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Ultimate Software (ULTI) Q2 Earnings & Revenues Top Estimates

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The Ultimate Software Group, Inc. ULTI delivered second-quarter fiscal 2018 non-GAAP earnings of $1.32 per share, surpassing the Zacks Consensus Estimate of $1.29 per share. Moreover, the figure surged 43.5% from the year-ago quarter.

Revenues increased 20.7% from the year-ago quarter to $271.2 million, beating the Zacks Consensus Estimate of $269 million. The reported figure also came ahead of the higher end of management’s projected range of $267-$269 million. Increase in both recurring and services revenues aided year-over-year revenue growth.

The Ultimate Software Group, Inc. Price

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Quarter Details

Recurring revenues (accounted for 88.3% of total revenues) grew 22.7% to $239.5 million on a year-over-year basis, surpassing the higher end of management’s guided range of $237-$239 million.

Services revenues (11.7%) grew 7.3% to $31.7 million on a year-over-year basis.

Ultimate Software reported customer retention rate of 96% year over year. In the reported quarter, enterprise team's attach rates for Onboarding, Time Management, and Performance Management for new customers were all pegged at 67% each, respectively. Recruiting was 56%.

For mid-market strategic team, attach rates for Onboarding, Time Management, Recruiting and Performance Management came in at 89%, 85%, 68% and 68%, respectively.

The top line benefited from new strategic customer wins. During the quarter, Ultimate Software acquired PeopleDoc, a cloud-based pioneer in global HR Service Delivery. The company has more than 1,000 customers in around 180 countries.

The addition of the PeopleDoc global HR Service Delivery platform will offer person-centric features such as online employee help center, HR Case Management, and Employee File Management, consequently enhancing the employee experience.

Notably, Ultimate Softwares product suite of UltiPro Workforce Management, Xander and UltiPro are key positives.

Non-GAAP operating margin contracted 20 basis points on a year-over-year basis to 20.7%. The figure was ahead of management guidance, primarily due to increase in recurring revenues.

Balance Sheet & Cash Flows

As of Jun 30, 2018, cash, cash equivalents, and marketable securities were $188.1 million down from $147.9 million as of Mar 31, 2018.

The company bought back 227,588 shares for $518 million shares during the six months ended Jun 30, 2018, as part of its Stock Repurchase Plan. The company now has 1,342,005 shares remaining for repurchase.

Ultimate Software generated net cash from operations of $118.1 million for the six months ended Jun 30, 2018. Free cash flow was $77 million for the same time period.

Guidance

For third-quarter fiscal 2018, Ultimate Software forecasts recurring revenues between $250 million and $252 million (including $5 million for PeopleDoc acquisition). Total revenues are projected between $286 million and $288 million (including $6 million for PeopleDoc acquisition). The Zacks Consensus Estimate for revenues is pegged at $278.5 million. Non-GAAP operating margin is expected at approximately 20%.

For fiscal 2018, management updated its guidance. Ultimate Software now anticipates recurring revenues and total revenues to grow 23% and 21% year over year, respectively, (previous guidance was 20% and 18%, respectively). The company envisions reporting $1 billion of total revenues. Non-GAAP operating margin is still projected to be 21%.

Zacks Rank & Key Picks

Currently,Ultimate Software carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Intel Corporation INTC, Seagate Technology PLC STX and Microsoft Corporation MSFT, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel, Seagate and Microsoft have a long-term expected EPS growth rate of 8.4%. 18.9% and 12.3%, respectively.

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