Ellie Mae's (ELLI) Jonathan Corr on Q1 2016 Results - Earnings Call Transcript

| About: Ellie Mae, (ELLI)

Ellie Mae, Inc. (NYSEMKT:ELLI)

Q1 2016 Results Earnings Conference Call

April 28, 2016, 04:30 PM ET

Executives

Alex Hughes - Vice President of Investor Relations

Jonathan Corr - Chief Executive Officer

Edgar Luce - Chief Financial Officer

Analysts

Saket Kalia - Barclays Capital

Ross MacMillan - RBC Capital

Richard Baldry - ROTH Capital

Brandon Dobell - William Blair

John Campbell - Stephens

Mayank Tandon - Needham & Company

Pat Walravens - JMP group

Operator

Good day, and welcome to the Ellie Mae Inc First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Alex Hughes, Vice President of Investor Relations with Ellie Mae. Please go ahead.

Alex Hughes

Thank you, operator. Good afternoon, and thank you for joining us today on today’s conference call to discuss Ellie Mae’s first quarter 2016 results. This call is being broadcast live over the Web and could be accessed for 90 days in the Investor Relations section of Ellie Mae’s website www.elliemae.com. Joining on today’s call are Jonathan Corr, Chief Executive 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 the 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 the company files from time to time with the Securities and Exchange Commission, specifically the company’s forms 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.

At this point, I'd like to turn the call over to Chief Executive Officer, Jonathan Corr.

Jonathan Corr

Thanks, Alex and good afternoon to all of you. I am excited to share with you a very strong Q1 results, reflecting ongoing momentum, as we continue to pursue our vision of automating all aspects of the complex mortgage origination process.

Our first quarter results exceeded expectations across all aspects of our business. We grew revenues by 36% year-over-year, despite a 10% decline in mortgage origination volumes. A strong Q1 performance was driven by continued robust demand for Encompass as more users joined our platform. Greater closed loan activity to February and March and increased adoption of our new offerings, such as AllRegs and Mortgage Returns.

We further extended our market leadership with robust Q1 bookings of 15,000 seats. Included in this total was some of the final customer upgrades to our SaaS platform and many customer wins with both mid-market and enterprise banks, helping to drive strong new seat bookings.

We are very pleased to have successfully transitioned the majority of our customers to our hosted platform, ahead of our schedule made deadline, this is a significant milestone Ellie Mae and our customers, marking our completion to a pure SaaS business.

In addition, customer engagement and interest in our platform is stronger than ever. In March, we hosted our largest ever Ellie Mae experience user conference. This year’s event was sold out; attendance increased nearly 30% from last year with more than 2,200 attendees representing 100s of lenders and industry partners from around the country.

We had visionary keynotes, networking events as well as specialized training session, on key topic such as compliance, executive strategy and sales and marketing. At the conference, we’ve launched three new solutions that extend Ellie Mae’s Encompass all-in-one mortgage management solution.

The Ellie Mae compliance management system, which keeps mortgage lenders compliant at the enterprise level that enable lenders to establish compliance policies, procedures and responsibilities, educate staff and quality vendors using a single online portal.

Our next generation Encompass CRM which provides one to one marketing, compliance in business intelligence tool and Encompass mobile which let loan officers seamlessly interact with Encompass from any device to access real time pipeline, take applications or to credit and lock a rate. In our Analyst Day we also announced progress on our next generation Encompass platform.

It is open fully programmable cloud collaboration platform that will enable clients and partners to build, deploy and run innovative highly secure solutions. By creating an open platform for the industry we are building even stronger and stickier ecosystem around in Encompass for both lenders and industry partners. We believe the platform will continue expand Ellie Mae’s market leadership.

As we look at the overall mortgage market originations remain weighted towards purchases and forecast is expected to remain purchase dominant for this foreseeable future. We continue to see the shift of origination volume for mega lenders to large and mid-size lenders. And with this market share increase towards a large and mid size lenders we are seeing our customers expand their businesses, add more seats and conduct more transactions across our network.

We’re really excited about the great start to the year. We see continued opportunity to expand our market share and make progress on our vision of automating the entire mortgage industry with our strong Q1 performance and the positive trends in our business; we’re very pleased to raise our guidance for the full year in second quarter.

With that, I will now turn the call over to Ed to discuss our results and guidance in more detail. Ed?

Edgar Luce

Thank you, Jonathan. Good afternoon, and thanks again to everyone joining us today. As Jonathan mentioned, Q1 was an excellent start to 2016, and I am pleased to report the following highlights. Total revenue for the first quarter of the year was $73.6 million, an increase of 36% from Q1 of 2015. Contracted revenue in the first quarter increased 44% year-over-year to $46 million, and represented approximately 63% of total revenue.

Revenue per active Encompass user increased 10% both year-over-year and sequentially to $522 for the quarter. As Jonathan also noted, we continue to experience strong user growth. We again grew our market share during the quarter with total active Encompass user’s increases 22% year-over-year to 145,000, and contracted users increased 35% to reach 180,000.

Implementation and professional services revenues also increased year-over-year, driven by the booking and on-boarding of mid market, large and enterprise lenders. During the quarter, professional services represented approximately 8% of revenue. We expect the professional services revenue stream will comprise approximately 6% to 7% of our total revenues for the full year 2016.

Gross margin for the first quarter was 64% compared to 68% in the first quarter of last year as we continue to invest in technical support data centers, security systems, and infrastructure to support our expanding customer base.

Net income for the first quarter was $2.5 million or $0.08 per diluted share compared to $3.6 million or $0.12 per diluted share in the first quarter of 2015. The tax rate came down this quarter to reach 33%, and for the full year 2016 our effective tax rate is expected to be approximately 35%.

On a non-GAAP basis, adjusted net income for the first quarter was $10.7 million or $0.34 per diluted share compared to $9.9 million and $0.33 per diluted share in the first quarter of 2015. An adjusted EBITDA for the first quarter was $15.6 million, compared to $14.6 million for the first quarter last year.

Now shifting to the balance sheet, cash and investments finish the quarter at $114 million, down $30 million from the prior quarter due to the timing of Ellie Mae’s annual incentive compensation payouts and the timing of cash payments for our capital spending.

As we previously noted, Q1 was expected to be our seasonally low quarter for cash flow and we remain on track to generate in excess of $50 million in free cash flow for the full year 2016. There were no share buybacks in the quarter.

Now turning to the guidance as we indicated given our strong results for the first quarter, a healthy implementation backlog and positive market trends, we are raising our guidance for the full year 2016. We now expect revenue to be in the range of $325 million to $329 million.

Net income is expected to be in the range of $23.5 million to $25.5 million or $0.74 to $0.80 per diluted share. Adjusted net income is expected to be in the range of $58.4 million to $61.4 million or $1.84 to $1.92 per diluted share. And adjusted EBITDA is expected to be in the range of $93 million to $97.5 million.

Our 2016 annual guidance takes into consideration industry forecast for mortgage origination volume. We use the composite estimates of mortgage origination volumes as published by Fannie Mae, Freddie Mac and the Mortgage Bankers Association to help forecast certain portions of our business. Our 2016 this composite shows an estimated 5% decline in total origination volumes from the prior year.

The blended forecast data can be found on our supplemental data sheet that is posted on the Investor Relations section of our website. Against this backdrop, for the second quarter of 2016, revenue is expected to be in the range of $84 million to $86 million. Net income is expected to be in the range of $7.5 million to $8 million or $0.24 to $0.25 per diluted share.

On a non-GAAP basis, adjusted net income is expected to be in the range of $16.6 million to $17.6 million or $0.53 to $0.56 per diluted share. And adjusted EBITDA is expected to be in the range of $25.5 million to $27 million.

And finally, before we turn to your questions, I would like to mention that we will be ringing the closing bell at the New York Stock Exchange on Monday, May 2 to commensurate the fifth anniversary of our IPO. We will also present at the Needham Emerging Technology Conference in New York City on May 19, and at the Stephen’s Spring Investment Conference also held in New York in early June.

And now, we’d like to open the line for questions, operator.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Saket Kalia with Barclays Capital. Your line is open.

Saket Kalia

Hi guys. Thanks for taking my questions here and nice quarter.

Jonathan Corr

Hi, Saket.

Edgar Luce

Hi, Saket. How are you?

Saket Kalia

Good, good. First, just on the seat bookings, very nice results of 15,000, understanding that you are not picking into the components, and I think you touched a little bit on this Jonathan, but I just want to ask it a different way, can you just give us a sense for how much of that 15,000 may have come from the on-premise encompass kind of conversion? And how much of that base is maybe left to convert before the May deadline?

Jonathan Corr

Sure Saket. As we said, we’re going to combine those numbers, but at a high level, it’s the majority of what was left is contained in those numbers as part of the 15,000, but the new seat bookings was very, very healthy this quarter as we’ve kind of seen in the past and I would expect that there will be some, but probably a minimal going forward in terms of Q2 in terms of final upgrades.

Saket Kalia

Got it. Got it. And then just kind a look at the other side of coin of maybe that the revenue per active users, I think you said was up about 10%. Can you just talk about which new products or maybe contributing to that growth the most? And also maybe an accounting question around that or reporting question, how was the new product sale maybe categorized from a seat perspective, if that makes sense?

Edgar Luce

Saket, hi. This is Ed. From a seat perspective, the seat metrics that we put out there, that's the 15,000 for example that we talk about today for Q1. We did not in fact grow that number up if you will or new products sold into existing seats. Those seats represent clients that are on the Encompass platform.

So as you know, once you get under the platform, you have the ability as a lender to purchase other products and solutions that are part of that platform, but it doesn’t change the seat count. So, you can take that a little further Saket.

So we got the seat count, which is the contracted SaaS users, which is what the 15,000 represents and that 180,000 number, and when you look at the revenue per active user, right, as you remember, its – we’re looking at active users, which is a subset of that full set of seats, running probably in the 80% range at this point.

So when we’re looking at it, we’re just taking all the revenue that is been driven by the Encompass customers and looking at over the – over the active view of sheets. Because by definition if someone’s not really using it they can’t drive anything incrementally above the contracted seat level. So that’s really how to think about it. The other aspect of it, we are really seeing healthy adoption across every element that drives value per loan or value per users.

So we continue to see adoption of network services and that number continues to move upward all rigs continues to show great, great penetration into our customer base, or add on services are showing healthy progress. So there is nobody that really kind of stands out I think it just across the board the value proposition for each this product resonates and there following a nice adoption cycles throughout the base.

Saket Kalia

Got it. Very helpful. Thanks very much guys.

Jonathan Corr

Thank you, Saket.

Operator

Thank you. We will take our next question from Ross MacMillan with RBC Capital. Your line is open.

Ross MacMillan

Thanks a lot. Congratulations from we as well. Maybe just for Ed, first of all, I think from an earnings standpoint you beat by $0.03 this quarter at least relative to my model it looks like a $0.08 guide out for next quarter but then for the full year it’s a little bit more modest.

And so I guess my question is given that you are – outperforming on the revenue line is there any incremental investment that you are planning no relative to when you originally laid out the guidance at the start of the year?

Edgar Luce

The short answer is no. There isn't a major program that we hadn't already laid out and undertaken for the last year and half or so. There is some tail that of course you saw in Q1 of that spending program, maybe a little bit in the Q2, but you will see the leverage in this model, a tick up in each of the -- for the remainder of the year Q2, Q3.

There is a little bit of a volume headwinds that the forecasters have out there for the second half as well. But it's now business as usual and you’ll see that leverage start coming back.

Ross MacMillan

And just on that point the timing for when you think you hit your target EBITDA margin of 35% plus, when do you actually hit that type of level?

Edgar Luce

Well, the targets that we have out there for those levels generally evolve around the $400 million revenue scenario. So you would expect to see that pretty soon actually maybe 2017. But as we have mentioned a couple of times, we do expect to hit that adjusted EBITDA get very close to that range in a couple of quarters leading up to the end of 2017.

Ross MacMillan

Okay. And then Jonathan I just want to ask there has been some news around PHH and I guess my question really is, you presented at the Analysts Day that there is obviously been a big swing from overall mortgage origination volumes from last institutions to sort of the rest of the market in the last three to four years.

Do you view what's happening at PHH has perhaps – perhaps an effort to recapture share by the mega lenders or do you think that’s more a specific case to that particular customer in relationship?

Jonathan Corr

That is a great question Ross. As I said at the Analysts Day, I think we’re seeing a number of structural changes going on that have driven a lot of the volume down from the top five lenders to some of the broader set of the market. And those are some of the basal three requirements in terms of the attractiveness of having servicing or assets on the book relative to other investments.

Another element of it is, the regulatory environment and a lot of the pressure from the regulations has made it a bit less attractive for some of the larger lenders to do as much businesses they did in the past. And then we’re also seeing a shift away from some of the larger lenders relative to FHA lending.

And that is interest in that. FHA tends to be a place that a lot of first time home buyers go towards and with some of the challenges of enforcement that have come out of the department of justice, it shifted many of the top lenders away from FHA. I think the only one that’s still in there is wells, and if you look at the top, top 10 FHA lenders perhaps more on Encompass.

The other element is that we are actually seeing we are going through the natural cycles of shift towards the purchase market and the purchase market if you were able to look back historically always is more weighted towards the local investment – local mortgage bankers, independent mortgage bankers, community banks and regional banks. And you are seeing that as a well.

The PHA situation I think is a very unique one-off situation in that, PHA actually has a joint ventures that’s very focused their the real estate side, real estate brokerages, relationship, and that is very strong, it continues to grow. In the case of BofA Merrill Lynch, Bank of America, that is there wealth management arm, and what we saw there I believe and it’s a very, it was a very small portion of PHA business, is that Bank of America Merrill Lynch wants to control the overall experience relative to their wealth management clients.

It’s a very small set of – the most valuable clients and so what they want to do is provide the full level of services or rather than outsource that small portion of business it want to bring it internal. Very small amount of business, very limited amount of transactions and I think its really more reflection of simply there wealth management business.

I also think that we are very interestingly if you saw in Q1 whether it was BoFA, Wells Fargo, even Chase all showed numbers that were down in Q1, which I think is reflective of some of the structural changes and even Jamie Dimon made a comment, I mean is related to shareholder that as it find the mortgage business very attractive, the only reason he is doing it, is to provide as a service to his customers in terms of some of the other business that they do. So I think that’s really the picture that we see.

Ross MacMillan

That’s great color. Thank you so much.

Operator

Thank you. We’ll move next Richard Baldry with ROTH Capital. Your line is open.

Richard Baldry

Thanks. It looks like sales and marketing spiked pretty significantly sequentially, and I think you guys has not really having a lot of competition, so doesn’t seem like that with the end reaction to something external, could you maybe talk about why that would disproportionately jump this quarter to what spaces you are adding, where you are adding that incremental spend, is it at headcount, they are trying to go after some different targets you may not assessed to reach before, because it also feels like your end markets are very well defined and would have thought it’d be almost difficult to deploy that type of resources incrementally quarter to quarter? Thanks.

Jonathan Corr

Yes, Rich that’s a good question. There are few things going on there, but the dominant incremental spend and you see this pretty much every Q1 of ours is our big user conference, the experienced user conference that we put on.

There are some marketing programs, new programs that are targeting various aspects of the enterprise space for example. But overwhelmingly the difference in the spend quarter to quarter would be the investments in the user conference that we did in February.

Edgar Luce

So you wouldn’t expect that to see that in an ongoing run rate? That’s just the corresponding expenses tied with the revenues and sponsorships that all come in from the conference.

Richard Baldry

So if I look at the pattern last year when it was up about $2 million sequential and this was up 3.5, certain of the time that peels away, Q2 was maybe moderately higher in the fourth quarter, is that what we should think about sequentially here that you’ll peel away a couple of million and should be moderately higher than the fourth or are there some ongoing sort of incremental investments that might change that pattern a little bit?

Edgar Luce

No, you've got it pretty closely there.

Richard Baldry

Okay. Thanks.

Edgar Luce

Thanks, Rich.

Operator

Thank you. We’ll take our next question from Brian Schwartz with Oppenheimer. Your line is open.

Unidentified Analyst

This is Cozy here for Brian Schwartz. Congrats on the quarter and thank you for taking my question. With the new encompass platform coming online here in the next year or so, could you maybe talk a little bit more about the architecture that’s driving it?

And digging a little bit deeper beyond that how difficult or maybe how easy would it be to take that new encompass platform and pivot it into other loan generation industry such as maybe student loans or auto loans?

Jonathan Corr

Great question and actually this is something I did touch a little bit on at Analyst Day. The platform is a modern platform. It builds on the ecosystem that we already have. I mean to really create a platform, you need to have a combination of a very strong market position and then a set of technology that has open APIs and ability for not only the company to extend but to allow customers and partners to extend and innovative on the same common platform.

And that’s really what we are doing, as we are taking the critical math of our customers and partners and now that we have everybody on a SaaS platform bring in additional layers that allow that level of flexibly, innovation, and extension of an already significantly echo system.

We are as I said, thinking about in very general terms so as we think about the platform, and we think about lending in terms of calculations, and business rules and workflow and regulatory aspects. Mortgage by far is the heart of the most challenging lending type of – our all the lending type that’s are out there.

And we generalize, it give us a the future optionality of being able to do other type of pending for our bank customers of which you know, over half of our lenders are increase that – are in that segment. And whether we do it, or in and other partners does it. We are definitely thinking about, but that’s a little ways down the line. I wouldn’t expect to see anything progress on that till after 17. But we are laying those pipes down if you will.

Unidentified Analyst

Great color. And again congrats on the quarter.

Jonathan Corr

Thank you.

Edgar Luce

Thanks, Cozy.

Operator

Thank you. We will go next to Brandon Dobell with William Blair. Your line is open.

Brandon Dobell

Thanks. Good afternoon, guys. We touched on this MP going back a couple of years when application versus close loans is kind of diverge back and forth a little bit and given the progress you guys have made on moving that contracted revenue stream higher.

Maybe you could touch the different impact that applications versus close loans have on the business now. And if application volumes spike up or down or shift channel or those kinds of things, regardless of purchase of reify how will that impact the business now versus what it did a year or two ago?

Jonathan Corr

Yeah. I mean, I think the question there Brandon it is really the relationship between refinanced versus purchase. So, you know refinanced tends to have a little bit lower pull through on towards close loans and does purchase, right now as we look out there purchase business pull through on applications is running above 70%. And that obviously drives through you know close loans fees.

If the market shifted towards refinancing that rate of closure might come down a little bit. But again what also holds true in the model is that whether it's refinance or purchased we get the value of the transactions for credit and other things that happen before the loans closes and then if the loans closes we obviously get the close loan fees and other services associated with it.

I think going back to maybe 2013 there was a dramatic shift that happened from refinancing to a level of purchase and we saw a little blip there I don’t think you would see that in today’s environment. You are already healthy on a path on the purchase side.

Brandon Dobell

Got it. Okay. And maybe actually for – other guys, as we think about the 2016 revenue guide, what kind of assumptions are in there for ARPU growth trends drivers, little bit of color just beyond the mortgage market foundation you guys laid out? What about the ARPU side of it?

Edgar Luce

Brandon, going forward the ARPU and as you know we don’t start with ARPU to build the models.

Brandon Dobell

Right.

Edgar Luce

But the things that are going to contribute to ARPU, number one, and no particular order loans per user. The transactions -- paid transactions per loan that we’re seeing continues to go up. We are seeing an uptick. I think Jonathan mentioned this in his comments, an uptick in oil rigs subscriptions. We expect to see some CRM impact on that ARPU.

Brandon Dobell

Okay.

Edgar Luce

And some from the new compliance module.

Jonathan Corr

So if you were to kind of just break it down and just think about that from a standpoint of the drivers in the topline, in terms of the revenue side of it, Q1 is going to be your lowest quarter based on the volume composite of the year, right. And then we’re going to see an uptick in Q2, Q3 and then little bit come back in Q4.

So if you think of it from that standpoint and the component that Ed was talking about in terms of loans per user, you’d expect that to be a driver upward, along with continued adoption et cetera. So the denominator is – that effects that is the number of active users coming on board.

So hats going to come out and steady space, so I think as you think about the year and you think about the overall guidance, I would expect to continue to see the revenue per users come back up like it did from Q4 to Q1 of this year and throughout the rest of the year. Potentially seeing a little bit of seasonality as we come into Q4.

Brandon Dobell

All right. Great. That’s helpful. Thank you.

Jonathan Corr

Thanks.

Operator

Thank you. We will move next to John Campbell with Stephens. Your line is open.

John Campbell

Hey, guys. Good afternoon congrats on the quarter.

Jonathan Corr

Thanks, John.

John Campbell

So you guys have talked about in the past kind of 25% type year-over-year growth over the last few years but you are obviously kind of going pass to that clip. So just curious for next year I mean, would you guys expect the 25% type growth the whole you know, just assuming or accounting for the new guidance for 2015?

Edgar Luce

Yeah. The 25 – the 25% target that we put out there a few years ago is still a good on. We expect to grow at least 25% a year.

Jonathan Corr

And too regardless of kind of the growth we have in any given years. When we just look our model for the foreseeable future next couple of few years and even with different sensitivities and maybe accelerate growth in a year. We still see that we can continue to grow that top line on absolute basis 25% prior year.

John Campbell

Got it. And that $0.25 – 25% even after the higher guide that’s fair to say.

Jonathan Corr

Yes.

John Campbell

Got it. Okay. And then on the bookings, I mean obviously really good bookings over the last several quarters you guys having get a little bit of extra lift and upgrades, so just broadly, how should we think about the – just the pace of total bookings throughout, I guess just the balance of the year?

Jonathan Corr

Yes, it’s a great question. You’re absolutely correct. We got a little bit of extra juice in the last couple of few quarters in terms of the – some of the final – the upgrades, but I think you can think about it as we should be somewhere between 8000 and 10,000 new seats per quarter. Our model probably – I know assumes closer to the lower side of that, but in terms of what we see in our pipeline, the health of that activity, the momentum, I think 8000 to 10,000 is a good way to think about it per quarter going forward.

John Campbell

Okay. That’s very helpful. Thanks guys.

Operator

Thank you. We’ll go next to Mayank Tandon from Needham & Company. Your line is open.

Mayank Tandon

Thank you. Good evening. So just on the bookings team, Ed, I think you shared this and maybe you already did, I am sorry if I missed it, but the breakdown between new customers, add-on and upgrades for this quarter, the 15,000, how does that breakdown?

Edgar Luce

We don’t break that out any longer. We just put the new – the total booking seats out there. And the primary reason for that – that’s started this quarter, this Jan 1. The primary reason for that is because as Jonathan mentioned, we basically completed the upgrade or the migration of our users on legacy platforms over to the hosted SaaS model.

And so from this point forward, pretty much every seat we win is going to be a brand new seat for revenue purposes. Let’s see there are new logo bank or it’s a new seat an existing client is buying, so it’s all one number now.

Mayank Tandon

Right, that makes sense. Okay, just wanted to be clear, I wasn’t missing that. And then I think at the Analyst Day you had shared the trends of bookings within the enterprise versus the small and mid market, I don’t know if you could update us for this quarter, how do that track versus what you've been seeing in recent quarters enterprise versus your mid market client base?

Edgar Luce

Yeah I mean we don’t – the breakout detail like we did at the Analyst Day. We actually did a fair amount of breakout for the overall year. We don’t really focus on it on a quarterly basis, but I would say we continue to see just healthy penetration across all the segments, the mid market, the strategic and the enterprise and we’re pulling in deals in all those segments.

As I think we said at Analyst Day, the strategic and enterprise probably are a little strong then the mid market in terms of overall seats, just because of the size, and that continues to fall of what we’re seeing and what we shared at the Analyst Day.

Mayank Tandon

Okay. And then finally just two more quick one, competitively any new players and the thing that you healed that can anyway create a dent in the market? And then secondly, I know you talked about this at the Analyst Day as well, but juts the M&A pipeline, what you are looking for in terms of assets to add to your portfolio of services?

Jonathan Corr

Yes, from a competitive standpoint, I mean there are competitors out there, but we just don’t see anybody that is making any significant dent in our success. We continue to win the vast majority of deals we’re in, not all of them, but the vast majority and one of the reasons that we continue to focus on innovation is we can’t be complacent and we’ve got to continue to extend our leads. So that’s important part of the innovation in the investment we've made. The second part of that question you know in terms of –

Mayank Tandon

The M&A pipeline the opportunity there if you look at?

Jonathan Corr

Sorry, yeah, yeah. We’ve been out there – we’ve been active mean you seen how we we’ve done at least a deal a year over the last set – since the times since we went public and even prior to be in public. We continue to look at opportunities to add to a broad portfolio. And to really, enable us to do more and more automation for our customer base.

So and that cut across things all the way from – things like we done, business intelligence, quality control and other types of automation in term risk management et cetera. So we are looking at them continuously.

It’s a key part of our – of our strategy in terms one of the things we’ve done to bring on additional value and drive it through the big customers base and the great distribution channel we have. And it's really about finding the right team and the right assets, so always out there looking.

Mayank Tandon

Great. Now that’s helpful. Thank you. Great job on the numbers.

Jonathan Corr

Thank you.

Operator

[Operator Instructions] We will go next to Pat Walravens with JMP group. Your line is open.

Pat Walravens

Great. Thank you. And congratulations to you guys. Just to add the target model its $400 million is 35% to 40% adjusted EBITDA margins and we are going to get there in 2017. So what is the next target? Like, is that – is this high that can go or as you keep getting bigger of those adjusted EBITDA margins just going to keep going on?

Jonathan Corr

That's a great question.

Pat Walravens

It hasn’t come off eventually, right. We are getting there.

Jonathan Corr

That requires the real crystal ball. Pat, that depends I guess on who you asked and what version of the model we might be looking at. Internally, we feel pretty strongly that there is a lot of leverage to be had in this kind of the model. And there is no reason that we can’t capitalize on some of that going forward. When we put this target out there, I remember a few years ago, it was at certain revenue level. It was at 400-ish million or 350-ish million back in the day.

As revenues build beyond those numbers, depending on the type of revenue, close loans versus minimum seat fees et cetera. I mean that’s really going to determine the continued growth and leverage as well as new investment programs that perhaps we haven’t conceived that yet.

Edgar Luce

Let me add a little bit to that too Pat, which is – I’ve said this before which we are looking to build a solid company that’s going to – beat basically the kind of build to lass, right. And really automate this entire mortgage origination process and as we have continue to have success and progress there. We may at some point diversified outside that.

So we are always looking – I am always looking, the executive team is always looking is, how do we deliver the best return for our shareholders. So as we look out, we get out there in a couple of years. It maybe the best way to go with things, just to continue to have more leverage and drive greater margins or it maybe other opportunities to continue to drive overall revenue growth by making certain investments.

Ultimately, we’re looking at it from a standpoint of building a sustainable company and making sure we’re doing the best in terms of shareholder return.

Pat Walravens

Okay, great. Thank you.

Edgar Luce

Thanks Pat.

Operator

Thank you. And we have no further questions at this time. I’d like to turn the call back to our presenters for any closing remarks today.

Jonathan Corr

I just want to thank everybody for being here. I look forward to seeing some of you on the road. And I look forward to seeing you next time, so thanks again for joining us today.

Operator

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!