Ultimate Software Delivers Another Solid Quarter

By Steve SymingtonMarketsFool.com

Image source: Ultimate Software Group.

Ultimate Software Group (NASDAQ: ULTI) released second-quarter results on Tuesday after the market close, and the stock is down a modest 4% in after-hours trading as of this writing as those results fell ever so slightly short of expectations. Let's take a closer look at what the cloud-based human capital management specialist achieved in its latest quarter:

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Ultimate Software Group results: The raw numbers


Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)


$186.5 million

$147.2 million


GAAP net income

$1.7 million

$3.9 million


GAAP earnings per share (diluted)




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Data source: Ultimate Software Group.

What happened with Ultimate Software Group this quarter?

  • On an adjusted (non-GAAP) basis -- which excludes stock-based compensation and amortization of intangibles --net income climbed 23.4% year over year, to $22.7 million, and rose 22.6% on a per-share basis, to $0.76.
  • Recurring revenue rose 27% year over year, to a new company-record $158.5 million, representing 85% of total sales.
  • For perspective, Ultimate Software Group's guidance provided last quarter called for slightly higher revenue of $187 million, including slightly lower recurring revenue of $157 million.
  • Utlimate's annualized retention rate (on a rolling 12-month basis) exceeded 97% for its recurring-revenue-cloud customer base, up from 96% in the same year-ago period.
  • Ultimate's UltiPro solution was awarded highest overall customer satisfaction rating among 9 competing solutions in the Summer 2016 Core HR Software Grid report by G2 Crowd.
  • Cash flow from operations grew 15.9% year over year, to $20.4 million, bringing year-to-date cash from operations to $52.5 million.
  • Acquired the assets of Capital Analytics, Inc., which specializes in analytics for human capital and workforce optimization software.
  • Repurchased 190,400 shares of common stock for $29.7 million, leaving 1,342,005 shares available under a previously announced stock repurchase plan.
  • Repurchased 117,877 shares of common stock to settle employees' tax withholding obligations associated with restricted stock that vested during the quarter.
  • Ended the quarter with cash, equivalents, and marketable securities of $104.9 million, down from $129.4 million at the end of 2015.
  • Ranked No. 8 on Forbes' 2016 "Most Innovative Growth Companies."
  • Named "Best Customer Services Department of the Year" by Network Products Guide in its 2016 IT World awards.

What management had to say

"We had a strong second quarter," addedUltimate Software Group founder and CEO, Scott Scherr. "We executed on all of our key financial objectives and delivered the best quarter in our history for new-business contracts, and our year-over-year customer retention rate again exceeded 97%."

Looking forward

For the current quarter, Ultimate Software anticipates total revenue of $197 million, recurring revenue of roughly $165 million, and quarterly adjusted operating margin of roughly 19%.For the full-year 2016, Ultimate Software reiterated guidance for 26% year-over-year growth from both recurring revenue and total revenue, with healthier full-year adjusted operating margin of 21%.

To be fair, the gravity of this quarterly top-line "miss" isn't exactly a huge concern. But on the heels of its record Q1 report three months ago, we should also note Ultimate Software Group shares briefly touched a fresh all-time high in the trading session prior to its Q2 release. Combined with its continued high customer retention and success pulling in new business, it's hard to blame Ultimate Software's CEO for remaining so optimistic regarding his company's compelling long-term story.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Ultimate Software Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.