Ultimate Reports Q3 2012 Financial Results

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Ultimate Reports Q3 2012 Financial Results

  • Record Q3 Recurring Revenues of $67.5 Million, Up by 23%
  • Record Q3 Total Revenues of $82.6 Million, Up by 22%
  • Non-GAAP Operating Income of $14.2 Million, Up by 65%

WESTON, Fla.--(BUSINESS WIRE)-- Ultimate Software (NAS: ULTI) , a leading cloud provider of people management solutions, announced today its financial results for the third quarter of 2012. For the quarter ended September 30, 2012, Ultimate reported recurring revenues of $67.5 million, a 23% increase, and total revenues of $82.6 million, a 22% increase, both compared with 2011's third quarter. GAAP net income for the third quarter of 2012 was $4.7 million, or $0.16 per diluted share, versus GAAP net income of $1.1 million, or $0.04 per diluted share, for the third quarter of 2011.


Non-GAAP net income, which excludes stock-based compensation and amortization of acquired intangible assets, was $8.1 million, or $0.29 per diluted share, for the third quarter of 2012, compared with non-GAAP net income of $4.9 million, or $0.18 per diluted share, for the third quarter of 2011. See "Use of Non-GAAP Financial Information" below.

"Our third quarter results were consistent with expectations in our three most important goal areas: growth in recurring revenues, customer retention, and growth in our operating margin. Our recurring revenues were up by more than 23% for the quarter to $67.5 million while our annualized customer retention rate was greater than 96% and our operating margin was just over 17%," said Scott Scherr, CEO, president, and founder of Ultimate. "Our new customers continued to attach talent, time, and tax management products to their core purchases, and market demand metrics for our solutions continued to be strong in the third quarter.

"In early October, we showcased our latest version of UltiPro at the HR Technology Conference. With this release, we have strengthened our go-to-market strategy by delivering deeper global HCM capabilities and a number of other enhancements, such as significant advances in payroll processing speed for very large organizations, more configurable talent management for richer employee performance management, and cloud connectivity through an ecosystem of partners that includes CERTPOINT Systems, Informatica, and Yammer. All of our cloud customers are live on this release."

Ultimate's financial results teleconference will be held today, October 30, 2012, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=167841. 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 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 23% for the third quarter of 2012 compared with 2011's third quarter. The increase was primarily attributable to revenue growth from our Software-as-a-Service ("SaaS") offering. Recurring revenues for the third quarter of 2012 were 82% of total revenues as compared with 81% of total revenues for the same period of last year.
  • Our operating income increased 65%, on a non-GAAP basis, for the third quarter of 2012 to $14.2 million as compared with $8.6 million for the same period last year. Our non-GAAP operating margin was 17.2% for this year's third quarter versus 12.7% for last year's third quarter.
  • Ultimate's annualized retention rate exceeded 96% for its existing recurring revenue customer base as of September 30, 2012.
  • The combination of cash, cash equivalents, and marketable securities was $82.9 million as of September 30, 2012, compared with $55.3 million as of December 31, 2011. Cash flows from operating activities for the quarter ended September 30, 2012 were $9.6 million, compared with $8.4 million for the same period last year. For the nine months ended September 30, 2012, Ultimate generated $32.3 million in cash from operations compared with $23.6 million for the nine months ended September 30, 2011.
  • Days sales outstanding were 64 days at September 30, 2012, representing a reduction of seven days compared with days sales outstanding at December 31, 2011.

Financial Outlook

Ultimate provides the following financial guidance for the 2012 full year and preliminary financial guidance for the 2013 full year:

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%.

For the year 2013, preliminary:

  • Recurring revenues to increase by approximately 26% over 2012,
  • Total revenues to increase by approximately 24% over 2012, and
  • Operating margin, on a non-GAAP basis (discussed below), of approximately 17%.

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 stock-based compensation expense for 2012 and 2013 is expected to be approximately $20.0 million and $37.0 million, respectively.

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 SaaS provider of people management solutions, with more than 8,000,000 people records in the cloud. Built on the belief that people are the most important ingredient of any business, Ultimate's award-winning UltiPro delivers HR, payroll, talent, time, and tax 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 1,500 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 Incorporated, The Container Store, Culligan International, Major League Baseball, The New York Yankees Baseball Team, and Texas Roadhouse. 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 September 30,

 For the Nine Months

Ended September 30,

2012 2011 2012 2011
Revenues:
Recurring$67,505$54,689$193,014$156,639
Services15,12712,79446,16138,284
License- 267 915 1,537 
Total revenues82,632 67,750 240,090 196,460 
Cost of revenues:
Recurring19,39016,52157,72946,757
Services16,45413,07347,82039,106
License- 61 208 334 
Total cost of revenues35,84429,655 105,757 86,197 
Gross profit46,788 38,095 134,333 110,263 
Operating expenses:
Sales and marketing17,21815,00253,32747,649
Research and development14,06513,25645,75037,593
General and administrative6,224 4,995 18,495 16,370 
Total operating expenses37,507 33,253 117,572 101,612 
Operating income9,2814,84216,7618,651
Other (expense) income:
Interest and other expense(178)(64)(354)(365)
Other income, net47 17 90 77 
Total other expense, net(131)(47)(264)(288)
Income before income taxes9,1504,79516,4978,363
Provision for income taxes(4,493)(3,710)(8,163)(6,057)
Net income$4,657 $1,085 $8,334 $2,306 
Net income per share:
Basic$0.17 $0.04 $0.31 $0.09 
Diluted$0.16 $0.04 $0.29 $0.08 
Weighted average shares outstanding:
Basic26,852 25,767 26,634 25,733 
Diluted28,495 27,747 28,312 27,790 
 

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 September 30,

 

For the Nine Months

Ended September 30,

2012 2011 2012 2011
Stock-based compensation expense:
Cost of recurring revenues$658$341$1,809$1,020
Cost of services revenues6883601,8541,107
Sales and marketing1,8861,7345,3325,244
Research and development5324031,8481,197
General and administrative1,136 902 3,274 2,791
Total non-cash stock-based compensation expense$4,900 $3,740 $14,117 $11,359
Amortization of acquired intangibles:
General and administrative$ $27 $ $83
 
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
As of As of
September 30,December 31,
20122011
ASSETS
Current assets:
Cash and cash equivalents$73,143$46,149
Investments in marketable securities8,7097,584
Accounts receivable, net57,47256,186
Prepaid expenses and other current assets24,68922,944
Deferred tax assets, net1,3531,277
Total current assets before funds held for clients165,366134,140
Funds held for clients144,196118,660
Total current assets309,562252,800
Property and equipment, net35,54724,486
Capitalized software, net7521,765
Goodwill3,0253,025
Investments in marketable securities1,0691,546
Other assets, net16,32915,056
Deferred tax assets, net19,63720,142
Total assets$385,921$318,820
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$4,912$6,265
Accrued expenses17,57711,589
Deferred revenue83,33483,416
Capital lease obligations3,0962,694
Other borrowings2,362-
Total current liabilities before client fund obligations111,281103,964
Client fund obligations144,196118,660
Total current liabilities255,477222,624
Deferred revenue1,7203,147
Deferred rent2,9193,384
Capital lease obligations2,6412,175
Other borrowings2,765-
Income taxes payable1,8661,866
Total liabilities267,388233,196
 
Stockholders' equity:
Preferred Stock, $.01 par value--
Series A Junior Participating Preferred Stock, $.01 par value--
Common Stock, $.01 par value309302
Additional paid-in capital266,371242,100
Accumulated other comprehensive income (loss)240(57)
Accumulated deficit(39,637)(47,971)
227,283194,374
Treasury stock, at cost(108,750)(108,750)
Total stockholders' equity118,53385,624
Total liabilities and stockholders' equity$385,921$318,820
 
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 For the Nine Months Ended
September 30,
2012 2011
Cash flows from operating activities:
Net income$8,334$2,306
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization9,9618,688
Provision for doubtful accounts7221,220
Non-cash stock-based compensation expense14,11711,359
Income taxes7,9335,933
Excess tax benefits from employee stock plan(7,504)(4,323)
Changes in operating assets and liabilities: