strategic renewals. We're also increasing the size of our feet field sales team.

Or conservative, you know the benefit of reporting when we are which is a little bit later is we have more information than we would have had a week or two ago about what's going on in the world and we felt the obligation to take that into account. I think there are still lots of unknowns. I think we would all tend to acknowledge that long but you know clearly we sit here today in the environment that we're in and wanted to wanted to take that into account and comfortable with the with the revised guidance based on what we know now.

And finally to improve the efficiency of all of our sales professionals. We are more than doubling our account Specialist Team this team support transactional elements of the process of the sales team info on reaching out to new customers and strengthen existing customer relationships.

Yeah, good afternoon. Everyone as we're looking at the guidance more broadly. Can you handicap a little bit as you look at sort of the change last quarter this quarter about what the mix and the guy down is between sort of lower expectations or or under performance. Maybe if you want to call it that in 2019 versus concerns and impact from nineteen and twenty forty six months. Sure. So part of the guide down is, you know, the investment in the brand spend that we've decided we want to lean into giving the performance that we're seeing a consumer and the opportunity to develop that as a very valuable asset here that will benefit all of this business. Even on Rosetta Stone English in the K-12 business will benefit from that from that brand spend at least indirectly part of it is the r e class from capex to R&D dead.

You have taken together have significantly increased our capacity to drive the engagement and focus necessary to manage renewals, but also growing new business more rapidly. This is not important Investments that will reduce earnings in 2020. But with that in place, it should allow us to scale faster and efficiently let's now turn to our language of business and I'll hand it off to Mass.

Making it moving to slide twelve. We had a solid fourth-quarter in both our consumer and Enterprise and education language businesses, including the first year of growth since before 2014 in a quarter, excluding custom content Enterprise bookings were 10.7 billion vs. 9.3 million in the same period in 2018 growth in Enterprise was more than offset by the year of a year off and custom content within the. And lower K-12 language bookings resulting in total E&E bookings of 14.9 million down 1 million from the same prior-year quarter for the month. However, total bookings and Nene were two point eight million higher than in the prior year driven by the large custom content deal in Q3 and improved performance in our corporate vertical during the quarter. The corporate office has another seven-figure contract this Global deal for a european-based company was the third million dollar or greater Enterprise contract signed in the last two years.

And then we'll see how things develop over the first of the year and with schools and everything else that we feel very good about it.

We continue to see additional.

Expansion opportunities in our large pool of global 1000 account who currently have a low dollar value relationship with us, please turn to slide 13.

Got it. And as we're looking at in starting to look at what what school budgets can be, you know as we get into for the for the fall 2012 school year. I mean, I can't imagine they they remained fairly consistent year-in and year-out. But is there anything that that could be impacted from either one of those slowing economic growth or or any sort of follow-on jet pack from school closures or code 19 that could impact school budgets going into this year budgets are tend to be lagging indicators of of the economy. Right? So I think school budgets and and the federal budgets are fairly well set for the 2020-2021 school year certainly took longer term based on, you know, the economic economic the broad economic impact of of the code 19 could you know Drive softness and future song.

And then the guide down on the revenue side is kind of net the language business. It comes out more or less flat. It's principally from Lexia, you know, a few million dollars of that is because of a slightly lower jump off point and a few million dollars of that is because I want to be more conservative, you know, the benefit of reporting when we are which is a little bit later is we have more information than we would have had a week or two ago about what's going on in the world and we felt the obligation to take that into account. I think there are still lots of unknowns. I think we would all tend to acknowledge that but you know clearly we sit here today in the environment that we're in and wanted to wanted to take that into account and birth.

Total contribution from the language businesses after the shared cost of our Indian it was three point three million in the fourth quarter and 23.1 million for the full year.

Trying to slide 14 the strong fourth-quarter performance in consumer was driven in part by strong sales of longer-term subscriptions in particular Our Lifetime products.

We are finding that the lifetime product is attractive to a distinct customer segments that wants to commit to learning a new language, but it's put off by finite subscription offers that are at odds with the investment in time. They know will be required. We recognize that lifetime sales eliminate the opportunity for future renewal from these customers and have Christ across accordingly to capture an LTV that is as high or higher than we would otherwise expect to realize over time from future renewals of shorter-term subscription products.

But budget since they're dependent on State and local.

trouble with the with

Tax revenues but we feel pretty good about the the funding environment for the coming school year.

The revised guidance based on what we know now.

And then we'll see how things develop over the course of the year and with schools and and everything else, but we feel very good about it.

Sales of life when subscriptions drove an increase in the average initial sales price from $103 in both the third quarter of 2019 and the fourth quarter 2018 250 $20 in the fourth quarter of 2019.

And well-met was relatively flat year-over-year. We recognized more of that LT be upfront maximizing its benefit to us turning to slide fifteen. We see a logical bifurcation of our customer base into those looking to try language learning and who are most likely to purchase a 3-month initial subscription versus committed Learners who are more likely to buy a 24 month or lifetime subscription contract only we are adjusting are offering to create more value for each type of learner to better meet these objectives in February. For example, we added a significant upgrade to our long-term subscription offerings for the first time frame subscriptions, 12 months and longer Learners have access to all of the twenty five languages in our catalog with the single purchase.

Got it. And then and then you talked about sort of a renewals being a a big aspect for twenty twenty and and just wanted to know given the changes you're making into the structure of the sales force may be making some additions how much visibility do you have into, you know those renewals and in the chances of success there and and do the structural changes at all create an opportunity for confusion. I guess, you know in the near-term. Yeah, actually, I think they create opportunity for a lot better focus as I said before the way we structured the channel and the capacity of the channel in 2019 meant that each individual sales rep had an enormous number of opportunities and accounts to manage and you know, everything from small account too much larger accounts. I think the segmentation of the channel now gives each team much better Clarity and much better capacity to handle the volume of the business.

We call this Rosetta Stone unlimited. Now. We learner who buys a license subscription will have the option to learn any language now or in the future. Please let them subscriptions carry a typical average sales price per unit of $189 vs $36 for a 3-month subscription reflective of the tremendous value. We are offering and the value we offer Learners will only grow in twenty-twenty. We have a number of exciting features that will be rolling out early this year and that we will talk about on future calls and share when we get to investigate. It is great to accelerate the pace of innovation and language now that our platform consolidation a flashing work is behind us, please turn to slide sixteen.

Got it. And as we're looking at in starting to look at what what school budgets can be, you know as we get into this for the for the fall 2020 school year. I mean, I mean, they they remained fairly consistent year-in and year-out. But is there anything that that could be impacted from either one of their slowing economic growth or or any sort of follow-on came back from school closures or Cove in nineteen that could impact school budgets going into this year. Google budgets are tend to be lagging applicators of of the economy. Right? So I think school budgets and and the federal budgets are fairly well set for the 2020-2021 school year certainly took longer term based on you know, the economic economic the broad economic impact of of code 19 could you know Drive softness and feature schools?

Begin to see Vitality returning to our consumer language business. We made the decision earlier this year to broaden our variable marketing staff to include more topic badal offline marketing.

We are now excited to resume investing in profitable long-term growth in our language business. You will recall we did a three City brand marketing test in 2019. We are utilizing the learning from that time to expand and sharply focus our Branch been nationally during 20/20. We do not intend to be or given the strength of our brand do we need to be a prolific offline Advertiser, but we want to build a presence again that will broaden your customer reach and refresh what Rosetta Stone means in the mind of a language learner.

But budget since they're dependent on State and local tax revenues, but we feel pretty good about the the funding environment for the coming school year.

So we've got good visibility into the renewal pool obviously and the other benefit we have now is we're bringing together data from our sales team and data from the product so that our customer success organization has better visibility into account Health than they've had in the past and can be more proactive in identifying accounts that are at risk and heading that off so that those renewals are supported and and managed.

Because top of funnel advertising bills and pays back over time. We are not expecting a positive return on media for this portion of our marketing spending twenty twenty consequently. It will lower the contribution from consumer to what it would have been had. We not chosen to invest in our future growth. We're taking a measured approach to the as an investment and our confidence of return will build and pay off over time based on our prior experience and a recent years we've done with that. Please turn the slide 17 and John will walk through our financial Outlook and share a few closing comments.

Thank you very much. Our next question is from Eric. Martinuzzi Lake Street Capital markets. Please proceed with your question.

Thank you. Matt giving everything that has happened including the last few days. It is critical to provide context for Outlook for this year with a few thoughts about 2019 and its potential influence on our business and 20 20 in overtime as it regards to the impact of the virus directly or two priorities are the health and safety of our adult and continuing to support our customers and Learners during these uncertain and difficult. Our employees. We have restricted travel in are taking precautions to promote a safe work environment including if necessary temporarily closing offices as we have in Seattle, which as you know has been Ground Zero here in the US.

Got it. And then and then you talked about sort of a renewals being a big aspect for 2020 and and just wanted to know given the changes you're making into the structure of the sales force be making some additions how much visibility do you have into, you know those renewals and and the chances of success there and and do the structural changes at all create an opportunity for confusion. I guess, you know in the near-term that's yeah, actually, I think they create opportunity for a lot better focus as I said before the way we structured the channel and the capacity of the channel and 2019 meant that each individual sales rep had an enormous number of opportunities and accounts to manage and you know, everything from small account too much larger accounts. I think the segmentation of the channel now gives each team much better Clarity and much better capacity to handle the volume of the business hour.

For customers all of our Solutions can be used by Learners including those in K-12 and Enterprise remotely. We are working hard to ensure that we support our school with other customers there disrupted by closures to ensure that learning continues. We are confident. We will be a great partner during what will be a challenging. For many months.

Wanted to revisit the Q3 literacy issues in in and make sure that I understand whether or not they persisted in Q4 cuz I had it boiled that in Q3 may have the literacy booking shortfall boiled down to slow Federal funding issues as many districts and then the second issue was kind of sales execution address how those two items played out in Q4 and I just want to make sure I understand whether they were resolved addressed or persisted and whether there was a new reason now in Q4. Yep. No not a new reason at all. You know what we saw in Q3, especially the lag in what we anticipated from Texas and from our large account strategy did persist into the fourth quarter. We as I said before we had a number of deals that we saw slipped from the Thursday.

If we consider the potential Financial impact of this on our business, it is important to take Advanced long-term view, especially it's so much is not yet known.

And the intermediate-term I firmly believe the disruption caused by the virus will raise awareness of the benefits the Blended learning Solutions, like ours consider for example, the advantages of an online coach for corporate customer vs. Sending an executive to a Language Center for bringing a tutor into your office for the ability to have a young students continue to learn to read at home using our software purchased by their districts in the event of a school closure. These are real tangible advantages to our Solutions with that said we need to be cautious and balance in the near-term uncertainty slowing economic growth or customer distractions could impact parts of our business by pro-life customer's decision-making or even reducing learning budgets.

And our K-12 business we are confident of our ability to retain and even expand.

Our relationships with existing customers given the remote learning ability to do provide but it's possible we can find it somewhat more difficult to Drive New Growth for a. If a potential customers are focused and managing the immediate implications of the virus.

Thank you.

Very much. Our next question is from Eric. Martinuzzi Lake Street Capital markets. Please proceed with your question.

We have not yet seen meaningful evidence of this, but we would be remiss if we weren't planning for it this and our desire to achieve guidance is important here. Let us to re-examine the preliminary guidance for 2020 that we shared in November and include a more conservative range in 20 20. We are now guiding to Thursday, dated Revenue growth of 3 to 7% for approximately 189 million to $195 million to a combination of twelve to fourteen percent Revenue growth received unexpected booking service at twenty to twenty-five percent for it to 7% Revenue growth in a consumer and relatively flat booking through in in a single digit percentage decline in revenues for evening and a larger expected to decrease in bookings.

Wanted to revisit the

Border into the fourth quarter and unfortunately, those did not materialize in the fourth quarter, but they said before the good news is that we see them continuing to build momentum and the pipeline and believe that they will grow in size and materialize and Q2 and Q3. We're managing each of those larger opportunities very closely with the other thing that can impact in Q3 and Q4 is I said before was just the volume of the business and the structure of our channel that changes we've made to the channel and the additional capacity both in our field inside sales team. I think address the issues that we saw in 2019 and it's why we feel confident going into this year.

Well, look for strong bookings grew up in that everything is driven by expected continued high-dollar renewal rates from existing customers. Its third year of power up in the investment. We're making the segment and more productively Focus went to sales and marketing organizations is Nick talked about

it's Outlook is more tempered than before the part because while we expect there may be good opportunity for growth with existing customers in this environment. We don't yet know what the impact if any from disruption and distraction related to the virus will be on new business.

literacy issues and and and make sure that I understand whether or not they persisted in Q4 cuz I had it boiled in Q3. I had the literacy booking shortfall boiled down slow Federal funding issues as many districts and then the second issue was kind of sealed qution. Can you address how those two items place out in Q4 and I just want to make sure I understand whether they were resolved addressed or persisted and whether there's a new reason now in Q4. Yep. No, not a New Jersey reason at all. You know what we saw in Q3, especially the lag in what we anticipated from Texas and from our large strategy did persist into the fourth quarter. We as I said before we had a number of deals that we saw slipped from the third quarter into the fourth quarter and

Included in literacy segment guidance is a little less than 2 million dollars of bookings from a Rosetta Stone English all of which would, in the second half of the year after its release.

Good part of this in 2020 is expected to come from a renewal of existing any segment Rosetta Stone language customers.

Literacy segment Revenue expectations for 2024 also affected by lower than originally expected bookings in 2019 and secondly because we expect Approximately 80% of total booking and nearly all of literacy bookings growth to occur in the second half of the year the impact of literacies bookings gross this year on Consolidated Revenue in 2020 is dead.

The sales and marketing just that channel. If I if I could boil it down to a single number. I would say. Oh, you know the issue was, you know at the end of December 2019 or at the end of September 2019. We had the headcount for sales and marketing for K-12 was X and you know a year from now September of 2020. It's going to be why month. Could you have you signed that up based on this investment? You talked about? Yeah, you see the numbers of sales reps in the presentation. So you can see the size of the account executive team and the account management team and the managing management infrastructure shift. So and grow right so two new inside sales managers office and new account Executives and account and account managers on the inside sales side. The other thing we have done is we've doubled the size of our sales associate TJ.

Consumer Revenue in 2020 is now expected to be slightly higher than we previously thought you did a strong performance into for a 2019. We haven't changed our consumer booking Thursday is we want to see how new products like R unlimited languages offering that Matt talked about that are off to a good start in 2020 perform over a longer period

We continue.

Expect to decline in any book instant a lower expected bookings from custom content progress. Remember, we had a custom content deal of over $7 in 2019 and 2012 language business in part in some of its renewal business moved to the literacy segment with the introduction of Rosetta Stone English.

Unfortunately, those did not materialize in the fourth quarter. But as I said before the good news is that we see them continuing to build momentum and the pipeline and believe that they will grow in size and materialize and Q2 and Q3 or managing each of those larger opportunities very closely. The other thing that impacted Q3 and Q4. As I said before was just the volume of the business and the structure of our channel that changes we've made to the channel and the additional capacity both in a field inside sales teams. I think address the issues that we saw on 2019 is it's why we feel confident going into this year.

Turn into profitability. We now expect adjusted ebitda of approximately 3 million to $5 and operating cash flow is expected to be $14 to $16 importantly two million dollars of the reduction of open and operating cash flow from our preliminary guidance in December is the result of moving to a million dollars for product development costs that were previously expected to be capitalized the R&D where they will be extent. We now expect Capital expenditures to be approximately $17 down from prior guidance of 18 to 20 million and that we will be approximately cash flow break-even near

That's the team that really is sitting here in the Concord office helping our sales reps with quotes helping them manage those small transactional renewals and giving birth are. Yep. Are you talking about slide 11?

I am talking about.

I just got there.

Total expected cash flows a few million less than we previously anticipated but we see an opportunity to invest behind the strong performance. We were seeing and consumer and we want to be a little more conservative in our life without much in the current environment. We have offset a portion of this with expense reduction elsewhere.

Yes.

That's correct. Yep.

As we reflect the current uncertainty in our bookings and revenue Outlook. We will also be mindful of our expenses as the year progresses as we learn more about the environment in which we are operating we will adjust as necessary with the goal of continuing to invest in the future while remaining approximately cash flow break-even this year.

Let's do the math for me. 2019 one number twenty Twenty-One number.

As we look Beyond 20 20 in the current disruption, we see no meaningful change to the book and strengthen our business continued strong growth Alexia driven by the foundation of four or five with great contributions from Power UP in the introduction of Rosetta Stone English, mid-to-high single-digit growth in consumer language in flat bookings in any language is gross and Enterprise is not very stringent a 12 language business. Please turn the slight eighteen and I will talk about two months.

So I just want to check with with Tom and make sure that we're comfortable in Sharing exact numbers on the sales side.

What about the sales and marketing? Just that channel? If I if I could boil it down to a single number? I would say. Oh, you know the issue was you know at the end of December 2019 or at the end of September 2019. We had the headcount for sales and marketing for K-12 was X and you know a year from now in September of 2020. It's going to be why could you have you signed that up based on this investment? You've talked about? Yeah, you see the numbers of sales reps in the presentation. So you took the size of the account executive team and the account management team and the management management infrastructure shift. So and grow right so two new inside sales managers and new account Executives and account and account managers on the inside sales side. The other thing we have done is we've doubled the size of our sales rep.

Closer to the end of the quarter we would like to share outlook for 200. I would remind everyone that our first quarter is very small with approx 15% of expected bookings for the month. This is a special education literacy. The bookings are expected to be relatively flat with teulon of 2019 and represent approximately 5% of total literacy bookings for 20. We continue to see strong performance in q1 a consumer language and believe this provides us a great backdrop as we begin to acquaint people with the new birth through incremental brand advertising.

Yeah, I did find. Okay. So again from a Sales Management standpoint. We have five Regional sales managers managing those account Executives and account managers. So when you see the account Executives an account manager is a 7 per region and three per region 2019 and five regions that math is is pretty straightforward in 2020. Again, we reduced the span of control for a regional sales manager. So they're just now managing seven people instead of ten previously and brought into region in a sales managers with eight account managers underneath them each

On a Consolidated basis, we expect total que and revenue approaching $46 slightly up from last year the Gap net loss of approximately 7 million months down the decline of approximately three million versus the prior-year to our typical first half use of cash. We will again have some season of our own a 2019 we expect that positive net cash at all times and intend to end the year with no debt as implied by our full-year guidance. We expect Revenue growth and operating off to accelerate as we move through 2020 in line with the seasonal bookings growth in our business.

See a team. That's the team that real.

Lee is sitting here in the Concord office helping our sales reps with quotes helping them manage those small transactional renewals and giving our yep my deck are you talking about slide 11?

wrap up

Proud of the progress the penis made of the last five years, but this is an important year with priorities that include refreshing the understanding of what Rosetta Stone can be for someone looking a language focusing in larger occasional sales team and renewing and expanding existing customers and driving new business growth and later this summer successfully launching Rosetta Stone English. These are challenging times formatting that our thoughts are with everyone affected but I know our team will be there to support Learners and develop stronger customer relationships built on trust commitment and delivering great outcomes.

I am talking about.

I just got there.

Yep.

That's correct. Yep.

Let's do the math for me. 2019 one number twenty Twenty-One number.

At the same time, there's much to be excited about the growth and newly validated efficacy of power up becoming introduction of Rosetta Stone English the first product that will bring together with all that we do fast across the company the chance to reinvigorate the great Rosetta Stone brand and begin to invest behind consumer again, and knowing that we will support our customers, Corona Pirates of them wherever they want or need in the interim. We will communicate with you. Regularly. We will keep you updated on the progress against our priorities and we look forward to seeing many of you in person at investor that we would now be happy to take your questions.

Okay, I'm getting a brain cramp here. But I'll take it off my I think you've given me what I I can get to the number. So let's talk about the the price that you talked about the issue in K-12 was price increases. It didn't go through in other words. You've got an install base customer you're coming at them with a price increase and they're saying you know what I'll take up less this cheaper product over here. What's what's what do we need to fix it about the pricing packaging going forward. So first of all, you know, if you look take a look at 6:20 and our long-term plan, there are no additional price increases baked into that plan. It's not to say that there isn't potential future opportunity, but it is not in the financials, So the and we did not increase prices across the board. They were very targeted price increases. We increased the price of our unlimited site license from birth.

So I just want to check with with Tom and make sure that we're comfortable and sharing exact numbers on the sales side.

At this time, we will be conducting a question answer session. If you would like to ask you a question, please press press star one on your telephone keypad. A confirmation tone will include your line as in the question queue. You may press star to if you would like your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. One moment, please while we pull for questions.

Yeah, it is fine. Okay. So again from the Sales Management standpoint, we have five Regional sales managers managing those account Executives and account managers. So when you'll see the account Executives and account managers is 7 per region and three per region 2019 and five regions that math is is pretty straightforward in 2020. Again, we reduced the span of control for a regional sales manager. So they're just now managing seven people instead of ten previously and brought into region in a sales managers with eight account managers underneath them each

Our first question is from Alex Paris Berrington research. Please proceed with your question.

Be $500 to 9.

Good afternoon, everyone.

Hi, hi, I'm sure you're asked this question a lot is you added some great color in your commentary on what you're doing with regard to the business in reaction to Cove in nineteen as we look at Cove in nineteen. Has there been any change or how should we think about the priorities money for Capital allocation or preservation through this fiscal year and following up on Cove in nineteen has have you changed at all your sales team mansion and or Direction in the midst of this uncertain environments?

$1,000 and we increase the price of one of our service bundles the one that had a a large percentage of face-to-face delivery. And so what we thought was customer saying, you know what that that price increase especially on that service package is more than I want to take on this year and they purchased a virtual patient package instead which had the same price point as that face-to-face price package before what that did was put some pressure on bookings because we had model that that price increase would have a larger impact but it did drive better margins cuz the margin on that virtual service package is better.

Yeah. No. Those are very good questions Chris. Thank you for asking. Then. We have a lot of variable expense in the you know, really across the company primarily interested in marketing. We have that in the consumer business in that can that can speak to that will tell you right now we are seeing a very strong environment in the consumer until you know, the plan is to continue to lean into that and we can watch that really on a daily basis, you know, it's supposed to some of our other businesses which have a longer pipeline jobs where we we we really have to be thinking out quarters, but the consumer business we're able to track very closely and we're feeling very good about the performance of that business, but even now and I'll let Nick and Matt add to this as a regards the K-12 investment. We are absolutely committed to that. We are certainly mindful dead.

Okay, I'm getting a brain cramp here. But I'll take it off line. I think you've given me what I I can get to the number. So let's talk about the the price that you talked about the issue in K-12 was price increases. It didn't go through in other words. You've got an install base customer you're coming at them with a price increase and they're saying you know what I'll take less money. There's cheaper product over here. What's what's what do we need to fix about the the pricing packaging going forward? So first of all, you know, if you look take a look at 2012 and our long-term plan, there are no additional price increases baked into that plan. It's not to say that there isn't potential future opportunity, but it is not in the financials Thursday. So the and we did not increase prices across the board. They were very targeted price increases. We increased the price of our unlimited site license from 85 month.

the opportunity to be

Okay, and then I want to revisit the 2020 Outlook and you know, if I look back to the the guidance back in November, we had a revenue all I want to say.

See in the business about this year and longer-term. We absolutely believe that all this is a terrible humanitarian crisis and we will do everything we can to support our team our customers when we come through it the opportunity for us will be as great or greater than it has ever been and we want to make sure that we are there with the right products and Thursday customers in the right customer relationships to continue to drive that that said, you know, we will of course be mindful of expenses. You heard me commit to you know, trying to keep this company at the very least a month cash flow break-even during the course of the air. I think that's important. We certainly have more than sufficient liquidity to back us up based on everything that we say we offer nude our credit line and actually expanded it that was done prior to you know, the most recent events. And so we feel we feel very good about it.

But we will be thoughtful.

That's great very helpful and shifting to opportunity perhaps an update on how the launch of the K-5 Solutions going so fast in quarter any idea at this point is early in the year as to how much of a contributor it could be the incremental growth.

$196 million or so is the midpoint now. We're at $193 million at the midpoint that $3000000 downward revision. I think I I've got it. We had a little bit less than we expected in the 2019 bookings on the literacy side, but everything else was kind of on track or slightly better so that to me explained the the revenue Bitcoins reset the Six Million Delta on the adjusted ebitda. We talked about 2 million from the R&D capitalized versus expense and then we talked about three to four million of money to spend on the on the marketing side. Those three things would all be to the negative. So I would almost think adjusted ebitda wage lower. What's what is there an offset on the expense side that that keeps, you know, because the adjusted ebitda midpoint was ten million and now it's four million. So I was looking for kind of went dead.

Yeah, Nick Nick. Would you like to talk about Rosetta Stone English for a moment in the bed? Sure, I would be glad to that Chris. So it's John mentioned and I mentioned in the preparation. We launched Rosetta Stone English about three weeks ago now and it are are seeing strong use in about 30 schools with about two thousand students and he States across the country and are really happy with the response. We're seeing in the engagement both from students and from Educators really highlight. The the fact that they're just is not a good product on the digital side to support those learners, but we are being fairly conservative in terms of what we are expecting from a contribution standpoint this year. We have approximately two million dollars in the back half of the year that is tied to Rosetta Stone English and obviously introducing it this summer.

Dollars to $9,000 and we increase the price of one of our service bundles. The one that had a a large percentage of face-to-face delivery. And so what we saw was customer saying, you know what that that price increase especially on that service package is more than I want to take on this year and they purchased a virtual implementation package instead which had the same price point as that face-to-face price package before what that did was put some pressure on booked up because we had modeled that that price increase would have a larger impact but it did drive better margins cuz the margin on that virtual service package is better.

I'm with net it out. There be a six million pressure to the

Really just capturing half of the half of the year and the beginning of the next school year. So the real growth Rosetta Stone English is going to be in 2021 and Chris just to make sure you do you understand when Nick says watch that was the beta launch and it said the actual commercial lines is not till later in the summer.

yeah, what I mentioned in the in the script was reduced expenses elsewhere. We we've cut expenses in other parts of the business to partially find the investment to make up for that make up for that decrease.

Got it. Got it. All very helpful. And I look forward to that and any update on the state of Texas. I know we talked about it on the last call that should have more contribute more of a contributor this fiscal year. I assume and uh, I'm assuming your progress is still moving. Well in States like Utah New York City in Arizona, you know, first of all, I'll I'll talk about Texas as we you know talked about on our third quarter call, you know, Texas was slower to materialize and the first year than we had expected last year was really the 2019 adoption year which was focused on the elementary school Market 2020 is the secondary school adoption and we're seeing some really strong acceptance and and reaction to our power up product in the secondary school market and are really pleased with the pipeline is developing their dead.

Got you. Okay, that covers my question.

Okay, and then I want to revisit the 2020 Outlook and you know, if I look back to the the guidance back in November, we had a revenue Outlook. I want to say 196 million or so is the midpoint now. We're at $193 million at the midpoint that $3000000 down or her vision. I think I I've got it. We had a little bit less than we expected in the 2019 bookings on the literacy side, but everything else was kind of on track or slightly better so that to me that explains the the revenue midpoint reset the Six Million Delta on the adjusted ebitda. We talked about 2 million from the R&D capitalized versus expense and then we took about three to four million of incremental spend on the on the marketing side.

And congrats on the the power up that so strong rating. That's a terrific endorsement for your product. Nice to have grown as much as we have without it now to have it in store bought our next question is from Hannah Rudolph d a Davidson. Please proceed with your question.

in terms of you know other

It states obviously Utah is a is an important state and customer for us. We're continuing to work closely both with the State Department of Education as well as individual districts who are implementing our programs and are now in over sixty percent of the elementary school buildings in that state and they're seeing great engagement and great progress for those Learners and continue to look at specific state where there's either legislative activity or specific funding in place where we can Target our national strategy.

Hi guys. Thanks for taking my question today. I'm kind of following on the previous question about renewal rates. Could you talk about where you expect for retention rates to Trend going forward over the course of this coming year off?

Sure.

Great. Thank you for color. I appreciate it. I'll hop back into you.

Our next question is from Steven Frankel already. Please proceed with your question. Good afternoon Nicolas. Let's go back to the bookings situation again. And you know, I took three there clearly were some issues and Texas being one big one but you guys seem fairly confident that you had some business slip into Q4 that you should be able to capture and and you could do something North as seventy million in bookings for the full year and you came in call it 3 million short a short of that month. You did mention some pricing issue on realized prices that would seem to be not the explanation for all of the shortfalls. So I'm wondering what else happened. Thank you for and do you have the right bodies in place?

Those three things you'd all be to the negative. So I would almost think adjusted ebitda would be lower. What's what is there an offset on the expense side that that keeps, you know, because the whole point was ten million and now it's four million. So I was looking for kind of when everything was netted out there be a six million pressure to the yeah. What I mentioned in the in the script was reduced expenses helps where we we've cut expenses in other parts of the business to partially find the Investments and make up for that make up for that decrease.

So as you saw on the presentation renewal originates did take down a bit and that was really because of two primary factors that we talked about one month was the end of grandfathered pricing and that grandfather pricing was put in place when we moved from Perpetual to subscription pricing the compact of that was mostly felt in 2019. The bulk of that grandfathered price is now behind us. There still is some forward but we factored that into our modeling now much more much more clearly from the segmentation standpoint. So looking at the various customer segments of understanding how they renewed in 2019 and then modeling that going forward will still see some churn in the smaller accounts in 2019. Remember retention rates are wage.

But the exit in 2020. Yeah. Thanks Steve appreciate the question. So, you know as I said from the the previous question, you know, obviously in 2019, we had more expectations for our performance around new business and and especially in Texas and our national strategy initiative than than we actually delivered that being said and and we saw, you know things that slipped into the fourth quarter where we felt confident that they were going to come in actually slip into two thousand twenty. Eighth. Um, we were hopeful given what we saw on the pipeline that they would close by the end of the year, but I think what we're seeing is schools now shifting their focus to 2020 off the good news is a lot of the districts that we had in the pipeline in the fourth quarter of 2019 are in the pipeline for 2020 and not only in the pipeline wage.

Got you. Okay, that covers my question. Thank you and congrats on the the power up that strong rating. That's a terrific endorsement for your product named nice to have grown as much as we have without it now to have it. It's terrific.

Our next question is from Hannah Rudolph d a Davidson. Please proceed with your question.

But because of the secondary adoption growing in size momentum those still will be second and third quarter sales, but we're really pleased with the strength that we see there.

Space but we expect it to stabilize. We expect renewal rates to continue to improve as we sell multiple products into a single account.

Okay, and then in terms of the the bodies you have the talent you have and the shift of the bodies over from E&E wage. Then the Dynamics in this market. How confident are you that you have the team that can hit the ground running in 2020 and have this not be a rerun of what we saw last year. Yep. So the things that we we've changed in terms of our sales Channel structure. I think our direct result of some of the challenges we saw in 2019. They wage changes that we knew we needed to make overtime. And in this case we've accelerated those channels shifts. It's really about focusing those larger opportunities and expansion opportunities into the hands of our account Executives and our regional sales managers and reducing the span of control for those Regional sales managers dead.

Hi guys. Thanks for taking my question today. I'm kind of following on the previous question about renewal rates. Could you talk about where you expect for retention rates to try and going forward over the course of this coming year?

So they have time to work those large.

For opportunities and work with those account Executives at the same time. We've now put in place to new Regional inside sales managers with an inside sales team underneath it that can handle that high-volume low-value customer segments quite honestly, one of the things in in the fourth quarter of 2019 that we saw was just the volume of business that continued just wasn't able to be managed by the team. We had in place given the fact that they had too many opportunities. So the structure we have now and the ignition coil capacity and and talent that's already in place and continuing to build I feel is the right structure not just for 2020 but to drive us forward into the future.

Sure. So as you saw on the presentation renewal retention rates did take down a bit and that was really because of too easy to primary factors that we talked about one was the end of grandfathered pricing and that grandfather pricing was put in place when we moved from Perpetual to pack subscription pricing the impact of that was mostly felt in 2019. The bulk of that grandfathered pricing is now behind us. There still is some going forward but we factored that into our modeling now much more much more clearly from the segmentation a standpoint. So looking at the various customer segments understanding how they renewed in 2019 and then modeling that going forward will still see some churn in the smaller wage.

Right. So again, I understand English launches this summer. Most of the competitors in that space are print-based competitors products that really aren't doing a great job of driving student performance. There are a few competitors with digital solutions that support both students and found some sort of the general student population, but none of them have the capabilities that we've built because of the expertise we have as a as a language learning, right when you think about what the students need, they need the opportunity to practice their oral language skills in class and they don't have that opportunity now down there just aren't products that are voice is enabled that gives students the ability, you know privately to practice their speech dead.

Okay, and then is this shift to the higher dollar lifetime or a longer-term subscriptions month is that in part a reflection of the seasonality in the business and that's a great gift to keep to give to people or is this your conscious strategy now to focus on Thursday and selling that set of customers which difference you from your competitors. That's a great question. We do lean into the fact that we're a premium brand and that we have added month utility in q1 to allow consumers to basically have the Netflix of language learning. So adding twenty five languages to all long-term Subs in the fourth quarter is more of a mix shift wage. We mentioned on the lifetime skew this was actually better than our expectations. Obviously, you saw the quarter results. We've been pretty pragmatic in terms of how we're guiding into that for 2012.

accounts in 2019

Remember retention rates are our units based but we expect it to stabilize. We expect renewal rates to continue to improve as we sell multiple products into a single account.

And it's probably the thing that holds most students back. And so, you know, it's a very unique product and one we are incredibly excited about especially given the early feedback received from our beta sites.

Because it's too early to tell but John implied on the call. We're we're having a good q1 as well. And so strategically we are leaning into long-term and we are likely need to add more utility and more value for long-term subscribers, and we're able to see that we're getting higher growth LTV and more value out of this customers.

Great that makes a lot of sense. Thanks guys. Our next question is from Noah Steinberg G2 Investment Partners. Please proceed with your question.

Okay, and and how much are you going to spend on this offline marketing and and maybe where are you spending it? Are you are you hitting the

Avon Market radio and what's the strategy with these dollars? Yeah. It's a great question. So as you know, we typically focused very specifically off on quit pay back within a quarter digital performance-based marketing. We haven't really flexed their muscles as a large percentage of our overall marketing budget in terms of variable marketing towards non-performance media. We're going to lean into offline TV and digital connected TV as a let's call it low double-digit spend against the overall durable marketing. So a little bit bigger than what we did last Q2 2019, but we'll lean into that and test into it just like we do everything else.

Great, that's really helpful. And then can you talk about the competitive environment particularly as it relates to Rosetta Stone English. So for new business you're winning with that product. Who are you displacing if anyone's life? So again, we're inside of stunned English launches this summer most of the competitors in that space are print-based competitor's product that really aren't doing a great job of driving student performance. There are a few competitors with digital solutions that support both students and wage for the general student population, but none of them have the capabilities that we've built because of the expertise we have as a as a language learning company down right when you think about what the students need, they need the opportunity to practice their oral language skills in class and they don't have that opportunity now, they're dead.

and that was low double digits is a

Percent of the variable marketing. Okay. So can you give us a ballpark of how many millions of dollars that is it? I'm just trying to parse.

Hey John, it's Josh Goldberg. How are you? How are you? So, I had a couple of questions. I guess I'll start with you know, obviously everyone's off during how this is affecting them all their businesses. I just want to know what can you do to increase your competitive mode because of this, what are you doing internally to use this office location or distance learning opportunity to your advantage? And then I have a follow-up. Yeah, and I'll start off. I think it's relevant to both parts of the business. One thing I would mention is that a few people had asked about it prior to the call. We've included in the supplemental financial information that we post to the IR website as and the last couple of pages and email that Lexie it sent out to its customers off.

Your your reduction in adjusted ebitda relative to the last time you gave guidance you you were helpful with the two million that came out of the R&D accounts change. And so I'd love to know what this piece is. Yeah. We're in the three to four million range.

of incremental

Okay.

And you know, I guess focused on that $2000000 expectation for ESL. Are you just trying to set them are really low or now that you've gotten deeper into the product and you think that the sales process might be a little more complicated than you originally thought and it maybe takes about 2 to 3 years for this product to ramp meaningfully. Yeah, I don't think so Steve. It's really mostly the fact that we are launching it, you know halfway through the year. And so the fact that it's not commercially available until back to school means that we're not able to demonstrate it and provide proof of efficacy and everything else. That's cool. We want to see and that when they're adopting a program. So we're being careful in the first year. I do believe that we you know, we feel very confident in our ability to wage.

Our products that are voice-enabled that gives students the ability, you know privately to practice their speech and that's probably the thing that holds most students back and so, you know, it's a very unique product and one we already incredibly excited about especially given the early feedback. We're seeing beta sites.

I'm earlier this week.

Launch that product the go-to-market plans are incredibly exciting. Um, and our sales team is is in place and I think incredibly excited about the opportunity to bring that product to you know, current customers who are using the Legacy language product in that market segment, but new customers as well where they haven't been able to make inroads as I said, you know on the left question the the big growth will come in 2021 and for those schools that today are buying Rosetta Stone Thursday the 1st and the any group to try to do this. Is there a discount for me to make that swap or a wage make that transaction that that upgrade kind of easy or or or are you kind of going at this is this is a rip and replace cuz it's a superior product and and no one's going to get you know an easy birth.

And the last week the talks about what we can do to support our K-12 customers in the event of the school closure. I think it's it's terrific. I think it'll give you a real sense of the quality of the offering and the quality of the support and how they recommend that everybody look at that. And if you have any trouble finding it let us know and we'd be happy to email you a PDF of that with that I'd let you maybe add some thoughts sure. So I think is as John mentioned our focus is on making sure that our customers are already have our product know how to use it to support remote Learners and teachers who won't be in schools. And so Monday we are doing everything we can to make sure that they have the tools and the knowledge to leverage what they already have. Our belief is that we can be are we not dead?

Great that makes a lot of sense. Thanks guys. Our next question is from Noah Steinberg G2 Investment Partners. Please proceed with your question. Hey John, it's Josh, How are you? How are you? So I I had a couple of questions. I guess I'll start with you know, obviously everyone's wondering how this is affecting them all their offices. I just want to know what can you do to increase your competitive note because of this, what are you doing internally to use this dislocation or long distance learning opportunity to your advantage? And then I have a follow-up. Yeah and I'll start Nick. I think it's relevant to both parts of the business. The one thing I would mention is that a few people had asked about it prior to the call. We've included in the supplemental financial information that we post to the IR website dead.

Right. It's a much better product. It's the first product that we built for those Young Learners and it's the first product we built that brings together with, you know, our literacy expertise and language expertise. So the percentage of customers we actually have in the elementary school Market cuz that product was never designed for that market segment is fairly small. So about half of the business will be renewals from the Legacy products and half will be new business.

Okay, great.

Thank you. I'll jump back in the queue.

Our next question is from Ryan McDonald Needham & Company. Please proceed with your question.

Sure. So part of the guide down is or you know the investment in the brand spend that we've decided we want to lean into giving the performance and we're seeing in consumer the opportunity to develop that as a very valuable asset here that will benefit all of the business. Even on Rosetta Stone English in life. K12 business will benefit from that from that brand spend at least indirectly part of it is the r e class from capex to R&D and then push the guide down on the revenue side is kind of net the language business. It comes out more or less flat. It's principally from Lexus, you know, a few million dollars of that is because of a slightly lower jump off point and a few million dollars of that is because we want to be dead.

It can be a really important part of how schools planned to manage those virtual student populations now. So first thing we're doing is making sure we're supporting our customers will also thinking about ways in which we can support both customers and non-customers over the next two or three months to make it off as they're planning right now and we're hearing this, you know gaily they're planning their contingency plans in case students close to make sure that they are aware of our products aware how they can feel the need of their putting together their, you know, instructional and curriculum plans for for students. It's if and when schools closed so we're we're you know from the standpoint of our products, you know, being able to benefit those schools for trying to make sure we're in the hands of as many of those schools that are closing as possible long-term.

And the last couple of pages and email that Lexie it sent out to its customers earlier this week and the last week that talks about what we can do to support our K-12 customers in the event the school closure. I think it's it's terrific. I think it'll give you a real sense of the quality of the offering and the quality of the support and how they recommend that everybody look at that. And if you have any trouble finding it let us know and we'd be happy to walk email you a a PDF of that with that I'd let you maybe add some thoughts sure. So I think is as John mentioned, our first focus is on making sure that our customers are already have our product know how to use it to support remote Learners and and teachers who won't be in schools wage.

For conservative, you know the benefit of reporting when we are which is a little bit later is we have more information than we would have had a week or two ago about what's going on in the world and we felt the obligation to take that into account. I think there are still lots of unknowns. I think we would all tend to acknowledge that off but, you know clearly we sit here today in the environment that we're in and wanted to wanted to take that into account and comfortable with the with the revised guidance based on what we know now.

And then we'll see how things develop over the course of the year and with schools and everything else that we feel very good about that.

And I think this is an opportunity for educational technology and distance learning to play a bigger role in schools in the short-term as John mentioned, you know, I believe there will be a little bit of pressure on you business, but also believe that there's opportunity for stronger renewals and expansion. The schools are struggling to figure this out.

So we are doing everything we can to make sure that they have the tools.

Got it. And as we're looking at in starting to look at what what school budgets can be, you know as we get into for the for the fall 2012 school year. I mean, I mean, they they remained fairly consistent year-in and year-out. But is there anything that that could be impacted from either one of those slowing economic growth or or any sort of follow-on jet pack from school closures or Cove in nineteen that could impact school budgets going into this year budgets are tend to be lagging indicators of of the economy. Right? So I think school budgets and and the federal budgets are fairly well set for the 2020-2021 school year off longer term based on you know, the economic economic the broad economic impact of code 19 could you know Drive softness and future School?

And the knowledge to leverage what they already have. Our belief is that we can be we know we can be a really important part of how schools plan to manage those virtual student populations now. So first thing we're doing is making sure we're supporting our customers were also thinking about ways in which way we can support both customers and non-customers over the next two or three months to make it as they're planning right now and we're hearing this, you know, that's a lie. They're planning their contingency plans in case students close to make sure that they are aware of our products aware how they can fill the need as they're putting together their own, um, you know, instructional and curriculum plans for for students if if and when schools closed so we're we're you know from the standpoint of our products wage.

but budget since they're dependent on State and local tax revenues, but

We feel pretty good about the the funding environment for the coming school year.

Got it. And then and then you talked about sort of a renewal being a big aspect for 20 20 and and just wanted to know given the changes you're making into the structure of the sales force may be making some additions how much visibility do you have into, you know those renewals and and the chances of success there and and do the structural changes at all create an opportunity for confusion. I guess, you know in the near-term. Yeah, actually, I think they create opportunity for a lot better focus as I said before the way we structured the channel and the capacity of the channel in 2019 meant that each individual sales rep had an enormous number of opportunities and accounts to manage and you know everything from small account much larger accounts. I think the segmentation of the channel now gives each team much better Clarity and much better capacity to handle the volume of the business.

That is there anything you'd like to add in the language site? Yeah. No, I have an interesting perspective on this. And first I'd like to say, of course we want to take care of our Learners and we're concerned about all of our Global Citizens. We wouldn't wash use this pandemic and Global downturn for business purposes only and we we really think about all of our Learners I'm concerned about them. I've been involved as in a leadership position across two different recessions and actually rent a was a president of travel company during nine-eleven and and you mentioned the economic mode. One thing that we do feel that is time to lean into is the economic moat around the brand our biggest competitor in the language business is that most of our customers don't know that we have a digital product. They still think of us as a cdk company and we see the time with the right product-market fit the right execution that we've been able to show them cue for that. This is the time to start leaning into the brand and we're excited to do that.

Being able to benefit those schools. We're trying to make sure we're in the hands of as many of those schools that are closing as possible long-term. I think this is an opportunity for educational technology and distance learning to play a bigger role in schools in the short-term as John mentioned, you know, we do believe there will be a little bit of pressure on new business but also believes that there's opportunity for stronger renewal and expansion. That schools are struggling to figure this out.

Thank you very much.

Our next question is from Eric. Martinuzzi Lake Street Capital markets. Please proceed with your question.

Wanted to revisit the Q3 literacy issues and and and make sure that I understand whether or not they persisted in Q4 cuz I had it boiled in Q3 off the literacy booking shortfall boiled down to slow Federal funding issues as many districts and then the second issue was kind of sealed execution wrong address how those two items played out in Q4 and I just want to make sure I understand whether they were resolved address or persisted and whether there's a new reason now in Q4. Yep. No not a new reason at all. You know what we saw in Q3, especially the lag in what we anticipated from Texas and from our large account strategy did persist into the fourth quarter. We as I said before we had a number of deals that we saw slipped from the 3rd.

And John if it's okay, you know, we've been involved in the comedy for a while. We we like what you guys have done, you know, the stock is not responded even before the last few weeks. And you know, I think some of the concerns from investors have been really centered around this the guidance continues to go lower and you know specifically on the booking side. I think you've heard that from a few investors today and you've given really no Clarity on what the bookings guidance will be on the Alexia sighed in 2012. I think at one of your animals days you talked about 20 to 25% growth rate you weren't able to do that last year. It doesn't sound even with all the increase of quote. Let's say you feel confident on the 20 even with New York too and Texas in the more mature state. So, can you talk a little bit about really what's going on in that area? I mean we understand all the other issue age.

Order into the fourth quarter. And unfortunately, those did not materialize in the fourth quarter, but they said before the good news is that we see them continuing to build momentum and the pipeline and believe that they will grow in size and materialize and Q2 and Q3. We're managing each of those larger opportunities very closely with the other thing that impacted Q3 and Q4 is I said before was just the volume of the business and the structure of our channel that changes we've made to the channel and the additional capacity both in our field inside sales teams. I think address the issues that we saw in 2019 and it's why we feel confident going into this year.

Matt is there anything you'd like to add in? The language site? Yeah. No, I have an interesting perspective on this. And first I'd like to say, of course we want to take care of our Learners and we're concerned about all of our Global Citizens. We wouldn't I use this pandemic and and Global downturn for business purposes only and we we really think about all of our Learners I'm concerned about them. I've been involved as in a leadership position across two different recessions and actually ran a was a president of travel company during nine-eleven and and you mentioned the economic mode. One thing that we do feel that is time to lean into is the economic moat around the brand our biggest competitor in the language business is that most of our customers don't know that we have a digital product. They still think of us as a CNA company and we see the time with the right product markets that the right execution that we've been able to show you for that. This is the time to start leaning into the brand and we're excited to do that.

The sales and marketing just that channel. If I if I could boil it down to a single number. I would say. Oh, you know the issue was, you know at the end of December 2019 or at the end of month of September 2019. We had the head camper sales and marketing for K-12 was X and you know a year from now is September of 2020. It's going to be life. Could you have you signed that up based on this investment? You've talked about? Yeah, you see the numbers of sales reps in the presentation. So you can see the same size of the account executive team and the account management team and the managing management infrastructure shift. So and grow right so two new inside sales managers and new account Executives and account and account managers on the inside sales side. The other thing we have done is we've doubled the size of our sales associate.

Just in that area. Why are you not seeing this sort of exit velocity escape velocity to be able to grow even faster as more and more schools lineup. Thank you God. Yeah. No, thank you for the question. So just for sake of clarity we did guide to 20 to 25% booking screw in the literacy segment this year that is down from our guidance in November, which was twenty-five to Thirty that is that is based on a belief that this could be a more difficult new business invite this year not because of budgets that frankly because of distraction. We don't know that yet. We haven't yet seen that school closed the vast majority of their business until we move into the third and fourth quarter, but you know, this is the time in which we're talking to new customers birth.

And that's the team that really is sitting here in the Concord office helping our sales reps with quotes helping them manage those small transactional renewals and giving birth. Are you talking about slide 11?

Okay, and John if it's okay, you know, we've been involved with comedy for a while. We we like what you guys have done. You know, the stock is not responded even before the past few weeks. And you know, I think some of the concerns from investors have been really centered around this the guidance continues to go lower and I you know specifically on the booking side. I think you've heard that from a few investors today and you've given really no Clarity on what the bookings guidance will be on the Alexia side in 2018 twenty. I think at one of your animals days you talked about 20 to 25% growth rate you weren't able to do that last year. It doesn't sound even with all the increase of quote-unquote grabs that you feel confident on the 20 even with New York and and Texas in the more mature state. So, can you talk a little bit about really what's going on in that area? I mean we understand all the other dog.

I am talking about.

I just got there.

Yes.

That's correct. Yeah.

Let's do the math for me. 2019 one number twenty Twenty-One number.

She's just in that area. Why.

Engagements in relationships remain ongoing but we are concerned about the unknown and so we took that guidance down from 25 to 30% off of 27 and a half percent down to the midpoint of 22 and a half percent for this year. They're remain unknowns. Of course, I don't think any of us, you know even know if there is going to be Olympics this year. But what we are confident of is you know, power up is growing very strongly. This is our third year selling that product and we finally have the efficacy demonstrated the stand behind it that takes time. We now have that we feel very good about Texas again. That's somewhat related to power up and I know that sounds like a broken record, but the secondary school literacy adoption in Texas takes place this year. We think power up is a great fit there and it's a literacy adoption. They have to do it destroyed.

Are you not seeing this sort of exit velocity escape velocity to be able to grow even faster as more and more schools lineup. Thank you. No, thank you for the question. So just for sake of clarity we did guide to 20 to 25% bookings growth in the literacy segment this year that is down from our guidance in November, which was twenty-five to Thirty that is that is based on a belief that this could be a more difficult new business environment. This year not dead is Nick said because of budgets that frankly because of distraction. We don't know that yet. We haven't yet seen that schools won't close the vast majority of their business until we move into the third and fourth quarter, but you know, this is the time in which we're talking to new customers those engagements in relationships dead.

And will not be an excuse.

In Texas, even in with the virus, you know, they they have to they have to get their Secondary School literacy adoption in place and then obviously we've taken very significant steps in restructuring and expanding the sales team. We believe we have the best products in the market. We believe we have the best K-5 literacy project believe we now have and the third party is said we do the best six through twelve literacy product. We're about to introduce what we think will be the best product 4K 6000 that's a really powerful portfolio and it's going to it will it's that portfolio with the right execution that will allow us to to you know, I think a reasonable rate for this business. We think escape velocity for this business is, you know, twenty to twenty-five percent on a consistent basis for the next few years, and we're comfortable guiding to that dog.

Remain ongoing but we are concerned about the unknown and so we took that guidance down from twenty-five to thirty percent or midpoint of twenty seven and a half percent down to the midpoint of twenty two and half percent for this year. They're remain unknowns. Of course, I don't think any of us, you know even know if there is going to be an Olympics this year, but we are confident of is you know, power up is growing very strongly. This is our third year selling that product and we finally have the efficacy demonstrated off behind it that takes time. We now have that we feel very good about Texas again. That's somewhat related to power up and I know that sounds like a broken record, but the secondary school literacy adoption in Texas takes place this year. We think power up is a great fit there and it's a literacy adoption they have to do it distraction will not be an excuse in, Georgia.

The investment that we've made in the products that we think we built we know we don't I guess I'm back to more. So what is it that's not helping kind of accelerate or get more conviction on your growth rate, like usually in the year two or three of an adoption phase you start getting better Clarity. It seems like you're not seeing that wage and so I would say like we had guided the twenty-five to thirty percent growth back in November and then lo and behold were sitting here with you know, in the middle of March and you know schools are closing. We don't know what that means again just for the for Focus. We know of our products are well, we know they deliver terrific outcomes are our confidence in our products are confident in our ability to execute with the with the restructuring of the birth.

Says even with the virus, you know, they they have to they have to get their Secondary School literacy adoption in place. And then obviously we've taken very significant step in restructuring and expanding the sales team. We believe we have the best products in the market. We believe we have the best K-5 literacy products. We believed we now have and the third party is said we do the best six through twelve literacy products were about to introduce what we think will be the best product for a six-pack really powerful portfolio and it's going to it will it's that portfolio with the right execution that will allow us to to you know, I think a reasonable growth rate of business. I think escape velocity for this business is, you know, twenty to twenty-five percent on a consistent basis for the next few years, and we're comfortable guiding to that based on birth.

The investment that we've made in the products that we think we've built.

None of that is shaking. The only thing that has created uncertainty right now is you know art schools principals going to be distracted. Now that could very much off of business. They will you know may stick with with us. They may expand with us. The a little bit of uncertainty is just on the new new business side, which would be temperature, right? It could just be for a few months as we come through this we just don't know our confidence in the business is frankly never been been higher wages have gone from a one-product company, which is always a little scary and I think most of you know going from a one-product company to having to successful sets products is not easy not a lot of money did that I think we've done that now with court filing power up more highly confident. We're about to do that again with with Rosetta Stone English.

I guess I'm back to more. So what is it that's not helping you kind of accelerate or get more conviction on your growth rate, like usually in a year or two or three of an adoption phase you start getting better Clarity. It seems like you're not seeing that yet and I'm just curious about twenty-five to thirty percent growth back in November and then lo and behold we're sitting here, you know in the middle of March on and you know schools are closed. We don't know what that means again just for the for Focus. We know of our products are well accepted. We know they deliver terrific outcomes or our confidence in our products or confidence in our ability to execute with the with the restructuring of the sales team. None of that is shaken. The only thing that is created on Thursday.

We wish the environment was a little better and when it is and when you know schools are all open and people are just worried about learning, you know, I think we'll both feel very good about the business and because we are going to your first question because everyone here is first and foremost is focused on supporting their customers. We are going to come out of this with better relationships when we had going in we're going to come out of this with a better reputation than we had going and it's pretty good. And you know, our team is we're actually dedicated to our team and our team is dedicated fiber customers. And you know, when we come through it, we will be very good shape. So we got to get to the other end of this uncertainty before we can, you know, start talking about higher than 20 to 25.

Okay. Thank you.

Mt. Right now is you know, our schools principals going to be distracted. Now that could very much help the renewal business. They will you know may stick with with us. They may expand with us. The a little bit of uncertainty is just on the new new business side, which would be temporary, right? It could just be for a few months as we come through this month. We just don't know our confidence in the business is frankly never been been higher, you know to have gone from a one-product company, which is always a little scary. I think most of you know going from a one-product company that having to successful sets products is not easy not a lot of people did that. I think we've done that now with providing power up more highly confident whereabouts do that again with with Rosetta Stone English.

We have reached the end of the question answer session and I will now pass the call back over to management for closing comments.

Thank you. We are actually truly excited about this year. Obviously, this is it's very difficult year for for many people much more. So for many many people of them for us. Our focus is our team as I said, and it's our customers. We look forward to speaking to you in the future. As I said in my prepared remarks. I want to stay in touch during all of this uncertainty so that we are closed with you and you understand what is going on in the business, and we look forward to doing that. Thank you for your questions, and we hope you're all well.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

We wish the environment was a little better and when it is and when you know schools are all open and people are just worried about learning, you know, I think well, we'll feel very good about the business and because we are going to your first question because everyone here is first and foremost is focused on supporting their customers. We are going to come back with better relationships than we had going in. We're going to come out of this with a better reputation than we had going and it's pretty good. And you know, our team is we're actually dedicated to our team and our team is dedicated to those customers and you know, when we come through it we will be in very good shape. So we got to get to the other end of this uncertainty before we can, you know, start talking about higher than 20 to 25% growth, right?

Okay, thank you. We have reached the end of the question answer session and I will now pass the call back over to management for closing comments.

Thank you. We are actually truly excited about this year. Obviously, this is a very difficult year for for many people much more. So for many many people them for us. Our focus is our team as I said, and it's our customers. We look forward to speaking to you in the future. As I said in my prepared remarks. I want to stay in touch during all of this uncertainty so that we are closed with you and you understand what is going on in the business, and we look forward to doing that. Thank you for your questions, and we hope you're all well.

Yes.

Concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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