Maybe the race wasn't to the swift during biblical times, but
in the 21st century you'll get left behind in a hurry if you're
slow out of the gate with new technologies.
Rivals ofUltimate Software Group (
) are finding that out.
Ultimate makes workforce management software designed to help
clients better manage employee-related services such as payroll,
benefits, recruiting, performance management and time
The core product is UltiPro, software that manages the
employment life cycle from recruitment to retirement. Ultimate
delivers it via the Internet cloud.
That last part -- the cloud -- is what separates Ultimate from
others in its industry, analysts say. Ultimate was an early mover
in designing an integrated, cloud-based human resources/payroll
system, giving it a leg up on rivals who have taken longer to
leverage the cloud.
"As the move to the cloud has accelerated, Ultimate has been
one of the biggest beneficiaries," said Samad Samana, analyst at
FBR Capital Markets. "They are taking a lot of customers away
), Ceridian andPaychex (
Clout Of The Cloud
Cloud-based systems have several advantages over
hardware-based systems, Samana told IBD.
"There is a lower overall cost of ownership because you don't
have to purchase hardware," he said. "There's less staff cost in
terms of management. And there are more frequent updates to the
software, which helps you keep up with the pace of
Ultimate's ability to trot out new products and innovations
has been one of the keys to its consistent financial growth
through the years. The company posts double-digit sales and
earnings gains with regularity and is expected to keep doing so
well into the future.
"The market for Ultimate's solutions is large and growing
rapidly. The company has strong, highly regarded products,
increasing scale, and a business model that better balances
revenue growth and profitability than many SaaS (software as a
service) peers," MKM Partners analyst Kevin Buttigieg noted in a
report last month initiating coverage on Ultimate with a "buy"
Ultimate boasts 2,700 customers with employees in 150
countries. Its client list features a diverse range of firms,
including software makerAdobe Systems (
), restaurant operatorsBloomin' Brands (
) andTexas Roadhouse (TXRH), auto parts retailerPep Boys (PBY)
and Major League Baseball.
Ultimate mainly focuses on two types of customers: enterprise
companies, defined as those with more than 1,500 employees, and
mid-market companies, or those with around 500 to 1,500
Ultimate's enterprise sales team, which consists of 75 sales
reps, has "an unusually low turnover" rate with an average tenure
of 10 years, Barrington Research analyst Jeff Houston noted
following Ultimate's third-quarter earnings report on Oct.
He cites several reasons for the low turnover, including "not
penalizing successful salespeople by narrowing their territories
as well as world-class benefits."
During a conference call with analysts, Ultimate CEO Scott
Scherr noted a number of enterprise wins during the company's
third quarter, though he didn't divulge the names of the
customers. These included a "high-profile" restaurant chain with
18,000 employees, a security company with 6,500 employees and an
education services company with 3,600 employees.
While most of Ultimate's business comes from large and
mid-sized clients, the company has lately increased its efforts
to land more smaller companies of 500 or fewer employees, analyst
"Management was clear that it has been selling to companies
with fewer than 500 employees for a long time, and that it is
just adding more salespeople to target the low end of the
market," he noted.
FBR's Samana reckons it will be some time before the move to
land more smaller clients begins to have much impact on
Ultimate's financial results.
"The move downstream is a newer initiative for them, so it's
something where we will see a bigger contribution a couple of
years from now," he said. "It's not as big a driver in the near
What About Job Gains?
Although analyst Houston says Ultimate stands to benefit as
the economy adds jobs, CEO Scherr mentioned on the third-quarter
conference call that with new customers being Ultimate Software's
biggest growth driver, changes in employment "are not that
material" to the overall growth goal.
During the third quarter the company logged revenue of $127.4
million, up 24% from the prior year and just ahead of consensus
analyst views. Earnings gained 25% to 50 cents a share, topping
estimates by a penny.
Recurring revenue, or revenue that is likely to continue in
the future, increased 26% during the quarter.
"The increase was primarily attributable to revenue growth
from our cloud offering," Scherr said in a statement.
Analysts polled by Thomson Reuters expect Ultimate to post
full-year 2014 earnings of $2.02 a share, up 26% from a year
earlier. EPS is seen rising another 22% to $2.46 in 2015.
The company's stock price touched a nearly eight-month high of
156.20 on Tuesday. Shares are up 20% since Oct. 10.
Ultimate is part of IBD's Computer Software-Enterprise group,
which ranks No. 7 out of 197 industries tracked. The company has
an IBD Composite Rating of 97, which ranks fifth in the group.
Three stocks in the group have Composite Ratings of 99:Manhattan
Associates (MANH),Paycom Software (PAYC) andSynchronoss