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8-K/A - FORM 8-K AMENDMENT - ELLIE MAE INCd248571d8ka.htm
EX-99.2 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DMD - ELLIE MAE INCd248571dex992.htm
EX-99.1 - AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF DMD - ELLIE MAE INCd248571dex991.htm
EX-23.1 - CONSENT OF SINGERLEWAK LLP - ELLIE MAE INCd248571dex231.htm

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of Ellie Mae, Inc. (the “Company”) and Del Mar Datatrac, Inc. (“DMD”) after giving effect to (1) the consummation of the acquisition of all of the outstanding shares of DMD by the Company (the “Acquisition”) pursuant to that certain Stock Purchase Agreement , dated as of August 15, 2011, by and among Ellie Mae, Inc., Northgate Private Equity Partners III, L.P., NPEP III-Q, L.L.C., TVC Capital L.P., TVC Capital 12-4-0 Fund L.P., TVC Capital Partners L.P., TVC Capital, LLC , as Sellers’ Representative, and certain listed management employees of DMD, and (2) the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet as of June 30, 2011 is presented as if the Acquisition had occurred on June 30, 2011. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2011 and year ended December 31, 2010 are presented as if the Acquisition had occurred on January 1, 2010 with recurring acquisition-related adjustments reflected in each of the periods.

Determination of the DMD purchase price and fair value of assets and liabilities acquired as used in the unaudited pro forma condensed combined financial statements are based upon preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the Company finalizes the valuations of the net tangible assets and intangible assets. Any change could result in material variances between the Company’s future financial results and the amounts presented in these unaudited condensed combined financial statements, including variances in fair values recorded, as well as expenses associated with these items.

The unaudited pro forma condensed combined financial statements are prepared for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been achieved had the Acquisition been consummated as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and associated cost savings that the Company may achieve on a consolidated basis .

The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements for the year ended December 31, 2010 and accompanying notes included in the Company’s prospectus dated April 14, 2011 filed with the Securities and Exchange Commission (File No. 333-166438), pursuant to Rule 424(b) under the Securities Act of 1933, as amended, and the Company’s Quarterly Reports on Form 10-Q for the three and six months ended June 30, 2011.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

JUNE 30, 2011

(in thousands, except share and per share amounts)

 

     Historical              
     Ellie Mae
June 30, 2011
    DMD
June 30, 2011
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
 
Assets         

Current assets

        

Cash and cash equivalents

   $ 35,137      $ 1,119      $ (17,188 )(a)    $ 19,068   

Short-term investments

     2,446        —          —          2,446   

Accounts receivable, net

     4,817        1,178        (123 )(a)      5,872   

Prepaid expenses and other

     1,026        66        —          1,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     43,426        2,363        (17,311     28,478   

Property and equipment, net

     5,038        278        (6 )(a)      5,310   

Deposits and other assets

     108        32        —          140   

Note receivable

     1,018        —          —          1,018   

Other intangibles, net

     939        695        7,205 (a)      8,839   

Goodwill

     31,965        2,774        13,685 (a)      48,424   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 82,494      $ 6,142      $ 3,573      $ 92,209   
  

 

 

   

 

 

   

 

 

   

 

 

 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)         

Current liabilities

        

Accounts payable

   $ 2,501      $ 605      $ —        $ 3,106   

Accrued and other current liabilities

     3,203        369        —          3,572   

Deferred revenue

     2,897        2,218        (1,083 )(a)      4,032   

Deferred rent

     203        —          —          203   

Leases payable

     12        6        —          18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     8,816        3,198        (1,083     10,931   

Deferred revenue, net of current portion

     212        —          —          212   

Deferred rent, net of current portion

     707        —          —          707   

Acquisition holdback

     —          —          7,593 (a)      7,593   

Other long term liabilities

     350        —          —          350   

Leases payable, net of current portion

     —          7        —          7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     10,085        3,205        6,510        19,800   

Redeemable convertible preferred stock, $0.0001 par value per share; 10,000,000 authorized shares, 0 shares issued and outstanding as of June 30, 2011

     —          —          —          —     

Stockholders’ equity (deficit)

        

Common stock, $0.0001 par value per share; 140,000,000 authorized shares, 20,689,893 shares issued and outstanding as of June 30, 2011

     2        5,000        (5,000 )(a)      2   

Additional paid-in capital

     114,022        107        (107 )(a)      114,022   

Accumulated deficit

     (41,615     (2,170     2,170 (a)      (41,615
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     72,409        2,937        (2,937 )      72,409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 82,494      $ 6,142      $ 3,573      $ 92,209   
  

 

 

   

 

 

   

 

 

   

 

 

 


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010

(in thousands, except share and per share amounts)

 

     Historical              
     Ellie Mae for
Year Ended
December 31,
2010
    DMD for Year
Ended
December 31,
2010
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
 

Revenues

   $ 43,234      $ 7,784      $ (544 )(b)     $ 50,474   

Cost of revenues

     12,505        1,734        320 (c)       14,559   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     30,729        6,050        (864     35,915   

Operating expenses:

        

Sales and marketing

     9,555        1,675        905 (c)       12,135   

Research and development

     10,468        2,419        —          12,887   

General and administrative

     9,823        2,279        —          12,102   
  

 

 

   

 

 

   

 

 

   

 

 

 
     29,846        6,373        905        37,124   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     883        (323     (1,769     (1,209

Interest expense

     (29     (1     (215 )(e)       (245

Interest income

     148        —          —          148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,002        (324     (1,984     (1,306

Income tax provision

     225        17        —          242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 777      $ (341   $ (1,984   $ (1,548
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

        

Basic

   $ 0.22          $ (0.44

Diluted

   $ 0.05          $ (0.44

Weighted average shares used in calculation:

        

Basic

     3,495,731            3,495,731   

Diluted

     17,146,735            3,495,731   


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2011

(in thousands, except share and per share amounts)

 

     Historical              
     Ellie Mae for Six
months ended
June 30, 2011
    DMD for Six
months ended
June 30, 2011
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
 

Revenues

   $ 22,067      $ 4,598      $ (272 )(b)    $ 26,393   

Cost of revenues

     6,875        1,560        160 (c)      8,595   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     15,192        3,038        (432     17,798   

Operating expenses:

        

Sales and marketing

     4,948        996        452 (c)      6,396   

Research and development

     5,410        1,316          6,726   

General and administrative

     5,727        1,203        (129 )(d)      6,801   
  

 

 

   

 

 

   

 

 

   

 

 

 
     16,085        3,515        323        19,923   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (893     (477     (755     (2,125

Interest expense

     (3     (1     (68 )(e)      (72

Interest income

     82        —          —          82   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (814     (478     (823     (2,115

Income tax provision

     25        1        —          26   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (839   $ (479   $ (823   $ (2,141
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ (0.08       $ (0.21

Diluted

   $ (0.08       $ (0.21

Weighted average shares used in calculation:

        

Basic

     10,412,469            10,412,469   

Diluted

     10,412,469            10,412,469   


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Preliminary Allocation of Consideration Transferred

On August 15, 2011, the Company entered into a Stock Purchase Agreement and acquired all of the outstanding shares of DMD, a mortgage lending automation business, for a total purchase consideration of approximately $25.2 million in cash, of which $17.2 million was paid at closing subject to a post-closing working capital adjustment and the remaining $8.0 million (the “holdback”) will be paid without interest as follows: (i) $3.0 million on August 15, 2012; (ii) $3.0 million on August 15, 2013; and (iii) $2.0 million August 15, 2014 (the “Acquisition”). The Company did not issue any equity instruments or assume any outstanding stock options to purchase capital stock of DMD in the Acquisition.

The Acquisition will be accounted for as a business combination under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The estimated total purchase price of $24.8 million, net of $0.4 million of imputed interest related to the holdback, has been allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of June 30, 2011, as follows (in thousands):

 

Current Assets

   $ 2,240   

Property and equipment

     272   

Other long-term assets

     32   

Amortizable intangible assets:

  

Customer relationships

     4,220   

Maintenance relationships

     2,490   

Developed technology

     960   

Tradename

     230   

Indefinite-lived intangible assets:

  

Goodwill

     16,459   
  

 

 

 

Total assets acquired

     26,903   
  

 

 

 

Deferred revenue, current

     (1,135

Other current liabilities

     (980

Long-term liabilities

     (7
  

 

 

 

Total liabilities assumed

     (2,122
  

 

 

 

Net assets acquired

   $ 24,781   
  

 

 

 

Customer relationships relate to the Company’s ability to sell existing and future versions of the Company’s products and services to existing DMD customers. The fair value of the customer relationships was determined by discounting the estimated net future cash flows of the customer contracts. The Company will amortize customer relationships on a straight-line basis over an estimated life of 6 years.

Maintenance relationships relate to DMD’s existing maintenance contracts and the Company’s


ability to sell existing and future versions of the Company’s products and services to existing DMD customers. The fair value of the maintenance relationships was determined by discounting the estimated net future cash flows from those maintenance customer contracts. The Company will amortize the assets on a straight-line basis over an estimated life of 9 years.

Developed technology consists of products which have reached technological feasibility and relate to mortgage lending solutions. The value of the developed technology was determined by discounting the estimated net future cash flows of these products. The Company will amortize the existing and core technology on a straight-line basis over estimated life of 3 years.

Tradename represents various DMD brands, registered product names and marks. The fair value of tradename was determined by estimating a benefit from owning the asset rather than paying a royalty to a third party for the use of the asset. The Company will amortize the asset on a straight-line basis over an estimated life of 3 years.

Of the total estimated purchase price paid at the time of the Acquisition, approximately $16.5 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets and is not deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets was the acquisition of an assembled workforce of experienced mortgage origination software development engineers, synergies in products, technologies, skillsets, operations, customer base and organizational cultures that can be leveraged to enable the Company to build an enterprise value greater than the sum of its parts. In accordance with Accounting Standards Codification Topic 350, Intangibles – Goodwill and Other, goodwill will not be amortized but instead be tested for impairment at least annually and more frequently if certain indicators of impairment are present. In the event that the Company determines that the value of goodwill has become impaired, it will record an expense for the amount impaired during the fiscal quarter in which the determination is made.

Upon completion of the fair value assessment after the Acquisition, the Company anticipates that the final purchase price allocation will differ from the preliminary allocation outlined above. Additionally, the fair value of assets acquired and liabilities assumed may be materially impacted by the results of DMD’s operations up to the date of completion of the Acquisition. The actual amounts recorded may differ materially from the information presented herein. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities, with any residual amount recorded as goodwill.

2. Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet and statements of operations are as follows:

 

  (a) To record the initial purchase accounting entries as of June 30, 2011, including the allocation of fair values of the associated tangible assets, intangible assets, goodwill and acquired liabilities, to eliminate historical DMD shareholders equity balances, to record the estimated use of cash to fund the cash portion of the Acquisition, and to record the net present value of the remaining amounts due related to the holdback payments.

 

  (b)

To record the adjustment of the deferred revenue to fair value at a discount of approximately 34% of the prior carrying value and the resulting impact on subsequent recognized revenue.


  The estimated fair value of the deferred revenue was calculated based on the estimated direct costs to fulfill the related future legal performance obligations with an assumed profit margin over the remaining terms of the maintenance or service contracts, as applicable. The assumed profit margin is an estimate of the margin to be generated by a market participant and may differ from actual margins to be realized by the Company on these contracts in future periods.

 

  (c) To record the amortization of intangible assets over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the Company. The pro forma amounts have been reduced by the amounts already recorded in the DMD financial statements for the amortization of customer lists.

The amortization of intangible assets is included in cost of revenue and sales and marketing expenses as follows:

 

     Estimated
Value
     Expected
Life
     Expense For
Six Months
Ended June 30,
2011
    Expense For
Twelve Month
Ended December 31,
2010
 
     (in thousands, except expected life data)  

Amortization of intangible assets included in cost of revenue

          

Developed Technology

   $ 960         3 yrs       $ 160      $ 320   
        

 

 

   

 

 

 

Amortization of intangible assets included in sales and marketing expenses

          

Customer Relationships

     4,220         6 yrs         352        703   

Maintenance Relationships

     2,490         9 yrs         138        277   

Tradename

     230         3 yrs         38        77   
  

 

 

       

 

 

   

 

 

 
   $ 7,900          $ 528      $ 1,057   

Less: DMD customer list amortization

           (76     (152
        

 

 

   

 

 

 

Pro forma adjustments

         $ 452      $ 905   
        

 

 

   

 

 

 

 

  (d) To record the reduction of direct acquisition costs and fees included in the historical results of operations for the Company as these costs are not expected to have a continuing impact beyond the next 12 months.

 

  (e) To record the estimated accretion of the holdback payments to face value, for which the associated payments were discounted at an effective annual interest rate of 2.8%.