Ultimate Reports Q1 2013 Financial Results

Ultimate Reports Q1 2013 Financial Results

  • Record Recurring Revenues of $78.1 Million, Up by 28%

  • Record Total Revenues of $97.9 Million, Up by 25%

WESTON, Fla.--(BUSINESS WIRE)-- Ultimate Software (NAS: ULTI) , a leading cloud provider of people management solutions, announced today its financial results for the first quarter of 2013. For the quarter ended March 31, 2013, Ultimate reported recurring revenues of $78.1 million, a 28% increase, and total revenues of $97.9 million, a 25% increase, both compared with 2012's first quarter. GAAP net income for the first quarter of 2013 was $4.5 million, or $0.16 per diluted share, versus GAAP net income of $1.0 million, or $0.04 per diluted share, for the first quarter of 2012.

Non-GAAP net income, which excludes stock-based compensation, was $9.2 million, or $0.32 per diluted share, for the first quarter of 2013, compared with non-GAAP net income of $3.7 million, or $0.13 per diluted share, for the first quarter of 2012. See "Use of Non-GAAP Financial Information" below.


"The first quarter was a great start to achieving our 2013 goals. Our recurring revenues and operating margin both exceeded our expectations," said Scott Scherr, founder, president and CEO of Ultimate. "A high percentage of our new customers continued to add talent and time management products to their core UltiPro HR and payroll solution purchases in the quarter.

"We held our sixth annual customer forum known as Connections in March. It was our largest conference ever, with attendance up by 27% to more than 1,600 attendees learning about our strategic roadmap and sharing best practices with their peers."

Ultimate's financial results teleconference will be held today, April 30, 2013, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/ic/cepage.asp?id=170358. 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 first quarter of 2013 compared with 2012's first quarter. The increase was primarily attributable to revenue growth from our cloud offering. Recurring revenues for the first quarter of 2013 were 80% of total revenues as compared with 78% of total revenues for 2012's first quarter.

  • Ultimate's total revenues for the first quarter of 2013 increased by 25% compared with those for the first quarter of 2012.

  • Our operating income increased 147%, on a non-GAAP basis, for the first quarter of 2013 to $15.9 million as compared with $6.4 million for the same period of 2012. Our non-GAAP operating margin was 16.2% for the first quarter of 2013 versus 8.2% for the first quarter of 2012.

  • Ultimate's annualized retention rate exceeded 96% for its existing recurring revenue customer base as of March 31, 2013.

  • Net income, on a non-GAAP basis, for the first quarter of 2013 increased to $9.2 million compared with $3.7 million for the first quarter of 2012.

  • The combination of cash, cash equivalents, and marketable securities was $81.3 million as of March 31, 2013, compared with $69.4 million as of December 31, 2012. Cash flows from operating activities for the quarter ended March 31, 2013, were $18.1 million, compared with $14.4 million for the same period of 2012.

  • Days sales outstanding were 64 days at March 31, 2013, representing a reduction of seven days compared with days sales outstanding at December 31, 2012.

Stock Repurchases

  • During the three months ended March 31, 2013, we used $6.2 million to acquire 64,070 shares of our Common Stock to settle the employee tax withholding liability resulting from the vesting of our employees' restricted stock holdings.

  • As of March 31, 2013, we had 946,165 shares available for repurchase in the future under our previously announced Stock Repurchase Plan.

Financial Outlook

Ultimate provides the following financial guidance for the second quarter ending June 30, 2013, and full year 2013:

For the second quarter of 2013:

  • Recurring revenues of approximately $81.0 million,

  • Total revenues of approximately $97.0 million, and

  • Operating margin, on a non-GAAP basis (discussed below), of approximately 15%.

For the year 2013:

  • Recurring revenues to increase by approximately 25% over those of 2012,

  • Total revenues to increase by approximately 23% over those of 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, and Minyanville Media Inc. named Ultimate among the top 10 most ethical businesses in the United States. Ultimate has more than 2,500 customers with employees in 144 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
March 31,

2013

2012

Revenues:

Recurring

$

78,082

$

60,873

Services

19,445

17,024

License

390

384

Total revenues

97,917

78,281

Cost of revenues:

Recurring

21,828

19,104

Services

19,728

16,523

License

90

88

Total cost of revenues

41,646

35,715

Gross profit

56,271

42,566

Operating expenses:

Sales and marketing

22,910

18,637

Research and development

16,130

15,696

General and administrative

8,927

6,145

Total operating expenses

47,967

40,478

Operating income

8,304

2,088

Other (expense) income:

Interest and other expense

(80

)

(75

)

Other income, net

41

13

Total other expense, net

(39

)

(62

)

Income before income taxes

8,265

2,026

Provision for income taxes

(3,745

)

(1,002

)

Net income

$

4,520

$

1,024

Net income per share:

Basic

$

0.16

$

0.04

Diluted

$

0.16

$

0.04

Weighted average shares outstanding:

Basic

27,476

26,394

Diluted

28,704

28,073

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,

2013

2012

Stock-based compensation expense:

Cost of recurring revenues

$

864

$

513

Cost of services revenues

960

501

Sales and marketing

3,096

1,674

Research and development

770

624

General and administrative

1,907

1,042

Total non-cash stock-based compensation expense

$

7,597

$

4,354

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

As of

As of

March 31,

December 31,

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$

72,081

$

58,817

Investments in marketable securities

6,936

9,223

Accounts receivable, net

70,059

70,774

Prepaid expenses and other current assets

29,088

25,949

Deferred tax assets, net

1,372

1,372

Total current assets before funds held for clients

179,536

166,135

Funds held for clients

642,443

281,007

Total current assets

821,979

447,142

Property and equipment, net

41,990

38,068

Capitalized software, net

356

508

Goodwill

3,025

3,025

Investments in marketable securities

2,313

1,311

Other assets, net

16,983

16,687

Deferred tax assets, net

19,191

18,543

Total assets

$

905,837

$

525,284

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

6,185

$

7,584

Accrued expenses

21,124

15,055

Deferred revenue

91,936

90,674

Capital lease obligations

2,968

2,968

Other borrowings

3,860

2,311

Total current liabilities before client fund obligations

126,073

118,592

Client fund obligations

642,443

281,007

Total current liabilities

768,516

399,599

Deferred revenue

1,049

1,302

Deferred rent

2,689

2,777

Capital lease obligations

2,481

2,469

Other borrowings

1,255

2,601

Income taxes payable

1,866

1,866

Total liabilities

777,856

410,614

Stockholders' equity:

Preferred Stock, $.01 par value

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

Common Stock, $.01 par value

317

314

Additional paid-in capital

275,183

266,130

Accumulated other comprehensive income (loss)

(156

)

109

Accumulated deficit

(28,819

)

(33,339

)

246,525

233,214

Treasury stock, at cost

(118,544

)

(118,544

)

Total stockholders' equity

127,981

114,670

Total liabilities and stockholders' equity

$

905,837

$

525,284

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Three Months
Ended March 31,

2013

2012

Cash flows from operating activities:

Net income

$

4,520

$

1,024

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3,749

3,011

Provision for doubtful accounts

613

133

Non-cash stock-based compensation expense

7,597

4,354

Income taxes

3,689

949

Excess tax benefits from employee stock plan

(4,337

)

(894

)

Changes in operating assets and liabilities:

Accounts receivable

102

4,969

Prepaid expenses and other current assets

(3,139

)

(412

)

Other assets

(296

)

(397

)

Accounts payable

(1,399

)

(607

)

Accrued expenses and deferred rent

5,981

3,959

Deferred revenue

1,009

(1,640

)

Net cash provided by operating activities

18,089

14,449

Cash flows from investing activities:

Purchases of marketable securities

(3,600

)

(4,700

)

Maturities of marketable securities

4,885

3,924

Net purchases of client funds securities

(361,436

)

(213,869

)

Purchases of property and equipment

(6,211

)

(2,211

)

Net cash used in investing activities

(366,362

)

(216,856

)

Cash flows from financing activities:

Net proceeds from issuances of Common Stock

2,881

2,844

Excess tax benefits from employee stock plan

4,337

894

Shares acquired to settle employee tax withholding liability

(6,159

)

(3,576

)

Principal payments on capital lease obligations

(896

)

(784

)

Other borrowings

203

-

Net increase in client fund obligations

361,436

213,869

Net cash provided by financing activities

361,802

213,247

Effect of foreign currency exchange rate changes on cash

(265

)

134

Net increase in cash and cash equivalents

13,264

10,974

Cash and cash equivalents, beginning of period

58,817

46,149

Cash and cash equivalents, end of period

$

72,081

$

57,123

Supplemental disclosure of cash flow information: