Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

The Ultimate Software Group (NASDAQ:ULTI)

Q1 2013 Earnings Call

April 30, 2013 5:00 pm ET

Executives

Mitchell K. Dauerman - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Scott Scherr - Founder, Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Richard K. Baldry - Wunderlich Securities Inc., Research Division

Justin Furby

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Mark R. Murphy - Piper Jaffray Companies, Research Division

Koji Ikeda - Oppenheimer & Co. Inc., Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Frank Robinson - Goldman Sachs Group Inc., Research Division

Patrick R. Abeln - Robert W. Baird & Co. Incorporated, Research Division

Operator

Hello, and welcome to Ultimate's First Quarter 2013 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded. Your presenters today will be Mr. Scott Scherr, Chief Executive Officer, President and Founder of Ultimate; and Mitchell K. Dauerman, Executive Vice President and Chief Financial Officer. We'll begin with comments from Mitchell Dauerman.

Mitchell K. Dauerman

Thank you, Jason, and good afternoon and thanks to all of you for your interest in Ultimate Software. Before we begin, please be aware that we will be discussing our business outlook and we'll be making other forward-looking statements regarding our current expectations of future events and the future financial performance of the company. These forward-looking statements are based upon information available to us as of today's date and are subject to risks and uncertainties. We encourage you to review our filings with the SEC for additional information on risk factors that could cause actual results to differ materially from our current expectations. We assume no duty or obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

I'm going to begin by reviewing our financial results for the first quarter of 2013, and then I'll provide financial guidance for the second quarter. Unless otherwise noted, our discussion will be on a non-GAAP basis for all costs gross margin, operating and net income, as well as EPS. The primary difference between GAAP and non-GAAP financial information is noncash stock-based compensation. Please refer to the reconciliation of our financial information on a GAAP basis to that on a non-GAAP basis included in the press release published on our website.

For the quarter, total revenues grew by 25.1% to $97.9 million, and recurring revenue grew by 28.3% to $78.1 million. Recurring revenues as a percentage of total revenues increased to 80% from 78% in the first quarter 2012, and our customer retention remained in excess of 96%. Total gross margin was 59.3% compared with 55.7% for the first quarter 2012. Operating income increased to $15.9 million. And the operating margins for the quarter expanded by 800 basis points to 16.2% compared with Q1 of last year.

Net income grew to $9.2 million compared with $3.7 million last year. And the related net earnings per diluted share were $0.32 for Q1 of this year, compared with $0.13 per diluted share for the first quarter of 2012.

Our cash flows from operating activities grew 25.2% to $18.1 million, from $14.4 million in the prior year. Our cash and marketable securities balance was $81.3 million at March 31, compared with $69.4 million at the end of last year. The average daily float balance for our payment service businesses was $500 million for the quarter.

For the first quarter 2013, Ultimate's recurring revenues were $78.1 million, representing 28.3% growth over the same quarter last year. We exceeded our estimates as a result of favorable seasonal employment trends and earlier go lives. Typically, in the first quarter, seasonal employment dips, but it did not decrease as much as it has in prior years. The majority of our early lives were pulled forward a couple of months.

The recurring revenue gross margin of 73.2% was better than our expectations. This was driven by a combination of more recurring revenue than expected and lower costs. The lower costs were largely due to leveraging both our payment services and our cloud delivery operations.

Services revenues were $19.4 million, and the services gross margin was 3.5%. Our services revenues were a little bit lower than our internal expectations. This was a result of a shift in mix whereby more of our billable resources were working on engagements that produced lower revenue per customer employed.

The gross margin rate for total revenues was 59.3% compared to 55.7% in the first quarter of last year. The increase was a result of a revenue mix shift favoring higher margin recurring revenues.

Operating expenses were $42.2 million for the quarter and were better than our expectations. We expect expenses related to these cost savings to be incurred later in the year. Operating income was $15.9 million, and our operating margin was 16.2% for the quarter.

Net income was $9.2 million or $0.32 per diluted share, compared with $3.7 million and $0.13 per diluted share for the same quarter last year. Our non-GAAP income tax rate was 42%.

Turning to the balance sheet. Our capital expenditures for the first quarter 2013 were $6.2 million, including capitalized R&D costs of approximately $2.9 million, compared with $2.2 million for the same period last year. There were no capitalized R&D costs in Q1 of last year.

We used $6.2 million for the quarter to acquire roughly 64,000 shares of our common stock to settle employees' tax withholding obligations associated with their restricted stock that vested in the quarter. We have 946,000 shares available to repurchase under our stock repurchase plan.

Accounts receivable increased to $70.1 million compared with $51.1 million at March 31 of last year. DSOs were 64 days at March 31, compared with 59 days at the comparable point last year due to stronger sales in the end of the quarter.

Current deferred revenues were $91.9 million at March 31, compared to $82.2 million on March 31 last year. And as a reminder, deferred revenue in the first quarter reflects the seasonality in annual maintenance billings, where it's typical that maintenance revenues recognized in the income statement will exceed the annual maintenance billings recorded as deferred revenue on the balance sheet. Long-term deferred revenues were $1 million on March 31, compared with $2.7 million for the same period last year, and this reflects the elimination of the onetime infrastructure fees in our cloud contract.

Next, I'd like to discuss our guidance. We are reaffirming our full year guidance for 2013. Recurring revenues are expected to grow by approximately 25%, total revenues are expected to grow by approximately 23%, and our operating margin is expected to be approximately 17%. We did not change the recurring revenue guidance for the year because it is difficult to predict employment trends. We are not revising the operating margin guidance at this time. To the extent cost savings turn out to be permanent, we will have the opportunity to accelerate investment in our business.

For the second quarter of 2013, we expect recurring revenues to be approximately $81 million; we expect total revenues to be approximately $97 million. And as a reminder, service revenues in the second quarter typically step down because Q1 reflects revenues from W-2s, which were approximately $3.5 million. And in addition, we are not expecting any license revenue in Q2. We expect our operating margin for the second quarter to be approximately 15%.

Turning to our upcoming conference schedule. During the next quarter, I will be at the Jefferies TMT Conference on May 8 in New York, the JMP Securities Conference on May 13 in San Francisco, the Stephens Spring Conference in New York on June 5. Scott and I will be at William Blair's Growth Stock Conference in Chicago on June 11. And if you're available at those conferences to meet, please let me know.

And now, I'll turn the call over to Scott.

Scott Scherr

Thank you, Mitch, and thank you, everyone, for participating in our call this evening. Q1 was a great start to achieving our 2013 goals. Our all-important recurring revenues increased by 28% over those in Q1 2012 to $78 million. Our total revenues reached a record high of $98 million, an increase of 25% over the like quarter last year. And our customer retention rate remained consistent at greater than 96%.

Sales achieved our goals. The teams are fully staffed, and our pipelines are strong. We are well-positioned to take advantage of the opportunities before us. Our Enterprise teams' attach rates were: recruitment, 65%; onboarding, 70%; performance management, 61%; and time management, 65%. Some of our new Enterprise customers in the first quarter were: An education company with more than 25,000 employees that added time management; a fitness company with more than 10,000 employees that added Canadian HR and payroll to our core Ultipro, as well as onboarding, performance management, salary planning and budgeting, time management and UltiPro Global; one of the world's largest tools and equipment manufacturers with 6,000 employees that added onboarding, salary planning and budgeting and Employee Relations; a manufacturer with approximately 6,000 employees that added recruitment, onboarding, performance management, salary planning and budgeting, succession management and UltiPro Global; a hotel management company with 5,000 employees that added Canadian HR and payroll, recruitment, onboarding, performance management and time management; and an online marketplace with more than 4,500 employees and 70 million members that also added Canadian HR and payroll to Core UltiPro, along with salary planning and budgeting, Time Management and UltiPro Global.

Our Workplace teams' attach rates were: recruitment, 85%; onboarding, 90%; performance management, 78%; and time management, 83%. Some new Workplace customers in the quarter were: A services company with 1,000 employees that added recruitment, onboarding, performance management, salary planning and budgeting and succession management; a health care organization with 950 employees that added recruitment, Performance Management, time management, succession management and Position Management; a medical services company with 750 employees that added recruitment, onboarding, performance management, salary planning and budgeting, time management and succession management; a manufacturer with 700 employees that added recruitment, onboarding, performance management, salary planning and budgeting, time management and succession management; and another manufacturer with 650 employees that added recruitment, onboarding and time management.

Our marketing metrics for Q1 2013 indicate that demand for our solutions continues to expand. Q1 this year was the strongest quarter in our history for the number of prospects looking to purchase within 12 months. It was a 24% increase over Q1 of 2012, and a 5% increase over Q4 of 2012.

Our company website had the most ever unique visitors for any single quarter of our history. That number was up 48% over the previous quarter and up 36% compared with the first quarter of 2012. Much of the traffic spike occurred in January, and can be attributed to Ultimate's #9 ranking on Fortune's list of the Best Companies to Work For.

On January 29 this year, we launched an online version of our HR workshop program called HCM Online Academy, with 11 hours of thought [ph] leadership videos and hundreds of white papers and product videos. In the 2 months of Q1 that the Academy was live, we had nearly 2,000 people registered to join the site, and we identified 13 new business opportunities. Two of those opportunities closed before the quarter ended.

Last month, we held our Connections Conference in Las Vegas. It was our sixth annual customer forum, and we had more than 1,600 attendees, a 27% increase over last year. The conference gave our customers an opportunity to extend their UltiPro knowledge, collaborate with other UltiPro users, and interact with our leadership team and industry influences. Our keynote speakers were Cali Ressler and Jody Thompson, co-creators of the Results-Only Work Environment and the subject of feature articles in the New York Times and Time magazines and cover stories of BusinessWeek, Workforce Management magazine, HR Magazine and HR Executive magazine; Pat Riley, the current President of the Miami Heat, former NBA coach and author of The Winner Within; and Shawn Achor, author of the #1 national bestseller, The Happiness Advantage.

I want to share just a couple of customer comments about the conference. Christine Langley from Raydon said, "I'm thrilled that Ultimate is so progressive and responsive, not only to its customers, but also to the ever-changing content to achieve significant business results or has been exceptionally innovative."

Winners in their areas of excellence were: Technology Innovation; The High Companies for analytics and measurable returns; SYNNEX Corporation for UltiPro activation success; CWS Apartment Homes for teamwork; NASCAR for strategic talent management; Gate Gourmet for supporting and meeting corporate goal; Nvidia Corporation for global impact; and Vancity for partnership.

At the conference, we announced our plans to expand our support for global HCM and to introduce global payroll integration by the end of 2013 through our partnership with Celergo. We will add 28 new country localizations and will enable worldwide oversight of our customers' global workforces and reporting capabilities for their executive leadership through UltiPro.

We are pleased to announce that Bloomin' Brands, the 85,000-employee company and owner-operator of Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Roy's Restaurant and Fleming's Prime Steakhouse and Wine Bar has activated UltiPro as its core human capital management solution for managing their very large workforce, handling their payroll complexities and reducing their HR administration costs. Bloomin' Brands had been using a payroll service bureau, multiple systems and spreadsheets to handle HR operations. Their executive team wanted the strongest payroll engine in the market, as well as a robust, unified bundle of HR functionality. As Bloomin' Brands' Vice President of HR, Pablo Brizi, said, "We selected Ultimate Software because we were looking for not only a strong solution, but also a true business partner. Ultimate has a very rare combination of a people-centric philosophy and a complete focus on HR technology. With UltiPro, we are transforming our people-centric operations so that our HR team can better support the business strategically and proactively."

We are honored that Ultimate was recognized as the Bloomin' Brands' Purveyor of the Year at the 25th Anniversary Conference and Celebration. It clearly demonstrates the partnership our companies have established, as we both continue to grow together. We look forward to a long and mutually beneficial relationship in the future.

Our customer satisfaction and longevity remain the cornerstones of our success. Republic Airways is a NASDAQ holding company with 10,000 employees and has been an Ultimate customer for 8 years. Republic Airways owns Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America, and it is an example of the customer loyalty we value. Republic Airlines uses Core UltiPro and our talent solutions for its overall human capital management operations and leverages our business intelligence for analyzing their workforce trends and forecasting. According to Jon Clahan, Manager of HR Shared Services at Republic Airways, they use UltiPro to analyze trends. And as a result, they have made improvements in talent acquisition procedures, reengineered their processes for performance management and implemented succession plans to avoid talent shortages.

Healogics is another customer satisfaction longevity story. Healogics has been with us for 6 years and is the largest provider of wound care and related disease management in the United States with 500 wound care centers and 2,000 employees. Healogics started with our Core UltiPro solution in 2007, and then later added and has gone live with UltiPro recruitment, onboarding, Performance Management, salary planning and time management. Like Republic Airways, Healogics relies on our analytics and reporting to make better business decisions regarding their diverse workforce that includes contract workers and temporary workers, in addition to their hospital employees. To monitor trends in all these areas, they have rolled out our strategic workforce analytics at all 500 of their locations.

In February this year, Ultimate was included in a Forbes article called The Best Cloud Computing Companies to Work For in 2013. The article pointed out that 88% of Ultimate's employees would recommend Ultimate to a friend. That's just 2 percentage points behind Google. Also in February, Minyanville Media, an Emmy Award-winning financial and business site, named Ultimate among the top 10 most ethical businesses. Some of the other top 10 companies in their article called, Good Business: 10 Companies With Ethical Corporate Policies were Ultimate customers Google and New Star Energy, as well as Microsoft and salesforce.com.

We finished the first quarter of 2013 with 1,675 associates. We continue to have the largest number of people records in the cloud through unified HCM, with more than 10 million records. And we have the largest number of customers using the cloud solution for unified human resources, payroll, talent and time management. We have a highly respected, proven cloud-based human capital management product suite and a clear strategy for global expansion. We also have a large number of long tenured loyal customers that support us in our growth initiative. We are excited and confident about achieving our 2013 goals and laying the foundation for our future success.

Let's go to the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from Michael Nemeroff with Crédit Suisse.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Just following up on one of the most recent remarks you made, Scott. You talked about global expansion. Just wanted to just know when we can expect you to maybe take the show on the road and put some products in some other geographies outside of North America? And then also, I wanted to maybe ask you about how all the new sales heads that you've added recently have gone on the productivity side? And then I have a follow-up for Mitch, please.

Scott Scherr

Well, I'm not sure of the exact number of countries we're in. It's something, I think, over 120 that we're in now, that we track HR. So this is -- I mean, our global expansion is just taking it to another level. And localizing it. And a lot of our new sales, we've obviously been showing the people some of the localizations we're doing in other countries, i.e., exactly what we did in Canada for HR and payrolls, we're doing it all over the world, which is HR talent. So I've just been told, 144 countries we're in now. So I think it's just our roadmap. It's an extension. Every release we have, we put more and more global functionality into the product. It's an ongoing feature set that keeps getting stronger every release.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

And then on the sales part for you, Scott, from the recent sales hires?

Scott Scherr

I've been thrilled with the new hires we've had, how fast they've gotten up. Seems like -- I want to say the bigger we get, seems like these sales people that come in, they all set records on when they get that first deal. And then their second deal, if you have a really good training program in place for when they come in, and we have really good management that manage them and we can get quality players, and we do have openings. So yes, very happy with it.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Every once in a while, I get lucky and I ask you what the bookings growth rate, the old ARR metric. Is that something that you're willing to share with us tonight?

Scott Scherr

No, Mitch doesn't tell me that anymore.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Good enough. Then for Mitch, obviously, really strong on the recurring revenue, a little bit higher than what we were expecting. And I understand the policy of not really increasing the recurring revenue as policy for the year. But coming into the year, I think you guys have high 90s visibility. I was just wondering what could derail the recurring revenue from not achieving the 25%, if not higher, for 2013?

Mitchell K. Dauerman

I don't think there's much that would derail it, Mike, within our guidance. We're obviously higher visibility now at the end of the first quarter. And I think we said before, when you look at seasonal employment, and that kind of stuff, it's the noise in the model, and it moves it a little bit. So this time, it moved it a little bit north.

Operator

And the next question will come from Richard Baldry with Wunderlich Securities.

Richard K. Baldry - Wunderlich Securities Inc., Research Division

Earnings are well ahead of what we expected. And you talked about some of the expenses could come later in the year. Specifically, I'm looking at R&D, and that was below where we would have thought. What -- do you behind on hiring there, do you feel like there's some catch up to do there? Or were there any other sort of push-outs and maybe conferences you thought would turn in Q1, and come in Q2. So we can sort of get a handle on how likely it is that the OpEx side will play some catch-up?

Scott Scherr

Rich, I think when you break down the costs that came in lower, about 1/3 of them, 1/3 of the bottom line comes from a shift in revenue mix towards higher gross margin recurring revenues. Probably about 1/3 are what you call timing differences, typical for us, advertising programs. We didn't do it the first quarter, we'll do later in the year or development's use of outside services to be just more directly responsive to your question, that didn't get incurred in the first quarter, that will get incurred later. And then there are some, probably the last 1/3 of our items that could be permanent in nature. We saw that as leverage in our payment services business and our cloud delivery area, and those are items that may give us the ability to accelerate some investment in the business.

Richard K. Baldry - Wunderlich Securities Inc., Research Division

And then ultimately you talked about sort about BPO partner or customers. Any difference or change in terms of those as you continue to scale sort of really dominate this space?

Scott Scherr

No third parties, no, there's been no change in that, Rich.

Operator

And next will be Justin Furby with William Blair.

Justin Furby

I guess, first, Scott, for you, in terms of the -- if you look at your enterprise deals that closed in the quarter, you called out some pretty big wins there. Did you see any change in terms of how often you're seeing Workday at the enterprise level? I know they made some noise on our last call about having some success in the middle market with payroll. Are you seeing them more? And then when you do see them in these bigger deals, is it more often where they're partnering with a service bureau? Or is it typically more their own payroll engine that you're competing against?

Scott Scherr

I think there's really -- I haven't noticed any change in our numbers, don't indicate any change from Q4. So I don't know. I mean, we compete against them. I think it's still around 15% of the time in Enterprise and much less in Workplace. No, I don't think there's been any change.

Justin Furby

Okay. And then what about looking at the service bureaus that Ceridian with their Dayforce product and at Vantage, which, I guess, has now been in the market for a few years. Have you seen any pickup from either of those 2 products? Are you seeing them aggressively marketing those in your competitive deals?

Scott Scherr

I believe ADP has always been the #1 competitor that we've gone against. I know this is their new flavor and we compete against it, and Ceridian was always second. So I don't think it's changed. I think ADP is still the #1 competitor we compete against, and Ceridian is still #2. They both have different flavors right now, and we compete against that. I think it's still Ultimate competing against ADP and Ceridian, and I believe we should win one way or another in those situations.

Justin Furby

Okay. And then maybe just looking at the big deal pipeline as whole, how is it tracking? Do you still feel like you'll land 60,000, 70,000-plus type big deal this year? And do you need to do that in order to keep the 25% growth when you look out to 2014, and you start to anniversary the 2 big deals that went live in Q4 this past year?

Scott Scherr

Answer is no, we don't need that. We don't bake that into the plan. As I said, they're outliers. If we get one a year, that would be good. But it's the opportunity. There's nothing different in selling a 25,000 or 30,000 or 15,000 or selling a 60,000 or 70,000. So we look at a number and we're trying to get the number. So right now, we've been successful on that in Q1, and we have a really good pipeline going forward. So I have confidence that we're going to achieve the number. I mean, Q1 really puts us in an unbelievably good position for 2013. And now, in my mind, we're working on 2014 and building up our pipeline, our implementation pipelines through that, so we can achieve our goals in '14.

Justin Furby

Okay. Great. And then just lastly, on the new product, and the next-gen product line, can you give us any quick updates in terms of where that stands? And I think you had shared some updates that I think are ongoing and some of the ACM functionality was scheduled to launch here, either late this year or early next year. Where does that stand today?

Scott Scherr

We've never changed, and that's always going to be the first half of 2014.

Operator

And next will be Jeff Houston with Barrington Research.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Regarding your salespeople, could you remind us how many have that focus on your 2 main different product lines?

Scott Scherr

We're around 70 quota carriers right now.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

And then what is your plans for growing that base going out for the rest of the year?

Scott Scherr

Plan was to exit the year at 80.

Scott Scherr

Moving on to Richard Davis with Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

It's 2 things. Are your modules -- do you feel that -- are your modules deep enough yet to kind of create sales leads? Or do your salespeople still kind of predominantly lead and then pay costs via payroll. In other words, have we had that kind of tipping point where I could sell performance management or something like that or whatever?

Scott Scherr

No, I don't think so. I mean, we're always going in the HR payroll door, and you know we don't sell standalone on any product. So I think you have a whole inside sales team that we don't really talk about the growth of that. But their job is to get our salespeople into different opportunities. And our marketing team does a great job of creating demand in the marketplace to try and build our funnel for the salespeople. So nothing's really changed there.

Richard H. Davis - Canaccord Genuity, Research Division

And then in terms of other feature sets, would it ever make sense for you guys to expand in the kind of benefits management and those kinds outside of the house at all or is that just too far afield at this point?

Scott Scherr

It's definitely not in our sights right now, not in our immediate sights. We partner with a lot of people who do benefits strategically. It works, I think, well for us that we're not in it. No, I don't see it in the near future.

Operator

The next question comes from Mark Murphy with Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Scott, I wanted to ask you, just in general, was Q1 stronger in terms of new payroll purchases with new logos or do you think it was maybe a little stronger for the add-on talent management module with your existing clients?

Scott Scherr

I think it was both. I think it was both on the units. And we've been doing pretty good on the attach rates for a while now, but they're certainly good in Q1.

Mark R. Murphy - Piper Jaffray Companies, Research Division

And then as a follow-up to an earlier question, I think you said Workday was present in about 15% of your Enterprise deals. I was looking back through my notes, I think that, that was 10% a couple of quarters ago. Is that metric still gradually increasing?

Scott Scherr

Yes, I think we started seeing them, I don't know if it was Q3 or Q4 where we said it jumped to 15%. Mitch is saying too, yes.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. So that's been 15% for a couple of quarters?

Scott Scherr

A couple of quarters, yes.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. And then, I think, the last thing I wanted to ask you about is just in terms of a transition of your on-premise customers to the cloud product, I've got a couple questions around that. Can you estimate how many payees currently you have for inter-sourcing? And then how many you have on the on-premise side?

Scott Scherr

I mean, I could tell you that the on-premise right now make up little over 4.5% of our recurring revenue. That's down from, I think, 5%, a little over, 5.1%, 5.2% in Q4. There's a book I'm looking at, but as far as the employee count, give me one second, showing probably 800,000 employees.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. So it's a substantial number of payees. But it's not -- but it's an absolutely minimal place of the maintenance revenue stream?

Scott Scherr

Yes. I mean, we will not go negative on upgrading these to SaaS, no way, know how. Whatever percentage of clients go to SaaS, that will make up for any lost clients we have. That's 100% guaranteed.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. And then the last question, Mitch, I wanted to ask you, just realizing that your operating margin really is significantly ahead of guidance in Q1, to what extent did that relate just specifically to the pace of hiring in Q1 where you -- are you basically tracking the plan for aggregate hiring across the business at this point?

Mitchell K. Dauerman

Well, we're probably a little bit under what we had in our original plan. But I think the bigger drivers come from the higher recurring revenue. Some of the cost savings, leveraging payment services, as well as cloud delivery, which are nonlabor-related costs. And then the costs -- as I mentioned earlier, when I think I answered Rich's question relating to timing of outside services and timing of advertising.

Operator

Moving on to Brian Schwartz with Oppenheimer.

Koji Ikeda - Oppenheimer & Co. Inc., Research Division

This is Koji Ikeda for Brian. Can you guys comment on any expansion your Workplace customers sweet spot has peering downstream? Have you been getting more inquiries about your products? Or is your sales team getting more traction today with customers with sub-200 employees?

Scott Scherr

No, we don't sell sub-200. They target 200 to 1,000, and we market 400 to 1,000 from the marketing side.

Koji Ikeda - Oppenheimer & Co. Inc., Research Division

And then, I guess, we saw a pretty weak job report in March, can you give some commentary on your customer base's hiring trends?

Mitchell K. Dauerman

We don't -- we really don't comment on what we used to call same-store employment. I would say my commentary about the seasonal dip being less than we had expected, the less than expected was based on seasonal patterns between Q4 and Q1 going back a number of years. So I guess, for our customer base, maybe what we saw was Q4 didn't ramp up as much in employment, which many people remember that comment in Q4. But conversely and unexpectedly, we didn't see as much of a dip in Q1 as we used to see. So companies may not have hired as many people. But on this other token, didn't lay off as many in the first quarter. As far as the macro, it'd be hard for us to comment, I don't think we're big enough to do that.

Operator

Moving on to Steve Koenig with Wedbush Securities.

Steven R. Koenig - Wedbush Securities Inc., Research Division

I wanted to ask you just a couple of quick ones here. First, if you could tell us more about the global payroll partnership, what would it do it for you? How would you monetize it? Will you be looking to bring the partner into your global HR customers? Or were you focused more on new deals, et cetera?

Scott Scherr

We bring them into the upstreams we have with our payroll customers. So they've been a great partner. We brought them into multiple deals already at Connections. They presented at Connections. And they talked about 3 customers that they're already working with to use Celergo to do their global payroll and consolidate it with the North American payroll that we provide. It's a good partnership for us. We're excited about it.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Okay. And would you -- do you anticipate going to market with them, Scott, on new deals?

Scott Scherr

I missed it. Say it again.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Do you anticipate going to market with them on new deals, not just existing customers?

Scott Scherr

Yes, sure. Yes, if that comes up in the RSP or in our analysis, that, that's what somebody wants, sure, we'll go with them, as well as they'll bring us into deals that they're in.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Okay. And then I wanted to ask you on your Time to Live metric, how's that tracking? And lastly, just any sort of extended payment terms offered on any of the larger deals in the quarter, and then that's all.

Mitchell K. Dauerman

Steve, there's really no meaningful change in Time to Live. And I mean, no change in payment terms given the customers on the transactions.

Operator

And next question will come from Nathan Schneiderman with Roth Capital.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Just a few for you. I was curious how many customer flips did you have to cloud this quarter?

Mitchell K. Dauerman

On the sales? It's in the low 20s.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

And then, Scott, when you were referencing...

Scott Scherr

You're breaking up, Nate.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Can you hear me okay?

Scott Scherr

Now I do.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Scott, when you were discussing Enterprise wins, you seem to...

Scott Scherr

You left again.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

You here?

Scott Scherr

I hear you now but I...

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Okay. I'll try one more time. If it's bad, I'll just drop off. Scott, you mentioned Ulti Global wins with a number of Enterprise customers. And I was just curious, when you look at your base at 2,500-plus customers, what percent would you say are using that product? And then what percent would you say is the opportunity? How many actually could use it? How many are global enough to actually tap into that?

Scott Scherr

I'm not sure exactly how many are using it. But I know the opportunity is 20% of our base. Does that answer it, Nate?

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Yes. And then if I can sneak in one quick one. One final quick one. I thought I heard in your presentation that you said that you did experience earlier-than-expected go lives. Was that just idiosyncrasy of some engagements? Or is that an improved process that you expect to continue?

Mitchell K. Dauerman

Nathan, on that, it's a small amount of money. So it's just the natural business. Some deals pull forward and sometimes deals push back. This time, against our model, we had a few pull forward, but I wouldn't read more into that.

Operator

And moving on to Greg Dunham with Goldman Sachs.

Frank Robinson - Goldman Sachs Group Inc., Research Division

This is Frank Robinson for Greg. So first, just to clarify, I know you suggest 70 quota-carry res right now. Did you give the split between Enterprise and Workplace?

Scott Scherr

35-35.

Frank Robinson - Goldman Sachs Group Inc., Research Division

35-35. Perfect. And then secondly, specifically within recruiting, I wonder if you've seen any changes competitively over the last year in general?

Scott Scherr

On recruiting?

Frank Robinson - Goldman Sachs Group Inc., Research Division

I mean, yes, with your recruiting product, like changes in this space in general, have you seen any changes, any this year?

Scott Scherr

No, no. Yes, we focus on the HR payroll space and recruitment is an added module we have. So we don't compete recruiting through recruiting and -- but our competition has been consistent as it's been for years. It's the service bureaus and the ERPs, that's who we compete against.

Mitchell K. Dauerman

But I'll also say the attach rates on the recruitment product has steadily gone up a little bit each year.

Frank Robinson - Goldman Sachs Group Inc., Research Division

Right. Perfect. And lastly, I want to know if you can tell us how we should think about the per employee per month pricing on a go-forward basis? Have you seen any changes there and how we should think about it going forward?

Scott Scherr

I don't want to give a number. But in both Workplace and Enterprise, has something to do with the attach rates. We had the highest PEPM we'd ever had in both for the quarter. So means that people are buying more of our products, and it's driving up the average PEPM for both Workplace and Enterprise.

Operator

And we'll take one more question from Patrick Abeln with R. W. Baird.

Patrick R. Abeln - Robert W. Baird & Co. Incorporated, Research Division

It's Pat Abeln for Mark Marcon. On the operating margin side, Mitch, I think, early on, I know you clarified about a few of these things are timing-related. But I think you also said that you may reinvest back in the business if some of these become more permanent. Could you just talk about what sort of investments you would be making if that did play out?

Mitchell K. Dauerman

It would all be in sales and marketing. Accelerate marketing programs that we know are successful, throw more money there, maybe ratchet up the sales force a little quicker than we anticipated.

Patrick R. Abeln - Robert W. Baird & Co. Incorporated, Research Division

Okay. But still probably hitting that 80 number maybe just a little bit earlier?

Mitchell K. Dauerman

Yes.

Patrick R. Abeln - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just one other quick one on the product side, I know there's lots of questions about the global rollout, but beyond those capabilities, are there really any products that you're hearing customers ask for on a regular basis that you guys don't have at this point?

Scott Scherr

No. I'm not. Just had connections with 1,300 of our customers, so didn't hear anything. It was very positive. And I think our people are close to our client base and we're doing a good job of giving them what they want and looking at the future for what they might need in the future.

Operator

I will now turn the conference back over to Mr. Scherr for any additional or closing remarks.

Scott Scherr

No. Just thanks to all of you for your support. Take care and speak to you during the quarter or next quarter. Good night, all.

Operator

Thank you. That does conclude today's conference. We do thank you for your participation today.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: The Ultimate Software Group Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts