Ellie Mae Reports Second Quarter 2017 Results

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, 2017.

Second Quarter 2017 Highlights
  • Revenue of $104.1 million, up 16% from $90.1 million in 2016
  • Net income of $18.8 million 1, up from $10.6 million in 2016
  • Adjusted EBITDA of $35.8 million, up 16% from $30.9 million in 2016
  • 9,600 Encompass seats booked

"Despite mortgage volumes being down 8% in the second quarter, we were able to grow revenue 16% year-over-year and increased revenue 20% in the first half of the year with volumes down 3%," said Jonathan Corr, president and CEO of Ellie Mae. "We continued to increase share with another 9,600 seats booked as lenders embrace our platform's all-in-one value proposition. Moreover, with our investments in Encompass NG, we are extending our technology lead even further."

"The mortgage market is in the process of transitioning from a refi centric one to a purchase driven one. Some of our customers experienced closed loan volume lower than we expected in the second quarter as they dealt with declining refi volume, while the tight housing inventory held back purchase volume. We also saw some enterprise customers, which comprise an increasing portion of our customer base, take longer to ramp on our platform than planned. These factors led to a lower closed loan volume than expected, so we are resetting assumptions for the year as the market completes this transition. Beyond this year, we expect the market to normalize and for our business to resume stronger growth," concluded Mr. Corr.

Financial Results

Total revenue for the second quarter of 2017 was $104.1 million, compared to $90.1 million for the second quarter of 2016. Net income for the second quarter of 2017 was $18.8 million 1, or $0.52 per diluted share, compared to $10.6 million, or $0.34 per diluted share, for the second quarter of 2016. Second 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 second quarter of 2017 was $18.2 million, or $0.51 per diluted share, compared to $16.8 million, or $0.54 per diluted share, for the second quarter of 2016. Adjusted EBITDA for the second quarter of 2017 was $35.8 million, compared to $30.9 million for the second quarter of 2016. GAAP and non-GAAP per share results for the quarter ended June 30, 2017 include the effect of an additional 3.2 million shares from the follow-on offering in August 2016.

Third Quarter and Full Year 2017 Financial Outlook

For the third quarter of 2017, our revenue is expected to be in the range of $104.0 million to $106.0 million. Net income is expected to be in the range of $7.0 million to $8.0 million, or $0.19 to $0.22 per diluted share. Adjusted net income is expected to be in the range of $13.9 million to $15.1 million, or $0.38 to $0.41 per diluted share, which reflects the non-GAAP tax adjustment. Adjusted EBITDA is expected to be in the range of $30.4 million to $32.4 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 $400.0 million to $405.0 million. Net income is expected to be in the range of $40.0 million to $42.0 million, or $1.11 to $1.16 per diluted share. Adjusted net income is expected to be in the range of $52.8 million to $54.3 million, or $1.47 to $1.50 per diluted share, which reflects the non-GAAP tax adjustment. Adjusted EBITDA is expected to be in the range of $114.0 million to $117.8 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 second quarter 2017 results today, July 27, 2017, via teleconference at 4:30 p.m. Eastern Time. To access the call, please dial 877-719-9799 or 719-325-4791 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 10, 2017 by dialing 888-203-1112 or 719-457-0820 and entering access code 8375982.

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, net. 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 $7.3 million and $13.8 million for the three and six months ended June 30, 2017. The adoption also resulted in a $1.2 million increase in net cash provided by operating activities and a corresponding $1.2 million decrease in net cash provided by financing activities for the six months ended June 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 third quarter and fiscal year 2017. 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; our ability to manage growth and expenses as we continue to scale our 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 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 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 our quarterly reports on Form 10-Q and our 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)
 
    June 30, 2017     December 31, 2016
Assets
Current assets:
Cash and cash equivalents $ 213,204 $ 380,907
Short-term investments 120,454 41,841
Accounts receivable, net of allowance for doubtful accounts of $249 and $45 as of June 30, 2017 and December 31, 2016, respectively 45,542 39,358
Prepaid expenses and other current assets 18,965   15,209  
Total current assets 398,165 477,315
Property and equipment, net 156,698 126,297
Long-term investments 121,096 45,931
Intangible assets, net 15,133 17,289
Deposits and other assets 22,705 10,138
Goodwill 74,547   74,547  
Total assets $ 788,344   $ 751,517  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 15,831 $ 15,942
Accrued and other current liabilities 22,901 39,809
Deferred revenue 17,985   23,126  
Total current liabilities 56,717 78,877
Leases payable, net of current portion 28 85
Other long-term liabilities 16,424   17,647  
Total liabilities 73,169   96,609  
 
Stockholders' equity:
Common stock, $0.0001 par value per share; 140,000,000 authorized shares, 34,320,850 and 33,685,649 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively 3 3
Additional paid-in capital 629,443 612,098
Accumulated other comprehensive loss (264 ) (219 )
Retained earnings 85,993   43,026  
Total stockholders' equity 715,175   654,908  
Total liabilities and stockholders' equity $ 788,344   $ 751,517  
 
 
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,
2017 2016 2017 2016
Revenues $ 104,125 $ 90,098 $ 197,127 $ 163,723
Cost of revenues (1) 38,267   28,453   73,035   55,084
Gross profit 65,858 61,645 124,092 108,639
Operating expenses:
Sales and marketing (1) 13,860 12,506 33,240 27,792
Research and development (1) 16,046 14,662 33,453 27,115
General and administrative (1) 18,727   17,793   35,669   33,525
Total operating expenses 48,633   44,961   102,362   88,432
Income from operations 17,225 16,684 21,730 20,207
Other income, net 762   162   1,263   361
Income before income taxes 17,987 16,846 22,993 20,568
Income tax provision (benefit) (836 ) 6,258   (5,429 ) 7,474
Net income $ 18,823   $ 10,588   $ 28,422   $ 13,094
Net income per share of common stock:
Basic $ 0.55   $ 0.36   $ 0.84   $ 0.44
Diluted $ 0.52   $ 0.34   $ 0.79   $ 0.42
Weighted average common shares used in computing net income per share of common stock:
Basic 34,028,553   29,578,630   33,866,233   29,643,779
Diluted 35,908,813   31,188,599   35,771,565   31,279,512
 
Net income $ 18,823 $ 10,588 $ 28,422 $ 13,094
Other comprehensive income, net of taxes
Unrealized gain (loss) on investments (103 ) 101   (45 ) 429
Comprehensive income $ 18,720   $ 10,689   $ 28,377   $ 13,523
 
(1) Includes stock-based compensation expense of the following for the periods presented:
Cost of revenues $ 1,675 $ 1,132 $ 3,119 $ 2,102
Sales and marketing 1,258 1,059 2,434 1,937
Research and development 2,098 1,944 3,959 3,448
General and administrative 3,479   3,883   6,849   7,221
$ 8,510   $ 8,018   $ 16,361   $ 14,708
 
 
Ellie Mae, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
       
Six Months ended June 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,422 $ 13,094
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,282 8,679
Amortization of intangible assets 2,156 2,949
Stock-based compensation expense 16,361 14,708
Deferred income taxes (5,662 ) 6,153
Loss on disposal of property and equipment 5
Amortization (accretion) of investments (139 ) 490
Changes in operating assets and liabilities:
Accounts receivable, net (6,183 ) (15,738 )
Prepaid expenses and other current assets (3,757 ) (1,388 )
Deposits and other assets 194 (1,580 )
Accounts payable 2,677 (432 )
Accrued, other current and other liabilities (10,243 ) (6,629 )
Deferred revenue (5,087 ) 2,895  
Net cash provided by operating activities 35,021   23,206  
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (21,800 ) (15,566 )
Acquisition of internal-use software (25,478 ) (16,373 )
Purchases of investments (181,760 ) (35,615 )
Maturities of investments 28,076 31,551
Sale of investments   20,000  

Net cash used in investing activities
(200,962 ) (16,003 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (553 ) (2,080 )
Proceeds from issuance of common stock under employee stock plans 10,207 9,127
Payment of issuance costs relating to common stock issued in public offering (15 )
Tax payments related to shares withheld for vested restricted stock units (11,401 ) (4,037 )
Net cash provided by (used in) financing activities (1,762 ) 3,010  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (167,703 ) 10,213
CASH AND CASH EQUIVALENTS, Beginning of period 380,907   34,396  
CASH AND CASH EQUIVALENTS, End of period $ 213,204   $ 44,609  
Supplemental disclosure of cash flow information:
Cash paid for interest $ 370 $ 145
Cash paid for income taxes $ 463 $ 129
Supplemental disclosure of non-cash investing and financing activities:
Fixed asset purchases accrued but not paid $ 3,172 $ 3,709
Stock-based compensation capitalized to property and equipment $ 2,178 $ 1,125
 
 
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,
2017 2016 2017 2016
Net income $ 18,823 $ 10,588 $ 28,422 $ 13,094
Depreciation and amortization 8,943 4,725 16,282 8,679
Amortization of intangible assets 1,078 1,492 2,156 2,949
Other income, net (762 ) (162 ) (1,263 ) (361 )
Income tax provision (benefit) (836 ) 6,258   (5,429 ) 7,474  
EBITDA 27,246 22,901 40,168 31,835
 
Stock-based compensation expense 8,510   8,018   16,361   14,708  
Adjusted EBITDA $ 35,756   $ 30,919   $ 56,529   $ 46,543  
 
Gross profit $ 65,858 $ 61,645 $ 124,092 $ 108,639
Stock-based compensation expense (1) 1,675 1,132 3,119 2,102
Amortization of intangible assets (1) 767   1,174   1,534   2,313  
Adjusted gross profit $ 68,300   $ 63,951   $ 128,745   $ 113,054  
 
Net income $ 18,823 $ 10,588 $ 28,422 $ 13,094
Stock-based compensation expense 8,510 8,018 16,361 14,708
Amortization of intangible assets 1,078 1,492 2,156 2,949
Income tax effects of adjustments (2)

 
(10,178 )

 
(3,290 ) (19,783 ) (6,374 )
Adjusted net income (2) $ 18,233   $ 16,808   $ 27,156   $ 24,377  
 
Shares used to compute adjusted net income per share
Basic 34,028,553 29,578,630 33,866,233 29,643,779
Diluted 35,908,813 31,188,599 35,771,565 31,279,512
 
Adjusted net income per share
Basic $ 0.54   $ 0.57   $ 0.80   $ 0.82  
Diluted $ 0.51   $ 0.54   $ 0.76   $ 0.78  
 
Net cash provided by operating activities (3) $ 36,443 $ 33,266 $ 35,021 $ 23,206
Acquisition of property and equipment and internal-use software, net (24,512 ) (11,529 ) (47,278 ) (31,939 )
Free cash flow $ 11,931   $ 21,737   $ (12,257 ) $ (8,733 )
 
(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 $1.2 million increase in net cash provided by operating activities and a corresponding $1.2 million decrease in net cash provided by financing activities for the six months ended June 30, 2016.
 
 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except share and per share amounts)
               
Third Quarter 2017 Projected Range Fiscal 2017 Projected Range
Net Income $ 7,000 $ 8,000 $ 40,000 $ 42,000
 
Depreciation and amortization 9,600 9,700 36,000 37,000
Amortization of intangible assets 1,100 1,100 4,300 4,300
Income tax provision/other 2,700   3,100   (3,300 ) (3,000 )
EBITDA 20,400 21,900 77,000 80,300
 
Stock-based compensation expense 10,000   10,500   37,000   37,500  
Adjusted EBITDA $ 30,400   $ 32,400   $ 114,000   $ 117,800  
 
Net Income $ 7,000 $ 8,000 $ 40,000 $ 42,000
Stock-based compensation expense 10,000 10,500 37,000 37,500
Amortization of intangible assets 1,100 1,100 4,300 4,300
Income tax effects of adjustments (4,250 ) (4,550 ) (28,500 ) (29,500 )
Adjusted net income $ 13,850   $ 15,050   $ 52,800   $ 54,300  
 
Shares used to compute non-GAAP net income per share
Basic 34,400,000 34,700,000 33,800,000 34,000,000
Diluted 36,100,000 36,300,000 36,000,000 36,200,000
 
Projected net income per share
Basic $ 0.20 $ 0.23 $ 1.18 $ 1.24
Diluted $ 0.19 $ 0.22 $ 1.11 $ 1.16
 
Adjusted net income per share
Basic $ 0.40 $ 0.43 $ 1.56 $ 1.60
Diluted $ 0.38 $ 0.41 $ 1.47 $ 1.50

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