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Ellie Mae Reports Third Quarter 2017 Results

October 26, 2017 at 4:05 PM EDT

PLEASANTON, Calif.--(BUSINESS WIRE)--Oct. 26, 2017-- Ellie Mae® (NYSE:ELLI), the leading cloud-based platform provider for the mortgage finance industry, today reported results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

  • Revenue of $107.0 million, up 7% from $100.4 million in 2016
  • Net income of $14.5 million1, up from $13.8 million in 2016
  • Adjusted EBITDA of $37.6 million, up from $37.1 million in 2016
  • 8,100 Encompass seats booked

“We delivered strong third quarter results with better than expected revenue and adjusted EBITDA,” said Jonathan Corr, president and CEO of Ellie Mae. “Seat bookings of 8,100 were also solid despite a tough quarter in which some of our customers were affected by devastating hurricanes in two of our major markets.”

“Shortly after the quarter ended we closed our acquisition of Velocify, a leading sales acceleration software platform. With this acquisition, we see a tremendous opportunity for our customers to drive better lead optimization and for us to further our goal of fully automating the mortgage process. We believe the acquisition helps us accelerate our delivery of the front end digital experience combined with Encompass CRM and Consumer Connect. This also introduces a key opportunity for us to drive more long-term value and increased revenue per loan with both new and existing customers.”

Financial Results

Total revenue for the third quarter of 2017 was $107.0 million, compared to $100.4 million for the third quarter of 2016. Net income for the third quarter of 2017 was $14.5 million1, or $0.41 per diluted share, compared to $13.8 million, or $0.41 per diluted share, for the third quarter of 2016. Third quarter 2017 net income reflects the impact of changes to the GAAP tax treatment of stock compensation benefits.

On a non-GAAP basis, adjusted net income for the third quarter of 2017 was $18.8 million, or $0.53 per diluted share, compared to $20.0 million, or $0.60 per diluted share, for the third quarter of 2016. Adjusted EBITDA for the third quarter of 2017 was $37.6 million, compared to $37.1 million for the third quarter of 2016. GAAP and non-GAAP per share results for the quarters ended September 30, 2017 and September 30, 2016 include the effect of an additional 3.2 million shares and 1.8 million shares, respectively, from the follow-on offering in August 2016.

Fourth Quarter and Full Year 2017 Financial Outlook

For the fourth quarter of 2017, our revenue is expected to be in the range of $107.0 million to $109.0 million. Net income is expected to be in the range of $(1.0) million to $1.0 million, or $(0.03) per basic share to $0.03 per diluted share, which reflects amortization of intangibles and integration costs related to the Velocify acquisition. On a non-GAAP basis, adjusted net income is expected to be in the range of $7.0 million to $10.5 million, or $0.19 to $0.29 per diluted share, which reflects the non-GAAP tax adjustment. Adjusted EBITDA is expected to be in the range of $23.0 million to $25.0 million. Per share guidance assumes a weighted average share count of approximately 36 million.

For the full year 2017, revenue is expected to be in the range of $411.0 million to $413.0 million. Net income is expected to be in the range of $42.0 million to $44.0 million, or $1.17 to $1.22 per diluted share. On a non-GAAP basis, adjusted net income is expected to be in the range of $53.0 million to $56.5 million, or $1.47 to $1.56 per diluted share, which reflects the non-GAAP tax adjustment. Adjusted EBITDA is expected to be in the range of $117.0 million to $119.1 million. Per share guidance assumes a weighted average share count of approximately 36 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.”

Quarterly Conference Call

Ellie Mae (the “Company”) will discuss its third quarter 2017 results today, October 26, 2017, via teleconference at 4:30 p.m. Eastern Time. To access the call, please dial 888-218-8142 or 719-457-2734 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 November 9, 2017 by dialing 888-203-1112 or 719-457-0820 and entering access code 6110218.

Use of Non-GAAP Financial Measures

Ellie Mae provides investors with the non-GAAP financial measures of adjusted net income, 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. Adjusted net income consists of net income plus stock-based compensation expense, amortization of intangible assets as well as the income tax effects of the adjustments. EBITDA consists of net income plus depreciation and amortization, amortization of intangible assets, 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 intangible assets that are included in cost of revenues. Free cash flow consists of net cash provided by operating activities less acquisition of property and equipment and internal-use software. Ellie Mae uses adjusted net income, 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, the amortization of intangibles related to acquisitions, and changes in interest expense and interest income that are influenced by capital market conditions. The Company 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 the Company’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 income tax effects are calculated based on the annual non-GAAP effective tax rate, which quantifies the tax effects of the non-GAAP adjustments. These non-GAAP measures are not measurements of the Company’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 or operating income or other financial measures calculated in accordance with GAAP. The Company cautions that other companies in Ellie Mae’s industry may calculate adjusted net income, EBITDA, adjusted EBITDA, adjusted gross profit, and free cash flow differently than the Company does, further limiting their usefulness as a comparative measure. A reconciliation of net income to adjusted net income, EBITDA and adjusted EBITDA, gross profit to adjusted gross profit, and operating cash flow to free cash flow are included in the tables below.

Note Regarding Employee Share-Based Payment Accounting Standard

Ellie Mae adopted an accounting standard issued in 2016 where excess tax benefit generated upon the settlement or exercise of stock awards are no longer recognized as additional paid-in capital, but are instead recognized as an income tax benefit. The adoption was effective January 1, 2017 and the Company recognized a benefit to GAAP net income of $2.3 million and $15.5 million for the three and nine months ended September 30, 2017. The adoption also resulted in a $5.5 million increase in net cash provided by operating activities and a corresponding $5.5 million decrease in net cash provided by financing activities for the nine months ended September 30, 2016.

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, reduce origination costs, and shorten 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 revenue, net income, adjusted EBITDA, and adjusted net income for the fourth quarter and fiscal year 2017, as well as statements regarding Ellie Mae’s ability to successfully integrate Velocify’s software solutions with Ellie Mae’s software solutions and the potential benefits of the combined software solutions. These statements involve known and unknown risks, uncertainties, and other factors which 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; 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 SaaS seat additions, and new customer acquisitions; 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, 2016 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.

________________

1 Please see paragraph titled, “Note Regarding Employee Share-Based Payment Accounting Standard.”

© 2017 Ellie Mae, Inc. Ellie Mae®, Encompass®, AllRegs®, the Ellie Mae logo and other trademarks or service marks of Ellie Mae, Inc. appearing herein are property of Ellie Mae, Inc. or its subsidiaries. All rights reserved. Other company and product names may be trademarks or copyrights of their respective owners.

 
Ellie Mae, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts)
 
    September 30,
2017
  December 31,
2016
Assets        
Current assets:        
Cash and cash equivalents   $ 246,832     $ 380,907  
Short-term investments   119,327     41,841  
Accounts receivable, net of allowance for doubtful accounts of $270 and $45 as of September 30, 2017 and December 31, 2016, respectively   48,987     39,358  
Prepaid expenses and other current assets   17,324     15,209  
Total current assets   432,470     477,315  
Property and equipment, net   166,864     126,297  
Long-term investments   112,874     45,931  
Intangible assets, net   14,056     17,289  
Deposits and other assets   18,132     10,138  
Goodwill   74,547     74,547  
Total assets   $ 818,943     $ 751,517  
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 14,537     $ 15,942  
Accrued and other current liabilities   21,121     39,809  
Deferred revenue   20,322     23,126  
Total current liabilities   55,980     78,877  
Other long-term liabilities  

16,316

   

17,732

 
Total liabilities   72,296     96,609  
         
Stockholders' equity:        
Common stock, $0.0001 par value per share; 140,000,000 authorized shares, 34,526,383 and 33,685,649 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively   3     3  
Additional paid-in capital   646,343     612,098  
Accumulated other comprehensive loss   (211 )   (219 )
Retained earnings   100,512     43,026  
Total stockholders' equity   746,647     654,908  
Total liabilities and stockholders' equity   $ 818,943     $ 751,517  
                 
Ellie Mae, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share amounts)
                 
    Three Months ended September 30,   Nine Months ended September 30,
    2017   2016   2017   2016
Revenues   $ 107,029     $ 100,381     $ 304,156     $ 264,104
Cost of revenues(1)   39,603     32,218     112,638     87,302
Gross profit   67,426     68,163     191,518     176,802
Operating expenses:                
Sales and marketing(1)   13,522     12,654     46,762     40,446
Research and development(1)   15,901     15,081     49,354     42,196
General and administrative(1)   20,159     19,360     55,828     52,885
Total operating expenses   49,582     47,095     151,944     135,527
Income from operations   17,844     21,068     39,574     41,275
Other income, net   1,140     204     2,403     565
Income before income taxes   18,984     21,272     41,977     41,840
Income tax provision (benefit)   4,465     7,492     (964 )   14,966
Net income   $ 14,519     $ 13,780     $ 42,941     $ 26,874
Net income per share of common stock:                
Basic   $ 0.42     $ 0.43     $ 1.26     $ 0.88
Diluted   $ 0.41     $ 0.41     $ 1.20     $ 0.84
Weighted average common shares used in computing net income per share of common stock:                
Basic   34,275,116     31,916,910     34,004,025     30,407,020
Diluted   35,784,972     33,482,533     35,803,817     32,039,083
                 
Net income   $ 14,519     $ 13,780     $ 42,941     $ 26,874
Other comprehensive income, net of taxes                
Unrealized gain (loss) on investments   53     (107 )   8     322
Comprehensive income   $ 14,572     $ 13,673     $ 42,949     $ 27,196
                 
(1) Includes stock-based compensation expense of the following for the periods presented:
Cost of revenues   $ 1,810     $ 1,381     $ 4,929     $ 3,483
Sales and marketing   1,346     1,243     3,780     3,180
Research and development   2,043     1,969     6,002     5,417
General and administrative   3,700     4,155     10,549     11,376
    $ 8,899     $ 8,748     $ 25,260     $ 23,456
                               
Ellie Mae, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
         
    Nine Months ended September 30,
    2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 42,941     $ 26,874  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   26,024     14,487  
Amortization of intangible assets   3,233     4,442  
Stock-based compensation expense   25,260     23,456  
Deferred income taxes   (1,259 )   9,363  
Loss on disposal of property and equipment       5  
Amortization (accretion) of investments   (948 )   779  
Changes in operating assets and liabilities:        
Accounts receivable, net   (9,628 )   (19,267 )
Prepaid expenses and other current assets   (2,115 )   (1,381 )
Deposits and other assets   508     (2,298 )
Accounts payable   625     (349 )
Accrued, other current and other liabilities   (12,271 )   1,238  
Deferred revenue   (2,749 )   3,759  
Net cash provided by operating activities   69,621     61,108  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property and equipment   (24,919 )   (21,074 )
Acquisition of internal-use software   (40,047 )   (25,218 )
Purchases of investments   (213,749 )   (49,201 )
Maturities of investments   70,276     45,494  
Sale of investments       20,000  
Net cash used in investing activities   (208,439 )   (29,999 )
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payment of capital lease obligations   (587 )   (2,954 )
Proceeds from issuance of common stock under employee stock plans   17,590     15,339  
Proceeds (payment) of issuance costs relating to common stock issued in public offering   (15 )   271,411  
Tax payments related to shares withheld for vested restricted stock units   (12,245 )   (4,762 )
Net cash provided by financing activities   4,743     279,034  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (134,075 )   310,143  
CASH AND CASH EQUIVALENTS, Beginning of period   380,907     34,396  
CASH AND CASH EQUIVALENTS, End of period   $ 246,832     $ 344,539  
Supplemental disclosure of cash flow information:        
Cash paid for interest   $ 431     $ 213  
Cash paid for (refunded from) income taxes   $ (1,292 )   $ 218  
Supplemental disclosure of non-cash investing and financing activities:        
Fixed asset purchases accrued but not paid   $ 3,930     $ 1,196  
Stock-based compensation capitalized to property and equipment   $ 3,640     $ 1,927  
                 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except share and per share amounts)
                 
    Three Months ended September 30,   Nine Months ended September 30,
    2017   2016   2017   2016
Net income   $ 14,519     $ 13,780     $ 42,941     $ 26,874  
Depreciation and amortization   9,742     5,808     26,024     14,487  
Amortization of intangible assets   1,077     1,493     3,233     4,442  
Other income, net   (1,140 )   (204 )   (2,403 )   (565 )
Income tax provision (benefit)   4,465     7,492     (964 )   14,966  
EBITDA   28,663     28,369     68,831     60,204  
                 
Stock-based compensation expense   8,899     8,748     25,260     23,456  
Adjusted EBITDA   $ 37,562     $ 37,117     $ 94,091     $ 83,660  
                 
Gross profit   $ 67,426     $ 68,163     $ 191,518     $ 176,802  
Stock-based compensation expense(1)   1,810     1,381     4,929     3,483  
Amortization of intangible assets(1)   767     1,174     2,301     3,487  
Adjusted gross profit   $ 70,003     $ 70,718     $ 198,748     $ 183,772  
                 
Net income   $ 14,519     $ 13,780     $ 42,941     $ 26,874  
Stock-based compensation expense   8,899     8,748     25,260     23,456  
Amortization of intangible assets   1,077     1,493     3,233     4,442  
Income tax effects of adjustments(2)   (5,683 )   (4,058 )   (25,466 )   (10,432 )
Adjusted net income(2)   $ 18,812     $ 19,963     $ 45,968     $ 44,340  
                 
Shares used to compute adjusted net income per share                
Basic   34,275,116     31,916,910     34,004,025     30,407,020  
Diluted   35,784,972     33,482,533     35,803,817     32,039,083  
                 
Adjusted net income per share                
Basic   $ 0.55     $ 0.63     $ 1.35     $ 1.46  
Diluted   $ 0.53     $ 0.60     $ 1.28     $ 1.38  
                                 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION - (continued)
(UNAUDITED)
(in thousands, except share and per share amounts)
                 
    Three Months ended September 30,   Nine Months ended September 30,
    2017   2016   2017   2016
Net cash provided by operating activities(3)   $ 34,600     $ 37,902     $ 69,621     $ 61,108  
Acquisition of property and equipment and internal-use software   (17,688 )   (14,353 )   (64,966 )   (46,292 )
Free cash flow   $ 16,912     $ 23,549     $ 4,655     $ 14,816  
                                 

(1) Amount represents the cost of revenues portion of stock-based compensation expense and amortization of intangible assets.

(2) The prior period amount has been adjusted to include the tax effects of the adjustments to net income to conform to the current period presentation.

(3) As a result of the Company’s adoption of ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Shared-Based Payment Accounting (“ASU 2016-09”) in the first quarter of 2017, the Company has retrospectively applied the standard to its condensed consolidated statements of cash flows in which the Company no longer classifies the excess tax benefits from employee stock plans as a reduction from operating cash flows. This resulted in a $5.5 million increase in net cash provided by operating activities and a corresponding $5.5 million decrease in net cash provided by financing activities for the nine months ended September 30, 2016.

 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except share and per share amounts)
                 
    Fourth Quarter 2017 Projected Range   Fiscal 2017 Projected Range
Net income (loss)   $ (1,000 )   $ 1,000     $ 42,000     $ 44,000  
                 
Depreciation and amortization   11,500     12,000     37,500     38,000  
Amortization of intangible assets   5,000     5,000     8,000     8,500  
Income tax provision/other   (2,000 )   (3,000 )   (5,000 )   (6,400 )
EBITDA   13,500     15,000     82,500     84,100  
                 
Stock-based compensation expense   9,500     10,000     34,500     35,000  
Adjusted EBITDA   $ 23,000     $ 25,000     $ 117,000     $ 119,100  
                 
Net income (loss)   $ (1,000 )   $ 1,000     $ 42,000     $ 44,000  
Stock-based compensation expense   9,500     10,000     34,500     35,000  
Amortization of intangible assets   5,000     5,000     8,000     8,500  
Income tax effects of adjustments   (6,500 )   (5,500 )   (31,500 )   (31,000 )
Adjusted net income   $ 7,000     $ 10,500     $ 53,000     $ 56,500  
                 
Shares used to compute non-GAAP net income per share                
Basic   34,500,000     34,800,000     33,800,000     34,000,000  
Diluted   36,200,000     36,400,000     36,000,000     36,200,000  
                 
Projected net income (loss) per share                
Basic   $ (0.03 )   $ 0.03     $ 1.24     $ 1.29  
Diluted   $ (0.03 )   $ 0.03     $ 1.17     $ 1.22  
                 
Adjusted net income per share                

Basic

  $ 0.20     $ 0.30     $ 1.57     $ 1.66  
Diluted   $ 0.19     $ 0.29     $ 1.47     $ 1.56  
                                 

 

Source: Ellie Mae, Inc.

IR CONTACTS:
Ellie Mae, Inc.
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
PRESS CONTACT:
Ellie Mae, Inc.
Erica Harvill, 925-227-5913
Erica.Harvill@elliemae.com