Finding new and better ways to use the power of cloud computing has generated a large number of new start-ups in recent years. In the niche area of human resource management, Ultimate Software Group (ULTI) has become a key player in a fast-growing field that aims to help companies large and small handle their HR needs effectively and efficiently.
Coming into Tuesday's first-quarter financial report, Ultimate Software investors fully believed that the company would continue to see the growth that has defined its success in recent years. Ultimate did even better than many thought, and the company called out something it did in March as a key element of its future strategic vision.
How Ultimate Software started 2018
Ultimate Software's first-quarter results were impressive. Revenue was higher by 21% to $276.8 million, accelerating from its pace in the fourth quarter of 2017 and doing better than the 18% growth rate that most of those following the stock were expecting to see. Adjusted net income soared 77%, landing at $40.5 million and producing adjusted earnings of $1.30 per share. The consensus forecast among investors was just $1.13 per share.
Ultimate kept seeing fundamentally good results in its most important businesses. With any cloud-based company, recurring revenue is an essential ingredient of long-term progress, and Ultimate saw its recurring sales rise 25%. The more sluggish 4% growth rate for services-related revenue was just half the increase that Ultimate saw in the fourth quarter, but that business has essentially been a loss-leader for the company, and so it's not as important that it grow.
Retention has also been an important part of the story for Ultimate. Annualized rates of retention during the first quarter stayed at 96%, consistent with past quarters.
As with most quarters, Ultimate won recognition from key players in the business community. Fortune named the company No. 3 among the 100 best companies to work for, making it the seventh year in a row that Ultimate has cracked the top 25. The website Great Place to Work named Ultimate the second-best company to work for in Canada, and the company hit No. 4 among Workforce Magazine's Workforce 100 list of top companies for internal HR management.
CEO Scott Scherr was happy with how Ultimate is doing. "Our first quarter results were a great start for 2018," Scherr said, "[and] they kept us on pace to achieve our 2018 goals and laid a solid foundation for our future." The CEO especially called out operating margin improvement in helping to boost Ultimate's bottom line.
Can Ultimate Software keep picking up speed?
Ultimate Software called out its annual customer conference in March as being perhaps the most important indicator of the company's success. Almost 4,000 professionals, partners, and analysts came to Las Vegas for Connections, and the get-together helped cement key collaborations that should produce amazing results in the months and years to come even as Ultimate goes up against much larger competitors.
For now, though, Ultimate didn't find it necessary to boost its full-year guidance. The company sees full-year sales growth coming in around 18%, and recurring revenue should climb at the slightly faster rate of about 20%. For the second quarter, total sales of $267 million to $269 million should come mostly from recurring sources, with about $30 million of one-time service revenue.
Ultimate Software's shareholders didn't immediately react to the report, and the stock was unchanged in after-hours trading Tuesday following the announcement. Yet with the HR cloud specialist still on track to sustain impressive growth, investors will want to keep an eye on Ultimate as it continues to evolve and grow in its industry.