Mindbody (MB) reported third-quarter 2018 results after the market close on Tuesday.

The online platform provider for the fitness, wellness, and beauty services industries grew revenue a robust 37% year over year, driven by both organic growth and acquisitions. GAAP loss per share widened, and loss per share adjusted for one-time factors flipped to negative, from positive in the year-ago period. The increasing losses are being driven by the company investing in initiatives intended to power long-term growth. 

Shares of Mindbody dropped 18% in after-hours trading on Tuesday. We can probably attribute the market's reaction to the company's revenue falling a little short of what many investors were likely expecting, and -- perhaps the bigger factor -- its fourth-quarter revenue and earnings guidance coming in lower than Wall Street's estimates.  

Two young women and two young men each lying on their own exercise mat with hands behind head and feet on top of a large ball.

Image source: Getty Images.

Mindbody's results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

Revenue

$63.8 million

$46.6 million

37%

GAAP operating income

($14.5 million)

($3.8 million)

N/A

GAAP net income

($17.2 million)

($3.6 million)

N/A

Adjusted net income

($2.5 million)

$0.7 million

N/A

GAAP earnings per share (EPS)

($0.36)

($0.08)

N/A

Adjusted EPS

 ($0.05) $0.01 N/A

Data source: Mindbody. GAAP = generally accepted accounting principles.

Mindbody had guided for revenue in the range of $63.0 million to $65.0 million and a loss per share, on an adjusted basis, of $0.08 to $0.05. So revenue came in a bit lower than the midpoint of its outlook range, and earnings landed at the high end. CFO Brett White addressed one reason for the somewhat lighter-than-expected revenue on the earnings call:

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.

For additional context -- though long-term investors shouldn't place too much weight on Wall Street's near-term estimates -- analysts were looking for an adjusted loss per share of $0.07 on revenue of $64.0 million. So the company slightly missed the top-line consensus but beat the profit expectation.  

What happened with Mindbody in the quarter?

  • Subscription and services revenue soared 44% year over year to $40.8 million.
  • Payments revenue rose 24% to $22.0 million. 
  • Payments volume jumped 36% to $2.7 billion.
  • The number of business subscribers (at the end of the period) increased 14% year over year to 67.4 million.
  • Monthly average revenue per subscriber (ARPS) grew 19% to $309, up from $259.

What management had to say

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

This was our first full quarter with two distinct go-to-market teams for fitness, beauty and wellness. Our recent acquisitions have introduced greater operational challenges than expected in the back half of the year. Yet we achieved multiple successes in Q3, are in a unique strategic position and are excited about our long term growth opportunities.

CFO White added: 

In the third quarter we delivered the highest average monthly subscription revenue for new subscribers in the history of both the MINDBODY and Booker platforms. As the newly formed Beauty and Wellness team ramps, we expect to continue to grow our target market customer base, increase our platform partnerships and expand our consumer brand into 2019.

Looking ahead

Mindbody continues to rapidly grow revenue. While its loss on a GAAP basis widened and its adjusted results flipped to a loss from a gain in the year-ago quarter, this dynamic was widely anticipated by both the company and investors. 

It issued fourth-quarter guidance as follows:

Period

Revenue Guidance

Projected Year-Over-Year Revenue Change

Adjusted EPS Guidance

Projected Year-Over-Year Adjusted EPS Change

Q4 2018

$65.0 million to $67.0 million

 31% to 35%  

($0.10) to ($0.07) 

 N/A: A projected change from $0.01 in Q4 2017.

Data source: Mindbody. 

Going into earnings, Wall Street had been looking for an adjusted loss per share of $0.06 on revenue of $68.1 million in the fourth quarter. So Mindbody's outlook fell short on both the top and bottom lines. Remember, though, the Street is focused on the near term, so long-term-focused investors shouldn't give its projections much weight.