Ultimate Reports Q4 and Year-End 2012 Financial Results

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Ultimate Reports Q4 and Year-End 2012 Financial Results

  • Record Q4 Recurring Revenues of $73.4 Million, Up by 28%
  • Record Q4 Total Revenues of $92.2 Million, Up by 27%
  • Record 2012 Recurring Revenues of $266.4 Million, Up by 25%
  • Record 2012 Total Revenues of $332.3 Million, Up by 23%
  • Q4 Non-GAAP Operating Income of $18.7 Million, Up by 64%
  • 2012 Non-GAAP Operating Income of $49.5 Million, Up by 57%

WESTON, Fla.--(BUSINESS WIRE)-- Ultimate Software (NAS: ULTI) , a leading cloud provider of people management solutions, announced today its financial results for the fourth quarter and year ended December 31, 2012. For the quarter ended December 31, 2012, Ultimate reported recurring revenues of $73.4 million, a 28% increase, and total revenues of $92.2 million, a 27% increase, both compared with 2011's fourth quarter. GAAP net income for the fourth quarter of 2012 was $6.3 million, or $0.22 per diluted share, versus GAAP net income of $2.0 million, or $0.07 per diluted share, for the fourth quarter of 2011.


Non-GAAP net income, which excludes stock-based compensation and amortization of acquired intangible assets, was $10.8 million, or $0.38 per diluted share, for the fourth quarter of 2012, compared with non-GAAP net income of $6.6 million, or $0.24 per diluted share, for the fourth quarter of 2011. See "Use of Non-GAAP Financial Information" below.

For 2012, recurring revenues increased 25% to $266.4 million, and total revenues increased 23% to $332.3 million, both as compared with the prior year. For 2012, GAAP net income was $14.6 million or $0.52 per diluted share, compared with GAAP net income of $4.3 million, or $0.15 per diluted share, for 2011. For 2012, non-GAAP net income was $28.5 million, or $1.00 per diluted share, compared with non-GAAP net income of $18.1 million, or $0.65 per diluted share, for 2011.

"Our fourth quarter and 2012 financial performance were in line with our expectations and our business plan. Our 2012 execution puts us in position to reach our 2013 goal of achieving more than $400 million in revenues, and it gives us a solid foundation for taking advantage of many future opportunities," said Scott Scherr, CEO, president, and founder of Ultimate.

"A year ago we were honored to have been ranked #25 on FORTUNE's 100 Best Companies to Work For list. This year we are honored to move up to #9. This recognition reflects our passion for putting our 'People First' and having them put our clients first through product development and customer services," added Scherr.

Ultimate's financial results teleconference will be held today, February 5, 2013, at 5:00 p.m. Eastern Time, through Vcall at www.investorcalendar.com/IC/CEPage.asp?ID=170357. 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 28% for the fourth quarter of 2012 and by 25% for the 2012 year — both compared with 2011's comparable periods. The increase was primarily attributable to revenue growth from our Software-as-a-Service ("SaaS") offering. Recurring revenues for the fourth quarter of 2012 were 80% of total revenues as compared with 79% of total revenues for 2011's fourth quarter. Recurring revenues were 80% of total revenues for the 2012 year versus 79% for 2011.
  • Ultimate's total revenues for the fourth quarter of 2012 increased by 27% compared with those for the fourth quarter of 2011. Ultimate's total revenues for 2012 increased by 23% compared with those for 2011.
  • Our operating income increased 64%, on a non-GAAP basis, for the fourth quarter of 2012 to $18.7 million as compared with $11.4 million for the same period of 2011. Non-GAAP operating income for 2012 was $49.5 million compared with $31.5 million for 2011. Our non-GAAP operating margin was 20.3% for the fourth quarter of 2012 versus 15.7% for the fourth quarter of 2011. Our non-GAAP operating margin was 14.9% for 2012 versus 11.7% for 2011.
  • Ultimate's annualized retention rate exceeded 96% for its existing recurring revenue customer base as of December 31, 2012.
  • Net income, on a non-GAAP basis, for the fourth quarter of 2012 increased to $10.8 million compared with $6.6 million for the fourth quarter of 2011. Non-GAAP net income for 2012 increased to $28.5 million compared with $18.1 million for 2011.
  • The combination of cash, cash equivalents, and marketable securities was $69.4 million as of December 31, 2012, compared with $55.3 million as of December 31, 2011. Cash flows from operating activities for the quarter ended December 31, 2012 were $9.3 million, compared with $4.8 million for the same period of 2011. For the year ended December 31, 2012, Ultimate generated $41.7 million in cash from operations compared with $28.4 million for the year ended December 31, 2011.
  • Days sales outstanding were 71 days at December 31, 2012, which was consistent with days sales outstanding at December 31, 2011.

Stock Repurchases

During the year ended December 31, 2012, we paid $9.8 million to repurchase 112,022 shares of our issued and outstanding $0.01 par value common stock ("Common Stock"), under our previously announced stock repurchase plan ("Stock Repurchase Plan"). As of December 31, 2012, we had 946,165 shares available for repurchase in the future under our Stock Repurchase Plan.

During the year ended December 31, 2012, unrelated to the Stock Repurchase Plan, we also paid $20.4 million to acquire 228,044 shares of our Common Stock to settle the employee tax withholding liability resulting from the vesting of our employees' restricted stock holdings.

Business Highlights

  • We expanded UltiPro's global HCM capabilities, made significant advances in payroll processing speed for very large organizations, increased configurability of our talent management solutions, and extended our partnership ecosystem with partners such as Yammer, a leading provider of Enterprise Social Networks; CERTPOINT, a recognized leader in Learning Management Systems; Ping Identity, a leader in identity security and single sign-on connection; and Informatica, an industry-leading data integration platform that makes UltiPro's connectivity more flexible, reliable, and efficient.
  • We held our Ultimate Partner Forum, known as Connections, in March 2012 and had the largest attendance in our history — more than 1,200 attendees. Our customers, partners, and HR industry influencers came to learn about our product roadmap, industry best practices, and how to implement our product enhancements into their businesses. Ultimate's 2013 Connections conference will be held on March 12-15, 2013, in Las Vegas. Keynote speakers will be Pat Riley, president and former head coach of the Miami Heat and author of the book, The Winner Within; Shawn Achor, author of the best-selling book, The Happiness Advantage; and Cali Ressler and Jody Thompson, co-creators of the Results-Only Work Environment and authors of the book, Why Work Sucks and How to Fix It.
  • Our customer support services were awarded Service Capability & Performance (SCP) certification for best practices for the 14th consecutive year. The SCP Standards represent the global benchmark for service excellence and are recognized by leading technology companies around the world.
  • InformationWeek magazine honored Ultimate by selecting us as one of the top 100 most innovative users of information technology in the United States.
  • Ultimate was recognized by Achievers as one of Achievers' 50 Most Engaged Workplaces in the United States.
  • In January 2013, Ultimate was ranked #9 on FORTUNE's "100 Best Companies to Work For" list. Ultimate is the only human capital management provider and the highest ranked cloud vendor on the 2013 list. This honor builds on our #25 rank on FORTUNE's 2012 list and our previous recognition twice as the #1 medium-size company to work for in America by The Great Place to Work Institute.

Financial Outlook

Ultimate provides the following financial guidance for 2013:

For the first quarter of 2013:

  • Recurring revenues of approximately $77.0 million,
  • Total revenues of approximately $98.0 million, and
  • Operating margin, on a non-GAAP basis (discussed below), of approximately 13%.

For the year 2013:

  • Recurring revenues to increase by approximately 25% over 2012,
  • Total revenues to increase by approximately 23% 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 2013 is expected to be approximately $37.5 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-based provider of people management solutions, with more than 10 million 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, 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 1,600 professionals focused on developing the highest quality solutions and services. In 2013, Ultimate was ranked #9 on FORTUNE'S "100 Best Companies to Work For" list. Ultimate has more than 2,500 customers with employees in 115 countries, including Adobe Systems Incorporated, Culligan International, Major League Baseball, The New York Yankees Baseball Team, Pep Boys, 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 December 31,

 For the Twelve Months

Ended December 31,

2012 2011 2012 2011
Revenues:
Recurring$73,416$57,146$266,430$213,785
Services18,40214,91164,56353,195
License360 681 1,275 2,218 
Total revenues92,178 72,738 332,268 269,198 
Cost of revenues:
Recurring20,39216,74878,12163,505
Services18,24313,23566,06352,341
License72 154 280 488 
Total cost of revenues38,70730,137 144,464 116,334 
Gross profit53,471 42,601 187,804 152,864 
Operating expenses:
Sales and marketing19,23815,49672,56563,145
Research and development14,94313,76360,69351,356
General and administrative6,857 5,561 25,433 21,931 
Total operating expenses41,038 34,820 158,691 136,432 
Operating income12,4337,78129,11316,432
Other (expense) income:
Interest and other expense(122)(36)(476)(401)
Other income, net12 14 102 91 
Total other expense, net(110)(22)(374)(310)
Income before income taxes12,3237,75928,73916,122
Provision for income taxes(6,025)(5,783)(14,107)(11,840)
Net income$6,298 $1,976 $14,632 $4,282 
Net income per share:
Basic$0.23 $0.08 $0.55 $0.17 
Diluted$0.22 $0.07 $0.52 $0.15 
Weighted average shares outstanding:
Basic27,207 26,055 26,778 25,814 
Diluted28,571 27,838 28,375 27,806 
 

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 December 31,

 

For the Twelve Months

Ended December 31,

2012 2011 2012 2011
Stock-based compensation expense:
Cost of recurring revenues$699$382$2,508$1,402
Cost of services revenues8753572,7291,464
Sales and marketing2,5291,5807,8616,824
Research and development6034282,4511,625
General and administrative1,589 903 4,863 3,694
Total non-cash stock-based compensation expense$6,295 $3,650 $20,412 $15,009
Amortization of acquired intangibles:
General and administrative$ $ $ $83
 
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
As ofAs of
December 31,December 31,
20122011
ASSETS
Current assets:
Cash and cash equivalents$58,817$46,149
Investments in marketable securities9,2237,584
Accounts receivable, net70,77456,186
Prepaid expenses and other current assets25,94922,944
Deferred tax assets, net1,3721,277
Total current assets before funds held for clients166,135134,140
Funds held for clients281,007118,660
Total current assets447,142252,800
Property and equipment, net38,06824,486
Capitalized software, net5081,765
Goodwill3,0253,025
Investments in marketable securities1,3111,546
Other assets, net16,68715,056
Deferred tax assets, net18,54320,142
Total assets$525,284$318,820
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$7,584$6,265
Accrued expenses15,05511,589
Deferred revenue90,67483,416
Capital lease obligations2,9682,694
Other borrowings2,311-
Total current liabilities before client fund obligations118,592103,964
Client fund obligations281,007118,660
Total current liabilities399,599222,624
Deferred revenue1,3023,147
Deferred rent2,7773,384
Capital lease obligations2,4692,175
Other borrowings2,601-
Income taxes payable1,8661,866
Total liabilities410,614233,196
 
Stockholders' equity:
Preferred Stock, $.01 par value--
Series A Junior Participating Preferred Stock, $.01 par value--
Common Stock, $.01 par value314302
Additional paid-in capital266,130242,100
Accumulated other comprehensive income (loss)109(57)
Accumulated deficit(33,339)(47,971)
233,214194,374
Treasury stock, at cost(118,544)(108,750)
Total stockholders' equity114,67085,624
Total liabilities and stockholders' equity$525,284$318,820
 
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDA
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