Ultimate Reports Q3 2012 Financial Results

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

Services

15,127

12,794

46,161

38,284

License

-

267

915

1,537

Total revenues

82,632

67,750

240,090

196,460

Cost of revenues:

Recurring

19,390

16,521

57,729

46,757

Services

16,454

13,073

47,820

39,106

License

-

61

208

334

Total cost of revenues

35,844

29,655

105,757

86,197

Gross profit

46,788

38,095

134,333

110,263

Operating expenses:

Sales and marketing

17,218

15,002

53,327

47,649

Research and development

14,065

13,256

45,750

37,593

General and administrative

6,224

4,995

18,495

16,370

Total operating expenses

37,507

33,253

117,572

101,612

Operating income

9,281

4,842

16,761

8,651

Other (expense) income:

Interest and other expense

(178

)

(64

)

(354

)

(365

)

Other income, net

47

17

90

77

Total other expense, net

(131

)

(47

)

(264

)

(288

)

Income before income taxes

9,150

4,795

16,497

8,363

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:

Basic

26,852

25,767

26,634

25,733

Diluted

28,495

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 revenues

688

360

1,854

1,107

Sales and marketing

1,886

1,734

5,332

5,244

Research and development

532

403

1,848

1,197

General and administrative

1,136

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,

2012

2011

ASSETS

Current assets:

Cash and cash equivalents

$

73,143

$

46,149

Investments in marketable securities

8,709

7,584

Accounts receivable, net

57,472

56,186

Prepaid expenses and other current assets

24,689

22,944

Deferred tax assets, net

1,353

1,277

Total current assets before funds held for clients

165,366

134,140

Funds held for clients

144,196

118,660

Total current assets

309,562

252,800

Property and equipment, net

35,547

24,486

Capitalized software, net

752

1,765

Goodwill

3,025

3,025

Investments in marketable securities

1,069

1,546

Other assets, net

16,329

15,056

Deferred tax assets, net

19,637

20,142

Total assets

$

385,921

$

318,820

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

4,912

$

6,265

Accrued expenses

17,577

11,589

Deferred revenue

83,334

83,416

Capital lease obligations

3,096

2,694

Other borrowings

2,362

-

Total current liabilities before client fund obligations

111,281

103,964

Client fund obligations

144,196

118,660

Total current liabilities

255,477

222,624

Deferred revenue

1,720

3,147

Deferred rent

2,919

3,384

Capital lease obligations

2,641

2,175

Other borrowings

2,765

-

Income taxes payable

1,866

1,866

Total liabilities

267,388

233,196

Stockholders' equity:

Preferred Stock, $.01 par value

-

-

Series A Junior Participating Preferred Stock, $.01 par value

-

-

Common Stock, $.01 par value

309

302

Additional paid-in capital

266,371

242,100

Accumulated other comprehensive income (loss)

240

(57)

Accumulated deficit

(39,637)

(47,971)

227,283

194,374

Treasury stock, at cost

(108,750)

(108,750)

Total stockholders' equity

118,533

85,624

Total liabilities and stockholders' equity

$

385,921

$

318,820

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 amortization

9,961

8,688

Provision for doubtful accounts

722

1,220

Non-cash stock-based compensation expense

14,117

11,359

Income taxes

7,933

5,933

Excess tax benefits from employee stock plan

(7,504

)

(4,323

)

Changes in operating assets and liabilities: