Mindbody's Quarterly Results Get Fitter, but It Ratchets Back 2018 Earnings Outlook

Mindbody (MB +0.00%) reported first-quarter 2018 financial results after the market close on Tuesday. The online platform provider for the fitness, wellness, and beauty services industries posted revenue growth of 28% and adjusted earnings per share (EPS) of $0.06, versus a loss of $0.03 in the year-ago period.

Shares of Mindbody plunged to a closing loss of 17.6% on Wednesday. We can attribute the market's reaction to the company revising its full-year 2018 earnings outlook due to plans to invest "significantly" in its two recent acquisitions, management said on the earnings call. On an adjusted basis, it now expects to post a per-share loss of $0.13 to $0.21, whereas it previously guided for a per-share gain of $0.18 to $0.26. The stock remains a big winner, however, as it's up 43% over the last year, through Wednesday, versus the S&P 500's nearly 15% return.

Mindbody's results: The raw numbers

Metric	Q1 2018	Q1 2017	Year-Over-Year Change
Revenue	$53.8 million	$42.2 million	28%
Operating income	($4.2 million)	($3.5 million)	N/A
GAAP net income	($1.7 million)	($3.9 million)	N/A
Adjusted net income	$2.9 million	($1.2 million)	N/A
GAAP EPS	($0.04)	($0.10)	N/A
Adjusted EPS	$0.06	($0.03)	N/A

Data source: Mindbody. GAAP = generally accepted accounting principles. EPS = earnings per share.

For some context, last year, Mindbody grew revenue 31% year over year, and posted adjusted EPS of $0.02, versus a loss of $0.35 per share in 2016.

The GAAP results include an income tax benefit of $2.1 million stemming from the company's acquisition of FitMetrix.

Mindbody had guided for quarterly revenue in the range of $53.0 million to $54.5 million and adjusted EPS in the range of $0.03 to $0.05. So revenue came in on target, while the bottom line exceeded its expectation. While long-term investors shouldn't pay too much attention to Wall Street's near-term estimates, it's worth noting that analysts were looking for EPS of $0.04 on revenue of $53.85 million. So Mindbody dashed by the earnings consensus and met the top-line expectation.

An indoor fitness class showing two young men and two young women each laying on a floor mat with legs raised on a ball.

Image source: Getty Images.

What happened with Mindbody in the quarter?

Subscription and services revenue surged 31% year over year to $32.7 million.
Payments revenue jumped 21% to $20.2 million.
About 80% of revenue was from the U.S. and 20% was international, CFO Brett White said on the earnings call.
Payments volume rose 20% to $2.25 billion.
The number of wellness business subscribers (at the end of the period) declined 3% year over year to 57,909. This shouldn't concern investors as the company is focusing on higher-value subscribers, which has had the intended effect of a loss of some lower-value subscribers.
Monthly average revenue per subscriber (ARPS) soared 31% to approximately $302, up from $230.
Mindbody acquired FitMetrix, which provides performance tracking integrations with fitness studio equipment and wearables. Customers are able to reserve specific, integrated equipment while booking a class.
Soon after the quarter ended, on April 2, the company acquired Booker Software. Booker is "a leading cloud-based business management platform for salons and spas, and is the provider of Frederick, a fast-growing, automated marketing software for wellness businesses." The acquisition adds about 10,000 salons and spas to the Mindbody marketplace.
It released a new and improved version of the Mindbody app making it easier for people to explore workout options and book reservations.

What management had to say

Here's what co-founder and CEO Rick Stollmeyer had to say in the press release:

Q1 was a pivotal quarter for MINDBODY. With nearly 45 million consumer bookings on our mobile apps and a more than doubling of promoted offer sales year over year, our consumer marketplace strategy is in full swing. Now, with the acquisitions of FitMetrix, Booker and Frederick we are positioned for an acceleration of consumer adoption and strong growth for years to come.

Looking ahead

Mindbody posted strong quarterly results. The company issued second-quarter guidance, and revised its full-year 2018 outlook to reflect its acquisitions of FitMetric and Booker. It hiked its revenue expectation and ratcheted back its profitability guidance due to plans to invest "significantly" in Booker and FitMetrix "to set the stage for much greater growth" in the future, Stollmeyer said on the earnings call.

Period	Revenue Guidance	Projected Year-Over-Year Revenue Change	Adjusted EPS Guidance	Projected Year-Over-Year Adjusted EPS Change
Q2 2018	$59.5 million to $61.5 million	35% to 39%	($0.06) to ($0.09)	(500%) to (800%). Q2 2017 result was ($0.01).
Full-year 2018	$246 million to $252 million (Previous: $230 million to $236 million)	35% to 38% (Previous: 26% to 29%)	($0.13) to $0.21)(Previous: $0.18 to $0.26)	N/A: A projected change from $0.02 in 2017.