Ultimate Software Moves Forward With AI Platform

Managing human resources is a major hassle for many businesses, especially smaller companies that aren't big enough to justify having in-house specialists in key fields. Utilizing technology can be a great way to find solutions to those problems, and Ultimate Software Group (NASDAQ: ULTI) has developed cloud-based HR management solutions that can help clients handle their human resources needs more efficiently. With employment levels on the rise, managing staff effectively has become a higher priority for many companies.

Coming into Wednesday's third-quarter financial report, Ultimate Software investors were looking to see solid growth, with a desire for a rebound from sluggish results last quarter. Ultimate enjoyed good gains in revenue and profit, and it's optimistic about its prospects for business-generating initiatives in the near future. Let's take a closer look at Ultimate Software and what its latest results say about the HR specialist.

Returning to faster growth at Ultimate Software

Ultimate Software's third-quarter results were encouraging. Revenue was up 20% to $236.1 million, which was slightly better than the $233 million consensus forecast among those following the stock. Adjusted net income of $32.4 million was higher by more than a third from year-earlier levels, and adjusted earnings of $1.05 per share topped most investors' expectations for $0.88 per share on the bottom line.

Ultimate continued to boost the amount of money it collects from recurring revenue. The $203.1 million that Ultimate brought in represented 86% of the company's total sales, and the growth rate of 22% outpaced the HR cloud company's overall top-line gains. Services revenue saw a nice bounce higher, rising 10% from year-ago levels, but that side of the business remains only a minor part of Ultimate's business strategy. The company retained 96% of its customers during the quarter, which is consistent with how it has performed in the past.

The company touted a couple of achievements from the quarter. Fortune magazine recognized Ultimate Software by putting it as No. 2 on its Best Workplace for Women list. Ultimate also pointed to a multi-year agreement with the NBA's Miami Heat under which the company's logo will appear on player jerseys. The two entities will cooperate with community outreach, charitable giving, and fan experiences.

Can Ultimate Software keep climbing into the cloud?

CEO Scott Scherr was excited about how the company did. "We delivered on our financial objectives in the third quarter, as well as on our business objectives," Sherr said. The CEO discussed how key new initiatives should be able to foster growth well into the future.

In particular, Ultimate Software has launched interesting new products. As Scherr described it, "We officially launched our 'People First' artificial intelligence platform, known as Xander, and our all-new partner ecosystem and integration hub, UltiPro Connect, to the HR community." The idea behind the platform is to provide leaders the information to understand their employees' actual feelings, with natural language processing that can read employee sentiment in real time. In response, company leaders can coach their employees with a more complete knowledge base, hopefully resulting in better outcomes.

Ultimate's guidance reflected its optimism. The company sees fourth-quarter total revenue of $242 million to $246 million, with recurring revenue posting similar gains. For 2018, Ultimate expects 19% revenue growth, with a slightly faster gain in recurring revenue.

Ultimate Software's shareholders seemed pleased with how the company performed, and the stock rose 4% on Thursday following the Wednesday afternoon announcement. Ultimate still has work to do to make sure it takes full advantage of the opportunities it has, but for now, its growth has many people interested in what could come next for Ultimate Software in the year ahead.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Ultimate Software Group. The Motley Fool has a disclosure policy.