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Ultimate Reports Q1 2012 Financial Results
[April 24, 2012]

Ultimate Reports Q1 2012 Financial Results


WESTON, Fla. --(Business Wire)--

Ultimate Software (Nasdaq:ULTI), a leading cloud provider of people management solutions, announced today its financial results for the first quarter of 2012. For the quarter ended March 31, 2012, Ultimate reported recurring revenues of $60.9 million, a 22% increase, and total revenues of $78.3 million, a 21% increase, both compared with 2011's first quarter. GAAP net income for the first quarter of 2012 was $1.0 million, or $0.04 per diluted share, versus GAAP net income of $0.3 million, or $0.01 per diluted share, for the first quarter of 2011.

Non-GAAP net income, which excludes stock-based compensation and amortization of acquired intangible assets, was $3.7 million, or $0.13 per diluted share, for the first quarter of 2012 compared with non-GAAP net income of $2.8 million, or $0.10 per diluted share, for the first quarter of 2011. See "Use of Non-GAAP Financial Information" below.

"We had a strong first quarter for 2012 across all our key areas. Sales, activation of new customers, and recurring revenues all exceeded our expectations. This performance gives us momentum and better visibility into our full-year 2012 results while keeping us solidly on track for achieving our 2013 goals," said Scott Scherr, CEO, president, and founder of Ultimate. "Our new Enterprise and Workplace customers continued the trend of attaching talent management products, such as our Recruitment, Onboarding, Performance Management, and Time Management, to their core purchases in significant numbers, indicating that the HR market remains motivated by a desire to unify HCM processes under one umbrella.

"We had our most successful Connections customer conference ever at the end of March this year. More than 1,200 people attended to learn about Ultimate's strategic roadmap, industry best practices, and technology trends and to share ideas while networking with peers, analysts, and Ultimate leaders. Ninety-six percent of those who completed our satisfaction survey rated the conference as 'excellent' or 'good'."

Ultimate's financial results teleconference will be held today, April 24, 2012, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=167836. The call will be available for replay at the same address beginning at 9:00 p.m. Eastern Time the same day. Windows Media Player or Real Player software is required to listen to the call and can be downloaded from the site. Forward-looking information about future company performance will be discussed during the teleconference call.

Financial Highlights

  • Recurring revenues grew by 22% for the first quarter of 2012 compared with 2011's first quarter. The increase was primarily attributable to revenue growth from our Software-as-a-Service ("SaaS (News - Alert)") offering. Recurring revenues for the first quarter of 2012 were 78% of total revenues as compared with 77% of total revenues for the same period of last year.
  • The operating income (or operating margin), on a non-GAAP basis, for the first quarter of 2012 was $6.4 million, or 8.2%, as compared with $4.9 million, or 7.6%, for the same period last year.
  • Ultimate's annualized retention rate was 96% for its existing recurring revenue customer base as of March 31, 2012.
  • The combination of cash, cash equivalents, and marketable securities was $67.0 million as of March 31, 2012, compared with $55.3 million as of December 31, 2011. Cash flows from operating activities for the quarter ended March 31, 2012 were $14.5 million, compared with $8.8 million for the same period last year.
  • Days sales outstanding were 59 days at March 31, 2012, representing a reduction of twelve days compared with days sales outstanding at December 31, 2011.

Financial Outlook

2012 Financial Guidance:

Ultimate provides the following financial guidance for the second quarter ending June 30, 2012, and full year 2012:

For the second quarter of 2012:

  • Recurring revenues of approximately $64.0 million,
  • Total revenues of approximately $79.0 million, and
  • Operating margin, on a non-GAAP basis (discussed below), of approximately 10%.

For the year 2012:

  • Recurring revenues to increase by approximately 25% over 2011,
  • Total revenues to increase by approximately 23% over 2011, and
  • Operating margin, on a non-GAAP basis (discussed below), of approximately 15%.

Operating margin expectations were determined on a non-GAAP basis using the methodologies identified under the caption "Use of Non-GAAP Financial Information" in this press release. Non-cash equity-based compensation expense for 2012 is expected to be approximately $20.0 million.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the teleconference call may be, forward-looking statements within the meaning provided under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are made only as of the date hereof. These statements involve known and unknown risks and uncertainties that may cause Ultimate's actual results to differ materially from those stated or implied by such forward-looking statements, including risks and uncertainties associated with fluctuations in Ultimate's quarterly operating results, concentration of Ultimate's product offerings, development risks involved with new products and technologies, competition, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in Ultimate's filings with the Securities and Exchange Commission. Ultimate undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

About Ultimate

Ultimate is a leading cloud provider of people management solutions. Built on the belief that people are the most important ingredient of any business, Ultimate's award-winning UltiPro delivers HR, payroll, and talent management solutions that seamlessly connect people with the information and resources they need to work more effectively. Founded in 1990, the company is headquartered in Weston, Florida and has more than 1,400 professionals focused on developing the highest quality solutions and services. In 2012, Ultimate was ranked #25 on FORTUNE'S "100 Best Companies to Work For" list. Ultimate has more than 2,300 customers with employees in 115 countries, including Adobe Systems (News - Alert) Incorporated, The Container Store, Culligan International, Major League Baseball, The New York Yankees Baseball Team, and Ruth's Chris Steak House. More information on Ultimate's products and services for people management can be found at www.ultimatesoftware.com.

UltiPro is a registered trademark of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their respective owners.



THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES UNAUDITED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 
For the Three Months
Ended March 31,
2012   2011  
Revenues:
Recurring $ 60,873 $ 49,948
Services 17,024 13,729
License 384   828  
Total revenues 78,281   64,505  
Cost of revenues:
Recurring 19,104 14,693
Services 16,523 13,929
License 88   173  
Total cost of revenues 35,715   28,795  
Gross profit 42,566   35,710  
Operating expenses:
Sales and marketing 18,637 17,123
Research and development 15,696 11,967
General and administrative 6,145   5,613  
Total operating expenses 40,478   34,703  
Operating income 2,088 1,007
Other (expense) income:
Interest and other expense (75 ) (158 )
Other income, net 13   34  
Total other (expense) income, net (62 ) (124 )
Income before income taxes 2,026 883
Provision for income taxes (1,002 ) (555 )
Net income $ 1,024   $ 328  
 
Net income per share:
Basic $ 0.04   $ 0.01  
Diluted $ 0.04   $ 0.01  
 
Weighted average shares outstanding:
Basic 26,394   25,594  
Diluted 28,073   27,724  
 

The following table sets forth the stock-based compensation expense resulting from stock-based arrangements (excluding the income tax effect, or "gross") and the amortization of acquired intangibles that are recorded in Ultimate's unaudited condensed consolidated statements of operations for the periods indicated (in thousands):

 

For the Three Months

Ended March 31,

  2012     2011
Stock-based compensation expense:
Cost of recurring revenues $ 513 $ 329
Cost of services revenues 501 376
Sales and marketing 1,674 1,797
Research and development 624 384
General and administrative   1,042   964
Total non-cash stock-based
compensation expense $ 4,354 $ 3,850
 
Amortization of acquired intangibles:
General and administrative $ - $ 28
 

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
As of As of
March 31, December 31,
2012 2011
ASSETS
Current assets:
  Cash and cash equivalents $ 57,123 $ 46,149
Investments in marketable securities 8,321 7,584
Accounts receivable, net 51,084 56,186
Prepaid expenses and other current assets 23,356 22,944
Deferred tax assets, net 1,287   1,277  
  Total current assets before funds held for clients 141,171 134,140
Funds held for clients 332,529   118,660  
Total current assets 473,700 252,800
Property and equipment, net 25,195 24,486
Capitalized software, net 1,427 1,765
Goodwill 3,025 3,025
Investments in marketable securities 1,585 1,546
Other assets, net 15,453 15,056
Deferred tax assets, net 20,077   20,142  
  Total assets $ 540,462   $ 318,820  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,658 $ 6,265
Accrued expenses 15,555 11,589
Deferred revenue 82,234 83,416
Capital lease obligations 2,878   2,694  
Total current liabilities before client fund obligations 106,325 103,964
Client fund obligations 332,529   118,660  
Total current liabilities 438,854 222,624
Deferred revenue 2,689 3,147
Deferred rent 3,377 3,384
Capital lease obligations 2,379 2,175
Income taxes payable 1,866   1,866  
Total liabilities 449,165   233,196  
 
Stockholders' equity:
Preferred Stock, $.01 par value - -
Series A Junior Participating Preferred Stock, $.01 par value - -
Common Stock, $.01 par value 305 302
Additional paid-in capital 246,613 242,100
Accumulated other comprehensive income (loss) 76 (57 )
Accumulated deficit (46,947 ) (47,971 )
200,047 194,374
Treasury stock, at cost (108,750 ) (108,750 )
Total stockholders' equity 91,297   85,624  
Total liabilities and stockholders' equity $ 540,462   $ 318,820  
 

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
  For the Three Months Ended
March 31,
2012   2011
Cash flows from operating activities:
Net income $ 1,024 $ 328
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,011 2,859
Provision for doubtful accounts 133 560
Non-cash stock-based compensation expense 4,354 3,850
Income taxes 949 521
Excess tax benefits from employee stock plan (894 ) (382 )
Changes in operating assets and liabilities:
Accounts receivable 4,969 1,366
Prepaid expenses and other current assets (412 ) (1,747 )
Other assets (397 ) (293 )
Accounts payable (607 ) 1,878
Accrued expenses and deferred rent 3,959 459
Deferred revenue   (1,640 )   (634 )
Net cash provided by operating activities   14,449     8,765  
 
Cash flows from investing activities:
Purchases of marketable securities (4,700 ) (4,000 )
Maturities of marketable securities 3,920 3,992
Net purchases of client funds securities (213,869 ) (183,124 )
Purchases of property and equipment   (2,211 )   (3,995 )
Net cash used in investing activities   (216,860 )   (187,127 )
 
Cash flows from financing activities:
Net proceeds from issuances of Common Stock 2,844 4,983
Excess tax benefits from employee stock plan 894 382
Shares acquired to settle employee tax withholding liability (3,576 ) (2,376 )
Principal payments on capital lease obligations (784 ) (680 )
Net increase in client fund obligations   213,869     183,124  
Net cash provided by financing activities   213,247     185,433  
 
Effect of foreign currency exchange rate changes on cash   138     62  
Net increase in cash and cash equivalents 10,974 7,133
Cash and cash equivalents, beginning of period   46,149     40,889  
Cash and cash equivalents, end of period $ 57,123   $ 48,022  
 
Supplemental disclosure of cash flow information:
Cash paid for interest $ 69   $ 56  
Cash paid for income taxes $ 141   $ 267  
 
Supplemental disclosure of non-cash financing activities:

Ultimate entered into capital lease obligations to acquire new equipment totaling $1,172 and $519 for the three months ended March 31, 2012, and 2011, respectively.

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
(In thousands, except per share amounts)
 
  Three Months Ended

March 31,

2012   2011
 
Non-GAAP operating income reconciliation:
Operating income $ 2,088 $ 1,007
Operating income, as a % of total revenues 2.7 % 1.6 %
Add back:
Non-cash stock-based compensation expense 4,354 3,850
Non-cash amortization of acquired intangible assets   -     28  
Non-GAAP operating income $ 6,442   $ 4,885  
Non-GAAP operating income, as a % of total revenues   8.2 %   7.6 %
 
Non-GAAP net income reconciliation:
Net income $ 1,024 $ 328
Add back:
Non-cash stock-based compensation expense 4,354 3,850
Non-cash amortization of acquired intangible assets - 28
Income tax effect   (1,679 )   (1,396 )
Non-GAAP net income $ 3,699   $ 2,810  
 
Non-GAAP net income, per diluted share, reconciliation: (1)
Net income, per diluted share $ 0.04 $ 0.01
Add back:
Non-cash stock-based compensation expense 0.15 0.14
Non-cash amortization of acquired intangible assets - -
Income tax effect   (0.06 )   (0.05 )
Non-GAAP net income, per diluted share $ 0.13   $ 0.10  
 
Shares used in calculation of GAAP and non-GAAP net income per share:
Basic   26,394     25,594  
Diluted   28,073     27,724  
 

(1) The non-GAAP net income per diluted share reconciliation is calculated on a diluted weighted

average share basis for GAAP net income periods.

Use of Non-GAAP Financial Information

This press release contains non-GAAP financial measures. Ultimate believes that non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Ultimate's financial condition and results of operations. Ultimate's management uses these non-GAAP results to compare Ultimate's performance to that of prior periods for trend analyses, for purposes of determining executive incentive compensation, and for budget and planning purposes. These measures are used in monthly financial reports prepared for management and in quarterly financial reports presented to Ultimate's Board of Directors. These measures may be different from non-GAAP financial measures used by other companies.

These non-GAAP measures should not be considered in isolation or as an alternative to such measures determined in accordance with generally accepted accounting principles in the United States (GAAP). The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses are excluded from the non-GAAP financial measures.

To compensate for these limitations, Ultimate presents its non-GAAP financial measures in connection with its GAAP results. Ultimate strongly urges investors and potential investors in Ultimate's securities to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release (under the caption "Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures") and not to rely on any single financial measure to evaluate its business.

Ultimate presents the following non-GAAP financial measures in this press release: non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share. We exclude the following items from these non-GAAP financial measures as appropriate:

Stock-based compensation expense. Ultimate's non-GAAP financial measures exclude stock-based compensation expense, which consists of expenses for stock options and stock and stock unit awards recorded in accordance with Accounting Standards Codification 718, "Compensation - Stock Compensation". For the three months ended March 31, 2012, stock-based compensation expense was $4.4 million on a pre-tax basis. For the three months ended March 31, 2011, stock-based compensation expense was $3.9 million on a pre-tax basis. Stock-based compensation expense is excluded from the non-GAAP financial measures because it is a non-cash expenses that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates the comparison of results of ongoing operations for current and future periods with such results from past periods. For GAAP net income periods, non-GAAP reconciliations are calculated on a diluted weighted average share basis.

Amortization of acquired intangible assets. In accordance with GAAP, operating expenses include amortization of acquired intangible assets over the estimated useful lives of such assets. There was no amortization of acquired intangible assets for the three months ended March 31, 2012. For the three months ended March 31, 2011, the amortization of acquired intangible assets was $28 thousand. Amortization of acquired intangible assets is excluded from Ultimate's non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates comparisons to its historical operating results and to the results of other companies in the same industry, which have their own unique acquisition histories.


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