Ultimate Reports Q4 and Year-End 2011 Financial Results

Non-GAAP net income, which excludes non-cash stock-based compensation expense and amortization of acquired intangible assets, was $6.6 million, or $0.24 per diluted share, an increase of 41%, for the fourth quarter of 2011 compared with non-GAAP net income of $4.6 million, or $0.17 per diluted share, for the fourth quarter of 2010. See “Use of Non-GAAP Financial Information” below.

For 2011, recurring revenues increased 25% to $213.8 million, and total revenues increased 18% to $269.2 million, both as compared with the prior year. For 2011, GAAP net income was $4.3 million, or $0.15 per diluted share, compared with GAAP net income of $2.2 million, or $0.08 per diluted share, for 2010. For 2011, non-GAAP net income was $18.1 million, or $0.65 per diluted share, compared with non-GAAP net income of $12.8 million, or $0.47 per diluted share, for 2010.

“Our fourth quarter and 2011 financial results were in line with our expectations, and we are pleased to close the year with a customer retention rate greater than 96% once again,” said Scott Scherr, CEO, president, and founder of Ultimate. “Our new customers in the fourth quarter added talent management products to their core UltiPro purchases at a healthy pace. The Q4 and 2011 year attach rates for our talent management feature-sets indicate that human resources decision-makers continue to have a strong desire for unified, strategic people-management solutions.”

“We are honored to have been ranked #25 on FORTUNE’s 2012 ‘100 Best Companies to Work For’ list. We have always considered our employees our greatest asset and the most powerful force behind high-quality products and services,” added Scherr. “Our historic commitment to people is reflected in our new branding and our new tagline, People First.”

Ultimate’s financial results teleconference will be held today, February 7, 2012, at 5:00 p.m. Eastern Time, through Vcall at http://www.investorcalendar.com/IC/CEPage.asp?ID=166945. 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 fourth quarter of 2011 and by 25% for the 2011 year – primarily due to revenue growth from our Software-as-a-Service (SaaS) offering – both versus comparable 2010 periods. Recurring revenues for the fourth quarter of 2011 were 79% of total revenues versus 76% of total revenues for 2010’s fourth quarter. Recurring revenues were 79% of total revenues for the 2011 year versus 75% for 2010.

• Ultimate’s total revenues for the fourth quarter of 2011 increased by 20% compared with those for the fourth quarter of 2010. Ultimate’s total revenues for 2011 increased by 18% compared with those of 2010.
• 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 fourth quarter of 2011 was $11.4 million (or 16%) compared with $7.9 million (or 13%) for the fourth quarter of 2010. Non-GAAP operating income (or non-GAAP operating margin) for 2011 was $31.5 million (or 12%) compared with $21.8 million (or 10%) for 2010.
• Net income, on a non-GAAP basis, for the fourth quarter of 2011 increased to $6.6 million compared with $4.6 million for the fourth quarter of 2010. Non-GAAP net income for 2011 increased to $18.1 million compared with $12.8 million for 2010.
• Ultimate generated $4.8 million in cash from operations for the fourth quarter ended December 31, 2011. For the year ended December 31, 2011, we generated $28.4 million in cash from operations and repurchased 346,988 shares of our common stock for $17.3 million under our stock repurchase plan. As of December 31, 2011, Ultimate had 1,058,187 shares available for repurchase in the future under our stock repurchase plan. The combination of cash, cash equivalents, and marketable securities was $55.3 million as of December 31, 2011, compared with $50.2 million as of December 31, 2010.
• Days sales outstanding were 71 days at December 31, 2011, representing a reduction of one day compared with days sales outstanding at December 31, 2010.

Business Highlights

• Ultimate added Succession Management to its suite of cloud solutions for managing employees from recruitment through retirement. UltiPro Succession Management involves both management and individual employees in an ongoing, collaborative process. Employees can manage their own talent profiles — updating factors that influence succession readiness such as mobility preferences, languages, education, accomplishments, and competencies — to ensure that leadership has a rich understanding of the company’s talent landscape while company executives have the flexibility to develop succession plans for jobs, talent pools, or individuals.
• Co-sponsored by Dell and IBM, we held our Ultimate Partner Forum, known as Connections, in March 2011 and had the largest attendance in our history — 820 attendees. Our customers, partners, and HR industry influencers came to share ideas, hear about Ultimate’s future direction, and expand their peer networks. Ultimate’s 2012 Connections conference will be held on March 27-30, 2012 in Las Vegas.
• A leading technology research, analysis, and advisory firm, Forrester Research, selected Ultimate as a Groundswell Award winner in October 2011. The Forrester Groundswell Awards recognize excellence in achieving business and organizational goals through innovation in social technology applications. Ultimate was a winner in the business-to-business “Embracing” category for its collaborative customer community called “Ideas.” Ultimate launched the Ideas community to help its customers share information, interact, and provide direct feedback on UltiPro. Previous winners of the Forrester Groundswell Awards include Microsoft, IBM, Starbucks, and Salesforce.com.
• Ultimate won a SuperNova Award from Constellation Research in the advanced analytics category in November 2011. Ultimate’s Director of Business Intelligence and his team worked collaboratively with an Ultimate customer to develop a predictive analytics tool that HR leaders can use to monitor and address retention risks proactively.
• Ultimate’s customer support center was awarded Service Capability & Performance (SCP) certification for best practices for the 13th consecutive year. The SCP Standards represent the global benchmark for service excellence and are recognized by leading technology companies around the world.
• In January 2012, Ultimate was ranked #25 on FORTUNE’s “100 Best Companies to Work For” list, the first year that Ultimate applied for consideration. Ultimate is the only human capital management provider on the 2012 list and the highest ranked cloud vendor on the list. Ultimate was previously recognized twice as the #1 medium-sized company to work for in America by The Great Place to Work Institute.

Financial Outlook

Ultimate provides the following financial guidance for 2012:

For the first quarter of 2012:

• Recurring revenues of approximately $60.0 million;
• Total revenues of approximately $76.0 million; and
• Operating margin, on a non-GAAP basis (discussed below), of approximately 6%.

For the year 2012:

• 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 2012 is expected to be approximately $20.0 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 cloud provider of people management solutions for global businesses. Built on the belief that people are the most important ingredient of any business, Ultimate’s award-winning UltiPro delivers HR, payroll, and talent management solutions that seamlessly connect people with the information and resources they need to work more effectively. Founded in 1990, the company is headquartered in Weston, Florida and has more than 1,300 professionals focused on developing the highest quality solutions and services. In 2012, Ultimate was ranked #25 on FORTUNE’S “100 Best Companies to Work For” list. Ultimate has more than 2,300 customers with employees in 115 countries, including Adobe Systems Incorporated, The Container Store, Culligan International, Major League Baseball, The New York Yankees Baseball Team, and Ruth’s Chris Steak House. More information on Ultimate’s products and services for people management 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.

ULTI–Fourth Quarter and Year-End 2011 Financial Results

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

(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 during the twelve months ended December 31, 2010, the period in which discontinued operations for the UK Subsidiary were complete and the UK Subsidiary was dissolved.

- Ultimate entered into capital lease obligations to acquire new equipment totaling $3.0 million and $3.9 million for the twelve months ended December 31, 2011 and 2010, respectively.