Ellie Mae Reports Third Quarter 2017 Results

PLEASANTON, Calif.--()--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
 

Contacts

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

Contacts

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