Exhibit 99.1
FOR IMMEDIATE RELEASE
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, FL, October 30, 2012 — Ultimate Software (Nasdaq: 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. |
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• | 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.
Contact: Mitchell K. Dauerman
Chief Financial Officer and Investor Relations
Phone: 954-331-7369
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Email: IR@ultimatesoftware.com
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 |
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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 |
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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 | ) |
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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: | ||||||||||
Accounts receivable | (2,008 | ) | (262 | ) | ||||||
Prepaid expenses and other current assets | (620 | ) | (2,789 | ) | ||||||
Other assets | (1,273 | ) | (2,440 | ) | ||||||
Accounts payable | (1,353 | ) | 466 | |||||||
Accrued expenses and deferred rent | 5,523 | 2,183 | ||||||||
Deferred revenue | (1,509 | ) | 1,285 | |||||||
Net cash provided by operating activities | 32,323 | 23,626 | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of marketable securities | (10,706 | ) | (10,801 | ) | ||||||
Maturities of marketable securities | 10,058 | 10,122 | ||||||||
Net purchases of client funds securities | (25,536 | ) | (27,821 | ) | ||||||
Purchases of property and equipment | (12,243 | ) | (10,728 | ) | ||||||
Net cash used in investing activities | (38,427 | ) | (39,228 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Repurchases of Common Stock | – | (17,310 | ) | |||||||
Net proceeds from issuances of Common Stock | 7,555 | 8,421 | ||||||||
Excess tax benefits from employee stock plan | 7,504 | 4,323 | ||||||||
Shares acquired to settle employee tax withholding liability | (5,076 | ) | (3,874 | ) | ||||||
Principal payments on capital lease obligations | (2,504 | ) | (2,238 | ) | ||||||
Repayments of borrowings | (214 | ) | – | |||||||
Net increase in client fund obligations | 25,536 | 27,821 | ||||||||
Net cash provided by financing activities | 32,801 | 17,143 | ||||||||
Effect of foreign currency exchange rate changes on cash | 297 | (214 | ) | |||||||
Net increase in cash and cash equivalents | 26,994 | 1,327 | ||||||||
Cash and cash equivalents, beginning of period | 46,149 | 40,889 | ||||||||
Cash and cash equivalents, end of period | $ | 73,143 | $ | 42,216 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||
Cash paid for interest | $ | 308 | $ | 184 | ||||||
Cash paid for income taxes | $ | 365 | $ | 547 | ||||||
Supplemental disclosure of non-cash financing activities: |
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Ultimate entered into capital lease obligations to acquire new equipment totaling $3.4 million and $2.3 million for the nine months ended September 30, 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 $2.5 million were made during the nine months ended September 30, 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 September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
Non-GAAP operating income reconciliation: | ||||||||||||||||||||
Operating income | $ | 9,281 | $ | 4,842 | $ | 16,761 | $ | 8,651 | ||||||||||||
Operating income, as a % of total revenues | 11.2 | % | 7.1 | % | 7.0 | % | 4.4 | % | ||||||||||||
Add back: | ||||||||||||||||||||
Non-cash stock-based compensation expense | 4,900 | 3,740 | 14,117 | 11,359 | ||||||||||||||||
Non-cash amortization of acquired intangible assets | — | 27 | — | 83 | ||||||||||||||||
Non-GAAP operating income | $ | 14,181 | $ | 8,609 | $ | 30,878 | $ | 20,093 | ||||||||||||
Non-GAAP operating income, as a % of total revenues | 17.2 | % | 12.7 | % | 12.9 | % | 10.2 | % | ||||||||||||
Non-GAAP net income reconciliation: | ||||||||||||||||||||
Net income | $ | 4,657 | $ | 1,085 | $ | 8,334 | $ | 2,306 | ||||||||||||
Add back: | ||||||||||||||||||||
Non-cash stock-based compensation expense | 4,900 | 3,740 | 14,117 | 11,359 | ||||||||||||||||
Non-cash amortization of acquired intangible assets | — | 27 | — | 83 | ||||||||||||||||
Income tax effect | (1,409 | ) | 90 | (4,696 | ) | (2,173 | ) | |||||||||||||
Non-GAAP net income | $ | 8,148 | $ | 4,942 | $ | 17,755 | $ | 11,575 | ||||||||||||
Non-GAAP net income, per diluted share, reconciliation: (1) | ||||||||||||||||||||
Net income, per diluted share | $ | 0.16 | $ | 0.04 | $ | 0.29 | $ | 0.08 | ||||||||||||
Add back: | ||||||||||||||||||||
Non-cash stock-based compensation expense | 0.17 | 0.13 | 0.5 | 0.41 | ||||||||||||||||
Non-cash amortization of acquired intangible assets | — | — | — | — | ||||||||||||||||
Income tax effect | (0.04 | ) | 0.01 | (0.16 | ) | (0.07 | ) | |||||||||||||
Non-GAAP net income, per diluted share | $ | 0.29 | $ | 0.18 | $ | 0.63 | $ | 0.42 | ||||||||||||
Shares used in calculation of GAAP and non-GAAP net income per share: | ||||||||||||||||||||
Basic | 26,852 | 25,767 | 26,634 | 25,733 | ||||||||||||||||
Diluted | 28,495 | 27,747 | 28,312 | 27,790 | ||||||||||||||||
(1) The non-GAAP net income per diluted share reconciliation is calculated on a diluted weighted average share basis for GAAP net income periods. |
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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 (and 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 nine months ended September 30, 2012, stock-based compensation expense was $4.9 million and $14.1 million, respectively, on a pre-tax basis. For the three and nine months ended September 30, 2011, stock-based compensation expense was $3.7 million and $11.4 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 nine months ended September 30, 2012. For the three and nine months ended September 30, 2011, the amortization of acquired intangible assets was $27 thousand and $83 thousand, respectively. 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.
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