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| 8-K - 8-K - ULTIMATE SOFTWARE GROUP INC | q217form8-k.htm |
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Ultimate Reports Q2 2017 Financial Results
• | Record Recurring Revenues of $195.1 million, Up by 23% |
• | Total Revenues of $224.7 million, Up by 20% |
Weston, FL, August 1, 2017 — Ultimate Software (Nasdaq: ULTI), a leading provider of human capital management (HCM) solutions in the cloud, announced today its financial results for the second quarter ended June 30, 2017. Ultimate reported recurring revenues of $195.1 million, a 23% increase, and total revenues of $224.7 million, a 20% increase, both compared with 2016’s second quarter. GAAP net income for the second quarter of 2017 was $5.0 million, or $0.16 per diluted share, as compared with GAAP net income of $6.1 million, or $0.20 per diluted share, for the second quarter of 2016.
Non-GAAP net income for the second quarter of 2017, which excludes stock-based compensation expense and amortization of acquired intangibles, was $28.6 million, or $0.93 per diluted share. Non-GAAP net income for the second quarter of 2016 was $22.7 million, or $0.76 per diluted share. See “Use of Non-GAAP Financial Information” below.
“Our sales teams exceeded objectives in our plan for the second quarter while the average size of our new Enterprise clients continued to expand and the numbers of new Mid-Market and Strategic clients joining us grew. Our teams had success with our new products: UltiPro Learning, our person-centric solution for employee learning and development, and UltiPro Perception, our employee survey solution with its portfolio of advanced artificial intelligence technologies that are as sensitive to emotions as they are to statistics,” said Scott Scherr, founder, president and CEO of Ultimate.
“We are honored that Fortune magazine recognized Ultimate as the #1 Best Workplace for Millennials in the United States and that Forbes ranked Ultimate #7 on its 2017 list of 100 Most Innovative Growth Companies in the quarter. We are equally pleased that Enterprise product users on G2 Crowd rated Ultimate #1 in Satisfaction in its Summer 2017 Payroll grid and that the National Customer Service Association named Ultimate the Service Organization of the Year in its Large Business category. Third-party recognition of this caliber reflects the innovative strength of our culture and the product and service excellence that our people deliver. These are the qualities that differentiate us and will continue to fuel our growth.”
Ultimate’s financial results teleconference will be held today, August 1, 2017, at 5:00 p.m. Eastern time, at http://www.investorcalendar.com/IC/CEPage.asp?ID=175491. The call will be available for replay at the same address beginning at 9:00 p.m. Eastern time today. Windows Media Player software is required to listen to the call and can be downloaded from the site. Forward-looking information about future company performance will be discussed during the teleconference call.
Financial Highlights
• | Recurring revenues from our cloud offering grew by 23% for the second quarter of 2017 as compared with the same period in 2016. Recurring revenues were 87% of total revenues for the second quarter of 2017 as compared with 85% of total revenues for the second quarter of 2016. |
• | Ultimate’s total revenues for the second quarter of 2017 increased by 20%, as compared with those for the second quarter of 2016. |
• | Ultimate’s annualized retention rate, on a rolling 12-month basis, was approximately 96% for its recurring revenue cloud customer base as of June 30, 2017. |
• | Cash flows from operating activities for the second quarter of 2017 were $43.2 million, compared with $27.0 million for the second quarter of 2016. |
Adoption of Accounting Guidance
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The standard amends the accounting for certain aspects of share-based payments to employees. We elected to early adopt the new guidance in the third quarter of fiscal year 2016. Therefore, the prior year numbers in our unaudited condensed
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consolidated financial statements and our unaudited reconciliation of non-GAAP financial measures to GAAP financial measures in this press release, reflect revised numbers in accordance with the adoption of this guidance.
Stock Repurchases
The combination of cash, cash equivalents, and corporate marketable securities was $111.0 million as of June 30, 2017, compared with $97.9 million as of December 31, 2016.
During the six months ended June 30, 2017, we used $34.7 million to acquire 178,293 shares of our common stock, $0.01 par value common stock ("Common Stock") to settle employees’ tax withholding obligations associated with their restricted stock that vested during the period. We did not purchase any Common Stock under our previously announced stock repurchase plan (the "Stock Repurchase Plan") during the six months ended June 30, 2017. We have 1,342,005 shares available for repurchase under our Stock Repurchase Plan.
Financial Outlook
As a result of our strong Enterprise sales going upmarket in 2016 and 2017, the time-to-live periods in the backlog have expanded by 2-3 months. We also experienced the same business effect with our mid-market sales for which the related backlog expanded by 1-2 months. This extension of time-to-live periods caused the revision to our financial guidance for the second half of 2017, which impacted our full year guidance for 2017. It is important to note that the extension of the time-to-live periods does not change the overall value of recurring revenues from these customers and is essentially a timing issue.
For the third quarter of 2017:
• | Recurring revenues of approximately $201 to $203 million, |
• | Total revenues of approximately $231 to $235 million, and |
• | Operating margin, on a non-GAAP basis (discussed below), of approximately 19%. |
For the year 2017:
• | Recurring revenues to increase by approximately 22% over 2016, |
• | Total revenues to increase by approximately 20% over 2016, and |
• | Operating margin, on a non-GAAP basis (discussed below), of approximately 19%. |
Operating margin expectations were determined on a non-GAAP basis using the methodologies identified under the caption “Use of Non-GAAP Financial Information” in this press release.
We have not reconciled our forward-looking operating margin on a non-GAAP basis to the corresponding GAAP financial measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable effort at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including, for example, those related to stock-based compensation or others that may arise during the year. In particular, stock-based compensation is impacted by factors that are outside of the Company’s control and can be difficult to predict. The actual amount of stock-based compensation expense for the year ending December 31, 2017 will have a significant impact on our operating margin on a GAAP basis.
Forward-Looking Statements
Certain statements in this press release are, and certain statements on the teleconference call may be, forward-looking statements within the meaning provided under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are made only as of the date hereof. These statements involve known and unknown risks and uncertainties that may cause Ultimate’s actual results to differ materially from those stated or implied by such forward-looking statements, including risks and uncertainties associated with fluctuations in Ultimate’s quarterly operating results, concentration of Ultimate’s product offerings, development risks involved with new products and technologies, competition, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in Ultimate’s filings with the Securities and Exchange Commission. Ultimate undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
About Ultimate Software
Ultimate is a leading provider of cloud-based human capital management solutions, with more than 33 million people records in the cloud. Ultimate’s award-winning UltiPro delivers HR, payroll, talent, and time and labor management solutions that connect people with the information they need to work more effectively. Founded in 1990, Ultimate is headquartered in Weston,
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Florida, and employs approximately 3,950 professionals. In 2017, Fortune ranked Ultimate #7 on its prestigious 100 Best Companies to Work For list, our sixth consecutive year to be ranked in the top 25, #1 on Fortune's Best Workplace for Millennials; and #1 on Fortune’s list of the 10 Best Workplaces in Technology, our second year to top this list. Also in 2017, Forbes ranked Ultimate #7 on its list of 100 Most Innovative Growth Companies, the National Customer Service Association named our services division the top Service Organization of the Year in the Large-Business category, People magazine ranked Ultimate #2 on its list of 50 Companies That Care, Brandon Hall Group honored Ultimate with its Gold Award in Technology, HfS Research rated Ultimate the top HCM vendor for predictive people analytics in its Blueprint Market Guide, Stevie Awards honored Ultimate with its People’s Choice Award for Favorite Customer Service, and the National Customer Service Association named Ultimate the Service Organization of the Year. In 2016, Ultimate was ranked #1 on Glassdoor’s list of 25 Highest-Rated Public Cloud Companies To Work For. Ultimate has more than 3,700 customers with employees in 160 countries, including Bloomin’ Brands, Culligan International, Feeding America, Major League Baseball, Red Roof Inn, SUBWAY, Texas Roadhouse, and Yamaha Corporation of America. More information on Ultimate’s products and services for people management can be found at www.ultimatesoftware.com.
UltiPro is a registered trademark of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their respective owners.
Contact: Mitchell K. Dauerman
Chief Financial Officer and Investor Relations
Phone: 954-331-7369
Email: IR@ultimatesoftware.com
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Recurring | $ | 195,147 | $ | 158,479 | $ | 385,128 | $ | 311,230 | |||||||
Services | 29,545 | 28,058 | 68,055 | 62,521 | |||||||||||
Total revenues | 224,692 | 186,537 | 453,183 | 373,751 | |||||||||||
Cost of revenues: | |||||||||||||||
Recurring | 52,539 | 42,951 | 102,608 | 82,408 | |||||||||||
Services | 31,715 | 29,342 | 71,346 | 62,146 | |||||||||||
Total cost of revenues | 84,254 | 72,293 | 173,954 | 144,554 | |||||||||||
Gross profit | 140,438 | 114,244 | 279,229 | 229,197 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 67,015 | 54,548 | 136,375 | 111,130 | |||||||||||
Research and development | 34,997 | 29,053 | 71,155 | 56,568 | |||||||||||
General and administrative | 31,472 | 22,180 | 61,676 | 43,709 | |||||||||||
Total operating expenses | 133,484 | 105,781 | 269,206 | 211,407 | |||||||||||
Operating income | 6,954 | 8,463 | 10,023 | 17,790 | |||||||||||
Other (expense) income: | |||||||||||||||
Interest and other expense | (165 | ) | (180 | ) | (445 | ) | (364 | ) | |||||||
Other income, net | 81 | 102 | 307 | 205 | |||||||||||
Total other expense, net | (84 | ) | (78 | ) | (138 | ) | (159 | ) | |||||||
Income before income taxes | 6,870 | 8,385 | 9,885 | 17,631 | |||||||||||
Benefit (provision) for income taxes | (1,868 | ) | (2,263 | ) | 2,451 | (4,909 | ) | ||||||||
Net income | $ | 5,002 | $ | 6,122 | $ | 12,336 | $ | 12,722 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.17 | $ | 0.21 | $ | 0.42 | $ | 0.44 | |||||||
Diluted | $ | 0.16 | $ | 0.20 | $ | 0.40 | $ | 0.42 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 29,751 | 28,895 | 29,645 | 28,860 | |||||||||||
Diluted | 30,623 | 30,240 | 30,639 | 30,240 | |||||||||||
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Stock-based Compensation, Amortization of Acquired Intangibles and Transaction Costs related to Business Combinations
The following table sets forth the stock-based compensation expense resulting from stock-based arrangements (excluding the income tax effect, or “gross”) and the amortization of acquired intangibles that are recorded in Ultimate’s unaudited condensed consolidated statements of income for the periods indicated and are included within the Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures in this press release (in thousands):
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Cost of recurring revenues | $ | 2,981 | $ | 2,168 | $ | 5,797 | $ | 4,098 | ||||||||
Cost of services revenues | 1,935 | 1,476 | 3,924 | 3,021 | ||||||||||||
Sales and marketing | 19,785 | 15,015 | 37,196 | 28,683 | ||||||||||||
Research and development | 3,134 | 1,920 | 5,911 | 3,767 | ||||||||||||
General and administrative | 11,443 | 8,064 | 20,316 | 15,488 | ||||||||||||
Total non-cash stock-based compensation expense | $ | 39,278 | $ | 28,643 | $ | 73,144 | $ | 55,057 | ||||||||
Amortization of acquired intangibles: | ||||||||||||||||
General and administrative | $ | 776 | $ | 257 | $ | 1,556 | $ | 504 | ||||||||
Total amortization of acquired intangibles | $ | 776 | $ | 257 | $ | 1,556 | $ | 504 | ||||||||
Stock-based compensation for the three and six months ended June 30, 2017 was $39.3 million and $73.1 million, respectively, as compared with stock-based compensation for the three and six months ended June 30, 2016 of $28.6 million and $55.1 million, respectively. The increases in stock-based compensation for the three and six months ended June 30, 2017 included increases of $5.8 million and $10.5 million, respectively, associated with modifications and terminations made to the Company’s change in control plans in March 2015, February 2016 and February 2017, as shown in the table below (the "CIC Modifications"). As previously disclosed, these changes were made to better align management's incentives with long-term value creation for our shareholders. As part of the modifications in connection with the terminations of the change in control plans, time-based restricted stock awards (vesting over three years) were granted to certain senior officers in March 2015, February 2016 and February 2017.
Stock-based compensation expense and stock-based compensation expense associated with the CIC Modifications as discussed above are as follows (in thousands):
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Stock-based compensation expense | $ | 22,433 | $ | 17,581 | 42,245 | 34,665 | ||||||||||
Stock-based compensation expense related to CIC Modifications | 16,845 | 11,062 | 30,899 | 20,392 | ||||||||||||
Total non-cash stock-based compensation expense | $ | 39,278 | $ | 28,643 | $ | 73,144 | $ | 55,057 | ||||||||
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
As of June 30, 2017 | As of December 31, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 98,039 | $ | 73,773 | |||
Investments in marketable securities | 12,924 | 15,541 | |||||
Accounts receivable, net | 168,920 | 162,240 | |||||
Prepaid expenses and other current assets | 72,458 | 61,901 | |||||
Deferred tax assets, net | — | 1,125 | |||||
Total current assets before funds held for customers | 352,341 | 314,580 | |||||
Funds held for customers | 489,618 | 465,167 | |||||
Total current assets | 841,959 | 779,747 | |||||
Property and equipment, net | 220,589 | 179,558 | |||||
Goodwill | 35,563 | 35,322 | |||||
Investments in marketable securities | — | 8,547 | |||||
Intangible assets, net | 22,371 | 23,860 | |||||
Other assets, net | 50,995 | 47,432 | |||||
Deferred tax assets, net | 70,735 | 78,115 | |||||
Total assets | $ | 1,242,212 | $ | 1,152,581 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 13,835 | $ | 13,519 | |||
Accrued expenses and other liabilities | 38,562 | 50,973 | |||||
Deferred revenue | 184,408 | 171,669 | |||||
Capital lease obligations | 5,305 | 5,056 | |||||
Total current liabilities before customer funds obligations | 242,110 | 241,217 | |||||
Customer funds obligations | 491,661 | 466,423 | |||||
Total current liabilities | 733,771 | 707,640 | |||||
Deferred revenue | 2,547 | 2,307 | |||||
Deferred rent | 6,208 | 6,022 | |||||
Capital lease obligations | 4,707 | 3,985 | |||||
Other long-term liabilities | 4,875 | — | |||||
Deferred income tax liability | 441 | 519 | |||||
Total liabilities | 752,549 | 720,473 | |||||
Stockholders’ equity: | |||||||
Preferred Stock, $.01 par value | — | — | |||||
Series A Junior Participating Preferred Stock, $.01 par value | — | — | |||||
Common Stock, $.01 par value | 345 | 340 | |||||
Additional paid-in capital | 565,326 | 520,524 | |||||
Accumulated other comprehensive loss | (6,611 | ) | (7,023 | ) | |||
Accumulated earnings | 141,962 | 129,626 | |||||
701,022 | 643,467 | ||||||
Treasury stock, at cost | (211,359 | ) | (211,359 | ) | |||
Total stockholders’ equity | 489,663 | 432,108 | |||||
Total liabilities and stockholders’ equity | $ | 1,242,212 | $ | 1,152,581 | |||
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months Ended June 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 12,336 | $ | 12,722 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 16,551 | 12,575 | |||||
Provision for doubtful accounts | 3,364 | 2,136 | |||||
Non-cash stock-based compensation expense | 73,144 | 55,057 | |||||
Income taxes | (2,961 | ) | 4,671 | ||||
Net amortization of premiums and accretion of discounts on available-for-sale securities | 262 | 277 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (10,044 | ) | (19,097 | ) | |||
Prepaid expenses and other current assets | (10,557 | ) | (6,476 | ) | |||
Other assets | (3,563 | ) | (7,902 | ) | |||
Accounts payable | 316 | 1,494 | |||||
Accrued expenses, other liabilities and deferred rent | (2,333 | ) | (2,843 | ) | |||
Deferred revenue | 12,979 | 12,992 | |||||
Net cash provided by operating activities | 89,494 | 65,606 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (43,540 | ) | (33,643 | ) | |||
Purchases of marketable securities | (122,625 | ) | (138,157 | ) | |||
Proceeds from sales and maturities of marketable securities | 73,069 | 56,130 | |||||
Payments for acquisitions | — | (9,125 | ) | ||||
Net change in money market securities and other cash equivalents held to satisfy customer funds obligations | 35,684 | 71,972 | |||||
Net cash used in investing activities | (57,412 | ) | (52,823 | ) | |||
Cash flows from financing activities: | |||||||
Repurchases of Common Stock | — | (29,685 | ) | ||||
Net proceeds from issuances of Common Stock | 4,541 | 2,729 | |||||
Withholding taxes paid related to net share settlement of equity awards | (34,745 | ) | (18,564 | ) | |||
Principal payments on capital lease obligations | (3,148 | ) | (2,810 | ) | |||
Repayments of other borrowings | — | (200 | ) | ||||
Net change in customer funds obligations | 25,238 | 7,883 | |||||
Net cash used in financing activities | (8,114 | ) | (40,647 | ) | |||
Effect of exchange rate changes on cash | 298 | 857 | |||||
Net increase (decrease) in cash and cash equivalents | 24,266 | (27,007 | ) | ||||
Cash and cash equivalents, beginning of period | 73,773 | 109,325 | |||||
Cash and cash equivalents, end of period | $ | 98,039 | $ | 82,318 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 238 | $ | 208 | |||
Cash paid for taxes | $ | 1,048 | $ | 1,223 | |||
Non-cash investing and financing activities: | |||||||
Capital lease obligations to acquire new equipment | $ | 4,119 | $ | 4,112 | |||
Cash held in escrow for business combinations | $ | 3,600 | $ | 1,000 | |||
Stock based compensation for capitalized software | $ | 2,021 | $ | 1,958 | |||
Software services agreement | $ | 6,500 | $ | — | |||
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
(In thousands, except per share amounts)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-GAAP operating income, as a % of total revenues reconciliation: | |||||||||||||||
Operating income | $ | 6,954 | $ | 8,463 | $ | 10,023 | $ | 17,790 | |||||||
Operating income, as a % of total revenues | 3.1 | % | 4.5 | % | 2.2 | % | 4.8 | % | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 39,278 | 28,643 | 73,144 | 55,057 | |||||||||||
Non-cash amortization of acquired intangible assets | 776 | 257 | 1,556 | 504 | |||||||||||
Non-GAAP operating income | $ | 47,008 | $ | 37,363 | $ | 84,723 | $ | 73,351 | |||||||
Non-GAAP operating income, as a % of total revenues | 20.9 | % | 20.0 | % | 18.7 | % | 19.6 | % | |||||||
Non-GAAP net income reconciliation: | |||||||||||||||
Net income | $ | 5,002 | $ | 6,122 | $ | 12,336 | $ | 12,722 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 39,278 | 28,643 | 73,144 | 55,057 | |||||||||||
Non-cash amortization of acquired intangible assets | 776 | 257 | 1,556 | 504 | |||||||||||
Income tax effect of above items | (16,432 | ) | (12,279 | ) | (35,439 | ) | (23,636 | ) | |||||||
Non-GAAP net income | $ | 28,624 | $ | 22,743 | $ | 51,597 | $ | 44,647 | |||||||
Non-GAAP net income, per diluted share, reconciliation: (1) | |||||||||||||||
Net income, per diluted share | $ | 0.16 | $ | 0.20 | $ | 0.40 | $ | 0.42 | |||||||
Add back: | |||||||||||||||
Non-cash stock-based compensation expense | 1.28 | 0.96 | 2.39 | 1.82 | |||||||||||
Non-cash amortization of acquired intangible assets | 0.03 | 0.01 | 0.06 | 0.02 | |||||||||||
Income tax effect of above items | (0.54 | ) | (0.41 | ) | (1.17 | ) | (0.78 | ) | |||||||
Non-GAAP net income, per diluted share | $ | 0.93 | $ | 0.76 | $ | 1.68 | $ | 1.48 | |||||||
Shares used in calculation of GAAP and non-GAAP net income per share: | |||||||||||||||
Basic | 29,751 | 28,895 | 29,645 | 28,860 | |||||||||||
Diluted | 30,623 | 30,240 | 30,639 | 30,240 | |||||||||||
_________________________
(1) | The non-GAAP net income per diluted share reconciliation is calculated on a diluted weighted average share basis for GAAP net income periods. |
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Use of Non-GAAP Financial Information
This press release contains non-GAAP financial measures. Ultimate believes that non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Ultimate’s financial condition and results of operations. Ultimate’s management uses these non-GAAP results to compare Ultimate’s performance to that of prior periods for trend analyses, for purposes of determining executive incentive compensation, and for budget and planning purposes. These measures are used in monthly financial reports prepared for management and in quarterly financial reports presented to Ultimate’s Board of Directors. These measures may be different from non-GAAP financial measures used by other companies.
These non-GAAP measures should not be considered in isolation or as an alternative to such measures determined in accordance with generally accepted accounting principles in the United States (GAAP). The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses are excluded from the non-GAAP financial measures.
To compensate for these limitations, Ultimate presents its non-GAAP financial measures in connection with its GAAP results. Ultimate strongly urges investors and potential investors in Ultimate’s securities to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release (under the caption “Unaudited Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures”) and not to rely on any single financial measure to evaluate its business.
Ultimate presents the following non-GAAP financial measures in this press release: non-GAAP operating income, as a percentage of total revenues (or non-GAAP operating margin), non-GAAP net income and non-GAAP net income, per diluted share. We exclude the following items from these non-GAAP financial measures as appropriate:
Stock-based compensation expense. Ultimate’s non-GAAP financial measures exclude stock-based compensation expense, which consists of expenses for stock-based arrangements recorded in accordance with Accounting Standards Codification 718, “Compensation – Stock Compensation.” For the three and six months ended June 30, 2017, stock-based compensation expense was $39.3 million and $73.1 million, respectively, on a pre-tax basis. For the three and six months ended June 30, 2016, stock-based compensation expense was $28.6 million and $55.1 million, respectively, on a pre-tax basis. Stock-based compensation expense is excluded from the non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates the comparison of results of ongoing operations for current and future periods with such results from past periods. For GAAP net income periods, non-GAAP reconciliations are calculated on a diluted weighted average share basis.
Amortization of acquired intangible assets. In accordance with GAAP, operating expenses include amortization of acquired intangible assets over the estimated useful lives of such assets. For the three and six months ended June 30, 2017, the amortization of acquired intangible assets was $0.8 million and $1.6 million, respectively. For the three and six months ended June 30, 2016 the amortization of acquired intangible assets was $0.3 million and $0.5 million, respectively. Amortization of acquired intangible assets is excluded from Ultimate’s non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates comparisons to its historical operating results and to the results of other companies in the same industry, which have their own unique acquisition histories.
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