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Ellie Mae Reports Second Quarter 2018 Results

July 26, 2018 at 4:05 PM EDT

PLEASANTON, Calif.--(BUSINESS WIRE)--Jul. 26, 2018-- Ellie Mae® (NYSE:ELLI), the leading cloud-based platform provider for the mortgage finance industry, today reported results1 for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights

  • Revenues of $125.0 million, up 20% from $104.1 million in 2017.
  • Net income of $9.5 million, down from $18.8 million in 2017.
  • Adjusted EBITDA of $34.0 million, down from $35.8 million in 2017.
  • 721,000 loans closed on Encompass.2

“I am pleased to report another solid quarter in which our financial results exceeded our expectations. The number of closed loans on Encompass increased 6% year-over-year despite lower industry volumes while revenue per loan increased 13% year-over-year,” said Jonathan Corr, President & CEO.

“The value proposition of Encompass remains strong as the industry seeks a digital mortgage platform that improves and streamlines the complex origination process. We have made continued progress in the rollout of our Encompass Lending Platform, announcing the general availability of several Encompass Connect solutions. This includes the general availability of Encompass Consumer Connect, which is designed to help lenders better compete in today’s highly competitive purchase-centric market by enabling a seamless end-to-end digital experience for the borrower,” concluded Mr. Corr.

Financial Results

Revenues for the second quarter of 2018 were $125.0 million, compared to $104.1 million for the second quarter of 2017. Net income for the second quarter of 2018 was $9.5 million, or $0.27 per diluted share, compared to $18.8 million, or $0.52 per diluted share, for the second quarter of 2017. Net income for the second quarter of 2018 reflects the amortization of acquisition-related intangibles related to the Velocify acquisition and additional implementation costs related to the adoption of ASC 606.

On a non-GAAP basis, adjusted net income for the second quarter of 2018 was $19.1 million, or $0.54 per diluted share, compared to $18.2 million, or $0.51 per diluted share, for the second quarter of 2017. Adjusted EBITDA for the second quarter of 2018 was $34.0 million, compared to $35.8 million for the second quarter of 2017.

Third Quarter and Full Year 2018 Financial Outlook

For the third quarter of 2018, revenues are expected to be in the range of $127.0 million to $129.0 million. Net income is expected to be in the range of $4.0 million to $6.0 million, or $0.11 to $0.17 per diluted share, which includes additional amortization of intangible assets and integration costs related to the Velocify acquisition. On a non-GAAP basis, adjusted net incomeis expected to be in the range of $18.5 million to $20.5 million, or $0.52 to $0.57 per diluted share. Adjusted EBITDA is expected to be in the range of $35.0 million to $38.0 million. Per share guidance assumes a weighted average share count of approximately 36.0 million.

For the full year 2018, revenues are expected to be in the range of $495.0 million to $505.0 million. Contracted revenues3 are now expected to be in the range of $353.0 million to $358.0 million, an increase from the prior range of $350.0 million to $355.0 million provided on April 26, 2018. Net income is expected to be in the range of $19.0 million to $23.0 million, or $0.53 to $0.64 per diluted share, an increase from the range of $10.0 million to $14.0 million, or $0.28 to $0.38 per diluted share previously provided. On a non-GAAP basis, adjusted net income is expected to be in the range of $64.5 million to $69.5 million, or $1.79 to $1.92 per diluted share, an increase from the range of $61.0 million to $65.0 million, or $1.68 to $1.78 per diluted share previously provided. Adjusted EBITDA is expected to be in the range of $129.5 million to $134.5 million, an increase from the range of $126.7 million to $132 million previously provided. Per share guidance assumes a weighted average share count of approximately 36.0 million.

Additional information about the non-GAAP financial measures presented in this release, including a reconciliation of the non-GAAP financial measures to their related GAAP financial measures, is set forth below under the section entitled, “Use of Non-GAAP Financial Measures.”

________________

1 On January 1, 2018, Ellie Mae adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, using the modified retrospective method, which replaced the previous accounting standard ASC 605, Revenue Recognition. While the financial results for the second quarter of 2018 are presented under ASC 606, financial results for the second quarter of 2017 are presented under ASC 605. A reconciliation of the financial results for the second quarter of 2018 under ASC 606 and ASC 605, as well as a reconciliation of other non-GAAP financial measures discussed in this release, is presented in the “Non-GAAP Reconciliation” table included in this release.

2 Closed loans consist of loans originated (which excludes correspondent purchased loans or brokered loans) on the Encompass platform, which is calculated by adding the loans reported to us as originated by our Success Based Pricing lenders and estimating the number of loans originated by the small percentage of lenders that are purely on a subscription service.

3 Contracted revenues are those revenues that are fixed by the terms of a contract and are generally not affected by fluctuations in mortgage origination volume. These revenues consist of the base fee portion of success-based revenues, monthly per-user subscription revenues, professional services revenues, and subscription revenues paid for products other than Encompass.

Quarterly Conference Call

Ellie Mae will discuss its second quarter 2018 results today, July 26, 2018, via teleconference at 4:30 p.m. Eastern Time. To access the call, please dial 800-406-5345 or 719-457-2630 at least five minutes prior to the 4:30 p.m. Eastern Time start time. A live webcast of the call will be available on the Investor Relations section of the Company’s website at http://investor.elliemae.com. An audio replay of the call will be available through August 9, 2018 by dialing 888-203-1112 or 719-457-0820 and entering access code 3132243.

Use of Non-GAAP Financial Measures

Ellie Mae provides investors with the non-GAAP financial measures of adjusted net income, adjusted net income per share, adjusted EBITDA, adjusted gross profit, and free cash flow in addition to the traditional GAAP operating performance measure of net income as part of its overall assessment of its performance. In addition, Ellie Mae provides investors with the non-GAAP financial measures under ASC 605 to compare against the Company’s GAAP financial measures under ASC 606. Ellie Mae adopted ASC 606 using the modified retrospective method with the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of retained earnings as of January 1, 2018. The comparative financial information has not been restated and continues to be reported under the accounting standards in effect in those prior periods. Adjusted net income consists of net income plus stock-based compensation expense, amortization of acquisition-related intangibles, and the non-GAAP income tax adjustments. EBITDA consists of net income plus depreciation and amortization, amortization of acquisition-related intangibles, and income tax provision, less other income, net. Adjusted EBITDA consists of EBITDA plus stock-based compensation expense. Adjusted gross profit consists of gross profit plus stock-based compensation and amortization of acquisition-related intangibles that are included in cost of revenues. Free cash flow consists of net cash provided by (used in) operating activities less acquisition of property and equipment and internal-use software. Ellie Mae uses adjusted net income, adjusted net income per share, adjusted EBITDA, and adjusted gross profit as measures of operating performance because they enable period to period comparisons by excluding potential differences caused by variations in the age and depreciable lives of fixed assets, amortization of acquisition-related intangibles, and changes in interest expense and interest income that are influenced by capital market conditions. Ellie Mae also believes it is useful to exclude stock-based compensation expense from adjusted net income, adjusted EBITDA, and adjusted gross profit because the amount of non-cash expense associated with stock-based awards made at certain prices and points in time (a) do not necessarily reflect how Ellie Mae’s business is performing at any particular time and (b) can vary significantly between periods due to the timing of new stock-based awards. The non-GAAP income tax adjustments are calculated based on the annual non-GAAP effective tax rate, which quantifies the tax effects of the non-GAAP adjustments. These non-GAAP financial measures are not measurements of Ellie Mae’s financial performance under GAAP and have limitations as analytical tools. Accordingly, these non-GAAP financial measures should not be considered a substitute for, or superior to, net income, operating income, gross profit, operating cash flow, or other financial measures calculated in accordance with GAAP. Ellie Mae cautions that other companies in Ellie Mae’s industry may calculate adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA, adjusted gross profit, and free cash flow differently than Ellie Mae does, further limiting their usefulness as comparative measures. A reconciliation of net income to adjusted net income, adjusted net income per share, EBITDA and adjusted EBITDA, gross profit to adjusted gross profit, and operating cash flow to free cash flow is included in the tables below.

Disclosure Information

Ellie Mae uses the investor relations section on its website as the means of complying with its disclosure obligations under Regulation FD. Accordingly, we recommend that investors should monitor Ellie Mae’s investor relations website in addition to following Ellie Mae’s press releases, SEC filings, and public conference calls and webcasts.

About Ellie Mae

Ellie Mae (NYSE:ELLI) is the leading cloud-based platform provider for the mortgage finance industry. Ellie Mae’s technology solutions enable lenders to originate more loans, lower origination costs, and reduce the time to close, all while ensuring the highest levels of compliance, quality, and efficiency. Visit EllieMae.com or call (877) 355-4362 to learn more.

Forward-Looking Statements

This press release contains forward-looking statements under the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These forward-looking statements include projected revenues, contracted revenues, net income, net income per share, adjusted EBITDA, adjusted net income and adjusted net income per share for the third quarter and fiscal year 2018. These statements involve known and unknown risks, uncertainties, and other factors that may cause Ellie Mae’s results to be materially different than those expressed or implied in such statements. Such differences may be based on factors such as changes in the volume of residential mortgages in the United States; changes in other macroeconomic factors affecting the residential real estate industry; the impact of the Company’s implementation of ASC 606 on its results of operations, including its projected revenue, net income, net income per share, adjusted EBITDA, adjusted net income and adjusted net income per share for the third quarter and fiscal year 2018; changes in strategic planning decisions by management; the Company’s ability to manage growth and expenses as it continues to scale its business; reallocation of internal resources; costs incurred and delays in developing new products; changes in anticipated rates of closed loans; changes in the rate of new customer acquisitions; and the possibility that economic benefits of future opportunities may never materialize, including unexpected variations in market growth and demand for the acquired products and technologies; delays and disruptions, including changing relationships with partners, customers, employees, or suppliers; the satisfactory performance, reliability, and availability of the Company’s products and services; the amount of costs incurred in connection with supporting and integrating new customers and partners; ongoing personnel and logistical challenges of managing a larger organization; changes in other macroeconomic factors affecting the residential real estate industry, and other risk factors included in documents that Ellie Mae has filed with the U.S. Securities and Exchange Commission (“SEC”), including but not limited to its Annual Report on Form 10-K for the year ended December 31, 2017, as updated from time to time by the Company’s quarterly reports on Form 10-Q and its other filings with the SEC. Other unknown or unpredictable factors also could have material adverse effects on Ellie Mae’s future results. The forward-looking statements included in this press release are made only as of the date hereof. Ellie Mae cannot guarantee future results, levels of activity, performance, or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Ellie Mae expressly disclaims any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances, unless otherwise required by law.

© 2018 Ellie Mae, Inc. Ellie Mae®, Encompass®, AllRegs®, Mavent®, Velocify®, the Ellie Mae logo, and other trademarks or service marks of Ellie Mae, Inc. appearing herein are property of Ellie Mae, Inc. All rights reserved. Other company and product names may be trademarks or copyrights of their respective owners.

 
Ellie Mae, Inc.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(in thousands)
 
   

June 30,
2018

 

December 31,
2017

Assets        
Current assets:        
Cash and cash equivalents   $ 118,312     $ 137,698  
Short-term investments   124,640     103,345  
Accounts receivable, net   50,674     43,121  
Prepaid expenses and other current assets   26,271     18,474  
Total current assets   319,897     302,638  
Property and equipment, net   210,233     186,991  
Long-term investments   81,383     107,363  
Intangible assets, net   68,374     80,874  
Deposits and other assets   34,994     9,290  
Goodwill   144,279     144,451  
Total assets   $ 859,160     $ 831,607  
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 18,748     $ 24,913  
Accrued and other current liabilities   30,675     26,188  
Deferred revenues   16,992     26,287  
Total current liabilities   66,415     77,388  
Other long-term liabilities   17,924     18,880  
Total liabilities   84,339     96,268  
         
Stockholders' equity:        
Common stock   3     3  
Additional paid-in capital   667,032     649,817  
Accumulated other comprehensive loss   (1,290 )   (880 )
Retained earnings   109,076     86,399  
Total stockholders' equity   774,821     735,339  
Total liabilities and stockholders' equity   $

859,160

    $ 831,607  
 
 
Ellie Mae, Inc.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except per share amounts)
                 
   

Three Months Ended June 30,

 

Six Months Ended June 30,

    2018   2017   2018   2017
Revenues   $ 125,024     $ 104,125     $ 242,936     $ 197,127  
Cost of revenues(1)   51,640     38,267     100,987     73,035  
Gross profit   73,384     65,858     141,949     124,092  
Operating expenses:                
Sales and marketing(1)   19,541     13,860     42,605     33,240  
Research and development(1)   24,586     16,046     47,075     33,453  
General and administrative(1)   23,894     18,727     50,208     35,669  
Total operating expenses   68,021     48,633     139,888     102,362  
Income from operations   5,363     17,225     2,061     21,730  
Other income, net   924     762     1,772     1,263  
Income before income taxes   6,287     17,987     3,833     22,993  
Income tax provision (benefit)   (3,211 )   (836 )   (7,869 )   (5,429 )
Net income   $ 9,498     $ 18,823     $ 11,702     $ 28,422  
Net income per share of common stock:                
Basic   $ 0.28     $ 0.55     $ 0.34     $ 0.84  
Diluted   $ 0.27     $ 0.52     $ 0.33     $ 0.79  
Weighted average common shares used in computing net income per share of common stock:                
Basic   34,337     34,029     34,240     33,866  
Diluted   35,742     35,909     35,693     35,772  
                 
Net income   $ 9,498     $ 18,823     $ 11,702     $ 28,422  
Other comprehensive income, net of taxes                
Unrealized gain (loss) on investments   127     (103 )   (410 )   (45 )
Comprehensive income   $ 9,625     $ 18,720     $ 11,292     $ 28,377  
                 
(1) Includes stock-based compensation expense of the following for the periods presented:
Cost of revenues   $ 2,106     $ 1,675     $ 4,000     $ 3,119  
Sales and marketing   1,760     1,258     3,316     2,434  
Research and development   2,953     2,098     5,487     3,959  
General and administrative   3,843     3,479     7,391     6,849  
    $ 10,662     $ 8,510     $ 20,194     $ 16,361  
 
 
Ellie Mae, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
         
    Six Months Ended June 30,
    2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 11,702     $ 28,422  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   23,179     16,282  
Amortization of acquisition-related intangibles   12,500     2,156  
Stock-based compensation expense   20,194     16,361  
Deferred income taxes   (7,868 )   (5,662 )
Others   287     (139 )
Changes in operating assets and liabilities:        
Accounts receivable, net   (7,553 )   (6,183 )
Prepaid expenses and other current assets   390     (3,757 )
Deposits and other assets   (6,774 )   194  
Accounts payable   (1,715 )   2,677  
Accrued, other current and other liabilities   2,967     (10,243 )
Deferred revenues   (5,243 )   (5,087 )

Net cash provided by operating activities

  42,066     35,021  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property and equipment   (14,194 )   (21,800 )
Acquisition of internal-use software   (33,260 )   (25,478 )
Purchases of investments   (74,084 )   (181,760 )
Maturities of investments   78,088     28,076  
Other investing activities, net   172    

 

Net cash used in investing activities

  (43,278 )   (200,962 )
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payment of capital lease obligations   (57 )   (553 )
Proceeds from issuance of common stock under employee stock plans   11,753     10,207  
Payment of issuance costs relating to common stock issued in public offering       (15 )
Payments for repurchase of common stock   (14,740 )    
Tax payments related to shares withheld for vested restricted stock units   (15,130 )   (11,401 )

Net cash used in financing activities

  (18,174 )   (1,762 )
NET DECREASE IN CASH AND CASH EQUIVALENTS   (19,386 )   (167,703 )

CASH AND CASH EQUIVALENTS, Beginning of period

  137,698     380,907  
CASH AND CASH EQUIVALENTS, End of period   $ 118,312     $ 213,204  
 
 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except per share amounts)
 
    Three Months Ended June 30,   Six Months Ended June 30,
    2018

ASC 606

  Adjust-

ments

  2018

ASC 605

  2017

ASC 605

  2018

ASC 606

  Adjust-

ments

  2018

ASC 605

  2017

ASC 605

Revenues   $ 125,024     $ 457     $ 125,481     $ 104,125     $ 242,936     $ (1,472 )   $ 241,464     $

197,127

 
Operating expenses:                                
Sales and marketing   $ 19,541     $ 596     $ 20,137     $ 13,860     $ 42,605     $ 674     $ 43,279     $ 33,240  
Total operating expenses   $ 68,021     $ 596     $ 68,617     $ 48,633     $ 139,888     $ 674     $ 140,562     $ 102,362  
Income before income taxes   $ 6,287     $ (139 )   $ 6,148     $ 17,987     $ 3,833     $ (2,146 )   $ 1,687     $ 22,993  
Income tax provision (benefit)   $ (3,211 )   $ 45     $ (3,166 )   $ (836 )   $ (7,869 )   $ (34 )   $ (7,903 )   $ (5,429 )
                                 
Net income   $ 9,498     $ (184 )   $ 9,314     $ 18,823     $ 11,702     $ (2,112 )   $ 9,590     $ 28,422  
Depreciation and amortization   11,813         11,813     8,943     23,179         23,179     16,282  
Amortization of acquisition-related intangibles   6,194         6,194     1,078     12,500         12,500     2,156  
Other income, net   (924 )       (924 )   (762 )   (1,772 )       (1,772 )   (1,263 )
Income tax provision (benefit)   (3,211 )   45     (3,166 )   (836 )   (7,869 )   (34 )   (7,903 )   (5,429 )

EBITDA

  23,370     (139 )   23,231     27,246     37,740     (2,146 )   35,594     40,168  
                                 

Stock-based compensation expense

  10,662     $     10,662     8,510     20,194     $     20,194     16,361  
Adjusted EBITDA   $ 34,032     $ (139 )   $ 33,893     $ 35,756     $ 57,934     $ (2,146 )   $ 55,788     $ 56,529  
                                 
Gross profit   $ 73,384     $ 457     $ 73,841     $ 65,858     $ 141,949     $ (1,472 )   $ 140,477     $ 124,092  
Stock-based compensation expense(1)   2,106         2,106     1,675     4,000         4,000     3,119  
Amortization of acquisition-related intangibles(1)   5,528         5,528     767     11,181         11,181     1,534  
Adjusted gross profit   $ 81,018     $ 457     $ 81,475     $ 68,300     $ 157,130     $ (1,472 )   $ 155,658     $ 128,745  
                                 
Net income   $ 9,498     $ (184 )   $ 9,314     $ 18,823     $ 11,702     $ (2,112 )   $ 9,590     $ 28,422  
Stock-based compensation expense   10,662         10,662     8,510     20,194         20,194     16,361  
Amortization of acquisition-related intangibles   6,194         6,194     1,078     12,500         12,500     2,156  
Non-GAAP income tax adjustments(2)   (7,219 )   169     (7,050 )   (10,178 )   (13,261 )   431     (12,830 )   (19,783 )
Adjusted net income   $ 19,135     $ (15 )   $ 19,120     $ 18,233     $ 31,135     $ (1,681 )   $ 29,454     $ 27,156  
                                 
Shares used to compute adjusted net income per share                                
Basic   34,337         34,337     34,029     34,240         34,240     33,866  
Diluted   35,742         35,742     35,909     35,693         35,693     35,772  
                                 
Adjusted net income per share                                
Basic   $ 0.56     $     $ 0.56     $ 0.54     $ 0.91     $ (0.05 )   $ 0.86    

$

0.80

 
Diluted   $ 0.54     $ (0.01 )   $ 0.53     $ 0.51     $ 0.87     $ (0.04 )   $ 0.83     $ 0.76  
 
 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION - (continued)
(UNAUDITED)
(in thousands)
                 
   

Three Months Ended June 30,

 

Six Months Ended June 30,

    2018   2017   2018   2017
Net cash provided by operating activities   $ 35,665     $ 36,443     $ 42,066     $ 35,021  
Acquisition of property and equipment and internal-use software   (21,757 )   (24,512 )   (47,454 )   (47,278 )
Free cash flow   $ 13,908     $ 11,931     $ (5,388 )   $ (12,257 )
                 

(1) Amount represents the cost of revenues portion of stock-based compensation expense and amortization of acquisition-related intangibles.

 
(2) For the three and six months ended June 30, 2018, the non-GAAP effective tax rates are 17.3% and 14.8%, respectively, under ASC 606. For the three and six months ended June 30, 2018, the non-GAAP effective tax rates are 16.9% and 14.3%, respectively, under ASC 605. For the three and six months ended June 30, 3017, the non-GAAP effective tax rates are 33.8% and 34.6%, respectively, under ASC 605. The non-GAAP income tax adjustments are calculated based on the annual non-GAAP effective tax rate, which quantifies the tax effects of the non-GAAP adjustments described above, and eliminates the effects of non-recurring items which can vary in size and frequency
 
 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except per share amounts)
 
    Third Quarter 2018

Projected Range

  Fiscal 2018

Projected Range

Net income   $ 4,000     $ 6,000     $ 19,000     $ 23,000  
                 
Depreciation and amortization   13,000     13,000     50,500     50,500  
Amortization of acquisition-related intangibles   6,100     6,100     22,300     22,300  
Interest/Other   (500 )   (500 )   (2,500 )   (2,500 )
Income tax provision (benefit)       1,000     (7,000 )   (6,000 )
EBITDA   22,600     25,600     82,300     87,300  
                 
Stock-based compensation expense   12,400     12,400     47,200     47,200  
Adjusted EBITDA   $ 35,000     $ 38,000     $ 129,500     $ 134,500  
                 
Net income   $ 4,000     $ 6,000     $ 19,000     $ 23,000  
Stock-based compensation expense   12,400     12,400     47,200     47,200  
Amortization of acquisition-related intangibles   6,100     6,100     22,300     22,300  
Non-GAAP income tax adjustments   (4,000 )   (4,000 )   (24,000 )   (23,000 )
Adjusted net income   $ 18,500     $ 20,500     $ 64,500     $ 69,500  
                 
Shares used to compute non-GAAP net income per share                
Basic   34,400     34,500     34,500     34,700  
Diluted   35,900     36,000     36,000     36,200  
                 
Projected net income per share                
Basic   $ 0.12     $ 0.17     $ 0.55     $ 0.66  
Diluted   $ 0.11     $ 0.17     $ 0.53     $ 0.64  
                 
Adjusted net income per share                
Basic   $ 0.54     $ 0.59     $ 1.87     $ 2.00  
Diluted   $ 0.52     $ 0.57     $ 1.79     $ 1.92  
 

 

Source: Ellie Mae, Inc.

Ellie Mae, Inc.
IR CONTACTS:
Alex Hughes, 925-227-7079
VP of Investor Relations
IR@elliemae.com
or
The Blueshirt Group for Ellie Mae, Inc.
Lisa Laukkanen, 415-217-4967
lisa@blueshirtgroup.com
or
Ellie Mae, Inc.
PRESS CONTACT:
Erica Harvill, 925-227-5913
Erica.Harvill@elliemae.com