Ellie Mae, Inc. (ELLI)
Q4 2012 Earnings Conference Call
February 14, 2013 16:30 ET
Executives
Lisa Laukkanen - Investor Relations, The Blueshirt Group
Sig Anderman - Chief Executive Officer
Jonathan Corr - President and Chief Operating Officer
Ed Luce - Chief Financial Officer
Analysts
Michael Huang - Needham & Company
Carter Malloy - Stephens
Brandon Dobell - William Blair
Brian Schwartz - Oppenheimer
Raghavan Sarathy - Dougherty & Company
Chris Hogan - Barclays
Brad Sills - Maxim Group
Pat Walravens - JMP
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Ellie Mae, Inc. Fourth Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for your questions. (Operator Instructions) Today’s conference is being recorded, February 14, 2013.
I would now like to turn the conference over to our host, Lisa Laukkanen with The Blueshirt Group. Please go ahead.
Lisa Laukkanen - Investor Relations, The Blueshirt Group
Good afternoon and thank you for joining us on today’s conference call to discuss Ellie Mae’s fourth quarter and fiscal year 2012 results. This call is being broadcast live over the web and can be accessed for 90 days in the Investor Relations section of Ellie Mae’s website at elliemae.com.
On today’s call are Sig Anderman, Chief Executive Officer; Jonathan Corr, President and Chief Operating Officer; and Ed Luce, Chief Financial Officer.
We would like to remind you that during the course of this conference call, Ellie Mae’s management team will make projections and other forward-looking statements regarding future events or future financial performance of the company. We wish to caution you that such statements are simply predictions and actual events or results may differ materially. We refer you to the documents that the company files from time-to-time with the Securities and Exchange Commission, specifically the company’s Form 10-K and 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.
I also want to inform our listeners that management will make some references to non-GAAP financial measures during the call. You will find supplemental data in the company’s press release, which includes reconciliations of the non-GAAP measures to the comparable GAAP results.
Now, I’d like to turn the call over to Ellie Mae’s CEO, Sig Anderman.
Sig Anderman - Chief Executive Officer
Well, thank you, Lisa and welcome everyone to today’s earnings call. First, I want to wish you all a Happy Valentine’s Day and keeping with the spirit of the day, I think you will love today’s update. This afternoon, I will talk about the business highlights for the fourth quarter and the full year 2012 and share some of our thoughts about the prospects for the mortgage industry in general and our business, in particular, and then Ed will review the details of our financial results. After that, we’ll answer any questions you may have.
The fourth quarter was an outstanding quarter that capped an outstanding year for Ellie Mae. We had record revenues $30 million compared to $19 million in Q4 of 2011, a 60% year-over-year increase. Profitability also increased significantly with adjusted net income of $7.6 million, almost three times what it was a year ago. Equally impressive was the addition of a record number of new Encompass users for the quarter and for the whole year. At the end of 2012, we had 74,000 active users of Encompass, up almost 40% from 2011. And in the fourth quarter alone, we booked 9,000 new SaaS user seats, setting a new sales record. And we have a very healthy sales pipeline and terrific momentum going into the New Year.
Our ability to maintain our sales momentum through the fourth quarter and into this year reflects several things that I’d like to share with you. First, the mortgage lending business is very robust nowadays. Current estimates are that $1.9 trillion in new loans were funded in 2012, way beyond the trillion dollars predicted at the beginning of 2012 by Fannie Mae, Freddie Mac, and the Mortgage Bankers Association. And many of our customers and prospects are reporting record mortgage volumes today, but they are being pummeled by never ending cascade of regulations, audits, and investor demands.
Jumping through the compliance hoops is very challenging, but they must jump through them. Every quarter is constant changes and analyses, operational processes, forms, and disclosures, and they must jump through every one of the hoops. There is no choice. If they try to do things manually, it stalls the process and breaks the bank, so they need automation technology to remain compliant and efficient at the same time. And that’s where we come in. Our technology helps lenders deliver documents to borrowers that are compliant. It helps them sell loans to investors that meet investor and regulatory standards and helps to make sure that business rules are followed throughout their organizations.
Our compliance functionality is built right into our Encompass enterprise software. The value of that, of compliance extending the full breadth of mortgage technology cannot be overstated. We believe we have the most comprehensive technology in the marketplace to do these things, and our sales show that lenders agree with us as Encompass has been selected over competitive solutions that require cobbling together two or three or more vendor solutions with all the risks and effort that’s added to the process.
Second, as we add customers, size itself is also a distinct competitive advantage. In the mortgage operation software business, bigger is really better and let me explain that. The unending profusion of regulations puts enormous strain on lenders and on lender software providers, providers like us. Unless the vendor can and is willing to devote considerable resources to continually upgrading software to help customers address these unending regulatory changes, they cannot satisfy customers’ needs.
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