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% Business Wire WESTON, Fla. -- February 5, 2013 Ultimate Software (Nasdaq: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 For the Twelve Months Ended December 31, Ended December 31, 2012 2011 2012 2011 Revenues: Recurring $ 73,416 $ 57,146 $ 266,430 $ 213,785 Services 18,402 14,911 64,563 53,195 License 360 681 1,275 2,218 Total revenues 92,178 72,738 332,268 269,198 Cost of revenues: Recurring 20,392 16,748 78,121 63,505 Services 18,243 13,235 66,063 52,341 License 72 154 280 488 Total cost of revenues 38,707 30,137 144,464 116,334 Gross profit 53,471 42,601 187,804 152,864 Operating expenses: Sales and marketing 19,238 15,496 72,565 63,145 Research and development 14,943 13,763 60,693 51,356 General and 6,857 5,561 25,433 21,931 administrative Total operating expenses 41,038 34,820 158,691 136,432 Operating income 12,433 7,781 29,113 16,432 Other (expense) income: Interest and other (122 ) (36 ) (476 ) (401 ) expense Other income, net 12 14 102 91 Total other expense, net (110 ) (22 ) (374 ) (310 ) Income before income 12,323 7,759 28,739 16,122 taxes Provision for income (6,025 ) (5,783 ) (14,107 ) (11,840 ) taxes 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: Basic 27,207 26,055 26,778 25,814 Diluted 28,571 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 For the Twelve Months Ended December 31, Ended December 31, 2012 2011 2012 2011 Stock-based compensation expense: Cost of recurring revenues $ 699 $ 382 $ 2,508 $ 1,402 Cost of services revenues 875 357 2,729 1,464 Sales and marketing 2,529 1,580 7,861 6,824 Research and development 603 428 2,451 1,625 General and administrative 1,589 903 4,863 3,694 Total non-cash stock-based $ 6,295 $ 3,650 $ 20,412 $ 15,009 compensation expense Amortization of acquired intangibles: General and administrative $ — $ — $ — $ 83 THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) As of As of December 31, December 31, 2012 2011 ASSETS Current assets: Cash and cash equivalents $ 58,817 $ 46,149 Investments in marketable securities 9,223 7,584 Accounts receivable, net 70,774 56,186 Prepaid expenses and other current assets 25,949 22,944 Deferred tax assets, net 1,372 1,277 Total current assets before funds held for 166,135 134,140 clients Funds held for clients 281,007 118,660 Total current assets 447,142 252,800 Property and equipment, net 38,068 24,486 Capitalized software, net 508 1,765 Goodwill 3,025 3,025 Investments in marketable securities 1,311 1,546 Other assets, net 16,687 15,056 Deferred tax assets, net 18,543 20,142 Total assets $ 525,284 $ 318,820 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 7,584 $ 6,265 Accrued expenses 15,055 11,589 Deferred revenue 90,674 83,416 Capital lease obligations 2,968 2,694 Other borrowings 2,311 – Total current liabilities before client fund 118,592 103,964 obligations Client fund obligations 281,007 118,660 Total current liabilities 399,599 222,624 Deferred revenue 1,302 3,147 Deferred rent 2,777 3,384 Capital lease obligations 2,469 2,175 Other borrowings 2,601 – Income taxes payable 1,866 1,866 Total liabilities 410,614 233,196 Stockholders’ equity: Preferred Stock, $.01 par value – – Series A Junior Participating Preferred Stock, – – $.01 par value Common Stock, $.01 par value 314 302 Additional paid-in capital 266,130 242,100 Accumulated other comprehensive income (loss) 109 (57) Accumulated deficit (33,339) (47,971) 233,214 194,374 Treasury stock, at cost (118,544) (108,750) Total stockholders’ equity 114,670 85,624 Total liabilities and stockholders’ equity $ 525,284 $ 318,820 THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Twelve Months Ended December 31, 2012 2011 Cash flows from operating activities: Net income $ 14,632 $ 4,282 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and 13,623 11,620 amortization Provision for doubtful 1,159 1,586 accounts Non-cash stock-based 20,412 15,009 compensation expense Income taxes 13,814 11,507 Excess tax benefits from (12,310 ) (8,504 ) employee stock plan Changes in operating assets and liabilities: Accounts receivable (15,747) (10,202 ) Prepaid expenses and (1,880 ) (4,331 ) other current assets Other assets (1,631 ) (3,483 ) Accounts payable 1,319 1,582 Accrued expenses and 2,859 877 deferred rent Deferred revenue 5,413 8,468 Net cash provided by 41,663 28,411 operating activities Cash flows from investing activities: Purchases of marketable (13,643 ) (14,610 ) securities Maturities of marketable 12,239 14,794 securities Net purchases of client (162,347 ) (45,785 ) funds securities Purchases of property and (17,326 ) (13,671 ) equipment Net cash used in (181,077 ) (59,272 ) investing activities Cash flows from financing activities: Repurchases of Common (9,794) (17,310 ) Stock Net proceeds from 11,284 13,282 issuances of Common Stock Excess tax benefits from 12,310 8,504 employee stock plan Shares acquired to settle employee tax withholding (20,384 ) (10,941 ) liability Principal payments on (3,418 ) (3,016 ) capital lease obligations Repayments of other (429) – borrowings Net increase in client 162,347 45,785 fund obligations Net cash provided by 151,916 36,304 financing activities Effect of foreign currency exchange rate 166 (183) changes on cash Net increase in cash and 12,668 5,260 cash equivalents Cash and cash equivalents, beginning of 46,149 40,889 period Cash and cash equivalents, end of $ 58,817 $ 46,149 period Supplemental disclosure of cash flow information: Cash paid for interest $ 419 $ 241 Cash paid for income $ 471 $ 604 taxes Supplemental disclosure of non-cash financing activities: Ultimate entered into capital lease obligations to acquire new equipment totaling $4.0 million and $3.0 million for the twelve months ended December 31, 2012 and 2011, respectively. Ultimate purchased perpetual licenses with third-party vendors, totaling $6.5 million, payable over a three year period, of which payments totaling $2.7 million were made during the twelve months ended December 31, 2012. THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (In thousands, except per share amounts) For the Three Months Ended For the Twelve Months December 31, Ended December 31, 2012 2011 2012 2011 Non-GAAP operating income reconciliation: Operating income $ 12,433 $ 7,781 $ 29,113 $ 16,432 Operating income, as a % 13.5 % 10.7 % 8.8 % 6.1 % of total revenues Add back: Non-cash stock-based 6,295 3,650 20,412 15,009 compensation expense Non-cash amortization of acquired — — — 83 intangible assets Non-GAAP $ 18,728 $ 11,431 $ 49,525 $ 31,524 operating income Non-GAAP operating income, as a % 20.3 % 15.7 % 14.9 % 11.7 % of total revenues Non-GAAP net income reconciliation: Net income $ 6,298 $ 1,976 $ 14,632 $ 4,282 Add back: Non-cash stock-based 6,295 3,650 20,412 15,009 compensation expense Non-cash amortization of acquired — — — 83 intangible assets Income tax (1,766 ) 929 (6,540 ) (1,238 ) effect Non-GAAP net $ 10,827 $ 6,555 $ 28,504 $ 18,136 income Non-GAAP net income, per diluted share, reconciliation: (1) Net income, per $ 0.22 $ 0.07 $ 0.52 $ 0.15 diluted share Add back: Non-cash stock-based 0.22 0.13 0.71 0.54 compensation expense Non-cash amortization of acquired — — — — intangible assets Income tax (0.06 ) 0.04 (0.23 ) (0.04 ) effect Non-GAAP net income, per $ 0.38 $ 0.24 $ 1.00 $ 0.65 diluted share Shares used in calculation of GAAP and non-GAAP net income per share: Basic 27,207 26,055 26,778 25,814 Diluted 28,571 27,838 28,375 27,806 (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 judgment 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 operating income as a percentage of total revenues (or non-GAAP operating margin), 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 and twelve months ended December 31, 2012, stock-based compensation expense was $6.3 million and $20.4 million, respectively, on a pre-tax basis. For the three and twelve months ended December 31, 2011, stock-based compensation expense was $3.7 million and $15.0 million, respectively, on a pre-tax basis. Stock-based compensation expense is excluded from the 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 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 and twelve months ended December 31, 2012. There was no amortization of acquired intangible assets for the three months ended December 31, 2011. For the twelve months ended December 31, 2011, the amortization of acquired intangible assets was $83 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. Contact: Ultimate Software Mitchell K. Dauerman, 954-331-7369 Chief Financial Officer and Investor Relations IR@ultimatesoftware.com
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Ultimate Reports Q4 and Year-End 2012 Financial Results
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