• Record Recurring Revenues of $167.0 Million, Up by 27%
• Record Total Revenues of $197.0 Million, Up by 27%
Weston, FL, November 1, 2016 — Ultimate Software (Nasdaq: ULTI), a leading provider of human capital management (HCM) solutions in the cloud, announced today its financial results for the third quarter ended September 30, 2016. Ultimate reported recurring revenues of $167.0 million, a 27% increase, and total revenues of $197.0 million, a 27% increase, both compared with 2015’s third quarter. GAAP net income for the third quarter of 2016 was $4.8 million, or $0.16 per diluted share, as compared with GAAP net income of $5.9 million, or $0.20 per diluted share, for the third quarter of 2015.
Non-GAAP net income for the third quarter of 2016, which excludes stock-based compensation expense, amortization of acquired intangibles, and transaction costs related to business combinations, was $23.7 million, or $0.78 per diluted share. Non-GAAP net income for the third quarter of 2015, which excludes stock-based compensation expense and amortization of acquired intangibles, was $20.5 million, or $0.69 per diluted share. See “Use of Non-GAAP Financial Information” below.
“We executed as planned in this year’s third quarter, putting us in good position to achieve our 2016 and longer-term objectives. Both our recurring and total revenues were on target, and our operating margin came in slightly above projections,” said Scott Scherr, CEO, president, and founder of Ultimate.
Ultimate acquired Kanjoya, the award-winning cloud workforce intelligence provider, and based on this newly acquired technology, we launched UltiPro Perception at the HR Technology Conference in Chicago. With UltiPro Perception, our customers will be able to create surveys, analyze employee responses, and transform that information into predictive solutions, using Kanjoya’s advanced machine learning that uncovers the feelings behind what employees are saying in openended comments.
“Also in the quarter, Fortune magazine recognized Ultimate as #4 on its list of 100 Best Workplaces for Women, and the Achievers 50 Most Engaged Workplaces Awards organization included Ultimate in its Elite 8, identifying Ultimate as the highest-rated North American company in ‘Accountability and Performance’ while, in October, Glassdoor ranked Ultimate #1 on its list of the 25 Highest-Rated Public Cloud Computing Companies to Work For.”
Ultimate’s financial results teleconference will be held today, November 1, 2016, at 5:00 p.m. Eastern time, at www.investorcalendar.com/event/174855. 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.
• Recurring revenues from our cloud offering grew by 27% for the third quarter of 2016, as compared with the same period in 2015. Recurring revenues were 85% of total revenues for the third quarter of 2016 and 85% of total revenues for the third quarter of 2015.
• Ultimate’s total revenues for the third quarter of 2016 increased by 27%, as compared with those for the third quarter of 2015.
• Ultimate’s annualized retention rate, on a rolling 12-month basis, was approximately 97% for its recurring revenue cloud customer base as of September 30, 2016.
• Cash flows from operating activities for the third quarter of 2016 were $49.7 million, compared with $31.9 million for the third quarter of 2015. For the nine months ended September 30, 2016, Ultimate generated $115.3 million in cash from operations, compared with $101.4 million for the nine months ended September 30, 2015.
In the third quarter of 2016, Ultimate acquired Kanjoya, Inc., a leading cloud workforce intelligence provider for enterprises. Based upon the technology acquired, we launched UltiPro Perception, a feature-set that enables businesses to identify and analyze attitudes and performance traits of their employees, managers, and teams from surveys and other sources of employee feedback. Kanjoya’s workforce has joined Ultimate and will serve to establish an additional research and development hub for us in San Francisco.
Adoption of Accounting Guidance
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 201609”). The standard amends the accounting for certain aspects of share-based payments to employees. We elected to early adopt the new guidance in the third quarter of fiscal year 2016, which requires us to reflect any cumulative-effect and prospective method adjustments as of January 1, 2016. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital for all periods in fiscal 2016. For the three and nine months ended September 30, 2016, our provision for income taxes was reduced by $3.3 million and $11.9 million, respectively, for excess tax benefits from our employee stock plan. There was no comparable reduction to the provision for the three and nine months ended September 30, 2015. In addition, due to the early adoption of ASU 2016-09, we elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash from operations and net cash used in financing for the same 9-month period of the prior year of $25.9 million.
The combination of cash, cash equivalents, and corporate marketable securities was $119.0 million as of September 30, 2016, compared with $129.4 million as of December 31, 2015.
During the nine months ended September 30, 2016, we used a combined total of $50.4 million in relation to the purchase of our common stock, $0.01 par value common stock (“Common Stock”) and to settle employee taxes for restricted stock vestings— $29.7 million to acquire 190,400 shares of our outstanding Common Stock under our previously announced stock repurchase plan (the “Stock Repurchase Plan”) and $20.7 million to acquire 127,807 shares of our Common Stock to settle employees’ tax withholding obligations associated with their restricted stock that vested during the period. We have 1,342,005 shares available for repurchase under our Stock Repurchase Plan.
Ultimate provides the following financial guidance for the fourth quarter ending December 31, 2016, and preliminary guidance for 2017:
For the fourth quarter of 2016:
• Recurring revenues of approximately $175 million,
• Total revenues of approximately $210 million, and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 23%.
For the year 2017, preliminary:
• Recurring revenues to increase in excess of 25% over 2016,
• Total revenues to increase in excess of 24% over 2016, and
• Operating margin, on a non-GAAP basis (discussed below), in excess of 21%.
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.
We have not reconciled our forward-looking operating margin on a non-GAAP basis to the corresponding GAAP financial measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable effort at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including, for example, those related to stock-based compensation and transaction costs for business combinations or others that may arise during the year. In particular, stock-based compensation and transaction costs for business combinations, are impacted by factors that are outside of the Company’s control and can be difficult to predict. The actual amount of stock-based compensation expense in the fourth quarter of 2016 and the year ending December 31, 2017, will have a significant impact on our operating margin on a GAAP basis.
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 forwardlooking statements, whether as a result of new information, future events, or otherwise.
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