Ultimate Reports Q2 2011 Financial Results

Recurring Revenues Up by 26%, Total Revenues Up by 17%

Ultimate Software, a leading provider of unified human capital management SaaS solutions for global businesses, announced today its financial results for the second quarter of 2011. For the quarter ended June 30, 2011, Ultimate reported recurring revenues of $52.0 million, an increase of 26%, and total revenues of $64.2 million, an increase of 17%, both compared with 2010’s second quarter. GAAP net income from continuing operations for the second quarter of 2011 was $0.9 million, or $0.03 per diluted share, versus GAAP net income from continuing operations of $0.3 million, or $0.01 per diluted share, for the second quarter of 2010.

For the three months ended June 30, 2011, non-GAAP net income was $3.8 million, or $0.14 per diluted share, versus non-GAAP net income of $2.3 million, or $0.09 per diluted share, for the second quarter of 2010. Non-GAAP net income for both periods excludes non-cash stock-based compensation expense and amortization of acquired intangible assets. For the three months ended June 30, 2010, non-GAAP net income also excludes a non-cash foreign currency translation adjustment due to the discontinued operations of our wholly-owned subsidiary in the United Kingdom. See “Use of Non-GAAP Financial Information” below.

“We executed as forecasted in the second quarter and are especially pleased that the three most important indicators of our business success – recurring revenue growth, operating margin growth, and customer retention – were where we expected them to be. Our recurring revenues grew 26%, our operating margin was slightly above our target at 10.3%, and our customer retention was strong at over 96%,” said Scott Scherr, CEO, president, and founder of Ultimate.

“Our second-quarter new customers continued the trend of adding multiple strategic product components to their core UltiPro purchases, and our existing customers continued to come back to us to purchase additional talent management and time management product components. Our first-half performance, our metrics on market demand, and our pipelines all indicate that we are positioned well to achieve our objectives for 2011 and beyond.”

Ultimate’s financial results teleconference will be held today, July 26, 2011, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=163037. 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 will be discussed during the teleconference call.

Financial Highlights

• Recurring revenues grew by 26% for the second quarter of 2011 compared with 2010’s second quarter, primarily due to revenue growth from our Software-as-a-Service (SaaS) offering. Recurring revenues for the second quarter of 2011 were 81% of total revenues as compared with 76% of total revenues for the same period of last year.
• Ultimate’s annualized retention rate exceeded 96% for its existing recurring revenue customer base.
• The operating income (or operating margin), on a non-GAAP basis, for the second quarter of 2011 was $6.6 million, or 10.3%, compared with $4.0 million, or 7.2%, for the second quarter of 2010.
• The combination of cash, cash equivalents, and marketable securities was $54.0 million as of June 30, 2011, compared with $50.2 million as of December 31, 2010. For the three months ended June 30, 2011, Ultimate generated $6.4 million in cash from operations. For the six months ended June 30, 2011, Ultimate generated $15.2 million in cash from operations.
• During the three and six months ended June 30, 2011, Ultimate repurchased 149,678 shares of our issued and outstanding $0.01 par value common stock (“Common Stock”) for $7.9 million, under our previously announced stock repurchase plan. As of June 30, 2011, we had 255,497 shares available for repurchase in the future under our stock repurchase plan.

Financial Outlook

Ultimate provides the following financial guidance for the third quarter ending September 30, 2011 and full year 2011:

For the third quarter of 2011:

• Recurring revenues of approximately $54.5 million;
• Total revenues of approximately $68 million; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 12%.

For the year 2011:

• Recurring revenues to increase by approximately 25% over 2010;
• Total revenues to increase by approximately 19% over 2010; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 13%.

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. Non-cash stock-based compensation expense for 2011 is expected to be approximately $15.0 million.

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 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 forward-looking statements, whether as a result of new information, future events, or otherwise.

About Ultimate

Ultimate is a leading provider of unified human capital management (HCM) Software-as-a-Service (SaaS) solutions for global businesses. Ultimate’s award-winning UltiPro® solutions deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement. Based in Weston, FL, Ultimate employs more than 1,200 professionals who are focused on developing the highest quality solutions and services. In 2010, Ultimate was named an Optimas Award winner by Workforce Management magazine. In 2009, Ultimate was awarded first place in the People’s Choice Stevie® competition for Favorite New SaaS Product and was ranked the #1 best medium-sized company to work for in America by the Great Place to Work® Institute for the second consecutive year. In 2010, Ultimate’s security practices were recertified for ISO/IEC 27001, and Ultimate was the first HR SaaS vendor to be ISO/IEC 27001 certified in 2008. Ultimate has approximately 2,200 customers representing diverse industries, including such organizations as Adobe Systems Incorporated, The Container Store, Culligan International, Elizabeth Arden, Major League Baseball, The New York Yankees Baseball Team, and Ruth’s Chris Steak House. More information on Ultimate’s products and services can be found at www.ultimatesoftware.com.UltiPro is a registered trademark of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their respective owners.

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
			For the Three Months						For the Six Months
			Ended June 30,						Ended June 30,
			2011			2010			2011			2010
Revenues:
Recurring		$	52,002		$	41,365		$	101,950		$	80,813
Services			11,761			13,032			25,490			28,613
License			442			320			1,270			948
Total revenues			64,205			54,717			128,710			110,374
Cost of revenues:
Recurring			15,543			12,048			30,236			23,452
Services			12,104			11,877			26,033			25,058
License			100			50			273			150
Total cost of revenues			27,747			23,975			56,542			48,660
Gross profit			36,458			30,742			72,168			61,714
Operating expenses:
Sales and marketing			15,524			14,580			32,647			29,696
Research and development			12,370			10,520			24,337			20,753
General and administrative			5,762			5,169			11,375			10,170
Total operating expenses			33,656			30,269			68,359			60,619
Operating income			2,802			473			3,809			1,095
Other (expense) income:
Interest and other expense			(143)			(64)			(301)			(110)
Other income, net			26			48			60			71
Total other expense, net			(117)			(16)			(241)			(39)
Income from continuing operations, before income taxes			2,685			457			3,568			1,056
Provision for income taxes			(1,792)			(186)			(2,347)			(465)
Income from continuing operations		$	893		$	271		$	1,221		$	591
Loss from discontinued operations, net of income taxes			–			(865)			–			(930)
Net income (loss)		$	893		$	(594)		$	1,221		$	(339)
Basic earnings (loss) per share:
Earnings from continuing operations		$	0.03		$	0.01		$	0.05		$	0.02
Loss from discontinued operations		$	–		$	(0.03)		$	–		$	(0.04)
Total		$	0.03		$	(0.02)		$	0.05		$	(0.02)
Diluted earnings (loss) per share:
Earnings from continuing operations		$	0.03		$	0.01		$	0.04		$	0.02
Loss from discontinued operations		$	–		$	(0.03)		$	–		$	(0.03)
Total		$	0.03		$	(0.02)		$	0.04		$	(0.01)
Weighted average shares outstanding:
Basic			25,837			24,839			25,716			24,797
Diluted			27,863			26,972			27,804			26,911

The following table sets forth the stock-based compensation expense (excluding the income tax effect, or “gross”) resulting from stock-based arrangements, the amortization of acquired intangibles and the foreign currency translation adjustment from discontinued operations that are recorded in Ultimate’s unaudited condensed consolidated statements of operations for the periods indicated (in thousands):