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Ultimate Reports Q2 2013 Financial Results

  Ultimate Reports Q2 2013 Financial Results

            *Record Recurring Revenues of $80.8 Million, Up by 25%
  *Total Revenues of $97.5 Million, Up by 23%

Business Wire

WESTON, Fla. -- July 30, 2013

Ultimate Software (Nasdaq: ULTI), a leading cloud provider of people
management solutions, announced today its financial results for the second
quarter of 2013. For the quarter ended June 30, 2013, Ultimate reported
recurring revenues of $80.8 million, a 25% increase, and total revenues of
$97.5 million, a 23% increase, both compared with 2012’s second quarter. GAAP
net income for the second quarter of 2013 was $4.9 million, or $0.17 per
diluted share, versus GAAP net income of $2.7 million, or $0.09 per diluted
share, for the second quarter of 2012.

Non-GAAP net income, which excludes stock-based compensation, was $9.7
million, or $0.34 per diluted share, for the second quarter of 2013, compared
with non-GAAP net income of $5.9 million, or $0.21 per diluted share, for the
second quarter of 2012. See “Use of Non-GAAP Financial Information” below.

“Our second quarter revenue results were in line with our expectations and our
2013 goals, and our operating margin once again exceeded our expectations,”
said Scott Scherr, founder, president, and CEO of Ultimate. “In June, Ultimate
celebrated 15 years as a public company. Over the past 15 years, we have grown
from a little over 300 employees to 1,735 at the close of this year’s second
quarter. Today we support more than 2,500 businesses whose operations span 144
countries.

“Ultimate pioneered our industry’s move to the cloud in 2002 by delivering the
first HR/payroll software solution on a SaaS basis. Today we continue to lead
the human capital management industry providing a full-scope, strategic suite
of HR, payroll, time, and talent management solutions.”

Ultimate’s financial results teleconference will be held today, July 30, 2013,
at 5:00 p.m. Eastern Time, through Vcall at
www.investorcalendar.com/IC/CEPage.asp?ID=170359. The call will be available
for replay at the same address beginning at 9:00 p.m. Eastern Time today.
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 25% for the second quarter of 2013 compared
    with 2012’s second quarter. The increase was primarily attributable to
    revenue growth from our cloud offering. Recurring revenues for the second
    quarter of 2013 were 83% of total revenues as compared with 82% of total
    revenues for 2012’s second quarter.
  *Ultimate’s total revenues for the second quarter of 2013 increased by 23%
    compared with those for the second quarter of 2012.
  *Our operating income increased 64%, on a non-GAAP basis, for the second
    quarter of 2013 to $16.8 million as compared with $10.3 million for the
    same period of 2012. Our non-GAAP operating margin was 17.2% for the
    second quarter of 2013 versus 13.0% for the second quarter of 2012.
  *Ultimate’s annualized retention rate exceeded 96% for its existing
    recurring revenue customer base as of June 30, 2013.
  *The combination of cash, cash equivalents, and marketable securities was
    $91.1 million as of June 30, 2013, compared with $69.4 million as of
    December 31, 2012. Cash flows from operating activities for the quarter
    ended June 30, 2013, were $14.4 million, compared with $8.3 million for
    the same period of 2012. For the six months ended June 30, 2013, Ultimate
    generated $32.5 million in cash from operations compared with $22.7
    million for the six months ended June 30, 2012.
  *Days sales outstanding were 66 days at June 30, 2013, representing a
    reduction of five days compared with days sales outstanding at December
    31, 2012.

Stock Repurchases

  *During the six months ended June 30, 2013, we used $6.7 million to acquire
    68,926 shares of our Common Stock to settle the employee tax withholding
    liability resulting from the vesting of our employees' restricted stock
    holdings.
  *As of June 30, 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 third quarter
ending September 30, 2013, and full year 2013:

For the third quarter of 2013:

  *Recurring revenues of approximately $84.0 million,
  *Total revenues of approximately $103.0 million, and
  *Operating margin, on a non-GAAP basis (discussed below), of approximately
    18%.

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 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, time, 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 1,700 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.
In its Cloud Buyer’s Bill of Rights Certification, Constellation Research
awarded Ultimate its highest level of certification. Ultimate has more than
2,500 customers with employees in 144 countries, including Adobe Systems
Incorporated, Culligan International, Major League Baseball, 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   For the Six Months Ended
                        June 30,                     June 30,
                        2013           2012         2013          2012
Revenues:
Recurring               $  80,754       $ 64,636     $ 158,836     $ 125,509
Services                16,392          14,010       35,837        31,034
License                 323            531         713          915       
Total revenues          97,469         79,177      195,386      157,458   
Cost of revenues:
Recurring               22,543          19,235       44,371        38,339
Services                18,030          14,843       37,758        31,366
License                 73             120         163          208       
Total cost of           40,646         34,198      82,292       69,913    
revenues
Gross profit            56,823         44,979      113,094      87,545    
Operating expenses:
Sales and marketing     22,672          17,472       45,582        36,109
Research and            16,864          15,989       32,994        31,685
development
General and             8,285          6,126       17,212       12,271    
administrative
Total operating         47,821         39,587      95,788       80,065    
expenses
Operating income        9,002           5,392        17,306        7,480
Other (expense)
income:
Interest and other      (56        )    (101     )   (136      )   (176      )
expense
Other income, net       6              30          47           43        
Total other expense,    (50        )    (71      )   (89       )   (133      )
net
Income before income    8,952           5,321        17,217        7,347
taxes
Provision for income    (4,050     )    (2,668   )   (7,795    )   (3,670    )
taxes
Net income              $  4,902       $ 2,653     $ 9,422      $ 3,677   
Net income per share:                                           
Basic                   $  0.18        $ 0.10    $ 0.34       $ 0.14      
Diluted                 $  0.17        $ 0.09    $ 0.33       $ 0.13      
Weighted average
shares outstanding:
Basic                   27,735         26,655      27,606       26,524    
Diluted                 28,875         28,281      28,812       28,194    
                                                                             

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  For the Six Months Ended
                         June 30,                     June 30,
                         2013           2012         2013            2012
Stock-based
compensation expense:
Cost of recurring        $  973          $  638       $  1,837         $ 1,151
revenues
Cost of services         864             665          1,824            1,166
revenues
Sales and marketing      3,185           1,772        6,281            3,446
Research and             816             692          1,586            1,316
development
General and              1,940          1,096       3,847           2,138
administrative
Total non-cash
stock-based              $  7,778       $  4,863    $  15,375       $ 9,217
compensation expense
                                                                         


THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                               
                                                    As of         As of
                                                    June 30,      December 31,
                                                    2013          2012
ASSETS
Current assets:
Cash and cash equivalents                           $ 81,193      $  58,817
Investments in marketable securities                7,934         9,223
Accounts receivable, net                            70,713        70,774
Prepaid expenses and other current assets           29,931        25,949
Deferred tax assets, net                            1,372        1,372      
Total current assets before funds held for          191,143       166,135
clients
Funds held for clients                              443,875      281,007    
Total current assets                                635,018       447,142
Property and equipment, net                         46,684        38,068
Capitalized software, net                           205           508
Goodwill                                            3,025         3,025
Investments in marketable securities                1,947         1,311
Other assets, net                                   16,033        16,687
Deferred tax assets, net                            19,487       18,543     
Total assets                                        $ 722,399    $  525,284 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                    $ 6,368       $  7,584
Accrued expenses                                    18,522        15,055
Deferred revenue                                    93,142        90,674
Capital lease obligations                           2,764         2,968
Other borrowings                                    2,258        2,311      
Total current liabilities before client fund        123,054       118,592
obligations
Client fund obligations                             443,875      281,007    
Total current liabilities                           566,929       399,599
Deferred revenue                                    881           1,302
Deferred rent                                       2,622         2,777
Capital lease obligations                           2,094         2,469
Other borrowings                                    926           2,601
Income taxes payable                                1,866        1,866      
Total liabilities                                   575,318      410,614    
                                                                  
Stockholders’ equity:
Preferred Stock, $.01 par value                     —             —
Series A Junior Participating Preferred Stock,      —             —
$.01 par value
Common Stock, $.01 par value                        319           314
Additional paid-in capital                          289,898       266,130
Accumulated other comprehensive (loss) income       (675      )   109
Accumulated deficit                                 (23,917   )   (33,339    )
                                                    265,625       233,214
Treasury stock, at cost                             (118,544  )   (118,544   )
Total stockholders’ equity                          147,081      114,670    
Total liabilities and stockholders’ equity          $ 722,399    $  525,284 
                                                                             


THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                                 For the Six Months Ended
                                  June 30,
                                  2013                    2012
Cash flows from operating
activities:
Net income                        $    9,422               $    3,677
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and                  7,742                    6,352
amortization
Provision for doubtful            1,131                    411
accounts
Non-cash stock-based              15,375                   9,217
compensation expense
Income taxes                      7,679                    3,525
Excess tax benefits from          (8,623         )         (3,302         )
employee stock plan
Changes in operating assets
and liabilities:
Accounts receivable               (1,070         )         2,108
Prepaid expenses and other        (3,982         )         (1,511         )
current assets
Other assets                      654                      (746           )
Accounts payable                  (1,216         )         1,377
Accrued expenses and              3,312                    3,321
deferred rent
Deferred revenue                  2,047                   (1,713         )
Net cash provided by              32,471                  22,716         
operating activities
Cash flows from investing
activities:
Purchases of marketable           (6,800         )         (7,385         )
securities
Maturities of marketable          7,452                    5,997
securities
Net purchases of client           (162,868       )         (39,024        )
funds securities
Purchases of property and         (14,069        )         (7,448         )
equipment
Net cash used in investing        (176,285       )         (47,860        )
activities
Cash flows from financing
activities:
Net proceeds from issuances       5,706                    5,298
of Common Stock
Excess tax benefits from          8,623                    3,302
employee stock plan
Shares acquired to settle
employee tax withholding          (6,693         )         (4,328         )
liability
Principal payments on             (1,803         )         (1,613         )
capital lease obligations
Other borrowings                  (1,728         )
Net increase in client fund       162,868                 39,024         
obligations
Net cash provided by              166,973                 41,683         
financing activities
Effect of foreign currency
exchange rate changes on          (783           )         (76            )
cash
Net increase in cash and          22,376                   16,463
cash equivalents
Cash and cash equivalents,        58,817                  46,149         
beginning of period
Cash and cash equivalents,        $    81,193             $    62,612    
end of period
Supplemental disclosure of
cash flow information:
Cash paid for interest            $    176                $    138       
Cash paid for income taxes        $    265                $    272       
                                                           
Supplemental disclosure of
non-cash financing
activities:
Ultimate entered into capital lease obligations to acquire new equipment
totaling $1.2 million and $2.4 million for the six months ended June 30, 2013
and 2012, respectively.



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 Six Months Ended
                    June 30,                          June 30,
                    2013            2012             2013          2012
Non-GAAP
operating income
reconciliation:
Operating income    $  9,002         $  5,392      $  17,306      $ 7,480
Operating
income, as a %      9.2        %     6.8        %     8.9       %   4.8      %
of total
revenues
Add back:
Non-cash
stock-based         7,778           4,863             15,375     9,217  
compensation
expense
Non-GAAP            $  16,780       $  10,255       $  32,681    $ 16,697 
operating income
Non-GAAP
operating
income, as a %      17.2       %     13.0       %     16.7      %   10.6     %
of total
revenues
                                                                    
Non-GAAP net
income
reconciliation:
Net income          $  4,902         $  2,653         $  9,422      $ 3,677
Add back:
Non-cash
stock-based         7,778            4,863               15,375     9,217
compensation
expense
Income tax          (2,978     )     (1,608     )     (5,894    )   (3,286   )
effect
Non-GAAP net        $  9,702        $  5,908     $  18,903       $ 9,608  
income
                                                                    
Non-GAAP net
income, per
diluted share,
reconciliation:
(1)
Net income, per     $  0.17          $  0.09          $  0.33     $ 0.13
diluted share
Add back:
Non-cash
stock-based         0.27             0.17             0.53          0.33
compensation
expense
Income tax          (0.10      )     (0.05      )     (0.20     )   (0.12    )
effect
Non-GAAP net
income, per         $  0.34         $  0.21         $  0.66      $ 0.34
diluted share
Shares used in
calculation of
GAAP and
non-GAAP net
income per
share:
Basic               27,735          26,655          27,606       26,524   
Diluted             28,875          28,281          28,812       28,194   
                                                                    
(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 item 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 six months ended June30, 2013, stock-based compensation expense was $7.8
million and $15.4 million, on a pre-tax basis. For the three and six months
ended June30, 2012, stock-based compensation expense was $4.9 million and
$9.2 million, 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.

Contact:

Ultimate Software, Weston
Mitchell K. Dauerman, 954-331-7369
Chief Financial Officer and Investor Relations
IR@ultimatesoftware.com
 
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