Stockholder Letter
Dear Stockholders,
By all measures 2011 was a year of great accomplishments at Ellie Mae. We delivered strong financial results, successfully integrated the acquisition of Del Mar Datatrac, Inc., which increased the residential mortgage origination volume of our customer base by approximately 50%, and added strength to our balance sheet and raised our profile with a successful initial public offering. We are pleased with the momentum the company showed in 2011 and believe we are well positioned to extend our leadership position in 2012.
Annual revenue grew by 28% to $55.5 million and adjusted net income1 increased by 52% to $4.9 million. We achieved this growth in revenue and profitability against a backdrop of a 20% decline in industry-wide mortgage origination volume from 2010 to 2011, demonstrating once again that, far from being hurt by the challenging mortgage environment of the last few years, we have actually benefited from it. For in this challenging market for the mortgage industry, our offerings are even more attractive as mortgage companies face decreasing volume and increasing regulatory demands.
Our results for the year were driven by the continued adoption of our SaaS enterprise solutions and, specifically, our success-based pricing (SBP) offering. The SBP model resonates with banks, credit unions and mortgage bankers – who originate and fund loans – as it meets their operational and compliance needs and better aligns their technology costs with their generation of revenue.
As noted, we acquired Datatrac in August of 2011. Datatrac’s origination software is used by more than 200 mortgage lenders as a core operating system to process and fund loans, create workflow efficiencies, manage secondary marketing transactions and handle reporting and business intelligence. With an estimated 20,000 users, the Datatrac customer base represents a significant potential for our Encompass offering. This strategic acquisition bolstered Ellie Mae's growth strategy by expanding our already extensive lender customer base, significantly increasing the number of mortgages funded by our customers and broadening the functionality of our software solutions.
At the end of 2011, we had a record 46,000 active Encompass lender users, which we believe is the largest user base in our industry. Of these users, 23,000, or 50%, subscribed to our SaaS offering, an increase of 74% year over year. And 82% of our SaaS users subscribed to our SBP model – a testament to how attractive that bundled offering has become in helping address mortgage originators’ heightened concerns about loan quality, regulatory compliance and operating efficiency.
2011 also marked a very satisfying milestone in our evolution from our original licensing model to one where we deliver our software “as a service” and “on-demand”. For the year, 86% of our revenues were attributable to our on-demand offerings: the SaaS and SBP version of Encompass 360, our document preparation, compliance and product and pricing services, and the Ellie Mae NetworkTM.
During 2011 we launched the pilot program for our Total Quality LoanTM (TQL) initiative, with one of the top three mega lender investors in the United States. TQL allows our lender customers to originate higher quality loans more efficiently and provides the investors to whom they sell those loans greater assurance of both loan quality and compliance with their own lending requirements. We are working to add more of our lender customers and investors to the program and continue to be enthusiastic about the long term potential for the TQL initiative.
Going forward, we remain focused on adding new lender users, converting our current “on-premise” license users to our “on-demand” SaaS offering, expanding our software solutions and investing in our business with an emphasis on enhancing infrastructure to support continued on-demand growth.
In summary, I am very pleased with our 2011 performance. Our results validate our growth strategy—a strategy based on our conviction that complete automation of the mortgage origination process is inevitable, that mortgage lenders will continue to be attracted to our comprehensive on-demand solutions as they struggle to cope with ever increasing regulatory and investor demands and the need for visibility, control and efficiency in their operations without having to run, staff and pay for extensive hardware, systems and infrastructure departments. We believe we offer the best solutions in the marketplace to meet today’s lenders’ needs, and are well positioned to grow even in the face of the current forecast for a decline in mortgage origination volume in 2012.
Our growth and achievements would not have been possible without the contributions and dedication of our employees. I am proud of our entire team’s efforts and hard work in supporting our strategy. I also greatly appreciate the support of our stockholders, customers and partners. I look forward to what we can do together in 2012.
Sincerely,
Sig Anderman
Founder and Chief Executive Officer
1. A reconciliation of the non-GAAP financial measures to their related GAAP financial measures is available in the Company’s press release related to fourth quarter and fiscal year 2011 financial results, which was furnished on a Current Report on Form 8-K with the Securities Exchange Commission on February 23, 2012. A copy of the press release can also be found at: http://ir.elliemae.com/phoenix.zhtml?c=236869&p=irol-newsArticle&ID=1664776&highlight=
