Ultimate Reports Q3 2011 Financial Results

Recurring Revenues Up by 24%, Total Revenues Up by 19%

Ultimate Software, a leading provider of unified human capital management SaaS solutions for global businesses, announced today its financial results for the third quarter of 2011. For the quarter ended September 30, 2011, Ultimate reported recurring revenues of $54.7 million, an increase of 24%, and total revenues of $67.8 million, an increase of 19%, both compared with 2010’s third quarter. GAAP net income for the third quarter of 2011 was $1.1 million, or $0.04 per diluted share, the same as the third quarter of 2010.

For the three months ended September 30, 2011, non-GAAP net income was $4.9 million, or $0.18 per diluted share, versus non-GAAP net income of $3.5 million, or $0.13 per diluted share, for the third quarter of 2010. Non-GAAP net income for both periods excludes non-cash stock-based compensation expense and amortization of acquired intangible assets. See “Use of Non-GAAP Financial Information” below.

“We again performed according to plan for both our recurring and total revenues in this year’s third quarter. Our operating margin was on the positive side of our 12% target at 12.7%, and our customer retention rate remained consistent at greater than 96%,” said Scott Scherr, CEO, president, and founder of Ultimate.

“We strengthened the strategic power of our unified talent management suite with the release of UltiPro Succession Management in the third quarter. We continued to execute in Canada, and our new customers in both our Enterprise and Workplace markets continued the trend of expanding the value of their UltiPro purchases by adding talent management and time management product components.”

Ultimate’s financial results teleconference will be held today, October 25, 2011, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=165397. 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 24% for the third quarter of 2011 compared with 2010’s third quarter, primarily due to revenue growth from our Software-as-a-Service (SaaS) offering. Recurring revenues for the third quarter of 2011 were 81% of total revenues as compared with 77% 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 third quarter of 2011 was $8.6 million (or 12.7%) compared with $5.8 million (or 10.2%) for the third quarter of 2010.
• Cash flows provided by operating activities for the nine months ended September 30, 2011 increased by 45% to $23.6 million from $16.2 million for the same period in the prior year.
• The combination of cash, cash equivalents, and marketable securities was $52.2 million as of September 30, 2011, compared with $50.2 million as of December 31, 2010.
• Days sales outstanding were 63 days at September 30, 2011, representing a reduction of 9 days compared with days sales outstanding at December 31, 2010.

Stock Repurchase Plan

During the quarter ended September 30, 2011, we repurchased 197,310 shares of our issued and outstanding $0.01 par value common stock (“Common Stock”) for $9.4 million, under our previously announced stock repurchase plan (“Stock Repurchase Plan”). During the nine months ended September 30, 2011, we repurchased 346,988 shares of our issued and outstanding Common Stock for $17.3 million, under our Stock Repurchase Plan. As of September 30, 2011, we had 58,187 shares available for repurchase in the future under our Stock Repurchase Plan.

On October 24, 2011, our Board of Directors extended the Stock Repurchase Plan (originally approved by the Board in late 2000) by authorizing the repurchase of up to 1,000,000 additional shares of our Common Stock. Accordingly, an aggregate of 1,058,187 shares of Common Stock are available for repurchase under the Stock Repurchase Plan as of today’s date. The extent and timing of repurchase transactions will depend on market conditions and other business considerations.

Financial Outlook

Ultimate provides the following financial guidance for the fourth quarter ending December 31, 2011, the 2011 full year and preliminary financial guidance for the 2012 full year:

For the fourth quarter of 2011:

• Recurring revenues of approximately $57.0 million;
• Total revenues of approximately $72.0 million; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 16%.

For the year 2011:

• Recurring revenues to increase by approximately 25% over 2010;
• Total revenues to increase by approximately 18% over 2010; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 12%.

For the year 2012, preliminary:

• Recurring revenues to increase by approximately 25% over 2011;
• Total revenues to increase by approximately 23% over 2011; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 15%.

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 and 2012 is expected to be approximately $15.5 million and $19.0 million, respectively.

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, P.F. Chang’s, 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 Nine Months
			Ended September 30,								Ended September 30,
			2011				2010				2011				2010
Revenues:
Recurring		$	54,689			$	44,054			$	156,639			$	124,867
Services			12,794				12,796				38,284				41,409
License			267				181				1,537				1,129
Total revenues			67,750				57,031				196,460				167,405
Cost of revenues:
Recurring			16,521				12,591				46,757				36,043
Services			13,073				11,853				39,106				36,911
License			61				–				334				150
Total cost of revenues			29,655				24,444				86,197				73,104
Gross profit			38,095				32,587				110,263				94,301
Operating expenses:
Sales and marketing			15,002				14,640				47,649				44,336
Research and development			13,256				10,679				37,593				31,432
General and administrative			4,995				4,849				16,370				15,019
Total operating expenses			33,253				30,168				101,612				90,787
Operating income			4,842				2,419				8,651				3,514
Other (expense) income:
Interest and other expense			(64	)			(18	)			(365	)			(124	)
Other income, net			17				(2	)			77				65
Total other expense, net			(47	)			(20	)			(288	)			(59	)
Income from continuing operations, before income taxes			4,795				2,399				8,363				3,455
Provision for income taxes			(3,710	)			(1,426	)			(6,057	)			(1,891	)
Income from continuing operations		$	1,085			$	973			$	2,306			$	1,564
Income (loss) from discontinued operations, net of tax			–				77				–				(853	)
Net income		$	1,085			$	1,050			$	2,306			$	711
Basic earnings (loss) per share:
Earnings from continuing operations		$	0.04			$	0.04			$	0.09			$	0.06
Loss from discontinued operations		$	–			$	–			$	–			$	(0.03	)
Total		$	0.04			$	0.04			$	0.09			$	0.03
Diluted earnings (loss) per share:
Earnings from continuing operations		$	0.04			$	0.04			$	0.08			$	0.06
Loss from discontinued operations		$	–			$	–			$	–			$	(0.03	)
Total		$	0.04			$	0.04			$	0.08			$	0.03
Weighted average shares outstanding:
Basic			25,767				24,937				25,733				24,844
Diluted			27,747				27,011				27,790				26,951

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):

		For the Three Months Ended September 30,							For the Nine Months Ended September 30,
		2011			2010				2011			2010
Stock-based compensation expense:
Cost of recurring revenues		$	341		$	228			$	1,020		$	669
Cost of services revenues			360			284				1,107			947
Sales and marketing			1,734			1,743				5,244			5,104
Research and development			403			269				1,197			937
General and administrative			902			820				2,791			2,412
Total non-cash stock-based compensation expense		$	3,740		$	3,344			$	11,359		$	10,069
Amortization of acquired intangibles:
General and administrative		$	27		$	28			$	83		$	253
Loss from discontinued operations:
Foreign currency translation
adjustment (1)		$	–		$	(26	)		$	–		$	(912	)

________________________________

(1) Pursuant to applicable accounting rules, the amount attributable to our wholly-owned subsidiary in the United Kingdom (“UK Subsidiary”) and accumulated in the translation adjustment component of equity became realized in the unaudited statement of operations during the nine months ended September 30, 2010, the period in which discontinued operations for the UK Subsidiary were complete.