10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number:                                           0-24347

THE ULTIMATE SOFTWARE GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	65-0694077
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)

2000 Ultimate Way, Weston, FL	33326
(Address of principal executive offices)	(Zip Code)

(954) 331 - 7000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).  Yes þ  No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ	Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ Noþ

As of October 31, 2014, there were 28,370,881 shares of the Registrant’s common stock, par value $0.01, outstanding.

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

	Page(s)
Part I – Financial Information:
Item 1 – Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	1
Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and September 30, 2013	2
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and September 30, 2013	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and September 30, 2013	4
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	22
Item 4 – Controls and Procedures	24
Part II – Other Information:
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6 – Exhibits	25
Signatures	26
Certifications

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PART 1 – FINANCIAL INFORMATION

ITEM 1. Financial Statements

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	As of September 30, 2014			As of December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	99,923		$	79,794
Investments in marketable securities	8,711			8,682
Accounts receivable, net of allowance for doubtful accounts of $675 for 2014 and 2013	88,144			85,676
Prepaid expenses and other current assets	34,729			29,374
Deferred tax assets, net	909			1,015
Total current assets before funds held for clients	232,416			204,541
Funds held for clients	378,839			262,227
Total current assets	611,255			466,768
Property and equipment, net	82,188			58,186
Goodwill	25,774			26,942
Investments in marketable securities	1,973			1,771
Intangible assets, net	7,218			8,274
Other assets, net	19,284			17,340
Deferred tax assets, net	35,619			18,913
Total assets	$	783,311		$	598,194
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,935		$	6,422
Accrued expenses	32,374			26,040
Deferred revenue	105,809			102,686
Capital lease obligations	3,675			2,949
Other borrowings	632			2,264
Total current liabilities before client fund obligations	150,425			140,361
Client fund obligations	378,839			262,227
Total current liabilities	529,264			402,588
Deferred revenue	200			498
Deferred rent	2,281			2,687
Capital lease obligations	3,454			2,240
Other borrowings	—			593
Deferred income tax liability	1,131			1,371
Total liabilities	536,330			409,977
Stockholders’ equity:
Series A Junior Participating Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding	—			—
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued or outstanding	—			—
Common Stock, $.01 par value, 50,000,000 shares authorized, 32,542,677 and 32,132,376 shares issued and outstanding in 2014 and 2013, respectively	325			321
Additional paid-in capital	362,602			315,691
Accumulated other comprehensive loss	(2,514		)	(1,442		)
Accumulated earnings (deficit)	25,093			(7,809		)
	385,506			306,761
Treasury stock, 4,216,626 and 4,053,835 shares, at cost, for 2014 and 2013, respectively	(138,525		)	(118,544		)
Total stockholders’ equity	246,981			188,217
Total liabilities and stockholders’ equity	$	783,311		$	598,194

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues:
Recurring	$	107,362		$	85,244		$	306,888		$	244,080
Services	20,047			17,703			63,096			53,540
License	22			161			522			874
Total revenues	127,431			103,108			370,506			298,494
Cost of revenues:
Recurring	30,598			23,384			85,974			67,755
Services	21,528			18,935			64,639			56,693
License	5			35			88			198
Total cost of revenues	52,131			42,354			150,701			124,646
Gross profit	75,300			60,754			219,805			173,848
Operating expenses:
Sales and marketing	28,104			22,481			86,395			68,063
Research and development	21,419			17,095			61,572			50,089
General and administrative	12,172			9,067			34,475			26,279
Total operating expenses	61,695			48,643			182,442			144,431
Operating income	13,605			12,111			37,363			29,417
Other income (expense):
Interest and other expense	(104		)	(67		)	(276		)	(203		)
Other income, net	82			32			253			79
Total other expense, net	(22		)	(35		)	(23		)	(124		)
Income before income taxes	13,583			12,076			37,340			29,293
Benefit (provision) for income taxes	6,073			(5,776		)	(4,438		)	(13,571		)
Net income	$	19,656		$	6,300		$	32,902		$	15,722
Net income per share:
Basic	$	0.69		$	0.23		$	1.16		$	0.57
Diluted	$	0.67		$	0.22		$	1.12		$	0.54
Weighted average shares outstanding:
Basic	28,285			27,871			28,246			27,695
Diluted	29,306			29,095			29,302			28,930

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Net income	$	19,656		$	6,300		$	32,902		$	15,722
Other comprehensive income (loss):
Unrealized (loss) gain on investments in marketable available-for-sale securities	(9		)	3			(5		)	(2		)
Unrealized (loss) gain on foreign currency translation adjustments	(1,176		)	294			(1,071		)	(486		)
Other comprehensive (loss) income, before tax	(1,185		)	297			(1,076		)	(488		)
Income tax benefit (expense) related to items of other comprehensive income	7			(3		)	4			(2		)
Other comprehensive (loss) income, net of tax	(1,178		)	294			$	(1,072	)	$	(490	)
Comprehensive income	$	18,478		$	6,594		$	31,830		$	15,232

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	32,902		$	15,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,157			11,765
Provision for doubtful accounts	1,747			1,762
Non-cash stock-based compensation expense	33,366			23,500
Income taxes	3,968			13,392
Excess tax benefit from employee stock plan	(20,808		)	(14,803		)
Changes in operating assets and liabilities:
Accounts receivable	(4,215		)	(5,204		)
Prepaid expenses and other current assets	(5,355		)	(2,521		)
Other assets	(1,944		)	(178		)
Accounts payable	1,513			(2,143		)
Accrued expenses and deferred rent	5,928			9,788
Deferred revenue	2,825			3,206
Net cash provided by operating activities	64,084			54,286
Cash flows from investing activities:
Purchases of property and equipment	(31,255		)	(20,962		)
Purchases of marketable securities	(8,335		)	(8,746		)
Maturities of marketable securities	8,096			8,838
Net purchases of client funds securities	(116,612		)	(51,090		)
Net cash used in investing activities	(148,106		)	(71,960		)
Cash flows from financing activities:
Repurchases of Common Stock	(19,981		)	—
Net proceeds from issuances of Common Stock	4,629			7,236
Excess tax benefits from employee stock plan	20,808			14,803
Shares acquired to settle employee tax withholding liability	(12,181		)	(8,278		)
Principal payments on capital lease obligations	(2,996		)	(2,696		)
Repayments of other borrowings	(2,225		)	(1,891		)
Net increase in client fund obligations	116,612			51,090
Net cash provided by financing activities	104,666			60,264
Effect of exchange rate changes on cash	(515		)	(486		)
Net increase in cash and cash equivalents	20,129			42,104
Cash and cash equivalents, beginning of period	79,794			58,817
Cash and cash equivalents, end of period	$	99,923		$	100,921
Supplemental disclosure of cash flow information:
Cash paid for interest	$	235		$	268
Cash paid for taxes	$	468		$	381
Non-cash investing and financing activities:
Capital lease obligations to acquire new equipment	$	4,936		$	2,664
Stock consideration adjustment recorded for acquisitions	$	(818	)	$	—

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The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations

The Ultimate Software Group, Inc. and subsidiaries (“Ultimate,” “we,” “us” or “our”) is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement.   We market our UltiPro solutions primarily to enterprise companies, which we define as companies with more than 1,500 employees, mid-market companies, which we define as having approximately 500-1,500 employees, and strategic market companies, which we define as having 100-499 employees. UltiPro is marketed primarily through our enterprise, mid-market and strategic direct sales teams.

2. Basis of Presentation, Consolidation and the Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Ultimate have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information in this quarterly report should be read in conjunction with Ultimate’s audited consolidated financial statements and notes thereto included in Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on February 28, 2014 (the “Form 10-K”).

The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of Ultimate’s management, necessary for a fair presentation of the information for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Interim results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of operating results for the full fiscal year or for any future periods.

The unaudited condensed consolidated financial statements reflect the financial position and operating results of Ultimate and include its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Summary of Significant Accounting Policies

Ultimate’s significant accounting policies discussed in Note 3 to its audited consolidated financial statements for the fiscal year ended December 31, 2013, included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for clients and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings, approximated fair value (due to their relatively short maturity) as of September 30, 2014 and December 31, 2013.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014-09, “Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for Ultimate on January 1, 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method and have not determined the effect the standard will have on our ongoing financial reporting.

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4.     Investments in Marketable Securities and Fair Value of Financial Instruments

We classify our investments in marketable securities with readily determinable fair values as available-for-sale.  Available-for-sale securities consist of debt and equity securities not classified as trading securities or as securities to be held to maturity.  Unrealized gains and losses on available-for-sale securities are reported as a net amount in accumulated other comprehensive loss in stockholders’ equity until realized.  Realized gains and losses resulting from available-for-sale securities are included in other (expense) income, net, in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses on available-for-sale securities to the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014 and September 30, 2013.

Gains and losses on the sale of available-for-sale securities are determined using the specific identification method.   There was $3 thousand of unrealized loss and $4 thousand of unrealized gain, net of tax, on available-for-sale securities as of September 30, 2014 and December 31, 2013, respectively.

The amortized cost, net unrealized gain and fair value of our investments in marketable available-for-sale securities as of September 30, 2014 and December 31, 2013 are shown below (in thousands):

	As of September 30, 2014							As of December 31, 2013
	Amortized Cost		Net Unrealized Loss			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	8,470	$	(3	)	$	8,467	$	7,375	$	4	$	7,379
Commercial paper	1,199		—			1,199		1,799		—		1,799
U.S. Agency bonds	501		—			501		760		—		760
Certificates of deposit	517		—			517		515		—		515
Total investments	$	10,687	$	(3	)	$	10,684	$	10,449	$	4	$	10,453

The amortized cost and fair value of the marketable available-for-sale securities, by contractual maturity, as of September 30, 2014, are shown below (in thousands):

	September 30, 2014
	Amortized Cost		Fair Value
Due in one year or less	$	8,712	$	8,711
Due after one year	1,975		1,973
Total	$	10,687	$	10,684

We classify and disclose fair value measurements in one of the following three categories of fair value hierarchy:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Our assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.  The types of instruments valued, based on quoted market prices in active markets, include certificates of deposit.  Such instruments are generally classified within Level 1 of the fair value hierarchy.   We did not have any transfers into and out of Level 1 or Level 2 during the three and nine months ended September 30, 2014 or the twelve

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months ended December 31, 2013.  No assets or investments were classified as Level 3 as of September 30, 2014 or as of December 31, 2013.

The types of instruments valued by management, based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, include Ultimate’s corporate debentures and bonds, commercial paper, U.S. agency bonds and U.S. Treasury bills.  Such instruments are generally classified within Level 2 of the fair value hierarchy.  Ultimate uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of September 30, 2014 and December 31, 2013 (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	8,467	$	—	$	8,467	$	—	$	7,379	$	—	$	7,379	$	—
Commercial paper	1,199		—		1,199		—		1,799		—		1,799		—
U.S. Agency bonds	501		—		501		—		760		—		760		—
Certificates of deposit	517		517		—		—		515		515		—		—
Total	$	10,684	$	517	$	10,167	$	—	$	10,453	$	515	$	9,938	$	—

Assets and liabilities measured at fair value on a recurring basis were presented in the unaudited condensed consolidated balance sheet as of September 30, 2014 and the audited consolidated balance sheet as of December 31, 2013 as short-term and long-term investments in marketable securities.  There were no financial liabilities accounted for at fair value as of September 30, 2014 and December 31, 2013.

5. Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from 2 to 20 years. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease, which range from 3 to 15 years. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and any gain or loss is recognized.

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014			As of December 31, 2013
Computer equipment	$	116,360		$	103,154
Internal-use software	44,382			24,238
Other property and equipment	28,316			25,047
Property and equipment	189,058			152,439
Less:  accumulated depreciation and amortization	(106,870		)	(94,253		)
Property and equipment, net	$	82,188		$	58,186

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification ("ASC") Topic 350-40, Intangibles Goodwill and Other-Internal Use Software. During the three and nine months ended September 30, 2014, we capitalized $6.5 million and $20.1 million, respectively, of computer software development costs related to a development project to be sold in the future as a cloud product only (the "Development Project"). There were $4.7 million and $12.0 million of software development costs related to the Development Project which were capitalized in the three and nine months ended September 30, 2013, respectively. These capitalized costs were from direct labor costs and third party consulting fees and are included with internal-use software in property and equipment in the

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unaudited condensed consolidated balance sheet and purchases of property and equipment in the unaudited condensed consolidated statements of cash flows. Internal-use software is amortized on a straight-line basis over its estimated useful life, commencing after the software development is substantially complete and the software is ready for its intended use. At each balance sheet date, we evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the three and nine months ended September 30, 2014, there was $0.3 million and $0.4 million of amortization, respectively, associated with a particular product module, Recruitment, of the Development Project which was ready for its intended use during the second quarter of 2014. The amortization of capitalized software (e.g., from the Recruitment release) is included in cost of recurring revenues. There was no amortization associated with the Development Project during the three and nine months ended September 30, 2013.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Prepaid commissions	$	20,768	$	19,942
Other prepaid expenses	7,039		2,783
Other current assets	6,922		6,649
Total prepaid expenses and other current assets	$	34,729	$	29,374

7.  Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of cost over the net tangible and identifiable intangible assets of acquired businesses.  Goodwill amounts are not amortized, but rather tested for impairment at least annually. Identifiable intangible assets acquired in business combinations are recorded based upon fair value at the date of acquisition and amortized over their estimated useful lives.

The changes in the carrying value of goodwill since December 31, 2013 were as follows (in thousands):

	For the Nine Months Ended September 30, 2014
Goodwill, December 31, 2013	$	26,942
Purchase price adjustments (1)	(818		)
Translation adjustment (2)	(350		)
Goodwill, September 30, 2014	$	25,774

(1) During the nine months ended September 30, 2014, we adjusted the purchase price for each of the acquisitions which were entered into in the fourth fiscal quarter of 2013 with respect to the related dollar value of the stock consideration paid in each acquisition.

(2) Represents the impact of the foreign currency translation of the portion of goodwill that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such goodwill is translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

Intangible Assets

The following tables present our acquired intangible assets as of the dates specified below (in thousands):

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	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(707	)	$	(373	)	$	4,120
Customer relationships	3,200		(306		)	(4		)	2,890
Non-compete agreements	300		(90		)	(2		)	208
	$	8,700	$	(1,103	)	$	(379	)	$	7,218
	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(180	)	$	(179	)	$	4,841
Customer relationships	3,200		(47		)	(3		)	3,150
Non-compete agreements	300		(15		)	(2		)	283
	$	8,700	$	(242	)	$	(184	)	$	8,274

(1) Represents the impact of the foreign currency translation of the portion of acquired intangible assets that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such intangible assets are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

Acquired intangible assets are amortized over their estimated useful life, generally three to ten years, in a manner that reflects the pattern in which the economic benefits are consumed. Amortization expense for acquired intangible assets was $286 thousand and $861 thousand for the three and nine months ended September 30, 2014, respectively. There was no amortization expense for acquired intangible assets for the three and nine months ended September 30, 2013.

8. Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

The following table is a reconciliation of the shares of Ultimate's issued and outstanding $0.01 par value common stock ("Common Stock") used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2014 and 2013 (in thousands):

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	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2014	2013	2014	2013
Basic weighted average shares outstanding	28,285	27,871	28,246	27,695
Effect of dilutive equity instruments	1,021	1,224	1,056	1,235
Diluted weighted average shares outstanding	29,306	29,095	29,302	28,930
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	19	7	6

9. Foreign Currency

The financial statements of Ultimate’s foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”), have been translated into U.S. dollars.  The functional currency of Ultimate Canada is the Canadian dollar.  Assets and liabilities are translated into U.S. dollars at period-end exchange rates.  Income and expenses are translated at the average exchange rate for the reporting period.  The resulting translation adjustments, representing unrealized gains or losses, are included in accumulated other comprehensive loss, a component of stockholders’ equity.  Realized gains and losses resulting from foreign exchange transactions are included in total operating expenses in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses resulting from foreign exchange transactions to the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014 and September 30, 2013.

For the three and nine months ended September 30, 2014, Ultimate had cumulative unrealized translation losses of $1.2 millionand$1.1 million, respectively. For the three and nine months ended September 30, 2013, Ultimate had a cumulative unrealized translation gain of $0.3 millionand a cumulative unrealized loss of$0.5 million, respectively. Included in accumulated other comprehensive loss, as presented in the accompanying unaudited condensed consolidated balance sheets, is an unrealized translation loss of $2.5 million as of September 30, 2014 and an unrealized translation loss of $1.4 million as of December 31, 2013.

10. Stock-Based Compensation

Summary of Plans

Our Amended and Restated 2005 Equity and Incentive Plan (the “Plan”) authorizes the grant of options (“Options”) to non-employee directors, officers and employees of Ultimate to purchase shares of Common Stock.  The Plan also authorizes the grant to such persons of restricted and non-restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively, together with the Options, the “Awards”).

As of September 30, 2014, the aggregate number of shares of Common Stock that were available to be issued under all Awards granted under the Plan was 1,367,692 shares.

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that were recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	1,402	$	1,009	$	4,024	$	2,846
Cost of services revenues	1,122		868		3,310		2,692
Sales and marketing	5,015		3,352		14,749		9,633
Research and development	1,198		892		3,646		2,478
General and administrative	2,613		2,004		7,637		5,851
Total non-cash stock-based compensation expense	$	11,350	$	8,125	$	33,366	$	23,500

Net cash proceeds from the exercise of Options were $1.6 million and $4.6 million for the three and nine months ended September 30, 2014, respectively, and $1.5 million and $7.2 million for the three and nine months ended September 30, 2013, respectively. There was a $8.2 million and a $20.8 million excess income tax benefit recognized in additional paid-in capital from the realization of stock-based payment deductions during the three and nine months ended September 30, 2014, respectively, and a $6.2 million and $14.8 million excess income tax benefit recognized in additional paid-in capital from the realization of stock-based payment deductions during the three and nine months ended September 30, 2013, respectively.

Stock Option, Restricted Stock and Restricted Stock Unit Activity

There were no Options granted during the three and nine months ended September 30, 2014.  The following table summarizes stock option activity (for previously granted Options) for the nine months ended September 30, 2014 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2013	1,032		$	24.69	3.14	$	132,615
Granted	—		$	—	—	—
Exercised	(236	)	$	19.64	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at September 30, 2014	796		$	26.18	2.76	$	91,824
Exercisable at September 30, 2014	796		$	26.18	2.76	$	91,824

The aggregate intrinsic value of Options in the table above represents total pretax intrinsic value (i.e., the difference between the closing price of Common Stock on the last trading day of the reporting period and the exercise price times the number of shares) that would have been received by the option holders had all option holders exercised their Options on September 30, 2014.  The amount of the aggregate intrinsic value changes, based on the fair value of Common Stock.  Total intrinsic value of Options exercised was $4.4 million and $34.9 million for the three and nine months ended September 30, 2014, respectively, and $9.0 million and $36.4 million for the three and nine months ended September 30, 2013, respectively. All previously granted Options were fully vested as of December 31, 2011 and, therefore, no Options vested during the three and nine months ended September 30, 2014 and September 30, 2013, respectively.  

As of September 30, 2014, there were no unrecognized compensation costs related to non-vested Options expected to be recognized as all previously granted Options were fully vested as of December 31, 2011.

During the three months ended September 30, 2014 and September 30, 2013, we granted restricted stock awards for 2,570 shares and 5,111 shares of Common Stock, respectively, to non-employee directors. There were 21,755 and 26,525 restricted stock unit awards granted to employees during the three months ended September 30, 2014 and September 30, 2013, respectively.

During the three months ended September 30, 2014, 8,125 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended September 30, 2013, 8,565 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee

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directors.  During the three months ended September 30, 2014 and September 30, 2013, there were no shares of Common Stock previously issued under restricted stock awards that vested and were released to officers and employees.

During the three months ended September 30, 2014, 33,189 shares of Common Stock became issuable to officers and employees under restricted stock unit awards that vested and were released during such period.  10,999 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $1.5 million, while 22,190 of such shares were issued to the holders of such awards.  During the three months ended September 30, 2013, 32,445 shares became issuable to officers and employees under restricted stock unit awards that vested and were released during such period.  10,841 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $1.6 million, while 21,604 of such shares were issued to the holders of such awards.

The following table summarizes restricted stock award and restricted stock unit activity for the nine months ended September 30, 2014 (in thousands, except per share values): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2013	968		$	91.28	501
Granted	13		$	148.74	183
Vested and Released	(25	)	$	31.81	(220	)
Forfeited or expired	—		$	—	(18	)
Outstanding at September 30, 2014	956		$	93.59	446

As of September 30, 2014, $48.9 million of total unrecognized compensation costs related to non-vested restricted stock awards were expected to be recognized over a weighted average period of 1.8 years.  As of September 30, 2014, $38.2 million of total unrecognized compensation costs related to non-vested restricted stock unit awards were expected to be recognized over a weighted average period of 1.7 years.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of The Ultimate Software Group, Inc. and its subsidiaries (“Ultimate,” “we,” “us,” or “our”) should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and in conjunction with Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2014 (the “Form 10-K”).

Overview

Ultimate Software is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. We attained our leadership position, we believe, through our focus on unified HCM, cloud technology, and strong customer relationships. At September 30, 2014, we had more than 17 million people records in our HCM cloud.

UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement. The solution includes unified feature sets for talent acquisition and onboarding, human resources (“HR”) management and compliance, benefits management and online enrollment, payroll, performance management, salary planning and budgeting for compensation management, succession management, reporting and analytical decision-making tools, and time and attendance. UltiPro has role-based features for HR professionals, executives, managers, administrators, and employees whether they are in or out of the office, including access to business-critical information on mobile devices such as the iPhone, iPad, and other smartphones and tablets.

Our cloud offering of UltiPro (the “Cloud Offering”) provides Web-based access to comprehensive HCM functionality for organizations that want to simplify delivery and support of their business applications. We have found that our Cloud Offering is attractive to companies that want to focus on their core competencies to increase sales and profits. Through the

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Cloud Offering, we supply and manage the hardware, infrastructure, ongoing maintenance and backup services for our customers.  Customer systems are currently managed at three data centers-–one located in the Atlanta, Georgia area, one in the Phoenix, Arizona area and another one in the Toronto, Canada area. All data centers are owned and operated by independent third parties.

We currently market our UltiPro solutions primarily to enterprise companies, which we define as companies with more than 1,500 employees, mid-market companies, which we define as having approximately 500-1,500 employees, and strategic companies, which we define as having approximately 100-499 employees. Our mid-market and strategic customers have access to nearly all the features that our larger enterprise companies have through UltiPro, plus a bundled services package. Since many companies in the mid-market and strategic markets do not have information technology (“IT”) staff on their premises to help with system deployment or ongoing management issues, we have created a bundled services package to give these customers a high degree of convenience by handling system configuration, business rules, and other situations for them “behind the scenes.”  UltiPro is marketed primarily through our enterprise, mid-market and strategic direct sales teams.

In addition to UltiPro's HCM functionality, our customers have the option to purchase a number of additional capabilities on a per-employee-per-month (“PEPM”) basis, which are available to enhance and complement the functionality of UltiPro and which are based on the particular business needs of our customers. These optional UltiPro capabilities currently include (i) the talent acquisition suite (recruitment and onboarding); (ii) the talent management suite (performance management, talent predictors, and succession management); (iii) compensation management; (iv) benefits enrollment; (v) time management; (vi) payment services (formerly referred to as “tax filing”); (vii) wage attachments; and (viii) other optional features (collectively, “Optional Capabilities”), which are described below.

All Optional Capabilities are priced solely on a subscription basis.  Some of the Optional Capabilities are available to enterprise, mid-market and strategic customers while others are available exclusively to either enterprise, mid-market or strategic customers, and availability is based on the needs of the respective customers, the number of their employees and the complexity of their HCM environment.

To further simplify the work lives of our customers’ human resources and payroll people, we introduced UltiPro Managed Services in November 2013 as a result of the acquisition of Accel HR, a Georgia-based company. UltiPro Managed Services is designed for those customers who want to outsource some components of their HR, payroll, benefits, and HCM technology management functions without sacrificing the control of, or access to, their employee data that they enjoy with our cloud solution. Unlike other outsourced payroll or Human Resources Information System ("HRIS") services that typically take a one-size-fits-all approach, UltiPro Managed Services allows customers to select from a number of payroll management, HRIS, and/or benefits management services and combine them into a tailored solution that best suits their unique needs. Accel HR had provided these types of services to large and mid-market corporate customers in North America since 2004 and, since 2007 Accel HR had partnered exclusively with Ultimate to provide these services to their UltiPro customers.

In October 2013, we introduced UltiPro TouchBase in connection with the acquisition of Employtouch, a Canadian-based company, which provides our customers an interactive mobile time clock device that collects time punches, as well as highlights the information most critical to employees and managers via an engaging activity stream. With UltiPro TouchBase, our customers can capture employee time on a touchscreen tablet device, collecting employee-validated data for cost accounting and payroll; can leverage photos for accurate capture of employee time-entry, avoiding 'buddy punches'; and can validate transactions using PIN (Personal Identification Number) entry, HID (Human Interface Device), RFID (Radio Frequency Identification), magnetic swipe or barcode.

The key drivers of our business are (i) growth in recurring revenues; (ii) operating income, excluding non-cash stock-based compensation and amortization of acquired intangibles ("Non-GAAP Operating Income"); and (iii) retention of our customers once our solutions are sold (“Customer Retention”).  For the three months ended September 30, 2014, our (i) recurring revenues grew by 25.9%, compared with the same period in 2013, and (ii) Non-GAAP Operating Income was $25.2 million, or 19.8% of total revenues, as compared with $20.2 million, or 19.6% of total revenues, for the same period in 2013. For the nine months ended September 30, 2014, our (i) recurring revenues grew by 25.7%, compared with the same period in 2013 and (ii) Non-GAAP Operating Income was $71.6 million, or 19.3% of total revenues as compared with $52.9 million, or 17.7% of total revenues, for the same period last year. As of September 30, 2014 and December 31, 2013, our Customer Retention remained consistent at greater than 96%, on a trailing twelve-month basis. See “Non-GAAP Financial Measures” below.

Our ability to achieve significant revenue growth in the future will depend upon the success of our direct sales force and our ability to adapt our sales efforts to address the evolving markets for our products and services.  We provide our sales personnel with comprehensive and continuing training with respect to technology and market place developments.  Aside from

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sales commissions, we also provide various incentives to encourage our sales representatives, including stock-based compensation awards based upon performance.

The HCM market is intensely competitive.  We address competitive pressures through improvements and enhancements to our products and services, the development of additional features of UltiPro and a comprehensive marketing team and process that distinguishes Ultimate and its products from the competition.  Our focus on customer service, which enables us to maintain a high Customer Retention rate, also helps us address competitive pressures.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions.  If general economic conditions were to deteriorate, we may experience delays in our sales cycles, increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts.  We address continuing economic pressures by, among other things, efforts to control growth of our operating expenses through the monitoring of controllable costs and vendor negotiations.

Ultimate has two primary revenue sources:  recurring revenues and services revenues.  Subscription revenues from our Cloud Offering and customer support and maintenance revenues are the primary components of recurring revenues.  The majority of services revenues are derived from implementation consulting services. Subsequent to the discontinuation of selling perpetual licenses of UltiPro to new customers, which occurred in 2009, we sell licenses to existing license customers but only in relation to the customer's employee growth or for Optional Capabilities if the customer already has a perpetual license for the on-site UltiPro solutions.  As perpetual license agreements were sold in the past, annual maintenance contracts (priced as a percentage of the related license fee) accompanied those agreements.  Maintenance contracts typically have a one-year term with annual renewal periods thereafter. Currently, our maintenance revenues are related to renewal maintenance only. As announced in 2012, we will not be supporting the licensed UltiPro products after December 31, 2014.

As cloud units are sold, the recurring revenue backlog associated with the Cloud Offering grows, enhancing the predictability of future revenue streams.  Cloud revenues include ongoing monthly subscription fees, priced on a PEPM basis.  Revenue recognition for the Cloud Offering is triggered when the customer processes its first payroll using UltiPro (or goes “Live”).

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.  Ultimate’s critical accounting estimates, as discussed in "Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations," included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for customers and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings approximated fair value (due to their relatively short maturity) as of September 30, 2014 and December 31, 2013.

Results of Operations

The following table sets forth the unaudited condensed consolidated statements of income data of Ultimate, as a percentage of total revenues, for the periods indicated:

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Revenues:
Recurring	84.3	%	82.7	%	82.8	%	81.8	%
Services	15.7		17.2		17.0		17.9
License	—		0.1		0.2		0.3
Total revenues	100.0		100.0		100.0		100.0
Cost of revenues:
Recurring	24.0		22.7		23.2		22.7
Services	16.9		18.4		17.5		19.0
License	—		—		—		0.1
Total cost of revenues	40.9		41.1		40.7		41.8
Gross profit	59.1		58.9		59.3		58.2
Operating expenses:
Sales and marketing	22.1		21.8		23.3		22.8
Research and development	16.8		16.6		16.6		16.7
General and administrative	9.5		8.8		9.3		8.8
Total operating expenses	48.4		47.2		49.2		48.3
Operating income	10.7		11.7		10.1		9.9
Other income (expense):
Interest expense and other	(0.1	)	—		(0.1	)	(0.1	)
Other income, net	0.1		—		0.1		—
Total other expense, net	—		—		—		(0.1	)
Income before income taxes	10.7		11.7		10.1		9.8
Benefit (provision) for income taxes	4.7		(5.6	)	(1.2	)	(4.5	)
Net income	15.4	%	6.1	%	8.9	%	5.3	%

Revenues

Our revenues are primarily derived from recurring revenues and services revenues.

Total revenues increased23.6% to $127.4 million for the three months ended September 30, 2014 from $103.1 million for the three months ended September 30, 2013, and 24.1% to $370.5 million for the nine months ended September 30, 2014 from $298.5 million for the nine months ended September 30, 2013.

Recurring revenues, consisting of subscription revenues from our Cloud Offering and customer support and maintenance revenues, increased25.9% to $107.4 million for the three months ended September 30, 2014, from $85.2 million for the three months ended September 30, 2013, and 25.7% to $306.9 million for the nine months ended September 30, 2014 from $244.1 million for the nine months ended September 30, 2013. The increases for the three and nine months ended September 30, 2014 were primarily due to an increase in revenues from our Cloud Offering, partially offset by a decrease in our maintenance revenues.

• Cloud revenues increased 32.3% for the three months ended September 30, 2014 and 32.1% for the nine months ended September 30, 2014, both in comparison with the same periods in 2013. The increases in cloud revenues were based on the revenue impact of incremental units sold that have gone Live since September 30, 2013, including the UltiPro core product and, to a lesser extent, Optional Capabilities of UltiPro.  Recognition of recurring revenues for cloud sales commences when the customer goes Live.

• Maintenance revenues decreased 31.8% for the three months ended September 30, 2014 and 26.3% for the nine months ended September 30, 2014, both in comparison with the same periods in 2013.  The decreases primarily resulted from the conversion of certain customers who were formerly using UltiPro in connection with the prior

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purchase of a perpetual license ("licensed" customers) to using UltiPro under our Cloud Offering, combined with the impact of attrition from licensed customers in the ordinary course of business.  Maintenance revenues include annual renewal maintenance from our remaining existing licensed customers and, in certain cases, annual renewal maintenance for those customers that converted to the cloud but kept their related maintenance agreements intact. Maintenance revenues are recognized on a monthly recurring basis as the underlying maintenance contracts renew annually.

Services revenues increased13.2% to $20.0 million for the three months ended September 30, 2014 from $17.7 million for the three months ended September 30, 2013, and 17.8% to $63.1 million for the nine months ended September 30, 2014 from $53.5 million for the nine months ended September 30, 2013.  The increases in services revenues for the three and nine month periods were primarily due to additional implementation revenues from incremental billable consultants and the increased utilization of seasoned consultants.

Cost of Revenues

Cost of revenues primarily consists of the costs of recurring and services revenues. Cost of recurring revenues primarily consists of costs to provide maintenance and technical support to Ultimate’s customers, the cost of providing periodic updates and the cost of recurring subscription revenues, including hosting data center costs and, to a lesser extent, amortization of capitalized software. Cost of services revenues primarily consists of costs to provide implementation services and training to Ultimate’s customers and, to a lesser extent, costs related to sales of payroll-related forms and Form W-2 services, as well as costs associated with certain client reimbursable out-of-pocket expenses.

Total cost of revenues increased23.1% to $52.1 million for the three months ended September 30, 2014, from $42.4 million for the three months ended September 30, 2013. Total cost of revenues increased20.9% to $150.7 million for the nine months ended September 30, 2014 from $124.6 million for the nine months ended September 30, 2013.

Cost of recurring revenues increased30.9% to $30.6 million for the three months ended September 30, 2014 from $23.4 million for the three months ended September 30, 2013, and 26.9% to $86.0 million for the nine months ended September 30, 2014 from $67.8 million for the nine months ended September 30, 2013. The increase in the cost of recurring revenues for the three and nine month periods were primarily due to increases in both cloud costs and customer support and maintenance costs, as described below:

• For the three months ended September 30, 2014, the increase in cloud costs was principally as a result of the growth in cloud operations from increased sales, including increased labor costs and, to a lesser extent, increased hosting data center costs and the impact of including the cost of recurring revenues associated with UltiPro Managed Services, which was not included in the prior year comparable period. For the nine months ended September 30, 2014, the increase in cloud costs was principally as a result of the growth in cloud operations from increased sales, including increased labor costs and, to a lesser extent, increased variable operating costs and the impact of including the cost of recurring revenues associated with UltiPro Managed Services, partially offset by decreased hosting data center costs primarily resulting from negotiated lower rates.

• The increases in customer support and maintenance costs for the three and nine months ended September 30, 2014, were primarily due to higher labor costs commensurate with the growth in the number of cloud customers serviced.

Cost of services revenues increased13.7% to $21.5 million for the three months ended September 30, 2014 from $18.9 million for the three months ended September 30, 2013, and 14.0% to $64.6 million for the nine months ended September 30, 2014 from $56.7 million for the nine months ended September 30, 2013. The increases in cost of services revenues for the three and nine month periods ended September 30, 2014 were due to increases in the cost of implementation, including higher labor and related costs (particularly in association with the increased number of billable consultants) and higher costs of time clocks, partially offset by lower costs from implementation partners.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, travel and promotional expenses, and facility and communication costs for direct sales offices, as well as advertising and marketing costs. Sales and marketing expenses increased25.0% to $28.1 million for the three months ended September 30, 2014 from $22.5 million for the three months ended September 30, 2013, and by 26.9% to $86.4 million for the nine months ended September 30, 2014 from $68.1 million for the nine months ended September 30, 2013. The increases in sales and marketing expenses for the

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three and nine month periods ended September 30, 2014 were primarily due to increased labor and related costs and, to a lesser extent, higher advertising and marketing expenses. Commissions on cloud sales are amortized over the initial contract term (typically 24 or 36 months) commencing on the Live date, which corresponds with the related cloud revenue recognition.

Research and Development

Research and development expenses consist primarily of software development personnel costs.  Research and development expenses increased25.3% to $21.4 million for the three months ended September 30, 2014 from $17.1 million for the three months ended September 30, 2013 and by 22.9% to $61.6 million for the nine months ended September 30, 2014 from $50.1 million for the nine months ended September 30, 2013. The increases in research and development expenses for the three and nine month periods were principally due to higher labor and related costs associated with the ongoing development of UltiPro and Optional Capabilities, including the impact of increased personnel costs (predominantly from additional headcount), net of capitalized labor costs. During the three months ended September 30, 2014 and September 30, 2013, we capitalized a total of $6.5 million (including $0.5 million in non-cash stock-based compensation) and $4.7 million (including $0.4 million in non-cash stock-based compensation), respectively, for internal-use software costs from a development project that will be offered exclusively as a cloud product (the "Development Project"). During the nine months ended September 30, 2014 and September 30, 2013, we capitalized a total of $20.1 million (including $1.1 million in non-cash stock-based compensation) and $12.0 million (including $1.1 million in non-cash stock-based compensation), respectively, for the Development Project. The capitalized costs for this Development Project were from direct labor costs and third party consulting fees. During the three and nine months ended September 30, 2014, there was $0.3 million and $0.4 million of amortization, respectively, associated with a particular product module, Recruitment, of the Development Project which was ready for its intended use during the second quarter of 2014. The amortization of capitalized software (i.e., from the Recruitment release) is included in cost of recurring revenues. There was no amortization associated with the Development Project during the three and nine months ended September 30, 2013.

General and Administrative

General and administrative expenses consist primarily of salaries and benefits of executive, administrative and financial personnel, as well as external professional fees and the provision for doubtful accounts.  General and administrative expenses increased34.2% to $12.2 million for the three months ended September 30, 2014 from $9.1 million for the three months ended September 30, 2013 and by 31.2% to $34.5 million for the nine months ended September 30, 2014 from $26.3 million for the nine months ended September 30, 2013.  The increase in general and administrative expenses for the three and nine month periods were primarily due to higher labor and related costs, including increased personnel to support Ultimate's growth in operations.

Income Taxes

We completed research and development ("R&D") tax credit studies related to the 1998 through 2013 calendar years during the third quarter of 2014. We recorded a net $12.1 million financial statement income tax benefit which was comprised of $13.2 million in tax credits, partially offset by $1.1 million attributable to the reduction of certain tax deductions. The $12.1 million income tax benefit was recorded as a discrete period adjustment in the third quarter of 2014 and was net of a $4.2 million reserve for uncertain tax positions. Accordingly, we have presented the following income tax provision discussion both with and without the effect of the $12.1 million discrete benefit to ensure clarity with the comparison with the three and nine month prior year periods.

Income taxes for the three and nine months ended September 30, 2014 included a consolidated benefit of $6.1 million and a consolidated provision of $4.4 million, respectively. Included in the consolidated benefit for the three months ended September 30, 2014 and the consolidated provision for the nine months ended September 30, 2014 was the $12.1 million discrete period adjustment. The effective income tax rate for the three and nine months ended September 30, 2014 was a 44.7% benefit and an 11.9% provision, respectively. Excluding the income tax credit for research and development activities, our effective income tax rate would have been a 44.3% and 44.2% provision for the three and nine months ended September 30, 2014.

Income taxes for the three and nine months ended September 30, 2013 included a consolidated provision of $5.8 million and $13.6 million, respectively. The effective income tax rate for the three and nine months ended September 30, 2013 was 47.8% and 46.3%, respectively. There was no tax credit for research and development activities for the three and nine months ended September 30, 2013. The decrease in the effective income tax rate for the three and nine months ended

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September 30, 2014 was principally due to the benefit from the tax credit for research and development activities and a benefit attributable to a lower ratio of nondeductible expenses to pre-tax income.

At December 31, 2013, we had approximately $154.9 million of net operating loss carryforwards for Federal income tax reporting purposes available to offset future taxable income.  The $154.9 million was attributable to deductions from the exercise of non-qualified employee, and non-employee director, stock options and the vesting of restricted stock units and restricted stock awards, the tax benefit of which will primarily be credited to paid-in-capital and deferred tax assets when realized.  As a result, the tax benefits associated with stock based compensation are included in net operating loss carryforwards but not reflected in deferred tax assets.  The net operating loss carryforwards expire from 2018 through 2033 for Federal income tax reporting purposes and from 2014 through 2033 for state income tax reporting purposes.

Ultimate recorded $13.2 million of R&D income tax credit carryforwards during the quarter ended September 30, 2014. The R&D carryforwards expire from 2018 through 2033 for Federal and in 2018 for Florida income tax reporting purposes. Utilization of such net operating loss and R&D credit carryforwards may be limited as a result of cumulative ownership changes in Ultimate’s equity instruments due to ownership change provisions of Internal Revenue Code Section 382 and similar state provisions. As of December 31, 2013, we had approximately $0.2 million of net operating loss carryforwards for foreign income tax reporting purposes available to offset future taxable income.

We recognized $35.4 million of deferred tax assets (inclusive of $13.2 million in R&D tax credits), net of deferred tax liabilities, as of September 30, 2014.  If estimates of taxable income are decreased, a valuation allowance may need to be provided for some or all deferred tax assets, which will cause an increase in income tax expense.  Management continues to apply the exception to the comprehensive recognition of deferred income taxes to the undistributed earnings of our foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”).  Accordingly, deferred income taxes were not recognized on the cumulative undistributed earnings of Ultimate Canada, and were not deemed material.

Liquidity and Capital Resources

In recent years, Ultimate has funded operations from cash flows generated from operations and, to a lesser extent, equipment financing and borrowing arrangements.

As of September 30, 2014, we had $108.6 million in cash, cash equivalents and short-term investments in marketable securities, reflecting a net increase of $20.2 million since December 31, 2013.  This $20.2 million increase was primarily due to cash provided by operations of $84.9 million (excluding the non-cash impact of the excess tax benefit associated with stock-based payment deductions) and proceeds from the issuances of Common Stock from employee and non-employee director stock option exercises of $4.6 million, partially offset by cash purchases of property and equipment (including principal payments on financed equipment) of $34.3 million (which also includes $19.0 million of capitalized labor costs and third-party consulting fees, paid in cash, associated with the Development Project), cash of $20.0 million used for the repurchases of shares of Common Stock under our previously announced stock repurchase plan ("Stock Repurchase Plan"), cash used to settle the employee tax withholding liability for vesting of restricted stock awards and restricted stock units of $12.2 million, and repayments on other borrowings of $2.2 million.

Our operating cash inflows primarily consist of payments received from our customers related to our Cloud Offering. Our operating cash outflows primarily consist of cash we invest in personnel and infrastructure to support the anticipated growth of our business, payments to vendors directly related to our services, payments under arrangements with third party vendors who provide hosting infrastructure services in connection with our Cloud Offering, related sales and marketing costs, costs of operations and systems development and programming costs. Net cash provided by operating activities increased $9.8 million during the nine months ended September 30, 2014 to $64.1 million, as compared with $54.3 million for the nine months ended September 30, 2013. This increase was primarily due to an increase in operating income and changes in working capital accounts, after adjusting for the impact of non-cash expenses such as depreciation and amortization and expense associated with stock-based compensation awards.

Net cash used in investing activities was $148.1 million for the nine months ended September 30, 2014, as compared with $72.0 million for the nine months ended September 30, 2013.  The increase of $76.1 million was primarily attributable to an increase in funds received from and held in our bank accounts on behalf of Ultimate’s customers using the UltiPro Payment Services offering (“UltiPro Payment Services”) of $65.5 million and, to a lesser extent, an increase in cash purchases of property and equipment of $10.3 million. During the nine months ended September 30, 2014, we capitalized software

19

development costs related to the Development Project totaling $20.1 million (including $1.1 million from the non-cash impact of capitalized stock-based compensation expense), which was classified as property and equipment. Customer funds, temporarily held by us as a result of our UltiPro Payment Services, are held primarily in our bank accounts and invested by us in accordance with our internal investment strategies.   These customer funds are invested in U.S. Government money market funds that invest in short-term, high quality money market instruments which consist of U.S. Treasury and U.S. Government Agency obligations and repurchase agreements collateralized by such obligations.  The money market funds are rated AAA by Standard & Poor's and Aaa by Moody's.

Net cash provided by financing activities was $104.7 million for the nine months ended September 30, 2014, as compared with $60.3 million for the nine months ended September 30, 2013. The $44.4 million increase was primarily related to an increase of $65.5 million in UltiPro Payment Services and an increase in excess tax benefits associated with stock-based payment deductions of $6.0 million, partially offset by an increase of $20.0 million for the repurchase of shares of our Common Stock, under our Stock Repurchase Plan, an increase of $3.9 million in cash used to settle employee tax withholding liability for vesting of restricted stock awards and restricted stock units, a decrease in cash proceeds from the issuances of Common Stock from employee and non-employee director stock option exercises of $2.6 million, and, to a lesser extent, an increase in payments on other borrowings of $0.3 million.

Days sales outstanding (or "DSOs"), calculated on a trailing three-month basis, as of September 30, 2014 were 64 days as compared with 66 days as of September 30, 2013.

Deferred revenues were $106.0 million at September 30, 2014, as compared with $103.2 million at December 31, 2013.  The increase of $2.8 million in deferred revenues was primarily due to increased deferred cloud revenues and increased deferred services revenues from increased sales, partially offset by decreased deferred maintenance revenues primarily in association with the conversion of licensed customers to the cloud and, to a lesser extent, normal attrition. The majority of the total balance in deferred revenues is related to future recurring revenues, including deferred revenues related to sales of cloud units and deferred maintenance revenues.

We believe that cash and cash equivalents, investments in marketable securities, equipment financing, other borrowings and cash generated from operations will be sufficient to fund our operations for at least the next 12 months. This belief is based upon, among other factors, management’s expectations for future revenue growth, controlled expenses and collections of accounts receivable.

As of September 30, 2014, we did not have any material commitments for capital expenditures, except for anticipated capitalized costs associated with the Development Project.

Off-Balance Sheet Arrangements

We do not, and, as of September 30, 2014, we did not, have any off-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Quarterly Fluctuations

Our quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Our operating results may fluctuate as a result of a number of factors, including, but not limited to, increased expenses (especially as they relate to product development, sales and marketing and the use of third-party consultants), timing of product releases, increased competition, variations in the mix of revenues, announcements of new products by us or our competitors and capital spending patterns of our customers. We establish our expenditure levels based upon our expectations as to future revenues, and, if revenue levels are below expectations, expenses can be disproportionately high. A drop in near term demand for our products could significantly affect both revenues and profits in any quarter. Operating results achieved in previous fiscal quarters are not necessarily indicative of operating results for the full fiscal year or for any future periods. As a result of these factors, there can be no assurance that we will be able to maintain profitability on a quarterly basis. We believe that, due to the underlying factors for quarterly fluctuations, quarter-to-quarter comparisons of Ultimate’s operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance.

Forward-Looking Statements

20

The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations and the following Quantitative and Qualitative Disclosures about Market Risk contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs, including, but not limited to, our expectations concerning our operations and financial performance and condition. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Ultimate’s actual results could differ materially from those contained in the forward-looking statements due to risks and uncertainties associated with fluctuations in our quarterly operating results, concentration of our product offerings, development risks involved with new products and technologies, competition, our contractual relationships with third parties, 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 SEC.  Other factors that may cause such differences include, but are not limited to, those discussed in this Form 10-Q and the Form 10-K, including the risk factors set forth in "Part I, Item 1A. Risk Factors" of the Form 10-K. Ultimate undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

Item 10 (e) of Regulation S-K, "Use of Non-GAAP Financial Measures in Commission Filings," defines and prescribes the use of non-GAAP financial information. Our measure of Non-GAAP Operating Income, which excludes non-cash stock-based compensation and amortization of acquired intangibles, meets the definition of a non-GAAP financial measure.

Ultimate believes that this non-GAAP measure of financial results provides useful information to management and investors regarding certain financial and business trends relating to Ultimate's financial condition and results of operations. Ultimate's management uses this non-GAAP result to compare Ultimate's performance to that of prior periods for trend analyses, for purposes of determining executive incentive compensation, and for budget and planning purposes. This measure is used in monthly financial reports prepared for management and in quarterly financial reports presented to Ultimate's Board of Directors. This measure may be different from non-GAAP financial measures used by other companies.

This non-GAAP measure should not be considered in isolation or as an alternative to such measures determined in accordance with GAAP. The principal limitation of this non-GAAP financial measure is that it excludes significant expenses that are required by GAAP to be recorded. In addition, it is subject to inherent limitations as it reflects the exercise of judgment by management about which expenses are excluded from the non-GAAP financial measure.

To compensate for these limitations, Ultimate presents its non-GAAP financial measure in connection with its GAAP result. Ultimate strongly urges investors and potential investors in Ultimate's securities to review the reconciliation of its non-GAAP financial measure to the comparable GAAP financial measure that is included in the table below and not to rely on any single financial measure to evaluate its business.

We exclude the following items from the non-GAAP financial measure, Non-GAAP Operating Income, as appropriate:

Stock-based compensation expense. Ultimate's non-GAAP financial measure excludes stock-based compensation expense, which consists of expenses for stock options and stock and stock unit awards recorded in accordance with ASC 718, “Compensation - Stock Compensation.” For the three and nine months ended September 30, 2014, stock-based compensation expense was $11.4 million and $33.4 million, respectively, on a pre-tax basis. For the three and nine months ended September 30, 2013, stock-based compensation expense was $8.1 million and $23.5 million, respectively, on a pre-tax basis. Stock-based compensation expense is excluded from the non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates the comparison of results of ongoing operations for current and future periods with such results from past periods. For GAAP net income periods, non-GAAP reconciliations are calculated on a diluted weighted average share basis.

Amortization of acquired intangible assets. In accordance with GAAP, operating expenses include amortization of acquired intangible assets over the estimated useful lives of such assets. For the three and nine months ended September 30, 2014, the amortization of acquired intangible assets was $0.3 million and $0.9 million, respectively. There was no amortization of acquired intangible assets for the three and nine months ended September 30, 2013. Amortization of acquired intangible assets is excluded from Ultimate’s non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates

21

comparisons to its historical operating results and to the results of other companies in the same industry, which have their own unique acquisition histories.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Non-GAAP operating income reconciliation:
Operating income	$	13,605		$	12,111		$	37,363		$	29,417
Operating income, as a % of total revenues	10.7		%	11.7		%	10.1		%	9.9		%
Add back:
Non-cash stock-based compensation expense	11,350			8,125			33,366			23,500
Non-cash amortization of acquired intangible assets	286			—			861			—
Non-GAAP operating income	$	25,241		$	20,236		$	71,590		$	52,917
Non-GAAP operating income, as a % of total revenues	19.8		%	19.6		%	19.3		%	17.7		%

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of Ultimate’s operations, we are exposed to certain market risks, primarily interest rate risk and foreign currency risk.  Risks that are either non-financial or non-quantifiable, such as political, economic, tax, or regulatory risks, are not included in the following assessment of our market risks.

Interest Rate Risk. Ultimate is subject to financial market risks, including changes in interest rates which influence the valuations of our fixed income investment portfolio.  Changes in interest rates could also impact Ultimate’s anticipated interest income from interest-bearing cash accounts, or cash equivalents and investments in marketable securities.  We manage financial market risks, including interest rate risks, in accordance with our investment guideline objectives, including:

• Maximum safety of principal;

• Maintenance of appropriate liquidity for regular cash needs;

• Maximum yields in relationship to guidelines and market conditions;

• Diversification of risks; and

• Fiduciary control of all investments.

Ultimate targets its fixed income investment portfolio to have maturities of 24 months or less.  Investments are held to enhance the preservation of capital and not for trading purposes.

Cash equivalents consist of money market accounts with original maturities of less than three months. Short-term investments include obligations of U.S. government agencies and corporate debt securities.  Corporate debt securities include commercial paper which, according to Ultimate’s investment guidelines, must carry minimum short-term ratings of P-1 by Moody’s Investor Service, Inc. (“Moody’s”) and A-1 by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc. (“S&P”).  Other corporate debt obligations must carry a minimum rating of A-2 by Moody’s or A by S&P.  Asset-backed securities must carry a minimum AAA rating by Moody’s and S&P with a maximum average life of two years at the time of purchase.

As of September 30, 2014, total investments in available-for-sale marketable securities were $10.7 million.

As of September 30, 2014, virtually all of the investments in Ultimate’s portfolio were at fixed rates (with a weighted average interest rate of 0.5% per annum).

To illustrate the potential impact of changes in interest rates, Ultimate has performed an analysis based on its September 30, 2014 unaudited condensed consolidated balance sheet and assuming no changes in its investments.  Under this analysis, an immediate and sustained 100 basis point increase in the various base rates would result in a decrease in the fair value of Ultimate’s total portfolio of approximately $67 thousand over the next 12 months.  An immediate and sustained 100

22

basis point decrease in the various base rates would result in an increase in the fair value of Ultimate’s total portfolio of approximately $36 thousand over the next 12 months.

Foreign Currency Risk.  Ultimate has foreign currency risks related to its revenue and operating expenses denominated in currencies other than the U.S. dollar.  Management does not believe movements in the foreign currencies in which Ultimate transacts business will significantly affect future net income.

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ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.  Ultimate carried out an evaluation, under the supervision and with the participation of Ultimate’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of Ultimate’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, Ultimate’s management, including the CEO and CFO, concluded that, as of September 30, 2014, Ultimate’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in Ultimate’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  Ultimate’s disclosure controls and procedures were designed to provide reasonable assurance as to the achievement of these objectives.  It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and thus has inherent limitations.  Therefore, even those systems determined to be effective can only provide reasonable assurance as to the achievement of their objectives.

(b) Changes in internal control over financial reporting.  There have been no changes during the quarter ended September 30, 2014 in Ultimate’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Ultimate’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchases.

The number of shares of Common Stock repurchased by us during the three months ended September 30, 2014 is as indicated below:

	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1 - 31, 2014	—	—	4,216,626	783,374
August 1 - 31, 2014	10,999 (1)	$132.23	4,216,626	783,374
September 1 - 30, 2014	—	—	4,216,626	783,374
(1) Represents 10,999 shares of Common Stock that were acquired by us at the fair market value of the Common Stock as of the period stated, in connection with the satisfaction of our employees' tax withholding liability resulting from the vesting of restricted stock holdings.
(2) Under a stock repurchase plan originally announced on October 30, 2000, and subsequently amended from time to time, Ultimate is authorized to purchase up to 5,000,000 shares of its Common Stock. As of September 30, 2014, Ultimate had purchased 4,216,626 shares of Common Stock under our stock repurchase plan, with 783,374 shares being available for repurchase in the future. There were no purchases of Common Stock under the stock repurchase plan for the three months ended September 30, 2014.

24

ITEM 6. Exhibits

Number	Description
31.1	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended*
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended*
101.1	Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (ii) Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and September 30, 2013, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and September 30, 2013, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and September 30, 2013 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.*

____________________

* Filed herewith

25

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		The Ultimate Software Group, Inc.
Date:	November 7, 2014	By:	/s/ Mitchell K. Dauerman
			Executive Vice President, Chief Financial Officer and Treasurer (Authorized Signatory and Principal Financial and Accounting Officer)

26

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Scott Scherr, certify that:

1. I have reviewed this Form 10-Q of The Ultimate Software Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 7, 2014

/s/  Scott Scherr

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mitchell K. Dauerman, certify that:

1. I have reviewed this Form 10-Q of The Ultimate Software Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 7, 2014

/s/  Mitchell K. Dauerman

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Scherr, Chief Executive Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Quarterly Report on Form 10-Q fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/ Scott Scherr

Chief Executive Officer

November 7, 2014

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mitchell K. Dauerman, Chief Financial Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Quarterly Report on Form 10-Q fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/ Mitchell K. Dauerman

Chief Financial Officer

November 7, 2014

XML

Stock-Based Compensation Stock-Based Compensation (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding at beginning of period (in shares)			1,032,000
Granted (in shares)	0		0
Exercised (in shares)			(236,000)
Forfeited or expired (in shares)			0
Outstanding at end of period (in shares)	796,000		796,000
Exercisable at end of period (in shares)	796,000		796,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Outstanding at beginning of period (in dollars per share)			$ 24.69
Granted (in dollars per share)			$ 0.00
Exercised (in dollars per share)			$ 19.64
Forfeited or expired (in dollars per share)			$ 0.00
Outstanding at end of period (in dollars per share)	$ 26.18		$ 26.18
Exercisable at end of period (in dollars per share)	$ 26.18		$ 26.18
Weighted Average Remaining Contractual Term [Abstract]
Outstanding at beginning of period (in years)			2 years 9 months 4 days	3 years 1 month 21 days
Granted (in years)			0.00
Exercised (in years)			0.00
Forfeited or expired (in years)			0.00
Outstanding at end of period (in years)			2 years 9 months 4 days	3 years 1 month 21 days
Exercisable at end of period (in years)			2 years 9 months 4 days
Aggregate Intrinsic Value [Abstract]
Outstanding at beginning of period			$ 132,615,000
Granted			0
Exercised			0
Forfeited or expired			0
Outstanding at end of period	91,824,000		91,824,000
Exercisable at end of period	91,824,000		91,824,000
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Total intrinsic value of options exercised	4,400,000	9,000,000	34,900,000	36,400,000
Total fair value of options vested	0			0
Total unrecognized compensation costs	0		0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of period (in shares)			968,000
Granted (in shares)			13,000
Vested and Released (in shares)			(25,000)
Forfeited or expired (in shares)			0
Outstanding at end of period (in shares)	956,000		956,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Outstanding at beginning of period (in dollars per share)			$ 91.28
Granted (in dollars per share)			$ 148.74
Vested and Released (in dollars per share)			$ 31.81
Forfeited or expired (in dollars per share)			$ 0.00
Outstanding at end of period (in dollars per share)	$ 93.59		$ 93.59
Total unrecognized compensation costs	48,900,000		48,900,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			1 year 9 months 26 days
Restricted Stock [Member] | Non-employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Vested and Released (in shares)	(8,125)	(8,565)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Awards granted to non-employee directors			2,570	5,111
Restricted Stock [Member] | Officers or Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Vested and Released (in shares)	0	0
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of period (in shares)			501,000
Granted (in shares)			183,000
Vested and Released (in shares)	(33,189)		(220,000)
Forfeited or expired (in shares)			(18,000)
Outstanding at end of period (in shares)	446,000		446,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Total unrecognized compensation costs	38,200,000		38,200,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			1 year 8 months 5 days
Shares retained by company an not issued, in satisfaction of employee withholding tax requirements applicable to payment of awards (in shares)	10,999	10,841
Aggregate amount of shares retained by company and not issued	$ 1,500,000	$ 1,600,000
Shares retained by company and not issued, in satisfaction of employee withholding tax requirements applicable to payment of awards (in shares)	22,190	21,604
Restricted Stock Units (RSUs) [Member] | Officers or Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Granted (in shares)			21,755	26,525
Vested and Released (in shares)		(32,445)

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Investments in Marketable Securities and Fair Value of Financial Instruments Investments in Marketable Securities and Fair Value of Financial Instruments (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	$ 8,467	$ 7,379
Commercial paper	1,199	1,799
U.S. Agency bonds	501	760
Certificates of deposit	517	515
Total	10,684	10,453
(Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	0	0
Commercial paper	0	0
U.S. Agency bonds	0	0
Certificates of deposit	517	515
Total	517	515
(Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	8,467	7,379
Commercial paper	1,199	1,799
U.S. Agency bonds	501	760
Certificates of deposit	0	0
Total	10,167	9,938
(Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	0	0
Commercial paper	0	0
U.S. Agency bonds	0	0
Certificates of deposit	0	0
Total	$ 0	$ 0

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Summary of Significant Accounting Policies and Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies

Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Summary of Significant Accounting Policies

Ultimate’s significant accounting policies discussed in Note 3 to its audited consolidated financial statements for the fiscal year ended December 31, 2013, included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for clients and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings, approximated fair value (due to their relatively short maturity) as of September 30, 2014 and December 31, 2013.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014-09, “Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for Ultimate on January 1, 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method and have not determined the effect the standard will have on our ongoing financial reporting.

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Goodwill & Intangible Assets (Details) (USD $)	3 Months Ended		9 Months Ended			12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 8,700,000		$ 8,700,000			$ 8,700,000
Accumulated Amortization	(1,103,000)		(1,103,000)			(242,000)
Cumulative Translation Adjustment			(379,000)	[1]		(184,000)	[1]
Net Carrying Amount	7,218,000		7,218,000			8,274,000
Amortization of acquired intangible assets	286,000	0	861,000		0
Developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	5,200,000		5,200,000			5,200,000
Accumulated Amortization	(707,000)		(707,000)			(180,000)
Cumulative Translation Adjustment			(373,000)	[1]		(179,000)	[1]
Net Carrying Amount	4,120,000		4,120,000			4,841,000
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,200,000		3,200,000			3,200,000
Accumulated Amortization	(306,000)		(306,000)			(47,000)
Cumulative Translation Adjustment			(4,000)	[1]		(3,000)	[1]
Net Carrying Amount	2,890,000		2,890,000			3,150,000
Non-compete agreements
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	300,000		300,000			300,000
Accumulated Amortization	(90,000)		(90,000)			(15,000)
Cumulative Translation Adjustment			(2,000)	[1]		(2,000)	[1]
Net Carrying Amount	$ 208,000		$ 208,000			$ 283,000
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Useful Lives			3 years
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Useful Lives			10 years

[1] Represents the impact of the foreign currency translation of the portion of acquired intangible assets that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such intangible assets are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

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Goodwill & Intangible Assets Goodwill and Intangible Assets (Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Goodwill [Roll Forward]
Goodwill, December 31, 2013	$ 26,942
Purchase price adjustment	(818)	[1]
Translation adjustment	(350)	[2]
Goodwill, September 30, 2014	$ 25,774

[1] During the nine months ended September 30, 2014, we adjusted the purchase price for each of the acquisitions which were entered into in the fourth fiscal quarter of 2013 with respect to the related dollar value of the stock consideration paid in each acquisition.

[2] Represents the impact of the foreign currency translation of the portion of goodwill that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such goodwill is translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Earnings Per Share [Abstract]
Common Stock, par value	$ 0.01		$ 0.01		$ 0.01
Basic weighted average shares outstanding	28,285	27,871	28,246	27,695
Effect of dilutive equity instruments	1,021	1,224	1,056	1,235
Diluted weighted average shares outstanding	29,306	29,095	29,302	28,930
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	0	19	7	6

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Foreign Currency (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Foreign Currency [Abstract]
Cumulative unrealized translation gains (losses)	$ (1.2)	$ 0.3	$ (1.1)	$ (0.5)
Unrealized translation gains(loss) included in accumulated other comprehensive income	$ (2.5)		$ (2.5)		$ (1.4)

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Basis of Presentation, Consolidation and the Use of Estimates

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation, Consolidation and the Use of Estimates

Basis of Presentation, Consolidation and the Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Ultimate have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information in this quarterly report should be read in conjunction with Ultimate’s audited consolidated financial statements and notes thereto included in Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on February 28, 2014 (the “Form 10-K”).

The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of Ultimate’s management, necessary for a fair presentation of the information for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Interim results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of operating results for the full fiscal year or for any future periods.

The unaudited condensed consolidated financial statements reflect the financial position and operating results of Ultimate and include its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	$ 11,350	$ 8,125	$ 33,366	$ 23,500
Net cash proceeds from the exercise of stock options			4,629	7,236
Excess tax benefits from employee stock plan			20,808	14,803
Cost of recurring revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	1,402	1,009	4,024	2,846
Cost of services revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	1,122	868	3,310	2,692
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	5,015	3,352	14,749	9,633
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	1,198	892	3,646	2,478
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	2,613	2,004	7,637	5,851
Stock Options [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Net cash proceeds from the exercise of stock options	1,600	1,500	4,600	7,200
Excess tax benefits from employee stock plan	$ 8,200	$ 6,200	$ 20,800	$ 14,800
Amended and Restated 2005 Equity and Incentive Plan [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Aggregate number of shares of Common Stock available for issuance (in shares)	1,367,692		1,367,692

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current Assets:
Cash and cash equivalents	$ 99,923	$ 79,794
Investments in marketable securities	8,711	8,682
Accounts receivable, net of allowance for doubtful accounts of $675 for 2014 and 2013	88,144	85,676
Prepaid expenses and other current assets	34,729	29,374
Deferred tax assets, net	909	1,015
Total current assets before funds held for clients	232,416	204,541
Funds held for clients	378,839	262,227
Total current assets	611,255	466,768
Property and equipment, net	82,188	58,186
Goodwill	25,774	26,942
Investments in marketable securities	1,973	1,771
Intangible assets, net	7,218	8,274
Other assets, net	19,284	17,340
Deferred tax assets, net	35,619	18,913
Total assets	783,311	598,194
Current liabilities:
Accounts payable	7,935	6,422
Accrued expenses	32,374	26,040
Deferred revenue	105,809	102,686
Capital lease obligations	3,675	2,949
Other borrowings	632	2,264
Total current liabilities before client fund obligations	150,425	140,361
Client fund obligations	378,839	262,227
Total current liabilities	529,264	402,588
Deferred revenue	200	498
Deferred rent	2,281	2,687
Capital lease obligations	3,454	2,240
Other borrowings	0	593
Deferred income tax liability	1,131	1,371
Total liabilities	536,330	409,977
Stockholders’ equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued or outstanding	0	0
Common Stock, $.01 par value, 50,000,000 shares authorized, 32,542,677 and 32,132,376 shares issued and outstanding in 2014 and 2013, respectively	325	321
Additional paid-in capital	362,602	315,691
Accumulated other comprehensive loss	(2,514)	(1,442)
Accumulated earnings (deficit)	25,093	(7,809)
Stockholders' equity before treasury stock	385,506	306,761
Treasury stock, 4,216,626 and 4,053,835 shares, at cost, for 2014 and 2013, respectively	(138,525)	(118,544)
Total stockholders’ equity	246,981	188,217
Total liabilities and stockholders’ equity	783,311	598,194
Series A Junior Participating Preferred Stock [Member]
Stockholders’ equity:
Series A Junior Participating Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding	$ 0	$ 0

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net Income	$ 32,902	$ 15,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,157	11,765
Provision for doubtful accounts	1,747	1,762
Non-cash stock-based compensation expense	33,366	23,500
Income taxes	3,968	13,392
Excess tax benefit from employee stock plan	(20,808)	(14,803)
Changes in operating assets and liabilities:
Accounts receivable	(4,215)	(5,204)
Prepaid expenses and other current assets	(5,355)	(2,521)
Other assets	(1,944)	(178)
Accounts payable	1,513	(2,143)
Accrued expenses and deferred rent	5,928	9,788
Deferred revenue	2,825	3,206
Net cash provided by operating activities	64,084	54,286
Cash flows from investing activities:
Purchases of property and equipment	(31,255)	(20,962)
Maturities of marketable securities	(8,335)	(8,746)
Maturities of marketable securities	8,096	8,838
Net purchases of client funds securities	(116,612)	(51,090)
Net cash used in investing activities	(148,106)	(71,960)
Cash flows from financing activities:
Repurchases of Common Stock	19,981	0
Net proceeds from issuances of Common Stock	4,629	7,236
Excess tax benefits from employee stock plan	20,808	14,803
Shares acquired to settle employee tax withholding liability	(12,181)	(8,278)
Principal payments on capital lease obligations	(2,996)	(2,696)
Repayments of other borrowings	(2,225)	(1,891)
Net increase in client fund obligations	116,612	51,090
Net cash provided by financing activities	104,666	60,264
Effect of exchange rate changes on cash	(515)	(486)
Net increase in cash and cash equivalents	20,129	42,104
Cash and cash equivalents, beginning of period	79,794	58,817
Cash and cash equivalents, end of period	99,923	100,921
Supplemental disclosure of cash flow information:
Cash paid for interest	235	268
Cash paid for taxes	468	381
Non-cash investing and financing activities:
Capital lease obligations to acquire new equipment	4,936	2,664
Stock consideration adjustment recorded for acquisitions	$ (818)	$ 0

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Non-cash stock-based compensation expense

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that were recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	1,402	$	1,009	$	4,024	$	2,846
Cost of services revenues	1,122		868		3,310		2,692
Sales and marketing	5,015		3,352		14,749		9,633
Research and development	1,198		892		3,646		2,478
General and administrative	2,613		2,004		7,637		5,851
Total non-cash stock-based compensation expense	$	11,350	$	8,125	$	33,366	$	23,500

Summary of stock option activity

The following table summarizes stock option activity (for previously granted Options) for the nine months ended September 30, 2014 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2013	1,032		$	24.69	3.14	$	132,615
Granted	—		$	—	—	—
Exercised	(236	)	$	19.64	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at September 30, 2014	796		$	26.18	2.76	$	91,824
Exercisable at September 30, 2014	796		$	26.18	2.76	$	91,824

Summary of restricted stock award and restricted stock unit activity

The following table summarizes restricted stock award and restricted stock unit activity for the nine months ended September 30, 2014 (in thousands, except per share values): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2013	968		$	91.28	501
Granted	13		$	148.74	183
Vested and Released	(25	)	$	31.81	(220	)
Forfeited or expired	—		$	—	(18	)
Outstanding at September 30, 2014	956		$	93.59	446

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Investments in Marketable Securities and Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Unrealized gains (losses) on available-for-sale securities	$ 3	$ 4
Amortized Cost	10,687		10,449
Net Unrealized Loss	(3)	4
Fair Value	10,684		10,453
Amortized Cost Basis
Due in one year or less	8,712
Due after one year	1,975
Total	10,687
Fair Value
Due in one year or less	8,711
Due after one year	1,973
Total	10,684		10,453
Corporate debentures and bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,470		7,375
Net Unrealized Loss	(3)	4
Fair Value	8,467		7,379
Fair Value
Total	8,467		7,379
Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,199		1,799
Net Unrealized Loss	0	0
Fair Value	1,199		1,799
Fair Value
Total	1,199		1,799
U.S. Agency bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	501		760
Net Unrealized Loss	0	0
Fair Value	501		760
Fair Value
Total	501		760
Certificates of Deposit [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	517		515
Net Unrealized Loss	0	0
Fair Value	517		515
Fair Value
Total	$ 517		$ 515

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Nature of Operations

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

The Ultimate Software Group, Inc. and subsidiaries (“Ultimate,” “we,” “us” or “our”) is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement.   We market our UltiPro solutions primarily to enterprise companies, which we define as companies with more than 1,500 employees, mid-market companies, which we define as having approximately 500-1,500 employees, and strategic market companies, which we define as having 100-499 employees. UltiPro is marketed primarily through our enterprise, mid-market and strategic direct sales teams.

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current Assets:
Allowance for doubtful accounts	$ 675	$ 675
Stockholders’ equity:
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	2,000,000	2,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	50,000,000	50,000,000
Common Stock, shares issued	32,542,677	32,132,376
Treasury Stock, shares	4,216,626	4,053,835
Series A Junior Participating Preferred Stock [Member]
Stockholders’ equity:
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	500,000	500,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0

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Investments in Marketable Securities and Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Investments in Marketable Securities and Fair Value of Financial Instruments [Abstract]

Amortized cost, net unrealized gain and fair value of investments in marketable available-for-sale securities

The amortized cost, net unrealized gain and fair value of our investments in marketable available-for-sale securities as of September 30, 2014 and December 31, 2013 are shown below (in thousands):

	As of September 30, 2014							As of December 31, 2013
	Amortized Cost		Net Unrealized Loss			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	8,470	$	(3	)	$	8,467	$	7,375	$	4	$	7,379
Commercial paper	1,199		—			1,199		1,799		—		1,799
U.S. Agency bonds	501		—			501		760		—		760
Certificates of deposit	517		—			517		515		—		515
Total investments	$	10,687	$	(3	)	$	10,684	$	10,449	$	4	$	10,453

Amortized costs and fair value of marketable available-for-sale securities by contractual maturity

The amortized cost and fair value of the marketable available-for-sale securities, by contractual maturity, as of September 30, 2014, are shown below (in thousands):

	September 30, 2014
	Amortized Cost		Fair Value
Due in one year or less	$	8,712	$	8,711
Due after one year	1,975		1,973
Total	$	10,687	$	10,684

Fair value of financial assets and liabilities, by level within the fair value hierarchy

The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of September 30, 2014 and December 31, 2013 (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	8,467	$	—	$	8,467	$	—	$	7,379	$	—	$	7,379	$	—
Commercial paper	1,199		—		1,199		—		1,799		—		1,799		—
U.S. Agency bonds	501		—		501		—		760		—		760		—
Certificates of deposit	517		517		—		—		515		515		—		—
Total	$	10,684	$	517	$	10,167	$	—	$	10,453	$	515	$	9,938	$	—

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Document And Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Ultimate Software Group Inc
Entity Central Index Key	0001016125
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		28,370,881
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property and equipment

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014			As of December 31, 2013
Computer equipment	$	116,360		$	103,154
Internal-use software	44,382			24,238
Other property and equipment	28,316			25,047
Property and equipment	189,058			152,439
Less:  accumulated depreciation and amortization	(106,870		)	(94,253		)
Property and equipment, net	$	82,188		$	58,186

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues:
Recurring	$ 107,362	$ 85,244	$ 306,888	$ 244,080
Services	20,047	17,703	63,096	53,540
License	22	161	522	874
Total revenues	127,431	103,108	370,506	298,494
Cost of revenues:
Recurring	30,598	23,384	85,974	67,755
Services	21,528	18,935	64,639	56,693
License	5	35	88	198
Total cost of revenues	52,131	42,354	150,701	124,646
Gross profit	75,300	60,754	219,805	173,848
Operating expenses:
Sales and marketing	28,104	22,481	86,395	68,063
Research and development	21,419	17,095	61,572	50,089
General and administrative	12,172	9,067	34,475	26,279
Total operating expenses	61,695	48,643	182,442	144,431
Operating income	13,605	12,111	37,363	29,417
Other income (expense):
Interest and other expense	(104)	(67)	(276)	(203)
Other income, net	82	32	253	79
Total other expense, net	(22)	(35)	(23)	(124)
Income before income taxes	13,583	12,076	37,340	29,293
Benefit (provision) for income taxes	6,073	(5,776)	(4,438)	(13,571)
Net income	$ 19,656	$ 6,300	$ 32,902	$ 15,722
Net income per share:
Basic (in dollars per share)	$ 0.69	$ 0.23	$ 1.16	$ 0.57
Diluted (in dollars per share)	$ 0.67	$ 0.22	$ 1.12	$ 0.54
Weighted average shares outstanding:
Basic (in shares)	28,285	27,871	28,246	27,695
Diluted (in shares)	29,306	29,095	29,302	28,930

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Prepaid Expenses and Other Current Assets

9 Months Ended

Sep. 30, 2014

Prepaid Expense and Other Assets, Current [Abstract]

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Prepaid commissions	$	20,768	$	19,942
Other prepaid expenses	7,039		2,783
Other current assets	6,922		6,649
Total prepaid expenses and other current assets	$	34,729	$	29,374

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Property and Equipment

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from 2 to 20 years. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease, which range from 3 to 15 years. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and any gain or loss is recognized.

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014			As of December 31, 2013
Computer equipment	$	116,360		$	103,154
Internal-use software	44,382			24,238
Other property and equipment	28,316			25,047
Property and equipment	189,058			152,439
Less:  accumulated depreciation and amortization	(106,870		)	(94,253		)
Property and equipment, net	$	82,188		$	58,186

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification ("ASC") Topic 350-40, Intangibles Goodwill and Other-Internal Use Software. During the three and nine months ended September 30, 2014, we capitalized $6.5 million and $20.1 million, respectively, of computer software development costs related to a development project to be sold in the future as a cloud product only (the "Development Project"). There were $4.7 million and $12.0 million of software development costs related to the Development Project which were capitalized in the three and nine months ended September 30, 2013, respectively. These capitalized costs were from direct labor costs and third party consulting fees and are included with internal-use software in property and equipment in the unaudited condensed consolidated balance sheet and purchases of property and equipment in the unaudited condensed consolidated statements of cash flows. Internal-use software is amortized on a straight-line basis over its estimated useful life, commencing after the software development is substantially complete and the software is ready for its intended use. At each balance sheet date, we evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the three and nine months ended September 30, 2014, there was $0.3 million and $0.4 million of amortization, respectively, associated with a particular product module, Recruitment, of the Development Project which was ready for its intended use during the second quarter of 2014. The amortization of capitalized software (e.g., from the Recruitment release) is included in cost of recurring revenues. There was no amortization associated with the Development Project during the three and nine months ended September 30, 2013.

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Nature of Operations (Details)	Sep. 30, 2014 employee
Nature of Operations [Line Items]
UltiPro Enterprise solution suite, minimum number of employees	1,500
Minimum [Member]
Nature of Operations [Line Items]
UltiPro enterprise solution suite, number of employees	500
Number Of employees in companies as a strategic market	100
Maximum [Member]
Nature of Operations [Line Items]
UltiPro enterprise solution suite, number of employees	1,500
Number Of employees in companies as a strategic market	499

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Prepaid Expenses and Other Current Assets (Tables)

9 Months Ended

Sep. 30, 2014

Prepaid Expense and Other Assets, Current [Abstract]

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of September 30, 2014 and December 31, 2013 consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Prepaid commissions	$	20,768	$	19,942
Other prepaid expenses	7,039		2,783
Other current assets	6,922		6,649
Total prepaid expenses and other current assets	$	34,729	$	29,374

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Foreign Currency

9 Months Ended

Sep. 30, 2014

Foreign Currency [Abstract]

Foreign Currency

Foreign Currency

The financial statements of Ultimate’s foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”), have been translated into U.S. dollars.  The functional currency of Ultimate Canada is the Canadian dollar.  Assets and liabilities are translated into U.S. dollars at period-end exchange rates.  Income and expenses are translated at the average exchange rate for the reporting period.  The resulting translation adjustments, representing unrealized gains or losses, are included in accumulated other comprehensive loss, a component of stockholders’ equity.  Realized gains and losses resulting from foreign exchange transactions are included in total operating expenses in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses resulting from foreign exchange transactions to the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014 and September 30, 2013.

For the three and nine months ended September 30, 2014, Ultimate had cumulative unrealized translation losses of $1.2 millionand$1.1 million, respectively. For the three and nine months ended September 30, 2013, Ultimate had a cumulative unrealized translation gain of $0.3 millionand a cumulative unrealized loss of$0.5 million, respectively. Included in accumulated other comprehensive loss, as presented in the accompanying unaudited condensed consolidated balance sheets, is an unrealized translation loss of $2.5 million as of September 30, 2014 and an unrealized translation loss of $1.4 million as of December 31, 2013.

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Goodwill & Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of cost over the net tangible and identifiable intangible assets of acquired businesses.  Goodwill amounts are not amortized, but rather tested for impairment at least annually. Identifiable intangible assets acquired in business combinations are recorded based upon fair value at the date of acquisition and amortized over their estimated useful lives.

The changes in the carrying value of goodwill since December 31, 2013 were as follows (in thousands):

	For the Nine Months Ended September 30, 2014
Goodwill, December 31, 2013	$	26,942
Purchase price adjustments (1)	(818		)
Translation adjustment (2)	(350		)
Goodwill, September 30, 2014	$	25,774

(1) During the nine months ended September 30, 2014, we adjusted the purchase price for each of the acquisitions which were entered into in the fourth fiscal quarter of 2013 with respect to the related dollar value of the stock consideration paid in each acquisition.

(2) Represents the impact of the foreign currency translation of the portion of goodwill that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such goodwill is translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

Intangible Assets

The following tables present our acquired intangible assets as of the dates specified below (in thousands):

	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(707	)	$	(373	)	$	4,120
Customer relationships	3,200		(306		)	(4		)	2,890
Non-compete agreements	300		(90		)	(2		)	208
	$	8,700	$	(1,103	)	$	(379	)	$	7,218
	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(180	)	$	(179	)	$	4,841
Customer relationships	3,200		(47		)	(3		)	3,150
Non-compete agreements	300		(15		)	(2		)	283
	$	8,700	$	(242	)	$	(184	)	$	8,274

(1) Represents the impact of the foreign currency translation of the portion of acquired intangible assets that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such intangible assets are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

Acquired intangible assets are amortized over their estimated useful life, generally three to ten years, in a manner that reflects the pattern in which the economic benefits are consumed. Amortization expense for acquired intangible assets was $286 thousand and $861 thousand for the three and nine months ended September 30, 2014, respectively. There was no amortization expense for acquired intangible assets for the three and nine months ended September 30, 2013.

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Earnings Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

The following table is a reconciliation of the shares of Ultimate's issued and outstanding $0.01 par value common stock ("Common Stock") used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2014 and 2013 (in thousands):

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2014	2013	2014	2013
Basic weighted average shares outstanding	28,285	27,871	28,246	27,695
Effect of dilutive equity instruments	1,021	1,224	1,056	1,235
Diluted weighted average shares outstanding	29,306	29,095	29,302	28,930
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	19	7	6

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Summary of Plans

Our Amended and Restated 2005 Equity and Incentive Plan (the “Plan”) authorizes the grant of options (“Options”) to non-employee directors, officers and employees of Ultimate to purchase shares of Common Stock.  The Plan also authorizes the grant to such persons of restricted and non-restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively, together with the Options, the “Awards”).

As of September 30, 2014, the aggregate number of shares of Common Stock that were available to be issued under all Awards granted under the Plan was 1,367,692 shares.

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that were recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	1,402	$	1,009	$	4,024	$	2,846
Cost of services revenues	1,122		868		3,310		2,692
Sales and marketing	5,015		3,352		14,749		9,633
Research and development	1,198		892		3,646		2,478
General and administrative	2,613		2,004		7,637		5,851
Total non-cash stock-based compensation expense	$	11,350	$	8,125	$	33,366	$	23,500

Net cash proceeds from the exercise of Options were $1.6 million and $4.6 million for the three and nine months ended September 30, 2014, respectively, and $1.5 million and $7.2 million for the three and nine months ended September 30, 2013, respectively. There was a $8.2 million and a $20.8 million excess income tax benefit recognized in additional paid-in capital from the realization of stock-based payment deductions during the three and nine months ended September 30, 2014, respectively, and a $6.2 million and $14.8 million excess income tax benefit recognized in additional paid-in capital from the realization of stock-based payment deductions during the three and nine months ended September 30, 2013, respectively.

Stock Option, Restricted Stock and Restricted Stock Unit Activity

There were no Options granted during the three and nine months ended September 30, 2014.  The following table summarizes stock option activity (for previously granted Options) for the nine months ended September 30, 2014 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2013	1,032		$	24.69	3.14	$	132,615
Granted	—		$	—	—	—
Exercised	(236	)	$	19.64	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at September 30, 2014	796		$	26.18	2.76	$	91,824
Exercisable at September 30, 2014	796		$	26.18	2.76	$	91,824

The aggregate intrinsic value of Options in the table above represents total pretax intrinsic value (i.e., the difference between the closing price of Common Stock on the last trading day of the reporting period and the exercise price times the number of shares) that would have been received by the option holders had all option holders exercised their Options on September 30, 2014.  The amount of the aggregate intrinsic value changes, based on the fair value of Common Stock.  Total intrinsic value of Options exercised was $4.4 million and $34.9 million for the three and nine months ended September 30, 2014, respectively, and $9.0 million and $36.4 million for the three and nine months ended September 30, 2013, respectively. All previously granted Options were fully vested as of December 31, 2011 and, therefore, no Options vested during the three and nine months ended September 30, 2014 and September 30, 2013, respectively.  

As of September 30, 2014, there were no unrecognized compensation costs related to non-vested Options expected to be recognized as all previously granted Options were fully vested as of December 31, 2011.

During the three months ended September 30, 2014 and September 30, 2013, we granted restricted stock awards for 2,570 shares and 5,111 shares of Common Stock, respectively, to non-employee directors. There were 21,755 and 26,525 restricted stock unit awards granted to employees during the three months ended September 30, 2014 and September 30, 2013, respectively.

During the three months ended September 30, 2014, 8,125 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended September 30, 2013, 8,565 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended September 30, 2014 and September 30, 2013, there were no shares of Common Stock previously issued under restricted stock awards that vested and were released to officers and employees.

During the three months ended September 30, 2014, 33,189 shares of Common Stock became issuable to officers and employees under restricted stock unit awards that vested and were released during such period.  10,999 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $1.5 million, while 22,190 of such shares were issued to the holders of such awards.  During the three months ended September 30, 2013, 32,445 shares became issuable to officers and employees under restricted stock unit awards that vested and were released during such period.  10,841 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $1.6 million, while 21,604 of such shares were issued to the holders of such awards.

The following table summarizes restricted stock award and restricted stock unit activity for the nine months ended September 30, 2014 (in thousands, except per share values): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2013	968		$	91.28	501
Granted	13		$	148.74	183
Vested and Released	(25	)	$	31.81	(220	)
Forfeited or expired	—		$	—	(18	)
Outstanding at September 30, 2014	956		$	93.59	446

As of September 30, 2014, $48.9 million of total unrecognized compensation costs related to non-vested restricted stock awards were expected to be recognized over a weighted average period of 1.8 years.  As of September 30, 2014, $38.2 million of total unrecognized compensation costs related to non-vested restricted stock unit awards were expected to be recognized over a weighted average period of 1.7 years.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Reconciliation of shares used in the computation of basic and diluted net income per share

The following table is a reconciliation of the shares of Ultimate's issued and outstanding $0.01 par value common stock ("Common Stock") used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2014 and 2013 (in thousands):

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2014	2013	2014	2013
Basic weighted average shares outstanding	28,285	27,871	28,246	27,695
Effect of dilutive equity instruments	1,021	1,224	1,056	1,235
Diluted weighted average shares outstanding	29,306	29,095	29,302	28,930
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	19	7	6

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Property and Equipment (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Capital Leased Assets [Line Items]
Property and equipment	$ 189,058,000		$ 189,058,000		$ 152,439,000
Less: accumulated depreciation and amortization	(106,870,000)		(106,870,000)		(94,253,000)
Property and equipment, net	82,188,000		82,188,000		58,186,000
Capitalized Computer Software, Additions	6,500,000	4,700,000	20,100,000	12,000,000
Computer Equipment [Member]
Capital Leased Assets [Line Items]
Property and equipment	116,360,000		116,360,000		103,154,000
Internal Use Software [Member]
Capital Leased Assets [Line Items]
Property and equipment	44,382,000		44,382,000		24,238,000
Property and equipment [Member]
Capital Leased Assets [Line Items]
Property and equipment	28,316,000		28,316,000		25,047,000
Minimum [Member] | Property and equipment [Member]
Capital Leased Assets [Line Items]
Estimated useful life, minimum (in years)			2 years
Minimum [Member] | Leasehold Improvements [Member]
Capital Leased Assets [Line Items]
Estimated useful life, minimum (in years)			3 years
Maximum [Member] | Property and equipment [Member]
Capital Leased Assets [Line Items]
Estimated useful life, minimum (in years)			20 years
Maximum [Member] | Leasehold Improvements [Member]
Capital Leased Assets [Line Items]
Estimated useful life, minimum (in years)			15 years
Development Project, eRecruitment [Member] | Internal Use Software [Member]
Capital Leased Assets [Line Items]
Amortization	$ 300,000	$ 0	$ 400,000	$ 0

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net Income	$ 19,656	$ 6,300	$ 32,902	$ 15,722
Other comprehensive income (loss):
Unrealized (loss) gain on foreign currency translation adjustments	(9)	3	(5)	(2)
Unrealized (loss) gain on foreign currency translation adjustments	(1,176)	294	(1,071)	(486)
Other comprehensive (loss) income, before tax	(1,185)	297	(1,076)	(488)
Income tax benefit (expense) related to items of other comprehensive income	7	(3)	4	(2)
Other comprehensive (loss) income, before tax	(1,178)	294	(1,072)	(490)
Comprehensive income	$ 18,478	$ 6,594	$ 31,830	$ 15,232

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Investments in Marketable Securities and Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2014

Investments in Marketable Securities and Fair Value of Financial Instruments [Abstract]

Investments in Marketable Securities and Fair Value of Financial Instruments

Investments in Marketable Securities and Fair Value of Financial Instruments

We classify our investments in marketable securities with readily determinable fair values as available-for-sale.  Available-for-sale securities consist of debt and equity securities not classified as trading securities or as securities to be held to maturity.  Unrealized gains and losses on available-for-sale securities are reported as a net amount in accumulated other comprehensive loss in stockholders’ equity until realized.  Realized gains and losses resulting from available-for-sale securities are included in other (expense) income, net, in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses on available-for-sale securities to the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014 and September 30, 2013.

Gains and losses on the sale of available-for-sale securities are determined using the specific identification method.   There was $3 thousand of unrealized loss and $4 thousand of unrealized gain, net of tax, on available-for-sale securities as of September 30, 2014 and December 31, 2013, respectively.

The amortized cost, net unrealized gain and fair value of our investments in marketable available-for-sale securities as of September 30, 2014 and December 31, 2013 are shown below (in thousands):

	As of September 30, 2014							As of December 31, 2013
	Amortized Cost		Net Unrealized Loss			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	8,470	$	(3	)	$	8,467	$	7,375	$	4	$	7,379
Commercial paper	1,199		—			1,199		1,799		—		1,799
U.S. Agency bonds	501		—			501		760		—		760
Certificates of deposit	517		—			517		515		—		515
Total investments	$	10,687	$	(3	)	$	10,684	$	10,449	$	4	$	10,453

The amortized cost and fair value of the marketable available-for-sale securities, by contractual maturity, as of September 30, 2014, are shown below (in thousands):

	September 30, 2014
	Amortized Cost		Fair Value
Due in one year or less	$	8,712	$	8,711
Due after one year	1,975		1,973
Total	$	10,687	$	10,684

We classify and disclose fair value measurements in one of the following three categories of fair value hierarchy:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Our assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.  The types of instruments valued, based on quoted market prices in active markets, include certificates of deposit.  Such instruments are generally classified within Level 1 of the fair value hierarchy.   We did not have any transfers into and out of Level 1 or Level 2 during the three and nine months ended September 30, 2014 or the twelve months ended December 31, 2013.  No assets or investments were classified as Level 3 as of September 30, 2014 or as of December 31, 2013.

The types of instruments valued by management, based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, include Ultimate’s corporate debentures and bonds, commercial paper, U.S. agency bonds and U.S. Treasury bills.  Such instruments are generally classified within Level 2 of the fair value hierarchy.  Ultimate uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of September 30, 2014 and December 31, 2013 (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	8,467	$	—	$	8,467	$	—	$	7,379	$	—	$	7,379	$	—
Commercial paper	1,199		—		1,199		—		1,799		—		1,799		—
U.S. Agency bonds	501		—		501		—		760		—		760		—
Certificates of deposit	517		517		—		—		515		515		—		—
Total	$	10,684	$	517	$	10,167	$	—	$	10,453	$	515	$	9,938	$	—

Assets and liabilities measured at fair value on a recurring basis were presented in the unaudited condensed consolidated balance sheet as of September 30, 2014 and the audited consolidated balance sheet as of December 31, 2013 as short-term and long-term investments in marketable securities.  There were no financial liabilities accounted for at fair value as of September 30, 2014 and December 31, 2013.

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Prepaid Expenses and Other Current Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Prepaid Expense and Other Assets, Current [Abstract]
Prepaid commissions	$ 20,768	$ 19,942
Other Prepaid Expense	7,039	2,783
Other Assets	6,922	6,649
Total prepaid expenses and other current assets	$ 34,729	$ 29,374

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Goodwill & Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in the carrying value of goodwill since December 31, 2013 were as follows (in thousands):

	For the Nine Months Ended September 30, 2014
Goodwill, December 31, 2013	$	26,942
Purchase price adjustments (1)	(818		)
Translation adjustment (2)	(350		)
Goodwill, September 30, 2014	$	25,774

(1) During the nine months ended September 30, 2014, we adjusted the purchase price for each of the acquisitions which were entered into in the fourth fiscal quarter of 2013 with respect to the related dollar value of the stock consideration paid in each acquisition.

(2) Represents the impact of the foreign currency translation of the portion of goodwill that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such goodwill is translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

Schedule of Finite-Lived Intangible Assets

The following tables present our acquired intangible assets as of the dates specified below (in thousands):

	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(707	)	$	(373	)	$	4,120
Customer relationships	3,200		(306		)	(4		)	2,890
Non-compete agreements	300		(90		)	(2		)	208
	$	8,700	$	(1,103	)	$	(379	)	$	7,218
	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Cumulative Translation Adjustment (1)			Net Carrying Amount
Developed technology	$	5,200	$	(180	)	$	(179	)	$	4,841
Customer relationships	3,200		(47		)	(3		)	3,150
Non-compete agreements	300		(15		)	(2		)	283
	$	8,700	$	(242	)	$	(184	)	$	8,274

(1) Represents the impact of the foreign currency translation of the portion of acquired intangible assets that is recorded by our Canadian subsidiary whose functional currency is also its local currency. Such intangible assets are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).