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Ultimate Reports Q4 and Year-End 2012 Financial Results

  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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