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Edited Transcript of ULTI earnings conference call or presentation 1-May-18 9:00pm GMT

Q1 2018 Ultimate Software Group Inc Earnings Call

WESTON May 4, 2018 (Thomson StreetEvents) -- Edited Transcript of Ultimate Software Group Inc earnings conference call or presentation Tuesday, May 1, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mitchell K. Dauerman

The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer

* Scott Scherr

The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO

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Conference Call Participants

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* Abhey Rattan Lamba

Mizuho Securities USA LLC, Research Division - MD of Americas Research

* Aleksandr J. Zukin

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Brad Robert Reback

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

* Brian Christopher Peterson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Jesse Wade Hulsing

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Justin Allen Furby

William Blair & Company L.L.C., Research Division - Research Analyst

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division - MD

* Mark Steven Marcon

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Michael Barry Nemeroff

Crédit Suisse AG, Research Division - Director

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Ross Stuart MacMillan

RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector

* Scott Randolph Berg

Needham & Company, LLC, Research Division - Senior Analyst

* Sitikantha Panigrahi

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Steven Richard Koenig

Wedbush Securities Inc., Research Division - Analyst

* Stewart Kirk Materne

Evercore ISI, Research Division - Senior MD & Fundamental Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to Ultimate's First Quarter 2018 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. (Operator Instructions) Your presenters today will be Mr. Scott Scherr, Chief Executive Officer, President and Founder of Ultimate; and Mitchell K. Dauerman, Executive Vice President and Chief Financial Officer.

We will begin with comments from Mitchell Dauerman.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [2]

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Thank you, Justin. Before I begin the normal warning, let me just say that I'm very excited to announce and congratulate Felicia Alvaro for her promotion to Chief Financial Officer and Treasurer. She's been at my side for 20 years. From the beginning, she's led our finance team and that included SEC compliance, reporting, forecasting. And over the years, she's been involved in every aspect of what we do here at Ultimate in the accounting and finance team. She shows incredible clarity in her focus and her ethics. What I think makes her the ideal choice for us is her intimate understanding of Ultimate's strategies and market approach, her strong communication skills, her empathetic leadership style. So I'm proud to turn our financial leadership over to her and to call her my very dear friend.

After 22 years as Ultimate's CFO, I am looking forward to continuing my tenure at Ultimate in the Investor Relations role and working alongside Scott and our other leaders more closely on strategic initiatives. To be crystal clear, I'm not going anywhere. For those of you who have asked about my health, I am perfectly fine other than my wife thinks I'm overweight. So before I go into the call, Felicia, congratulations. I couldn't be more happy for you. I know you're genuinely pleased as well, and I know that Wall Street will love you even more than me.

So now onto the call. Let's see. Safe harbor. Please be aware that we will be discussing our business outlook, and we'll be making other forward-looking statements regarding our current expectations of future events and the future financial performance of the company. These forward-looking statements are based upon information available to us as of today's date and are subject to risks and uncertainties. Please review our filings with the SEC for additional information on risk factors that could cause actual results to differ materially from our current expectations. We assume no duty or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Unless otherwise noted, our discussion will be on a non-GAAP basis for all cost, gross margins, operating and net income as well as EPS. The primary differences between GAAP and non-GAAP financial information are noncash stock-based compensation, transaction costs related to business combination and the amortization of acquired intangible assets. Please refer to the reconciliation of our financial information on a GAAP basis to that on a non-GAAP basis included in the press release published on our website.

So I'm going to begin by reviewing our Q1 financial results, and I'll provide guidance for Q2. For the quarter, recurring revenues grew 24.5% to $236.6 million, and total revenues grew 21.1% to $276.8 million. Recurring revenues exceeded our expectations for several reasons, including better-than-expected seasonal employment from our customer base compared to our modeling assumptions and earlier-than-expected go-lives as well as better-than-expected annual onetime recurring fees from our strategic partners. The recurring revenue gross margin rate was 74.9%, ahead of our expectations due to the additional revenue. Revenue retention from our cloud customers was approximately 96%. Service revenues were $40.2 million and the services gross margin rate was 1.6%, and it was in line with our expectations. The total gross margin rate was 64.2%.

Our total expenses, which are made up of our cost of revenues and operating expenses, were $220 million -- $220.7 million for the quarter and were slightly favorable to our expectations due to the timing of certain expenses. Operating income was $56.1 million and the operating margin was 20.3%, which is ahead of our expectations for the quarter, mostly as a result of the increase in recurring revenues. Our operating margin, computed on the basis of expensing the capitalized R&D costs and adding back the related product amortization, was 16%, and it was ahead of our expectations due to higher recurring revenues.

Our non-GAAP income tax rate for the quarter was 28%. Net income was $40.5 million, and the related diluted net earnings per share were $1.30.

Our cash and marketable securities balance was $147.9 million and reflects a total of $50.3 million used for shares acquired to settle employee tax withholding liabilities associated with their restricted stock that vested.

Operating cash flows for the quarter grew 22.1% to $56.6 million as compared with $46.3 million in Q1 of '17. The average daily float balance for our payment services business was approximately $1.5 billion for the quarter.

Our capital expenditures for the year-to-date period were $22.9 million, including capitalized R&D costs of approximately $13.6 million. This compares to the 2017's CapEx of $22.8 million, roughly the same, which included $11.6 million of capitalized R&D cost.

Next, I'd like to discuss our financial guidance. We are reaffirming our full year guidance for 2018. We expect recurring revenues to grow in excess of 20% and total revenues to grow in excess of 18% as compared with 2017. We expect our operating margins to be in excess of 21% and our as-expensed operating margins to be in excess of 17% for the year.

For Q2, we expect recurring revenues to be between $237 million and $239 million, and total revenues to be between $267 million and $269 million. As a reminder, services revenues in the second quarter typically step down because Q1 includes revenues from our Print Services. We expect the operating margin for Q2 to be in excess of 20%.

Turning to our upcoming conference schedule. During the next quarter, I will be in San Francisco on May 8 for the SunTrust conference; in New York on June 6 for the R.W. Baird conference; and in Boston, on June 11 for the Stifel conference. On May 15, Scott, Felicia and I will be at the JPMorgan conference in Boston; and in Chicago on June 13 for the William Blair conference. If you're available at those conferences to meet, please let me know.

And now for the 81st and final time, let me turn it over to my partner, Scott Scherr.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [3]

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Thank you, Mitch. And thank you, everyone, for participating on our call this evening. We had a great start to 2018 with the first quarter. We are on pace to achieve all of our 2018 goals, including reaching $1 billion in revenues, and we laid a solid foundation for our future growth.

Recurring revenues came in ahead of our expectations at approximately $237 million, up by 25%, and total revenues were $277 million, up by 21%, both compared with Q1 2017. Our non-GAAP operating margin of greater than 20% also exceeded expectations, and the year-over-year customer retention rate was again approximately 96%. Our enterprise team's attach rates for new customers in the quarter were: Onboarding, 82%; Time Management and Recruiting, both 64%; and Performance Management, 55%. Some of our new enterprise customers were: a distributor of home and commercial building supplies with 11,000 employees, that added Onboarding, Time and Comp Management; a management services provider in the health care sector with 8,000 employees, that added Recruiting, Onboarding and Time Management; and a health care company, with 5,500 employees, that added Recruiting, Onboarding, Performance Management, Comp Management, Succession Management, and a couple of our new products, Perception and Benefits Prime.

Our mid-market strategic team's attach rates were: Onboarding, 97%; Time Management, 85%; Recruiting, 76%; and Performance Management, 73%. Some new mid-market customers in the quarter were: a real estate investment and management firm with 2,500 employees, that added Recruiting and Time Management; a global accounting group, with 2,000 employees, that added Recruiting, Onboarding, Time Management, Performance Management, Comp Management, Succession and 2 of our new products, Learning and Perception; and a public sector accounting firm, with 1,500 employees, that added Recruiting, Onboarding, Performance, Comp, Succession and 3 of our new products, Learning, Perception and Benefits Prime.

Some new strategic customers in the quarter were: a credit union with 500 employees that added all of our key add-on solutions: Recruiting, Onboarding, Time Management, Performance, Comp, Succession, plus 2 of our new products, Learning and Perception; and a privately held company operating in several industries with 600 employees, who added all of our key add-on solutions: Recruiting, Onboarding, Time, Performance, Comp, and Succession.

In nearly all areas of marketing, our metrics were the highest in our history as a company, underscoring the continuing strength of market demand for our solutions. We had a 102% increase in social media respondents saying they're looking to buy in 12 months or less. Our website traffic was the highest we've ever had. Our webcast program had a 42% increase in responders looking to buy in 12 months or less. Online event responders indicating they are looking to buy within 12 months increased 25%. We also had a 17% increase in unsolicited information requests that said they are looking to buy less in than 12 months. We see these proactive requests as one of the strongest indicators of serious interest in our solutions.

In mid-March, a record of nearly 4,000 HR and business professionals, partners and industry analysts joined us in Las Vegas for Connection, our annual customer conference. We had the opportunity to thank and honor our customers, and we celebrated our people-focused technologies and practices that are transforming the HR community. The 3-day conference offered more than 75 breakout sessions and workshops to help customers enhance their employees' experience with UltiPro. In the conference's opening session, Chief Technology Officer, Adam Rogers; and Vice President of Products, Martin Hartshorne, showcased 3 of Ultimate's new solutions: Xander, UltiPro Workforce Management and Benefits Prime. Xander is our artificial intelligence platform, which leverages natural language processing and machine learning technology and works within UltiPro Perception. The industry's leading sentiment analysis solution, Xander enables company leaders to identify underlying sentiments in employees' open-ended surveys responses, determine themes and view analytics that inform decision-making. UltiPro Workforce Management, which is made up of 2 products, UltiPro Time and UltiPro Scheduling, that integrate with UltiPro time clocks to create a more convenient, flexible employee experience. Employees have easy access to common functions, like mobile app clocking in and out, shift swapping, and requesting PTO, while managers have a dashboard for faster scheduling, approvals and smarter planning with key labor metrics and analytics, templates and libraries. UltiPro Benefits Prime offers a much more modern, easy-to-use decision support experience for an organization's entire workforce, making it easier than ever to view benefits options, compare plans and understand the array of available choices.

At the conference, we also presented our annual Innovation Awards, recognizing customers that have demonstrated extraordinary business results or HCM innovation with UltiPro in the past year. Among our 9 winners were Dacotah Banks, that won in the category of Innovation Evangelist for using insight from UltiPro Perception to unlock organizational performance; Silverado Senior Living, that was our Business Impact win after saving $3 million over 12 months by using real-time detailed people analytics to drive business decisions. Ultimate announced an agreement with Mercer that allows UltiPro customers to use Mercer Sirota's benchmark data to understand how their own workforce metrics, such as employee satisfaction and employee engagement, compared to those of similar businesses. Using UltiPro Perception, our customers can now select from more than 130 questions to capture their own employees' ratings and then view those ratings alongside Mercer Sirota's benchmark data. Mercer is a global consulting leader and a wholly-owned subsidiary of Marsh & McLennan companies.

In April, we held our fifth Advisory Summit in Fort Lauderdale, an annual meeting we hold in Fort Lauderdale with leading HCM advisors, consultants and influencers to update them on our product road map and strategic directions. It was our largest group ever with more than 250 registrants, 33% growth over last year, and representation from more than 100 firms. Among the attending firms were Deloitte, Tata Consulting, Ernst & Young, KPMG, Mercer, PwC, Aon and Capgemini. We always have many positive comments from attendees. One example is Jennifer Weiss of Weiss Consulting, who said, "The transparency and information provided by the Ultimate team is always very helpful. It is great to see the road map, hear about customer successes, meet others in the greater Ulti ecosystem, and further understand those capabilities that can be most critical to our clients." This forum continues to facilitate expansion of our partnership ecosystem and increases our opportunities for effective UltiPro consulting, pipeline sharing and revenue growth. Ultimate received some third-party recognition in the first quarter.

In February, Fortune Magazine ranked Ultimate #3 on its prestigious list of 100 Best Companies to Work For in 2018. Also in February, Ultimate won a Silver Stevie Award for 2018's Best Customer Service Department of the Year, and we were also named to both Canada's 25 Best Workplaces for Inclusion and Canada's 25 Best Workplaces for Women. This month, we were equally proud to be ranked #4 on Workforce magazine's Workforce 100, our highest ranking ever on this list and the highest in our industry. Workforce 100 evaluates companies from all over the world in 7 HR management areas, and this year's list includes such leading companies as Amazon, Nike, Apple and Netflix. Also this month, Ultimate was ranked #2 on the Best Workplaces in Canada List for 2018 by Great Place to Work. The list is based on employees' feedback and in-depth reviews of workplace cultures at hundreds of organizations across Canada.

At the close of the first quarter this year, we were 4,324 strong. We will achieve our [fifth] championship of becoming $1 billion franchise this year. We continue to grow our infrastructure that we have been working on for more than 24 months to accommodate our objective to achieve $2 billion in revenues in 2022. We now support more than 38 million people records in our Ultimate cloud, and we continue to lead the cloud industry in numbers of customers using a unified HCM with human resources payroll, talent, comp and time and labor management. Our customers remain our allies in growth, and they are the source of inspiration for our innovations and future direction.

This is Mitch's and my 81st and last conference call together. He made his first investor call as Ultimate's CFO in 1998, when our franchise was valued at $180 million and we had 299 employees. He is stepping down now as CFO from a franchise with a market value of nearly $8 billion, more than 4,300 employees. He is a Hall of Fame CFO, partner, leader and friend. I thank him for his 22 years in this role and look forward to all the value he'll create for us in his new role of focusing on Investor Relations and Strategic Initiatives.

Felicia Alvaro, our Vice President of Finance, will succeed him. In her 20 years at Ultimate, Felicia has been involved in all aspects of Ultimate's finances, including accounting, financial planning and analysis, financial reporting and financial compliance as well as operations. She began her career with KPMG as a certified public accountant and had 10 years of experience with both public and private companies prior to joining us at Ultimate. Mitch has been grooming her for years. She has been on all 81 investor conference calls we've had as a publicly traded company. She is ready, she is excited and we welcome her to her new role as CFO, which officially begins tomorrow.

I want to take this time to just thank Mitch, Felicia. I think this is the way it's supposed to be. Someone is supposed to have a good career. Mitch is not leaving, and he will still be here with us, as he said. Felicia, thank you. I mean -- I think this is the way it's supposed to be. Mitch supposed to groom somebody in the organization. She earned -- you earned this position, Felicia. Without getting too choked up, let's go to the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Michael Nemeroff with Crédit Suisse.

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Michael Barry Nemeroff, Crédit Suisse AG, Research Division - Director [2]

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Mitch, I'm glad you're sticking around. Felicia, a hearty congratulations, and I look forward to working with you, and I'm sure everybody else does as well. A couple of questions. Time to Live, has that gotten any better? Did that contribute to the upside in recurring revenue in the quarter? Also, Mitch, I think you had mentioned something about onetime revenues. How much did that contribute to the recurring line this quarter? And then also, I know you guys typically don't update the guidance as per your normal practice, but these results were really strong both on the top line, recurring revenue. Margin came in a couple of hundred basis points higher, and I think Q1 for the last couple of years has been the low point on margin. I just want to manage expectations just so that, Mitch, you're not leaving Felicia with a consensus that may be unachievable?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [3]

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Well, Felicia set the guidance, so I'm not leaving her with anything. So let's just start backwards. Our guidance for the year was talking about being in excess of, what was it, 20%. So I think we've been trying to set a tone of a -- let's say, a more conservative-type model, not a beat and raise but -- so I guess I would say to you and to investors, don't get ahead of it. Q1 was good. I think when we go through a process and we model recurring revenue, there are assumptions we make, whether it's with revenues from strategic partners. In this case, one of the larger ones was from Intuit and our relationship with TurboTax. Secondly, we do estimate, you call it Time to Live, but when some of these can go live. And I would say, yes, they did go live a little bit sooner. But it's a marginal improvement. Directionally, it's where we expected to go and where the activation team's focused on. And the other component is always around employment. Some of you may remember a few years ago when seasonal employment dropped down much more than we expected, and we had a miss. So we're always trying to gauge where do we think that drop off from Q4 to Q1's going to be. It happened to come in better. But all you can do is try to make different assumptions. And I would say, in this case, collectively, they all came in better than we expected. That resulted in the outperformance. Some of it, as you could tell, probably, if you look at your numbers for Q2 for recurring, led to guidance a little bit higher than you were. And again, we would just caution you, we've got a plan for the year, it's in excess of -- let's play it out the rest of the year.

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Operator [4]

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And next question comes from Justin Furby with William Blair & Company.

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Justin Allen Furby, William Blair & Company L.L.C., Research Division - Research Analyst [5]

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I'll echo my congrats to you, Mitchell, on a terrific run, and Felicia, congrats to you. I look forward to peppering you with multipart questions. I guess, 2 questions. First -- actually, both of them for Scott. The new Workforce Management product, just curious, I know it's early, but what types of customers are you selling it into? And I guess, any feedback from the sales organization would be helpful here in the first 90 days-or-so in the field. And I'd love to hear sort of your thoughts on the impact competitively with that product in market?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [6]

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Well, we're selling it -- all strategic deals are that -- all mid-market deals are that. And probably 50% of the enterprise deals are that. So every deal I said on the attach rates, which Time Management in the quarter was 85%, for the mid-market and the strategic it's all that. So I think it's an upgrade to the product we had, and it's been well received. And I think the attach rates did go up. I think they'll stay up.

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Justin Allen Furby, William Blair & Company L.L.C., Research Division - Research Analyst [7]

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Got it. That's helpful. And then, I guess, second one for you, Scott, just the sales hiring process. Can you give -- maybe you gave it but I missed it, but can you give an update on where you are with sales heads and where you expect to grow the most in terms of the different components, enterprise, mid-market, strategic, over the next few years?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [8]

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Right around -- around 130, going to 135. Most of the growth in heads were in mid-market and strategic. We put a strategic team in Canada, which we didn't have last year. Also, Justin, can I ask you a question?

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Justin Allen Furby, William Blair & Company L.L.C., Research Division - Research Analyst [9]

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Yes, please.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [10]

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Someone just sent me a text that I forced Mitch out. So I want to make it clear, that it was 100% his call. He could have stayed here forever. This was his call, 100%. And like I said, he's been grooming Felicia for a long time, so Mitch had a life plan. But like you said, we're still staying together, and I'll see you in Chicago with Mitch.

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Operator [11]

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And next will be Richard Baldry with Roth Capital.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

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I'm a little surprised someone has your text number that would ask a question like that.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [13]

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It's bad. Right, Rich?

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14]

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I only lasted 60 quarters, but it was a 50x stock return, so I'll say thanks to Mitch as well. Just quick easy ones, maybe. Given the market cap you put together now and the strategic initiatives part of Mitch's new title, so curious if you think that there are more opportunities you want to be looking at. Putting someone with his background in the company into a role like that might argue that there's something more you're starting to see at this scale that could be interesting.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [15]

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I believe in -- very smart of you, I would say, but that's -- yes, I believe we have $2 million (sic) [$2 billion] on our sights, but I think we're looking now at $3 billion and what it'll take. So I think we've got to be -- we've got to take opportunities or the opportunities that are out there to make us stronger on the product side and the technology side. And yes, we're stepping it up there. So you're right.

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Operator [16]

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And next will be Brad Reback with Stifel.

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Brad Robert Reback, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [17]

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So on that comment that you're stepping it up on the product side, is that predominantly organic or would you accelerate inorganic?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [18]

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Both. It's always been both. We've done 5 acquisitions in our history. They were all either product-related or technology-related, while we were building our own products as well. So I don't think anything will change. I think it's just that we're going to keep doing it. And I think because of our size, we could become a little more aggressive in it.

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Brad Robert Reback, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [19]

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Got it. And just a quick follow-up, unrelated. Given the success Patrick Reed had and your sponsorship with him, do you see a good uptake in inbounds in April?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [20]

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Well, I thought you're going to say how great a golf picker I am in choosing Patrick Reed. But yes, there was huge inbounds, it was all over the place. It was going crazy when that was going on. So obviously, there was -- they give you all the statistics on how much you see and what it's actually worth. I hope Patrick's not listening on this call, but it's worth well over 100x what we're paying him.

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Brad Robert Reback, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [21]

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Well, I hope the price doesn't go up too much on renewal.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [22]

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I hope not either. We have a 2-year deal with him. We're in the first year.

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Operator [23]

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And our next question comes from Siti Panigrahi with Wells Fargo.

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Sitikantha Panigrahi, Wells Fargo Securities, LLC, Research Division - Senior Analyst [24]

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Mitch and Felicia, I also extend my congratulations on both of your transition. Mitch, great working with you. So I have a question on -- usually December, the last 2 weeks of December is always busy weeks. So I'm wondering if you could can give some more color about the activity in December that you saw versus prior years. And also, what are you seeing in the demand environment both in mid-market and enterprise? And I have a follow-up.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [25]

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December was Q4, so that was -- we covered that in our February conference call. As far as the activity, pipelines are as strong as they've ever been. We've had very little turnover in sales. We're almost staffed to where we want to be in the year. I was at -- this year so far, we've had all our sales meetings, and we have what we call the [stake] tours, which we had in April, and I've been in front of every single salesperson this month. We've also had all our sales clubs. So I think there's huge energy, confidence, and I think we're in a really good place, and we need to execute and take advantage of it.

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Sitikantha Panigrahi, Wells Fargo Securities, LLC, Research Division - Senior Analyst [26]

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And I was trying to find more on the booking side in December that's -- going back in the second half. Can you hear me?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [27]

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Yes.

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Sitikantha Panigrahi, Wells Fargo Securities, LLC, Research Division - Senior Analyst [28]

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Yes, I was trying to find more on that. But on the margin side, it was a nice beat...

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [29]

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Sorry, Siti. We had a good fourth quarter as was evidenced by our call in February.

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Sitikantha Panigrahi, Wells Fargo Securities, LLC, Research Division - Senior Analyst [30]

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Okay. On the margin side, it's a nice beat, 200 bps than what you've guided. But you've kept your margins for FY '18 same, so I'm wondering how you're seeing your expenses and the investment. How should we think about that for the remaining quarters?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [31]

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Yes, Siti, I think that did come in better. Some of it has to do with some timing differences in terms of when we're going to spend some items. Obviously, we had better-than-expected recurring. Our guidance -- our operating margin is in excess of, so it kind of depends where it all falls out at the end of the year. How much in excess of that 21% will be. I think, like we always do, we're looking at building the company for the long term, so we would make the right decisions that would help us, one, meet our promises to Wall Street; and two, invest in our future. Like Scott said before, it's not just getting to $2 billion, it's going past $2 billion to $3 billion. So I think that's the way we've been as long as we've been here, so we'll continue to do that.

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Operator [32]

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And next will be Mark Murphy with JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [33]

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Mitch, is there any chance that you could continue to dial in for the earnings calls, just so that we can keep saying it's your 83rd or your 84th earnings call together with Scott, maybe get to 100?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [34]

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No. We've built a throne in my office, and he's just going to sit in it on every call.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [35]

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Wait. But Felicia also gets to tag on. She is now -- this is her 81st, too. So the next one is her 82nd. She doesn't even start at one, Mark.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [36]

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All right. Well, we'll have that image in our mind of you sitting there on the throne, I like that.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [37]

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Easy, sailor.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [38]

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So Scott, I actually wanted to ask you, what is your view on real-time or a continuous payroll capability? Because we have heard some commentary about a near-term capability to do real-time payroll calculations based upon timecard changes and, I guess, I'm just curious, is that accurate? And is that something that's important to many of your customers?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [39]

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Mark, it's Mitch. That is something the development team has been tracking and working on. So it is something that is in the works for us.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [40]

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Is that coming out in the next quarter or 2?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [41]

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I don't know the timing, to be honest, with you.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [42]

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I don't either.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [43]

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We can check with Adam and Martin and let you know.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [44]

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Okay. So the other question I wanted to ask was, when we look at the sequential growth in recurring revenue, it was over 10% sequentially, and that is the best growth since Q1 of 2007, so it's -- we have to go back a little over a decade. And I guess I'm curious, to what extent do you think that's being driven by, I guess, any discrete large go-lives that might have happened? And just more generally, kind of going back to Mike Nemeroff's question, how much faster is the rate of go-lives versus last summer? Is it a difference of a couple days, a couple weeks?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [45]

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Well, I mean, we don't measure things in terms of days. I appreciate the question, though, with that perspective. I would say, yes, it has to be slightly better than originally expected, but it's marginal. I think what happened in Q1 was just a combination of all things going in the right direction. So in a sense, we did pull a little bit of stuff forward. We did set some better performance from our relationships with our strategic partners. I know some of the people on the call cover Intuit, and we have great relationships with them and TurboTax, and that's been beneficial. So I think from a modeling perspective, all the things that we assume, some of which normally don't come in right on, everything did. But if the issue you're getting to is people's concern about Time to Live, I would say, categorically, it is not extending. It is, if anything, shrinking. But remember, even if it shrunk a month, it's a onetime thing, and it is a function -- as we talked about on several calls, it's a function of the customer and their needs and their timing and their set up and how many products they bought. And we sell a lot more products and we're selling a lot larger customers. So you have to put those dynamics into play, and we can only control a portion of the activation. It is a cooperative process. I think any vendor like ours would say it's cooperative with the customer. But our activation team is focused on it. They continue to enhance tools. They're continuing to take on as much as they can and control that. But I think it's all good.

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Operator [46]

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And next will be Scott Berg with Needham.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [47]

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My original question was on Patrick Reed, but I can't ask that, I guess. We'll save that for another day. I guess, Scott, the one question I wanted to ask is, we picked up in our checks in the quarter that -- and sometimes it's splitting hairs, but -- that your win rates in -- I forget what the name of the segment is these days. They keep changing -- I think it's your mid-market, customers with maybe 500 to 1,500 employees seems to have improved a little bit over the last couple, 3 quarters. That might be a small amount, maybe it's something more than that, but just wanted to hear your thoughts on that because you've always been strong there, but it was -- we heard it several places.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [48]

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No. I think -- look, strategic and mid-market is in one organization. Strategic people sell underneath 500 employees, and the -- some mid-market people sell 500 to 1,500, and some sell 500 to 2,500. But -- I don't know. They've been strong for so long, that whole organization. So I mean, the tenure keeps building. We've been growing it. When -- we added this year in the mid-market, counting both, 500 to 1,500, and 500 to 2,500, we added 12 people, quality people -- obviously, we wouldn't add people who weren't quality, but 12 people. And then we added 12 -- no excuse me, we added 6, and then we added 6 and 5, 11 strategic people. Putting 5 in Canada, we didn't have a strategic team in Canada, so we added in Canada. So all together, it was 12, so 17 people in the mid-market and strategic teams. So maybe, more people out there. We tend to train them really good, really fast. So maybe that's had something to do with what you've heard. More people on the street. I mean, like I said, I was at their -- we were at the sales -- so I was with them 3 times since the beginning of the year, sales meetings, the club, and then what we call the [stake] tours, and we're off to a really good start.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [49]

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Fantastic. And Mitch, it's been fun. I look forward to more conversations, but I thought your next gig was going to be as the CTO, not an IR head. T standing for [technical] support...

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [50]

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That is my principal job.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [51]

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We did not take that away from him, that responsibility.

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Operator [52]

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And next will be Brian Peterson with Raymond James.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [53]

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I was actually going to ask about Patrick Reed, too, but now all I can think about is Game of Thrones. But anyway, I want to get to -- so on the implementations, I know when we talked about this issue last in 2017, there were a couple of customer segments that saw some of the extended implementation cycles. I'm just curious, has there been any commonality in the improvement? And just specifically, on some of the large wins that you referenced in the fourth quarter call, any changes to those implementation assumptions?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [54]

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No, I would say that the larger deals, which drove the extension of that Time to Live, came in, went live as we expected. The Time to Live on something like that has stayed relatively the same. I think when you get probably to the mid-market, the smaller deals -- because remember, we talked about those larger ones have extended from 6 months to 7 months, and we thought that would pull back in. So we're seeing a little bit of improvement there. But again, I just don't want people to overreact to that. It is an improvement. Directional, it's good. It's factored to our guidance.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [55]

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But enterprise got better, and those -- they are the bigger deals. So they got better. Mid-market, stayed -- got -- the same to a little better but enterprise made some real progress there.

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Operator [56]

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And next will be Alex Zukin with Piper Jaffray.

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Aleksandr J. Zukin, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [57]

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I echo all the previous congratulations. Maybe just a couple from me. So Scott, just given the strength of the -- that you're talking about in the quarter, can you maybe comment on just the booking trends that you saw versus your plan, and specifically, maybe where they were better or worse versus enterprise, versus strategic? And then maybe for Mitch, on the sales and marketing expense in the quarter, as a percentage of revenue, it's a little lower than we've seen historically. It could be because of 606, but I just wanted to get some clarity on that, and how we should think about free cash flow margins for the balance of this year.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [58]

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Yes, I mean, I would just say Q1, across the board, met my expectations. It always starts the year, and it's always our lowest quarter. In bookings, we don't give the numbers, but it's always our lowest quarter because obviously at the year-end, we have our sales meetings, we have our clubs and we have Connections and our [stake] tours. But it was in line with what I thought, sets us up good for the year, and we have a lot of momentum going into Q2 and, hopefully, we execute and build Q2, Q3, right up to Q4.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [59]

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And then Alex, the percentage is lower, as you point out, because of 606 and the timing of when we have some advertising and marketing spend.

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Aleksandr J. Zukin, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [60]

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Got it. Just on free cash flow?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [61]

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Yes, sorry. Yes. So if I had to guess, I'd say free cash flow probably is somewhere in the 12% to 13% on margin. It's lower than last year. If you remember, last year came in very strong at the end of the year. And then when we talked about this year's CapEx, we are expecting to have to do some leasehold improvement spending that we didn't do in the prior year, commensurate with our growth and planning for the future. So that's what we kind of think. It probably goes down a little bit for that reason, but then as we don't spend it the year after that, it should kind of return back up in that trajectory.

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Aleksandr J. Zukin, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [62]

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Got it, and guys, if I could just squeeze one more in. Another -- just following-up on an earlier question about the onetime recurring benefit from the -- maybe the Intuit partnership specifically. Just any sense in just helping us quantify that a little bit more granularly, given the sequential guide for recurring revenue is obviously just different than what we've seen before?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [63]

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Alex, we're not going to give you all the granular details of the components of recurring. I don't think other companies do that. But I would say, there was -- some of that -- the amount that we continue on, based on the assumptions we think are reasonable, are factored into the Q2 recurring revenue guidance, which, I think -- I don't know your specific numbers, but I'm guessing it's a couple of million dollars ahead of probably where The Street was. So maybe that's a way to look at it. Again, trying to retain a certain degree of conservatism in the modeling.

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Operator [64]

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And our next question comes from Kirk Materne with Evercore ISI.

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Stewart Kirk Materne, Evercore ISI, Research Division - Senior MD & Fundamental Research Analyst [65]

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I'll echo everyone else's congrats to Felicia and Mitch on a really nice run. Maybe just 2 quick ones. Scott, when -- can you just give us a little bit of an update on the Microsoft partnership and how that's going from your vantage point? And then, Mitch, I know there's a lot of moving parts on operating margins right now with 606, but if you were to look at the business on a little bit more of an apples-to-apples basis versus last year, are we still seeing some operational leverage in the numbers right now?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [66]

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On Microsoft, our people are establishing relationships with their resellers. It's a little different than the NetSuite deal because we're not dealing with a direct sales force, we're dealing with resellers, so they've been establishing those relationships. I believe on the development side, they're working with them on integrations between our payroll and their general ledger.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [67]

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Yes. And as far as the operating margin, I would say our goal is to continue to get some natural operating margin leverage out of the business. I think we've talked about whether it's 50 basis points, 40, 30, but directionally that way. 606 does help us probably close to a couple of hundred basis points now that we've finalized the numbers and our estimates of that. And I just would remind you, if you're just looking at the numbers, some of the upside that was in Q4 of last year, we did not repeat into Q4 of this year. So that should be taken into account if you're trying to triangulate what I just said from 2017 to 2018.

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Operator [68]

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And next will be Jesse Hulsing with Goldman Sachs.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [69]

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Mitch, I'm going to miss our quarterly sparring sessions. Scott, it's sounds like, just reading between the lines a little bit, with Mitch's new role and just the focus on broadening product and portfolio, that you're getting -- you see an opportunity to get more aggressive. I'm wondering if you've given more thought to expanding internationally, and if that's something that you're looking at as well.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [70]

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Yes, yes. Yes.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [71]

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Into Europe or Australia? What's the thought process there?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [72]

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Europe. We're looking into Europe right now.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [73]

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Any thoughts on time line for something like that? Over the next couple of years? Over the next 5 years? What are you thinking there?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [74]

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No, no. We're -- I think within the next year, hopefully. We'll see how it goes, but hopefully, within the next year.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [75]

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Interesting. That's good to know. And then with regards to, I guess, bookings mix...

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [76]

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Just remember -- excuse me, just remember, Perception, which we can sell stand-alone, gives us the opportunity to go to places like that and sell stand-alone. Our new Performance product which we're working on will give us the opportunity to go over there. So we'll have opportunity with product to go over there, and then obviously, once you have product, then you could look at other things.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [77]

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Would you expand internationally with payroll eventually as well, or...

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [78]

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No.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [79]

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No, okay. So just [ATM and] tools and that sort of thing?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [80]

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Yes.

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Jesse Wade Hulsing, Goldman Sachs Group Inc., Research Division - Equity Analyst [81]

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Interesting. Okay. And then in the quarter, and I guess when you look at the year, any change on how you think the, I guess, the bookings mix will look between your different segments, strategic, mid-market and enterprise?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [82]

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Jesse, one second. I'd say that's 60% mid-market and strategic, and 40% enterprise.

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Operator [83]

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And next will be Ross MacMillan with RBC Capital Markets.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [84]

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Mitch, you will be missed from wearing the CFO hat, but congratulations to you and to Felicia. I don't want to belabor the Q1, Q2 sort of seasonality, but maybe on those onetime impacts, I'm just curious as to why those were bigger this year. I think the Intuit relationship goes back 5 or 6 years. Was there any particular reason why you think those were stronger? And then on the employment side, when you have that trend rate that's better, let's say, in a Q1 as it was this year, do you sort of extrapolate off that? Or how do you -- how does it actually sort of flow into the model when you think about the employment levels across your customers?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [85]

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I mean, I think, when you look at employment, you're trying to -- look, in the scheme of things, it's a very small amount in terms of percentage growth or percentage dollars. When you're modeling, you're trying to look at past performance. You're not trying to outguess yourself. So I would tell you that Q1 did better on the employment. We probably tempered it a little bit in Q2, not trying to get too far ahead of ourselves as well. But in the scheme of things, while it's great that we're ahead by $6.5 million-or-so in recurring, we're talking about a $1 billion company, so there are many factors that come into play.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [86]

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And on the onetime, was there anything particular you'd call out as to why that was stronger? Is it also employment-related or...

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [87]

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No, Ross, I think it was -- I think it was just there were a combination of assumptions that go into recurring that -- we get it. It's not just go-live of new customers. It's [in all] products. It's employment growth. It's timing of closing of acquisitions. It's float. It's season -- it's price increase. There's so many factors that -- what Felicia and her team have done for many years is trying to come up with different ways to look at those components to try to come up with something that we would think is reasonable. And I would just say this time, all those items came in better, but I don't know that we're in a position to say why each one came in better. Obviously, the Intuit, TurboTax did, and that's a onetime, that's a fact. But that won't -- that [will] recur next year. But the other items, again unemployment, seasonality, your guess is probably as good as mine as to what's going to happen in Q2. So we make the best estimates we can.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [88]

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Understood. That's helpful. Maybe Mitch, just one more. The question was asked on free cash flow margin earlier and you obviously have some higher CapEx. I wondered if you could just comment on cash flow from operations margin this year, maybe to sort of put a fine point on that.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [89]

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Cash flow from operations. I think we were looking in the low-20% range as well, impacted by the leasehold improvements. Oh no, that wouldn't be leasehold improvements. Low 20%.

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Operator [90]

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And our next question comes from Abhey Lamba with Mizuho Securities.

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Abhey Rattan Lamba, Mizuho Securities USA LLC, Research Division - MD of Americas Research [91]

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And congrats, Mitch and Felicia. I know, Mitch, you're going to be around, so we're going to get time to chat more. But Scott, could you comment on the pricing environment that you're seeing out there for the upper mid-market to lower enterprise deals? Any change in the competitive environment that's impacting pricing in that space? And Mitch, can you give us some idea what does your new role involve, especially with regards to strategic initiatives? What type of initiatives would you be leading?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [92]

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On the pricing, our pricing, we get a per-employee, per-month that we get in the quarter, and I really didn't see anything different from prior quarters on the deals we sold. On Mitch, there's a couple we're looking at right now that Mitch is -- one of them, Mitch is already involved in, and he'll be involved in many more going forward. So we don't want to talk about who that is, but he's involved in one now, and he's going to be involved in many more moving forward.

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Operator [93]

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And next will be Steve Koenig with Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - Analyst [94]

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I'll echo the congratulations to Felicia. And good to hear, Mitch, that you aren't trying to lose us. I just want to ask you guys about the platform, maybe -- and can you give us an update on how that's coming? And then financial impacts, should we expect capitalized software to remain around -- I think it's around the $45 million level this year. Is that about what we should expect until the project concludes?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [95]

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Well, I think, as far as the CapEx stuff, I think we're around that $45 million, probably somewhere around. It's too early to say for sure, but maybe around that same range next year and then dipping down. And I think we've said before, we know there's always going to be an amount of software that has to be capitalized for SaaS-developed products, and we're trying to kind of figure out when you look long term, is there a metric or percentage that we could start modeling off of. But it's something that Felicia's been working very closely with Adam on and his team, and we've been doing that. So it's something we're focused on. And as far as the products, they're coming along on schedule.

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Operator [96]

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And our next question comes from Mark Marcon with R.W. Baird.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [97]

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I'd like to add my congratulations. Mitch, it's been an absolute pleasure working with you over the years and look forward to continuing to work with you. And Felicia, congratulations. Scott, I was wondering if you could talk a little bit about if you're seeing any sort of difference in terms of the source of new client wins, if that seems to be broadening out, both on the enterprise as well as on the strategic side.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [98]

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I don't really see anything different. We're a horizontal product line. I think the only places we don't really go, we don't really go into government, but anyone else is really a prospect. And I think the only thing I'd say with Perception, now we can go into deals that we might not have had an opportunity to get because they might not be looking at payroll. But on that product, it just seems like we can get into some really, really large companies with that, get a foot in the door, and who knows what happens in the future. So I guess to answer your question, now that I'm thinking about it, I think Perception allows us to get into some very high-end deals that we couldn't have gotten into in the past, and that's a good thing for us.

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [99]

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That is. How much is that adding? Or when you take a look at this last quarter, what's the incremental -- when you price that by itself, how do you price it? How should we think about it? What's it adding incrementally? And then just to go back...

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [100]

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We're not going to give our pricing. But I'll say we've already sold -- in a very short time, I think we're over 300 units -- customers that we sold on it. So, I mean...

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Mark Steven Marcon, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [101]

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Including some big ones?

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [102]

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Yes. And a lot of big ones in the pipeline. So I think it won't be that material on the revenue side as we grow, but it will be more material on getting us into doors that we haven't been in, and maybe getting deals that maybe we didn't have an opportunity to get in the past.

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Operator [103]

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And that does conclude the question-and-answer session. I'll now turn the conference back over to Scott Scherr for any additional or closing remarks.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [104]

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I think I should say something, but I'm not sure what I should say. So Mitch, do you want to say something now?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [105]

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Yes. I've never ended the call, so I'll kind of ramble for 1 second. First off, I do want to thank Scott for the trust he had in me 22 years ago, when I had no idea what a CFO was, and he gave me the opportunity, and here I am. Respect and honor.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [106]

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Right back at you.

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [107]

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I'm absolutely privileged and humbled to have served as the CFO for all of our UltiPeeps, their families, for our customers, for our prospects, and for all of you on Wall Street. I do want to say, there is no way I could have done what I did without my team. Many of you know that I'm able to travel as much and do the IR work because I have such a strong team behind me, and they are exceptional and they will be exceptional for Felicia. I'm excited for Felicia. She's going to be amazing. She is amazing, and you guys will get to know her. And before kind of signing off, for me, I want to acknowledge the other person in the room who's been here for 81 quarters, which is Linda Miller. Some of you who have been around that long, like Baldry, know her. She was our Head of Marketing. She's been with us forever. She makes Scott and I sound really good, corrects our New Jersey and New York grammar so we don't sound like bums. But Linda, without you, doing this wouldn't have been the same. And so I want to thank you. And so for the rest of you, I wasn't forced out. It was my choice. I'll be on the road, I'll be in San Francisco on Tuesday. Kind of the same old, same old. And thank you, everyone.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [108]

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And I think we should probably say, go Yankees, right?

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Mitchell K. Dauerman, The Ultimate Software Group, Inc. - Executive VP, CFO & Treasurer [109]

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Go Yankees.

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Scott Scherr, The Ultimate Software Group, Inc. - Chairman of the Board, President & CEO [110]

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See you around, guys. Bye.

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Operator [111]

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Thank you. That does conclude today's conference. Thank you for your participation today.