SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2020

16. SEGMENT INFORMATION

The Literacy segment derives the majority of its revenue from the sales of literacy solutions to educational institutions serving grades K through 12. The E&E Language segment derives revenue from sales of language-learning solutions to educational institutions, corporations, and government agencies worldwide. The Consumer Language segment derives the majority of its revenue from sales of language-learning solutions to individuals and retail partners. Revenue from transactions between the Company's operating segments is not material.

The Company and its Chief Operating Decision Maker ("CODM") assess profitability and performance of each of its current operating segments in terms of segment contribution. Segment contribution is calculated as segment revenue less expenses directly incurred by or allocated to the segment. Direct segment expenses include materials costs, service costs, customer care and coaching costs, sales and marketing expenses, and bad debt expense. In addition to the previously referenced expenses, the Literacy segment includes direct research and development expenses and Combined Language includes shared research and development expenses, cost of revenue, and sales and marketing expenses applicable to the Consumer Language and E&E Language segments. Segment contribution excludes depreciation, amortization, stock compensation, restructuring and other related expenses. The Company does not allocate expenses beneficial to all segments, which include certain general and administrative expenses such as legal fees, payroll processing fees, accounting related expenses, lease abandonment, impairment, and non-operating income and expense. These expenses are included below the segment contribution line in the unallocated expenses section of the tables presented below.

The E&E Language segment and Consumer Language segment are characterized as "Language" since both of these segments primarily address the language-learning market and share many of the same costs. These shared language costs are included in the "Shared Services" column of the tables presented below. General and administrative expenses directly incurred by the Language segments consist only of bad debt expense, net of recoveries. Additionally, research and development expenses are included as shared Language costs. The Company will continue to evaluate its management reporting and will update its operating and reportable segments as appropriate. With the exception of goodwill, the Company does not identify or allocate its assets by operating segment. Consequently, the Company does not present assets or liabilities by operating segment.

Operating results by segment for the three months ended March 31, 2020 were as follows (in thousands):

				Language
	Literacy Segment			E&E Language Segment			Consumer Language Segment			Shared Services			Combined Language			Total Company
Revenue	$	17,486		$	13,552		$	16,141		$	—		$	29,693		$	47,179

Cost of revenue		2,936			2,271			2,437			(1	)		4,707			7,643
Sales and marketing		8,039			5,807			10,588			4			16,399			24,438
Research and development		3,142			—			—			3,182			3,182			6,324
General and administrative		552			(24	)		206			—			182			734
Segment contribution	$	2,817		$	5,498		$	2,910		$	(3,185	)	$	5,223		$	8,040
Segment contribution margin %		16.1	%		40.6	%		18.0	%					17.6	%

Unallocated depreciation and amortization, stock compensation, and other expenses (net) included in:
Cost of revenue																	3,458
Sales and marketing																	996
Research and development																	593
General and administrative																	1,963
Subtotal																	7,010

Corporate unallocated expenses, net:
Unallocated general and administrative																	6,865
Unallocated non-operating income																	(34	)
Subtotal																	6,831

Loss before income taxes																$	(5,801	)

Operating results by segment for the three months ended March 31, 2019 were as follows (in thousands):

				Language
	Literacy Segment			E&E Language Segment			Consumer Language Segment			Shared Services			Combined Language			Total Company
Revenue	$	14,806		$	14,443		$	15,362		$	—		$	29,805		$	44,611

Cost of revenue		2,458			1,469			1,984			(1	)		3,452			5,910
Sales and marketing		6,909			6,846			8,833			30			15,709			22,618
Research and development		1,995			—			—			3,651			3,651			5,646
General and administrative		431			21			(3	)		—			18			449
Segment contribution	$	3,013		$	6,107		$	4,548		$	(3,680	)	$	6,975		$	9,988
Segment contribution margin %		20.3	%		42.3	%		29.6	%					23.4	%

Unallocated depreciation and amortization, stock compensation, and other expenses (net) included in:
Cost of revenue																	2,516
Sales and marketing																	620
Research and development																	92
General and administrative																	1,637
Subtotal																	4,865

Corporate unallocated expenses, net:
Unallocated general and administrative																	6,606
Unallocated non-operating income																	(769	)
Subtotal																	5,837

Loss before income taxes																$	(714	)

Geographic Information

Revenue by major geographic region is based primarily upon the geographic location of the customers who purchase the Company's products. The geographic locations of distributors and resellers who purchase and resell the Company's products may be different from the geographic locations of end customers.

The information below summarizes revenue from customers by geographic area for the three months ended March 31, 2020 and 2019 (in thousands):

	Three months ended March 31,
	2020		2019
United States	$	42,529	$	39,830
International		4,650		4,781
Total revenue	$	47,179	$	44,611

The information below summarizes long-lived assets by geographic area classified as held and used as of March 31, 2020 and December 31, 2019 (in thousands):

	As of
	March 31, 2020		December 31, 2019
United States	$	37,384	$	37,378
International		1,740		1,873
Total property and equipment, net	$	39,124	$	39,251