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Logo of jester cap with thought bubble.

MINDBODY Inc  (NASDAQ:MB)
Q3 2018 Earnings Conference Call
Nov. 06, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the MINDBODY Q3 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call will be recorded.

I would now like to introduce your host for today's conference, Nicole Gunderson, Investor Relations. You may begin.

Nicole Gunderson -- Investor Relations

Good afternoon, everyone. Welcome to MINDBODY's third quarter 2018 earnings conference call. Joining me on the call today are Rick Stollmeyer, MINDBODY's Chief Executive Officer; and Brett White, Chief Financial Officer and Chief Operating Officer.

MINDBODY's press release was released after the market close today and was furnished to the SEC on Form 8-K. You can access the press release and related investor materials, including non-GAAP reconciliations, on the MINDBODY Investor Relations website.

Our presentation of non-GAAP results excludes the impact of stock-based compensation expense; amortization of acquired intangible assets; acquisition-related expenses, including transaction and integration expenses; partial releases of valuation allowance due to acquisitions; the amortization of debt discount and issuance costs from our convertible notes; and the impact of foreign exchange rate movements and hedging activity.

Today's call is being recorded and a replay will be made available at investors.mindbodyonline.com. In addition, MINDBODY posts supplemental materials to this website, and we encourage investors to check there.

Our remarks today will include forward-looking statements, including, among others, statements relating to the expected growth in our target market customer base and across geographies, increases in our platform partnerships and expansion of our consumer brand into 2019, our go-to-market strategies, investments in our combined businesses and our ability to address operational challenges resulting from our combined business, product developments and releases, our return to non-GAAP profitability in 2019, increases in our consolidated dollar based net expansion rate over time and projected financial results for Q4 2018 and full year 2018 and beyond.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to today's press release and the risk factors in our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. These forward-looking statements are based on the assumptions as of today, and we undertake no obligation to update them as a result of new information or future events.

And with that, I'll turn the call over to Rick.

Rick Stollmeyer -- Chief Executive Officer

Thanks, Nicole, and welcome, everyone, to our third quarter 2018 earnings call.

The MINDBODY team delivered 37% year-over-year revenue growth in Q3, accelerating higher priced software tiers subscriber growth, increasing ARPS 19% year-over-year and delivering a better-than-expected bottom line.

Today, with more than 40,000 boutique fitness studios and 24,000 salons, spas and integrated health centers operating on our combined MINDBODY and Booker platforms, we have built the leading operating system for wellness businesses in the world.

In the third quarter, the MINDBODY platform managed over 188 million classes and employment sessions and $4 billion in GMV, growing these platform metrics 26% and 47% year-over-year, respectively. And at the same time, our consumer marketplace, with its powerful collection of web and mobile interfaces, is reaching more consumers than ever before. On the MINDBODY and FitMetrix platforms alone, we delivered more than 66 million class and appointment bookings to our customers in Q3, a 30% increase in consumer engagement year-over-year.

MINDBODY has become the principal steward of a vast and imminently important global vision of health and wellness. Personally, I'm enormously thankful to our talented and hardworking team who have devoted themselves to the realization of our vision. And at the same time, we must acknowledge that we have faced significant operating challenges in the past two quarters. The combined effects of our recent acquisitions, go-to-market reorganization and expanding consumer and partner initiatives had made MINDBODY a considerably more complex business to operate than it was just six months ago. And we did not meet our own growth expectations in the second and third quarters.

We expect this to continue lagging a bit in Q4 as we communicated on our last call -- or continue to lag the expectations as we communicated on our last call. These growth challenges are all operational, and we are executing on plans to resolve these challenges and improve performance moving forward.

For example, we significantly grew our sales and marketing efforts in Q3, adding 51 quota-carrying sales specialists toward the end of the quarter, which is a 26% increase over Q2. And we have significantly upgraded our product and technology capabilities as well, recruiting multiple new product and technology leaders as well as talented engineers and product managers over the past two quarters. As this team -- this new team members season in with our veteran team members, we have a high confidence that our ability to achieve strong growth and profitability will occur in 2019.

I'd like to turn now to our long-term vision and strategy. We are building the world's first marketplace of fitness, beauty and wellness. Now I'm going to devote my remarks to how our recent performance reflects on that strategic objective. Our marketplace of fitness, beauty and wellness demands a consistently growing subscriber base of durable, high-quality providers and an expanding audience of consumers.

Let's talk about the subscriber side first. After several years of iteration, we have built a tight definition of our target market subscribers, those fitness, beauty and wellness businesses with a high probability of long-term durability and success. Today, those businesses are found almost entirely in our higher priced software tiers, as well as a portion the Booker lower priced software tiers as I mentioned in our last call.

The trailing two-year growth of these tiers is depicted on slide 27 of our updated investor deck. And we are growing this important customer extremely well. On the MINDBODY platform alone, subscriber growth in the higher priced tiers grew 20% year-over-year in the third quarter, a notable acceleration over Q2, driven mostly by new target market fitness studios joining our platform.

Adding in Booker, we grew our combined higher priced software tiers 27% year-over-year, also a notable acceleration over Q2. Our strongest B2B performance continues to come from new North American fitness studios, gyms and clubs joining our platform, indicating that we are in the sweet spot of adoption rate and growth in this market.

Our latest results and market research confirm that there are many more years of strong target market boutique fitness growth ahead for us in North America alone and even more growth in the other countries of the English 8. Our new higher priced software tiers now comprise 85% of our subscriber count and nearly all of our revenue. Based on our study of data on the MINDBODY platform, these businesses generated twice the GMV and three times the ARPS of our legacy customers. They also exhibit much higher rates of payments adoption, better contribution margins and higher retention. As such, our higher priced tier customers yield more than 10 times the average calculated customer lifetime values of the subscribers in our legacy tiers. And as we have stated before, our market research confirms that there are more than 300,000 of these kinds of businesses in the English 8 countries alone.

We've also made considerable progress on the consumer side of our marketplace in Q3. In September, our consumer products team released multiple improvements to the MINDBODY app and an all-new consumer web booking interface on mindbody.io. This product work set off a powerful inflection in consumer engagement as we closed the quarter.

In October, the month we just ended, these product improvements delivered a 40% year-over-year increase in MINDBODY app bookings and a near doubling of MINDBODY Promote sales. MINDBODY Promote revenue is not yet material but customers and consumer adoption gives us confidence that this will become a driver of our revenue and margin expansion in the years of -- in the years to come.

And sales of our branded mobile apps are on fire. Our customers are signing up for these apps via the Ultimate Software tier and FitMetrix in greater numbers than ever before, and consumers are eagerly adopting them as you can see on slide 28 of our investor deck.

Here's why the marketplace really matters to us. Our unique ability to surface real time available classes and appointments, combined with the growing reach of our web and mobile interfaces, is changing how people engage with wellness. When someone can find, book and pay for the classes and services they want in a few taps, this inevitably leads to more bookings and release the businesses we serve from employing extra staff to answer the phone and manually record transactions.

It will likely take several years for MINDBODY to completely replace manual booking in the fitness, beauty and wellness industries, and we are well on our way. And our rapidly expanding brand is yielding multiple benefits across our business. One of the ways this manifests is in inbound lead generation, which has increased markedly over the past two quarters.

Another way that our expanding brand is benefiting us was seen firsthand at MINDBODY BOLD, our conference we held -- hold annually. We hosted over 2,000 attendees this year in San Diego. They included more than twice as many prospective customers, 33% more platform partners and 34% more strategic accounts than in BOLD last year. We also held our inaugural Corporate Wellness Summit at BOLD, which brought together the American Red Cross, National Association for Health and Fitness and Partnership for a Healthier America, with over 30 employers to share and promote best practices in workplace wellness. Corporate wellness really is on the cusp of finally taking off.

Our extraordinary audience at BOLD enabled us to line up Michelle Obama and Billie Jean King as keynote speakers. These two highly successful women, global icons of wellness, athleticism and diversity electrified our customers and partners with their stories of overcoming adversity, breaking down barriers and succeeding through grit, determination and love. Michelle was so impressed with the energy of BOLD she generously offered to come back next year. We said, yes.

In closing, I'd like to thank our team members again from around the world who show up every day and contribute their talent to the realization of our vision. And I want to thank our customers who are helping tens of millions of people live healthier, happier lives. The wellness industry is clearly still in the early innings of a massive multi-decade expansion and our customers are playing a central role.

The International Health and Racquet Sports Association (ph) documented 61 million Americans actively engaged in organized fitness in 2017, roughly one in five adults. That's a 6.3% increase year-over-year and a notable inflection over the 3.9% CAGR that the fitness industry has experienced over the prior 10 years. The bottom line is that fitness is booming, and MINDBODY is both fueling and benefiting from that boom. We are well on our way to fulfilling the MINDBODY challenge issued at the BOLD Conference of 2017, which aims to double the number of Americans engaged in organized fitness by 2027, with commensurate gains across the developed world.

With that, I'll turn it over to Brett.

Brett White -- Chief Operating Officer & Chief Financial Officer

Thanks, Rick.

In the third quarter, total revenue was $63.8 million, up 37% year-over-year. Revenue from the Booker products was approximately $7 million. Subscription and services revenue was $40.8 million, up 44% year-over-year or up 45% on a constant currency basis.

In Q3, we sold 35% more Ultimate subscriptions, which include a branded mobile app, than in Q2. Recent changes to the Apple App Store policies requiring our customers to meet additional requirements prior to app deployment elongated the average deployment time of our branded mobile apps more than expected. This resulted in a delay in revenue recognition of approximately $200,000 in Q3. In the absence of this issue, Q3 revenue would have been approximately $64 million or in line with the midpoint of our guidance.

Payments revenue was $22 million, up 24% year-over-year or up 25% on a constant currency basis. Our blended payments take rate was approximately 82 basis points, consistent with last quarter for MINDBODY and Booker combined. Subscription and services revenue represented 64% of total revenue and payments revenue was 35%. Product and other revenue was approximately $950,000, up 76% year-over-year due to robust sales of the FitMetrix solution.

For the third quarter of 2018, 82% of revenue was from the US and 18% was international. In constant currency, international was 19% of revenue.

For the remainder of my commentary, unless otherwise noted, I will discuss non-GAAP results. A reconciliation to the corresponding GAAP results can be found on our website at investors.mindbodyonline.com.

In the third quarter, we delivered gross margin of 70.6%, which is in line with our expectations. Sales and marketing expense was $21.6 million or 34% of revenue compared to $17.7 million or 38% of revenue in the third quarter of 2017.

R&D expense was $16.6 million or 26% of revenue compared to $7.8 million or 17% of revenue in the third quarter of last year due to accelerated investments across our product portfolio. G&A expense was $10.1 million or 16% of revenue compared to $8.1 million or 17% of revenue in the third quarter of 2017.

In the third quarter, non-GAAP net loss was approximately $2.5 million or 4% of revenue compared to non-GAAP net income of $695,000 or 2% of revenue in the third quarter of last year.

Adjusted EBITDA was a loss of $700,000 or 1% of revenue compared to a positive $2.5 million or 5% of revenue in the third quarter of 2017. Non-GAAP EPS was a loss of $0.05 per share compared to a positive $0.01 per share in the third quarter of last year.

Weighted average shares outstanding for the quarter was approximately 47.8 million shares. In the third quarter, we used approximately $2.4 million in cash from operations. Additionally, we used $2 million for capital expenditures and internally developed software. We ended the third quarter with cash, cash equivalents and short-term investments of approximately $325 million.

Turning to our third quarter key metrics. We ended the quarter with 67,364 total subscribers, up 14% year-over-year. Total high value subscribers was 66,908. As of the end of Q3, we had less than 500 Solo subscribers remaining. These are rapidly leaving the platform and contribute an immaterial amount of revenue. So going forward, we will not be reporting Solo subscribers separately.

ARPS grew 19% year-over-year to approximately $309, reflecting strong growth for both MINDBODY and the Booker platforms. On a constant currency basis, ARPS grew 20%. Payments volume was up 36% year-over-year to approximately $2.7 billion. On constant currency basis, Q3 was up 37%. Q3 is a seasonally softer payments quarter for both MINDBODY and Booker. Our average combined dollar based net expansion rate for the quarter was 101%, reflecting Booker's historically sub-100% rate as well as a 1% negative impact due to foreign currency headwinds.

We expect to increase our dollar based net expansion rate over time by adding additional value to the Booker software tiers, increasing payments adoption at both MINDBODY and Booker, accelerating our up-sell activities and expanding the MINDBODY Promote marketing platform.

Before turning to guidance, I wanted to provide an update on the FitMetrix data exposure that occurred recently. In early October, we became aware that a log to enable troubleshooting in our recently acquired FitMetrix technology had inadvertently become publicly accessible. This did not include fields for sensitive information such as login credentials, passwords or credit card information. The data exposure was limited to approximately 500,000 FitMetrix consumer profiles. We quickly secured the affected data, captured lessons learned and are enhancing our security policies around acquired company assets to prevent a recurrence.

Turning to guidance. In preparing guidance, we took into account the current ramping trend of our go-to-market teams as well as the elongated deployment time for our branded mobile apps. For the fourth quarter, we expect revenue to be in the range of $65 million to $67 million or 31% to 35% growth over the fourth quarter of last year. We expect non-GAAP net loss in the range of $5 million to $3.5 million the weighted average shares outstanding for the quarter were (ph) approximately 47.9 million shares. We remain on target to return to non-GAAP profitability in 2019.

With that, I'll open the call to questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Brent Thill with Jefferies. You may proceed.

Brent John Thill -- Jefferies -- Analyst

Thanks. Rick, I'm curious, if you can just comment a little more on these operational growth challenges that you called out. And then for Brett, the loss estimate for Q4 is double that of what the Street's expecting at the high end. Can you just give us a sense of what incremental costs are coming into the model that perhaps we weren't all estimating?

Rick Stollmeyer -- Chief Executive Officer

Sure. So I'll talk about the growth challenges on the first side. This is really about go-to market. It's about our ability to scale, our sales and marketing efforts across three dimensions, simultaneously. First and foremost, our go-to-market on the subscriber side. We now have two separate sales team: fitness and beauty and wellness. We hired 50 additional reps as I mentioned in the tail end of Q2. And it's taking a bit longer than expected to get them up to speed. We've -- this is the largest amount of sales reps we've hired in one group. It's first time we've done it across two different teams. And of course we still have some -- some operational challenges around, for example, the two instances of the sales force, which we're working to resolve. The other one is resolution of our branded mobile app deferral issue that Brett talked about. It's unclear whether we're going to get that resolved in Q4, and we went ahead and factored that into our guidance.

Brett White -- Chief Operating Officer & Chief Financial Officer

Sure. And then on the cost side -- so we're pulling back on the revenue a little bit. On the cost side -- so we have added, as Rick mentioned, added over 50 sales people. We're pressing down the gas on the marketing side, lead-gen, consumer, continuing to invest in R&D, Payments 2.0 and other debt projects. So it's kind of steady course and speed on the expense side and then we're just -- tap the brakes on the revenue a little bit here in Q4.

Brent John Thill -- Jefferies -- Analyst

Okay. But just nothing from your perspective that the market opportunity has faded? I think there are some concern that given the last few quarters, have suggested that maybe something is changing in the business thus to use more operationally related to what your own execution is doing versus where the market is at?

Rick Stollmeyer -- Chief Executive Officer

That's correct. It's definitely not a lack of market opportunity. As I mentioned, actually boutique fitness in the North America, which is our most penetrated vertical, is our strongest growing vertical, and lead generation has significantly inflected up in recent quarters. So, no, the opportunity is as big as ever. It's multiple times greater than what we currently have in every vertical. And there's -- the only thing standing between us and that is execution. And I said, the team has been -- we've been humbled by the last couple of quarters and dealing with the magnitude of integrating these businesses and ramping up growth at the same time.

Brent John Thill -- Jefferies -- Analyst

Great. Thank you.

Operator

And our next question comes from Sterling Auty with J.P. Morgan. You may proceed.

Sterling Auty -- JPMorgan -- Analyst

Yes, thanks, guys. Just want to kind of extend, I guess, the line of questions. Let's focus a little bit on the net dollar expansion, the 101%. If we look back over the last couple of quarters, down as -- I'm sure the Booker impact is clear. But it looked like the trend for the two quarters prior to Booker being included were also showing some declines. So I'm curious what -- whether you want to call it organic or on MINDBODY side, is happening in that net dollar expansion that's causing it to decline. Is it churn that's increasing because of pricing changes or something else?

Rick Stollmeyer -- Chief Executive Officer

Well, I'll talk just directionally. Maybe Brett can put more meat on those bones. So yes, you're right, Q1 '18 the dollar-based net expansion was 106%. Versus a year prior, it was 108%. We don't think that's the systemic decline. There is some impact from the fact that we deprecated the lower tiers of our software, the legacy tiers. So even though a Solo or a Starter were to grow is not necessarily worth that much when they come up the platform, they are going to take a little bit of a hit to the overall dollar-based net expansion. But the underlying growth rate of the businesses depicted by the higher price tiers, what I mean is their expansion rate, has actually never been better. Brett, you want to add some?

Brett White -- Chief Operating Officer & Chief Financial Officer

Yes, I mean, that's correct. The new subscribers we're bringing onboard are ramping more quickly in payment. But we have been churning off these lower-end subs, which have pretty low LTV, but they have some value. So when they're in the beginning number, not in the ending number, that definitely impacts and it gives a headwind, but we're almost through that. So we're about ready to lap that. A couple other, just pieces. So we had a 1 point FX hit there, impact. And then also Booker's DBNE is -- sorry, dollar-based net expansion is actually sub-100%. So that gives us a lot of opportunity there that we're pretty excited about.

Rick Stollmeyer -- Chief Executive Officer

Yes, as Bret outlined in his remarks, there is multiple levers here that are -- that we feel confident and are going to pull DBNE, dollar-based net expansion, back up again as we go into '19.

Sterling Auty -- JPMorgan -- Analyst

Okay. And then one follow-up question, which is kind of an extension of it. I think the subscriber count, depending on how you want to cut it, they came in -- it came in light of what we were expecting and not sure if it was light of what you were expecting internally. But if it was -- trying to tie together the elements -- was that mainly because of sales execution issues not filling the top of the funnel? Or do you think it had more to do with churn?

Rick Stollmeyer -- Chief Executive Officer

It's not a churn issue. Actually churn is really quite strong, and Brett spoke to that. Lowest churn rates in --

Brett White -- Chief Operating Officer & Chief Financial Officer

In seven quarters.

Rick Stollmeyer -- Chief Executive Officer

In seven quarters, yes. We get these businesses up on our platform, get them up to a stable level of GMV, surpassing about $15,000, their unit churn rate drops to about 0.4% a month. So that's not an issue for us. The question is how fast it's out (ph) the funnel and that's all about properly identifying, curating (ph) and closing deals. And so we didn't close as many unit deals as we had hoped in Q3. And so that did impact overall subscriber accounts somewhat and it's really about more that -- the challenges of getting the beauty and wellness group revved up. Fitness is still driving and fitness is performing quite well.

Sterling Auty -- JPMorgan -- Analyst

Okay, thank you.

Operator

And our next question comes from Brad Zelnick with Credit Suisse. You may proceed.

Brad Zelnick -- Credit Suisse -- Analyst

Excellent. Thank you so much. Rick, what gets you comfortable that the challenges you're seeing are just execution related? And is there anything happening competitively that we should be thinking about?

Rick Stollmeyer -- Chief Executive Officer

Well, I look at a couple of different metrics. I look at inbound lead generation, and inbound lead generation is really a measure of both the strength of our brand as well as the overall strength of the industry, and that's never been better. It's actually quite strong right now. And we now know how to go after the right kind of businesses. I mean, just with our price point alone, we're saying that we want serious business owners try to come under our platform and we're doing that better than ever before. As far as competitors, there is a number of entrants in the space as well as some old legacy providers out there. We don't see anybody growing in a really impressive way, and of course we can be acquisitive. So if we saw something that we thought was really exciting, we might actually look at that as a possible M&A. But candidly, there's not much out there. So it doesn't appear to be competition. It's certainly not a lack of TAM. A market is going to enter into a buying mode at a certain rate. In the enterprise all they talk about is replacement cycles. Well, the salon and spa industry is a more mature industry. They are generally using operating systems that are older, including legacy software and of course pen and paper in many cases. And so our belief is that that market is going to be entering a generational shift over the next couple of years. That's why we bought Booker when we did. But there's just enormous TAM out there for us.

Brad Zelnick -- Credit Suisse -- Analyst

Thanks. And for Brett -- Brett, any updated insight into when legacy subs bottom out and we return to total organic subscriber growth? Thanks.

Brett White -- Chief Operating Officer & Chief Financial Officer

Yes. So no update there. It's going to I think continue to fluctuate. I think we'll continue to move through that little yellow section that's still left on the chart. It's getting smaller, which is a good thing. But we're not giving guidance right now on total subs.

Brad Zelnick -- Credit Suisse -- Analyst

Understood. Thanks so much.

Brett White -- Chief Operating Officer & Chief Financial Officer

All right. Thank you.

Operator

And our next question comes from Pat Walravens with JMP Securities. You may proceed.

Patrick D. Walravens -- JMP Securities -- Analyst

Great, thank you. Just to make sure I understand. So Brett, high-value subs went down sequentially. Is that right?

Brett White -- Chief Operating Officer & Chief Financial Officer

Correct, but slightly, about 200, 219 (ph).

Patrick D. Walravens -- JMP Securities -- Analyst

How could that happen? What am I missing? How could that happen if the churn was so low?

Brett White -- Chief Operating Officer & Chief Financial Officer

So churn -- the churn rate -- percentage of churn on -- off the base is the lowest it's been in aggregate in seven quarters. So -- but we still do have these -- the legacies, they are being bumped into -- if they get bumped into a higher price point, they may opt out, and it's a small number, and it's -- those guys I think are going to expect to continue to churn. Plus we've got the beauty and wellness, the flywheel kicking in and that should be doing better in the quarters to come.

Rick Stollmeyer -- Chief Executive Officer

I think it's important to remember and remind everyone, Pat, that the high-value definition included Starters, grows and legacies. And the reason that we focused in on these higher-priced here is that these really represent the market we're going after. So total HVS count is going to have to do with the pace at which we boil-off those ones in the legacy category and you really see it in the slide on page 27 -- actually 26 and 27. There's just not many of them left. So we're just about through this stage of our growth refinement.

Patrick D. Walravens -- JMP Securities -- Analyst

Okay. And then my other big picture question, Rick, probably for you is, I mean, look a lot of -- well, at least three, other vertical software companies have discovered that despite having really big market opportunities, those markets can only support a certain rate of growth, right. And so examples of that are RealPage, CoStar and most recently SPS Commerce. And they found that when they were trying to grow above that rate, it was just inefficient and resulted in losses, which is kind of what it feels like for the last couple of quarters at MINDBODY. At what point do you guys consider just not trying to grow so fast and instead a more moderate rate of growth and returning more profitability to -- more to the bottom line?

Rick Stollmeyer -- Chief Executive Officer

Well, we're a growth company in our hearts. So our objective is growth and profitability. I think the way to look at in our market is what are the dynamics that are driving the market to cloud solutions. When we first got into this business I was barely out of the garage. I would call on yoga kalaris and spinning studios and tell them that we had a solution that enabled online booking. And they'd look at me like I was crazy and say my classes are never full, why do I need online booking. And I'd say because your classes are never full. So the question is, is there an imperative for these verticals to migrate to a technology that allows them to materially improve their financial outcome. And every one of these small business owners cares a great deal about that. It's incredibly important to them they have the bulk of their net worth wrapped up in their businesses in most cases. So we've done it in boutique fitness. I mean, we have caused it to be an imperative now. It would be incredibly weird to think of a new yoga studio opening up anywhere in our target markets and not getting on some software platform, and the vast majority of them are coming to us. In the salon and spa that hasn't been done yet. Nobody has done it yet. That's our challenge, that's the big question. I think we've got several more quarters of saying to ourselves, if we cannot inflect salon and spa, then maybe it is what you're saying salon and spa can do that, but we don't believe that right now. Again, we see a generational shift happening in the industry. We see plenty of target market to go after, to add thousands of fresh salons and spas per quarter to our platform, and that's our intention. We're a growth company.

Patrick D. Walravens -- JMP Securities -- Analyst

Right. And then last one for me. And we had the Analyst Day on September 19th, and one of your slides was the integration is working. So I mean at what point did you realize that the results were going to be disappointing?

Rick Stollmeyer -- Chief Executive Officer

Well, at that point we're looking at results that were end of August. I mean, we were looking at the prior two months and we were meeting our milestones. The formation of the two go-to-market teams, some important product milestones were coming together, the general vibe among the teams, the ability for our leadership to work together from the former Bookers and Frederick's and FitMetrix folks. The other subtleties around how quickly sales team efficiency was ramping were things that we really started realizing in October. And yes, I mean, Brett you must be part of that.

Brett White -- Chief Operating Officer & Chief Financial Officer

Relative to Q3 results, the big surprise was the delay in -- the elongated deployment to the Apple App Store. And that was a new rule that they rolled out in May. So we had very little data on which to understand what the new timeline was around deploying the apps. And the -- our customers have to go through several steps on their own that we really can't help them with like obtaining a DUNS number, obtaining a developer account, to deploy the app. And so we didn't know in the middle of September how many of those apps were actually going to get deployed and that we did in fact have a backlog charge.

Patrick D. Walravens -- JMP Securities -- Analyst

Okay. All right. Thank you.

Operator

And our next question comes from Darren Aftahi with ROH (ph) Capital. You may proceed.

Darren Paul Aftahi -- ROTH Capital Partners -- Analyst

This is Darren. Can you hear me?

Rick Stollmeyer -- Chief Executive Officer

Yes. Hi, Darren.

Brett White -- Chief Operating Officer & Chief Financial Officer

Hi, Darren.

Darren Paul Aftahi -- ROTH Capital Partners -- Analyst

Hi, how are you? Just two if I may. So one, you talked about the strength in North American fitness. Can you just speak about salon and spa and just maybe what the integration challenges are there? And then, two, in the past you've talked about, I believe in the slide, it's kind of the green stuff for kind of the lower priced tiers for Booker clients. Just how up-sell is going? And I think you had given a data point that new customer being brought on were 50% higher than legacy price points. I'm just kind of curious if you can kind of update that stat for the quarter? Thanks.

Rick Stollmeyer -- Chief Executive Officer

So on the salon and spa side, I'll take the first part and Brett will take the second part. On the salon and spa side, there's really, really three factors to look at there. The first is that prior to acquisition Booker was not in a growth mode, and they really only had one tier of their software that they were actively selling which was the lower priced tier, the one that's still depicted in the green color on slide 27. And what's fascinating about that tier is these are good businesses. Their average GMV is significantly higher than MINDBODY's average GMV, but they simply hadn't been selling value. So teaching a group of folks to learn how to sell value and then of course to rapidly increase the size of it, we're talking about doubling and tripling the size of a team in a few months. The ability to get them up to speed and get them scaling up, it's just taking longer than expected. We're confident it's going to happen. It's just not happening as fast as we had hoped. The second element is branded mobile app. For Booker, we thought we would be selling that by now. We're not yet. It's just taking a bit longer to get the product through beta testing before we release it. We don't want to release a product before it's truly an excellent experience, and we're feeling good now about releasing that by end of quarter. And the third thing is integration of Booker into ultimately our mobile app, which is going to take a bit longer as well. So those three things (inaudible) each of them put a bit of a headwind on their growth, but we're making progress and we expect them to begin ramping in '19.

Brett White -- Chief Operating Officer & Chief Financial Officer

And then, Darren, I think part of your question was I showed a slide at Analyst Day, just the July results of the new Booker cohort, and what was the average monthly subscription we were adding them. In the month of July, it showed -- a chart that showed it was up 52% over Q2 '18. And so for the full quarter it's up 60% Q3 '18 to Q2 '18 and that's just on the initial and monthly subscription rate.

Darren Paul Aftahi -- ROTH Capital Partners -- Analyst

Great, thank you.

Operator

And our next question comes from George Kelly with Imperial Capital. You may proceed.

George Kelly -- Imperial Capital -- Analyst

Hi, guys, thanks for taking my questions. Just a couple for you. So first, we're getting pretty close to the time of year when you've raised prices before in the last couple of years. How do you feel about the opportunity to take pricing higher this year?

Rick Stollmeyer -- Chief Executive Officer

Well, as we've said before, we're -- we don't indicate price movement in advance of doing that. On the Booker side, we said previously we would not move pricing on existing Booker customers in 2019. And we -- that continues to be -- excuse me, 2018. We will not move the price on existing Booker customers in 2018, and we continue to stick to that plan. Philosophically, I think we have still room on our pricing. But we look at it through a lot of different lenses. And I think that what's really fascinating to us is that we are now able to move ARPS considerably in the expand motion of our sales team. And we're selling more of the upper tiers, so in other words both new customers coming in and existing customers opting in up the stack -- to accelerate an Ultimate and selling more Frederick and FitMetrix than ever before. So that's very encouraging. So I would say if that continues to strengthen, then we don't need to bump prices but if we had to we certainly could, next year.

George Kelly -- Imperial Capital -- Analyst

Okay. Got you. And then second question, it's just about taking more of the consumer ancillary revenue streams that are still small but you've been growing recently. Just wondering how is that progressing and with all the integration and other, I guess, bigger, more structural issues, do you have enough capacity right now to put a lot of sort of emphasis on the consumer initiatives? And do you feel like your brand maybe it's more of a late 2019 thing or where it will start to become more evident in your results?

Rick Stollmeyer -- Chief Executive Officer

Well, the latest results are actually quite promising. I mean, Q3 is a weird one because it's just dog days both in fitness and in beauty and wellness, not a lot happens over the summer. But as we got into September and of course we timed the release of some popular capabilities on the MINDBODY app and also on the new mindbody.io website, that's why we chose to share the October information because that's really interesting. We got 40% increase in growth on the MINDBODY app. So we're seeing some pretty powerful inflections. We continue to test city marketing, in select cities, like right now we're in Denver, and we're seeing an uplift there both in app downloads and registrations. And also a pop in dynamic pricing and introductory offer purchases as well as in inbound lead generation. So the second question is an interesting one. The question is, once we refine that consumer marketing how many cities can we run it in, and that's what we're currently modeling and thinking about for '19 because, as I said, we want growth and profitability.

George Kelly -- Imperial Capital -- Analyst

I understand.

Operator

And our next question comes from Brian Essex with Morgan Stanley. You may proceed.

Jack P. Liu -- Morgan Stanley -- Analyst

Hey, guys. It's Jack Liu on for Brian Essex. Just had a couple of questions. Just first off, bigger picture. Do you guys see any traction on the idea of offering capital assistance to your subscriber base similar to a Shopify or Square?

Rick Stollmeyer -- Chief Executive Officer

Yes, Brian, we think that's a really interesting opportunity. And our Payments 2.0 platform development continues. We're expecting to roll that out across each of our English 8 territories in 2019. And that's going to enable us to get into the capital lending ability, basically lending against the future inbound streams of payments revenue. And we've watched Shopify and Square closely in this. And we've been impressed with their execution. It seems like a long-term benefit or a long-term powerful opportunity for us.

Jack P. Liu -- Morgan Stanley -- Analyst

Helpful. Thank you. And then just secondly on the international revenue piece. So that increased on a constant currency basis. But have you seen incremental subscribers? Are they coming from the international markets at a proportional rate? And can you give us an update on efforts to expand outside the US? Thanks.

Rick Stollmeyer -- Chief Executive Officer

We haven't had as much emphasis year-to-date on international -- international growth as we have on North America, and that really was an effect of the acquisitions and integration efforts. We are starting to ramp again in EMEA and APAC, and we expect them to return to being significant growth drivers in '19.

Jack P. Liu -- Morgan Stanley -- Analyst

Awesome. Thank you.

Operator

(Operator Instructions) And our next question comes from Jennifer Lowe with UBS. You may proceed.

Rakesh Kumar -- UBS -- Analyst

Hi, guys, thanks. This is Rakesh Kumar, sitting in for Jenn Lowe. By my calculation, ex Booker organic revenue growth was in the low 20s. How should we think about the core MINDBODY business growth in the near to medium term as you fix the (inaudible) operational challenges?

Rick Stollmeyer -- Chief Executive Officer

Well, keep in mind when you're -- when you're doing those calculations that we took a significant amount of inbound funnel, namely the salons and spas, and have been diverting those to Booker. So we actually put a headwind on MINDBODY alone growth by virtue of our beauty and wellness ramp-up strategy. So it's not really quite an apples-to-apples comparison. MINDBODY's core business is sound, as I said in my remarks. It's actually the fitness vertical that's driving the bulk of our growth right now. And our fitness team, in terms of new subscriber revenue, produced one of the strongest quarters we ever had in Q3. So we think we can remain a very strong growth company in the fitness business alone and then when of course we layer in the ramping up growth of beauty and wellness, that's our multi-year strategy.

Rakesh Kumar -- UBS -- Analyst

Got it. And then I have a follow-up. You did some strong sales hiring in Q3 with 51 quota-carrying reps. Do you think you are at a full capacity now before you resolve execution challenges and should we expect some pause in hiring?

Rick Stollmeyer -- Chief Executive Officer

We're going to continue to grow those teams, not quite at the same rate. I mean, growing a team 30% in one quarter is a bit -- a bit drastic, and we're going to grow it in a more metered fashion in the quarters ahead. But there's plenty of leads, plenty of businesses out there to go tell our story to, and to convert. And so we continue to grow -- expect to grow that in the quarters ahead.

Rakesh Kumar -- UBS -- Analyst

Thank you.

Operator

Ladies and gentlemen, this concludes our Q&A portion of the call. I would now like to turn the call back over to management for closing remarks.

Rick Stollmeyer -- Chief Executive Officer

Well, we want to thank everybody for joining us on this call. We recognize firsthand that our results for Q3 aren't thrilling. We didn't meet our own expectations. We certainly gave that guidance believing that we were going to come at or above those numbers. We've learned some important lessons over the last 90 days, and we remain more confident than ever that we are producing a very strong growth story in the future quarters. Thank you very much.

Operator

Ladies and gentlemen, thank you for attending today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Duration: 46 minutes

Call participants:

Nicole Gunderson -- Investor Relations

Rick Stollmeyer -- Chief Executive Officer

Brett White -- Chief Operating Officer & Chief Financial Officer

Brent John Thill -- Jefferies -- Analyst

Sterling Auty -- JPMorgan -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Patrick D. Walravens -- JMP Securities -- Analyst

Darren Paul Aftahi -- ROTH Capital Partners -- Analyst

George Kelly -- Imperial Capital -- Analyst

Jack P. Liu -- Morgan Stanley -- Analyst

Rakesh Kumar -- UBS -- Analyst

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