mb-10q_20160630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 001-37453

 

MINDBODY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-1898451

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4051 Broad Street, Suite 220

San Luis Obispo, CA 93401

(Address of principal executive offices and zip code)

(877) 755-4279

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No  ¨ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

o

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a small reporting company)

  

Small reporting company

 

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No x

As of July 26, 2016, the registrant had 19,732,441 shares of Class A common stock, and 19,992,998 shares of Class B common stock outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

5

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

6

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015

7

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Year Ended December 31, 2015 and the Six Months Ended June 30, 2016

8

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

9

 

Notes to Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 6.

Exhibits

56

Signatures

57

Exhibit Index

58

 

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

 

·

our ability to attract and retain subscribers;

 

·

our ability to deepen our relationships with existing subscribers;

 

·

our expectations regarding our subscriber growth rate, average revenue per subscriber, the usage of our payments platform and our dollar-based net expansion rate;

 

·

our business plan and beliefs and objectives for future operations, including regarding our pricing and pricing model;

 

·

benefits associated with use of our products and services;

 

·

our ability to develop or acquire new products and services, improve our existing products and services and increase the value of our products and services;

 

·

our ability to further develop strategic relationships;

 

·

our ability to achieve positive returns on investments;

 

·

our plans to further invest in and grow our business, including investment in research and development, sales and marketing, in the development of our customer support teams, and our data center infrastructure, and our ability to effectively manage our growth and associated investments;

 

·

our ability to timely and effectively scale and adapt our existing technology;

 

·

our ability to increase our revenue and our revenue growth rate;

 

·

our future financial performance, including expectations regarding trends in revenue, cost of revenue, operating expenses, other income and expenses, income taxes, subscribers, average monthly revenue per subscriber and payments volume;

 

·

the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements;

 

·

the effects of seasonal trends on our operating results;

 

·

the sufficiency of our efforts to remediate our past material weaknesses;

 

·

our ability to attract and retain senior management, qualified employees and key personnel;

 

·

our ability to successfully identify, acquire and integrate companies and assets;

 

·

our ability to successfully enter new markets and manage our international expansion; and

 

·

our ability to maintain, protect and enhance our intellectual property and not infringe upon others’ intellectual property.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations

3


disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

 

 

4


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MINDBODY, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

87,910

 

 

$

93,405

 

Accounts receivable, net of allowance for doubtful accounts of $144 and $90 as of

   June 30, 2016 and December 31, 2015

 

 

8,017

 

 

 

6,643

 

Prepaid expenses and other current assets

 

 

3,644

 

 

 

3,082

 

Total current assets

 

 

99,571

 

 

 

103,130

 

Property and equipment, net

 

 

34,013

 

 

 

31,754

 

Intangible assets, net

 

 

484

 

 

 

636

 

Goodwill

 

 

5,396

 

 

 

5,396

 

Other noncurrent assets

 

 

498

 

 

 

498

 

TOTAL ASSETS

 

$

139,962

 

 

$

141,414

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,424

 

 

$

4,426

 

Accrued expenses and other liabilities

 

 

9,666

 

 

 

7,911

 

Deferred revenue, current portion

 

 

4,124

 

 

 

3,367

 

Other current liabilities

 

 

669

 

 

 

645

 

Total current liabilities

 

 

20,883

 

 

 

16,349

 

 

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent portion

 

 

2,614

 

 

 

1,886

 

Deferred rent, noncurrent portion

 

 

1,340

 

 

 

1,254

 

Financing obligation on leases, noncurrent portion

 

 

15,750

 

 

 

15,961

 

Other noncurrent liabilities

 

 

188

 

 

 

181

 

Total liabilities

 

 

40,775

 

 

 

35,631

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, par value of $0.000004 per share; 1,000,000,000 shares authorized,

   19,644,157 shares issued and outstanding as of June 30, 2016; 1,000,000,000 shares authorized,

   14,931,016 shares issued and outstanding as of December 31, 2015

 

 

 

 

 

 

Class B common stock, par value of $0.000004 per share; 100,000,000 shares authorized,

   20,080,000 shares issued and outstanding as of June 30, 2016; 100,000,000 shares authorized,

   24,296,346 shares issued and outstanding as of December 31, 2015

 

 

 

 

 

 

Additional paid-in capital

 

 

276,954

 

 

 

270,436

 

Accumulated other comprehensive loss

 

 

(241

)

 

 

(271

)

Accumulated deficit

 

 

(177,526

)

 

 

(164,382

)

Total stockholders' equity

 

 

99,187

 

 

 

105,783

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

139,962

 

 

$

141,414

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


MINDBODY, INC.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

33,561

 

 

$

24,760

 

 

$

65,568

 

 

$

47,023

 

Cost of revenue

 

 

10,713

 

 

 

8,809

 

 

 

20,685

 

 

 

17,502

 

Gross profit

 

 

22,848

 

 

 

15,951

 

 

 

44,883

 

 

 

29,521

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

13,706

 

 

 

11,820

 

 

 

26,935

 

 

 

21,537

 

Research and development

 

 

7,594

 

 

 

5,476

 

 

 

15,011

 

 

 

10,201

 

General and administrative

 

 

7,681

 

 

 

7,262

 

 

 

15,204

 

 

 

14,042

 

Change in fair value of contingent consideration

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Total operating expenses

 

 

28,981

 

 

 

24,547

 

 

 

57,150

 

 

 

45,769

 

Loss from operations

 

 

(6,133

)

 

 

(8,596

)

 

 

(12,267

)

 

 

(16,248

)

Change in fair value of preferred stock warrant

 

 

 

 

 

125

 

 

 

 

 

 

(25

)

Interest income

 

 

40

 

 

 

3

 

 

 

56

 

 

 

6

 

Interest expense

 

 

(332

)

 

 

(266

)

 

 

(660

)

 

 

(283

)

Other income (expense), net

 

 

(61

)

 

 

(53

)

 

 

(136

)

 

 

(92

)

Loss before provision for income taxes

 

 

(6,486

)

 

 

(8,787

)

 

 

(13,007

)

 

 

(16,642

)

Provision for income taxes

 

 

64

 

 

 

62

 

 

 

137

 

 

 

68

 

Net loss

 

 

(6,550

)

 

 

(8,849

)

 

 

(13,144

)

 

 

(16,710

)

Accretion of redeemable convertible preferred stock

 

 

 

 

 

(4,403

)

 

 

 

 

 

(9,862

)

Deemed dividend—preferred stock modification

 

 

 

 

 

 

 

 

 

 

 

1,748

 

Net loss attributable to common stockholders

 

$

(6,550

)

 

$

(13,252

)

 

$

(13,144

)

 

$

(24,824

)

Net loss per share attributable to common

   stockholders, basic and diluted

 

$

(0.16

)

 

$

(0.87

)

 

$

(0.33

)

 

$

(1.88

)

Weighted-average shares used to compute

   net loss per share attributable to common

   stockholders, basic and diluted

 

 

39,706,473

 

 

 

15,267,325

 

 

 

39,578,246

 

 

 

13,231,844

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


MINDBODY, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(6,550

)

 

$

(8,849

)

 

$

(13,144

)

 

$

(16,710

)

Other comprehensive gain (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cumulative translation adjustment

 

 

(18

)

 

 

(9

)

 

 

30

 

 

 

(71

)

Comprehensive loss

 

$

(6,568

)

 

$

(8,858

)

 

$

(13,114

)

 

$

(16,781

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

7


MINDBODY, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholder’s Equity (Deficit)

(in thousands, except share data)

(Unaudited)

 

 

 

Redeemable

 

 

 

Class A

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

and B Common Stock(1)

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2014

 

 

20,454,489

 

 

$

166,448

 

 

 

 

11,189,360

 

 

$

 

 

$

 

 

$

(132

)

 

$

(124,793

)

 

$

(124,925

)

Reclassification of restricted stock award liability to

   common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88

 

 

 

 

 

 

 

 

 

88

 

Deemed dividend—preferred stock modification

 

 

 

 

 

(1,748

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,748

 

 

 

1,748

 

Accretion of redeemable convertible preferred stock

   to redemption value

 

 

 

 

 

9,862

 

 

 

 

 

 

 

 

 

 

(4,613

)

 

 

 

 

 

(5,249

)

 

 

(9,862

)

Issuance of common stock upon initial public

   offering, net of offering costs of $4,024

 

 

 

 

 

 

 

 

 

7,150,000

 

 

 

 

 

 

89,069

 

 

 

 

 

 

 

 

 

89,069

 

Conversion of redeemable convertible preferred stock to

   common stock in connection with initial public offering

 

 

(20,454,489

)

 

 

(174,562

)

 

 

 

20,673,680

 

 

 

 

 

 

174,562

 

 

 

 

 

 

 

 

 

174,562

 

Reclassification of preferred stock warrant liability to

   equity in connection with initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,213

 

 

 

 

 

 

 

 

 

1,213

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,375

 

 

 

 

 

 

 

 

 

8,375

 

Issuance of common stock for equity awards

 

 

 

 

 

 

 

 

 

34,140

 

 

 

 

 

 

242

 

 

 

 

 

 

 

 

 

242

 

Issuance of common stock upon net exercise of warrants

 

 

 

 

 

 

 

 

 

76,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for business acquisition

 

 

 

 

 

 

 

 

 

103,617

 

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

1,500

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139

)

 

 

 

 

 

(139

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,088

)

 

 

(36,088

)

Balance as of December 31, 2015

 

 

 

 

 

 

 

 

 

39,227,362

 

 

 

 

 

 

270,436

 

 

 

(271

)

 

 

(164,382

)

 

 

105,783

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,296

 

 

 

 

 

 

 

 

 

4,296

 

Issuance of common stock for contingent

   consideration payment

 

 

 

 

 

 

 

 

 

207,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for equity awards

 

 

 

 

 

 

 

 

 

136,474

 

 

 

 

 

 

543

 

 

 

 

 

 

 

 

 

543

 

Issuance of common stock under employee stock purchase plan

 

 

 

 

 

 

 

 

 

153,087

 

 

 

 

 

 

1,679

 

 

 

 

 

 

 

 

 

1,679

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,144

)

 

 

(13,144

)

Balance as of June 30, 2016

 

 

 

 

$

 

 

 

 

39,724,157

 

 

$

 

 

$

276,954

 

 

$

(241

)

 

$

(177,526

)

 

$

99,187

 

 

(1)

The activity through June 24, 2015 reflects the sole class of common stock authorized through the closing of the IPO on June 24, 2015, at which point the Company’s certificate of incorporation was amended and restated to authorize Class A and Class B common stock. All capital stock outstanding prior to the IPO was reclassified into Class B common stock and Class A common stock was issued in the IPO.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

8


 

MINDBODY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(13,144

)

 

$

(16,710

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,658

 

 

 

2,849

 

Stock-based compensation expense

 

 

4,296

 

 

 

2,965

 

Change in fair value of preferred stock warrant

 

 

 

 

 

25

 

Other

 

 

384

 

 

 

264

 

Changes in operating assets and liabilities net of effects of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,673

)

 

 

(1,519

)

Prepaid expenses and other current assets

 

 

(541

)

 

 

335

 

Other assets

 

 

11

 

 

 

77

 

Accounts payable

 

 

(73

)

 

 

58

 

Accrued expenses and other liabilities

 

 

1,797

 

 

 

1,760

 

Deferred revenue

 

 

1,483

 

 

 

295

 

Deferred rent

 

 

86

 

 

 

175

 

Net cash used in operating activities

 

 

(3,716

)

 

 

(9,426

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,796

)

 

 

(6,531

)

Change in restricted cash and deposits

 

 

 

 

 

788

 

Acquisition of business

 

 

 

 

 

(3,000

)

Net cash used in investing activities

 

 

(3,796

)

 

 

(8,743

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from employee stock purchase plan

 

 

1,679

 

 

 

 

Proceeds from exercise of equity awards

 

 

543

 

 

 

60

 

Repayment on financing and capital lease obligations

 

 

(188

)

 

 

(63

)

Proceeds from initial public offering

 

 

 

 

 

93,093

 

Payments of deferred offering cost

 

 

 

 

 

(2,604

)

Other

 

 

(33

)

 

 

(73

)

Net cash provided by financing activities

 

 

2,001

 

 

 

90,413

 

Effect of exchange rate changes on cash and cash equivalents

 

 

16

 

 

 

(73

)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(5,495

)

 

 

72,171

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

93,405

 

 

 

34,675

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

87,910

 

 

$

106,846

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

 

86

 

 

28

 

Cash paid for interest

 

 

650

 

 

273

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred stock to redemption value

 

 

 

 

 

9,862

 

Deemed dividend—preferred stock modification

 

 

 

 

 

1,748

 

Conversion of preferred stock warrants to common stock warrants

 

 

 

 

 

1,213

 

Unpaid equipment purchases

 

 

2,537

 

 

 

1,117

 

Property and equipment acquired with financing obligations and leases

 

 

 

 

 

844

 

Stock issued in business acquisition

 

 

 

 

 

1,500

 

Unpaid offering costs

 

 

 

 

 

776

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

9


 

MINDBODY, INC.

Notes to Condensed Consolidated Financial Statements

 

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

MINDBODY, Inc. (“MINDBODY” or the “Company”) was incorporated in California in 2004 and reincorporated in Delaware in March 2015. MINDBODY is headquartered in San Luis Obispo, California and has operations in California, New York, Texas, Arizona, the United Kingdom, and Australia.

MINDBODY and its wholly owned subsidiaries (collectively, the “Company,” “we,” “us,” or “our”) is a provider of cloud-based business management software for the wellness services industry and an emerging consumer marketplace. Its integrated software and payments platform helps business owners in the wellness services industry run, market and build their businesses. MINDBODY’s platform enables consumers to evaluate, engage, and transact with these businesses.

Initial Public Offering

In June 2015, the Company completed its initial public offering (“IPO”) in which it issued and sold 7,150,000 shares of its Class A common stock, $0.000004 par value, at a public offering price of $14.00 per share. The Company received net proceeds of $93,093,000 after deducting underwriting discounts and commissions of $7,007,000, but before deducting offering expenses of $4,024,000. Immediately prior to the closing of the IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock were automatically converted and reclassified into 20,673,680 shares of its Class B common stock, $0.000004 par value, and all shares of the Company’s then-outstanding common stock were automatically reclassified into 11,305,355 shares of Class B common stock.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”), which include the accounts of MINDBODY and its wholly owned foreign subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, and following the requirements of the Securities and Exchange Commission (SEC), for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2016. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.

These condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2015 included in the Annual Report on Form 10-K (the “Annual Report”), which was filed with the SEC on March 4, 2016.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include the capitalization and estimated useful life of the Company’s capitalized internal-use software, useful lives of property and equipment, the determination of fair value of stock awards issued and forfeiture rates, a valuation allowance for deferred tax assets, and contingencies. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Changes in facts or circumstances may cause the Company to change its assumptions and estimates in future periods, and it is possible that actual results could differ from current or future estimates.

10


 

Summary of Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Annual Report that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Concentration of Credit Risk

As of June 30, 2016, one customer represented 22% of the accounts receivable balance. As of December 31, 2015, one customer represented 18% of the accounts receivable balance. No single customer represented over 10% of revenue for any of the periods presented in the consolidated statements of operations.

Recently Issued and Adopted Accounting Pronouncements

In May 2014, Financial Accounting Standards Board (“FASB”) issued authoritative guidance that provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services.  The new guidance also requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In April 2016, the FASB issued an update that clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue standard. In May 2016, the FASB issued an update that provides narrow scope improvements and practical expedients related to the new revenue standard. The improvements address completed contracts and contract modifications at transition, noncash consideration, the presentation of sales taxes and other taxes collected from customers, and assessment of collectability when determining whether a transaction represents a valid contract.  The new standard and all related updates are effective for the Company beginning in the first fiscal quarter of fiscal 2018. Early adoption is permitted. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements and disclosures.

On March 30, 2016, the FASB issued authoritative guidance related to employee share-based payment transactions. The new guidance requires entities to recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and provides guidance on the related cash flow presentation. The new guidance also allows entities to make an accounting policy election to either continue to estimate the total number of awards for which the requisite service period will not be rendered (as currently required) or to account for forfeitures when they occur. The new guidance also stipulates that the net settlement of an award for statutory tax withholding purposes would not result, by itself, in liability classification of the award provided that the amount withheld for taxes does not exceed the maximum statutory tax rate in the employees’ relevant tax jurisdictions. The new guidance is effective for the Company beginning January 1, 2017. The Company is evaluating the impact of the new standard on its consolidated financial statements.

On February 25, 2016, the FASB issued authoritative guidance intended to improve financial reporting about leasing transactions. The new guidance requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months. The new guidance also requires qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. The new guidance is effective for the Company beginning January 1, 2019. The Company is evaluating the impact of the new standard on its consolidated financial statements.

In November 2015, the FASB issued authoritative guidance related to balance sheet classification of deferred taxes. The new guidance requires entities to present deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. The new authoritative guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

2. FAIR VALUE MEASUREMENTS

The Company measures and reports its cash equivalents at fair value on a recurring basis. The Company’s cash equivalents are invested in money market funds.

11


 

The following table sets forth the fair value of the Company’s financial assets re-measured on a recurring basis, by level within the fair value hierarchy (in thousands):

 

 

 

June 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

83,587

 

 

$

 

 

$

 

 

$

83,587

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

90,524

 

 

$

 

 

$

 

 

$

90,524

 

 

(1)

The Company held certain assets that are required to be measured at fair value on a recurring basis, included in cash equivalents, which are held in money market funds. All such assets as of June 30, 2016 and December 31, 2015 were recorded based on Level 1 inputs.

 

There were no transfers of financial instruments between the three levels of the fair value hierarchy during the three and six months ended June 30, 2016. As of June 30, 2016 and December 31, 2015, the Company did not have any assets or liabilities that were required to be measured at fair value on a nonrecurring basis.

 

 

3. BALANCE SHEET COMPONENTS

Property and Equipment, net

Property and equipment consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Computer equipment

 

$

15,423

 

 

$

13,195

 

Leasehold improvements

 

 

10,901

 

 

 

9,882

 

Capitalized software development costs

 

 

2,002

 

 

 

1,888

 

Office equipment

 

 

2,531

 

 

 

2,336

 

Software licenses

 

 

2,701

 

 

 

1,768

 

Building, leased

 

 

16,438

 

 

 

16,438

 

Property and equipment – gross

 

 

49,996

 

 

 

45,507

 

Less: accumulated depreciation and amortization

 

 

(15,983

)

 

 

(13,753

)

Property and equipment – net

 

$

34,013

 

 

$

31,754

 

 

Depreciation and amortization expense, excluding amortization of capitalized software and intangible assets, for the three months ended June 30, 2016 and 2015 was $1,660,000 and $1,474,000, respectively. Depreciation and amortization expense, excluding amortization of capitalized software and intangible assets, for the six months ended June 30, 2016 and 2015 was $3,352,000 and $2,509,000, respectively.

The Company capitalized software development costs of $78,000 and $40,000 for the three months ended June 30, 2016 and 2015, respectively. The Company capitalized software development costs of $114,000 and $79,000 for the six months ended June 30, 2016 and 2015, respectively. The Company amortized software development costs of $75,000 and $74,000 during the three months ended June 30, 2016 and 2015, respectively. The Company amortized software development costs of $155,000 and $156,000 during the six months ended June 30, 2016 and 2015, respectively. The net book value of capitalized software development costs was $310,000 and $351,000 as of June 30, 2016 and December 31, 2015, respectively.

During the year ended December 31, 2013, the Company executed a lease for a 64,000 square foot office building in San Luis Obispo, California. This facility provides additional capacity to accommodate continued growth, and became operational in the second quarter of 2015. Both the landlord and the Company incurred costs to construct the facility according to the Company’s operating specifications, and as a result, the Company has concluded that it was the “deemed owner” of the building (for accounting purposes only) during the construction period. During April 2015, the Company began to occupy the additional office space and no additional construction costs have been incurred since then. Upon completion of the construction, the Company was also the “deemed owner” of the building for accounting purposes as the asset did not qualify for sale-leaseback accounting treatment due to the Company’s

12


 

continuing involvement. As such, costs included in construction-in-progress for the building were recorded to “Building, leased” within “Property and equipment, net” and the related financing obligation of $16,065,000 remained recorded as of June 30, 2016. The obligation is being settled through monthly lease payments to the landlord since completion of the construction, and the asset is being depreciated over the initial term of the lease. The lease has an initial term of 15 years and the Company has an option to extend the term of the lease for three consecutive terms of five years each. The Company is responsible for paying the landlord’s insurance costs, real property taxes, and operating expenses related to the premises as additional rent.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued payroll

 

$

5,419

 

 

$

3,918

 

Accrued vacation

 

 

2,278

 

 

 

1,699

 

Employee stock purchase plan contributions

 

 

1,081

 

 

 

1,496

 

Other liabilities

 

 

888

 

 

 

798

 

Total accrued expenses and other liabilities

 

$

9,666

 

 

$

7,911

 

 

 

4. BUSINESS COMBINATION

Fitness Mobile Apps

On February 2, 2015, the Company completed the acquisition of the Fitness Mobile Apps business of Petrol Designs LLC (“Fitness Mobile Apps”), a privately held technology partner that creates tailored mobile apps for the Company’s subscribers. The Company accounted for the acquisition of Fitness Mobile Apps as a business combination. The Company acquired all of the assets that were used in, or otherwise benefit, the mobile apps business for 103,617 shares of the Company’s common stock with a fair value of $14.476 per share, of which 74,260 shares were issued and 29,357 shares were held with an escrow agent and were released in February 2016 following the first anniversary of the closing date, and $3,000,000 in cash, resulting in an aggregate purchase price of $4,500,000. The acquisition also included an obligation to issue up to 207,234 shares of the Company’s common stock to certain former employees of Fitness Mobile Apps, contingent upon performance obligations and their continuous employment with the Company. The measurement period for the contingent consideration ended during the six months ended June 30, 2016 and the Company issued 207,234 shares of Class A common stock to such former employees of Fitness Mobile Apps on February 22, 2016 under its 2015 Equity Incentive Plan (see Note 9 Common Stock and Stockholder’s Equity (Deficit) below). The related compensation expense for the fair value of these additional shares was recorded ratably over the respective service period.

The fair value of the Company’s common stock issued for the Fitness Mobile Apps acquisition was based on the Company’s valuation of its common stock as of February 2, 2015. Given the absence of a public trading market, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights and preferences of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) developments in the business; and (v) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions. The aggregate enterprise value was determined using a combination of the income approach and two market approaches in order to estimate an Enterprise Value under five different possible future scenarios, which were weighted as follows:

 

 

 

Weighting

 

IPO

 

 

75

%

Transaction

 

 

20

%

Private company (DCF)

 

 

5

%

 

The Company allocated the total purchase consideration to tangible assets acquired and identifiable intangible assets acquired based on their estimated fair values with the excess of the purchase consideration over the aggregate fair values recorded as goodwill allocated to the Company’s one operating segment. Goodwill of $3,569,000 represents 80% of the total purchase consideration and is primarily attributable to the value of acquired personnel, and the Company’s ability to expand its consumer base by transitioning Fitness Mobile Apps onto its platform. Goodwill is amortized over 15 years for tax purposes.

The internally developed software/technology with a remaining useful life of three years represents the tools to create consumer facing customized mobile apps for the Company’s subscribers. The fair values of the acquired intangible assets were determined based on the income approach and relief-from-royalty method approach and the identifiable intangible assets are subject to amortization on a straight-line basis over their remaining useful lives.

13


 

The Company incurred and expensed $150,000 in acquisition-related costs, which are included within general and administrative expenses on the consolidated statements of operations.

The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

 

 

 

Amount

 

Tangible assets acquired

 

$

18

 

Intangible asset – developed software/technology

 

 

913

 

Goodwill

 

 

3,569

 

Fair value of total purchase consideration

 

$

4,500

 

 

The results of Fitness Mobile Apps are included in the Company’s consolidated statements of operations since the acquisition date, including revenues and net loss, which were not material. Pro forma results of operations have not been presented because the acquisition was not material to the Company’s results of operations.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually on October 1st. The Company’s goodwill balance is solely attributable to the acquisition of Fitness Mobile Apps and Jill’s List. The goodwill balance was $5,396,000 as of June 30, 2016 and December 31, 2015. There have been no impairment charges recorded against goodwill.

The Company’s intangible assets consisted of the following (in thousands except years):

 

 

 

June 30, 2016

 

 

 

Useful Life

(Years)

 

 

Gross Carrying

Amount