U.S. Markets close in 3 hrs 52 mins

Ultimate Software (ULTI) Q4 Earnings & Revenues Top Estimates

Zacks Equity Research

The Ultimate Software Group, Inc. ULTI delivered fourth-quarter 2018 non-GAAP earnings of $1.95 per share, surpassing the Zacks Consensus Estimate by a whopping 51 cents. Moreover, the figure soared 75.7% from the year-ago figure.

Revenues increased 21.2% from the year-ago quarter to $304.8 million, outpacing the Zacks Consensus Estimate of $301 million. The reported figure also compares favorably with the higher end of management’s projected estimate of around $300 million.

Increase in recurring revenues drove year-over-year revenue growth. Notably, recurring revenues (accounted for 87.4% of total revenues) grew 24.4% to $266.4 million on a year-over-year basis, surpassing the higher end of management’s guided range of $262-$264 million.

Services revenues (12.6%) grew 2.8% to $38.4 million on a year-over-year basis.

Stellar Share Price Performance

Shares of Ultimate Software surged almost 20% in yesterday’s trading session. In fact, the stock scaled a 52-week high of $365.86, eventually closing marginally lower at $332.54 on Feb 4.

The rally can be attributed to the company’s impressive fourth-quarter 2018 results and the merger deal with Hellman & Friedman investor group..



Notably, Ultimate Software stock has returned 55.6% in the past year, substantially outperforming industry’s rally of 21.6%.

Quarter in Detail

The fourth quarter results benefited from new strategic customer wins. Growing clout of company’s AI platform, Xander, is notable. Further, robust traction of UltiPro solutions including UltiPro Workforce Management and UltiPro Benefits Prime is a tailwind.

Synergies from PeopleDoc acquisition also aided growth. In fact, PeopleDoc buyout was concluded in the previously reported quarter. Notably, PeopleDoc unit is now termed as International Sales. As anticipated; PeopleDoc is aiding the company in bolstering presence across Europe.

Further, the company’s HCM Suite is gaining recognition from the likes of Gartner, Nucleus Research, to mention a few, which is a positive.

Non-GAAP operating income grew 14.3% from the year-ago quarter to $64.1 million in the reported quarter. However, non-GAAP operating margin contracted 130 bps on a year-over-year basis to 21%.

Ultimate Software Price, Consensus and EPS Surprise

 

The Ultimate Software Group, Inc. Price, Consensus and EPS Surprise | The Ultimate Software Group, Inc. Quote

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash, cash equivalents, and marketable securities were approximately $162 million up from $141 million as of Sep 30, 2018.

Ultimate Software generated net cash from operations of $223.9 million during 2018, compared with almost $214 million generated in 2017. Free cash flow came in at $143.8 million in 2018, compared with $136.4 million reported in 2017.

The company bought back 276,708 shares for $64.8 million shares during 12 months ended Dec 31, 2018, as part of its Stock Repurchase Plan. The company has 1,342,005 shares remaining for repurchase.

Inks a Major Merger Deal: Key Takeaways

On Feb 4, 2019, Ultimate Software inked an all-cash merger deal worth approximately $11 billion, by which it agrees to be “acquired by an investor group led by Hellman & Friedman.”

Per the conditions of the merger contract, shareholders will be given $331.50 per share (in cash) upon closure.

The purchase price indicates a premium of almost 32% over the company’s“volume-weighted average price during the 30 trading days ending February 1, 2019”. Notably, Ultimate Software stock closed at $277.83 on Feb 1.

The merger is subject to Ultimate Software shareholders approval and other customary regulatory conditions, and is anticipated to conclude in the second quarter of 2019.

Consequently, the company neither held an earnings conference call for the reported quarter nor issued any financial guidance.

However, we may note that the company had issued preliminary 2019 guidance in the third-quarter conference call, wherein recurring and total revenues were anticipated to grow around 21% and 20% over 2018, respectively.

Synergies from PeopleDoc buyout made management optimistic about achieving $2 billion in total revenues by 2021. Management anticipated International Sales unit to account for 5% of total revenues in 2021.

We believe the market’s positive reaction to the merger deal holds substance. Based in Weston, FL, Ultimate Software is primarily engaged in providing cloud-based human capital management (HCM) software solutions.

Increasing demand for HCM solutions, traction in mid & strategic markets, expanding customer base and impressive customer retention rates are notable catalysts.

Fiscal 2018 Highlights

For the full year, non-GAAP earnings advanced 53.6% year over year to $5.90 per share. The Zacks Consensus Estimate was pegged at $5.39.

Ultimate Software Revenue (TTM)

 

The Ultimate Software Group, Inc. Revenue (TTM) | The Ultimate Software Group, Inc. Quote

In 2018, total revenues grew 21.2% over 2017 to $1.141billion. The Zacks Consensus Estimate was pegged at $1.14 billion. Notably, recurring revenues contributed 87.4% of total revenues.

Ultimate Software reported non-GAAP operating margin of 20.5%, contracting 10 basis points (bps) on a year-over-year basis. Free cash flow margin contracted 190 bps to 12.6% in fiscal 2018.

The company maintained a consistent customer retention rate of 96% in the fiscal year.

The company ended 2018 with a customer base of approximately 5,600 organizations, with a focus on large enterprise, mid- and strategic markets, globally. It reported 48 million people in HCM cloud.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader Computer and Technology sector are MeetMe MEET,Twitter, Inc. TWTR and Benefitfocus, Inc. BNFT each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for MeetMe, Twitter and Benefitfocusis forecasted at 20%, 22.1% and 25%, respectively.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MeetMe, Inc. (MEET) : Free Stock Analysis Report
 
Benefitfocus, Inc. (BNFT) : Free Stock Analysis Report
 
The Ultimate Software Group, Inc. (ULTI) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research