The Ultimate Software Group, Inc. reports 363% Net Income growth in 2018 and 3.0 pp EBITDA Margin growth from 8.4% to 11.4%
02/04/2019 • About The Ultimate Software Group, Inc. (
$ULTI) • By InTwits
The Ultimate Software Group, Inc. reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- The Ultimate Software Group, Inc. is a fast growth stock: 2018 revenue growth was 21.2%, 5 year revenue CAGR was 22.7% at 2018 ROIC 11.8%
- The Ultimate Software Group, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 is 12.6%. Average EBITDA Margin for the same period was 10.4%
- The Ultimate Software Group, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 8.0%. At the same time it's a lot of higher than industry average of 7.6%.
- CAPEX is quite volatile: $270m in FY2018, $553m in FY2017, $316m in FY2016, $170m in FY2015, $67m in FY2014
- The company has business model with average profitability: ROIC is 11.8%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 21.2%. Revenue growth showed small slowdown in 18Q4 - it was 21.2% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 7.4 pp from 23.1% to 30.6% in 2018. During the last 5 years EBITDA Margin bottomed in 2017 at 8.4%.
Gross Margin showed almost no change in 2018. Gross Margin followed a growing trend at 0.58 pp per annum in the last 5 years. SG&A as a % of Revenue decreased on 4.4 pp from 41.7% to 37.2% in 2018. During 2014-2018 SG&A as a % of Revenue topped in 2017 at 41.7%. Stock Based Compensation (SBC) as a % of Revenue decreased on 3.3 pp from 15.6% to 12.3% in 2018. During the last 5 years SBC as a % of Revenue topped in 2017 at 15.6%.
Net Income margin increased on 4.2 pp from 1.5% to 5.7% in 2018. The efficient tax rate was 21.9% in 2018 while the average for the last five years was 37.1%.
Investments (CAPEX, working capital and M&A)
In 2018 The Ultimate Software Group, Inc. had CAPEX/Revenue of 7.0%. The Ultimate Software Group, Inc.'s CAPEX/Revenue decreased slightly on 1.2 pp from 8.2% in 2015 to 7.0% in 2018. It's average CAPEX/Revenue for the last three years was 8.1%. The Ultimate Software Group, Inc. invested a big chunk of EBITDA (61.7%) to CAPEX to fuel its growth. During 2014-2018 CAPEX as a % of Revenue topped in 2016 at 8.9% and was declining since that time.
Accounts receivable as a % of Revenue increased slightly on 0.63 pp from 20.3% to 20.9% in 2018. Accounts payable as a % of Revenue decreased slightly on 0.83 pp from 4.6% to 3.7% in 2018.
The Ultimate Software Group, Inc. has spent
$74m on M&A in 2018 which accounts for 6.5% of revenue.
Return on investment
The company operates at low ROIC (11.8%) and ROE (9.6%). ROIC increased slightly on 1.5 pp from 10.3% to 11.8% in 2018. ROE increased on 6.5 pp from 3.0% to 9.6% in 2018. During 2014-2018 ROIC bottomed in 2017 at 10.3%.
Leverage (Debt)
Debt level is -1.1x Net Debt / EBITDA and 0.1x Debt / EBITDA. Debt jumped on 21.0% while cash decreased on 2.9%.
The Ultimate Software Group, Inc. has no short term refinancing risk: cash is higher than short term debt (2,399.6%).
Valuation and dividends
The company's trades at EV/EBITDA 78.1x and P/E 157.8x.
Management team
CEO total compensation was
$8,617,850 in 2018 which included
$600,000 salary.
Insider ownership is 0.13%. Insider ownership didn't change in 2018.
At the end of financial year the company had 5,113 employees. The number of employees surged on 38.2%. Average revenue per employee in 2018 was
$223,067 and it dropped on 12.3%.
Financial and operational results
FY ended 12/31/2018
The Ultimate Software Group, Inc. ($ULTI) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 506 | 618 | 781 | 941 | 1,141 | 21.2% |
| Gross Profit | 302 | 380 | 481 | 587 | 709 | 20.7% |
| SG&A | 164 | 243 | 319 | 392 | 424 | 8.3% |
| EBITDA | 74 | 65 | 69 | 79 | 130 | 65.2% |
| EBIT | 54 | 43 | 42 | 45 | 81 | 80.9% |
| Tax | 10 | 29 | 12 | 30 | 18 | -39.4% |
| Net Income | 45 | 14 | 29 | 14 | 65 | 363.5% |
| Stock Based Compensation | 19 | 82 | 114 | 146 | 140 | -4.1% |
Balance Sheet
|
|---|
| Cash | 108 | 109 | 74 | 156 | 151 | -2.9% |
| Accounts Receivable | 100 | 130 | 162 | 191 | 239 | 25.0% |
| Accounts Payable | 7 | 7 | 14 | 16 | 16 | -0.3% |
| Short Term Debt | 4 | 4 | 5 | 5 | 6 | 15.1% |
| Long Term Debt | 3 | 4 | 4 | 4 | 6 | 28.2% |
Cash flow
|
|---|
| Capex | 38 | 51 | 69 | 78 | 80 | 3.2% |
| Acquisitions | 0 | | 26 | 1 | 74 | 7,342.0% |
Ratios
|
|---|
| Revenue growth | 23.3% | 22.2% | 26.4% | 20.4% | 21.2% | |
| EBITDA growth | 24.2% | -11.6% | 5.7% | 14.3% | 65.2% | |
|
|---|
| Gross Margin | 59.8% | 61.4% | 61.6% | 62.4% | 62.1% | -0.3% |
| EBITDA Margin | 14.5% | 10.5% | 8.8% | 8.4% | 11.4% | 3.0% |
| EBIT Margin | 10.7% | 7.0% | 5.3% | 4.7% | 7.1% | 2.3% |
| SG&A, % of revenue | 32.5% | 39.2% | 40.8% | 41.7% | 37.2% | -4.4% |
| SBC, % of revenue | 3.7% | 13.3% | 14.6% | 15.6% | 12.3% | -3.3% |
| Net Income Margin | 8.8% | 2.3% | 3.7% | 1.5% | 5.7% | 4.2% |
| CAPEX, % of revenue | 7.5% | 8.2% | 8.9% | 8.2% | 7.0% | -1.2% |
|
|---|
| ROIC | 25.9% | 16.1% | 12.6% | 10.3% | 11.8% | 1.5% |
| ROE | 19.5% | 4.7% | 7.8% | 3.0% | 9.6% | 6.5% |
| Net Debt/EBITDA | -1.4x | -1.6x | -0.9x | -1.9x | -1.1x | 0.8x |
People
|
|---|
| Insider ownership | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% | 0.0% |
| Employees | 2,354 | 2,880 | 2,501 | 3,700 | 5,113 | 38.2% |
| Revenue/Employee, th. $ | 215 | 215 | 312 | 254 | 223 | -12.3% |
The Ultimate Software Group, Inc. ($ULTI) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 277 | 271 | 288 | 305 | | 21.1% | 20.7% | 21.9% | 21.2% |
| EBITDA | 31 | 30 | 31 | 38 | | 179.8% | 94.5% | 34.9% | 29.3% |
| Net Income | 21 | 14 | 17 | 13 | | 186.3% | 202.1% | 293.4% | |
Balance Sheet
|
|---|
| Cash | 144 | 185 | 133 | 151 | | 94.7% | 88.6% | 5.6% | -2.9% |
| Short Term Debt | 5 | 7 | 6 | 6 | | 9.1% | 22.7% | 24.1% | 15.1% |
| Long Term Debt | 4 | 6 | 6 | 6 | | 7.1% | 34.8% | 42.2% | 28.2% |
Ratios
|
|---|
| Gross Margin | 62.1% | 62.2% | 61.2% | 63.1% | | 1.4% | -0.3% | -1.3% | -0.7% |
| EBITDA Margin | 11.4% | 11.0% | 10.8% | 12.3% | | 6.4% | 4.2% | 1.0% | 0.8% |
| Net Income Margin | 7.6% | 5.0% | 5.9% | 4.4% | | 4.4% | 3.0% | 4.1% | 5.2% |
Peers in Application Software
Below we provide The Ultimate Software Group, Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 13.5% | 13.6% | 14.8% | 15.2% |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | | 22.2% | 26.4% | 20.4% | 21.2% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 63.4% | 61.9% | 64.2% | 64.6% | 66.1% |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | 59.8% | 61.4% | 61.6% | 62.4% | 62.1% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | 14.5% | 10.5% | 8.8% | 8.4% | 11.4% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | 7.5% | 8.2% | 8.9% | 8.2% | 7.0% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -10.4% |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | 25.9% | 16.1% | 12.6% | 10.3% | 11.8% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.3x | -0.9x | -0.9x | -0.8x | -0.6x |
|---|
| The Ultimate Software Group, Inc. ($ULTI) | -1.4x | -1.6x | -0.9x | -1.9x | -1.1x |
