Ellie Mae Reports Second Quarter 2013 Results

Revenue up 45% from prior year
Record number of SaaS seats added

PLEASANTON, CA – August 1, 2013 – Ellie Mae® (NYSE: ELLI), a leading provider of on-demand, enterprise level automation solutions for the residential mortgage industry, today reported results for the second quarter ended June 30, 2013.

Second Quarter Highlights

“During the second quarter, we delivered strong top line growth driven by continued demand for our SaaS solutions,” said Sig Anderman, CEO of Ellie Mae. “Once again, we sold a record number of SaaS Encompass360 seats, with a particularly strong increase in new customers, while adding more users at current customers and upgrading existing licensed customers to our SaaS platform. We also experienced good momentum in increasing the number of new active SaaS users during the quarter, providing a solid foundation for future growth.”

“We are taking advantage of our higher than anticipated revenues to invest aggressively in initiatives that we believe will help us continue to grow our business and increase the competitive advantage of our products and services. During the second quarter we accelerated our investment in our sales and client services capabilities as well as in technology infrastructure to support our rapid user seat additions and overall business growth. This resulted in higher operating expenses for the second quarter,” continued Mr. Anderman.

“We are pleased to again raise our full year revenue guidance, despite the current expectations for a decline in mortgage origination volumes for the second half of this year. Also for the full year 2013, we are maintaining our adjusted EBITDA guidance and increasing our adjusted net income guidance. As a result of increased hiring of talent to support the growth of our business and the performance share awards granted, stock-based compensation expense was higher in the second quarter of 2013, so we are revising downward our net income guidance for the full year,” Mr. Anderman concluded.

Total revenue for the second quarter of 2013 increased 45% to $34.3 million, compared to $23.6 million for the second quarter of 2012. Net income for the second quarter of 2013 was $3.7 million, or $0.13 per diluted share, compared to net income of $5.0 million, or $0.21 per diluted share, for the second quarter of 2012. Diluted share count increased to 28.3 million at the end of the second quarter of 2013 from 23.3 million at the end of the second quarter of 2012, in large part due to the 3.5 million shares that the Company issued in its follow-on offering in July 2012.

On a non-GAAP basis, adjusted net income for the second quarter of 2013 was $8.2 million, or $0.29 per diluted share, compared to $6.3 million, or $0.27 per diluted share, for the second quarter of 2012. Adjusted EBITDA for the second quarter of 2013 was $11.7 million, compared to $7.3 million for the second quarter of 2012.

Free cash flow of $9.4 million was generated for the second quarter of 2013.

Total revenue for the six months ended June 30, 2013 increased 46% to $65.1 million compared to $44.5 million for the six months ended June 30, 2012. Net income for the six months ended June 30, 2013 was $7.6 million, or $0.27 per diluted share, compared to net income of $8.6 million, or $0.38 per diluted share, for the six months ended June 30, 2012.

On a non-GAAP basis, adjusted net income for the six months ended June 30, 2013 was $15.8 million, or $0.56 per diluted share, compared to $10.9 million, or $0.47 per diluted share, for the six months ended June 30, 2012. Adjusted EBITDA for the six months ended June 30, 2013 was $21.7 million, compared to adjusted EBITDA of $12.7 million for the six months ended June 30, 2012.

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

Key Operating Metrics as of and for the Quarter Ended June 30, 2013:

The July 2013 composite forecast of Fannie Mae, Freddie Mac and the Mortgage Bankers Association for 2013 mortgage origination volume is approximately $1.7 trillion, which represents a 13% decrease from estimated mortgage volume in 2012. These organizations publish monthly updates of their annual and quarterly forecasts. The July 2013 composite quarterly forecast for origination volume is as follows:

Approximately 50% of our revenue is sensitive to fluctuations in mortgage volumes and we are therefore providing financial guidance for the third quarter and full fiscal year 2013 based in part on these composite quarterly forecasts.

For the third quarter of 2013, revenue is expected to be in the range of $34.0 million to $34.5 million. Net income is expected to be in the range of $3.9 million to $4.3 million, or $0.14 to $0.15 per diluted share. Adjusted net income is expected to be in the range of $8.1 million to $8.6 million, or $0.29 to $0.30 per diluted share. Adjusted EBITDA is expected to be in the range of $12.1 million to $12.9 million.

For the full fiscal year 2013, revenue is expected to be in the range of $131.0 million to $132.5 million, up from the previously provided range of $130.0 million to $131.5 million. Net income is expected to be in the range of $14.0 million to $14.5 million, or $0.49 to $0.51 per diluted share, down from the previously provided range of $15.6 million to $16.2 million, or $0.55 to $0.57 per diluted share, due to higher stock-based compensation expense from the 2013 performance share awards and increased hiring of new talent to support the continuing growth of our business. Adjusted net income is expected to be in the range of $30.7 million to $31.5 million, or $1.08 to $1.11 per diluted share, up from the previously provided range of $30.2 million to $31.0 million, or $1.06 to $1.09 per diluted share. Adjusted EBITDA is expected to continue to be in the range of $44.2 million to $45.4 million.

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 acquired intangibles, non-cash, stock-based compensation expense, acquisition costs and other acquisition-related adjustments. EBITDA consists of net income plus depreciation and amortization, interest income and expense and income tax provision (benefit). Adjusted EBITDA consists of EBITDA plus non-cash, stock-based compensation expense and acquisition costs. 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 of book depreciation of fixed assets and 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.

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