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Ellie Mae Reports Fourth Quarter and Full Year 2014 Results

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Ellie Mae(R) (NYSE:ELLI) , a leading provider of innovative on-demand software solutions and services for the residential mortgage industry, today reported results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter 2014 Highlights

  • Record revenue of $46.6 million, up 53% from $30.4 million in Q4 2013
  • Net income of $4.3 million, up 153% from $1.7 million in Q4 of 2013
  • Adjusted EBITDA of $12.8 million, up 75% to $7.3 million in Q4 2013
  • 3rd consecutive quarter with over 10,000 new SaaS Encompass seats booked

Full Year 2014 Highlights

  • Record revenue of $161.5 million, up 26% from $128.5 million in 2013
  • Net income of $14.8 million, up 11% from $13.3 million for 2013
  • Adjusted EBITDA of $46.0 million, up 17% from $39.4 million in 2013
  • 37,000 new SaaS Encompass(R) seats booked
  • 109,000 active Encompass users, up 18%
  • 85,000 active SaaS Encompass users, up 33%

“Ellie Mae’s fourth quarter results were a tremendous finish to 2014,” said Jonathan Corr, CEO of Ellie Mae. “Revenue grew 53% over last year’s fourth quarter to a record $46.6 million. We again outperformed the overall mortgage market as we continued to grow our active user base and increased average revenue per user by 32% over last year’s fourth quarter. Our results demonstrate the upside leverage of our model as we benefited from an uptick in the volume of loan applications during the quarter.”

“The combination of business momentum and solid execution enabled us to deliver strong results throughout 2014 as we increased revenues by 26% over last year. Against the backdrop of mortgage industry volumes that declined 38% in 2014, our performance was driven by demand for our all-in-one solution that meets lenders’ ever increasing needs for loan quality, regulatory compliance and operating efficiency,” continued Mr. Corr.

“Our successes in 2014 and our robust pipeline give us ongoing confidence in our growth strategy. We are entering 2015 well positioned to continue to grow market share and revenues. To support customers and further differentiate the company, we will continue to ramp our investment in key areas such as R&D, enterprise sales, services, technical support and data center infrastructure. These investments are reflected in our net income guidance for 2015. We are excited about the opportunity to add additional SaaS Encompass users and drive adoption of our broad array of on-demand solutions,” concluded Mr. Corr.

Financial Results

Total revenue for the fourth quarter of 2014 was $46.6 million, compared to $30.4 million for the fourth quarter of 2013. Net income for the fourth quarter of 2014 was $4.3 million, or $0.14 per diluted share, compared to net income of $1.7 million, or $0.06 per diluted share, for the fourth quarter of 2013. Diluted share count for the fourth quarter of 2014 was 30.1 million as compared to 28.9 million during the fourth quarter of 2013.

On a non-GAAP basis, adjusted net income for the fourth quarter of 2014 was $11.5 million, or $0.38 per diluted share, compared to $5.4 million, or $0.19 per diluted share, for the fourth quarter of 2013. Adjusted EBITDA for the fourth quarter of 2014 was $12.8 million, compared to $7.3 million for the fourth quarter of 2013.

Total revenue for 2014 was $161.5 million compared to $128.5 million for 2013. Net income for 2014 was $14.8 million, or $0.50 per diluted share, compared to net income of $13.3 million, or $0.47 per diluted share, for 2013.

On a non-GAAP basis, adjusted net income for 2014 was $34.1 million, or $1.15 per diluted share, compared to $29.0 million, or $1.02 per diluted share, for 2013. Adjusted EBITDA for 2014 was $46.0 million, compared to adjusted EBITDA of $39.4 million for 2013.

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

Key Operating Metrics:

  • The total number of active Encompass users increased 18% year over year to 109,000;
  • The total number of active users of the SaaS version of Encompass increased 33% year over year to 85,000, or 78% of all active Encompass users;
  • Contracted SaaS users, the total number of SaaS seats under contract with us, increased 33% year over year to approximately 126,000;
  • Total SaaS Encompass revenue in the fourth quarter increased 48% year over year to $28.0 million, representing 60% of total revenue for the fourth quarter of 2014;
  • Revenue per average active Encompass user in the fourth quarter increased 32% year over year to $433; and
  • On-demand revenue in the fourth quarter increased 59% year over year to $44.9 million, comprising approximately 96% of total revenue for the fourth quarter of 2014 compared to on-premise revenue which decreased to $1.6 million or approximately 4% of total revenue for the fourth quarter of 2014.

First Quarter and Full Year 2015 Financial Outlook

The January 2015 composite forecast of Fannie Mae, Freddie Mac and the Mortgage Bankers Association for 2015 mortgage origination volume is approximately $1.2 trillion, which represents a 3% increase from estimated mortgage volume in 2014. These organizations publish monthly updates of their annual and quarterly forecasts. The January 2015 composite quarterly forecast for origination volume is as follows:

($ in
billions)

Q1 Q2 Q3 Q4

Annual

2015 $290 $335 $308 $262 $1,195

For the first quarter of 2015, our revenue is expected to be in the range of $46.0 million to $47.0 million. Net income is expected to be breakeven to $0.5 million, or $0.00 to $0.02 per diluted share. Adjusted net income is expected to be in the range of $5.9 million to $6.6 million, or $0.19 to $0.21 per diluted share. Adjusted EBITDA is expected to be in the range of $7.5 million to $8.6 million.

For the full year 2015, revenue is expected to be in the range of $203.0 million to $206.0 million. Net income is expected to be in the range of $0.5 million to $1.5 million, or $0.02 to $0.05 per diluted share. Adjusted net income is expected to be in the range of $27.1 million to $29.0 million, or $0.86 to $0.91 per diluted share. Adjusted EBITDA is expected to be in the range of $37.8 million to $40.8 million.

Use of Non-GAAP Financial Measures

Ellie Mae provides investors with adjusted net income, adjusted EBITDA and free cash flow in conjunction with traditional GAAP operating performance of net income as part of its overall assessment of its performance. Adjusted net income consists of net income plus amortization of other intangible assets, impairment loss on intangible assets and non-cash, stock-based compensation expense. EBITDA consists of net income plus depreciation, amortization of other intangible assets, other income, net, impairment loss on intangible assets and income tax provision. Adjusted EBITDA consists of EBITDA plus non-cash, stock-based compensation expense. Free cash flow is calculated by subtracting cash paid for the acquisition of property and equipment from net cash provided by operating activities. Ellie Mae uses adjusted net income and adjusted EBITDA as measures of operating performance because they enable period to period comparisons by excluding potential differences caused by variations in the age 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 non-cash, stock-based compensation expense from adjusted net income and adjusted EBITDA because the amount of non-cash expense associated with stock-based awards made at certain prices and points in time (a) do not necessarily reflect how the company’s business is performing at any particular time and (b) can vary significantly between periods due to the timing of new stock-based awards. Ellie Mae uses free cash flow as a complementary measure to its entire consolidated statements of cash flows since purchases of property and equipment are a necessary component of ongoing operations. These non-GAAP measures are not measurements of the Company’s financial performance under GAAP and have limitations as analytical tools. Accordingly, these non-GAAP financial measures should not be considered a substitute for, or superior to, net income or operating income or other financial measures calculated in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of the Company’s profitability or liquidity. The Company cautions that other companies in Ellie Mae’s industry may calculate adjusted net income and adjusted EBITDA differently than the Company does, further limiting their usefulness as a comparative measure. A reconciliation of net income to adjusted net income and adjusted EBITDA is included in the tables below.

Quarterly Conference Call

Ellie Mae will discuss its fourth quarter and fiscal year 2014 results today, February 12, 2015, via teleconference at 4:30 p.m. Eastern Time. To access the call, please dial 888-349-9586 or 719-325-2387 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 February 26, 2015 by dialing 888-203-1112 or 719-457-0820 and entering access code 9980318.

About Ellie Mae

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

(c)2015 Ellie Mae, Inc. Ellie Mae(R), Encompass(R), AllRegs(R), DataTrac(R), Ellie Mae NetworkTM, Total Quality LoanTM, TQLTM and the Ellie Mae logo are trademarks of Ellie Mae, Inc. or its subsidiaries. All rights reserved. Other company and product names may be trademarks or copyrights of their respective owners.

Forward-Looking Statements

This press release contains forward-looking statements under the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These forward-looking statements include discussions regarding our ability to strengthen our infrastructure and enhance our system capacity, reliability and security, growth opportunities, projected revenue, net income (loss), adjusted EBITDA and adjusted net income for the first quarter and fiscal year 2015, as well as discussions regarding potential increases in investment in growth initiatives and further enhancement of the Company’s capabilities. These statements involve known and unknown risks, uncertainties and other factors which may cause Ellie Mae’s results to be materially different than those expressed or implied in such statements. Such differences may be based on factors such as changes in the volume of residential mortgage volume in the United States; changes in other macroeconomic factors affecting the residential real estate industry; changes in strategic planning decisions by management; our ability to manage growth and expenses as we continue to scale our business; reallocation of internal resources; changes in anticipated rates of existing customer conversions and SaaS seat additions, and new customer acquisitions; the possibility that economic benefits of future opportunities may never materialize, including unexpected variations in market growth and demand for the acquired products and technologies; delays and disruptions, including changing relationships with partners, customers, employees or suppliers; the satisfactory performance, reliability and availability of our products and services; the amount of costs incurred in connection with supporting and integrating new customers and partners; ongoing personnel and logistical challenges of managing a larger organization; changes in other macroeconomic factors affecting the residential real estate industry and other risk factors included in documents that Ellie Mae has filed with the Securities and Exchange Commission, including but not limited to its Annual Report on Form 10-K for the year ended December 31, 2013. Other unknown or unpredictable factors also could have material adverse effects on Ellie Mae’s future results. The forward-looking statements included in this press release are made only as of the date hereof. Ellie Mae cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Ellie Mae expressly disclaims any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

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

December 31,
2014

December 31,
2013

Assets
Current assets:
Cash and cash equivalents $ 26,756 $ 33,462
Short-term investments 49,352 46,325
Accounts receivable, net of allowances for doubtful accounts of $66 and $81 as of December 31, 2014 and December 31, 2013, respectively 20,403 12,024
Prepaid expenses and other current assets 16,021 6,176
Total current assets 112,532 97,987
Property and equipment, net 28,694 12,869
Long-term investments 58,679 56,285
Other intangible assets, net 21,452 5,089
Goodwill 65,338 51,051
Deposits and other assets 3,425 6,322
Total assets $ 290,120 $ 229,603
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 6,726 $ 3,783
Accrued and other current liabilities 16,822 9,326
Acquisition holdback, net of discount 522 1,965
Deferred revenue 9,729 4,752
Total current liabilities 33,799 19,826
Leases payable, net of current portion 443 175
Other long-term liabilities 2,994 1,675
Total liabilities 37,236 21,676
Stockholders’ equity:
Common stock, $0.0001 par value per share; 140,000,000 authorized shares, 28,907,147 and 27,624,025 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively 3 3
Additional paid-in capital 242,527 212,332
Accumulated other comprehensive loss (95 ) (34 )
Retained earnings (accumulated deficit) 10,449 (4,374 )
Total stockholders’ equity 252,884 207,927
Total liabilities and stockholders’ equity $ 290,120 $ 229,603
Ellie Mae, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share amounts)
Quarter ended December 31, Year ended December 31,
2014 2013 2014 2013
Revenues $ 46,577 $ 30,350 $ 161,537 $ 128,481
Cost of revenues 14,720 8,154 46,283 32,630
Gross profit 31,857 22,196 115,254 95,851
Operating expenses:
Sales and marketing 7,753 6,098 26,544 21,331
Research and development 8,880 6,044 28,228 24,695
General and administrative 11,261 7,745 39,361 30,853
Total operating expenses 27,894 19,887 94,133 76,879
Income from operations 3,963 2,309 21,121 18,972
Other income, net 145 105 488 460
Income before income taxes 4,108 2,414 21,609 19,432
Income tax provision (benefit) (192 ) 703 6,786 6,114
Net income $ 4,300 $ 1,711 $ 14,823 $ 13,318
Net income per share of common stock:
Basic $ 0.15 $ 0.06 $ 0.53 $ 0.50
Diluted $ 0.14 $ 0.06 $ 0.50 $ 0.47
Weighted average common shares used in computing net income per share of common stock:
Basic 28,457,087 27,099,373 27,858,828 26,581,962
Diluted 30,068,225 28,902,234 29,593,873 28,502,403
Net income $ 4,300 $ 1,711 $ 14,823 $ 13,318
Other comprehensive income, net of taxes:
Unrealized gain (loss) on investments (58 ) 17 (61 ) 31
Comprehensive income $ 4,242 $ 1,728 $ 14,762 $ 13,349
Ellie Mae, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Year ended December 31,
2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,823 $ 13,318
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 5,605 4,727
Provision for uncollectible accounts receivable 1 32
Amortization of other intangible assets 2,779 1,442
Impairment loss on intangible assets 1,968
Amortization of discount related to acquisition holdback 36 106
Amortization of investment premium 1,280 1,614
Stock-based compensation expense 14,548 14,259
Loss on disposal of property and equipment 693
Excess tax benefit from exercise of stock options (5,852 ) (6,955 )
Deferred income taxes 546 (3,297 )
Changes in operating assets and liabilities:
Accounts receivable (8,380 ) (2,303 )
Prepaid expenses and other current assets (4,821 ) (2,905 )
Deposits and other assets (1,146 ) (1,353 )
Accounts payable 2,675 907
Accrued, other current and other liabilities 13,239 9,494
Deferred revenue 2,604 (127 )
Net cash provided by operating activities 40,598 28,959
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (19,834 ) (6,092 )
Purchases of investments (64,748 ) (101,121 )
Maturities of investments 57,986 56,899
Acquisitions, net of cash acquired (34,641 ) (3,000 )
Other investing activities, net 1,000
Net cash used in investing activities (61,237 )

(52,314

)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (1,178 ) (624 )
Proceeds from issuance of common stock under employee stock plans 10,161 6,546
Tax payments related to shares withheld for vested restricted stock units (902 ) (174 )
Excess tax benefit from exercise of stock options 5,852 6,955
Net cash provided by financing activities 13,933 12,703
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,706 )

(10,652

)
CASH AND CASH EQUIVALENTS, Beginning of period 33,462 44,114
CASH AND CASH EQUIVALENTS, End of period $ 26,756 $

33,462

Supplemental disclosure of cash flow information:
Cash paid for interest $ 40 $ 268
Cash paid for income taxes $ 126 $ 4,582
Supplemental disclosure of non-cash investing and financing activities:
Fixed asset purchases not yet paid $ 921 $ 884
Stock-based compensation capitalized to property and equipment $ 534 $ 131
Acquisition of property and equipment under capital leases $ 1,269 $ 1,271
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except share and per share amounts)
Quarter ended December 31, Year ended December 31,
2014 2013 2014 2013
Net income $ 4,300 $ 1,711 $ 14,823 $ 13,318
Depreciation 1,672 1,286 5,605 4,727
Amortization of other intangible assets 1,204 361 2,779 1,442
Other income, net (145 ) (105 ) (488 ) (460 )
Impairment loss on intangible assets 1,968 1,968
Income tax provision (benefit) (192 ) 703 6,786 6,114
EBITDA 8,807 3,956 31,473 25,141
Non-cash, stock-based compensation expenses 4,008 3,364 14,548 14,259
Adjusted EBITDA $ 12,815 $ 7,320 $ 46,021 $ 39,400
Net income $ 4,300 $ 1,711 $ 14,823 $ 13,318
Non-cash, stock-based compensation expenses 4,008 3,364 14,548 14,259
Impairment loss on intangible assets 1,968 1,968

Amortization of other intangible assets

1,204 361 2,779 1,442
Adjusted net income $ 11,480 $ 5,436 $ 34,118 $ 29,019
Shares used to compute non-GAAP net income per share
Basic 28,457,087 27,099,373 27,858,828 26,581,962
Diluted 30,068,225 28,902,234 29,593,873 28,502,403
Adjusted net income per share
Basic $ 0.40 $ 0.20 $ 1.22 $ 1.09
Diluted $ 0.38 $ 0.19 $ 1.15 $ 1.02
Net cash provided by operating activities $ 14,488 $ 8,270 $ 40,598 $ 28,959
Acquisition of property and equipment (6,995 ) (1,058 ) (19,834 ) (6,092 )
Free cash flow $ 7,493 $ 7,212 $ 20,764 $ 22,867
Ellie Mae, Inc.
NON-GAAP RECONCILIATION
(UNAUDITED)
(in thousands, except share and per share amounts)
First Quarter 2015 Projected Range Fiscal 2015 Projected Range
Net income $ $ 500 $ 500 $ 1,500
Depreciation 1,600 1,800 10,500 11,000

Amortization of other intangible assets

1,200 1,300 4,600 5,000
Income tax provision/other 200 200 800
EBITDA 2,800 3,800 15,800 18,300
Non-cash, stock-based compensation expenses 4,700 4,800 22,000 22,500
Adjusted EBITDA $ 7,500 $ 8,600 $ 37,800 $ 40,800
Net income $ $ 500 $ 500 $ 1,500
Non-cash, stock-based compensation expenses 4,700 4,800 22,000 22,500

Amortization of other intangible assets

1,200 1,300 4,600 5,000
Adjusted net income $ 5,900 $ 6,600 $ 27,100 $ 29,000
Shares used to compute non-GAAP net income per share
Basic 28,500,000 29,000,000 29,500,000 30,000,000
Diluted 30,500,000 31,000,000 31,500,000 32,000,000
Projected net income per share
Basic $ $ 0.02 $ 0.02 $ 0.05
Diluted $ $ 0.02 $ 0.02 $ 0.05
Adjusted net income per share
Basic $ 0.21 $ 0.23 $ 0.92 $ 0.97
Diluted $ 0.19 $ 0.21 $ 0.86 $ 0.91

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