I've been writing for The Motley Fool for eight months. In that time, I've been following Rosetta Stone (NYSE: RST) closer than any other company on my radar. What started out as a bullish thesis, morphed into cautious optimism, and then turned to skepticism.

Monday night's earnings release leaves me unchanged: I'm holding my shares for now, but I'm taking a skeptical view of what were mixed results from the company. Below, I'll go over the good, the bad, and the ugly from the company's first quarter.

The good

  • The international and institutional segments of the company continue to fire on all cylinders. Revenue for these two segments combined was up 35% year over year. The opening up of offices in Sao Paolo, Brazil, and the release of an English language program in Korea are positive signs that growth will continue.
  • The company is actively pursuing methods to help shore up its U.S. consumer business. CEO Tom Adams stated that the company is specifically trying to lower the entry-level price for first-time users. In essence, this is akin to how a company like Netflix (Nasdaq: NFLX) hooks users by giving them their first month of membership for free and offering tiered upgrade paths for existing users looking for more value out of the service. It also offers a competitive price versus the language-learning products offered by CBS' (NYSE: CBS) Pimsleur, Disney's (NYSE: DIS) Publishing Worldwide, and McGraw Hill (NYSE: MHP).
  • Rosetta is entering the tablet sphere, with a program for Apple's (Nasdaq: AAPL) iPad set to become available in the coming weeks.

The bad

  • No surprise here: The U.S. consumer market is still very weak. Sales bookings were down 28% year over year, showing accelerating losses on the home front.
  • The company sees educational spending being light in the second quarter, meaning that it actually expects institutional bookings to take a dip during the second quarter. ┬áThis to me is a dangerous prospect. As a former teacher, I see huge educational value in Rosetta's product, and I was counting on schools to adopt the program. I'm waiting to see third-quarter numbers, though, since that's where I think most K-12 purchases should show up.

The ugly

  • The company recently restructured some incentive programs for executives. The new plan delivers these rewards based on stock price. Although the plan requires executives to hold their shares over a two-year vesting period after being issued, I've never been a fan of incentivizing based on stock price. Instead, I feel much better when a company decides to take operating measures -- like sales or free cash flow -- and use those as determining factors in compensation packages.

Foolish takeaway
As I said above, I won't be buying or selling shares -- just holding. The company is transitioning from individual U.S. clients to institutional and international ones. That can take time. My own time frame for the company is the third quarter of this year. By then, I believe the company should have made significant strides in shoring up its U.S. consumer business, as well as continued its expansion abroad.

If you want to keep up with the latest news on Rosetta Stone, add it to your watchlist.