News Column

Ellie Mae Reports Second Quarter 2014 Results

July 31, 2014

Record Quarterly Revenue of $40.0 Million

PLEASANTON, Calif.--(BUSINESS WIRE)-- Ellie Mae® (NYSE: ELLI), a leading provider of innovative on-demand software solutions and services for the residential mortgage industry, today reported results for the second quarter ended June 30, 2014.

Second Quarter Highlights

  • Revenue of $40.0 million compared to $34.3 million in Q2 2013
  • Net income of $4.4 million compared to $3.7 million in Q2 2013
  • Adjusted EBITDA of $13.2 million compared to $11.7 million in Q2 2013
  • 98,996 active Encompass® users as of June 30, 2014, up 12% year over year
  • 72,085 active SaaS Encompass users as of June 30, 2014, up 29% year over year

    “Our second quarter performance was outstanding,” said Sig Anderman, CEO of Ellie Mae. “Our business momentum continued to be driven by onboarding more users to our SaaS Encompass platform and ramping their usage of our on-demand services. Our results also highlighted the upside leverage in our business model when mortgage origination volumes uptick as they did on a sequential basis in the second quarter.”

    “Second quarter Encompass seats booked were strong, with particularly notable growth in new customers as lenders continued to embrace our comprehensive solutions to meet their operational efficiency and regulatory compliance needs,” continued Mr. Anderman.

    “Our pipeline remains strong and we are maintaining our guidance for the full year despite the forecasts of further declines in mortgage origination volume this year,” concluded Mr. Anderman.

    Financial Results

    Total revenue for the second quarter of 2014 increased 17% to $40.0 million, compared to $34.3 million in the second quarter of 2013. Net income for the second quarter of 2014 was $4.4 million, or $0.15 per diluted share, compared to net income of $3.7 million, or $0.13 per diluted share, in the second quarter of 2013.

    On a non-GAAP basis, adjusted net income for the second quarter of 2014 was $9.1 million, or $0.31 per diluted share, compared to $8.2 million, or $0.29 per diluted share, in the second quarter of 2013. Adjusted EBITDA for the second quarter of 2014 was $13.2 million, compared to $11.7 million in the second quarter of 2013.

    A reconciliation of the non-GAAP financial measures to their related GAAP financial measures is set forth below.

    Key Operating Metrics:

  • The total number of active Encompass users increased 12% year over year to 98,996;
  • The total number of active users of the SaaS version of Encompass increased 29% year over year to 72,085, or 73% of all active Encompass users;
  • Contracted SaaS users, the total number of SaaS seats under contract with us, increased 39% year over year to about 110,000;
  • Total SaaS Encompass revenue increased 26% year over year to $24.0 million, representing 60% of total revenue for the quarter;
  • Revenue per average active Encompass user increased 3% year over year to $410;
  • Contracted revenue increased to 61% of total revenue, or $24.3 million in the second quarter, up from 49% or $16.8 million in the prior year’s second quarter; and
  • On-demand revenue increased 21% year over year to $38.1 million, comprising approximately 95% of total revenue for the quarter compared to on-premise revenue which decreased to $1.9 million or approximately 5% of total revenue for the quarter.

    Third Quarter and Fiscal Year 2014 Financial Outlook

    The July 2014 composite forecast of Fannie Mae, Freddie Mac and the Mortgage Bankers Association for 2014 mortgage origination volume is approximately $1.1 trillion, which represents a 41% decrease from estimated mortgage volume in 2013. These organizations publish monthly updates of their annual and quarterly forecasts. The July 2014 composite quarterly forecast for origination volume is as follows:

                         

    ($ in

    billions)

      Q1   Q2   Q3   Q4   Annual
    2014   $238   $310   $306   $251   $1,105


    The July composite forecast reflects a decline in 2014 origination volume from the forecast of $1.2 trillion as of May 1, 2014 when we issued our second quarter guidance. Today’s guidance reflects the most current volume forecasts available.

    For the third quarter of 2014, revenue is expected to be in the range of $39.5 million to $41.0 million. Net income is expected to be in the range of $1.6 million to $2.0 million, or $0.05 to $0.07 per diluted share. Adjusted net income is expected to be in the range of $6.4 million to $7.1 million, or $0.21 to $0.23 per diluted share. Adjusted EBITDA is expected to be in the range of $9.7 million to $10.8 million.

    For the full fiscal year 2014, guidance remains unchanged. Revenue is expected to be in the range of $150.0 to $153.5 million. Net income is expected to be in the range of $8.8 million to $9.5 million, or $0.30 to $0.32 per diluted share. Adjusted net income is expected to be in the range of $28.9 million to $30.2 million, or $0.98 to $1.01 per diluted share. Adjusted EBITDA is expected to be in the range of $40.5 million to $42.2 million.

    Use of Non-GAAP Financial Measures

    Ellie Mae provides investors with adjusted net income, adjusted EBITDA and free cash flow in conjunction with traditional GAAP operating performance of net income as part of its overall assessment of its performance. Adjusted net income consists of net income plus amortization of other intangible assets and non-cash, stock-based compensation expense. EBITDA consists of net income plus depreciation, amortization of other intangible assets, other income, net and income tax provision. Adjusted EBITDA consists of EBITDA plus non-cash, stock-based compensation expense. Free cash flow is calculated by subtracting cash paid for the acquisition of property and equipment from net cash provided by operating activities. Ellie Mae uses adjusted net income and adjusted EBITDA as measures of operating performance because they enable period to period comparisons by excluding potential differences caused by variations in the age of book depreciation of fixed assets and 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 non-cash, stock-based compensation expense from adjusted net income and adjusted EBITDA 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. Ellie Mae uses free cash flow as a complementary measure to its entire consolidated statements of cash flows since purchases of property and equipment are a necessary component of ongoing operations. 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, or as an alternative to cash flows from operating activities as a measure of the Company’s profitability or liquidity. The Company cautions that other companies in Ellie Mae’s industry may calculate adjusted net income and adjusted EBITDA differently than the Company does, further limiting their usefulness as a comparative measure. A reconciliation of net income to adjusted net income and adjusted EBITDA is included in the tables below.

    Quarterly Conference Call

    Ellie Mae will discuss its second quarter results today, July 31, 2014, via teleconference at 4:30 p.m. Eastern Time. To access the call, please dial 800-378-1475 or 719-457-2695 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://ir.elliemae.com. An audio replay of the call will be available through August 14, 2014 by dialing 888-203-1112 or 719-457-0820 and entering access code 7912312.

    About Ellie Mae

    Ellie Mae (NYSE:ELLI) is a leading provider of innovative on-demand software solutions and services for the residential mortgage industry. Ellie Mae’s all-in-one Encompass® mortgage management solution provides one system of record that allows banks, credit unions and mortgage lenders to originate and fund mortgages and improve compliance, loan quality and efficiency. Visit EllieMae.com or call 877.355.4362 to learn more.

    © 2014 Ellie Mae, Inc. Ellie Mae®, Encompass®, DataTrac®, Ellie Mae Network™, Total Quality Loan™, TQL™ and the Ellie Mae logo are registered trademarks or trademarks of Ellie Mae, Inc. or its subsidiaries. All rights reserved. Other company and product names may be trademarks or copyrights of their respective owners.

    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 discussions regarding our ability to strengthen our infrastructure and enhance our system capacity, reliability and security, growth opportunities, projected revenue, net income, adjusted EBITDA and adjusted net income for the third quarter and fiscal year 2014, as well as discussions regarding potential increases in investment in growth initiatives and further enhancement of the Company’s capabilities. 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 mortgage volume in the United States; changes in other macroeconomic factors affecting the residential real estate industry; changes in strategic planning decisions by management; our ability to manage growth and expenses as we continue to scale our business; reallocation of internal resources; changes in anticipated rates of existing customer conversions and 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 our 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 Securities and Exchange Commission, including but not limited to its Annual Report on Form 10-K for the year ended December 31, 2013. 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.

    Ellie Mae, Inc.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (UNAUDITED)
    (in thousands, except share and per share amounts)
       

    June 30,

    2014

    December 31,

    2013

    Assets
    Current assets:
    Cash and cash equivalents $ 34,001 $ 33,462
    Short-term investments 43,585 46,325

    Accounts receivable, net of allowances for doubtful accounts of $131 and $81 as of June 30, 2014 and December 31, 2013, respectively

    16,781 12,024

    Prepaid expenses and other current assets

      5,977   6,473  
    Total current assets 100,344 98,284
    Property and equipment, net 18,725 12,751
    Long-term investments 64,829 56,285
    Other intangible assets, net 7,661 5,089
    Goodwill 52,460 51,051
    Deposits and other assets   5,454   5,112  
    Total assets $ 249,473 $ 228,572  
    Liabilities and Stockholders’ Equity
    Current liabilities:
    Accounts payable $ 3,676 $ 3,783
    Accrued and other current liabilities 11,971 10,224
    Acquisition holdback, net of discount 1,993 1,965
    Deferred revenue   4,570   4,752  
    Total current liabilities 22,210 20,724
    Leases payable, net of current portion 445 175
    Other long-term liabilities   1,221   777  
    Total liabilities   23,876   21,676  
     
    Stockholders’ equity:
    Common stock, $0.0001 par value per share; 140,000,000 authorized shares, 28,277,649 and 27,624,025 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively 3 3
    Additional paid-in capital 225,534 212,043
    Accumulated other comprehensive income (loss) 38 (34 )
    Retained earnings (accumulated deficit)   22   (5,116 )
    Total stockholders’ equity   225,597   206,896  
    Total liabilities and stockholders’ equity $ 249,473 $ 228,572  
     
    Ellie Mae, Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (UNAUDITED)
    (in thousands, except share and per share amounts)
           
    Three Months ended June 30,Six Months ended June 30,
    20142013   20142013
    Revenues $ 39,984 $ 34,270 $ 72,162 $ 65,125
    Cost of revenues   10,576   8,607     19,776   16,218  
    Gross profit 29,408 25,663 52,386 48,907
    Operating expenses:
    Sales and marketing 6,451 5,167 12,546 10,070
    Research and development 6,077 6,530 12,892 12,078
    General and administrative   9,551   7,975     18,544   15,561  
    Total operating expenses   22,079   19,672     43,982   37,709  
    Income from operations 7,329 5,991 8,404 11,198
    Other income, net   109   151     209   272  
    Income before income taxes 7,438 6,142 8,613 11,470
    Income tax provision   3,082   2,457     3,475   3,872  
    Net income $ 4,356 $ 3,685   $ 5,138 $ 7,598  
    Net income per share of common stock:
    Basic $ 0.16 $ 0.14   $ 0.19 $ 0.29  
    Diluted $ 0.15 $ 0.13   $ 0.18 $ 0.27  
    Weighted average common shares used in computing net income per share of common stock:
    Basic   27,617,142   26,368,860     27,479,035   26,268,134  
    Diluted   29,288,928   28,281,922     29,192,867   28,182,572  
     
    Net income $ 4,356 $ 3,685 $ 5,138 $ 7,598
    Other comprehensive income (loss), net of taxes:
    Unrealized gain (loss) on investments   75   (28 )   72   (123 )
    Comprehensive income $ 4,431 $ 3,657   $ 5,210 $ 7,475  
     

    Ellie Mae, Inc.

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (UNAUDITED)

    (in thousands)

     
      Six Months ended June 30,
    20142013
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income $ 5,138 $ 7,598
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation 2,320 2,273
    Provision for uncollectible accounts receivable 58 1
    Amortization of other intangible assets 1,040 721
    Amortization of discount related to acquisition holdback 29 69
    Stock-based compensation 7,488 7,508
    Excess tax benefit from exercise of stock options (2,256 ) (249 )
    Deferred income taxes (137 )
    Amortization of investment premium 669 852
    Changes in operating assets and liabilities:
    Accounts receivable (4,815 ) (1,708 )
    Prepaid expenses and other current assets 1,447 (549 )
    Deposits and other assets (342 ) (1,116 )
    Accounts payable 374 1,640
    Accrued, other current and other liabilities 2,834 4,011
    Deferred revenue   (181 )   (252 )
    Net cash provided by operating activities   13,803     20,662  
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property and equipment (7,421 ) (3,393 )
    Purchases of investments (38,867 ) (63,344 )
    Maturities of investments 32,466 41,842
    Acquisitions   (4,500 )    
    Net cash used in investing activities   (18,322 )   (24,895 )
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment of capital lease obligations (735 ) (363 )
    Proceeds from issuance of common stock under employee stock plans 4,038 1,985
    Tax payments related to shares withheld for vested restricted stock units (501 ) (26 )
    Excess tax benefit from exercise of stock options   2,256     249  
    Net cash provided by financing activities   5,058     1,845  
    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 539 (2,388 )
    CASH AND CASH EQUIVALENTS, Beginning of period   33,462     44,114  
    CASH AND CASH EQUIVALENTS, End of period $ 34,001   $ 41,726  
    Supplemental disclosure of cash flow information:
    Cash paid for interest $ 39 $ 156
    Cash paid for income taxes $ 18 $ 1,736
    Supplemental disclosure of non-cash investing and financing activities:
    Fixed asset purchases not yet paid $ 404 $ 218
    Stock-based compensation capitalized to property and equipment $ 210 $ 39
    Acquisition of property and equipment under capital leases $ 1,195 $ 1,271
     

    Ellie Mae, Inc.

    NON-GAAP RECONCILIATION

    (UNAUDITED)

    (in thousands, except share and per share amounts)

     
      Three Months ended June 30,   Six Months ended June 30,
    2014     2013   2014     2013
    Net income $ 4,356 $ 3,685 $ 5,138 $ 7,598
    Depreciation 1,163 1,178 2,320 2,273
    Amortization of other intangible assets 535 360 1,040 721
    Other income, net (109 ) (151 ) (209 ) (272 )
    Income tax provision   3,082     2,457     3,475     3,872  
    EBITDA 9,027 7,529 11,764 14,192
     
    Non-cash, stock-based compensation expenses   4,178     4,135     7,488     7,508  
    Adjusted EBITDA $ 13,205   $ 11,664   $ 19,252   $ 21,700  
     
    Net income $ 4,356 $ 3,685 $ 5,138 $ 7,598
    Non-cash, stock-based compensation expenses 4,178 4,135 7,488 7,508
    Amortization of intangible assets   535     360     1,040     721  
    Adjusted net income $ 9,069   $ 8,180   $ 13,666   $ 15,827  
     
    Shares used to compute non-GAAP net income per share
    Basic 27,617,142 26,368,860 27,479,035 26,268,134
    Diluted 29,288,928 28,281,922 29,192,867 28,182,572
     
    Adjusted net income per share
    Basic $ 0.33   $ 0.31   $ 0.50   $ 0.60  
    Diluted $ 0.31   $ 0.29   $ 0.47   $ 0.56  
     
    Net cash provided by operating activities $ 11,680 $ 11,442 $ 13,803 $ 20,662
    Acquisition of property and equipment   (4,873 )   (2,044 )   (7,421 )   (3,393 )
    Free cash flow $ 6,807   $ 9,398   $ 6,382   $ 17,269  
     
    Ellie Mae, Inc.
    NON-GAAP RECONCILIATION
    (UNAUDITED)
    (in thousands, except share and per share amounts)
           
    Third Quarter 2014 Projected Range   Fiscal 2014 Projected Range
    Net Income $ 1,600 $ 2,000 $ 8,800 $ 9,500
     
    Depreciation 1,250 1,450 5,800 6,000
    Amortization of intangible assets 500 600 2,100 2,200
    Income tax provision/other   2,100   2,300   5,800   6,000
    EBITDA 5,450 6,350 22,500 23,700
     
    Non-cash, stock-based compensation expenses   4,250   4,450   18,000   18,500
    Adjusted EBITDA $ 9,700 $ 10,800 $ 40,500 $ 42,200
     
    Net Income $ 1,600 $ 2,000 $ 8,800 $ 9,500
    Non-cash, stock-based compensation expenses 4,250 4,450 18,000 18,500
    Amortization of intangible assets   500   600   2,100   2,200
    Adjusted net income $ 6,350 $ 7,050 $ 28,900 $ 30,200
     
    Shares used to compute non-GAAP net income per share
    Diluted 30,450,000 30,760,000 29,500,000 30,000,000
     
    Projected net income per share
    Diluted $ 0.05 $ 0.07 $ 0.30 $ 0.32
     
    Adjusted net income per share
    Diluted $ 0.21 $ 0.23 $ 0.98 $ 1.01





    Ellie Mae, Inc.

    Edgar Luce, +1-925-227-7079

    Executive VP and CFO

    IR@elliemae.com

    or

    The Blueshirt Group for Ellie Mae, Inc.

    Lisa Laukkanen, +1-415-217-4967

    lisa@blueshirtgroup.com


    Source: Ellie Mae


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