_______________ | |||
FORM 8-K | |||
CURRENT REPORT | |||
PURSUANT TO SECTION 13 OR 15(d) | |||
OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
Date of Report (Date of Earliest Event Reported) – October 27, 2015 | |||
_______________ | |||
THE ULTIMATE SOFTWARE GROUP, INC. | |||
(Exact name of Registrant as specified in its charter) | |||
Delaware | 000-24347 | 65-0694077 | |
(State or other jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |
2000 Ultimate Way, Weston, Florida | 33326 | ||
(Address of principal executive offices) | (Zip Code) | ||
(954) 331-7000 | |||
(Registrant’s telephone number, including area code) |
o | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Number | Description |
99.1 | Press Release, dated October 27, 2015 |
THE ULTIMATE SOFTWARE GROUP, INC. |
By: /s/ Mitchell K. Dauerman |
Mitchell K. Dauerman |
Executive Vice President, Chief Financial Officer and Treasurer |
(Principal Financial and Accounting Officer) |
• | Record Recurring Revenues of $131.8 Million, Up by 23% |
• | Record Total Revenues of $155.3 Million, Up by 22% |
• | Recurring revenues grew by 23% for the third quarter of 2015 compared with the same period in 2014. The increase was attributable to revenue growth from our cloud offering. Recurring revenues were 85% of total revenues for the third quarter of 2015 versus 84% for 2014's third quarter. |
• | Ultimate’s total revenues for the third quarter of 2015 increased by 22%, as compared with those for the third quarter of 2014. |
• | Ultimate’s annualized retention rate, on a rolling 12-month basis, exceeded 96% for its recurring revenue cloud customer base as of September 30, 2015. |
• | Cash flows from operating activities for the third quarter of 2015 were $31.9 million, compared with $23.1 million for the same period in 2014. For the nine months ended September 30, 2015, Ultimate generated $75.5 million in cash from operations, compared with $64.1 million for the nine months ended September 30, 2014. The combination of cash, cash equivalents, and marketable securities was $140.4 million as of September 30, 2015, compared with $118.5 million as of December 31, 2014. |
• | Recurring revenues to increase by approximately 23% over 2014, |
• | Total revenues to increase by approximately 22% over 2014, and |
• | Operating margin, on a non-GAAP basis (discussed below), in excess of 20%. |
• | Recurring revenues to increase by approximately 25% over 2015, |
• | Total revenues to increase by approximately 23% over 2015, and |
• | Operating margin, on a non-GAAP basis (discussed below), in excess of 21%. |
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, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues: | |||||||||||||||
Recurring | $ | 131,768 | $ | 107,362 | $ | 375,061 | $ | 306,888 | |||||||
Services | 23,556 | 20,047 | 72,147 | 63,096 | |||||||||||
License | — | 22 | 223 | 522 | |||||||||||
Total revenues | 155,324 | 127,431 | 447,431 | 370,506 | |||||||||||
Cost of revenues: | |||||||||||||||
Recurring | 34,856 | 30,598 | 101,984 | 85,974 | |||||||||||
Services | 25,027 | 21,528 | 72,966 | 64,639 | |||||||||||
License | — | 5 | 49 | 88 | |||||||||||
Total cost of revenues | 59,883 | 52,131 | 174,999 | 150,701 | |||||||||||
Gross profit | 95,441 | 75,300 | 272,432 | 219,805 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 41,687 | 28,104 | 121,645 | 86,395 | |||||||||||
Research and development | 23,027 | 21,419 | 68,331 | 61,572 | |||||||||||
General and administrative | 19,120 | 12,172 | 53,460 | 34,475 | |||||||||||
Total operating expenses | 83,834 | 61,695 | 243,436 | 182,442 | |||||||||||
Operating income | 11,607 | 13,605 | 28,996 | 37,363 | |||||||||||
Other income (expense): | |||||||||||||||
Interest and other expense | (118 | ) | (104 | ) | (368 | ) | (276 | ) | |||||||
Other income, net | 62 | 82 | 165 | 253 | |||||||||||
Total other expense, net | (56 | ) | (22 | ) | (203 | ) | (23 | ) | |||||||
Income before income taxes | 11,551 | 13,583 | 28,793 | 37,340 | |||||||||||
Provision for income taxes | (5,700 | ) | 6,073 | (15,125 | ) | (4,438 | ) | ||||||||
Net income | $ | 5,851 | $ | 19,656 | $ | 13,668 | $ | 32,902 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.20 | $ | 0.69 | $ | 0.48 | $ | 1.16 | |||||||
Diluted | $ | 0.20 | $ | 0.67 | $ | 0.46 | $ | 1.12 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 28,603 | 28,285 | 28,592 | 28,246 | |||||||||||
Diluted | 29,715 | 29,306 | 29,651 | 29,302 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Cost of recurring revenues | $ | 1,655 | $ | 1,402 | $ | 4,628 | $ | 4,024 | ||||||||
Cost of services revenues | 1,242 | 1,122 | 3,710 | 3,310 | ||||||||||||
Sales and marketing | 11,000 | 5,015 | 29,534 | 14,749 | ||||||||||||
Research and development | 1,489 | 1,198 | 4,579 | 3,646 | ||||||||||||
General and administrative | 6,523 | 2,613 | 17,312 | 7,637 | ||||||||||||
Total non-cash stock-based compensation expense | $ | 21,909 | $ | 11,350 | $ | 59,763 | $ | 33,366 | ||||||||
Amortization of acquired intangibles: | ||||||||||||||||
General and administrative | $ | 255 | $ | 286 | $ | 783 | $ | 861 | ||||||||
Total amortization of acquired intangibles | $ | 255 | $ | 286 | $ | 783 | $ | 861 | ||||||||
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES | |||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(in thousands) | |||||||
As of | As of | ||||||
September 30, | December 31, | ||||||
2015 | 2014 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 122,138 | $ | 108,298 | |||
Investments in marketable securities | 6,797 | 7,862 | |||||
Accounts receivable, net | 119,982 | 100,218 | |||||
Prepaid expenses and other current assets | 42,904 | 34,788 | |||||
Deferred tax assets, net | 1,050 | 965 | |||||
Total current assets before funds held for clients | 292,871 | 252,131 | |||||
Funds held for clients | 331,220 | 759,087 | |||||
Total current assets | 624,091 | 1,011,218 | |||||
Property and equipment, net | 111,459 | 86,595 | |||||
Goodwill | 24,637 | 25,696 | |||||
Investments in marketable securities | 11,443 | 2,294 | |||||
Intangible assets, net | 5,507 | 6,774 | |||||
Other assets, net | 27,374 | 20,611 | |||||
Deferred tax assets, net | 47,979 | 37,110 | |||||
Total assets | $ | 852,490 | $ | 1,190,298 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 6,924 | $ | 7,418 | |||
Accrued expenses | 40,532 | 30,941 | |||||
Deferred revenue | 128,484 | 109,552 | |||||
Capital lease obligations | 4,224 | 3,655 | |||||
Other borrowings | 400 | 567 | |||||
Total current liabilities before client fund obligations | 180,564 | 152,133 | |||||
Client fund obligations | 331,220 | 759,087 | |||||
Total current liabilities | 511,784 | 911,220 | |||||
Deferred revenue | 2,847 | 153 | |||||
Deferred rent | 3,598 | 2,368 | |||||
Capital lease obligations | 3,528 | 3,359 | |||||
Other borrowings | 100 | 400 | |||||
Deferred income tax liability | 753 | 1,049 | |||||
Total liabilities | 522,610 | 918,549 | |||||
Stockholders’ equity: | |||||||
Preferred Stock, $.01 par value | — | — | |||||
Series A Junior Participating Preferred Stock, $.01 par value | — | — | |||||
Common Stock, $.01 par value | 330 | 327 | |||||
Additional paid-in capital | 455,649 | 376,609 | |||||
Accumulated other comprehensive loss | (7,087 | ) | (3,590 | ) | |||
Accumulated earnings | 50,596 | 36,928 | |||||
499,488 | 410,274 | ||||||
Treasury stock, at cost | (169,608 | ) | (138,525 | ) | |||
Total stockholders’ equity | 329,880 | 271,749 | |||||
Total liabilities and stockholders’ equity | $ | 852,490 | $ | 1,190,298 |
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES | |||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(In thousands) | |||||||
For the Nine Months Ended September 30, | |||||||
2015 | 2014 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 13,668 | $ | 32,902 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 16,012 | 14,157 | |||||
Provision for doubtful accounts | 3,390 | 1,747 | |||||
Non-cash stock-based compensation expense | 59,763 | 33,366 | |||||
Income taxes | 14,692 | 3,968 | |||||
Excess tax benefit from employee stock plan | (25,942 | ) | (20,808 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (23,154 | ) | (4,215 | ) | |||
Prepaid expenses and other current assets | (8,116 | ) | (5,355 | ) | |||
Other assets | (6,763 | ) | (1,944 | ) | |||
Accounts payable | (494 | ) | 1,513 | ||||
Accrued expenses and deferred rent | 10,821 | 5,928 | |||||
Deferred revenue | 21,626 | 2,825 | |||||
Net cash provided by operating activities | 75,503 | 64,084 | |||||
Cash flows from investing activities: | |||||||
Purchases of marketable securities | (14,464 | ) | (8,335 | ) | |||
Maturities of marketable securities | 6,380 | 8,096 | |||||
Net remittances (purchases) of client funds securities | 427,867 | (116,612 | ) | ||||
Purchases of property and equipment | (33,538 | ) | (31,255 | ) | |||
Net cash provided by (used in) investing activities | 386,245 | (148,106 | ) | ||||
Cash flows from financing activities: | |||||||
Repurchases of Common Stock | (31,083 | ) | (19,981 | ) | |||
Net proceeds from issuances of Common Stock | 3,646 | 4,629 | |||||
Excess tax benefits from employee stock plan | 25,942 | 20,808 | |||||
Shares acquired to settle employee tax withholding liability | (12,496 | ) | (12,181 | ) | |||
Principal payments on capital lease obligations | (3,629 | ) | (2,996 | ) | |||
Repayments of other borrowings | (467 | ) | (2,225 | ) | |||
Net (decrease) increase in client fund obligations | (427,867 | ) | 116,612 | ||||
Net cash (used in) provided by financing activities | (445,954 | ) | 104,666 | ||||
Effect of exchange rate changes on cash | (1,954 | ) | (515 | ) | |||
Net increase in cash and cash equivalents | 13,840 | 20,129 | |||||
Cash and cash equivalents, beginning of period | 108,298 | 79,794 | |||||
Cash and cash equivalents, end of period | $ | 122,138 | $ | 99,923 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 285 | $ | 235 | |||
Cash paid for taxes | $ | 540 | $ | 468 | |||
Non-cash investing and financing activities: | |||||||
Capital lease obligations to acquire new equipment | $ | 4,367 | $ | 4,936 | |||
Stock consideration adjustment recorded for acquisitions | $ | — | $ | (818 | ) | ||
Stock based compensation for capitalized software | $ | 2,188 | $ | 1,107 |
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES | |||||||||||||||
Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures | |||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Non-GAAP operating income reconciliation: | |||||||||||||||
Operating income | 11,607 | 13,605 | 28,996 | 37,363 | |||||||||||
Operating income, as a % of total revenues | 7.5 | % | 10.7 | % | 6.5 | % | 10.1 | % | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 21,909 | 11,350 | 59,763 | 33,366 | |||||||||||
Non-cash amortization of acquired intangible assets | 255 | 286 | 783 | 861 | |||||||||||
Non-GAAP operating income | $ | 33,771 | $ | 25,241 | $ | 89,542 | $ | 71,590 | |||||||
Non-GAAP operating income, as a % of total revenues | 21.7 | % | 19.8 | % | 20.0 | % | 19.3 | % | |||||||
Non-GAAP net income reconciliation: | |||||||||||||||
Net income | $ | 5,851 | $ | 19,656 | $ | 13,668 | $ | 32,902 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 21,909 | 11,350 | 59,763 | 33,366 | |||||||||||
Non-cash amortization of acquired intangible assets | 255 | 286 | 783 | 861 | |||||||||||
Income tax effect of above two items | (7,488 | ) | (4,456 | ) | (20,091 | ) | (13,176 | ) | |||||||
Research and development tax credits | — | (12,084 | ) | — | (12,084 | ) | |||||||||
Non-GAAP net income | $ | 20,527 | $ | 14,752 | 54,123 | $ | 41,869 | ||||||||
Non-GAAP net income, per diluted share, reconciliation: (1) | |||||||||||||||
Net income, per diluted share | $ | 0.20 | $ | 0.67 | $ | 0.46 | $ | 1.12 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 0.74 | 0.38 | 2.02 | 1.14 | |||||||||||
Non-cash amortization of acquired intangible assets | 0.01 | 0.01 | 0.03 | 0.03 | |||||||||||
Income tax effect of above two items | (0.26 | ) | (0.15 | ) | (0.68 | ) | (0.45 | ) | |||||||
Research and development tax credits | — | (0.41 | ) | — | (0.41 | ) | |||||||||
Non-GAAP net income, per diluted share | $ | 0.69 | $ | 0.50 | $ | 1.83 | $ | 1.43 | |||||||
Shares used in calculation of GAAP and non-GAAP net income per share: | |||||||||||||||
Basic | 28,603 | 28,285 | 28,592 | 28,246 | |||||||||||
Diluted | 29,715 | 29,306 | 29,651 | 29,302 | |||||||||||
(1) The non-GAAP net income per diluted share reconciliation is calculated on a diluted weighted average share basis for GAAP net income periods. |