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Ultimate Reports Q4 And Year-End 2013 Financial Results

Ultimate Software (Nasdaq: ULTI), a leading cloud provider of people management solutions, announced today its financial results for the fourth quarter and year ended December 31, 2013. For the quarter ended December 31, 2013, Ultimate reported recurring revenues of $90.4 million, a 23% increase, and total revenues of $111.9 million, a 21% increase, both compared with 2012’s fourth quarter. GAAP net income for the fourth quarter of 2013 was $9.8 million, or $0.34 per diluted share, versus GAAP net income of $6.3 million, or $0.22 per diluted share, for the fourth quarter of 2012.

Non-GAAP net income, which excludes stock-based compensation expense and amortization of acquired intangible assets, was $15.9 million, or $0.54 per diluted share, for the fourth quarter of 2013, compared with non-GAAP net income of $10.8 million, or $0.38 per diluted share, for the fourth quarter of 2012. See “Use of Non-GAAP Financial Information” below.

For 2013, recurring revenues increased 26% to $334.4 million, and total revenues increased 24% to $410.4 million, both as compared with the prior year. For 2013, GAAP net income was $25.5 million, or $0.88 per diluted share, compared with GAAP net income of $14.6 million, or $0.52 per diluted share, for 2012. For 2013, non-GAAP net income was $46.5 million, or $1.60 per diluted share, compared with non-GAAP net income of $28.5 million, or $1.00 per diluted share, for 2012.

“2013 was a good year for us with recurring revenue growth at 26%, total revenue growth at 24%, and customer retention greater than 96%. We now have more than 15 million people records in our customer cloud environment,” said Scott Scherr, CEO, president, and founder. “We reached our goal to surpass $400 million in revenues in 2013, and are well positioned to achieve our goal of $600 million in 2015.

“We are honored to be recognized for the third year in a row as one of FORTUNE ® magazine’s 100 Best Companies to Work For, placing #20 on the list. We are the only HCM vendor on the list, and this award is consistent with our belief that a high-performance culture of engaged, talented people is at the heart of our product and service excellence.”

Ultimate’s financial results teleconference will be held today, February 4, 2014, at 5:00 p.m. Eastern Time, through Vcall at www.investorcalendar.com/IC/CEPage.asp?ID=171927. 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 23% for the fourth quarter of 2013 and by 26% for the 2013 year—both compared with the same periods in 2012. The increase was primarily attributable to revenue growth from our cloud offering. Recurring revenues for the fourth quarter of 2013 were 81% of total revenues as compared with 80% of total revenues for 2012’s fourth quarter. Recurring revenues were 82% of total revenues for the 2013 year versus 80% for 2012.
  • Ultimate’s total revenues for the fourth quarter of 2013 increased by 21% compared with those for the fourth quarter of 2012. Ultimate's total revenues for 2013 increased by 24% compared with those for 2012.
  • Our operating income increased 25%, on a non-GAAP basis, for the fourth quarter of 2013 to $23.3 million as compared with $18.7 million for the same period of 2012. Non-GAAP operating income for 2013 was $76.3 million compared with $49.5 million for 2012. Our non-GAAP operating margin was 20.9% for the fourth quarter of 2013 versus 20.3% for the fourth quarter of 2012. Our non-GAAP operating margin was 18.6% for 2013 versus 14.9% for 2012.
  • Ultimate’s annualized retention rate exceeded 96% for its existing recurring revenue customer base as of December 31, 2013.
  • Net income, on a non-GAAP basis, for the fourth quarter of 2013 increased to $15.9 million compared with $10.8 million for the fourth quarter of 2012. Non-GAAP net income for 2013 increased to $46.5 million compared with $28.5 million for 2012.
  • The combination of cash, cash equivalents, and marketable securities was $90.2 million as of December 31, 2013, compared with $69.4 million as of December 31, 2012. Cash flows from operating activities for the quarter ended December 31, 2013 were $19.9 million, compared with $9.3 million for the same period of 2012. For the year ended December 31, 2013, Ultimate generated $74.2 million in cash from operations compared with $41.7 million for the year ended December 31, 2012.
  • Days sales outstanding were 70 days at December 31, 2013, representing a reduction of one day compared with days sales outstanding at December 31, 2012.
  • In the fourth quarter of 2013, Ultimate acquired EmployTouch, an Ontario-based corporation that developed TouchBase, a market-leading, tablet-based time collection and employee self-service device.
  • In the fourth quarter of 2013, Ultimate acquired the assets of AccelHR, LLC, a Delaware-based limited-liability company located in Georgia, which has a history of providing comprehensive outsourcing support for organizations ranging from 500 to more than 25,000 employees.

Stock Repurchases

  • During the year ended December 31, 2013, we used $18.1 million to acquire 142,731 shares of our Common Stock to settle the employee tax withholding liability resulting from the vesting of our employees’ restricted stock holdings.
  • In addition, as of December 31, 2013, we had 946,165 shares available for repurchase in the future under our previously announced Stock Repurchase Plan.

Business Highlights (all achievements referenced occurred in 2013 unless otherwise noted)

  1. We further enhanced UltiPro’s global HCM capabilities, including expanded global payroll integration and global language support; delivered a modern new UltiPro user experience; and introduced a platform configuration interface that helps customers make desired system changes to achieve a highly tailored HCM solution.
  2. We showcased our new UltiPro Recruiting solution, scheduled for general release in the second quarter of 2014, at the HR Technology Conference in Las Vegas. Our recruiting solution is designed specifically to attract and keep top talent engaged with the technology. It is candidate-centric, as opposed to recruiter-focused, and has an appealing, flexible consumer-style user interface that is state-of-the-art and innovative. The new solution includes: gamification, collaboration tools, mobility, and integration with popular social networks. Candidates can build an in-depth online presence that gives recruiters and hiring managers a more complete understanding of who they are rather than restricting them to limited profile details and posting résumés.
  3. We introduced UltiPro TouchBase, an interactive mobile time clock device that collects time punches and highlights the information most critical to employees and managers on a touchscreen tablet device for payroll and cost accounting. Customers can leverage photos for accurate capture of employee time-entry, preventing ‘buddy punches,’ and can validate transactions using PIN entry, HID, RFID, magnetic swipe, or barcode.
  4. We introduced a new set of service offerings known as UltiPro Managed Services (“UMS”). UltiPro Managed Services allows our customers to have our UMS team handle select components of HR, payroll, and benefits management for them instead of overburdening their in-house staff and to tailor the service package to suit their unique needs.
  5. Ultimate was named a Gold Winner in the Best New Product Feature of the Year category by Best in Biz Awards, the only independent business awards program judged by members of the press and industry analysts. Ultimate won the award for our UltiPro Retention Predictor—an insight-driven tool designed to give HR professionals and managers the ability to forecast an employee’s intent to remain with or leave the organization. This retention forecasting tool uses an algorithm powered by 50 key indicators and enables leaders to better understand their workforce dynamics, providing them time to proactively intervene as necessary. The talent-based data can also inform decision-making about the types of new programs to build for fostering long-term employee relationships.
  6. Our UltiPro Retention Predictor also won (in addition to the Best in Biz Award mentioned above) a Gold award in Brandon Hall Group’s Best Advance in Unique Talent Technology category in January 2014.
  7. Nucleus Research, the leader in measuring the operational value of technology, named Ultimate a “Leader” in its HCM Technology Value Matrix in November 2013.
  8. Constellation Research, an independent research and advisory firm, reviewed Ultimate in its Cloud Buyer’s Bill of Rights Certification and awarded us the highest level of certification (“Epic”). Out of a possible score of 5.0, Ultimate was rated 4.8, based upon 61 criteria in 4 main categories: ownership experience, use case support, corporate vision, and ecosystem feedback. Constellation’s certification is intended to help buyers of enterprise cloud apps enter into contracts as long-term partners with their vendors.
  9. Informatica honored Ultimate with an Innovation Award in the Cloud Integration category for our UltiPro Carrier Network. Winners were selected from more than 5,000 Informatica customers and were recognized for exemplary data integration and data management results and business outcomes.
  10. Ultimate was named among the top 10 most ethical businesses in the United States by Minyanville Media, an Emmy award-winning financial and business site.
  11. In January 2014, for the second year in a row, Ultimate was recognized as one of the Achievers 50 Most Engaged Workplaces™ in the United States.
  12. In January 2014, for the third year in a row, Ultimate was named to FORTUNE ® magazine’s “100 Best Companies to Work For” list. Ultimate is the only human capital management provider on the list and ranked #20. This honor builds on our #9 ranking on FORTUNE’s 2013 list and #25 ranking on the 2012 list, as well as our previous recognition twice as the #1 medium-size company to work for in America by the Great Place to Work Institute™.

Financial Outlook

Ultimate provides the following financial guidance for 2014:

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