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þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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)
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(Zip
Code)
|
Large
accelerated filer þ
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
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(Do
not check if a smaller reporting company)
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Smaller
reporting company ¨
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Page(s)
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|||
Part I – Financial Information:
|
|||
Item
1 – Financial Statements:
|
|||
1
|
|||
2
|
|||
3
|
|||
4
|
|||
5-9
|
|||
9-13
|
|||
14
|
|||
Item
4 – Controls and Procedures
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14
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||
Part
II – Other Information:
|
|||
Item
1A – Risk Factors
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15
|
||
15
|
|||
Item
6 – Exhibits
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16
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||
17
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|||
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
|
||||||||
(Dollars
in thousands, except share and per share data)
|
||||||||
As
of
|
As
of
|
|||||||
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
and cash equivalents
|
$ | 21,691 | $ | 17,200 | ||||
Short-term
investments in marketable securities
|
2,801 | 5,805 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of
$700
for 2009 and 2008
|
32,041 | 38,302 | ||||||
Prepaid
expenses and other current assets
|
16,221 | 16,011 | ||||||
Deferred
tax assets, net
|
3,533 | 3,533 | ||||||
Total
current assets before funds held for customers
|
76,287 | 80,851 | ||||||
Funds
held for customers
|
9,012 | 5,863 | ||||||
Total
current assets
|
85,299 | 86,714 | ||||||
Property
and equipment, net
|
22,594 | 22,984 | ||||||
Capitalized
software, net
|
5,477 | 5,642 | ||||||
Goodwill
|
2,853 | 2,906 | ||||||
Other
assets, net
|
11,622 | 11,668 | ||||||
Long-term
deferred tax assets, net
|
17,383 | 17,343 | ||||||
Total
assets
|
$ | 145,228 | $ | 147,257 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 5,549 | $ | 7,200 | ||||
Accrued
expenses
|
7,726 | 12,701 | ||||||
Current
portion of deferred revenue
|
52,918 | 54,687 | ||||||
Current
portion of capital lease obligations
|
2,085 | 2,034 | ||||||
Current
portion of long-term debt
|
320 | 320 | ||||||
Total
current liabilities before customer funds obligations
|
68,598 | 76,942 | ||||||
Customer
funds obligations
|
9,012 | 5,863 | ||||||
Total
current liabilities
|
77,610 | 82,805 | ||||||
Deferred
revenue, net of current portion
|
8,348 | 8,807 | ||||||
Deferred
rent
|
3,305 | 3,054 | ||||||
Capital
lease obligations, net of current portion
|
1,610 | 1,519 | ||||||
Total
liabilities
|
90,873 | 96,185 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
Stock, $.01 par value, 2,000,000 shares authorized, no shares issued or
outstanding
|
– | – | ||||||
Series
A Junior Participating Preferred Stock, $.01 par value, 500,000 shares
authorized, no shares issued or outstanding
|
– | – | ||||||
Common
Stock, $.01 par value, 50,000,000 shares authorized, 26,862,986 and
26,796,169 shares issued in 2009 and 2008, respectively
|
269 | 268 | ||||||
Additional
paid-in capital
|
168,333 | 164,574 | ||||||
Accumulated
other comprehensive loss
|
(1,066 | ) | (1,002 | ) | ||||
Accumulated
deficit
|
(53,681 | ) | (53,268 | ) | ||||
113,855 | 110,572 | |||||||
Treasury stock, 2,533,575 shares,
at cost, for 2009 and 2008
|
(59,500 | ) | (59,500 | ) | ||||
Total
stockholders’ equity
|
54,355 | 51,072 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 145,228 | $ | 147,257 |
THE
ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
|
||||||||
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||
(In
thousands, except per share amounts)
|
||||||||
For
the Three Months
|
||||||||
Ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Recurring
|
$ | 30,888 | $ | 25,696 | ||||
Services
|
15,930 | 14,120 | ||||||
License
|
2,001 | 3,653 | ||||||
Total
revenues
|
48,819 | 43,469 | ||||||
Cost
of revenues:
|
||||||||
Recurring
|
8,906 | 6,525 | ||||||
Services
|
12,327 | 11,299 | ||||||
License
|
337 | 428 | ||||||
Total
cost of revenues
|
21,570 | 18,252 | ||||||
Gross
profit
|
27,249 | 25,217 | ||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
13,835 | 11,829 | ||||||
Research
and development
|
9,338 | 8,879 | ||||||
General
and administrative
|
4,557 | 4,296 | ||||||
Total
operating expenses
|
27,730 | 25,004 | ||||||
Operating
income (loss)
|
(481 | ) | 213 | |||||
Other
income (expense):
|
||||||||
Interest
expense and other
|
(44 | ) | (79 | ) | ||||
Other
income, net
|
72 | 357 | ||||||
Total
other income, net
|
28 | 278 | ||||||
Income
(loss) before benefit (provision) for income taxes
|
(453 | ) | 491 | |||||
Benefit
(provision) for income taxes
|
40 | (201 | ) | |||||
Net
income (loss)
|
$ | (413 | ) | $ | 290 | |||
Net
income (loss) per share:
|
||||||||
Basic
|
$ | (0.02 | ) | $ | 0.01 | |||
Diluted
|
$ | (0.02 | ) | $ | 0.01 | |||
Weighted
average shares outstanding:
|
||||||||
Basic
|
24,292 | 24,682 | ||||||
Diluted
|
24,292 | 26,460 | ||||||
THE
ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
|
||||||||
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(In
thousands)
|
||||||||
For
the Three Months
|
||||||||
Ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | (413 | ) | $ | 290 | |||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
2,928 | 2,139 | ||||||
Provision
for doubtful accounts
|
376 | 522 | ||||||
Non-cash
stock-based compensation expense
|
3,315 | 4,575 | ||||||
Deferred
income taxes
|
(40 | ) | 201 | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
5,885 | 4,239 | ||||||
Prepaid
expenses and other current assets
|
(210 | ) | (1,940 | ) | ||||
Other
assets
|
– | (1,174 | ) | |||||
Accounts
payable
|
(1,651 | ) | 3,633 | |||||
Accrued
expenses and deferred rent
|
(4,499 | ) | (2,530 | ) | ||||
Deferred
revenue
|
(2,228 | ) | 572 | |||||
Net
cash provided by operating activities
|
3,463 | 10,527 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of marketable securities
|
(308 | ) | (642 | ) | ||||
Maturities
of marketable securities
|
3,304 | 8,174 | ||||||
Net
purchases of securities from customer funds
|
(3,149 | ) | – | |||||
Capitalized
software
|
(630 | ) | (167 | ) | ||||
Purchases
of property and equipment
|
(1,173 | ) | (3,657 | ) | ||||
Net
cash (used in) provided by investing activities
|
(1,956 | ) | 3,708 | |||||
Cash
flows from financing activities:
|
||||||||
Repurchases
of Common Stock
|
– | (9,474 | ) | |||||
Principal
payments on capital lease obligations
|
(605 | ) | (583 | ) | ||||
Net
increase in customer fund obligations
|
3,149 | – | ||||||
Repayments
of borrowings of long-term debt
|
– | (84 | ) | |||||
Net
proceeds from issuances of Common Stock
|
443 | 1,051 | ||||||
Net
cash provided by (used in) financing activities
|
2,987 | (9,090 | ) | |||||
Effect
of exchange rate changes on cash
|
(3 | ) | (13 | ) | ||||
Net
decrease in cash and cash equivalents
|
(4,491 | ) | 5,132 | |||||
Cash
and cash equivalents, beginning of period
|
17,200 | 17,462 | ||||||
Cash
and cash equivalents, end of period
|
$ | 21,691 | $ | 22,594 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 35 | $ | 22 | ||||
Cash
paid for income taxes
|
$ | 34 | $ | 29 | ||||
Supplemental
disclosure of non-cash financing activities:
|
||||||||
- The
Company entered into capital lease obligations to acquire new equipment
totaling $747 and $103 for the three months
|
||||||||
ended
March 31, 2009 and 2008, respectively.
|
||||||||
- The
Company entered into an agreement to purchase certain source code from a
third-party vendor, for $2.0 million, of which
|
||||||||
$0.5
million was paid during the three months ended March 31, 2009. There
were no cash payments during the three months
|
||||||||
ended
March 31, 2008.
|
||||||||
Common
Stock
|
Additional
Paid-in
|
Accumulated
Other Comprehensive
|
Accumulated
|
Treasury Stock
|
Total
Stockholders’
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Loss
|
Deficit
|
Shares
|
Amount
|
Equity
|
|||||||||||||||||||||||||
Balance,
December 31, 2008
|
26,796 | $ | 268 | $ | 164,574 | $ | (1,002 | ) | $ | (53,268 | ) | 2,534 | $ | (59,500 | ) | $ | 51,072 | |||||||||||||||
Net
loss
|
– | – | – | – | (413 | ) | – | – | (413 | ) | ||||||||||||||||||||||
Unrealized
loss on investments in marketable securities available for
sale
|
– | – | – | (3 | ) | – | – | – | (3 | ) | ||||||||||||||||||||||
Unrealized
loss on foreign currency
|
||||||||||||||||||||||||||||||||
translation adjustments
|
– | – | – | (61 | ) | – | – | – | (61 | ) | ||||||||||||||||||||||
Comprehensive
loss
|
– | – | – | – | – | – | – | (477 | ) | |||||||||||||||||||||||
Issuances
of Common Stock from exercises of stock options
|
67 | 1 | 442 | – | – | – | – | 443 | ||||||||||||||||||||||||
Non-cash
stock-based compensation
|
– | – | 3,317 | – | – | – | – | 3,317 | ||||||||||||||||||||||||
Balance,
March 31, 2009
|
26,863 | $ | 269 | $ | 168,333 | $ | (1,066 | ) | $ | (53,681 | ) | 2,534 | $ | (59,500 | ) | $ | 54,355 |
As
of March 31, 2009
|
As
of December 31, 2008
|
|||||||||||
Net
|
Net
|
|||||||||||
Amortized
|
Unrealized
|
Fair
|
Amortized
|
Unrealized
|
Fair
|
|||||||
Cost
|
Gain
|
Value
|
Cost
|
Gain
|
Value
|
|||||||
Corp.
debentures – bonds
|
$ 2,800
|
$ 1
|
$ 2,801
|
$ 4,306
|
$ 2
|
$ 4,308
|
||||||
Commercial
paper
|
–
|
–
|
–
|
995
|
2
|
997
|
||||||
Certificates
of deposit
|
–
|
–
|
–
|
500
|
––
|
500
|
||||||
Total
investments
|
$ 2,800
|
$ 1
|
$ 2,801
|
$ 5,801
|
$ 4
|
$ 5,805
|
As
of March 31, 2009
|
As
of December 31, 2008
|
|||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||
Cost
|
Value
|
Cost
|
Value
|
|||||
Due
in one year or less
|
$ 2,800
|
$ 2,801
|
$ 5,801
|
$ 5,805
|
||||
Total
|
$ 2,800
|
$ 2,801
|
$ 5,801
|
$ 5,805
|
|
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.
|
As
of March 31, 2009
|
As
of December 31, 2008
|
|||||||||||||||||||||||||||||||
Quoted
|
Quoted
|
|||||||||||||||||||||||||||||||
Prices
in
|
Other
|
Un-
|
Prices
in
|
Other
|
Un-
|
|||||||||||||||||||||||||||
Active
|
Observable
|
Observable
|
Active
|
Observable
|
Observable
|
|||||||||||||||||||||||||||
Markets
|
Inputs
|
Inputs
|
Markets
|
Inputs
|
Inputs
|
|||||||||||||||||||||||||||
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||||||||||||||
Corporate
debenture bonds
|
$ | 2,801 | $ | – | $ | 2,801 | $ | – | $ | 4,308 | $ | – | $ | 4,308 | $ | – | ||||||||||||||||
Commercial
paper
|
– | – | – | – | 997 | – | 997 | – | ||||||||||||||||||||||||
Certificates
of deposit
|
– | – | – | – | 500 | 500 | – | – | ||||||||||||||||||||||||
Total
|
$ | 2,801 | $ | – | $ | 2,801 | $ | – | $ | 5,805 | $ | 500 | $ | 5,305 | $ | – | ||||||||||||||||
As
of
|
As
of
|
|||||||
March
31,
2009
|
December
31, 2008
|
|||||||
Property
and equipment
|
$ | 68,095 | $ | 65,934 | ||||
Less: accumulated
depreciation and amortization
|
45,501 | 42,950 | ||||||
$ | 22,594 | $ | 22,984 |
For
the Three Months
ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Basic
weighted average shares outstanding
|
24,292 | 24,682 | ||||||
Effect
of dilutive equity instruments
|
– | 1,778 | ||||||
Dilutive
weighted average shares outstanding
|
24,292 | 26,460 | ||||||
Other
common stock equivalents (i.e., stock options,
|
||||||||
restricted
stock awards and stock units) outstanding
|
||||||||
which
are not included in the calculation of diluted
|
||||||||
income
(loss) per share because their impact is anti-
|
||||||||
dilutive
|
4,153 | 998 |
For
the Three Months
ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Net
income (loss)
|
$ | (413 | ) | $ | 290 | |||
Other
comprehensive income (loss)
|
||||||||
Change
in unrealized gain (loss) on investments in
|
||||||||
marketable
securities available-for-sale
|
(3 | ) | 44 | |||||
Change
in unrealized (loss) on foreign currency
|
||||||||
translation
adjustments
|
(61 | ) | (13 | ) | ||||
Comprehensive
income (loss)
|
$ | (477 | ) | $ | 321 |
For
the Three Months
Ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Non-cash stock-based compensation
expense:
|
||||||||
Cost
of recurring revenues
|
$ | 165 | $ | 329 | ||||
Cost
of services revenues
|
344 | 679 | ||||||
Cost
of license revenues
|
- | 4 | ||||||
Sales
and marketing
|
1,788 | 2,053 | ||||||
Research
and development
|
302 | 589 | ||||||
General
and administrative
|
716 | 921 | ||||||
Total
non-cash stock-based compensation expense
|
$ | 3,315 | $ | 4,575 |
Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted
|
Remaining
|
Aggregate
|
||||||||||||||
Average
|
Contractual
|
Intrinsic
|
||||||||||||||
Stock
Options
|
Shares
|
Exercise
Price
|
Term
(in Years)
|
Value
|
||||||||||||
Outstanding
at December 31, 2008
|
4,965 | $ | 16.86 | 6.02 | $ | 16,140 | ||||||||||
Granted
|
– | – | – | – | ||||||||||||
Exercised
|
(67 | ) | 6.63 | – | – | |||||||||||
Forfeited
or expired
|
(63 | ) | 23.10 | – | – | |||||||||||
Outstanding
at March 31, 2009
|
4,835 | $ | 16.92 | 5.80 | $ | 22,166 | ||||||||||
Exercisable
at March 31, 2009
|
4,014 | $ | 14.72 | 5.21 | $ | 22,009 |
Restricted
Stock Awards
|
Restricted
Stock Unit Awards
|
|||||||||||
Weighted
|
||||||||||||
Average
|
||||||||||||
Grant
Date
|
||||||||||||
Shares
|
Fair
Value
|
Shares
|
||||||||||
Outstanding
at December 31, 2008
|
1,361 | $ | 23.09 | 45 | ||||||||
Granted
|
11 | 14.43 | 159 | |||||||||
Vested
|
– | – | – | |||||||||
Forfeited
or expired
|
– | – | (2 | ) | ||||||||
Outstanding
at March 31, 2009
|
1,372 | $ | 23.02 | 202 |
For
the Three Months
|
||||||||
Ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Revenues:
|
||||||||
Recurring
|
63.3 | % | 59.1 | % | ||||
Services
|
32.6 | 32.5 | ||||||
License
|
4.1 | 8.4 | ||||||
Total
revenues
|
100.0 | 100.0 | ||||||
Cost
of revenues:
|
||||||||
Recurring
|
18.2 | 15.0 | ||||||
Services
|
25.3 | 26.0 | ||||||
License
|
0.7 | 1.0 | ||||||
Total
cost of revenues
|
44.2 | 42.0 | ||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
28.4 | 27.2 | ||||||
Research
and development
|
19.1 | 20.4 | ||||||
General
and administrative
|
9.3 | 9.9 | ||||||
Total
operating expenses
|
56.8 | 57.5 | ||||||
Operating
income (loss)
|
(1.0 | ) | 0.5 | |||||
Other
income (expense):
|
||||||||
Interest
expense and other
|
– | (0.2 | ) | |||||
Other
income, net
|
0.1 | 0.8 | ||||||
Total
other income, net
|
0.1 | 0.6 | ||||||
Income
(loss) before income taxes
|
(0.9 | ) | 1.1 | |||||
Benefit
(provision) for income taxes
|
– | (0.4 | ) | |||||
Net
income (loss)
|
(0.9 | )% | 0.7 | % |
For
the Three Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Stock-based
compensation:
|
||||||||
Cost
of recurring revenues
|
$ | 165 | $ | 329 | ||||
Cost
of service revenues
|
344 | 679 | ||||||
Cost
of license revenues
|
– | 4 | ||||||
Sales
and marketing
|
1,788 | 2,053 | ||||||
Research
and development
|
302 | 589 | ||||||
General
and administrative
|
716 | 921 | ||||||
Total
non-cash stock-based compensation expense
|
$ | 3,315 | $ | 4,575 | ||||
Amortization
of acquired intangibles:
|
||||||||
General
and administrative
|
$ | 46 | $ | 46 |
|
a)
|
Intersourcing
revenues increased 39.4% for the three months ended March 31, 2009 in
comparison to the same period in 2008, primarily due to the continued
growth of the Intersourcing Offering, which comprised the majority of unit
sales. The increase in Intersourcing revenues is based on the revenue
impact of incremental units that have gone Live since March 31, 2008,
including the UltiPro core product and, to a lesser extent, Optional
Features of UltiPro. Intersourcing revenues from the Workplace
solution in 2009 also contributed to the year-over-year growth,
particularly since this solution was introduced late in
2007. Recognition of recurring revenues for Intersourcing sales
commences upon Live date.
|
|
b)
|
Maintenance
revenues from license sales increased 3.6% for the three months ended
March 31, 2009, in comparison to the same period of 2008, due to
additional maintenance fees resulting from cumulative net increases in the
customer base subsequent to March 31, 2008 due to incremental license
sales since such date. Maintenance revenues are recognized over
the initial term of the related license contract, which is typically 12
months, and then on a monthly recurring basis thereafter as the
maintenance contracts renew
annually.
|
|
c)
|
Subscription
revenues decreased 65.2% for the three months ended March 31, 2009, in
comparison to the same period of 2008, primarily due to the termination of
the Company’s agreement with Ceridian Corporation (“Ceridian”), pursuant
to which Ceridian was granted a non-exclusive license to use UltiPro as
part of an on-line offering for Ceridian to market primarily to businesses
with less than 500 employees. This agreement was terminated
effective March 9, 2008, at which time the related revenue recognition
ended. During the three months ended March 31, 2008, revenue recognized
under the Ceridian agreement amounted to $1.5 million as compared to zero
for the same period in 2009.
|
|
·
|
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.
|
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
*
|
The
Ultimate Software Group, Inc.
|
||
Date: May
11, 2009
|
By:
|
/s/ Mitchell K. Dauerman
|
Mitchell
K. Dauerman
|
||
Executive
Vice President, Chief Financial Officer and Treasurer (Authorized
Signatory and Principal Financial and Accounting
Officer)
|