Human Resources: Ultimate Software Reports Q4, Year-End 2006 Financial Results

    WESTON, Fla.--(BUSINESS WIRE)--Feb. 7, 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 fourth quarter and the year ended December
31, 2006. For the fourth quarter ended December 31, 2006, recurring
revenues increased 28.8% to $17.5 million, and total revenues
increased 32.4% to $33.0 million, in both cases as compared with the
fourth quarter of 2005. GAAP net income for both the 2006 and 2005
fourth quarters was $1.8 million, or $0.07 per diluted share.
Excluding stock-based compensation and amortization of acquired
intangible assets, non-GAAP net income for the fourth quarter was $3.8
million, or $0.14 per diluted share, compared to non-GAAP net income
of $2.1 million, or $0.08 per diluted share for the fourth quarter of
2005.

    For the 2006 year, recurring revenues increased 27.2% to $63.9
million and total revenues increased 29.6% to $114.8 million, compared
with the previous year in each case. GAAP net income for the 2006 year
was $4.1 million, or $0.15 per diluted share, compared with GAAP net
income of $3.4 million, or $0.13 per diluted share for 2005. Excluding
stock-based compensation and amortization of acquired intangible
assets, non-GAAP net income for the 2006 year was $10.4 million, or
$0.39 per diluted share, compared to non-GAAP net income of $4.2
million, or $0.16 per diluted share for 2005.

    New annual recurring revenues (ARR) were $8.0 million for the
fourth quarter of 2006, a 60% increase over the fourth quarter of
2005. ARR were $24.5 million for 2006, a 49% increase over ARR in
2005. (See Financial Highlights below for definition.)

    "Our fourth quarter was a fitting finish to the year we achieved
our very important goal of becoming a $100 million revenue company
with $114.8 million in total revenues for 2006," said Scott Scherr,
CEO, president, and founder of Ultimate Software. "In the fourth
quarter, we acquired 50% more new customers than in our previous best
quarter, and 80% of them selected Intersourcing, our hosted offering.

    "The record $8 million in new ARR that we wrote in the fourth
quarter far exceeded our expectations," added Scherr, "and we reached
another milestone in December with more than 500,000 employees 'live'
and serviced through Intersourcing. We believe that we are very well
positioned to extend the foundation that we've built and to take
advantage of the opportunities before us."

    Ultimate Software's financial results teleconference will be held
today, February 7, at 5:00 p.m. Eastern Time, via World Investor Link
at http://www.vcall.com/IC/CEPage.asp?ID=113222. 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 may be
discussed during the teleconference call.

    Financial Highlights

    -- New ARR attributable to sales during the fourth quarter of
        2006 increased 60% to $8.0 million compared with $5.0 million
        for the fourth quarter of 2005 and increased 49% to $24.5
        million for 2006 compared with $16.5 million for 2005. New
        annual recurring revenues represent the expected one-year
        value from (i) new Intersourcing sales (including prorated
        onetime charges); (ii) maintenance revenues related to new
        license sales; (iii) recurring revenues from new business
        service providers; and (iv) 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 29% for the
        fourth quarter of 2006 compared with the same quarter of 2005,
        and by 27% for 2006 compared with 2005. Intersourcing revenues
        and, to a lesser extent, maintenance revenues, were the
        principal factors in the year-over-year growth in recurring
        revenues.

    -- The combination of cash, cash equivalents, and marketable
        securities was $33.0 million as of December 31, 2006 compared
        with $31.9 million as of September 30, 2006 and $32.8 million
        as of December 31, 2005, representing increases of $1.1
        million and $0.2 million, respectively. In 2006, the Company
        generated $15.4 million in cash from operations. During 2006,
        the Company also repurchased 451,790 shares of the Company's
        Common Stock for $9.8 million.

    -- On October 5, 2006, the Company acquired 100% of the common
        stock of RTIX Ltd., a United Kingdom company, and its
        wholly-owned U.S. subsidiary, RTIX Americas (collectively,
        RTIX), for a total consideration of $4.0 million payable in
        the form of $3.4 million in cash and $0.6 million in Common
        Stock (the "RTIX Acquisition"). The Common Stock component of
        the total consideration is contingent upon RTIX meeting
        certain financial criteria within a specified timeframe. RTIX
        developed the performance management/appraisals solution that
        Ultimate Software has offered its customers since February
        2006.

    Financial Outlook

    Ultimate Software provides guidance for 2007 (which differs from
the preliminary guidance for 2007 provided in its October 24, 2006
press release), as follows:

    -- increase new annual recurring revenues (ARR) generated in 2007
        by approximately 25% over those produced in 2006,

    -- grow recurring revenues by 30% to 32% in 2007 compared with
        those in 2006,

    -- increase total revenues by 28% to 30% in 2007 compared with
        2006,

    -- produce operating margins between 12% and 13%, and

    -- produce diluted earnings per share (EPS) between $0.68 and
        $0.70.

    Operating margin and EPS 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," and the impact of non-cash amortization of the intangible
assets resulting from the RTIX Acquisition, which the Company includes
in its GAAP financial results. The Company has estimated that the
total impact for these two items in 2007 will be between $9.0 million
and $9.5 million.

    Stock Repurchase Plan

    For purposes of mitigating the expected dilution created by
stock-based compensation, on February 6, 2007, the Company's Board of
Directors extended the Stock Repurchase Plan (originally approved by
the Board in late 2000), authorizing the repurchase of up to 1,000,000
additional shares of the Company's issued and outstanding $0.01 par
value common stock ("Common Stock"). An aggregate of 1,290,563 shares
of Common Stock remain authorized for repurchase under the Stock
Repurchase Program (including the additional shares approved by the
Board). The extent and timing of repurchase transactions will depend
on market conditions and other business considerations.

    SAB 108 Adoption

    During the fourth quarter of 2006, the Company adopted the
provisions of Staff Accounting Bulletin No. 108, "Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements" ("SAB 108"). During 2005, the
Company identified prior year misstatements (covering 1998 through
2005) related to accounting for rent holidays associated with the
construction periods of certain real estate leases. The Company
assessed the materiality for each of the years impacted by these
misstatements, using the permitted rollover method, and determined
that the effect on the financial statements, taken as a whole, was not
material. As allowed by SAB 108, the Company elected to not restate
prior year financial statements and, instead (as permitted by SAB
108), increased the 2006 beginning balance of the accumulated deficit
and deferred rent in the amount of $1.8 million.

    Forward-Looking Statement

    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, including Ultimate
Software's financial outlook for 2007 (discussed above), 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.

    Use of Non-GAAP Financial Information

    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 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 "Reconciliation of Unaudited
Condensed Consolidated Statements of Operations to Non-GAAP Unaudited
Condensed Consolidated Statement of Operations") 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 margins, 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. As required, the Company adopted SFAS
123(R) during the first quarter of 2006. Stock-based compensation,
including the impact of the newly adopted SFAS 123(R) and restricted
stock amortization, was $2.0 million for the three months ended
December 31, 2006 and $6.2 million for the twelve months ended
December 31, 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. Such exclusion also provides a
better comparison of results for fiscal 2006 and the Company's
business outlook for future periods with results for periods prior to
2006, which did not include stock-based compensation (except for a
nominal amount related to options granted to certain members of the
Board for Board-related services that were recorded in accordance with
APB Opinion No. 25). 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 intangible assets
resulting from the RTIX Acquisition in October 2006 over the estimated
useful lives of such assets. For the three and twelve months ended
December 31, 2006, the amortization of acquired intangible assets was
$54 thousand. 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. Such exclusion
also provides a better comparison of results for fiscal 2006 and the
Company's business outlook for future periods with results for periods
prior to 2006, which did not include amortization of acquired
intangible assets.

    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 licensed software and as on-demand
services through Intersourcing. Employing approximately 650
professionals who are focused on developing the highest quality
products and services, Ultimate Software was positioned in the Leaders
quadrant of Gartner, Inc.'s "Magic Quadrant for U.S. Midmarket Human
Resource Management Systems, 2006" and as a Leader in Forrester
Research Inc.'s 2006 U.S. Midmarket HR solutions Wave ranking.
Ultimate Software was also named the 2005 Payroll Provider of the Year
by the Human Resources Outsourcing Association and ranked #3 on the
2006 Top 25 Best Medium-Sized Companies to Work for in America list by
the Great Place to Work Institute. Also in 2006, Ultimate Software won
two customer service awards, one from American Business Awards as the
Best Customer Service Organization and the other a first-place SSPA
STAR Award from Service & Support Professionals Association. 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.