Market Overview

Ellie Mae Reports Second Quarter 2018 Results

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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 income is 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
 

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