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Rosetta Stone Inc (RST)
Q2Â 2020 Earnings Call
Aug 6, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. And welcome to the Rosetta Stone Second Quarter 2020 Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to Eunic Hen [Phonetic], Investor Relations. Please go ahead.
Eunic Hen -- Investor Relations
Thank you. Good afternoon, everyone. Welcome to Rosetta Stone's second quarter 2020 earnings conference call. Speaking on the call today will be John Hass, Chairman and CEO; and Nicholas Gaehde, Co-President of Rosetta Stone. Additionally, Tom Pierno, the company's Chief Financial Officer, will be available during the Q&A portion of today's call. We have posted to the Investor Relations section of our website at rosettastone.com both 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 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 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 could 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, GAAP comparison and a reconciliation of those measures are available in the aforementioned presentation and press release.
I will now turn the call over to John.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Good afternoon, and thank you for joining us. Just to note before I begin, that Matt is under the weather and is not able to join us on the call. I would like to begin by thanking everyone on the Rosetta Stone team during difficult and tumultuous times delivered an exceptional second quarter, whose overarching theme was a commitment to supporting learners with the high-quality solutions and support they needed. Whether by providing free licenses and the implementation resources to ensure a good experience with our K-12 solutions, to our learn from home program, or by providing a free three-month consumer offering for students, you put learners first. Please turn to slide three. As shown on the slide, the team delivered a strong Q2, highlighted by year-over-year consolidated bookings growth of 41% including bookings growth 59% in our Literacy segment and 92% in our Consumer Language. We ended the quarter with $31 million in cash and no debt versus approximately $11 million in net cash before $10 million in debt at the end of June last year. Growth in Q2 was led by Consumer Language, which grew bookings $13.4 million to $27.9 million. This was more impressive because in prior years, Q2 has been a seasonally slow quarter in Consumer Language, without the traditional catalysts that we have in Q1 with New Year's resolutions or later in the year with back-to-school and holidays. Clearly, our consumer results in Q2 were lifted by the learn-from-home phenomenon resulting from the coronavirus pandemic. But we also benefited from the strong alignment of our product offerings with customers who wanted to make the commitment to learning a language. I will walk through this in more detail in a moment.
Bookings growth in our Literacy segment was stronger than we expected earlier in the quarter. Literacy bookings grew 59% to $19.2 million, or $7.1 million over its second quarter in 2019. Q2, while it has become relatively smaller in recent years, is still important as schools use funds from the ending school year to prepare for the upcoming year. And in some cases, this year, have had access to incremental federal funding through the Cares Act. Growth in the quarter was driven by a few things. First, we have not seen a slowdown in renewals that we were concerned about earlier in the year as our customers faced the uncertainty created by the pandemic. Secondly, we have seen strength in Texas, particularly for PowerUp as districts worked through their secondary literacy adoption. We also saw expansion in existing districts nationwide, helped by follow-through from our Learn From Home program. Recall that this is the program we put in place to provide unlimited site licenses to any of our K-12 curriculum solutions to existing customers for the remainder of the 2019-2020 school year, to help with the immediate move to remote learning brought on by near universal school closures. Finally, while we focused on expanding relationships in existing districts, we saw bookings in new districts as leadership, in some cases, we have been talking with for a few years, accelerated decision-making to prepare for an uncertain beginning to the upcoming school year.
On a consolidated basis, total revenues for the quarter were $49.2 million, an increase of 7% from Q2 2019. Revenue growth naturally lags bookings growth, and that was the case in Q2 as we built deferred revenue. Deferred revenue grew by $10.1 million on a sequential basis to a second quarter record of $174.1 million at the end of June. Net income in Q2 was a loss of $3.6 million, while adjusted EBITDA was positive $4.1 million. And of course, we are seeing bookings not only show up on the balance sheet and deferred revenue we are seeing it in cash. Our ending cash balance was $31.3 million and roughly breakeven operating cash flow. We now expect strong cash flow generation for the full year. In a moment, we will walk through our segment financial results in more detail, but I want to begin by highlighting the underlying factors that influenced growth in Q2. Please turn to slide four. Underpinning all of our businesses is the fact that we address areas of great need. While other K-12 technology providers are also benefiting from the demand for remote-capable learning solutions, we are well positioned given our expertise in the largest area of K 12 education, teaching children to read, a fundamental skill with lifelong implications. And during the second quarter, customers again demonstrated that they value the ability to learn a second language and wanted to use the extra time they had at home for self-improvement in this area. Please turn to slide five. It's clear that during the period when districts and schools are looking for solutions that can move smoothly from supporting classroom instruction to delivering high-quality learning at home and adult language lenders want flexible access to learn at their own time in place that our solutions are especially well positioned.
Our products provide personalized construction that travels with the learner. And as learners use our products, their teachers or administrators have real-time access to their progress. And in the case of our K-12 products, to specific intervention materials to help in their areas of need. We are continuing to work to make our products even better suited to remote learning in areas like providing more support for parents of K-12 students for access to virtual tutors in our Language businesses. I'm extraordinarily proud of the work the team has done to turn Rosetta Stone into a business that produces high-quality learning outcomes. Please turn to slide six. You should take four things from today's call. We said we were off a strong start after Q1, and we were confident enough about the year that we maintained, and in some areas, improved guidance, as many others understandably stepped back from providing guidance at all. Based on Q2 performance and our expectations for the rest of the year, we remain confident and are improving our outlook today. Second, the underlying reason we are optimistic about the year is that we have worked hard in each of the businesses to set the standard in helping learners and educators adapt to the impact of the pandemic, and our efforts are being noticed and rewarded. Third, our response has produced significant growth in Consumer Language and is leading to real opportunities in our K-12 business through the remainder of 2020. Finally, we are determined to use this period to ensure that a Rosetta Stone will be better positioned as a leader in a post COVID-19 world, a world that we believe will align with our strengths as a learning company. Please turn to slide seven. Our Consumer Language business was exceptionally strong in Q2, with bookings $27.9 million, or growth of 92% versus the same period in 2019. This growth was driven by both the increased value we are providing learners and the desire among many to use their time at home, during the pandemic to learn a new language. Consumer revenue grew 9% in the quarter to $17.7 million.
The natural lag between bookings growth and revenue growth continued to increase in Q2 as a large portion of bookings were from our lifetime product, where we recognize revenues over two years. Please turn to slide eight. Enterprise & Education bookings in Q2 were $12.2 million, a decrease of $3.2 million. The decrease was driven by lower bookings in both the Enterprise & Education portions of the segment. As expected, the Enterprise business continued to feel the effect of tightened and refocused corporate learning budgets. The year-over-year comparison was also negatively affected by the fact that we signed a $1.3 million multiyear pay-to-print contract with an enterprise customer in the second quarter of 2019. The bookings for the K-12 education language portion of this segment were also down relative to last year but were consistent with our expectations coming into the year. E&E segment revenues were $13.6 million, a decrease of 6% versus Q2 of 2019, reflecting the lower bookings in recent periods. As the most economically sensitive part of our company, we expect the enterprise language portion of this segment to continue to be negatively affected by the dramatic impact on businesses of the COVID-19 crisis and the international response to it. That said, we are seeing a little more stability recently and look forward to helping our customers scale their language learning while reducing costs and improving outcomes. Because of the lower volume this year than we originally expected, we instituted cost cutting, including furloughs, related to our Enterprise business. Which is reducing operating expenses by approximately $4 million on an annual basis in the segment and across shared support groups. I would also remind you looking forward to Q3 and in 2019, we executed a $7.4 million custom content contract that will not repeat this year. In fact, when I walk you through outlook for 2020, the numbers I will reference for Enterprise assume no custom content bookings in 2020, as native American tribes that have been the largest customers for this work, have been especially hard hit by the pandemic.
Please turn to slide nine, and I will walk you through performance in our Consumer Language. Q2 was an extraordinarily strong quarter in consumer. In fact, we've never seen Q2 growth sequentially versus Q1, just as we had not previously seen sequential growth in Q1 versus Q4, as we saw earlier this year. Consumer Language growth was due in part to the popularity of our lifetime product to add incremental bookings on a per unit basis as it raises both the initial sales price and the expected lifetime value of the average customer. Growth in lifetime began with its introduction on the web in Q4 of last year and accelerated with the introduction of access to all of our languages in a single subscription, a product we call Rosetta Stone Unlimited, in February of this year. Lifetime is a natural and appropriate product in the segment of the learning marketplace where committed learners know that learning a second language is difficult and takes time, while short-term subscriptions make sense for a learner with a temporary need or who are unsure about their commitment. The growth we are seeing from better execution accelerated at the very end of Q1 and through Q2 due to the work-from-home trend related to the COVID-19 pandemic. Consumers were looking for activities, past times and skills they could at home during the extended period of quarantine. Given the near convergence of the introduction of Rosetta Stone Unlimited and the onset of the pandemic, it is impossible to precisely understand how much of our growth in Q2 can be attributed to this effect, but it was clearly significant. The highlights of our work to improve unit economics are clear on this slide. As you can see, both the average initial sales price and the expected lifetime value of our products has grown over the past few quarters due to the success of the lifetime product. And not only is lifetime driving more lifetime value per learner than short-term subscriptions, it is turning that value into cash faster because it is paid upfront. In addition, due to the higher ASPU and concentration of our lifetime offer with consumers as well as the increase in unit volume due to the demand for our products, we saw strong marketing efficiency metrics.
Our LTV to CAC in Q2 was 2.3 times. Overall, we spent 18% more in CAC year-over-year while delivering 92% higher bookings growth. Remember though, the Q2 last year included a $1.5 million brand market test, which had a low in period return. In total, net LTV add grew by 232% year-over-year. Please turn to the next slide. Now we'll walk through Rosetta Stone Unlimited lifetime in a little more detail. Learning a language is difficult. Making gains takes continued practice, and all too often life gets in the way. This is one of the reasons why subscription-based consumer language learning inherently has low retention rates. Learners that want to be effective and proficient in the second language, understand this. For over 27 years, Rosetta Stone's brand and product requirements has been to support learners that truly want to learn a language. Stepping back, we see the marketplace in two broad camps, trying and committed. Trying customers dabble in language learning or have a short-term need, while committed learners understand the time required to succeed. For the trying customer, we offer a three months subscription to a single language at an attractive price. But our efforts are targeted to build comprehensive effective solutions for committed learns for access to lifetime learning, even at a relatively high price, works to relieve the time pressure that comes to learning the language makes the decision to commit easier. As we have mentioned consistently over many months, our consumer business is focused on generating the highest LTV across the broadest number of learners. Committed learners are a valuable and large segment of this marketplace. Of the roughly 180 million U.S. adults with access to the Internet, research suggests roughly 2/3 have some interest in learning a second language, and that roughly 1/2 of those adults are excited by the prospect of learning the language because of what it could do for their lives.
That is a group of approximately 60 million customers. Within this group, we believe about 1/3 are deeply committed to learning a language and would believe that a long-term or lifetime product is the best fit for their needs. It's a target audience for lifetime of over 20 million people in the U.S. alone. We have sold lifetime subscriptions to only roughly 1% of this segment, which is one of the reasons we see so much opportunity in this part of the marketplace. I would also note that we aren't the only self-improvement brand that has realized the shift between learner needs and a lifetime product offering. Look, for example, to the meditation, brain training and fitness worlds as well as other language providers for similar offerings. Next slide, please. We continue to focus on improving the experience for a learner when they use our programs. A few weeks ago, this was recognized by PC Magazine with a perfect 5-star rating as the best premium software in language learning. We have recently focused on integrating human coaching and tutoring in conjunction with our world-class pedagogy. In Q2, we introduced Live Lessons which integrates expert digital video instruction by our own in-house coaching organization into our products. This enables consumers to have an immersive and efficacious experience. We also continue to expand our content efforts by integrating new capabilities into our products. Our video lessons are integrated into our consumer products for real time access, wherever and whenever learners are learning. In addition, we've integrated our speech recognition into these lessons so that consumers can incorporate live speech practice into on-demand feeds. In addition, we are more aggressively marketing our live group tutoring capability. We believe that the integration of human intelligence and personalized software or as we call it, adaptive blended learning, is the best way for someone to learn a new language. Bottom line, it's been a busy three months for Matt and the team, which we believe will lead to long-term benefits for our language business.
With that, I will turn the call over to Nick to talk about our Literacy segment.
Nick Gaehde -- President of Lexia Learning
Thank you, John. Please turn to slide 12. Literacy segment revenue in the second quarter was $17.8 million, an increase of 18% over the same period in 2019. Bookings were $19.2 million in Q2, an increase of 59% over the same period in 2019. Our bookings growth in the quarter was driven by both higher new and renewal sales in our direct channel, with strong contributions from Texas and some early benefits from our Learn From Home program. Please turn to slide 13. The Annual Recurring Revenue, or ARR, grew 19% compared to the end of Q2 last year. While strong ARR growth was lower than bookings growth in Q2 largely because of the impact of multiyear deals in Texas where total new bookings in the state in Q2 were approximately $3.7 million. The Annual Reoccurring Revenue added from these deals was approximately $500,000 as some districts chose to use adoption dollars and enter into eight-year paid upfront contracts. And a portion of the bookings were attributable to training, which we do not include in ARR. As for growth, we expect in the larger second half of the year broadens beyond Texas, we expect ARR growth to accelerate along with it. Renewals in the quarter were strong, driven by upsells to existing customers lifting the trailing 12-month renewal rate to 104%. Based on our work with customers, we believe unit retention will be strong as well. But the rate within the quarter was positively distorted by our decision to support customers in part through the Learn From Home program as they dealt with the impact of COVID-19 by not shutting off access when their license expired.
Consequently, we are not reporting what would not be a meaningful retention rate for Q2, but intend to do so again following Q3. Please turn to slide 14, and I'll talk about how we are supporting our customers in this time of dramatic change. As you know, schools were closed and forced to move to remote learning with incredible speed and a little preparation. We understood this would be a difficult transition for our customers and moved quickly to support them. As we discussed in our first quarter call, we announced a program called Learn From Home through which every existing customer could receive a free unlimited site license to any of our curriculum products and our educator professional development platform, Lexia Academy, until the end of the school year. To maximize impact, we defined customer broadly to include any district where we have a presence, no matter how big the district or how small our presence. And the response was terrific with approximately 10,000 schools signing up and using our programs. This increased the total number of active schools during the program period by approximately 12%. This is quite impressive for one quarter in a business that's been around for over 36 years. And importantly, it increased the number of unlimited school licenses we were supporting by almost 3 times. Our mission then was to support this rapid acceleration of new schools and expanded relationships. We committed from the beginning to providing the resources needed to ensure that our programs were implemented well with the necessary training to use them. This time is difficult enough for educators and administrators, and our goal is to ease their burden, not to add to it. And this approach served us well. The Learn From Home program has now ended, and our focus has turned to continuing our partnership with as many of these schools as we can, converting them to paying customers as they manage the uncertainties of the school schedules this fall. Please turn to slide 15. As John said, bookings growth in Q2 exceeded our expectations.
A number of factors contributed to our performance in Q2. Our Learn From Home program and the imperative for schools to build more comprehensive remote and hybrid learning programs for the school year had a broad positive impact on the quarter and will continue to benefit us this year. In effect, Learn From Home accelerated priorities already in place for 2020, including scaling our historical pilot program and expanding our existing customer relationships to relevance, support and high customer satisfaction. While all of the districts that participated in the offer were by definition already customers, the broad exposure that Learn From Home created to our products, similar to an intensive national pilot and the significant goodwill it created, is helping us now with schools look to build their remote learning plans. We're also happy with the results of the account segmentation strategy we implemented at the beginning of the year. The restructuring has focused our field-based sales leaders and account reps on larger new and renewal opportunities, while moving smaller accounts and opportunities to inside account sales managers. This change is driving the focus to convert and expand the larger opportunities we're creating, while more efficiently managing smaller customers. In addition, we continue to benefit from the growing power of our K-12 portfolio. Not only are Core5 and PowerUp great products in their own right, our ability to bring both to a district expands the problems we can help schools solve and leads to more strategic conversations, often resulting in large larger, more systemic implementations. By the end of June, over 3,000 customers were using more than one of our products, up from approximately 350 at the same time two years ago. Finally, as I mentioned, we've seen strength in Texas, especially associated with their secondary school adoption.
Please turn to slide 16. Underpinning our ability to meet the needs of districts facing the challenge to provide high-quality learning, whether remotely or in person or in a hybrid approach, are six key factors. First, our solutions offer a flexible implementation model that allows both the student-facing software and the data and information provided to teachers to seamlessly move from classroom to home and back again. Our products aren't just easy to use. They are proven to be effective. More on that in a moment. Especially a standardized assessments for being canceled, our ability to provide real-time data on student performance and insights into skill gaps through our assessment with that testing capability was critical to teachers and administrators in this remote learning environment. And when students are at risk of falling behind, our solutions are able to quickly close gaps through personalized and targeted instruction. We're also finding that our ability to facilitate meaningful interactions between students and teachers using our lesson is highly valued at the time when these interactions are being strained. Finally, when the importance of the teacher has never been more clear, providing remote professional learning opportunities through Lexia Academy, the learning portal for educators, has been key. As this slide makes clear, our ability to provide an excellent learning experience goes well beyond offering software that can be logged into at home. Please turn to slide 17. Our proven ability to provide great outcomes for learners will become even more important as school budgets come under pressure as a result of decreased local and state tax revenues. Because more than ever, districts will demand an educational return on the investment they are making.
To that end, during Q1, we were thrilled that research supporting the efficacy of our flagship solution, Core5, received a rating of strong through evidence for ESSA, one of the leading resources educators consult to determine its educational programs adhere to federal efficacy evidence standards. The strong rating for Core5 reinforces the robustness of Lexia's efficacy evidence portfolio which includes over 20 peer-reviewed research studies. Very few ed-tech providers offer programs that have earned strong ratings at both the elementary and secondary level. Of those few that have, the evidence for ESSA analysis estimates that Lexia's programs have the largest impact on student reading outcomes in both elementary and secondary grades as measured by average effect size. Please turn to slide 18 for an update on Rosetta Stone English. I'm happy to let you know that we've officially launched Rosetta Stone English for sale for the 2020/2021 school year. When the team began to work on this groundbreaking solution, we had an aggressive plan to release RSE this summer, and have now met that goal even with the beta interrupted by the pandemic.
We're very proud of Rosetta Stone English, which is innovative in so many ways, including its focus on oral language development and the real-time reporting it provides teachers and administrators that has historically been limited to only understanding progress through annual or twice-yearly standardized tests. We are especially proud of the cultural, racial and other forms of representation present in the student facing product. And our asset approach to education. In Rosetta Stone English, we honor the native language of the learner as an asset rather than looking at the lack of English language skills as a deficit. While sales of RSE this year are primarily focused on renewing our elementary school customers that are currently using our existing Rosetta Stone Foundation solution, we're very excited about the opportunity we see going forward for RSE to meet the needs of this large and growing population of learners, especially now with school closures disproportionately impacting these students.
With that, I'd like to turn the call back over to John to walk through guidance for the year.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Thank you, Nick. Please turn to slide 19. Turning to guidance and starting with revenue. We now expect consolidated revenue for the year to be $190 million to $200 million. And total bookings of $216 million to $229 million. That would be 7% higher than 2019, the midpoint on revenue and 13% higher on bookings. In the Literacy segment, we are raising our revenue guidance to a range of $72 million to $76 million, an increase of $3.5 million at the midpoint. We are raising our full year literacy segment bookings outlook to $87 million to $93 million, up from approximately $81 million to $86 million previously. This represents bookings growth of 27% to 36% over 2019. The factors impacting our outlook for the Literacy segment included the opportunities to expand relationships with existing customers, in part created by the Learn From Home program and the need both existing and new customers have for solutions to support remote or hybrid learning. This is being helped by our ability to follow through on a growing number of large opportunities as a result of the strategic sales account realignment announced earlier in the year. Finally, we see additional bookings in Texas during the second half, but the majority of the Texas impact likely came in Q2. We still expect new business in new districts to be more difficult in 2020 than we might have otherwise seen before the pandemic. We have focused our marketing and sales efforts in line with the belief that existing customers are a greater opportunity for us this year. Looking into 2021, we see opportunities to drive growth as districts develop a deeper appreciation for the efficacy of our solutions, but a variety of factors may lower our bookings growth rate. We are seeing in 2020 an acceleration in new and upsell business growth, driven by districts' urgent need to plan for remote or hybrid learning. We don't know if the same level of urgency will persist next year.
In addition, a somewhat larger than typical dollar amount of our contracts in the Literacy segment this year have been multiyear in nature, driven by adoption sales in Texas. We do not expect this level of multiyear adoption bookings to continue next year. Finally, although we like our relative positioning within ed-tech, if school budgets are reduced because of declining tax revenue, k-12 education providers will be negatively impacted. Turning to our Language business. In Consumer, we are raising our full year revenue guidance to a range of $69 million to $72 million as we now expect full year consumer bookings of $88 million to $92 million, up from $75 million to $78 million previously and $67 million to $69 million at the beginning of the year. This guidance assumes that year-over-year bookings growth slows in the second half of 2020 compared to earlier in the year, and the marketing efficiency declines in the back half as the positive impact from people learning while quarantined at home fades. We also expect consumers' year-over-year bookings growth in the back half to be lower. So we lapped the original introduction of the lifetime product on the web, which began to ramp-up in Q4 of 2019. At the bookings midpoint, this translates to 36% growth for the full year. With the success of Lifetime Unlimited, the majority of the bookings performance this year will be recognized as revenues in 2021 and into 2022. And while we will benefit from this revenue in future years, we expect bookings next year to be negatively impacted relative to this year as people return to work and the quarantine driven sales we are seeing in this year fade.
The strength we are seeing in other parts of the business this year will be partially offset by the pressure we continue to see in our Enterprise & Education Language segment. While K-12 language education is performing in line with our expectations. And Enterprise has seen some stability more recently. We are expecting full year revenue to be in a range of $49 million to $52 million, $1 million lower on each end versus our prior guidance, and lower enterprise bookings due to the impacts from the pandemic. Recovery in Enterprise will be tied, in part, to a recovery in the economy. Turning to profitability. We are improving our guidance for full year net income to a loss of $20 million to $22 million, raised from our prior guidance to a loss of $22 million to $24 million. We are also raising our guidance for full year adjusted EBITDA to approximately $8 million to $12 million, up from $5 million to $8 million previously. The stronger than previously expected bookings we have seen this year are not directly turning into significantly better GAAP performance in 2020, because while bookings are recognized as revenues over the life of the underlying subscriptions and contracts, expenses are largely recognized upfront. This includes variable compensation for our non-commission employees where we are accruing potential bonus payments at a higher rate than last year due to the performance we expect in 2020 relative to 2019. This higher accrual will be offset during the year by the lower operating expenses as we have been diligent in managing costs during the pandemic, including the cost of action discussed earlier and certain other costs like travel have been naturally lower. We are raising our guidance for operating cash flow to $29 million to $34 million, up from $14 million to $18 million previously.
The improved outlook for operating cash flow is largely due to the higher bookings delivered in the first half of 2020 by the Consumer segment and the expected higher bookings in the Literacy segment throughout the year. This guidance continues to assume that we could see slower collections of accounts receivable. Either because we proactively offer our customers more time to pay, but they simply pay slower than normal. We have not yet seen this in a material way, but we would like to be prepared if it occurs. We expect capital expenditures to be approximately $16 million to $17 million, and that we will have approximately $13 million to $17 million of cash flow after capex this year. We expect a year-end cash balance of approximately $55 million to $60 million with no debt. Please turn to slide 20. Like last quarter, we have decided temporarily to provide guidance for the quarter we are in, in addition to the full year. We hope this provides more clarity during a tumultuous year. We expect strong year-over-year bookings growth in Q3 in our Literacy segments as districts seem to be accelerating decision-making to prepare for a variety of back-to-school scenarios. Our performance quarter-to-date in the current pipeline makes us comfortable with our outlook for Q3 in literacy. We also anticipate good bookings performance in Q3 in consumer language. Although year-over-year growth rates will decline relative to the first two quarters as the impact of people learning from home and quarantine declines. On the downside, we will have a significant year-over-year bookings decline in the E&E segment, driven by the Enterprise portion of the business, largely due to the absence of the $7.4 million custom content deals signed in Q3 2019 as well as ongoing impacts from the pandemic.
On a consolidated basis, we expect total Q3 revenue of approximately $48 million, up approximately 5% from last year, a GAAP net loss of approximately $7 million and positive $2 million in adjusted EBITDA. Please turn to slide 2021, and I will wrap up. Despite, and in some cases, because of the challenges created by these difficult times, the team had a strong first half to 2020, producing good financial performance while demonstrating a continued commitment to helping learners. Ultimately, it is critical that we do everything we can to leave this crisis with K-12 business that is stronger and more important to its customers, and a language business that is reinvigorated and a leader in the space.
With that, operator, could you please open the line to questions?
Questions and Answers:
Operator
[Operator Instructions] The first question comes from Steven Frankel with Colliers. Please go ahead.
Steven Frankel -- Colliers -- Analyst
Good afternoon, thanks for the opportunity. John, I'll start with the question you're probably not going to answer, but it's on everybody's mind. Given the press reports of the company potentially going through a process, just wanted to see if you were willing to add any insights on that subject.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Yes. Steve, thank you for asking. Yes, we don't comment on market rumors or speculation regarding strategic matters of that type, but I certainly understand why you're asking.
Steven Frankel -- Colliers -- Analyst
Okay. Then let's move on then. In terms of the Free To Learn program, it sounds like you've got some great results. To what extent, Nick, does that get you districtwide mandates, which is one of the things you've clearly been working toward over the last couple of years?.
Nick Gaehde -- President of Lexia Learning
Yes. Steve, thanks for the question. So it certainly is an accelerator in terms of our expansion at the district level. One of the things we are seeing right now in the industry is that districts are playing a much more central role in the decision-making. I think there's a lot of pressure on districts to make sure they have learning continuity plans in place. And the Learn From Home program certainly exposed districts to our products in a much more deep and broad way than they had previously. And so this is absolutely an accelerator in terms of our relationships at the district level.
Steven Frankel -- Colliers -- Analyst
And you made a comment about very strong bookings early in the quarter. Was that the Texas impact? Or are you have you seen some dynamic as the quarter progressed or maybe into this quarter that says decision cycles are starting to lengthen it given what's going on in the world.
Nick Gaehde -- President of Lexia Learning
Yes. So early in the quarter, absolutely Texas was a strong state for us and continued to be strong. But we certainly saw the strength and momentum in bookings, especially at the end of the second quarter start to materialize outside of Texas as well as a result of the learn from home program.
Steven Frankel -- Colliers -- Analyst
Okay. Now that ESL is released, can you give us any insight into how that product is priced relative to what you were selling prior? And relative to what others are getting in the marketplace?
Nick Gaehde -- President of Lexia Learning
Yes. So the price of Rosetta Stone English is more expensive than our Literacy programs. But not dramatically more expensive on an unlimited site license-basis because obviously, they're not serving the needs of every student in the school or district.. We just released the product a couple of weeks ago and are really thrilled with, first of all, the sentiment and reaction we saw from our beta sites and some of the early indications of interest in the product.
Steven Frankel -- Colliers -- Analyst
Okay. And then one last question on the Consumer business. The new upsells, the live classes, the tutoring, when will those be commercially available and start to generate revenue? And, kind of, what do you think the revenue upsell capability of those programs is?
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Yes, Steve. So they are commercially available now. Tutoring, which is the things that we're we have been testing and are now pushing out, specifically focused on lifetime customers. So lifetime customers are now being offered, on a subscription basis, access to tutoring. I'd say it's still early for us to fully understand what the opportunity is there, and we're going to continue to test it, but there will be bookings attributable to tutoring in our consumer segment this quarter.
Steven Frankel -- Colliers -- Analyst
Okay. And then one last one for Nick. I know you said you're not really focused on new districts given what's going on with COVID. How material has budgetary shortfalls been in the discussions you've had so far with your existing districts? Or are you finding that because they know your product, they're finding a way to pay for it.
Nick Gaehde -- President of Lexia Learning
Yes. Up until this point, certainly, they have been finding the funds to pay for it. And actually, we have seen the Cares Act funding make a difference in terms of schools' ability to move very quickly. We have talked about, and I continue to believe that driving business in districts where we don't have relationships is going to be harder. That being said, we are seeing some really nice momentum in districts that we've been talking to for a number of years but haven't made inroads into and as a result of Learn From Home and as a result of the Care Act funding, are starting to see momentum there in terms of the pipeline progression, which is just great.
Steven Frankel -- Colliers -- Analyst
Great. Thank you so much.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Sure.
Operator
The next question is from Alex Paris with Barrington Research. Please go ahead.
Chris Howe -- Barrington Research -- Analyst
Good afternoon, everyone. This is Chris Howe sitting in for Alex Paris. This is definitely a unique situation that we're in, given the pandemic environments, and it's nice to cover a company that not only provides guidance, but raised it's guidance. Just leading off, you talked about bookings as it relates to this past quarter and how you examine the mix of bookings perhaps changing as we move out of the pandemic. Assuming an extended pandemic environment, how do you view second quarter results as sustainable? And the level of retention that you would have should this environment continue longer than expected and the possibility of a vaccine being pushed out even further?
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Yes. Thank you for the question, and it's look, it's unknown for all of us. I mean this is a new world for all of us. But I think if you go segment by segment, a prolonged pandemic with the implications that it could have for business, obviously, would negatively impact the Enterprise segment. I think that would persist possibly longer than we would otherwise like. In K-12, I think the clearly, we're seeing, as Nick said, both in the second quarter and early in the third, an acceleration in decision-making, which has been very positive for us, given the breadth of our exposure in districts across the country, the reputation of the company and the efficacy of the products, I think it's a well, decisions are never easing budgetary decisions are never easy. I think when you can lean into a product that has demonstrated the ability to create positive outcomes for students and works extraordinarily well in a remote learning environment, choosing Lexia is a relatively easy thing to do. Where we'll run into concerns is if when schools begin to see their budgets negatively impacted as Steve was asking about. That seems as if that's going to be more of a next year problem than a this year problem. Obviously, we would hope that the federal government comes to some agreement on a broad relief package, and one that includes additional funding for schools. It seems as if that will ultimately be the case. And that would certainly be a positive, not just for this year but also into next year.
On the Consumer side, it's unknown. Yes, as we said in the original remarks, because we introduced Rosetta Stone Unlimited really about a month before the pandemic took hold in the U.S. and dissecting what part of the lift we've seen in the business is from each, is really hard to tell. I think we're reasonably confident that as that impact fades, we will have a better, more sustainable business at a higher level than we had before because we're very positive in the outlook for that product offering. But to some extent, we're just going to have to see.
Chris Howe -- Barrington Research -- Analyst
That's very helpful, and I appreciate the color. Just moving outside of that question. You mentioned the success that you had in Texas that benefited bookings in the quarter. Outside of Texas, you're making some inroads, as you mentioned. Perhaps you can comment there as to the inroads you're making, and how you view potential in other states, given this challenging environment?
Nick Gaehde -- President of Lexia Learning
Yes. Interesting question because it is very varied state by state both in terms of when states receive their Cares Act funding and when states deliver that funding down to districts. And we saw that early in the spring, where some states were moving forward quickly and other states were still holding off because they didn't have clarity on their funding yet. But at this point, everybody understands what their Care Act funding is. Certainly, there is different momentum in different states, depending on the relationships we had in districts prior to the pandemic and the exposure they've had as a part of our Learn From Home program. But I would say, the growth from a geographic standpoint is pretty broad-based, it's not just one or two pockets of strong growth. It really is across the country and of districts of all sizes.
Chris Howe -- Barrington Research -- Analyst
Great. I appreciate the answer. And I'll hop back in the queue. Thank you.
Operator
The next question is from Greg Pendy with Sidoti. Please go ahead.
Greg Pendy -- Sidoti -- Analyst
Yeah guys, thanks for taking my question. I'm just wondering on the consumer strength. Can you kind of elaborate I know the shelter in place, you kind of mentioned as a potential benefit. But I'm just kind of looking at some of the markets that statistics that you guys have put out in the past. It looks like maybe around $46 billion has been online or I'm sorry, about $6 billion has been online and about a $46 billion has been off-line. So do you think that during the pandemic, do you think the pie grew in terms of interest in learning a language? Or do you think that maybe there was sort of a shift?
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Yes. No, it's a really good question, Greg. And those are the numbers we've shared in the past. I think the honest answer is, well, I think there are people who have had an ongoing interest in learning language may not have been learning off-line, but found the time and the motivation while they were at home to try learning a second language, and I think that clearly had a benefit. Undoubtedly, there were people who were trying to learn a second language face-to-face in a community college with a tutor. That was not able to continue with the pandemic. And I think they may well have moved learning online as well. Yes, I think it's our hope that, that will create a new normal going forward, that there will be greater interest and greater understanding of the benefits of online language learning. Certainly, when we can introduce things like online tutoring as well to substitute for some of that off-line learning they may have also been doing. And so it's clearly both. It's I think not easy to disentangle how much is from each. But clearly, both were a factor for us in the quarter.
Greg Pendy -- Sidoti -- Analyst
Great. Thanks a lot.
Operator
Next question is from Ryan Meyers with Lake Street. Please go ahead.
Ryan Meyers -- Lake Street -- Analyst
Hi guys. Just one question for me. Can you give us some color on how you've been able to work through the sales pipeline, given the challenges actually physically going into new schools and districts?
Nick Gaehde -- President of Lexia Learning
Sure. I'd be glad to, Ryan. So this is Nick. It was really interesting to see our sales teams move to remote selling. Our sales teams were already physically remote, most of them spread across the country, and had already been doing a lot of their selling remotely. But I have to say that it has been very seamless, I think, partly because of the expertise of our team and the infrastructure and tools we have in place. But also, I think after the initial weeks of schools really not being in a mode of communication, schools realizing that they had to make plans for the fall and actually reaching out to us. So the process of remote selling has been not just seamless, but I think really effective.
Ryan Meyers -- Lake Street -- Analyst
It's good to hear. Thank you.
Operator
Next question is from Ryan MacDonald with Needham & Company. Please go ahead.
Ryan MacDonald -- Needham & Company -- Analyst
Yes. Hi everyone, I apologize in advance if these questions have already been asked. I've been bouncing around to a few calls. I guess first off, can you talk about an Lexia booking strength maybe provide some additional color about the mix there of what you're seeing of success between Core5 versus PowerUp?
Nick Gaehde -- President of Lexia Learning
Yes. So we are seeing success in both areas. I think in the last half of last year and maybe the beginning of this year, we saw really strong growth from PowerUp. And certainly, in Texas, because of the secondary adoption, both PowerUp and our language product foundations had really great market acceptance and filling the need, especially for English language learners. But Core5 has also shown real strength in terms of new growth. So it's been very balanced, which I think is a great thing, both in terms of the investments we've made across the portfolio and our ability to support schools and students from kindergarten all the way up through 12th grade.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
And Ryan, the other thing I would add, which is implied by Nick's answer, is we're seeing real strength in selling both to the same district at the same time as well which has been really nice.
Ryan MacDonald -- Needham & Company -- Analyst
Excellent. And then in terms of we all obviously know about what the potential budget issues that can be caused as we look into next year from COVID and some of the deeper cuts that may be coming without additional stimulus or funding. Are you doing anything on the sales process to drive adoption? Maybe multiyear adoption? Whether it's favorable billings terms or with the new Rosetta Stone English product, to get that sort of adoption driven earlier? Maybe including that in deals before, maybe, budgets are potentially cut next year?
Nick Gaehde -- President of Lexia Learning
Yes. So we are absolutely leading with multiyear options for customers, especially when we know that they have received stimulus money that they need to spend. And so that is certainly something that we are communicating to our customers, and there has always been an attractive price point in terms of multiyear discounts that they can take advantage of. So it's not that different from what we normally do, except maybe emphasizing and communicating the fact that there are multiyear options. We have always looked at our pipeline as something that is driven by the experience the rep has on the ground in conversations with district leaders. And certainly as part of that process, understanding the funding source and understanding the needs we're solving allows us to put the best proposal in front of them to solve their needs and hopefully, create long-term partnerships.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Yes. And just to follow-on quickly, while Nick is absolutely right, we're leading with that and that is part of the portfolio that a salesperson has, when they're talking to customers, we're not counting on in the outlook for the year, any higher percentage of multiyear deals outside of this kind of Texas adoption, if you will, than we would typically see. And so it's a good, strong annual recurring business that we think we're building this year.
Ryan MacDonald -- Needham & Company -- Analyst
Excellent. Thanks for taking my questions and congrats on a great quarter.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to John Hass for any closing remarks.
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Thank you, operator, and thank you, everybody, for your questions. These are obviously difficult times for many, many people, and they are certainly in our thoughts. We will continue to focus on supporting customers and learners with the knowledge that ultimately, that is the best thing for the company as well as the best thing for those learners. Thank you for joining us, and we look forward to speaking with you again.
Operator
[Operator Closing Remarks]
Duration: 58 minutes
Call participants:
Eunic Hen -- Investor Relations
John Hass -- Chief Executive Officer & Chairman of the Board of Directors
Nick Gaehde -- President of Lexia Learning
Steven Frankel -- Colliers -- Analyst
Chris Howe -- Barrington Research -- Analyst
Greg Pendy -- Sidoti -- Analyst
Ryan Meyers -- Lake Street -- Analyst
Ryan MacDonald -- Needham & Company -- Analyst
