Ellie Mae (ELLI), a provider of cloud-based software to mortgage lenders, reported its second-quarter results on Thursday, July 26. Market share gains allowed the company to post revenue growth of 20% even as rising interest rates took their toll on origination volumes.
Let's take a more granular look at Ellie Mae's results to see what's driving the double-digit gains.
Image source: Getty Images.
Ellie Mae second quarter: The raw numbers
| Metric | Q2 2018 | Q2 2017 | Change |
|---|---|---|---|
| Revenue | $125 million | $104.1 million |
20% |
| Non-GAAP net income | $19.1 million | $18.2 million | 5% |
| Non-GAAP EPS | $0.54 | $0.51 | 5.8% |
Data source: Ellie Mae.
What happened with Ellie Mae this quarter?
- Revenue growth was driven by a 6% increase in loan volume on the Ellie Mae platform and a 13% increase in revenue per loan. The uptick in revenue per loan is partially attributable to last year's acquisition of Velocify. Total revenue of $125 million came in above the high end of management's guidance range. Overall industry volumes declined by 3% during the same period.
- Encompass users totaled 193,000 at quarter end. This figure was up 9% versus the prior year.
- The average Encompass user closed 1.23 loans during the period. This was down from 1.3 in the second quarter of last year.
- Non-GAAP gross margin ticked up 30 basis points sequentially to 64.8% on the higher volumes.
- Spending levels remain elevated as the company continues to pour money into research and development and expanding its commercial capabilities.
- Even with the higher spending levels, non-GAAP EPS came in at $0.54. That was far higher than management had previously estimated.
What management had to say
CEO Jonathan Corr shared his usual praise for why Ellie Mae continues to succeed:
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.
Looking forward
Management said that overall origination volumes are expected to remain under pressure throughout the remainder of the year. Current data suggests that higher interest rates will lead to a volume decline of 7% for the full year, driven primarily by reduced refinancing activity.
In spite of the choppy operating environment, management projects that revenue growth will continue to be robust. However, the company also expects that spending rates will remain elevated and will continue to cause profitability growth to lag revenue:
| Metric | Q3 2018 Guidance | Q3 2017 Actual | Implied Growth at the Midpoint |
|---|---|---|---|
| Revenue | $127 million to $129 million | $107 million | 20% |
| Non-GAAP net income | $18.5 million to $20.5 million | $18.8 million | 4% |
| Non-GAAP EPS | $0.52 to $0.57 | $0.53 | 4% |
Data source: Ellie Mae.
In spite of the headwinds, management took the opportunity to move up its profit guidance for the full year:
| Metric | Updated 2018 Guidance | Old 2018 Guidance |
|---|---|---|
| Revenue | $495 million to $505 million | $495 million to $505 million |
| Non-GAAP net income | $64.5 million to $69.5 million | $61.0 million to $65.0 million |
| Non-GAAP EPS | $1.79 to $1.91 | $1.68 to $1.78 |
Data source: Ellie Mae.
Corr ended his prepared remarks on the call with investors by saying, "In summary, we feel great about our long-term growth. The opportunities, as we look ahead, we look to drive toward our goal of automating everything automatable in the mortgage origination process."
