Human Resources: Ultimate Software Reports Q2 2008 Financial Results

WESTON, Fla.--(BUSINESS WIRE)--Ultimate Software (Nasdaq:ULTI), a leading provider of end-to-end strategic human resources, payroll, and talent management solutions, announced today its financial results for the second quarter of 2008. For the quarter ended June 30, 2008, Ultimate Software reported total revenues of $41.5 million, an increase of 19%, and recurring revenues of $25.4 million, a 20% increase, both compared with 2007’s second quarter. GAAP net loss for the second quarter of 2008 was $0.8 million, or $0.03 per diluted share, versus GAAP net income of $6.4 million, or $0.23 per diluted share, for the second quarter of 2007.

Pre-tax non-GAAP income for the second quarter of 2008 was $2.2 million, or $0.08 per diluted share, compared with 2007’s second quarter pre-tax non-GAAP income of $8.5 million, or $0.31 per diluted share. Non-GAAP net income for the second quarter of 2008 was $1.3 million, or $0.05 per diluted share, compared with 2007’s second quarter non-GAAP net income of $8.4 million, or $0.30 per diluted share. Non-GAAP results exclude stock-based compensation expense and amortization of acquired intangible assets. See “Use of Non-GAAP Financial Information.”

Included in GAAP and non-GAAP net income for the second quarter of 2007 was a one-time settlement fee of $4.3 million, or $0.15 per diluted share, which is net of related costs and income taxes.

New annual recurring revenues (ARR) attributable to sales during the second quarter of 2008 were $10.1 million, a 44% increase over those for the second quarter of 2007. For the first six months of 2008, new ARR were $18.6 million, a 42% increase over those for 2007’s first half. (See “Financial and Business Highlights” below for the definition of ARR.)

“Our sales team again exceeded expectations with the 2008 second quarter’s 44% growth in new ARR, and Intersourcing represented 94% of the $10.1 million in new ARR,” said Scott Scherr, CEO, president, and founder of Ultimate Software.

“The performance of our Workplace team remained strong in the second quarter, as they contributed 15% of the new ARR for the second quarter in a row. We rolled out two new solutions for Workplace in the second quarter, UltiPro Tax Filing and UltiPro Time Management. Both are exciting new opportunities for Ultimate and our customers in that market segment,” added Scherr.

Ultimate Software’s financial results teleconference will be held today, July 29, 2008, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=131770. 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 or Real Player software is required to listen to the call and can be downloaded from the site. Forward-looking information about future company performance may be discussed during the teleconference call.

Financial and Business Highlights

New ARR attributable to sales during the second quarter of 2008 were $10.1 million. New annual recurring revenues represent the expected one-year value from (i) new sales of the Company’s software-as-a-service offering, Intersourcing (including prorated one-time charges); (ii) maintenance revenues related to new license sales; and (iii) recurring revenues from additional sales to Ultimate Software’s existing client base.
Recurring revenues – consisting of maintenance revenues, Intersourcing revenues from our hosted offering of UltiPro, and subscription revenues from per-employee-per-month fees generated by business service providers – grew by 20% for the second quarter of 2008 compared with the same quarter of 2007. Intersourcing revenues and, to a lesser extent, maintenance revenues, were the principal factors in the growth of recurring revenues. Recurring revenues of $25.4 million for the second quarter of 2008 exclude the impact of $1.5 million recognized in the prior quarter from an agreement with Ceridian Corporation which terminated on March 9, 2008.
The combination of cash, cash equivalents, and marketable securities was $25.9 million as of June 30, 2008. For the six months ended June 30, 2008, the Company generated $13.5 million in cash from operations, and the Company repurchased 568,000 shares of the Company’s issued and outstanding $0.01 par value common stock (“Common Stock”) for $17.7 million, under its previously announced stock repurchase plan.
During the second quarter of 2008, the Company introduced two new product offerings for the Workplace market, which the Company defines as businesses with 200 to 700 employees:

Ultimate Software purchased the time and attendance source code from NOVAtime Technology, Inc. for $2.0 million during the second quarter and has rebranded it as UltiPro Time Management for Workplace customers. This new product offering is in addition to, and separate from, the already existing UltiPro Time and Attendance product that targets Enterprise customers, which are companies with more than 700 employees.
Ultimate Software rolled out UltiPro Tax Filing for its Workplace market, and this new tax filing service is in addition to, and separate from, the tax filing service currently offered to our Enterprise customers.

Included in other income, net, in the statements of operations for the three and six months ended June 30, 2007, is a non-recurring settlement fee of $4.3 million, net of related costs and income taxes, resulting from the early termination of a multiyear business arrangement with one of our business partners that decided to exit the payroll business (the “Non-Recurring Settlement”). The impact of the Non-Recurring Settlement on GAAP and non-GAAP net income and diluted earnings per share was an increase of $4.3 million and $0.15, respectively, for the three months ended June 30, 2007 and $4.3 million and $0.16, respectively, for the six months ended June 30, 2007.
Ultimate Software’s development team was named America’s “Best Product Development Team” by the American Business Awards in its 2008 Stevie Award competition, winning first place over several other notable finalists from diverse industries including: Cross Country Automotive Services, Medford, MA; FIS SoftPro, Raleigh, NC; Mozilla Corporation, Mountain View, CA; Prudential Retirement, Hartford, CT; Sharp Electronics, Mahwah, NJ; and Teamwork Athletic Apparel, San Marcos, CA.
Ultimate Software was ranked the #1 best medium-sized company to work for in America by The Great Place to Work® Institute, the same research and management consultancy that produces FORTUNE’s “100 Best Companies to Work for” list for large companies. Scott Scherr accepted the award before an audience of more than 15,000 at the Society for Human Resource Management’s 60th Annual Conference & Exposition in Chicago.

Financial Outlook

Ultimate Software has developed a separate sales force targeting companies with 200 to 700 employees, and, as a result, the average size of our Enterprise target market has increased, creating what the Company calls “the Workplace effect.” The average size of our Enterprise Intersourcing customer has grown and, with the larger-sized customers and their more complex needs, there has been a change toward an increased dollar-weighted average “time to live” (i.e., the period of time from contract signing until the beginning of the revenue recognition for Intersourcing sales, based on the related ARR). Based on this change and our expected sales mix (including the size and complexity of our new customers), we are revising our previously disclosed 2008 financial guidance and introducing (on a preliminary basis) certain key elements of our 2009 financial guidance.

2008 Guidance, as revised:

Ultimate Software provides the following financial guidance for 2008 (which differs from the guidance provided on February 6, 2008):

increase new annual recurring revenues (ARR) generated in 2008 by more than 30% over those produced in 2007,
grow recurring revenues by 23% in 2008 compared with those in 2007,
increase total revenues by 20% compared with 2007,
produce operating margins, on a non-GAAP basis (discussed below), of approximately 10%,
produce pre-tax income per diluted share, on a non-GAAP basis (discussed below), between $0.67 and $0.69, and
produce net income per diluted share, on a non-GAAP basis (discussed below), of $0.41 to $0.42, assuming an effective tax rate of 39% and a weighted average share count similar to that at the end of 2007.

2009 Guidance, preliminary:

Ultimate Software provides the following preliminary financial guidance for 2009:

increase new annual recurring revenues (ARR) generated in 2009 by 30% over those produced in 2008,
grow recurring revenues by 30% to 35% in 2009 compared with those in 2008,
increase total revenues by 25% to 30% compared with 2008, and
produce operating margins, on a non-GAAP basis (discussed below), of between 15% and 18%.

Operating margin, pre-tax income and net income per diluted share expectations do not include the impact of non-cash equity-based compensation expense recognized under Statement of Financial Accounting Standards No. 123(R), “Accounting for Share-Based Payment,” or the impact of the non-cash amortization of the intangible assets resulting from the acquisition of the Company’s United Kingdom subsidiary in 2006, which the Company includes in its GAAP financial results.

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 the Company’s actual results to differ materially from those stated or implied by such forward-looking statements, including risks and uncertainties associated with fluctuations in the Company’s quarterly operating results, concentration of the Company’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 the Company’s filings with the Securities and Exchange Commission. The Company 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 Software

A leading provider of end-to-end strategic human resources, payroll, and talent management solutions, Ultimate Software markets its award-winning UltiPro products as on-demand services through its software-as-a-service (SaaS) offering, Intersourcing, and as licensed software. Based in Weston, FL, the Company employs 850 professionals who are focused on developing the highest quality products and services. In 2008, Ultimate Software was the first HR/payroll SaaS provider to be audited and awarded the ISO/IEC 27001:2005 Certification for security management, and its development team was named the #1 “Best Product Development Team” in the nation by the American Business Awards. Ultimate Software’s internal technology team won a first-place award for its management of Intersourcing from the American Business Awards in 2007, and its customer service team won two first-place awards in national competitions for service excellence in 2006. Ultimate Software was ranked the #1 best medium-sized company to work for in America by the Great Place to Work® Institute in June 2008. Ultimate Software has approximately 1,600 customers representing diverse industries, including such organizations as The Container Store, Elizabeth Arden, Major League Baseball, The New York Yankees Baseball Team, Nintendo of America, Ruth’s Chris Steak House, and Sony BMG Entertainment. More information on Ultimate Software’s products and services can be found at www.ultimatesoftware.com.

UltiPro and Intersourcing are registered trademarks of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their respective owners.