UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-24347
THE ULTIMATE SOFTWARE GROUP, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 65-0694077
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
2000 Ultimate Way, Weston, FL 33326
----------------------------- -----
(Address of principal executive offices) (Zip Code)
(954) 331 - 7000
----------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Company is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of July 17, 2003, there were 20,458,518 shares of the Registrant's
Common Stock, par value $.01, outstanding.
EXPLANATORY NOTE
The Ultimate Software Group, Inc. is filing this amendment to its
Quarterly Report on Form 10-Q for the period ended June 30, 2003, originally
filed on July 30, 2003, in response to comments received from the Securities and
Exchange Commission in connection with their review of the Registration
Statement on Form S-3 (File No. 333-107527) filed by The Ultimate Software
Group, Inc. on July 31, 2003. This Amendment No. 1 on Form 10-Q/A includes the
text of the Form 10-Q in its entirety and is being filed to:
(1) provide additional disclosure regarding critical accounting
policies in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Critical Accounting Policies and Estimates,"
(2) provide additional disclosure regarding the services provided
under the Ceridian Services Agreement and the term of the Original Ceridian
Agreement in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview,"
(3) provide greater detail concerning the reduction in the number
of license units sold and third-party licensed software in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and
(4) provide the disclosure required by Item 701 of Regulation S-K
of the Securities Act of 1933 in Part II, "Changes in Securities and Use of
Proceeds."
This filing amends the items specified above and does not otherwise
update the disclosures in the Form 10-Q as originally filed and does not reflect
events occurring after the original filing of the Form 10-Q.
In addition, The Ultimate Software Group, Inc. has filed the following
exhibits herewith:
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
32.2 Certification Pursuant to 18 U.S.C Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page(s)
-------
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements (unaudited): 1
Condensed Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002
Condensed Consolidated Statements of Operations for the Three Months
And Six Months Ended June 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 22
Item 4 - Controls and Procedures 23
PART II-OTHER INFORMATION:
Item 2 - Changes in Securities and Use of Proceeds 23
Item 4 - Submission of Matters to a Vote of Security Holders 23
Item 6 - Exhibits and Reports on Form 8-K 25
SIGNATURES 26
CERTIFICATIONS 27
PART 1--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
As of As of
June 30, December 31,
2003 2002
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,077 $ 8,974
Accounts receivable, net 6,675 10,381
Prepaid expenses and other current assets 1,604 1,273
-------- --------
Total current assets 16,356 20,628
Property and equipment, net 6,131 7,233
Capitalized software, net 1,993 2,753
Other assets, net 1,242 529
-------- --------
Total assets $ 25,722 $ 31,143
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,363 $ 2,693
Accrued expenses 4,156 5,529
Current portion of deferred revenue 20,644 20,874
Current portion of capital lease obligations 539 767
Current portion of long term debt 1,098 501
-------- --------
Total current liabilities 27,800 30,364
Deferred revenue, net of current portion 3,339 6,941
Capital lease obligations, net of current portion 100 361
Long term debt, net of current portion -- 845
-------- --------
Total liabilities 31,239 38,511
-------- --------
Stockholders' deficit:
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
in 2003 and 2002, respectively -- --
Common Stock, $.01 par value, 50,000,000 shares authorized,
18,513,315 and 16,610,790 shares issued in 2003
and 2002, respectively 185 168
Additional paid-in capital 75,508 68,602
Accumulated deficit (80,156) (75,084)
-------- --------
(4,463) (6,314)
Treasury stock, 257,647 shares at cost (1,054) (1,054)
-------- --------
Total stockholders' deficit (5,517) (7,368)
-------- --------
Total liabilities and stockholders' deficit $ 25,722 $ 31,143
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
1
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues, net:
License $ 2,064 $ 4,299 $ 3,277 $ 5,694
Recurring 7,114 4,042 13,974 7,975
Services 5,043 4,904 11,371 10,531
-------- -------- -------- --------
Total revenues, net 14,221 13,245 28,622 24,200
-------- -------- -------- --------
Cost of revenues:
License 237 383 480 523
Recurring 2,275 1,965 4,568 3,915
Services 4,057 4,295 8,492 8,853
-------- -------- -------- --------
Total cost of revenues 6,569 6,643 13,540 13,291
-------- -------- -------- --------
Operating expenses:
Sales and marketing 4,209 4,497 8,297 9,035
Research and development 4,527 4,335 8,856 8,666
General and administrative 1,293 1,566 2,909 2,695
-------- -------- -------- --------
Total operating expenses 10,029 10,398 20,062 20,396
-------- -------- -------- --------
Operating loss (2,377) (3,796) (4,980) (9,487)
Interest expense (75) (79) (128) (151)
Interest and other income 16 49 36 89
-------- -------- -------- --------
Net loss $ (2,436) $ (3,826) $ (5,072) $ (9,549)
======== ======== ======== ========
Net loss per share -- basic and diluted $ (0.14) $ (0.24) $ (0.30) $ (0.60)
======== ======== ======== ========
Weighted average shares outstanding:
Basic and diluted 17,515 15,907 17,120 15,896
======== ======== ======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
2
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months
Ended June 30,
-------------------------
2003 2002
------- -------
Cash flows from operating activities:
Net loss $(5,072) $(9,549)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,544 2,900
Provision for doubtful accounts 101 367
Non-cash issuance of stock options for board fees and services 62 42
Changes in operating assets and liabilities:
Accounts receivable 3,605 2,711
Prepaid expenses and other current assets (331) (100)
Other assets (380) (6)
Accounts payable (1,330) (90)
Accrued expenses (1,389) (1,768)
Deferred revenue (3,832) 6,502
------- -------
Net cash (used in) provided by operating activities (6,022) 1,009
------- -------
Cash flows from investing activities:
Purchases of property and equipment (650) (1,943)
Acquisition (350) --
------- -------
Net cash used in investing activities (1,000) (1,943)
------- -------
Cash flows from financing activities:
Repurchase of treasury stock -- (191)
Principal payments on capital lease obligations (489) (1,119)
Net (repayments) borrowings under Credit Facility (248) 587
Net proceeds from issuances of Common Stock 6,862 2,012
------- -------
Net cash provided by financing activities 6,125 1,289
------- -------
Net (decrease) increase in cash and cash equivalents (897) 355
Cash and cash equivalents, beginning of period 8,974 8,464
------- -------
Cash and cash equivalents, end of period $ 8,077 $ 8,819
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 104 $ 122
======= =======
Supplemental disclosure of non-cash financing activities:
- The Company entered into capital lease obligations to acquire new equipment
totaling $0 and $1,007 in the six months ended June 30, 2003 and 2002,
respectively.
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
3
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of The
Ultimate Software Group, Inc. and subsidiary (the "Company") have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. The information in this report
should be read in conjunction with the Company's audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 filed with the SEC on April 1, 2003 (the
"Form 10-K").
The unaudited condensed consolidated financial statements included
herein reflect all adjustments (consisting only of normal, recurring
adjustments) which are, in the opinion of the Company's management, necessary
for a fair presentation of the information for the periods presented. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Interim
results of operations for the three and six months ended June 30, 2003 are not
necessarily indicative of operating results for the full fiscal year or for any
future periods.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations have historically been
insufficient to fund its operations. Shortfalls in cash flows from operations
have been funded primarily through the private and public sale of equity
securities and, to a lesser extent, equipment financing and borrowing
arrangements.
From January 1, 2003 through July 16, 2003, the Company raised an
aggregate of approximately $17.8 million of capital, net of estimated stock
issuance costs, through the private sales of (i) a total of 1,708,000 shares of
the Company's common stock, par value $0.01 per share (the "Common Stock"), and
warrants to purchase an aggregate 170,800 shares of Common Stock at $4.00 per
share to investors, including Ceridian Corporation and some existing
shareholders; and (ii) a total of 2,200,000 shares of Common Stock at $5.30 per
share, before stock issuance costs, to two institutional investors. Of the
aggregate of approximately $17.8 million of capital raised, approximately $11.0
million, net of estimated stock issuance costs, was received on July 16, 2003
(the "Recent Capital Raised").
On March 27, 2003, the Company amended its revolving line of credit
agreement with Silicon Valley Bank (the "Credit Facility") to extend the
expiration date of the agreement to May 28, 2004. As of June 30, 2003, the
outstanding balance of the Credit Facility, totaling $1.1 million, is classified
as current on the Company's unaudited balance sheet, based on the existing
expiration date of the Credit Facility. The Company is in the process of
negotiating the potential renewal of the Credit Facility.
4
The Company believes that cash and cash equivalents, cash generated
from operations, cash provided by Recent Capital Raised and available borrowings
under the Credit Facility will be sufficient to fund its operations for at least
the next 12 months. This belief is based upon, among other factors, management's
expectations for future revenue growth, controlled operating expenses and costs
of revenues, and collections of accounts receivable.
3. CONCENTRATION OF REVENUES
During the three months and six months ended June 30, 2003, one of the
Company's customers, Ceridian Corporation, accounted for 18.0% and 16.9% of
total revenues, respectively. No other customer accounted for more than 10% of
total revenues in 2003 or 2002.
Of the 18.0% and 16.9% of total revenues recognized from Ceridian for
the three- and six-month periods ended June 30, 2003, 13.6% and 13.5%,
respectively, relate to recurring revenue recognized pursuant to the Original
Ceridian Agreement, discussed below, and 4.5% and 3.4%, respectively, relate to
services revenue recognized under the Ceridian Services Agreement (see Note 2).
During 2001, the Company and Ceridian reached an agreement, as amended
in 2002, which granted Ceridian a non-exclusive license to use Ultimate
Software's UltiPro Workforce Management Software ("UltiPro") as part of an
on-line offering that Ceridian is marketing primarily to businesses with under
500 employees (the "Original Ceridian Agreement"). The aggregate minimum
payments that Ceridian is obligated to pay the Company under the Original
Ceridian Agreement over the minimum term of the agreement is $42.7 million. To
date, Ceridian has paid to the Company a total of $16.5 million under the
Original Ceridian Agreement. The earliest date upon which the Ceridian Agreement
can be terminated by either party (except for an uncured material breach) is
March 9, 2008, resulting in an expected minimum term of 7 years (the "Minimum
Term"). Ceridian retains certain rights to use the software upon termination. A
minimum of approximately $642,000 has been and is scheduled to be recognized as
subscription revenue, a component of recurring revenue, on a monthly basis, from
the Original Ceridian Agreement for the period beginning August 28, 2002 through
the end of the Minimum Term.
Services revenue from the Ceridian Services Agreement is recognized on
a straight-line basis from the date of the agreement, February 10, 2003, through
the expiration of such agreement, or December 31, 2003.
4. ACQUISITION
On June 9, 2003, the Company purchased substantially all of the assets
of Hireworks, Inc., a software company that developed, marketed and supported an
Internet recruitment solution. The assets acquired included customer contracts,
the source code for its software and computer equipment. The Company has
accounted for this transaction as a purchase. The resulting intangible asset
related to the customer contracts acquired is being amortized over 26 months.
5
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," establishes standards for the reporting and
display of comprehensive income and its components in a full set of financial
statements. The objective of SFAS No. 130 is to report a measure (comprehensive
income) of all changes in equity of an enterprise that result from transactions
and other economic events in a period other than transactions with owners.
Comprehensive loss is equal to net loss for all periods presented.
6. EARNINGS PER SHARE
The following is a reconciliation of the shares used in the computation
of basic and diluted net income (loss) per share (in thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
---------- ----------- ---------- ---------
Weighted average shares outstanding 17,517 15,907 17,120 15,896
Effect of dilutive stock options - - - -
------ ------ ------ ------
Dilutive shares outstanding 17,517 15,907 17,120 15,896
====== ====== ====== ======
Options outstanding which are not included in the
calculation of diluted loss per share because
their impact is antidilutive 5,301 4,651 5,301 4,651
====== ====== ====== ======
7. STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with
Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, the Company recognizes no compensation
expense related to employee stock options since options are granted at a price
equal to the market price of the underlying stock on the date of grant.
The Company's Nonqualified Stock Option Plan (the "Plan") authorizes
the grant of options to directors, officers and employees of the Company for up
to 9,000,000 shares of the Company's Common Stock. As of June 30, 2003,
3,438,995 shares of the Company's Common Stock were available for grant. Options
granted generally have a 10-year term, vesting 25% immediately and 25% for each
of the following three years.
The pro forma information below is based on provisions of Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation ("SFAS No. 123"), as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148").
The following pro forma information regarding net loss and net loss per
share, as required by SFAS No. 123, has been determined as if the Company had
accounted for its stock-based compensation plan under the fair value method. The
fair value of each option granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants: risk-free interest rates of 2.84% for 2003 and
2.72% for 2002, a dividend yield of 0% for all periods presented, expected
volatility of 46% for 2003 and 68% for 2002 and an expected life of four years
for each of the periods presented.
6
The Company's pro forma information is as follows (in thousands, except
per share amounts):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
--------- ---------- -------- ---------
Net loss:
As reported $ (2,436) $ (3,826) $ (5,072) $ (9,549)
Stock-based employee compensation as determined
under fair value method for all awards (233) (440) (729) (987)
--------- ---------- -------- ---------
Pro forma $ (2,669) $ (4,266) $ (5,801) $ (10,536)
========= ========== ======== =========
Net loss per share:
As reported, basic and diluted $ (0.14) $ (0.24) $ (0.30) $ (0.60)
Pro forma, basic and diluted $ (0.15) $ (0.27) $ (0.34) $ (0.66)
8. RECENT ACCOUNTING LITERATURE
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and replaces EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred, rather than at the date of the entity's
commitment to an exit plan under EITF Issue No. 94-3. SFAS No. 146 is effective
for exit and disposal activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 on January 1, 2003 did not have an impact on the
Company's unaudited consolidated financial statements.
SFAS No. 148, issued in December 2002, amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in not only annual, but also interim, financial statements
about the effect the fair value method would have had on reported results. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The Company adopted the disclosure
provisions of SFAS No. 148 as of January 1, 2003 and continues to follow APB No.
25 in accounting for employee stock options.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 expands previously
issued accounting guidance and disclosure requirements for certain guarantees
and requires recognition of an initial liability for the fair value of an
obligation assumed by issuing a guarantee. The provision for initial recognition
and measurement of liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company adopted FIN
45 as of January 1, 2003. The adoption of FIN 45 did not have an impact on the
Company's unaudited consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities," ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," for
certain entities that do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest
7
entities"). Variable interest entities within the scope of FIN 46 will be
required to be consolidated by their primary beneficiary. The primary
beneficiary of a variable interest entity is determined to be the party that
absorbs a majority of the entity's expected losses, receives a majority of its
expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company is currently evaluating the impact
of adopting FIN 46. However, the Company does not believe that it is party to
any arrangement that would fall within the scope of FIN 46.
In April 2003, the FASB issued SFAS No. 149 ("SFAS No. 149"),
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, and hedging relationships designated after
June 30, 2003, except for those provisions of SFAS No. 149 which relate to SFAS
No. 133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003. For those issues, the provisions that are
currently in effect should continue to be applied in accordance with their
respective effective dates. In addition, certain provisions of SFAS No. 149,
which relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. The Company is currently
assessing the financial impact of SFAS No. 149 on its unaudited consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150 ("SFAS No. 150"), "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within the scope of SFAS No. 150 as a liability. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective for the Company beginning September 1, 2003. The
Company is currently assessing the financial impact of SFAS No. 150 on its
unaudited consolidated financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of The Ultimate Software Group, Inc. ("Ultimate Software" or the
"Company") should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-Q. This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed below and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002, filed with the SEC on April 1, 2003, including Exhibit 99.1 thereto. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Sources of revenue for the Company include:
- Sales of perpetual licenses for UltiPro Workforce Management Software
("UltiPro"), a Web-based solution designed to deliver the
functionality businesses need to manage the employee life cycle,
whether their processes are centralized at headquarters or distributed
across multiple divisions or branch offices;
- Sales of perpetual licenses for UltiPro in conjunction with services
to host the UltiPro application (or "Hosting Services");
- Sales of the right to use UltiPro, including Hosting Services (the
"Intersourcing Offering");
- Sales of Hosting Services on a stand-alone basis to customers who
already own a perpetual license or are simultaneously acquiring a
perpetual license for UltiPro, or ("Base Hosting");
- Sales of other services including implementation, training and other
services, including the provision of payroll-related forms and the
printing of Form W-2's for certain customers; and
- Recurring revenues derived from (1) maintenance revenues generated
from maintaining, supporting and providing periodic updates for the
Company's software and (2) subscription revenues generated from per
employee per month ("PEPM") fees earned through the Intersourcing
Offering, Base Hosting and the business service provider (BSP) sales
channel (defined below), as well as revenues generated from the
Original Ceridian Agreement.
Perpetual Licenses for UltiPro Sold With or Without Hosting Services
Sales of perpetual licenses for UltiPro and sales of perpetual licenses
for UltiPro in conjunction with Hosting Services are multiple-element
arrangements that involve the sale of software and consequently fall under the
guidance of SOP 97-2 for revenue recognition.
The Company licenses software under non-cancelable license agreements
and provides services including maintenance, training and implementation
consulting services. In accordance with the provisions of Statement of Position
("SOP") 97-2, "Software Revenue Recognition," license revenues are
9
generally recognized when (1) a non-cancelable license agreement has been signed
by both parties, (2) the product has been shipped, (3) no significant vendor
obligations remain and (4) collection of the related receivable is considered
probable. To the extent any one of these four criteria is not satisfied, license
revenue is deferred and not recognized in the consolidated statements of
operations until all such criteria is met.
For multiple-element software arrangements, each element of the
arrangement is analyzed and the Company allocates a portion of the total fee
under the arrangement to the element based on vendor-specific objective
evidence of fair value of the element ("VSOE"), regardless of any separate
prices stated within the contract for each element. Fair value is considered the
price a customer would be required to pay when the element is sold separately.
The residual method is used to recognize revenue when a license
agreement includes one or more elements to be delivered at a future date and
vendor specific objective evidence of the fair value of all undelivered elements
exists. The fair value of the undelivered elements is determined based on the
historical evidence of stand-alone sales of these elements to third parties.
Undelivered elements in a license arrangement typically include maintenance,
training and implementation services (the "Standard Undelivered Elements"). The
fair value for maintenance fees is based on the price of the services sold
separately, which is determined by the annual renewal rate historically and
consistently charged to customers (the "Maintenance Valuation"). Maintenance
fees are generally priced as a percentage of the related license fee. The fair
value for training services is based on standard pricing (i.e., rate per
training day charged to customers for class attendance), taking into
consideration stand-alone sales of training services through year-end seminars
and historically consistent pricing for such services (the "Training Valuation")
The fair value for implementation services is based on standard pricing (i.e.,
rate per hour charged to customers for implementation services), taking into
consideration stand-alone sales of implementation services through special
projects and historically consistent pricing for such services (the
"Implementation Valuation"). Under the residual method (the "Residual Method"),
the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee attributable to the delivered element, the license fee,
is recognized as revenue. If VSOE for one or more undelivered elements does not
exist, the revenue is deferred on the entire arrangement until the earlier of
the point at which (i) such VSOE does exist or (ii) all elements of the
arrangement have been delivered.
Perpetual licenses of UltiPro sold without Hosting Services typically
include a license fee and the Standard Undelivered Elements. Fair value for the
Standard Undelivered Elements is based on the Maintenance Valuation, the
Training Valuation and the Implementation Valuation. The delivered element of
the arrangement, the license fee, is accounted for in accordance with the
Residual Method.
Perpetual licenses of UltiPro sold with Hosting Services typically
include a license fee, the Standard Undelivered Elements and Hosting Services.
Fair value for the Standard Undelivered Elements is based on the Maintenance
Valuation, the Training Valuation and the Implementation Valuation. Hosting
Services are delivered to customers on a PEPM basis over the term of the related
customer contract ("Hosting PEPM Services"). Upfront fees charged to customers
represent fees for the hosting infrastructure, including hardware costs,
third-party license fees and other upfront costs incurred by the Company in
relation to providing such services ("Hosting Upfront Fees"). Hosting PEPM
Services and Hosting Upfront Fees (collectively, "Hosting Services") represent
undelivered elements in the arrangement since their delivery is over the course
of the related contract term. The fair value for Hosting Services is based on
standard pricing (i.e., rate charged per employee per month), taking into
consideration stand-alone sales of Hosting Services through the sale of such
services to existing customers (i.e., those who already own the UltiPro
perpetual license at the time Hosting Services are sold to them) and
historically consistent pricing for such services (the "Hosting Valuation"). The
delivered element of the arrangement, the license fee, is accounted for in
accordance with the Residual Method.
The Company's customer contracts are non-cancelable agreements. The
Company does not provide for rights of return or price protection on its
software. The Company provides a limited warranty that its software will perform
in accordance with user manuals for varying periods, which are generally less
than one year from the contract date. The Company's customer contracts generally
do not include conditions of acceptance. However, if conditions of acceptance
are included in a contract or uncertainty exists about customer acceptance of
the software, license revenue is deferred until acceptance occurs.
Sales Generated from the Intersourcing Offering
Subscription revenues generated from the Intersourcing Offering,
defined below, are recognized in accordance with Emerging Issues Task Force
("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables" as a
services arrangement since the customer is purchasing the right to use UltiPro
rather than licensing the software on a perpetual basis. Fair value of multiple
elements in Intersourcing arrangements is assigned to each element based on the
guidance provided by EITF 00-21.
The elements that typically exist in Intersourcing arrangements include
hosting services, the right to use UltiPro, maintenance of UltiPro (i.e.,
product enhancements and customer support) and professional services (i.e.,
implementation services and training in the use of UltiPro). The pricing for
hosting services, the right to use UltiPro and maintenance of UltiPro is bundled
(the "Bundled Elements"). Since these three Bundled Elements are components of
recurring revenues in the consolidated statements of operations, allocation of
fair values to each of the three elements is not necessary since they are not
reported separately. Fair value for the Bundled Elements, as a whole, is based
upon evidence provided by the Company's pricing for Intersourcing arrangements
sold separately. The Bundled Elements are provided on an ongoing basis and
represent undelivered elements under EITF 00-21; they are recognized on a
monthly basis as the services are performed, once the customer has begun to
process payrolls used to pay their employees (i.e., goes "Live").
Implementation and training services (the "Professional Services")
provided for Intersourcing arrangements are priced on a time and materials basis
and are recognized as services revenue in the consolidated statements of
operations as the services are performed. Under EITF 00-21, fair value is
assigned to service elements in the arrangement based on their relative fair
values, using the prices
10
established when the services are sold on a stand-alone basis. Fair value for
Professional Services is based on the respective Training Valuation and
Implementation Valuation. If evidence of the fair value of one or more
undelivered elements does not exist, the revenue is deferred and recognized when
delivery of those elements occurs or when fair value can be established. The
Company believes that applying EITF 00-21 to Intersourcing arrangements as
opposed to applying SOP 97-2 is appropriate given the nature of the arrangements
whereby the customer has no right to the UltiPro license.
Sales of Base Hosting Services
Subscription revenues generated from Base Hosting are recognized in
accordance with EITF 00-3, "Application of AICPA Statement of Position 97-2 to
Arrangements That Include the Right to Use Software Stored on Another Entity's
Hardware," which provides guidance as to the application of SOP 97-2 to hosting
arrangements that include a license right to the software. The elements that
typically exist for Base Hosting arrangements include hosting services and
implementation services. Base Hosting is different than Intersourcing
arrangements (described above) in that the customer already owns a perpetual
license or is purchasing a perpetual license for UltiPro and is purchasing
hosting services subsequently in a separate transaction whereas, with
Intersourcing, the customer is purchasing the right to use (not license)
UltiPro. Implementation services provided for Base Hosting arrangements are
substantially less than those provided for Intersourcing arrangements since
UltiPro is already implemented in Base Hosting arrangements and only needs to be
transitioned to a hosted environment. Fair value for hosting services is based
on the Hosting Valuation. Fair value for implementation services is assigned in
accordance with guidelines provided by SOP 97-2 based on the Implementation
Valuation.
Other Services, including Implementation and Training Services
Services revenues include revenues from fees charged for the
implementation of the Company's software products and training of customers in
the use of such products, fees for other services, including the provision of
payroll-related forms and the printing of Form W-2's for certain customers, as
well as certain reimbursable out-of-pocket expenses. Revenues for training and
implementation consulting services are recognized as services are performed.
Other services are recognized as the product is shipped or as the services are
rendered.
Arrangement fees related to fixed-fee implementation services contracts
are recognized using the percentage of completion accounting method, which
involves the use of estimates. Percentage of completion is measured at each
reporting date based on hours incurred to date compared to total estimated hours
to complete. If a sufficient basis to measure the progress towards completion
does not exist, revenue is recognized when the project is completed or when we
receive final acceptance from the customer.
Recurring Revenues
Recurring revenues include maintenance revenues and subscription
revenues. Maintenance revenues are derived from maintaining, supporting and
providing periodic updates for the Company's software. Subscription revenues are
principally derived from per employee per month ("PEPM") fees earned through the
Intersourcing Offering (defined below), hosting services offered to customers
that license UltiPro on a perpetual basis ("Base Hosting") and the business
service provider (BSP) sales channel (defined below), as well as revenues
generated from the Original Ceridian Agreement. Maintenance revenues are
recognized ratably over the service period, generally one year. Maintenance and
support fees are generally priced as a percentage of the initial license fee for
the underlying products. To the extent there are upfront fees associated with
the Intersourcing Offering, Base Hosting or the BSP sales channel, subscription
revenues are recognized ratably over the term of the related contract upon the
delivery of the product and services. PEPM fees from the Intersourcing Offering,
Base Hosting and the BSP sales channel are recognized as subscription revenue as
the services are delivered.
11
Original Ceridian Agreement are recognized ratably over the minimum term of the
contract, which is expected to extend until March 9, 2008 (7 years from the
effective date of the Original Ceridian Agreement). Subscription revenues of
approximately $642,000 per month are based on guaranteed minimum payments from
Ceridian Corporation of approximately $42.7 million over the contract term,
including $16.5 million received to date.
Maintenance services provided to customers include product updates and
technical support services. Product updates are included in general releases to
the Company's customers and are distributed on a periodic basis. Such updates
may include, but are not limited to, product enhancements, payroll tax updates,
additional security features or bug fixes. All features provided in general
releases are unspecified upgrade rights. To the extent specified upgrade rights
or entitlements to future products are included in a multi-element arrangement,
revenue is recognized upon delivery provided fair value for the elements exists.
In multi-element arrangements that include a specified upgrade right or
entitlement to a future product, if fair value does not exist for all
undelivered elements, revenue for the entire arrangement is deferred until all
elements are delivered or when fair value can be established.
Subscription revenues generated from the BSP sales channel include both
the right to use UltiPro and maintenance. The BSP is charged a fee on a per
employee per month basis and, in several cases, is subject to a monthly minimum
amount for the term of the related agreement. Revenue is recognized on a per
employee per month basis. The Company generally does not host UltiPro for the
BSP sales channel.
The Company recognizes revenue in accordance with the SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). Management believes the Company is currently in compliance with the
current provisions set forth in SOP 97-2, SOP 98-9, EITF 00-21, EITF 00-3 and
SAB No. 101.
Concentration of Revenues
During the three and six months ended June 30, 2003, one of the
Company's customers, Ceridian Corporation, accounted for 18.0% and 16.9% of
total revenues, respectively. No other customer accounted for more than 10% of
total revenues in 2003 or 2002. Due to the significant concentration of total
revenues with this single customer, the Company has exposure if this customer
loses its credit worthiness. See Note 3 of the unaudited Notes to Condensed
Consolidated Financial Statements.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts at an amount
estimated to be sufficient to provide adequate protection against losses
resulting from collecting less than full payment on accounts receivables. In
assessing the adequacy of the allowance for doubtful accounts, the Company
considers multiple factors including historical bad debt experience, the general
economic environment, and the aging of its receivables. A considerable amount of
judgment is required when the realization of receivables is assessed, including
assessing the probability of collection and current credit-worthiness of each
customer. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments, an
additional provision for doubtful accounts may be required.
Software Development Costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
12
established upon completion of a working model. There were no software costs
capitalized during 2003 and 2002. Annual amortization is based on the greater of
the amount computed using (a) the ratio that current gross revenues for the
related product bears to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method over the remaining
estimated economic life of the product including the period being reported on.
Capitalized software is amortized using the straight-line method over the
estimated useful lives of the assets which are typically three years.
Amortization of capitalized software was $380,000 and $455,000 for the three
months ending June 30, 2003 and 2002, respectively and $759,000 and $911,000 for
the six months ending June 30, 2003 and 2002. Accumulated amortization of
capitalized software was $2.6 million for the period ended June 30, 2003 and
$2.0 million for the period ended June 30, 2002. The Company evaluates the
recoverability of capitalized software based on estimated future gross revenues
reduced by the estimated costs of completing the products and of performing
maintenance and customer support. If the Company's gross revenues were to be
significantly less than its estimates, the net realizable value of the Company's
capitalized software intended for sale would be impaired, which could result in
the write-off of all or a portion of the unamortized balance of such capitalized
software.
OVERVIEW
Ultimate Software designs, markets, implements and supports payroll and
workforce management solutions.
Ultimate Software's UltiPro Workforce Management Software ("UltiPro")
is a Web-based solution designed to deliver the functionality businesses need to
manage the employee life cycle, whether their processes are centralized at
headquarters or distributed across multiple divisions or branch offices.
UltiPro's human resources ("HR") and benefits management functionality is wholly
integrated with a flexible payroll engine, reporting and analytical
decision-making tools, and a central Web portal that can serve as the customer's
gateway for its workforce to access company-related and personal information.
Ultimate Software believes that UltiPro helps customers streamline HR and
payroll processes to significantly reduce administration and operational costs,
while also empowering executives and staff to access critical information
quickly and perform routine business activities efficiently.
UltiPro Workforce Management is marketed both through the Company's
direct sales team as well as through alliances with business service providers
(BSPs) that market co-branded UltiPro to their customer bases. Ultimate
Software's direct sales team focuses on companies with more than 500 employees
and sells both on a license (typically in-house) and service basis (typically
hosted and priced on a per-employee-per-month basis). The Company's BSP
alliances focus primarily on companies with under 500 employees and typically
sell an Internet solution, which includes UltiPro priced on a monthly/service
basis. When the BSP sells its Internet solution, incorporating UltiPro in the
offering, the BSP is obligated to remit a fee to the Company, typically measured
on a per employee per month basis and, in some cases, subject to a monthly
minimum amount.
The Company's direct sales force markets UltiPro as an in-house payroll
and workforce management solution and alternatively as the Intersourcing
Offering. Intersourcing provides Web access to comprehensive workforce
management functionality for organizations that need to simplify the information
technology (IT) support requirements of their business applications. Ultimate
Software believes that Intersourcing is attractive to companies that are
striving to focus on their core competencies to increase sales and profits.
Intersourcing Offering
In 2002, the Company introduced the Intersourcing Offering, which is a
hosting service through which the Company provides the hardware, infrastructure,
ongoing maintenance and back-up services for its customers at a BellSouth data
center. Different types of hosting arrangements include the sale of hosting
services as a part of the Intersourcing Offering, discussed below, and, to a
lesser extent,
13
the sale of hosting services to customers that license UltiPro on a perpetual
basis. Hosting services, primarily available in a shared environment, provide
Web access to comprehensive workforce management functionality for organizations
that need to simplify the information technology (IT) support requirements of
their business applications and are priced on a per-employee-per-month basis. In
the shared environment, Ultimate Software provides an infrastructure with
applicable servers shared among many customers who use a Web browser to access
the application software through the data center.
The Intersourcing Offering is designed to provide an appealing pricing
structure to customers who prefer to minimize the initial cash outlay associated
with typical capital expenditures. Intersourcing customers purchase the right to
use UltiPro on an ongoing basis for a specific term in a shared or dedicated
hosted environment. The pricing for Intersourcing, including both the hosting
element as well as the right to use UltiPro, is on a per-employee-per-month
basis.
Ceridian Services Agreement
On February 10, 2003, Ultimate Software entered into a services
agreement (the "Ceridian Services Agreement") with Ceridian Corporation
("Ceridian"). Under the Ceridian Services Agreement, Ultimate Software is,
through December 31, 2003, required to:
1) locate an employee at Ceridian's office in Atlanta, Georgia dedicated to
assist Ceridian in the resolution of any issues concerning the
development, integration and troubleshooting of UltiPro as used by
Ceridian;
2) provide work space at Ultimate Software's headquarters in Weston,
Florida for an employee of Ceridian for the purpose of ongoing
coordination and understanding of general and technical product
requirements, integration requirements and general communication of
development status and issue resolution;
3) allow Ceridian to provide input related to development plans (with no
approval rights granted to Ceridian and without any obligation on
Ultimate Software's part to incorporate such input into its development
plans) for UltiPro and to grant Ceridian access to the early stages of
upcoming product releases; and
4) test methodologies which could extend performance and scalability of
UltiPro in the service bureau environment and consider methodologies
which can improve performance and scalability.
Ceridian is required to pay Ultimate Software a total of $2.25 million
in four equal installments during each calendar quarter of 2003 in exchange for
the services provided by Ultimate Software. Ceridian paid Ultimate Software the
first two installments of $562,500 each during March and June 2003,
respectively. Services revenue is recognized on a straight-line basis from
February 10, 2003 through December 31, 2003.
Original Ceridian Agreement
During 2001, Ultimate Software and Ceridian reached an agreement, as
amended in 2002, which granted Ceridian a non-exclusive license to use UltiPro
software as part of an on-line offering that Ceridian intends to market
primarily to businesses with under 500 employees (the "Original Ceridian
Agreement"). The aggregate minimum payments that Ceridian is obligated to pay
Ultimate Software under the Original Ceridian Agreement over the minimum term of
the agreement is $42.7 million. To date, Ceridian has paid to Ultimate Software
a total of $16.5 million under the Original Ceridian Agreement. The earliest
date upon which the Ceridian Agreement can be terminated by either party (except
for an uncured material breach) is March 9, 2008, resulting in an expected
minimum term of 7 years.
14
Company Background
The Company is a Delaware corporation formed in April 1996 to assume
the business and operations of The Ultimate Software Group, Ltd. (the
"Partnership"), a limited partnership founded in 1990. Ultimate Software's
headquarters are located at 2000 Ultimate Way, Weston, Florida 33326 and its
telephone number is (954) 331-7000. To date, the Company derives no revenue from
customers outside of the United States and has no assets located outside of the
United States.
RESULTS OF OPERATIONS
The following table sets forth the Statement of Operations data of the
Company, as a percentage of total revenues, for the periods indicated.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2003 2002 2003 2002
-------- --------- --------- ---------
Revenues:
License 14.5% 32.5% 11.5% 23.5%
Recurring 50.0 30.4 48.8 32.9
Services 35.5 37.1 39.7 43.6
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
License 1.7 2.9 1.7 2.2
Recurring 16.0 14.9 16.0 16.2
Services 28.5 32.4 29.6 36.6
----- ----- ----- -----
Total cost of revenues 46.2 50.2 47.3 55.0
----- ----- ----- -----
Operating expenses:
Sales and marketing 29.6 34.0 29.0 37.3
Research and development 31.8 32.7 30.9 35.8
General and administrative 9.1 11.8 10.2 11.2
----- ----- ----- -----
Total operating expenses 70.5 78.5 70.1 84.3
----- ----- ----- -----
Operating loss (16.7) (28.7) (17.4) (39.3)
Interest expense (0.5) (0.6) (0.4) (0.6)
Interest and other income 0.1 0.4 0.1 0.4
----- ----- ----- -----
Net loss (17.1)% (28.9)% (17.7)% (39.5)%
===== ===== ===== =====
Revenues
The Company's revenues are derived from three principal sources:
software licenses ("license revenues"), recurring revenues and services
revenues.
License revenues include revenues from software license agreements for
the Company's products, entered into between the Company and its customers in
which the license fees are noncancellable. License revenues are generally
recognized upon the delivery of the related software product when all
significant contractual obligations have been satisfied. Until such delivery,
the Company records amounts received when contracts are signed as customer
deposits that are included with deferred revenues in the condensed consolidated
balance sheets.
Recurring revenues include maintenance and subscription revenues.
Maintenance revenues are derived from maintaining, supporting and providing
periodic updates for the Company's software. Subscription revenues are
principally derived from per employee per month ("PEPM") fees earned through the
Intersourcing Offering, Base Hosting and the BSP sales channel, as well as
revenues generated from the Original Ceridian Agreement. Maintenance revenues
are recognized ratably over the service period, generally one year. Subscription
revenues are recognized ratably over the term of the related contract upon
15
the delivery of the product and services. All of the Company's customers that
purchased software during 2003 and 2002 also purchased maintenance and support
service contracts. Maintenance and support fees are generally priced as a
percentage of the initial license fee for the underlying products.
Services revenues include revenues from fees charged for the
implementation of the Company's software products and training of customers in
the use of such products, fees for other services, including the provision of
payroll-related forms and the printing of Form W-2's for certain customers, as
well as revenue generated from the Ceridian Services Agreement and certain
reimbursable out-of-pocket expenses. Revenues for training and implementation
consulting services are recognized as services are performed. Revenues for the
Ceridian Service Agreement are recognized ratably from February 11, 2003 until
December 31, 2003 based on the terms of the agreement. Other services are
recognized as the product is shipped or as the services are rendered.
Total revenues, consisting of license, recurring and services revenues,
increased 7.4 % to $14.2 million for the three months ended June 30, 2003 from
$13.2 million for the three months ended June 30, 2002. Total revenues increased
18.3 % to $28.6 million for the six months ended June 30, 2003 from $24.2
million for the six months ended June 30, 2002.
License revenues decreased 52.0% to $2.1 million for the three months
ended June 30, 2003 from $4.3 million for the three months ended June 30, 2002.
License revenues decreased 42.5% to $3.3 million for the six months ended June
30, 2003 from $5.7 million for the six months ended June 30, 2002. The decreases
in license revenues were due to the combination of fewer licensed units sold,
principally due to a shift in targeted sales, and a decrease in sales of UltiPro
to existing clients using the Company's DOS-based product, UltiPro for Lan ("DOS
Clients"). In the second half of 2002, the Company adjusted its sales and
marketing strategy to include sales from its Intersourcing Offering, which
produces subscription revenues (a component of recurring revenues) rather than
license revenues. During the first half of 2003, more units were sold from the
Intersourcing Offering than in the prior year. In addition, sales of the UltiPro
product to DOS Clients ended during the last fiscal quarter of 2002, shortly
before support for UltiPro for Lan was discontinued (in January 2003). Prior to
discontinuing support, the Company actively marketed the UltiPro product to DOS
Clients as part of a loyalty program designed to encourage these clients to
purchase UltiPro before support for UltiPro for Lan was discontinued. More than
half of the DOS Clients converted to the UltiPro product in 2002.
Recurring revenues increased 76.0% to $7.1 million for the three months
ended June 30, 2003 from $4.0 million for the three months ended June 30, 2002.
Recurring revenues increased 75.2% to $14.0 million for the six months ended
June 30, 2003 from $8.0 million for the six months ended June 30, 2002. The
increases in both the three- and six-month periods were primarily due to (i) the
recognition of subscription revenues, beginning on August 28, 2002, under the
Original Ceridian Agreement, which accounted for $1.9 million and $3.9 million,
respectively, of the year-over-year increases; (ii) an increase in maintenance
revenues generated from incremental licenses sold; and, to a lesser extent,
(iii) revenues recognized pursuant to the Intersourcing Offering, which was
introduced in mid-2002. The impact on recurring revenues for units sold under
the Intersourcing Offering (as opposed to the impact on license revenues for
licensed units sold) is expected to be gradual, based on the revenue recognition
of the Intersourcing fees over the terms of the related contracts. The Company
believes that a combination of units sold under the Intersourcing Offering and
regular licensed units sold will provide a more predictable business model in
the future.
Services revenues increased 2.8% to $5.0 million for the three months
ended June 30, 2003 from $4.9 million for the three months ended June 30, 2002.
Services revenues increased 8.0% to $11.4 million for the six months ended June
30, 2003 from $10.5 million for the six months ended June 30, 2002. The
increases in the three and six months ended June 30, 2003 were principally due
to an increase from revenue recognized under the Ceridian Services Agreement
beginning February 10, 2003, which
16
contributed $0.6 million and $1.0 million, respectively, and, to a lesser
extent, an increase in reimbursable out-of-pocket expenses, partially offset by
a decrease in implementation revenues in the second quarter of 2003.
Implementation revenues decreased $0.6 million during the three months ended
June 30, 2003 compared to the three months ended June 30, 2002 due to fewer
billable hours resulting from lower utilization of service consultants in
response to the reduction in total units sold compared to the prior year
comparable period and decreased $0.1 million due to a reduced average rate per
hour charged for their services. Implementation revenues decreased $0.4 million
during the six months ended June 30, 2003 from the six months ended June 30,
2002 due to fewer billable hours resulting from lower utilization of service
consultants in response to the reduction in total units sold compared to the
prior year comparable period and declined $0.2 million due to a reduced average
rate per hour charged for their services.
Cost of Revenues
Cost of revenues consists of the cost of license, recurring and
services revenues. Cost of license revenues primarily consists of fees payable
to a third party for software products distributed by the Company and, to a
lesser degree, amortization of capitalized software costs. UltiPro includes
third-party software for enhanced report writing purposes. When UltiPro licenses
are sold, customers pay the Company on a per user basis for the license rights
to the third-party report writing software. Capitalized software is amortized
using the straight-line method over the estimated useful life of the related
asset, which is typically three years. Cost of recurring revenues consists of
costs to provide maintenance and technical support to the Company's customers,
the cost of periodic updates and the costs of subscription revenues, including
amortization of capitalized software. Cost of service revenues primarily
consists of costs to provide implementation services and training to the
Company's customers and, to a lesser degree, costs associated with revenues
generated from the hosted models, including Intersourcing, costs related to
sales of payroll-related forms and costs associated with reimbursable
out-of-pocket expenses.
Total costs of revenues, consisting of license, recurring and service
revenues, of $6.6 million for the three months ended June 31, 2003 and $13.5
million for the six months ended June 30, 2003 were consistent with the costs of
revenues for the comparable periods of the prior year.
Cost of license revenues decreased 38.1% to $237,000 for the three
months ended June 30, 2003 from $383,000 million for the three months ended June
30, 2002. Cost of license revenues decreased 8.2% to $480,000 for the six months
ended June 30, 2003 from $523,000 for the six months ended June 30, 2002. The
decrease in cost of license revenues for the three-month period was due to lower
third-party royalty fees resulting from less licensed units sold and, to a
lesser extent, a reduction in the amortization of capitalized software. The
decrease in cost of license revenues for the six-month period was due to a
reduction in the amortization of capitalized software. Cost of license revenues,
as a percentage of license revenues, increased to 11.5% for the three months
ended June 30, 2003 as compared to 8.9% for the three months ended June 30, 2002
and increased to 14.7% for the six months ended June 30, 2003 from 9.2% for the
six-month period ended June 30, 2002. The increases in cost of licenses, as a
percentage of license revenues, for both the three- and six-month periods were
primarily due to decreases in license revenues for the relative periods. Cost of
license revenues, as a percentage of license revenues, generally fluctuates from
period to period principally due to the mix of sales of software products which
generate third party license fees in each period and fluctuations in revenues
contrasted with fixed expenses such as the amortization of capitalized software.
Cost of recurring revenues increased 15.8% to $2.3 million for the
three months ended June 30, 2003 from $2.0 million for the three months ended
June 30, 2002. Cost of recurring revenues increased 16.7% to $4.6 million for
the six months ended June 30, 2003 from $3.9 million for the six months ended
June 30, 2002. The increases for the three- and six-month periods in cost of
recurring revenue were primarily attributable to costs associated with the
Intersourcing Offering totaling $0.2 million and $0.4 million, respectively,
including depreciation and amortization of related computer
17
equipment and costs associated with the Bell South data center, and higher costs
of maintenance revenues of $0.1 million and $0.3 million, respectively,
principally due to increased labor costs, including benefits. Cost of recurring
revenues, as a percentage of recurring revenues, decreased to 32.0% for the
three months ended June 30, 2003 as compared to 48.6% for the three months ended
June 30, 2002 and decreased to 32.7% for the six months ended June 30, 2003 from
49.1 % for the six-month period ended June 30, 2002. The decreases in cost of
recurring revenues, as a percentage of recurring revenue, for the three and six
months ended June 30, 2003 were primarily due to the expansion of the recurring
revenue base in 2003.
Cost of services revenues decreased 5.5% to $4.1 million for the three
months ended June 30, 2003 from $4.3 million for the three months ended June 30,
2002. Cost of services revenues decreased 4.1% to $8.5 million for the six
months ended June 30, 2003 from $8.9 million for the six months ended June 30,
2002. The decrease in the three-month period was due to the reduction of
third-party consultant fees totaling $0.3 million, partially offset by an
increase of $0.1 million in reimbursable out-of-pocket expenses. Cost of
services revenues, as a percentage of services revenues, for the three months
ended June 30, 2003 decreased to 80.5% from 87.6% for the three months ended
June 30, 2002 and to 74.7% for the six months ended June 30, 2003 from 84.1%
from June 30, 2002. The decreases in both the three- and six-month periods were
primarily as a result of the lower costs absorbed by an increased revenue base.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, sales
commissions, travel and promotional expenses, and facility and communication
costs for direct sales offices, as well as advertising and marketing costs.
Sales and marketing expenses decreased 6.4% to $4.2 million for the three months
ended June 30, 2003 from $4.5 million for the three months ended June 30, 2002.
Sales and marketing costs decreased 8.2% to $8.3 million for the six months
ended June 30, 2003 from $9.0 million for the six months ended June 30, 2002.
The decreases for the three- and six-month periods were primarily due to lower
labor costs of $0.4 million and $0.9 million, respectively, including a
reduction in sales commissions tied to lower license revenues, partially offset
by increased advertising and marketing costs of $0.1 million for the three- and
six-month periods and internal training costs for the sales force of $0.1
million and $0.2 million, respectively. Sales and marketing expenses, as a
percentage of total revenues, decreased to 29.6% from 34.0 % for the three
months ended June 30, 2003 and 2002, respectively, and to 29.0% for the six
months ended June 30, 2003 from 37.3% for the six months ended June 30, 2002.
The decreases in both the three- and six-month periods were primarily as a
result of the overall lower costs absorbed by an increased total revenue base.
Research and Development
Research and development expenses consist primarily of software
development personnel costs. Research and development expenses increased 4.4% to
$4.5 million for the three months ended June 30, 2003 from $4.3 million for the
three months ended June 30, 2002. Research and development expenses increased
2.2% to $8.9 million for the six months ended June 30, 2003 from $8.7 million
for the six months ended June 30, 2002. The increases in the three- and
six-month periods were due to higher labor costs of $0.2 million for the three-
and six-month periods resulting from increased benefit costs and, to a lesser
extent, additional labor costs associated with the acquisition of substantially
all of the assets of Hireworks, Inc. (discussed below), partially offset by an
aggregate decrease of $0.1 million for the three- and six-month periods related
to a reduction in internal training costs and a reduction in capitalized
software amortization. Research and development expenses, as a percentage of
total revenues, decreased to 31.8% for the three months ended June 30, 2003 from
32.7% for the period ended June 30, 2002 and to 30.9% for the six months ended
June 30, 2003 from 35.8% for the six months ended June 30, 2002 primarily as a
result of the absorption of these costs in an increased total revenue base.
18
General and Administrative
General and administrative expenses consist primarily of salaries and
benefits of executive, administrative and financial personnel, as well as
external professional fees and the provision for doubtful accounts. General and
administrative expenses decreased 17.4% to $1.3 million for the three months
ended June 30, 2003 from $1.6 million for the three months ended June 30, 2002.
General and administrative expenses increased 7.9% to $2.9 million for the six
months ended June 30, 2003 from $2.7 million for the six months ended June 30,
2002. The decrease in general and administrative expenses for the three-month
period was primarily due to A reduction in the provision for doubtful accounts
of $0.4 million, partially offset by higher external professional fees of $0.1
million. The increase in general and administrative expenses for the six-month
period was primarily due to higher professional fees of $0.2 million principally
related to increased external professional fees and higher labor costs of $0.2
million resulting from increased benefit costs, partially offset by a reduction
in the provision for doubtful accounts of $0.3 million. The increases in
external professional fees for the three- and six-month periods ended June 30,
2003 related to higher accounting fees in 2002 (for the annual audit and
quarterly reviews conducted by the Company's independent auditors) and increases
in accruals for accounting and legal fees associated with compliance with the
Sarbanes-Oxley Act. General and administrative expenses, as a percentage of
total revenues, decreased to 9.1% for the three months ended June 30, 2003 from
11.8% for the three months ended June 30, 2002 and decreased to 10.2% for the
six months ended June 30, 2003 from 11.2% for the six months ended June 30, 2002
primarily due to the absorption of these lower expenses by an increased total
revenue base.
Interest Expense
Interest expense for the three and six months ended June 30, 2003 was
comparable to the expenses for the same period of 2002.
Interest and Other Income
Interest and other income decreased 67.4% to $16,000 for the three
months ended June 30, 2003 from $49,000 for the three months ended June 30,
2002. Interest and other income decreased 59.6% to $36,000 for the six months
ended June 30, 2003 from $89,000 for the six months ended June 30, 2002. The
decreases in interest and other income for the three-month and six-month periods
were primarily due to the reduction of funds available for investment in 2003.
Income Taxes
No provision or benefit for federal, state or foreign income taxes was
made for the three months or six months ended June 30, 2003 or 2002 due to the
operating losses and operating loss carryforwards from prior periods incurred in
the respective periods. Net operating loss carryforwards available at December
31, 2002, which expire at various times through the year 2022 are available to
offset future taxable income. The timing and levels of future profitability may
result in the expiration of net operating loss carryforwards before utilization.
Additionally, utilization of such net operating losses may be limited as a
result of cumulative ownership changes in the Company's equity instruments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations have historically been
insufficient to fund its operations. Shortfalls in cash flows from operations
have been funded primarily through the private and public sale of equity
securities and, to a lesser extent, equipment financing and borrowing
arrangements.
19
As of June 30, 2003, the Company had $8.1 million in cash and cash
equivalents, reflecting a net decrease of $0.9 million since December 31, 2002.
The working capital deficit as of June 30, 2003 was $11.4 million and $9.7
million as of December 31, 2002. The decrease in working capital resulted
primarily from the funding of operations, partially offset by additional equity
raised through June 30, 2003.
Net cash used in operating activities was $6.0 million for the six
months ended June 30, 2003 as compared to net cash provided by operating
activities of $1.0 million for the six months ended June 30, 2002. During
February 2002, the Company received $6.0 million from Ceridian as a prepayment
by Ceridian of minimum guaranteed payments for 2003 due to the Company pursuant
to the Original Ceridian Agreement, as amended from time to time. During the six
months ended June 30, 2003, the Company received $1.1 million from Ceridian
pursuant to the Ceridian Services Agreement.
Net cash used in investing activities was $1.0 million for the six
months ended June 30, 2003 as compared to $1.9 million for the six months ended
June 30, 2002. The decrease in net cash used in investing activities was
primarily due a reduction in purchases of property and equipment, partially
offset by the $350,000 cash purchase of Hireworks (discussed below).
Net cash provided by financing activities for the six months ended June
30, 2003 was $6.1 million as compared to $1.3 million for the six months ended
June 30, 2002. The increase in net cash provided by financing activities was
primarily due to the proceeds from the issuances of Common Stock and warrants
pursuant to several private placements from January through June 2003 and the
decrease in principal payments on capital lease obligations as the Company's
equipment financing under that financing method have diminished, partially
offset by net payments (as opposed to borrowings in the prior year comparable
period) under the Credit Facility defined below.
Days sales outstanding, calculated on a trailing three-month basis
("DSO"), as of June 30, 2003 and 2002, were 43 days and 75 days, respectively.
The decrease in DSO's in 2003 was the result of (1) the recognition of
additional subscription revenue in the three months ended June 30, 2003 (i.e.,
increase of $1.9 million from the same period in 2002) from the Original
Ceridian Agreement which does not have related accounts receivable; (2) an
improvement in the quality of accounts receivable; and (3) the Company's change
in business strategy to focus on both license sales (as in the past) and
Intersourcing sales (beginning in 2002 and strengthening in 2003).
During the three months ended June 30, 2003, the Company raised an
aggregate total of $3.6 million of additional capital through the private sales
of 908,000 shares of the Company's common stock, par value $0.01 ("Common
Stock") and warrants to purchase 90,800 shares of the Company's Common Stock at
$4.00 per share to investors, including some existing shareholders (the "Second
Quarter Equity Raised"). On July 16, 2003, the Company sold 2,200,000 newly
issued shares of its Common Stock to two institutional investors in a private
placement for gross proceeds of approximately $11.7 million (the "Recent Capital
Raised"). These shares of Common Stock were sold at $5.30 per share. After
deducting commissions and other stock issuance costs, the Company received
approximately $11.0 million. The Company intends to use the proceeds from the
Second Quarter Equity Raised and the Recent Capital Raised for general corporate
purposes, including working capital. The shares of Common Stock issued in
connection with the Recent Capital Raised were not registered under the
Securities Act of 1933 and such shares may not be subsequently offered or sold
by the investors in the United States absent registration or an applicable
exemption from the registration requirements. Ultimate Software has agreed to
file a registration statement covering resales by investors of the Common Stock
issued in connection with the Recent Capital Raised. Certain other shareholders
have the right to include shares owned by them in such registration.
20
On June 9, 2003, the Company purchased substantially all of the assets
of Hireworks, Inc., a software company that developed, marketed and supported an
Internet recruitment solution. The assets acquired included customer contracts,
the source code for its software and computer equipment.
The Company has a revolving line of credit (the "Credit Facility") with
Silicon Valley Bank, which is secured by all of the Company's assets, including
a negative pledge on intellectual property, and bears interest at a rate equal
to Prime Rate plus 1.0% per annum (reduced to Prime Rate plus 0.5% per annum
upon two consecutive quarters of net profitability). The Credit Facility
provides working capital financing for up to 75% of the Company's eligible
accounts receivable, as defined, financing for eligible equipment purchases for
up to $2.5 million with additional limits for software purchases, and stand-by
letters of credit for up to $0.5 million. The maximum amount available under the
Credit Facility is $5.0 million. The Credit Facility, as amended, expires on May
28, 2004. The Company is currently in the process of negotiating the potential
renewal of the Credit Facility. As of June 30, 2003, the Company had $1.1
million outstanding under the eligible equipment purchases portion of the Credit
Facility, with an aggregate of $3.9 million available under the Credit Facility.
Under the terms of the Credit Facility, no dividends may be paid on the
Company's Common Stock without the consent of Silicon Valley Bank.
The aggregate amount of the cash balance at June 30, 2003 and the net
proceeds from the Recent Capital Raised is $18.9 million ("Combined Cash"). For
the three months ended June 30, 2003, the Company used an average of $1.0
million per month in cash to fund its operations ("Average Monthly Cash Flow
Deficit"). Combined Cash would cover 12 months' future cash flow needs, based on
the Average Monthly Cash Flow Deficit. Therefore, the Company believes that cash
and cash equivalents, cash generated from operations, including Recent Capital
Raised, and available borrowings under the Credit Facility will be sufficient to
fund its operations for at least the next 12 months. This belief is based upon,
among other factors, management's expectations for future revenue growth,
controlled operating expenses and costs of revenues, and collections of accounts
receivable.
21
QUARTERLY FLUCTUATIONS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results may fluctuate as a result
of a number of factors, including, but not limited to, increased expenses
(especially as they relate to product development and sales and marketing),
timing of product releases, increased competition, variations in the mix of
revenues, announcements of new products by the Company or its competitors and
capital spending patterns of the Company's customers. The Company establishes
its expenditure levels based upon its expectations as to future revenues, and,
if revenue levels are below expectations, expenses can be disproportionately
high. A drop in near term demand for the Company's products could significantly
affect both revenues and profits in any quarter. Operating results achieved in
previous fiscal quarters are not necessarily indicative of operating results for
the full fiscal years or for any future periods. As a result of these factors,
there can be no assurance that the Company will be able to establish or, when
established, maintain profitability on a quarterly basis. The Company believes
that, due to the underlying factors for quarterly fluctuations, period-to-period
comparisons of its operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs,
including, but not limited to, statements concerning the Company's operations
and financial performance and condition. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
are intended to identify such forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. The Company's actual
results could differ materially from those contained in the forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those discussed in the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations as well as those discussed in the
Company's Form 10-K, including Exhibit 99.1 thereto. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of its operations, the Company is exposed to
certain market risks, primarily interest rates. Uncertainties that are either
non-financial or non-quantifiable, such as political, economic, tax, other
regulatory or credit risks are not included in the following assessment of the
Company's market risks.
Interest rates. Cash equivalents consist of money market accounts with
original maturities of less than three months. Interest on the Credit Facility,
as amended, which expires on May 28, 2004, is based on Prime Rate plus 1.0% per
annum. As of June 30, 2003, $1.1 million was outstanding under the Credit
Facility and the interest rate was 5.0% per annum. Changes in interest rates
could impact the Company's anticipated interest income from interest-bearing
cash accounts, or cash equivalents, as well as interest expense on current and
future borrowings under the Credit Facility.
22
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Chief Executive Officer (the "CEO") and
the Chief Financial Officer (the "CFO"), of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this report pursuant to Securities Exchange Act of 1934 Rule 13a-15.
Based on that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information required to be included in the
Company's periodic SEC reports. It should be noted that the design of any system
of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
(b) Changes in internal control over financial reporting. There have
been no significant changes in internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting subsequent to the date of
such evaluation.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Unregistered shares sold by the Company. During the three months
ended June 30, 2003, the Company raised an aggregate of $3.6 million of
additional capital through the private sales of 908,000 shares of the Company's
common stock and warrants to purchase 90,800 shares of the Company's common
stock at $4.00 per share to "accredited investors" as defined in Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act").
All of the shares of common stock and warrants sold during the three
months ended June 30, 2003 were sold in private sales pursuant to Section 4(2)
of the Securities Act. The Company did not offer or sell the securities by any
form of general solicitation or general advertising. An underwriter was not
used. The Company received representations from each of the purchasers in
connection with the sale of securities, including that (i) such purchaser is an
"accredited investor", (ii) such purchaser has the appropriate business or
financial experience, (iii) such purchaser is able to bear the economic risk of
such investment and (iv) such purchaser is purchasing the securities for its own
account for investment purposes only and not with a view to or for distributing
or reselling such securities.
The warrants have an exercise price of $4.00 per share, are fully
vested and exercisable and expire four years after the date of issuance. In the
event of a reorganization, recapitalization, stock split, stock dividend,
merger, sale of all or substantially all assets or other change in our corporate
structure or shares, our Board of Directors is required to change the number and
kind of shares (including by substituting shares of another corporation) subject
to the warrants and/or the exercise price of the warrants in the manner that our
Board of Directors reasonably deems equitable and appropriate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 14, 2003.
The principal business of the meeting was to elect three directors to serve for
three-year terms or until their respective successors are duly elected and
qualified. No other business came before the meeting.
23
The names of the three nominees for director whose terms expired at the
2003 Annual Meeting of Stockholders of the Company and who were elected to serve
as directors until the 2006 Annual Meeting of Stockholders are as follows:
Nominee For Withheld Vote
------------------------- ---------- -------------
Marc D. Scherr 15,152,002 523,828
James A. FitzPatrick, Jr. 15,531,370 144,460
Rick A. Wilber 15,658,196 17,634
The names of each other director whose term of office as a director
continues after the 2003 Annual Meeting of Stockholders and their respective
term expirations are as follows:
Term Expires in 2004:
Scott Scherr
Term Expires in 2005:
Robert A. Yanover
LeRoy A. Vander Putten
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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*
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
*Filed herewith.
(b) Reports on Form 8-K
The Company furnished the information set forth in its press
release issued on April 30, 2003 concerning its first quarter 2003 financial
results in a Form 8-K filed with the SEC on May 6, 2003.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ULTIMATE SOFTWARE GROUP, INC.
Date: December 1, 2003 By: /s/ Mitchell K. Dauerman
---------------------------------------------
Mitchell K. Dauerman
Executive Vice President, Chief Financial
Officer and Treasurer (Authorized Signatory and
Principal Financial and Accounting Officer)
26