Human Resources: Ultimate Software Reports Q3 2007

WESTON, Fla.--(BUSINESS WIRE)--Oct. 25, 2007--Ultimate Software
(Nasdaq:ULTI), a leading provider of end-to-end strategic human
resources, payroll, and talent management solutions, announced today
financial results for its third quarter of 2007. For the quarter ended
September 30, 2007, Ultimate Software reported total revenues of $37.8
million, an increase of 31% compared with the third quarter of 2006,
and recurring revenues of $22.2 million, a 34% increase over the same
period of the previous year. GAAP net income for the third quarter of
2007 was $2.4 million, or $0.09 per diluted share, versus GAAP net
income of $1.3 million, or $0.05 per diluted share, for the third
quarter of 2006. Excluding stock-based compensation and amortization
of acquired intangibles, non-GAAP net income for the third quarter of
2007 was $5.0 million, or $0.18 per diluted share, compared with
non-GAAP net income for the third quarter of 2006 of $2.7 million, or
$0.10 per diluted share.

   New annual recurring revenues (ARR) were $7.1 million for the
third quarter of 2007, a 40% increase from the amount produced in the
third quarter of 2006. (See Financial Highlights below for
definition.)

   "Our third quarter performance reflects our continued success in
executing on our business plan and is a strong step forward in
realizing our 2007 and long-term objectives," said Scott Scherr, CEO,
president, and founder of Ultimate Software. "We are pleased to see
that 85 percent of our new customers in the third quarter selected
Intersourcing, our software-as-a-service delivery model, as that
offering remains the primary driver of our increased recurring
revenues."

   Ultimate Software's financial results teleconference will be held
today, October 25, 2007, at 5:00 p.m. Eastern Time, via World Investor
Link at http://www.vcall.com/IC/CEPage.asp?ID=120811. 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 may be
discussed during the teleconference call.

   Financial Highlights

    -- Recurring revenues - consisting of maintenance revenues,
        revenues from our hosted offering of UltiPro through
        Intersourcing, and subscription revenues from
        per-employee-per-month fees generated by business service
        providers - grew by 34% for the third quarter of 2007 over the
        same quarter of 2006. Intersourcing revenues and, to a lesser
        extent, maintenance revenues, were the principal factors in
        the year-over-year growth in recurring revenues.

    -- New ARR attributable to sales during the third quarter of 2007
        were $7.1 million. New ARR represent the expected one-year
        value from (i) new Intersourcing sales (including prorated
        onetime charges), (ii) maintenance revenues related to new
        license sales, and (iii) recurring revenues from additional
        sales to Ultimate Software's existing client base.

    -- The combination of cash, cash equivalents, and marketable
        securities was $32.2 million as of September 30, 2007,
        compared with $33.0 million as of December 31, 2006. In the
        third quarter of 2007, the Company generated $6.0 million in
        cash from operations. On a year-to-date basis through
        September 30, 2007, the Company's cash flows from operations
        were $20.4 million.

    -- Pursuant to the Company's previously announced stock
        repurchase program, the Company repurchased 370,638 shares of
        the Company's Common Stock for $11.3 million in cash during
        the three months ended September 30, 2007 and 654,938 shares
        of the Company's Common Stock for $19.0 million in cash for
        the nine months ended September 30, 2007. There are 635,625
        shares of Common Stock remaining that are authorized for
        repurchase under the Company's stock repurchase plan.

   Financial Outlook

   Ultimate Software is providing preliminary guidance for 2008, as
follows:

    -- increase new annual recurring revenues (ARR) generated in 2008
        by approximately 25% over those produced in 2007,

    -- grow recurring revenues by over 25% in 2008 compared with
        those in 2007,

    -- increase total revenues by over 20% compared with 2007,

    -- produce operating margins, on a non-GAAP basis (discussed
        below), between 14% and 15%, and

    -- produce net income per diluted share, on a non-GAAP basis
        (discussed below), of $0.65 to $0.70, assuming a book income
        tax rate of 38% - 39% and a weighted average share count
        similar to the end of 2007.

   The Company has a multi-year agreement with Ceridian which has
produced $642,000 in recurring subscription revenues each month since
September 2002. This Ceridian contract will terminate in March 2008.
Therefore, for comparative purposes, 2007 includes a full year of
recurring revenue (or $7.7 million) from the Ceridian agreement
whereas the outlook for 2008 includes approximately one-fourth of the
annual amount.

   Accordingly, the Company's preliminary guidance for 2008,
excluding the impact of the Ceridian agreement, is as follows:

    -- grow recurring revenues by over 35% in 2008 compared with
        those in 2007, and.

    -- increase total revenues by over 25% compared with 2007.

   Operating margin 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 Standard No. 123R,
"Accounting for Share-Based Payments," 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 offering, Intersourcing, and as licensed
software. Based in Weston, FL, Ultimate Software employs more than 700
professionals who are focused on developing the highest quality
products and services. Ultimate Software's IT 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 for service excellence in 2006, one from the Service & Support
Professionals Association and another from the American Business
Awards. Ultimate Software was named a "Leader" in Forrester Research
Inc.'s 2006 U.S. Midmarket HR solutions Wave ranking and ranked #3 on
the 2006 and 2007 lists of the Best Medium-Sized Companies to Work For
in America by the Great Place to Work Institute. Ultimate Software
customers represent diverse industries and include such organizations
as The Container Store, Elizabeth Arden, The Florida Marlins Baseball
Team, The New York Yankees Baseball Team, Nintendo of America, Ruth's
Chris Steak House, and SkyWest Airlines. 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.

   This press release contains non-GAAP financial measures. Ultimate
Software believes that non-GAAP measures of financial results provide
useful information to management and investors regarding certain
financial and business trends relating to the Company's financial
condition and results of operations. Management of the Company uses
these non-GAAP results to compare the Company'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 the Company'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 judgments by management about which
charges are excluded from the non-GAAP financial measures.

   To compensate for these limitations, the Company presents its
non-GAAP financial measures in connection with its GAAP results.
Ultimate Software strongly urges investors and potential investors in
the Company'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 Software presents the following non-GAAP financial
measures in this press release: non-GAAP operating income, non-GAAP
net income, and non-GAAP net income per share. We exclude the
following items from each of these non-GAAP financial measures:

   Stock-based compensation. The Company's non-GAAP financial
measures exclude stock-based compensation, which consists of expenses
for stock options and stock awards recorded in accordance with SFAS
123(R). For the three months ended September 30, 2007, stock-based
compensation was $2.6 million. There were no income taxes for the
three months ended September 30, 2007. For the nine months ended
September 30, 2007, stock-based compensation was $7.3 million, net of
income taxes. For the three and nine months ended September 30, 2006,
stock-based compensation was $1.4 million and $4.3 million,
respectively. There were no income taxes for the three and nine months
ended September 30, 2006. Stock-based compensation expenses are
excluded in the non-GAAP financial measures because they are non-cash
expenses that the Company does not consider part of ongoing operations
when assessing its financial performance. The Company believes that
such exclusion provides meaningful supplemental information regarding
the Company's operating results because these non-GAAP financial
measures facilitate the comparison of results for future periods with
results from past periods. The dilutive effect of all outstanding
options is included in the calculation of diluted earnings per share
on both a GAAP and a non-GAAP 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. For the three
months ended September 30, 2007, the amortization of acquired
intangible assets was $54 thousand. There were no income taxes for the
three months ended September 30, 2007. For the nine months ended
September 30, 2007, the amortization of acquired intangible assets was
$162 thousand, net of income taxes. For the three and nine months
ended September 30, 2006, there was no amortization of acquired
intangibles and no income taxes. Amortization of acquired intangible
assets is excluded from the Company's non-GAAP financial measures
because it is a non-cash expense that the Company does not consider
part of ongoing operations when assessing its financial performance.
The Company 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.