_______________ | |||
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) – July 26, 2016 | |||
_______________ | |||
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 July 26, 2016 |
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 $158.5 Million, Up by 27% |
• | Total Revenues of $186.5 Million, Up by 27% |
• | Recurring revenues from our cloud offering grew by 27% for the second quarter of 2016 as compared with the same period in 2015. Recurring revenues were 85% of total revenues for the second quarter of 2016 and 84% of total revenues for the second quarter of 2015. |
• | Ultimate’s total revenues for the second quarter of 2016 increased by 27%, as compared with those for the second quarter of 2015. |
• | Ultimate’s annualized retention rate, on a rolling 12-month basis, exceeded 97% for its recurring revenue cloud customer base as of June 30, 2016, which compares with greater than 96% for the same period of the prior year. |
• | Cash flows from operating activities for the second quarter of 2016 were $20.4 million, compared with $17.6 million for the second quarter of 2015. For the six months ended June 30, 2016, Ultimate generated $52.5 million in cash from operations, compared with $43.6 million for the six months ended June 30, 2015. |
• | In the second quarter of 2016, Ultimate acquired the assets of Capital Analytics, Inc. (d/b/a Vestrics), which is engaged in the business of analytics for human capital and workforce optimization software. |
• | Recurring revenues of approximately $165 million, |
• | Total revenues of approximately $197 million, and |
• | Operating margin, on a non-GAAP basis (discussed below), of approximately 19%. |
• | Recurring revenues to increase by approximately 26% over 2015, |
• | Total revenues to increase by approximately 26% over 2015, and |
• | Operating margin, on a non-GAAP basis (discussed below), of approximately 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 June 30, | For the Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues: | |||||||||||||||
Recurring | $ | 158,479 | $ | 124,407 | $ | 311,230 | $ | 243,516 | |||||||
Services | 28,058 | 22,823 | 62,521 | 48,591 | |||||||||||
Total revenues | 186,537 | 147,230 | 373,751 | 292,107 | |||||||||||
Cost of revenues: | |||||||||||||||
Recurring | 42,951 | 34,388 | 82,408 | 67,177 | |||||||||||
Services | 29,342 | 23,621 | 62,146 | 47,939 | |||||||||||
Total cost of revenues | 72,293 | 58,009 | 144,554 | 115,116 | |||||||||||
Gross profit | 114,244 | 89,221 | 229,197 | 176,991 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 54,548 | 39,195 | 111,130 | 79,958 | |||||||||||
Research and development | 29,053 | 23,906 | 56,568 | 45,304 | |||||||||||
General and administrative | 22,180 | 18,488 | 43,709 | 34,340 | |||||||||||
Total operating expenses | 105,781 | 81,589 | 211,407 | 159,602 | |||||||||||
Operating income | 8,463 | 7,632 | 17,790 | 17,389 | |||||||||||
Other income (expense): | |||||||||||||||
Interest and other expense | (180 | ) | (135 | ) | (364 | ) | (250 | ) | |||||||
Other income, net | 102 | 46 | 205 | 103 | |||||||||||
Total other expense, net | (78 | ) | (89 | ) | (159 | ) | (147 | ) | |||||||
Income before income taxes | 8,385 | 7,543 | 17,631 | 17,242 | |||||||||||
Provision for income taxes | (6,708 | ) | (3,886 | ) | (13,519 | ) | (9,425 | ) | |||||||
Net income | $ | 1,677 | $ | 3,657 | $ | 4,112 | $ | 7,817 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.06 | $ | 0.13 | $ | 0.14 | $ | 0.27 | |||||||
Diluted | $ | 0.06 | $ | 0.12 | $ | 0.14 | $ | 0.26 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 28,895 | 28,591 | 28,860 | 28,587 | |||||||||||
Diluted | 29,893 | 29,591 | 29,927 | 29,599 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Cost of recurring revenues | $ | 2,168 | $ | 1,546 | $ | 4,098 | $ | 2,973 | ||||||||
Cost of services revenues | 1,476 | 1,186 | 3,021 | 2,468 | ||||||||||||
Sales and marketing | 15,015 | 10,751 | 28,683 | 18,534 | ||||||||||||
Research and development | 1,920 | 1,842 | 3,767 | 3,090 | ||||||||||||
General and administrative | 8,064 | 6,452 | 15,488 | 10,789 | ||||||||||||
Total non-cash stock-based compensation expense | $ | 28,643 | $ | 21,777 | $ | 55,057 | $ | 37,854 | ||||||||
Amortization of acquired intangibles: | ||||||||||||||||
General and administrative | $ | 257 | $ | 264 | $ | 504 | $ | 528 | ||||||||
Total amortization of acquired intangibles | $ | 257 | $ | 264 | $ | 504 | $ | 528 |
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES | |||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands, except share data) | |||||||
As of | As of | ||||||
June 30, | December 31, | ||||||
2016 | 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 82,318 | $ | 109,325 | |||
Investments in marketable securities | 15,673 | 10,780 | |||||
Accounts receivable, net | 147,167 | 130,106 | |||||
Prepaid expenses and other current assets | 53,280 | 46,804 | |||||
Deferred tax assets, net | 851 | 883 | |||||
Total current assets before funds held for clients | 299,289 | 297,898 | |||||
Funds held for clients | 930,790 | 923,308 | |||||
Total current assets | 1,230,079 | 1,221,206 | |||||
Property and equipment, net | 153,135 | 125,492 | |||||
Goodwill | 29,173 | 24,410 | |||||
Investments in marketable securities | 6,918 | 9,278 | |||||
Intangible assets, net | 10,840 | 5,167 | |||||
Other assets, net | 39,009 | 31,107 | |||||
Deferred tax assets, net | 48,874 | 48,909 | |||||
Total assets | $ | 1,518,028 | $ | 1,465,569 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 8,889 | $ | 7,395 | |||
Accrued liabilities | 39,833 | 42,097 | |||||
Deferred revenue | 156,329 | 142,793 | |||||
Capital lease obligations | 5,101 | 4,488 | |||||
Other borrowings | 200 | 400 | |||||
Total current liabilities before client fund obligations | 210,352 | 197,173 | |||||
Client fund obligations | 931,249 | 923,366 | |||||
Total current liabilities | 1,141,601 | 1,120,539 | |||||
Deferred revenue | 2,660 | 2,934 | |||||
Deferred rent | 4,140 | 3,719 | |||||
Capital lease obligations | 4,354 | 3,665 | |||||
Deferred income tax liability | 824 | 646 | |||||
Total liabilities | 1,153,579 | 1,131,503 | |||||
Stockholders’ equity: | |||||||
Preferred Stock, $.01 par value | — | — | |||||
Series A Junior Participating Preferred Stock, $.01 par value | — | — | |||||
Common Stock, $.01 par value | 336 | 333 | |||||
Additional paid-in capital | 517,912 | 463,609 | |||||
Accumulated other comprehensive loss | (6,179 | ) | (7,829 | ) | |||
Accumulated earnings | 63,739 | 59,627 | |||||
575,808 | 515,740 | ||||||
Treasury stock, at cost | (211,359 | ) | (181,674 | ) | |||
Total stockholders’ equity | 364,449 | 334,066 | |||||
Total liabilities and stockholders’ equity | $ | 1,518,028 | $ | 1,465,569 |
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES | |||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(In thousands) | |||||||
For the Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 4,112 | $ | 7,817 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 12,575 | 10,589 | |||||
Provision for doubtful accounts | 2,136 | 1,940 | |||||
Non-cash stock-based compensation expense | 55,057 | 37,854 | |||||
Income taxes | 13,281 | 9,312 | |||||
Net amortization of premiums and accretion of discounts on available-for-sale securities | 277 | — | |||||
Excess tax benefit from employee stock plan | (13,130 | ) | (15,910 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (19,097 | ) | (10,423 | ) | |||
Prepaid expenses and other current assets | (6,476 | ) | (5,788 | ) | |||
Other assets | (7,902 | ) | (4,424 | ) | |||
Accounts payable | 1,494 | (30 | ) | ||||
Accrued liabilities and deferred rent | (2,843 | ) | 1,182 | ||||
Deferred revenue | 12,992 | 11,499 | |||||
Net cash provided by operating activities | 52,476 | 43,618 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (33,643 | ) | (21,303 | ) | |||
Purchases of marketable securities | (138,157 | ) | (3,816 | ) | |||
Maturities of marketable securities | 56,130 | 4,300 | |||||
Payments for acquisitions | (9,125 | ) | — | ||||
Net purchases of client funds securities | 71,972 | 357,804 | |||||
Net cash (used in) provided by investing activities | (52,823 | ) | 336,985 | ||||
Cash flows from financing activities: | |||||||
Repurchases of Common Stock | (29,685 | ) | (30,743 | ) | |||
Net proceeds from issuances of Common Stock | 2,729 | 2,340 | |||||
Excess tax benefits from employee stock plan | 13,130 | 15,910 | |||||
Withholding taxes paid related to net share settlement of equity awards | (18,564 | ) | (10,752 | ) | |||
Principal payments on capital lease obligations | (2,810 | ) | (2,436 | ) | |||
Repayments of other borrowings | (200 | ) | (367 | ) | |||
Net increase in client fund obligations | 7,883 | (357,804 | ) | ||||
Net cash used in financing activities | (27,517 | ) | (383,852 | ) | |||
Effect of exchange rate changes on cash | 857 | (773 | ) | ||||
Net decrease in cash and cash equivalents | (27,007 | ) | (4,022 | ) | |||
Cash and cash equivalents, beginning of period | 109,325 | 108,298 | |||||
Cash and cash equivalents, end of period | $ | 82,318 | $ | 104,276 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 208 | $ | 189 | |||
Cash paid for taxes | $ | 1,223 | $ | 332 | |||
Non-cash investing and financing activities: | |||||||
Capital lease obligations to acquire new equipment | $ | 4,112 | $ | 3,749 | |||
Cash held in escrow for acquisition | $ | 1,000 | $ | — | |||
Stock based compensation for capitalized software | $ | 1,958 | $ | 1,418 |
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 June 30, | For the Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Non-GAAP operating income reconciliation: | |||||||||||||||
Operating income | $ | 8,463 | $ | 7,632 | 17,790 | 17,389 | |||||||||
Operating income, as a % of total revenues | 4.5 | % | 5.2 | % | 4.8 | % | 6.0 | % | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 28,643 | 21,777 | 55,057 | 37,854 | |||||||||||
Non-cash amortization of acquired intangible assets | 257 | 264 | 504 | 528 | |||||||||||
Non-GAAP operating income | $ | 37,363 | $ | 29,673 | $ | 73,351 | $ | 55,771 | |||||||
Non-GAAP operating income, as a % of total revenues | 20.0 | % | 20.2 | % | 19.6 | % | 19.1 | % | |||||||
Non-GAAP net income reconciliation: | |||||||||||||||
Net income | $ | 1,677 | $ | 3,657 | $ | 4,112 | $ | 7,817 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 28,643 | 21,777 | 55,057 | 37,854 | |||||||||||
Non-cash amortization of acquired intangible assets | 257 | 264 | 504 | 528 | |||||||||||
Income tax effect of above two items | (7,834 | ) | (7,336 | ) | (15,026 | ) | (12,605 | ) | |||||||
Non-GAAP net income | $ | 22,743 | $ | 18,362 | $ | 44,647 | $ | 33,594 | |||||||
Non-GAAP net income, per diluted share, reconciliation: (1) | |||||||||||||||
Net income, per diluted share | $ | 0.06 | $ | 0.12 | $ | 0.14 | $ | 0.26 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 0.96 | 0.74 | 1.85 | 1.28 | |||||||||||
Non-cash amortization of acquired intangible assets | 0.01 | 0.01 | 0.02 | 0.02 | |||||||||||
Income tax effect of above two items | (0.27 | ) | (0.25 | ) | (0.52 | ) | (0.43 | ) | |||||||
Non-GAAP net income, per diluted share | $ | 0.76 | $ | 0.62 | $ | 1.49 | $ | 1.13 | |||||||
Shares used in calculation of GAAP and non-GAAP net income per share: | |||||||||||||||
Basic | 28,895 | 28,591 | 28,860 | 28,587 | |||||||||||
Diluted | 29,893 | 29,591 | 29,927 | 29,599 |
(1) | The non-GAAP net income per diluted share reconciliation is calculated on a diluted weighted average share basis for GAAP net income periods. |