MINDBODY's (MB) CEO Richard Stollmeyer on Q4 2016 Results - Earnings Call Transcript

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MINDBODY, Inc. (NASDAQ:MB) Q4 2016 Earnings Conference Call February 8, 2017 4:30 PM ET

Executives

Nicole Gunderson - Investor Relations

Richard Stollmeyer - Chief Executive Officer

Brett White - Chief Financial Officer and Chief Operating Officer

Analysts

Michael Nemeroff - Credit Suisse

Darren Aftahi - ROTH Capital Partners

Ian Strgar - UBS

Natasha Asar - JMP Securities

Robert Breza - Northland Capital Markets

Brent Bracelin - Pacific Crest Securities

Brian Essex - Morgan Stanley

George Kelly - Imperial Capital

Operator

Good day, ladies and gentlemen and welcome to the MINDBODY Q4 and Full-Year Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would like to introduce your host for today’s conference, Nicole Gunderson, Investor Relations. Ma’am, you may begin.

Nicole Gunderson

Good afternoon, everyone. Welcome to MINDBODY’s fourth quarter and full-year 2016 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. Today’s call is being recorded and a replay will be made available at investors.mindbodyonline.com. In addition, MINDBODY post supplemental materials to this website and we encourage investors to check there.

Our remarks today will include forward-looking statements including statements relating to our business and growth strategy, expectations relating to high value subscribers, our integration with Google, the performance of the MINDBODY network, operating expenses, net subscriber growth, pricing strategy and projected financial results for Q1 2017 and full-year 2017.

These statements involve the 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 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.

Richard Stollmeyer

Thanks, Nicole. And welcome to everyone joining us on our fourth quarter and full-year 2016 earnings call. 2016 was a great year for MINDBODY. We finished the year with total revenue of $139 million, a 37% increase year-over-year and we achieved profitability in the fourth quarter on an adjusted EBITDA basis one quarter ahead of our previous guidance and more than a year before the expectations we had at IPO.

We substantially evolve our subscriber acquisition strategy to focus on higher value merchants. We now define high value subscribers as those businesses at our starter or above software tiers. These businesses tend to operate in commercial brick and mortar locations, employing multiple practitioners, serve substantial clientele and generate strong payments volume.

In addition, high value subscribers tend to be more durable and produced superior unit economics. Throughout 2016, we increasingly deemphasize the sale and support of our Solo price points. Shifting our marketing spend and sales team compensation to favor a high value subscriber acquisition. This more focused strategy proved so beneficial. We started taking Solos menu in Q4 and remove it entirely on January 1, 2017.

While this materially reduced net subscriber growth throughout the year and particularly in Q4, our strategy shift had minimal impact on revenue growth and was actually accretive to our margins. Brett will speak more about this in his comments. High value subscribers are more interesting to us not only for their superior unit economics, but because they create a far larger inventory of available classes and appointments for the MINDBODY app and MINDBODY network.

Collectively over 60,000 subscribers now offer over 4 million class and appointment sessions per day. The share magnitude of these available services combined with our highly developed API platform has attracted increasingly impactful technology partnerships such as the one we recently announced with Google. Our integration with Google enabled their users to go seamlessly from Google Search and Google Maps into an online booking and payment experience.

This integration is currently being piloted in Los Angeles, San Francisco and the New York Metropolitan areas and we hope to see a rolled out to additional cities soon. This partnership aligns with Google's mission to “organize the world's information and make it universally accessible and useful.” MINDBODY’s information, the aggregated real time availabilities of over 60,000 local businesses worldwide is both valuable and uniquely difficult to obtain.

Making this information truly useful requires a direct business to consumer transaction, which necessitates a direct integration with a deeply embedded cloud business management solution. MINDBODY is the only SaaS provider operating at scale and we have multiple times more subscribers than any one of our closest competitors. From our perspective, the partnership with Google is the next important milestone in our development of the MINDBODY network marketing platform.

Our subscribers have a new universal desire to filter more than 4 million available class and employment sessions, which are typically less than half full. This has been true across more than a decade of us serving the industry. This leaves a huge untapped opportunity to bring more people into these businesses with enhanced marketing and yield management tools.

Our integration with Google combined with the growing popularity of the MINDBODY app deals platform provides our subscribers with a growing spectrum of uniquely powerful marketing opportunities known as the MINDBODY Network. This marketing platform is not yet generating material revenue, but steady adoption continues across our subscriber base and we see this as a long-term game changer for our business. While we are still in the early stages of the MINDBODY Network development, our subscribers are embracing it enthusiastically.

During our Q2 2016 earnings call, we announced more than 2,000 subscribers had opted in to the MINDBODY Network. In Q3, the number surpassed 8,000 subscribers. Today, I'm pleased to announce that we now have more than 12,000 subscribers opted into the MINDBODY Network. Our ultimate vision and mission is the creation of an omnichannel wellness services marketplace. The MINDBODY app and MINDBODY Network are key components of that marketplace because they introduced vast numbers of new consumers to the businesses we serve.

Now with over 330,000 practitioners operating our platform, 5 million registered consumer users of the MINDBODY app and powerful consumer partnerships like Google under our belt, we are well on our way. It is our tradition to comment Q1 on the health of the markets we serve and I am pleased to report that they continue to be strong. In 2016, 100s of operators on our platform open new locations.

And in January, aggregate same-store sales grew consistently across our subscriber base indicating the ongoing health and durability of the wellness markets we serve. They are riding a wave and we are helping them catch it. There are many, many success stories happening across our platform.

And in this call, I’d like to give a shout out to Orangetheory Fitness, the fastest growing brand in boutique wellness. David Long, their CEO and Founder and the Orangetheory team started their first location in Fort Lauderdale, Florida in 2010, and they have led the industry in growth ever since, recently surpassing 600 locations, operating in 13 countries on the MINDBODY platform.

Orangetheory leads the industry and innovation as well successfully leveraging our API to integrate a heart rate monitor, high intensity workout, scientifically designed to spike metabolisms and increase energy. As an international franchise, mostly fitness is enabling hundreds of local entrepreneurs to achieve financial success while increasing the health and happiness of hundreds of thousands of people worldwide. Congratulations Orangetheory Fitness team. We could not be more proud to serve you.

And I am honored to welcome Adam Miller, the Founder and CEO of Cornerstone OnDemand, to our Board of Directors. Adam started Cornerstone in his one bedroom apartment in 1999 to help people realize their full potential. He took assuming capital management software company public in 2011 and has grown the business to an annualized revenue run rate of over $400 million.

Adam is committed to help them wellness as well, actively supporting numerous causes including the Food, Allergy, Research, Education organization FARE and a Team Rubicon which is helping veterans use their skills in disaster response. In addition to his passion for MINDBODY’s vision and culture, Adam brings in valuable experience, wisdom and insight as it successful entrepreneur and public company CEO. Adam, welcome to the team. And I want to thank our team members and our subscribers for yet another great year.

The work you are doing is improving the health and happiness of your communities, yours of the global movement that is connecting people all around the world of all kinds regardless of orders. You are making our world a better place, you inspire us, and we all need more of that.

And with that, I'll turn the call over to our Chief Operating Officer and Chief Financial Officer, Brett White.

Brett White

Thanks Rick. In the fourth quarter, total revenue grew 35% year-over-year to $38.2 million. Subscription and services revenue increased 32% year-over-year to $22.4 million and represented approximately 59% of total revenue. Our software subscription revenue performance was strong, but we did see a bit of a headwind in our transactional API revenue, which underperformed our expectations. Payments revenue increased 44% year-over-year to $15.3 million and represented approximately 40% of total revenue. For the fourth quarter of 2016, 82% of revenue was from the U.S., 18% was international.

For the remainder of my commentary, unless otherwise noted, I’ll discuss non-GAAP results. As a result of the HealCode acquisition in September of 2016, we will now exclude the amortization of acquired intangible asset in addition to the impact of stock-based compensation expense from our non-GAAP results. A reconciliation to the corresponding GAAP result can be found on our website at investors.mindbodyonline.com.

In the fourth quarter, gross margin was 71.2%, a 590 basis point improvement from 65.3% in the fourth quarter of 2015 and a 140 basis point improvement from 69.8% in Q3 2016. Sales and marketing expense, which includes driving new subscriber acquisition, deepening existing subscriber engagement, expanding payment platform adoption and bringing more consumers to our subscribers was $14.5 million or 38% of revenue compared to $11.4 million or 40% of revenue in the fourth quarter of 2015. We expect to continue consistent sales and marketing investments as a percent of revenue through 2017.

R&D expense was $7 million or 18% of revenue compared to $6.5 million or 23% of revenues in the fourth quarter of last year, reflecting our ongoing commitment to expanding the reach and capabilities of the MINDBODY platform. We expect to continue consistent R&D investment as a percent of revenue through 2017. G&A expense was $7 million or 18% of revenue compared to $6.7 million or 24% of revenue in the fourth quarter of 2015, showing continuing leverage. We expect G&A expense to continue to decline as a percent of revenue in 2017.

We demonstrated substantial progress on our path to profitability in the fourth quarter. Adjusted EBITDA was a positive $578,000 or 2% of revenue of revenue and improvement from a loss of $4.3 million or 15% of revenue in the fourth quarter of 2015, demonstrating continuing operational discipline and business model leverage.

Non-GAAP net loss was $1.6 million or 4% of revenue, compared to a loss of $6.5 million or 23% of revenue in the fourth quarter of last year. Non-GAAP EPS was a loss of $0.04 per share, compared to a loss of $0.17 per share in the fourth quarter of 2015. Weighted average shares outstanding for the quarter was approximately $40.5 million. In the fourth quarter, we generated positive cash flow from operations for the first time of $228,000 and used $2.1 million for capital expenditures. We finished the year with a cash and cash equivalent position of $85.9 million and no debt.

Turning to our fourth quarter key metrics. Subscribers grew 17% year-over-year to $60,385 at the end of Q4. We added 1,819 net subscribers during Q4 compared to 2,831 a year ago. As Rick mentioned, throughout 2016, we have been gradually deemphasizing sales of our Solo software tier. In the fourth quarter, we directed most of our sales team to stop selling solo entirely. Consequently, net growth of our solo subscriber base was negative for the first time in the fourth quarter.

At the same time, we are pleased to see the high value subscriber sales actually increased in Q4 to the highest level of the year. In fact, in the fourth quarter we've ordered more high value fitness subscribers and more high value salon/spa subscribers than ever before. These are our two most important markets and we expect steadily increasing high value subscriber growth through 2017. We boarded these new subscribers at the highest average initial monthly subscription revenue in our history, resulting in an increase at approximately 36% year-over-year in net monthly subscription revenue added from new subscribers.

On January 1, we removed the Solo software tier from our website entirely and enabling our sales team to further sharpen their focus on high value subscribers in English eight countries, which are the United States, Canada, UK, Ireland, Australia, New Zealand, Hong Kong and Singapore. We expect solo subscriber base to continue decreasing throughout 2017 while high value subscriber growth continues to increase. We expect a net effect to produce net subscriber growth per quarter in the low to mid 1000 throughout 2017.

The effects of our focus on high value subscribers can already be seen in our average monthly revenue per subscriber or ARPS, which is approximately $212 in Q4 representing 15% growth year-over-year and payments volume, which is $1.74 billion, a 27% increase year-over-year and acceleration from Q3 2016. Our dollar-based net expansion rate was 108% compared to 113% a year ago. Any value more than 100% is great because it indicates that our cohorts of subscribers are consistently gaining value over time.

Our dollar-based net expansion rate metric measures the month of December 2016 compared to December 2015. So it is subject to the impact of holiday timing and yearend adjustments making it potentially more variable than any other month of the year. To illustrate this point, the dollar-based net expansion rate for all three months combined in Q4 2016 was 112% versus 111% for Q4 2015. To recap the full-year, total revenue for 2016 was $139 million, representing 37% growth over 2015.

We showed leverage in our business model with non-GAAP gross margin improving 570 basis points year-over-year. Our adjusted EBITDA margin improved over 1,600 basis points year-over-year and our non-GAAP net margin improved over 1,700 basis points year-over-year. We finished the year with over 60,000 subscribers, record ARPS and nearly $7 billion run rate in annual payment volume.

In January, we introduced a more compelling entry level product for high value subscribers called starter and bundled our branded web solution formally known as HealCode into our Pro and above software tier. Our new pricing strategy is designed to deliver more value to the business we serve while increasing our ARPS and customer lifetime value at the same time.

Our focus for 2017 will be to continue to grow our high value subscriber base while deepening relationships with those subscribers, increasing our consumer user base and engaging with high value partners. We will do so by focusing on the hyper capita income English eight countries where we have a strong existing subscriber base and an enormous desirable market to go after.

Turning to guidance. For the first quarter of 2017, we expect revenue to be in the range of $41.6 million to $42.6 million or 30% to 33% growth from the first quarter of last year. We expect non-GAAP net loss to be in the range of $1.1 million to $2.1 million and weighted average shares outstanding for the first quarter of approximately 40.8 million shares.

For the full-year 2017, we expect revenue to be in the range of $179 million to $182 million reflecting the full-year growth of approximately 29% to 31%. We expect non-GAAP net loss to be in the range of $2.7 million to $5.7 million. In 2017, we will be holding both our Annual Subscriber Conference in Q3 instead of Q4 as in previous years. This change will cause Q3 non-GAAP net loss to be approximately flat from Q2.

In summary, we are very pleased with our strong performance and execution in 2016 enabling us to achieve positive adjusted EBITDA in Q4 while continue to expand our leadership position across our target markets worldwide.

With that, I will open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Michael Nemeroff from Credit Suisse. Your line is now open.

Michael Nemeroff

Thanks for taking my questions guys. Nice job on the quarter. Rick, it's interesting and refreshing to hear you talk about the unit economics of the business, because I know that you track it very closely. We've done some work around this as well and, sometimes, we see a decline in that CLTV to as companies transition where there's a meaningful change in churn. I'm curious how your internal calculation of the CLVT to CAC has changed throughout 2016 and what you see that - where you see that going over the next year or two. And then I have a follow-up for Brett please.

Richard Stollmeyer

Sure. What we thought as we were developing this high value subscriber growth strategy, the LTV to CAC and really every component of the unit economics going in the right direction. There's a great benefit in our business to that kind of focus and it's important to remember that in addition to not generating significant revenue, the follow subscribers were also adding to our cost of delivery and our cost of acquisition and they generally churned higher than the higher value brick and mortar subscribers. So we're very pleased. LTV to CAC right now is running significantly higher than it was at IPO and we expected to continue to increase.

Michael Nemeroff

That's great. And Brett, each quarter, the payment take rate increases and you tell us not to get too excited and overestimate. I guess the question is why shouldn't we extrapolate this positive trend that we've been seeing? Where is the theoretical limit there? And then also, you mentioned, in your prepared remarks that the API platform underperformed relative to expectations. I was curious if you can quantify that and just maybe comment on why that was. Thank you.

Brett White

Sure. So I’ll take the first one first, right, I think there is a theoretical maximum on the take rate. I am not willing to guess what that is on this call, but I think 100 basis points would be really high and we're at 87.8, it could continue to increase, but I wouldn't expect huge improvements certainly not in the model just let us work through that and see how we come out.

The second question is can I quantify, yes, so the API revenue from our largest API partner actually decreased sequentially and it was a meaningful number and why on that was in November. I believe they changed their pricing model where they used to have unlimited consumers and consumers could access unlimited numbers of classes and they eliminated the unlimited feature which impacted revenue.

Michael Nemeroff

Okay. That's very helpful. Thanks very much, guys.

Richard Stollmeyer

Thanks Michael.

Operator

Our next question comes from Darren Aftahi from ROTH. Your line is now open.

Darren Aftahi

Hey, guys. Thanks for taking my questions and congrats on the quarter and reaching positive EBITDA. Can you talk a little bit about partnerships? Obviously, you have the Google partnerships - and where you guys are and what other potential strategics may make sense? And then secondly, can you give the payment number run-up to the MINDBODY platform in the quarter? And then lastly, as we think about the balance between growing the business, reaching adjusted positive adjusted EBITDA and then further operating leverage, can you give us a little bit of color on kind of the balance between that going forward? Thanks.

Richard Stollmeyer

So I’ll take the first and second questions and then Brett can go after - the first and third and Brett can go for the second. So with regard to partnership, each of the partnerships we've done has caused us to further build out our API platform and increase the capabilities, specifically the durability, the scale ability and the scope of abilities of the APIs.

So Google is obviously a very large partner and it's exciting on multiple levels, I mean first obviously just the enormous consumer audience that that they could bring to our subscribers. But also because it sets the stage for multiple of the partnerships and the kind of partnerships that we looked to are those where there are very large consumer audiences, who desire or maybe even not quite yet realize, they desire the services of our subscribers.

On the second piece, in terms of profitability, our general trajectory is just gradually be improving profitability, sequentially. And as Brett mentioned, there may be quarter's worth kind of flat. You mentioned that Q2 to Q3 phenomenon because of the ball conference, but we expect EBITDA profitability to continue to improve gradually and as well as - so we get to the point of free cash flow positive, which is not too far away and then net income, actually GAAP net income positive as well. So Brett, you want to talk more about that?

Brett White

Sure, and then the second question was - can I give you the dollar through the platform. We're actually not publishing that number any longer. We've got a bit of internal debate on how meaningful it really is. So we're just going to be talking about payment dollars through our platform, that’s the number we can measure really tightly and the number we focus on.

Darren Aftahi

Got it, thanks.

Richard Stollmeyer

Thanks, Darren.

Operator

And our next question comes from Ian Strgar from UBS. Your line is now open.

Ian Strgar

Hey, guys. Thanks for fitting me in. You referenced, on the release that Salon & Spa, the largest sub-vertical in your TAM, performed well. I'm just wondering if you guys can give any more color or metrics around how that performed in the quarter.

Richard Stollmeyer

Well, salon and spa is now the second largest fastest growing vertical in our markets in absolute terms, and on a percentage basis would be the leader. However, it's important that you understand that the fitness industry is not falling down for us at all, in fact that fitness subscriber growth as Brett mentioned is the largest we’ve ever had in Q4, and we see that continuing into the first quarter.

Ian Strgar

Okay, got it. And then if I could squeeze a second one in, I'm just wondering if you guys can give any color around the price increase and how that has been received since the start of the year with some of your longer customers, and if you expect that price increase to impact churn at all?

Richard Stollmeyer

So it's really a tale of the two categories of subscribers. You've got your Solos and your high value subscribers. For the Solos, by the way it’s no longer on the menu, but Solo price points for the legacy customer is still on it is now $55, and for those who have been tracking us for all years you may remember couple of years ago Solo was $25.

So that is caused a material change in retention and we expected it, frankly it's our intention and what we see happening right now is the majority of the Solos are probably going to be peeling off a platform in the year ahead, but with a significant number we hope we'll actually convert over to the start or above price points, the one that are running really meaningful businesses frankly and not just hobbyists.

And you have the second part of the question, sorry, I'm sorry I want to talk about the high value veterans. We're seeing no material change in subscriber attrition in the high value subscriber points, in fact just looking at January, I think we can share with you that subscriber attrition of the high value subscriber categories, which is the vast majority is on par with previous period. And this is consistent with the past years when we've adjusted our pricing.

I mean our price points are frankly immaterial in the operating cost of these businesses, my wife’s business. She has the monthly operating expenses around $28,000 and that’s a small spa wellness center in a small town. If you're running one of those businesses in New York City or Santa Monica, your operating expenses could be $50,000, $60,000 a month easily. So our subscription revenues are not of the great concern to most of our subscribers.

Ian Strgar

Got it. That's great to hear. Good job on the quarter guys. Thanks.

Richard Stollmeyer

Thank you.

Brett White

Thanks, Ian.

Operator

And our next question comes from Patrick Walravens from JMP Securities. Your line is now open.

Natasha Asar

Hi. This is Natasha on for Pat, sorry about that. We saw that the customer ads and our attention is the worse in a while, if you guys have any color on that, could you please let us know?

Richard Stollmeyer

So I think you are speaking of dollar-based net expansion and customer retention, our customer acquisition - subscriber growth. Yes. So actually, Natasha, when we look at high value subscribers, Q4 was the best high value subscriber growth of the year and very close to the best we've ever had.

And we're adding them at significantly higher subscription revenue, so actually the aggregate net new subscription revenue we're adding is by far the highest we've ever had and a significant year-on-year growth. I think it's around 38% increase as Brett mentioned. So it's not a deceleration at all. What was the second part?

Brett White

There is the dollar based expansion.

Richard Stollmeyer

Yes, Brett, do you want to take that?

Brett White

That’s the nuance of the dollar-based expansion rate calculation. It is a month on a month. So it comparing the month of December 2016 to the month of December 2015. And so December at the end of the year, and so that’s when there are holidays, adjustments things like that and it can really move that number around quite a bit, so that's why I provided the fourth quarter number, which was great.

And so I'll give you an example. In November because Thanksgiving was earlier this year and right after Thanksgiving are really high payments volume based. The fact that Thanksgiving was earlier November; you actually pulled high value payment days out of December into November. So no effects on the quarter, but it had a meaningful effect on the December metric. So that's why I gave you the combined full three months metric to help you see that. So it was 112 in Q4, if you look at the full quarter for month-to-month.

Richard Stollmeyer

I think it's important to know that remember that any dollar-based net expansion greater than 100% is great. That means the portfolio is gaining value under its own momentum. And I guess to kind of get at the heart of your question. We don't see a deceleration in dollar-based expansion over time. I mean gradually over time at ought to continue to increase, but you're going to see variability from quarter-to-quarter for the reasons that Brett just described.

Natasha Asar

Okay, great. Thank you.

Operator

And our next question comes from Robert Breza from Northland Capital Markets. Your line is now open.

Robert Breza

Hi. Thanks for taking my questions. Congratulations on the quarter. Either for Brett or Rick, I was wondering if you could talk about the impact of removing solo as it relates to both the North American/international markets and within that, Rick if you could address the high value customers as it relates to the different geographies, we would love to just get some more color and insight? Thank you.

Richard Stollmeyer

Sure. So first of all the Frost & Sullivan study that was completed before the IPO was only measuring brick and mortar businesses and they found more than $4 million, brick and mortar meaning commercial location businesses in the markets around the world in which we already had a presence.

And so we're moving solos from our focus doesn't change that at all. Now what we have done, as we've said what let's focus right now, our growth on those markets where we already have a measurable brand presence and we have integrated payments and we have significant users of the MINDBODY app because that's how you get the network effects. And so what we've done as we've focused on the English eight countries and we listed those. Those are the hyper capita income English countries where you have great banking systems. We have existing integrated payment partnerships that work very well.

And what we're seeing is that the ARPS generation, the dollar-based net expansion, the gross margin of those business is significantly better. So while that is a subset of the overall global market opportunity it's still a massive opportunity, certainly well north of a million businesses they go after.

Right now that are extremely exciting. And even more important the ARPS potential and the lifetime value potential is much higher than the assumptions that went into the Frost & Sullivan study which actually said, hey, they took the 4.2 million businesses and took it out at the ARR that we were talking about the time, it came up with a little over 9 billion in TAM.

We're looking at many billions of dollars and opportunity right now and the art of this is aiming where we have the best opportunities right now and getting that market share and building that network effect.

Robert Breza

Great. Thank you.

Operator

And our next question comes from Brent Bracelin from Pacific Crest Securities. Your line is now open.

Brent Bracelin

Great. Thanks for taking the questions here. I guess the first question is really around net sub adds in an environment where you are increasing price here and changing some of the focus increasingly towards higher value subscribers. This quarter, net sub adds were I think in that 1,800 range, kind of before the price hike. How should we think about the net sub adds in 2017? Should we be thinking about 1,500 plus or minus 300 adds a quarter, and so we are going to be in the subdued net sub add environment as you kind of focus on the higher-quality subscribers, or do you think there is an environment where you can get back to 2,000 plus a quarter?

Richard Stollmeyer

I think we can give you some more color for the listeners here. In the fourth quarter, we had greater than 600 net negative Solo net sub growth. So since you see that we have an 1,800 aggregate sub growth that means that high value net subscriber growth was in the 2,400 range. That number we expect to keep growing, but the Solo that are there we expect to kind of continue to boil off if you will.

So we think - but the impact of that on revenue is very low and it actually has a positive impact on our margin. So what we are dialing our team to right now results and aggregate net sub growth, the numbers that you guys see that are really accounted in the low-to-mid 1000. And I guess what we really want to emphasis is that that's not a bad thing. It's actually better for our business. We really like what we're seeing.

Brett White

Low-to-mid 1000 to be clear.

Richard Stollmeyer

Yes, thank you.

Brent Bracelin

I had written down 10,000, but might be few years from now.

Richard Stollmeyer

Give us a couple years.

Brent Bracelin

Yes. The second question from me is just back on the payments and volume side, as we think about that increase. It looks like the highest year-over-year increase in payments per subscriber. And my question is, is that tied to just the mix shift towards higher value subscribers and generating more payment revenue, or is there a contribution now that you're starting to see from MyFitnessPal show up in the payment volume revenue stream?

Richard Stollmeyer

It’s the former. What you see right now, as you're starting to see the accumulating effect of focusing on higher value subscribers. We always knew it was going to take several quarters for that to take hold and it's really happening for obvious reasons. I mean every subscriber now means considerably more number of practitioners and more customers that result in more transaction.

It's also the benefit of more and more people using our MINDBODY apps, as well as our partners. With respect to the Under Armour partnership, to be really candid, we're disappointed that Under Armour, MyFitnessPal hasn’t done more to promote activity on the MyFitnessPal app. I think they get a beautiful job of the integration, but as of yet we haven't seen them driving a lot of traffic. It's a different matter. Google is much more serious about our long-term strategy here.

Brent Bracelin

Interesting. Have you seen more leads from Google so far than Under Armour?

Richard Stollmeyer

Really to comment on, I remember that the month of January is a pilot where we just have three cities and they are just now starting to gradually roll it out, but we’re expecting significant progress on this in the months ahead.

Brent Bracelin

And my last question, you obviously have Under Armour, you have relationship with Google and you’ve talked about kind of other strategic partners that you are working with or are there others that that you're actively kind of talking to as well beyond the two that now are announced?

Richard Stollmeyer

Why don’t you love it if I answer that question? Yes, I know I couldn’t, but we've done our strategy and if you were sitting in our chairs, you would know who you would, we're aiming at and there are some exciting brands out there, who are very interested in what we're doing and when you look at the volume of activity, the 4 million class and appointments sessions per day.

The fact that less than half of them are typically sold every day. There's a huge opportunity for yield management. Think about these partnerships and the development of the MINDBODY app as building rail that connect our subscribers to larger consumer audience, and think about the multiple ways that we can put more inventory on those rails. Right now you see intro offers in the MINDBODY app, that's just the beginning. There is more and more that you can expect this to be doing in the quarters ahead that puts more freight on those rails.

Brent Bracelin

Fair enough. Thank you so much guys.

Richard Stollmeyer

Thank you, Brent.

Brett White

Thanks, Brent.

Operator

And our next question comes from Brian Essex from Morgan Stanley. Your line is now open.

Brian Essex

Good afternoon. Thank you for taking the question. I was wondering if I could talk a little bit about the cohorts that you're bringing on. And specifically, if I think about the solo coming in at $50 and Starter coming in at $75, how does how to the components of your LTV and CAC measure up? And how should we think about lift as you're kind of cycling off the solos and you're adding the higher value customers onto the platform?

Richard Stollmeyer

Well, so first of all just slight correction. The new price for Solo is US$55.

Brian Essex

Okay.

Richard Stollmeyer

And actually considerably more overseas by conversion to U.S. dollars. Well, so what we see as you would expect higher value merchants have a somewhat higher cost of acquisition and these are more serious businesses. They are looking more circumspect in their decision making, but they have a much higher parts generation and a significantly better or stickiness. These are businesses that tend to be better capitalized. They put more thought into their business plan. They find leases in better locations.

And so what we see here is LTV to CAC in an economics just really rapidly going in the right direction. And we also see that that if beneficial for dollar based net expansion. I mean one of the things that I think that we hope back when we really started going after Solos. In Solos were reduced in 2014 and we were kind of on boarding them and increasing numbers in those first several quarters.

We hope to see this sort of expansion happening in them, and there was just no way to know until we did it that it just wasn't happening in material ways. And the Solos that are which were a small subset, the more serious features, trainers, therapist, the stylist, well they're easily just going to go to the starter package, which is $75. So it's really a nice way to filter out the ones that really just probably aren't appropriate for a platform. Is that good as your question?

Brian Essex

Yes, somewhat. We can dig into more minutia afterwards. But I guess the follow-up I wanted to ask is, in terms of the Google partnership, could you offer a little bit more detail in terms of what you're responsible for in that partnership, who's driving the content, and what's some benchmarks for measuring success that might be?

Richard Stollmeyer

So we have an entire API development team focusing on that partnership. We have a senior product manager is doing an excellent job. He actually came from Amazon before he joined us and what we're focusing on right now what they want to be very careful of is that we have the rails built strong enough to handle that kind of activity, the kind of search and booking and payment activity that their users could easily drive.

So that's why we don't just see them throwing the switch. What they're doing is gradually testing. It's really quite fascinating to see how Google does this as the combination of dog-fooding going on, which is Google employees. There's an actual URL for a reserve with Google. That's not the endpoint. The endpoint is that's where the thing is being tested and then it’s ultimately connected to Google Search and Google Maps and then some other properties probably. Our job here is to prove that our system can reliably deliver the kind of volume of activity that they might drive, number one.

Number two, get more and more of our subscribers opted in. So for a business to appear in the Google reserve integration, they have to have agreed to be part of our MINDBODY network, which means that they're going to pay a 10% marketing fee every time a class or appointment is booked through Google.

And so driving those numbers up has been our key goal. And this is not a difficult thing to sell to our clients. We actually have a MINDBODY University going on it at our headquarters today over a 100 of our clients are here. They're totally enthusiastic about it. So it's just a matter of communicating. So we have over 12,000 people opted in now that mainly concentrated in North America because that's where the integration is and we expect to drive that up.

And then the second part of it is getting more and more inventory. So right now if you go check out reserve with Google, you're only going to see the standard single drop-in price point, in other words a single class, a single yoga class for $25 for example. The near-term opportunities are to get the introductory offers out there.

Of course, those will be a more powerful called action and then of course after that there's opportunities from multi-session classes, ability for memberships to be purchased. And then of course there's opportunities for things like yield management, dynamic pricing. These are some of the things that we and Google are very excited about.

Brian Essex

Is the intent that just through the standard search engine that you get the reserve with Google content?

Richard Stollmeyer

Yes, absolutely. Yes, you go straight from searching for Pilates in New Jersey to finding a studio, finding a wife's studio to seeing what her available classes are to actually booking it straight from search.

Brian Essex

I think did they provide their content or is that your content?

Richard Stollmeyer

They have the Google box that appears when you search for things and you click on business, you see detail, there is photos, there is a Google reviews. The idea is that the actual transaction functionality which says, show me the upcoming classes and the ability to select a class and purchase it. That's all riding on our rail and you actually see are powered by MINDBODY when you get to that stage.

Brian Essex

Got it. Very helpful. Thank you.

Richard Stollmeyer

Thanks, Brian.

Operator

[Operator Instructions] And our next question comes from George Kelly from Imperial Capital. Your line is now open.

George Kelly

Hey, guys. I have a few questions. First, you were just talking about the Google partnership, when do you expect it to expand into additional cities?

Richard Stollmeyer

Well, they've really - they work closely with us right now and they really ask us not to signal those things that of course they're completely in control of that pipeline. But we think the project is progressing rapidly.

George Kelly

Okay, got you. And then secondly, I hear - it seems like several times during this call, you've brought up kind of an omni-channel marketplace, whether it's Google or your own app, or - I'm really getting subscriber inventory in as many places as possible. And your app is a very important place for that. And I was wondering if you could give any more kind of metrics or what you've learned over the last year about how your customers, how users, are interacting with the app, what kind of volume is flowing through it? Anything you can talk to with your own customer app would be great.

Richard Stollmeyer

The app is experiencing great success. It's actually - it's really to be candidates, it’s really exciting for us to see. We're not sharing specific metrics. We can tell you that percentage growth and searches, and booking, and purchases, and ratings, and reviews and deal purchases is high double-digit year-on-year, triple digits in some of those categories.

So it’s coming along really nicely. But of course, we've got a registered user base to five million people. That's a lot of people to us, but we want to open up channels that are hundreds of millions of people. So we've always seen it as a dual strategy. We think we can develop a meaningful consumer brand and attract a lot of engagements, but at the same time let's play ball with the other big consumer brands.

George Kelly

Absolutely. And I guess just to tie it back into the part, you mentioned sort of one of the goals, longer term goals is more yield management kind of tool. Would you suspect that over time that stuff would be available on your app as well?

Richard Stollmeyer

Absolutely. The capabilities that we're building are all being built API can be surface through any web, mobile or social channel. And those are the things and you think about the revolution that happened in travel and hospitality with brands like Priceline and Uber and Travelocity when dynamic pricing was introduced. That fundamentally changed those markets; well that's what the folks that we're serving are looking for.

We always go back to our North Star and our North Star is anything that's going to help the businesses and the practitioners we serve succeed is going to - long-term be good for us as well. And they're very excited about this and we're excited to be delivering it, it's been a significant part of our R&D spend in the trailing couple of years to build that platform out.

George Kelly

Great. Two last questions, both numbers oriented questions. One, I think you talked to gross margin expectations for 2017 and I missed that. And then secondly, could you give the trailing 12-month seats booked that you've given on prior calls?

Richard Stollmeyer

We're going to have one of our guys right here, he is going to look to see if he's got that handy. We can’t find it during the call. We'll post it up on our Investor website because we've got the numbers and they've grown significantly, but Brett you want to take the….

Brett White

Yes, actually I did not provide gross margin guidance.

George Kelly

Okay. Gotcha.

Brett White

So that answer is really easy.

Richard Stollmeyer

So I’ll tell you why, so we can keep moving George, if we get it before the call is over we'll go ahead and say publicly on the call.

George Kelly

Great. Thank you.

Operator

And at this time, I am showing no further questions. I would like to turn the call back over to Nicole Gunderson for any closing remarks.

Richard Stollmeyer

Actually now I'll go ahead and take the closing remarks. I just want to tell everyone and convey the fact that the global MINDBODY team is entirely united around a vision that we've had for more than 15 years leveraging technology to improve the wellness of the world. We're realizing that vision now by building something that's never been created before and that is a transaction enabled marketplace for wellness services.

And our strategy as those who have been following us as you've seen continues to evolve. That's one of our core values, continuously evolving. You can expect us to keep doing that to keep refining, to keep focusing and doing the things necessary to achieve our vision and our mission. And the team is really aligned and really excited for the year ahead, so I just wanted to convey that. Thanks to everyone for listening in and a great year ahead.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now all disconnect. Everyone have a great day.

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