Is Rosetta Stone Inc (NYSE:RST) a value trap? Language learning software company Rosetta Stone has been attracting several value investors over the last year or so. David Nierenberg stopped filing 13Fs this year, however he didn’t file any major amendments after disclosing an activist position during the first quarter of 2015. This means he still has a large position in the stock. John Lewis of Osmium Partners and Jim Roumell also have large positions in the stock and they allocated a large portion of their 13F portfolios to Rosetta Stone Inc.
Today John Lewis disclosed in a regulatory filing that he reduced his stake by about 45000 shares compared to the end of 2015 and his position isn’t activist anymore. The details of this filing can be found below.
Jim Roumell, managing a smaller fund, has a lot riding on Rosetta Stone Inc. Twenty percent of his 13F portfolio is allocated to RST. Here is what he recently said about the stock:
“Rosetta Stone, RST. RST’s year-end cash balance of $48 million was slightly ahead of company guidance. The company’s Lexia Literacy division continued to show rapid growth – 30% plus – and the company reiterated its 4 to 5 year revenue projection of $100 million for this important company asset. The company’s E & E (enterprise and education) language business continues to struggle with a slight YOY revenue decline. The company maintains that it is being negatively impacted by continued usage of a consumer-centric product in its E & E language space. RST is now beta-testing its new enterprise platform with several corporate customers. It is highly differentiated from its consumer product and includes the requisite reporting and measurement tools demanded by E & E customers. The company reported it has received very favorable feedback, with sign-ups 10x what was expected. The new platform is expected to be introduced into the marketplace in the 2H of 2016. E & E Language remains the key event to unlocking substantial value creation versus more modest, though still significant, value creation. Increasingly, it appears to us that the value of Lexia, plus the company’s cash, approaches the company’s current market capitalization leaving investors free options on the company’s consumer and E & E Language businesses.
The company also announced it has identified an additional $19 million in estimated annual cost-savings. RST has decided to maintain a direct E & E language sales force in North America and Northern Europe, but to switch to a licensing model outside of these areas. The result of this switch will reduce 2016 E & E language revenue from an estimated $77 million to $70 million.
The company’s consumer business is performing as expected: lower revenue from a more disciplined pricing strategy resulting in a greater gross margin contribution. Brain exercise division Fit Brains was marked down by $5.6 million from its $12 million purchase two years ago. This business is being run as a cash-neutral business with the view that it is not a core asset of the company.
The decision to name John Hass as permanent CEO (and drop two board members with no intention to replace them) signals, in our minds, the company’s trajectory toward monetization. There are far more qualified digital education CEOs than John Hass available in the marketplace who could have easily been attracted to join Rosetta Stone. In fact, this would have been the most logical decision if the company was going to pursue being a long-term going-concern. On the other hand, John Hass is a perfect person to best position the company strategically. Since he was a longtime Goldman investment banker previously, he likely knows exactly who the buyers are and what they want. We also are encouraged by John’s commitment to see this investment through to a successful end. We are regularly contacted by institutional buyers wanting to buy our stock and/or private investors wanting to make a direct investment into Lexia.”
As you can see Jim Roumell is probably the most bullish fund manager on RST. However, he was bullish a year ago when I talked to him and the stock was trading above $10 at the time. I believe the company is now more determined to turn things around after it lost a third of its value since February 2015. The downside seems to be limited and this attracted the attention of quant hedge fund Renaissance Technologies which owned 7.5% of Rosetta Stone’s outstanding shares. Another value investor, Ariel Investments, owns the biggest stake (19% of outstanding shares) in RST. Overall, hedge funds and institutional investors tracked by Insider Monkey own 50% of RST’s outstanding shares. This isn’t a slam dunk investment but I believe there is a 55-60% chance that RST will outperform the market in the next 12 months.
Ownership Summary Table
| Name | Sole Voting Power | Shared Voting Power | Sole Dispositive Power | Shared Dispositive Power | Aggregate Amount Owned Power | Percent of Class |
|---|---|---|---|---|---|---|
| John H. Lewis | 135,472 | 1,937,103 | 135,472 | 1,937,103 | 2,072,575 | 9.5% |
| Osmium Partners | 0 | 1,937,103 | 0 | 1,937,103 | 1,937,103 | 8.9% |
| Osmium Capital | 0 | 527,945 | 0 | 527,945 | 527,945 | 2.4% |
| Osmium Capital II | 0 | 294,444 | 0 | 294,444 | 294,444 | 1.4% |
| Osmium Spartan | 0 | 200,641 | 0 | 200,641 | 200,641 | 0.9% |
| Osmium Diamond | 0 | 252,628 | 0 | 252,628 | 252,628 | 1.2% |
| Osmium Special Opportunity Fund | 0 | 661,445 | 0 | 661,445 | 661,445 | 3.0% |
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Page 1 of 11 – SEC Filing
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13G
Under the Securities Exchange Act of 1934
(Amendment No. )*
Rosetta Stone
Inc.
(Name of Issuer)
Common Stock, $.00005 par value
(Title of Class of Securities)
777780107
(CUSIP Number)
March 28, 2016
(Date of Event Which Requires Filing of this Statement)
Check the
appropriate box to designate the rule pursuant to which this Schedule is filed:
¨ Rule
13d-1(b)
x Rule 13d-1(c)
¨ Rule 13d-1(d)
| * | The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. |
The information required in the remainder of this cover
page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions
of the Act (however, see the Notes).
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Page 2 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). John H. Lewis | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of United States | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 135,472 | ||||
| 6. | Shared voting power 1,937,103 | |||||
| 7. | Sole dispositive power 135,472 | |||||
| 8. | Shared dispositive power 1,937,103 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 2,072,575 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 9.5% | |||||
| 12. | Type of reporting person (see IN | |||||
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Page 3 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Partners, LLC | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 1,937,103 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 1,937,103 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 1,937,103 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 8.9% | |||||
| 12. | Type of reporting person (see IA, OO | |||||
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Page 4 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Capital, LP | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 527,945 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 527,945 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 527,945 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 2.4% | |||||
| 12. | Type of reporting person (see PN | |||||
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Page 5 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Capital II, LP | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 294,444 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 294,444 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 294,444 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 1.4% | |||||
| 12. | Type of reporting person (see PN | |||||
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Page 6 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Spartan, LP | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 200,641 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 200,641 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 200,641 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 0.9% | |||||
| 12. | Type of reporting person (see PN | |||||
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Page 7 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Diamond, LP | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 252,628 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 252,628 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 252,628 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 1.2% | |||||
| 12. | Type of reporting person (see PN | |||||
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Page 8 of 11 – SEC Filing
| CUSIP No. 777780107 |
| 1. | Names of I.R.S. Identification Nos. of above persons (entities only). Osmium Special Opportunity Fund, LP | |||||
| 2. | Check the appropriate box if a member (a) ¨ (b) x | |||||
| 3. | SEC use only | |||||
| 4. | Citizenship or place of Delaware | |||||
| Number of shares beneficially owned by each reporting person with: | 5. | Sole voting power 0 | ||||
| 6. | Shared voting power 661,445 | |||||
| 7. | Sole dispositive power 0 | |||||
| 8. | Shared dispositive power 661,445 | |||||
| 9. | Aggregate amount beneficially owned by each reporting person 661,445 | |||||
| 10. | Check if the aggregate amount in Row | |||||
| 11. | Percent of class represented by amount 3.0% | |||||
| 12. | Type of reporting person (see PN | |||||
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Page 9 of 11 – SEC Filing
EXPLANATORY NOTE
This filing constitutes an amendment of the Filers Schedule 13D, as amended, initially filed on August 21, 2014. The Filers no longer hold the
securities for the purpose of or with the effect of changing or influencing the control of the Issuer and have no intention of participating in any transaction having that purpose or effect.
Item 1.
| (a) | The name of the issuer is Rosetta Stone Inc. (the Issuer). |
| (b) | The principal executive office of the Issuer is located at 1919 North Lynn St., 7th Fl., Arlington, VA 22209. |
Item 2.
| (a) | This statement (this Statement) is being filed by John H. Lewis, the controlling member of Osmium Partners, LLC, a Delaware limited liability company (Osmium Partners), which serves as the general partner of Osmium Capital, LP, a Delaware limited partnership (the Fund) and Osmium Capital II, LP, a Delaware limited partnership (Fund II), Osmium Spartan, LP, a Delaware limited partnership (Fund III), Osmium Diamond, LP, a Delaware limited partnership (Fund IV) and Osmium Special Opportunity Fund, LP, a Delaware limited partnership (Fund V) (all of the foregoing, collectively, the Filers). The Fund, Fund II, Fund III, Fund IV and Fund V are private investment vehicles formed for the purpose of investing and trading in a wide variety of securities and financial instruments. The Fund, Fund II, Fund III, Fund IV and Fund V directly own the common shares reported in this Statement (other than the 135,472 shares owned directly by Mr. Lewis). Mr. Lewis and Osmium Partners may be deemed to share with the Fund, Fund II, Fund III, Fund IV and Fund V (and not with any third party) voting and dispositive power with respect to such shares. Each Filer disclaims beneficial ownership with respect to any shares other than the shares owned directly by such Filer. |
| (b) | The Principal Business Office of the Filers is 300 Drakes Landing Road, Suite 172, Greenbrae, CA 94904. |
| (c) | For citizenship information see Item 4 of the cover sheet of each Filer. |
| (d) | This Statement relates to the Ordinary Shares of the Issuer. |
| (e) | The CUSIP Number of the Common Stock of the Issuer is 777780107. |
Item 3.
Not applicable.
| Item 4. | Ownership. |
See Items 5-9 and 11 on the cover page for each Filer, and Item 2. The percentage ownership
of each Filer is based on 21,882,727 shares of Common Stock outstanding as of March 8, 2016, as reported on the Issuers Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the SEC on March 14, 2016.
| Item 5. | Ownership of Five Percent or Less of a Class |
Not applicable.
| Item 6. | Ownership of More than Five Percent on Behalf of Another Person. |
Not applicable.
| Item 7. | Identification and Classification of the Subsidiary Which Acquired the Security Being Reported on By the Parent Holding Company. |
Not applicable.
| Item 8. | Identification and Classification of Members of the Group |
Not applicable.
| Item 9. | Notice of Dissolution of Group |
Not applicable.
| Item 10. | Certification |
By signing below I certify that, to the best of my knowledge and belief,
the securities referred to above were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities and were not acquired and are not held in connection with or as a
participant in any transaction having that purpose or effect.
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Page 10 of 11 – SEC Filing
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: March 30, 2016
| John H. Lewis | ||
| Osmium Partners, LLC | ||
| Osmium Capital, LP | ||
| Osmium Capital II, LP | ||
| Osmium Spartan, LP | ||
| Osmium Diamond, LP | ||
| Osmium Special Opportunity Fund, LP | ||
| By: | /s/ John H. Lewis | |
| John H. Lewis, for himself and as Managing Member of Osmium Partners, LLC, for itself and as General Partner of Osmium Capital, LP, Osmium Capital II, LP Osmium Spartan, LP, Osmium Diamond, LP and Osmium Special Opportunity Fund, LP | ||
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Page 11 of 11 – SEC Filing
EXHIBIT INDEX
| Exhibit | Document | |
| 1 | Joint Filing Agreement | |
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Correction: An earlier version of this article incorrectly stated that David Nierenberg sold out of RST. Actually, David Nierenberg stopped filing 13Fs which is why our database shows a position of “0” for RST in Nierenberg’s positions.
