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Ellie Mae Reports Fourth Quarter and Full Year 2018 Results

February 14, 2019 at 8:00 AM EST

PLEASANTON, Calif.--(BUSINESS WIRE)--Feb. 14, 2019-- Ellie Mae® (NYSE:ELLI), the leading cloud-based platform provider for the mortgage finance industry, today reported results1 for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter 2018 Highlights

  • Revenues of $116.0 million vs. $112.9 million in 2017.
  • Net income of $0.1 million vs. $9.9 million in 2017.
  • Adjusted EBITDA of $25.5 million vs. $28.7 million in 2017.
  • 623,000 loans closed on Encompass.2

Full Year 2018 Highlights

  • Revenues of $480.3 million vs. $417.0 million in 2017.
  • Net income of $22.6 million vs. $52.9 million in 2017.
  • Adjusted EBITDA of $122.5 million vs. $123.9 million in 2017.
  • 2,596,000 loans closed on Encompass.2

“We are pleased to report a solid finish to the year,” said Jonathan Corr, President & CEO. “Throughout the year we made significant enhancements to our Encompass Digital Lending Platform in order to drive increased productivity. Lenders are increasingly looking to technology to tackle higher origination costs and we are seeing our lenders look to automate more workflow through Encompass. Entering 2019, we remain confident in our underlying technology foundation and the growing value proposition of Encompass.”

______________________________

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 fourth quarter and full year 2018 are presented under ASC 606, financial results for the fourth quarter and full year 2017 are presented under ASC 605. A reconciliation of the financial results for the fourth quarter and full year 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 Digital Lending 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.

Financial Results

Revenues for the fourth quarter of 2018 were $116.0 million, compared to $112.9 million for the fourth quarter of 2017. Net income for the fourth quarter of 2018 was $0.1 million, or $0.00 per diluted share, compared to $9.9 million, or $0.28 per diluted share, for the fourth quarter of 2017. Net income for the fourth quarter of 2018 includes the amortization of acquisition-related intangibles related to the Velocify acquisition, and one-time costs related to a reorganization of the technology group.

On a non-GAAP basis, adjusted net income for the fourth quarter of 2018 was $9.5 million, or $0.27 per diluted share, compared to $11.8 million, or $0.33 per diluted share, for the fourth quarter of 2017. Adjusted EBITDA for the fourth quarter of 2018 was $25.5 million compared to $28.7 million for the fourth quarter of 2017.

Total revenue for 2018 was $480.3 million, compared to $417.0 million for 2017. Net income for 2018 was $22.6 million, or $0.63 per diluted share, compared to $52.9 million, or $1.48 per diluted share, for 2017. Full year 2018 net income includes the amortization of acquisition-related intangibles related to the Velocify acquisition.

On a non-GAAP basis, adjusted net income for 2018 was $63.4 million, or $1.77 per diluted share, compared to $58.9 million, or $1.64 per diluted share, for 2017. Adjusted EBITDA for 2018 was $122.5 million, compared to $123.9 million for 2017.

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.”

Subsequent Event

On February 12, 2019, the Company announced that it has entered into a definitive agreement to be acquired by Thoma Bravo, LLC in an all-cash transaction that values the Company at an aggregate value of approximately $3.7 billion. Under the terms of the agreement, the Company’s stockholders will receive $99.00 per share in cash upon the closing of the transaction. Closing of the transaction is subject to approval by Ellie Mae stockholders and regulatory authorities and the satisfaction of customary closing conditions. The transaction is currently expected to close in the second or third quarter of 2019 and is not subject to a financial condition.

Upcoming Events

As a result of the proposed merger (the “Merger”), the Company will not host an earnings conference call or provide financial guidance. Similarly, the Company will no longer host its Analyst Meeting, which was scheduled to take place in conjunction with the Company’s user event in March 2019.

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, and adjusted gross profit in addition to the traditional GAAP operating performance measure of net income (loss) 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 (loss) plus stock-based compensation expense, amortization of acquisition-related intangibles, acquisition-related costs, and non-GAAP income tax adjustments. EBITDA consists of net income (loss) plus depreciation and amortization, amortization of acquisition-related intangibles, and income tax provision, less other income, net and income tax benefit. Adjusted EBITDA consists of EBITDA plus stock-based compensation expense and acquisition-related costs. Adjusted gross profit consists of gross profit plus stock-based compensation expense and amortization of acquisition-related intangibles that are included in cost of revenues. 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, acquisition-related costs, 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 (loss), operating income (loss), gross profit, 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, adjusted EBITDA, and adjusted gross profit differently than Ellie Mae does, further limiting their usefulness as comparative measures. A reconciliation of net income (loss) to adjusted net income, adjusted net income per share, EBITDA and adjusted EBITDA, and gross profit to adjusted gross profit 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, the Company recommends that investors monitor Ellie Mae’s investor relations website in addition to following Ellie Mae’s press releases, Securities and Exchange Commission (“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.

Additional Information and Where to Find It

In connection with the proposed Merger, Ellie Mae expects to file with the SEC and furnish to its stockholders a proxy statement on Schedule 14A, as well as other relevant documents concerning the proposed transaction. Promptly after filing its definitive proxy statement with the SEC, Ellie Mae will mail the definitive proxy statement and a proxy card to each stockholder of Ellie Mae entitled to vote at the special meeting relating to the proposed transaction. The proxy statement will contain important information about the proposed Merger and related matters. STOCKHOLDERS AND SECURITY HOLDERS OF ELLIE MAE ARE URGED TO READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE MERGER THAT ELLIE MAE WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ELLIE MAE AND THE TRANSACTION. This communication is not a substitute for the proxy statement or for any other document that Ellie Mae may file with the SEC and send to its stockholders in connection with the proposed Merger. The proposed Merger will be submitted to Ellie Mae’s stockholders for their consideration. Before making any voting decision, stockholders of Ellie Mae are urged to read the proxy statement regarding the Merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information about the proposed Merger.

Stockholders of Ellie Mae will be able to obtain a free copy of the proxy statement, as well as other filings containing information about Ellie Mae and the proposed transaction, without charge, at the SEC’s website (http://www.sec.gov). Copies of the proxy statement, when available, and the filings with the SEC that will be incorporated by reference therein can also be obtained, without charge, by contacting Ellie Mae’s Investor Relations at (925) 227-7079, by email at ir@elliemae.com, or by going to Ellie Mae’s Investor Relations page on its website at investor.elliemae.com and clicking on the link titled “SEC Filings” to access Ellie Mae’s “SEC Filings.”

Participants in the Solicitation

Ellie Mae and certain of its directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed Merger. Information regarding the interests of Ellie Mae’s directors and executive officers and their ownership of Company Common Stock is set forth in Ellie Mae’s proxy statement on Schedule 14A filed with the SEC on April 4, 2018, will be included in Ellie Mae’s definitive proxy statement to be filed with the SEC in connection with the proposed Merger, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests in the proposed Merger, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials to be filed with the SEC in connection with the proposed Merger. Free copies of this document may be obtained as described in the preceding paragraph.

Notice Regarding Forward-Looking Statements

This communication, and any documents to which Ellie Mae refers you in this communication, contains not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ellie Mae’s current expectations or beliefs concerning future events, including but not limited to the expected completion and timing of the proposed transaction, expected benefits and costs of the proposed transaction, management plans and other information relating to the proposed transaction, strategies and objectives of Ellie Mae for future operations and other information relating to the proposed transaction. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,” “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming,” and similar expressions are intended to identify forward-looking statements. You should read any such forward-looking statements carefully, as they involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly from those projected or contemplated in any such forward-looking statement. Those risks, uncertainties and assumptions include (i) the risk that the proposed transaction may not be completed in a timely manner or at all, which may adversely affect Ellie Mae’s business and the price of the common stock of Ellie Mae, (ii) the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the adoption of the Merger Agreement by the stockholders of Ellie Mae and the receipt of certain regulatory approvals, (iii) the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement, (iv) the effect of the announcement or pendency of the proposed transaction on Ellie Mae’s business relationships, operating results and business generally, (v) risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction, (vi) risks related to diverting management’s attention from Ellie Mae’s ongoing business operations, (vii) the outcome of any legal proceedings that may be instituted against Ellie Mae related to the Merger Agreement or the proposed transaction, (viii) unexpected costs, charges or expenses resulting from the proposed transaction, and (ix) other risks described in Ellie Mae’s filings with the SEC, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Forward-looking statements speak only as of the date of this communication or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, Ellie Mae does not assume any obligation to update any such forward-looking statements whether as the result of new developments or otherwise.

© 2019 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 the 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 BALANCE SHEETS
(UNAUDITED)
(in thousands)
 
    December 31,   December 31,
    2018   2017
Assets        
Current assets:        
Cash and cash equivalents   $ 181,697     $ 137,698  
Short-term investments   120,898     103,345  
Accounts receivable, net   43,876     43,121  
Prepaid expenses and other current assets   32,905     18,474  
Total current assets   379,376     302,638  
Property and equipment, net   233,590     186,991  
Long-term investments   61,959     107,363  
Intangible assets, net   59,486     80,874  
Goodwill   141,168     144,451  
Deposits and other long-term assets   36,031     9,290  
Total assets   $ 911,610     $ 831,607  
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 18,539     $ 24,913  
Accrued and other current liabilities   39,247     26,188  
Contract liabilities   24,357     26,287  
Total current liabilities   82,143     77,388  
Other long-term liabilities   25,398     18,880  
Total liabilities   107,541     96,268  
Stockholders' equity:        
Common stock   4     3  
Additional paid-in capital   694,607     649,817  
Accumulated other comprehensive loss   (747 )   (880 )
Retained earnings   110,205     86,399  
Total stockholders' equity   804,069     735,339  
Total liabilities and stockholders' equity   $ 911,610     $ 831,607  
                 
 
Ellie Mae, Inc.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except per share amounts)
                 
    Quarter Ended December 31,   Year Ended December 31,
    2018   2017   2018   2017
Revenues   $ 116,046     $ 112,886     $ 480,266     $ 417,042  
Cost of revenues (1)   49,197     48,272     199,925     160,910  
Gross profit   66,849     64,614     280,341     256,132  
Operating expenses:                
Sales and marketing (1)   21,247     18,280     84,234     65,042  
Research and development (1)   20,450     19,912     88,150     69,266  
General and administrative (1)   25,807     23,858     97,077     79,686  
Total operating expenses   67,504     62,050     269,461     213,994  
Income (loss) from operations   (655 )   2,564     10,880     42,138  
Other income, net   1,069     853     3,920     3,256  
Income before income taxes   414     3,417     14,800     45,394  
Income tax provision (benefit)   330     (6,492 )   (7,775 )   (7,456 )
Net income   $ 84     $ 9,909     $ 22,575     $ 52,850  
Net income per share of common stock:                
Basic   $     $ 0.29     $ 0.66     $ 1.55  
Diluted   $     $ 0.28     $ 0.63     $ 1.48  
Weighted average common shares used in computing net income per share of common stock:                
Basic   34,717     34,214     34,441     34,057  
Diluted   35,636     35,689     35,787     35,806  
                 
Net income   $ 84     $ 9,909     $ 22,575     $ 52,850  
Other comprehensive income (loss), net of taxes:                
Unrealized gain (loss) on investments   517     (669 )   133     (661 )
Comprehensive income   $ 601     $ 9,240     $ 22,708     $ 52,189  
                 
(1) Includes stock-based compensation expense of the following for the periods presented:
Cost of revenues   $ 2,350     $ 1,857     $ 8,758     $ 6,786  
Sales and marketing   2,151     1,443     7,396     5,223  
Research and development   596     2,279     8,879     8,281  
General and administrative   4,144     3,628     14,942     14,177  
    $ 9,241     $ 9,207     $ 39,975     $ 34,467  
                                 
 
Ellie Mae, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
     
    Year Ended December 31,
    2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 22,575     $ 52,850  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   49,801     36,482  
Amortization of acquisition-related intangibles   21,388     9,515  
Stock-based compensation expense   39,975     34,467  
Amortization of deferred contract costs   8,927     3,500  
Deferred income taxes   (8,238 )   (7,849 )
Other   504     (1,704 )
Changes in operating assets and liabilities:        
Accounts receivable, net   (755 )   (997 )
Prepaid expenses, other current assets, and other long-term assets   (7,503 )   (780 )
Deferred contract costs   (9,107 )   (4,254 )
Accounts payable   (1,250 )   4,943  
Accrued liabilities, other current liabilities, and other long-term liabilities   9,253     (11,750 )
Contract liabilities   (1,897 )   1,798  
Net cash provided by operating activities   123,673     116,221  
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Acquisition of property and equipment   (24,301 )   (28,355 )
Acquisition of internal-use software   (68,881 )   (59,514 )
Purchases of investments   (136,162 )   (221,383 )
Maturities of investments   163,980     99,490  
Cash paid for acquisitions, net of cash acquired       (119,270 )
Other investing activities, net   172      
Net cash used in investing activities   (65,192 )   (329,032 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of common stock under employee stock plans   19,385     19,306  
Payments for repurchase of common stock   (14,740 )   (35,244 )
Tax payments related to shares withheld for vested restricted stock units   (19,042 )   (13,826 )
Other financing activities, net   (85 )   (634 )
Net cash used in financing activities   (14,482 )   (30,398 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   43,999     (243,209 )
         
CASH AND CASH EQUIVALENTS, Beginning of period   137,698     380,907  
CASH AND CASH EQUIVALENTS, End of period   $ 181,697     $ 137,698  
                 
 
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except per share amounts)
                                 
    Quarter Ended December 31,   Year Ended December 31,
    2018
ASC 606
  Adjust-
ments
  2018
ASC 605
  2017
ASC 605
  2018
ASC 606
  Adjust-
ments
  2018
ASC 605
  2017
ASC 605
Revenues   $ 116,046     $ (862 )   $ 115,184     $ 112,886     $ 480,266     $ (2,064 )   $ 478,202     $ 417,042  
Operating expenses:                                
Sales and marketing   $ 21,247     $ 563     $ 21,810     $ 18,280     $ 84,234     $ 1,548     $ 85,782     $ 65,042  
Total operating expenses   $ 67,504     $ 563     $ 68,067     $ 62,050     $ 269,461     $ 1,548     $ 271,009     $ 213,994  
Income (loss) before income taxes   $ 414     $ (1,425 )   $ (1,011 )   $ 3,417     $ 14,800     $ (3,612 )   $ 11,188     $ 45,394  
Income tax provision (benefit)   $ 330     $ 1,146     $ 1,476     $ (6,492 )   $ (7,775 )   $ (882 )   $ (8,657 )   $ (7,456 )
                                 
Net income (loss)   $ 84     $ (2,571 )   $ (2,487 )   $ 9,909     $ 22,575     $ (2,730 )   $ 19,845     $ 52,850  
Depreciation and amortization   14,187         14,187     10,458     50,275         50,275     36,482  
Amortization of acquisition-related intangibles   2,694         2,694     6,282     21,389         21,389     9,515  
Other income, net   (1,069 )       (1,069 )   (853 )   (3,920 )       (3,920 )   (3,256 )
Income tax provision (benefit)   330     1,146     1,476     (6,492 )   (7,775 )   (882 )   (8,657 )   (7,456 )
EBITDA   16,226     (1,425 )   14,801     19,304     82,544     (3,612 )   78,932     88,135  
                                 
Stock-based compensation expense   9,241         9,241     9,207     39,975         39,975     34,467  
Acquisition-related costs(2)               161                 1,282  
Adjusted EBITDA   $ 25,467     $ (1,425 )   $ 24,042     $ 28,672     $ 122,519     $ (3,612 )   $ 118,907     $ 123,884  
                                 
Gross profit   $ 66,849     $ (862 )   $ 65,987     $ 64,614     $ 280,341     $ (2,064 )   $ 278,277     $ 256,132  
Stock-based compensation expense(1)   2,350         2,350     1,857     8,758         8,758     6,786  
Amortization of acquisition-related intangibles(1)   2,028         2,028     5,438     18,738         18,738     7,739  
Adjusted gross profit   $ 71,227     $ (862 )   $ 70,365     $ 71,909     $ 307,837     $ (2,064 )   $ 305,773     $ 270,657  
                                 
Net income (loss)   $ 84     $ (2,571 )   $ (2,487 )   $ 9,909     $ 22,575     $ (2,730 )   $ 19,845     $ 52,850  
Stock-based compensation expense   9,241         9,241     9,207     39,975         39,975     34,467  
Amortization of acquisition-related intangibles   2,694         2,694     6,282     21,389         21,389     9,515  
Acquisition-related costs(2)               161                 1,282  
Non-GAAP income tax adjustments(3)   (2,531 )   1,327     (1,204 )   (13,787 )   (20,586 )   1     (20,585 )   (39,254 )
Adjusted net income (2)   $ 9,488     $ (1,244 )   $ 8,244     $ 11,772     $ 63,353     $ (2,729 )   $ 60,624     $ 58,860  
                                 
Shares used to compute adjusted net income per share                                
Basic   34,717         34,717     34,214     34,441         34,441     34,057  
Diluted   35,636         35,636     35,689     35,787         35,787     35,806  
                                 
Adjusted net income per share (2)                                
Basic   $ 0.27     $ (0.03 )   $ 0.24     $ 0.34     $ 1.84     $ (0.08 )   $ 1.76     $ 1.73  
Diluted   $ 0.27     $ (0.04 )   $ 0.23     $ 0.33     $ 1.77     $ (0.08 )   $ 1.69     $ 1.64  
                                                                 
   
(1) Amount represents the cost of revenues portion of stock-based compensation expense and amortization of acquisition-related intangibles.
(2) Acquisition-related costs include third-party transaction costs incurred for legal and other professional services in relation to an acquisition. These costs are non-recurring and are not related to the on-going operating results in the period.
(3) For the quarter and year ended December 31, 2018, the non-GAAP effective tax rates are 23.2% and 16.8%, respectively, under ASC 606. For the quarter and year ended December 31, 2018, the non-GAAP effective tax rates are 24.5% and 16.4%, respectively, under ASC 605. For the quarter and year ended December 31, 2017, the non-GAAP effective tax rates are 38.3% and 35.1%, 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.

 

Source: Ellie Mae

IR CONTACTS:

Alex Hughes
VP of Investor Relations
Ellie Mae, Inc.
(925) 227-7079
IR@elliemae.com

Lisa Laukkanen
The Blueshirt Group for Ellie Mae, Inc.
(415) 217-4967
lisa@blueshirtgroup.com

PRESS CONTACT:

Erica Harvill
Ellie Mae, Inc.
(925) 227-5913
Erica.Harvill@elliemae.com