Mindbody (MB) Sends Bears into Hibernation after Reporting Q3 Results
Shares of Mindbody are racing higher today after the company delivered revenue growth of 35.4% to $35.3 million (beating by $280K) and EPS of -$0.09 (beating by $0.03) versus -$0.19 in Q3 of last year. There is a lot of good news to digest, starting with management’s guidance that it will be EBITDA-profitable earlier than expected. It’s now looking to Q1 2017 to deliver its first EBITDA profit, and to Q4 2017 for adjusted EPS breakeven. Both are major milestones that typically justify a higher valuation for the stock. A higher valuation for a company that will likely have revenues over 30% higher a year from now should translate into a very nice return over the next 12 months!
Revenue growth is being powered by payments revenue (38.2% of total revenue), which was up 41%, and subscription and services revenue (60% of total revenue), which was up 33%. Subscriber count grew 20% to 58,566 (the most added in a quarter this year, despite a 50% increase in cost for the Solo-level product). Over $1.6 billion worth of payments flowed through the Mindbody platform (up 26%).
Monthly revenue per subscriber (ARPS) was up 12% to $204. These numbers are all at, or slightly above, analyst expectations. The company is scaling the business up, and the benefits (i.e., lower costs from payment process partners, more online bookings, incremental growth through partnerships and acquisition, etc.) are showing in the results. The company has $86.3 million in cash. Lastly, management increased full-year guidance from $137-$139 million to $138.5-$139.5 million (representing growth of 36.6% to 36.7%).
Other details: Mindbody is ramping up international sales efforts (Canada, U.K., Ireland, Australia and New Zealand), which represented 18% of revenue in Q3 (up 50%), and is focused on deepening relationships with largest fitness and wellness customers (representing thousands of locations worldwide). Customer-branded apps (Engage by MINDBODY) are catching on, the acquisition of HealCode (September, 2016), which makes web widgets, has brought one of the company’s largest customer-facing partners in-house, and MINDBODY app users are up 96% to over four million.
The company’s fee-based marketing platform (now called MINDBODY Network) launched earlier this year and had 2,000 subscribers at the end of last quarter; it now has over 8,000. The partnership with Under Armour’s MyFitnessPal app extends Mindbody’s reach to another 16 million users (Mindbody typically gets around 10% of a customer’s booking fee, but won’t divulge revenue share details with this new partnership). That’s a huge number of potential new users that could book through MINDBODY.
Other notes of interest: Management said its core app user is a college-educated woman with income over $100,000. The company’s rollout strategy is based on a network effect (lots of people looking for lots of classes/haircuts/etc. within a concentrated area with lots of businesses on Mindbody’s platform), so it’s international growth strategy is to focus on English-speaking countries where it can achieve customer density quickest.
Bottom line: Mindbody appears to be firing on all cylinders. And the bears are running for cover today with the stock up over 10%. We’re up around 14%. Keeping at Buy, but advise staying on the sidelines for a few days so we can better asses the tenacity of this rally.BUY.
LeMaitre Vascular (LMAT) Overdelivers Again
Shares of LeMaitre are also rallying over 10% after the company reported Q3 revenue growth of 22% to $23.2 million (beating by $1 million) and EPS growth of 48% to $0.17 (beating by $0.02). Both Americas and International sales were up 22%. XenoSure biologic patch (up 59%) and Valvulotmes (up 26%, despite a short-lived voluntary recall in LeMaitre’s HYDRO Valvulotme) were the fastest growing products. Production efficiencies helped gross profit margin improve to 73.3% from 71%. And the Baxter Vascu-Guard recall (a competitor’s peripheral vascular patch) that helped LeMaitre last quarter also helped generate an additional $1.4 million in incremental XenoSure patch sales in Q3. The company thinks it can retain around $500K of related sales in the next quarter as some loyal customers begin to return to Baxter for their patches (LeMaitre thinks it can retain around 35% of new customers). It also raised guidance for the year by 1%, and now expects 14% revenue growth in 2016.The company also has $34.7 million in the bank, which will help it pursue more acquisitions, stock buybacks and a dividend hike. Management indicated that it could pursue an acquisition up to around $60 million by using cash and issuing some debt at record low levels. It has a shelf registration for an equity raise on file, but it’s clear that’s a last resort (which is good for investors). We’re up around 34%, and I suggest holding the stock. HOLD.Next up is LogMeIn (LOGM), which will report after the bell today. We should get an update on the business outlook post-GoTo merger. I’ll include a summary in tomorrow’s Weekly Update.