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

The Ultimate Software Group, Inc. (NASDAQ:ULTI)

Q1 2010 Earnings Call

April 26, 2010 5:00 pm ET

Executives

Scott S. Scherr – Chairman of the Board, President & Chief Executive Officer

Mitchell K. Dauerman – Chief Financial Officer, Executive Vice President & Treasurer

Analysts

Richard K. Baldry – Canaccord Adams

Laura Lederman – William Blair & Company

Ilya Grozovsky – Morgan Joseph

Terry Tillman – Raymond James & Associates

Bradley G. Whitt – Broadpoint AmTech

Raghaven Sarathy – Dougherty & Company

Michael Nemeroff – Wedbush Morgan Securities

Nathan Schneiderman – Roth Capital Partners

David E. Cohen – JP Morgan

Brad Reback – Oppenheimer

Operator

Welcome to Ultimate Software’s first quarter 2010 financial results conference call. At this time all participants are in a listen only mode. Today’s conference is being recorded. Your presenters today will be Mr. Scott Scherr, Chief Executive Officer, President and Founder of Ultimate Software and Mitchell K. Dauerman, Executive Vice President and Chief Financial Officer. We will now begin with comments from Mitchell Dauerman.

Mitchell K. Dauerman

Thank 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 on 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 at www.SEC.gov 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 publically update or revise any forward-looking statements 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 2010 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 margins, operating and net income as well as EPS when comparing to the same period in the prior year. The primary difference between GAAP and non-GAAP financial information is non-GAAP, non-cash 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 and published on our website.

For the first quarter of 2010, Ultimate recorded total revenues of $55.7 million and recurring revenues of $39.5 million. Non-GAAP net income for the first quarter 2010 was $2.4 million or $0.09 per diluted share and GAAP net income was $300,000 or $0.01 per diluted share. As I mentioned, our recurring revenues were $39.5 million, representing a 28% increase over the same quarter 2009.

Recurring revenues represented 71% of total revenues this quarter compared to 63% for the first quarter of last year. The recurring revenue gross margin of 71.6% was slightly ahead of our expectation. As we mentioned last quarter, the Q1 recurring revenue gross margin of $28.3 million continued to exceed our total operating expenses which were $27.5 million. The annualized retention rate was 96% for our recurring revenue customer base. The marginal change in this rate was due to increased M&A activity and business failures from some of our customers.

Service revenues for Q1 were $15.6 million and our services gross margin was 17.6%. Both were more than our expectations mostly due to higher than expected W2 revenues. Our guidance for Q2 takes in to consideration that W2 revenues are generated only in Q1 of each year and therefore it is typical that service revenues will decline from Q1 to Q2. License revenues were $600,000 for the quarter. There were no new perpetual license sales in Q1 however, there were purchases of licenses for complimentary products from existing licensed based clients. We expect license revenues to be nominal for the balance of the year.

Our total gross margin rate for the quarter was 56.6%. Operating expenses were $27.5 million, a little better than our expectations with a portion of the savings coming from timing related items. Our operating margins for the quarter were 7.2% and were ahead our expectations of 6% and this was driven mostly by higher revenues and slightly lower operating expenses than expected. Excluding the impact of license revenues, total revenues for Q1 grew by 18% and the incremental operating margin expanded by 30% or 430 basis points. Our non-GAAP income tax rate for the quarter was 41%.

Turning to the balance sheet, total cash and marketable securities were $35.1 million at March 31. For the quarter, we generated $5 million in cash from operations, we invested $2.1 million in cap ex. Free cash flow was $2.9 million or $0.11 per diluted share as compared to $900,000 or $0.04 per diluted share in the first quarter of 2009. As part of our stock repurchase program we used $3.7 million in the quarter to acquire a 120,500 shares of our common stock. We have slightly over 894,000 shares authorized and available for repurchase as of today.

Accounts receivable increased to $37.9 million compared to $32 million at the end of March last year. DSOs were 61 days at the end of March 2010 consistent with March of last year. Deferred revenues were $67.2 million on March 31st compared to $61.3 million a year ago. As a reminder, deferred revenue in the first quarter reflects the seasonality in annual maintenance billings in which it is typically that maintenance revenues recognized in the income statement will exceed the annual maintenance billings recorded as deferred revenue on the balance sheet. In addition, deferred revenues also reflect the change in contractual implementation services which tend to fluctuation from one period to the next as well as changes in our billing practices which we discussed on the last quarter’s earnings call.

Now, turning to Q2 guidance; we expect recurring revenues will be approximately $41 million and total revenues will be approximately $54 million. We expect operating expenses to be consistent with Q1. We expect operating margins will be approximately 6%. Turning to our upcoming conference schedule, during the next quarter on June 9th I will be at the Morgan Joseph 2010 Best Ideas Conference in New York and on June 17th, Scott and I will be in Chicago at William Blair’s 30th Annual Growth Stock Conference. If you’re available to meet at either of those conferences, please let me know.

Now, I’ll turn the call over to Scott.

Scott S. Scherr

We’re pleased with our performance for the opening quarter of 2010. Our key performance metrics were all in line with our expectations. Our recurring revenues were up 28%, our total revenues were up 14% and we beat our operating margin plan by 20%.

Looking at sales for the first quarter of this year, some of our new software as a service customers in the enterprise market were JM Family Enterprises, the world’s largest Toyota distributor and largest Lexus dealership with 3,500 employees selected Core UltiPro with Canadian HR and payroll, recruitment, on boarding, performance management, learning management and time and attendance. Allegiance Health, a Michigan base health system with 3,400 employees selected recruitment, on boarding, performance management and salary planning and budgeting in addition to Core UltiPro.

The Portland Trail Blazers signed up for Core UltiPro Solution for HR and payroll management. The Swiss Colony, a Wisconsin cheese and food retailer with 3,000 employees chose recruitment, paycheck modeling, salary planning and budgeting in addition to Core UltiPro. Prison Health Services, an organization with 4,800 employees selected recruitment and on boarding along with Core UltiPro. Mark Anthony Group, Inc., the leading privately owned importer and distributor of fine wines, premium beer and specialty beverages in Canada selected UltiPro Canada, salary planning and budgeting and time and attendance.

The trend of our licensed customer opting to migrate to our SAS solution continued in the first quarter this year. Some of our customers making the transition to SAS were [Lackmann] Culinary Services, Pete’s Operating Company, Half Priced Books, Thompson Coburn, who also added performance management, salary planning and budgeting at the same time and Crystal Run Village who added recruitment and learning management to their staff’s migration.

We had zero turnover in our enterprise sales team in Q1 and we had zero turnover in our workplace team as well. For workplace we hired two new business development managers and we are now fully staffed to meet our 2010 and 2011 workplace objectives. Some examples of new customers in Q1 that selected UltiPro Workplace were USAble Life & Insurance Company with 580 employees that added performance management and time management. LB Foster Company a manufacturer with 600 plus employees that added recruitment, benefits enrollment, performance management, salary planning and budgeting and time management. Polsinelli Shughart PC, a law firm with 950 employees that added time management. [Inaudible] Vacation Plan with 500 employees added recruitment, benefits enrollment, performance management, salary planning and budgeting and time management and [DeskCom], an electronic imaging service with 550 employees that added recruitment, benefit enrollment, performance management, salary planning and budgeting and time management.

In Q1 our attach rates remain consistent with previous quarters for both workplace and enterprise sales. In marketing, we had another record quarter in Q1 for total looking to buy responses in both our enterprise and workplace markets, with a total of 4,145 responders saying their companies are looking to purchase a new solution. We also had our largest HR workshop ever in mid March in Dallas Texas with 350 prospects attending.

Feedback from both prospects and our sales reps attending continues to be extremely positive for our regional workshops. Both enterprise and workplace teams had solid pipelines for achieving our 2010 goals. In services, we brought 149 organizations live on UltiPro. 63 of those were enterprise customers including the Salvation Army with 1,000 plus employees; [TSAV] an audio visual service company with 4,200 employees; Cumberland Farms with 3,000 employees; [Gamon] Worldwide a private brand broker with 7,000 employees; Heritage Valley Health System with more than 4,000 employees; and Pro Service Hawaii Business Development with 5,000 employees 86 were Workplace customers.

Some of the new workplace customers brought live in the quarter were Picerne Military Housing with 690 employees; [inaudible] America, Inc. with 636 employees and Enterprise Bank & Trust with 330 employees. We continue to have success expanding our presence in Canada. We brought 12 organizations live on UltiPro Canada in the first quarter. Culligan International, the water purification company has been using UltiPro Canada for a while now and has eliminated the need for a separate Canadian payroll system reducing headcount and cutting costs significantly. Culligan’s Angie Galanis said about UltiPro Canada, “Our Canadian employees are thrilled they can do online and see everything. They’re really happy with it and they use it all the time.”

Increasingly, our customers are using UltiPro to manage their global employees and processes beyond Canada as well. For example, the Wackenhut Corporation with 5,200 employees has 900 workers in Iraq and Afghanistan and Wackenhut’s IT Director Repps Galusha said, “Those employees have access to their personal HR payroll details over the Internet even though they are thousands of miles away.”

Kinetico Water Systems, a global supplier of water treatment and purification equipment has employees in the US, Canada, United Kingdom, France, Denmark and Germany. UltiPro allows them to track employee data across multiple continents through a quick access portal from anywhere with a web connection. Kinetico’s Christopher Montana said about UltiPro, “Any businesses that extend beyond the US are struggling to efficiently handle globalization from an HR perspective. UltiPro is working beautifully and has been a great choice for us.”

Mary Brumm from NVIDIA, a global corporation that specializes in the development of graphics processing units and chipset technologies said, “We now have one system of record for our employee master data. All of our employees including ones in global locations can update their own personal data as we continue to position our company for expansion UltiPro’s sophisticated, scalable functionality is helping us consolidate all of our HR processes and data into a single solution.”

The Seafarers Vacation Plan, the organization that handles the payroll and benefits for the Seafarers International Union selected UltiPro in January, 2010 to manage the union’s global work force in the United States, Guam, the US Virgin Islands and Puerto Rico. The director of personnel [Leah Ryans] said, “UltiPro was the only HCM focused solution that could address our strategic and geographic requirements for HR, payroll and time management for our employees in the US and all the countries we serve.”

We finished the quarter with 1,031 associates and are positioned well to retain our current and future goals. We will do that by keeping our culture strong, making our solutions stronger and taking care of our customers with the passion that they deserve. Thank you all for your support, let’s go to the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Richard K. Baldry – Canaccord Adams.

Richard K. Baldry – Canaccord Adams

Could you talk about the headcount adds whether you view that likely a pretty linear progression through the year or if you think that’s more sort of upfront weighted so we’d probably see that pace slow as the year goes?

Mitchell K. Dauerman

Well Rich we started the year at 989. I think we ended the year at 989 last year and our goal is 1,078 so we’re at 1,031. I think we’re on track for what we think right now. Most of the hires are based on sales, new hires, support, implementation so I think we’re on track. But, our headcount number for the year, our plan is based on 1,078 employees.

Richard K. Baldry – Canaccord Adams

Can you talk maybe about verticals? We don’t really talk to you about that that much but were there any specific vertical strength you saw in end markets or was it really kind of solid across the board?

Scott S. Scherr

We’re a horizontal company. Obviously, we can handle multiple verticals and sometimes obviously when you’re going in to a vertical you market that way by giving accounts that use us the names and referrals. But, we look at it horizontally, we don’t have a vertical sales team, we don’t have a vertical marketing team so I think it’s across the board.

Richard K. Baldry – Canaccord Adams

We talked about Workplace is going to move up to anything up to 1,000 employees, I’m not sure if that has already happened or if that’s how you began ’09. Could you maybe talk about whether that happened, what the timing was and what you think the implications are for the sale productivity in the Workplace side by increasing your target? They’re stealing by almost 50% on a headcount basis.

Scott S. Scherr

It happened effective January 1. Obviously it’s going to take those time to work those accounts in the 700 to 1,000 range but in the first quarter we saw the average employee size increase to almost 400 employees, so significantly above what we were doing before. They are clearly selling in that market what we would term up market. It’s all good there in Workplace.

Operator

We’ll go next to Laura Lederman – William Blair & Company.

Laura Lederman – William Blair & Company

You mentioned that the churn picked up a bit in the recurring revenue customers due to acquisitions and bankruptcies, any thought on what to expect going forward with that? Also, in past quarters there has been some issue with the delay of add on modules on the services side as customers delay that because of hooking on other parties, can you give an update on that?

Mitchell K. Dauerman

It’s tough to guess what the churns are going to be in the future for M&A and people going out of business. So I’d have no guess but I think again, staying at this level is pretty good and hopefully businesses will get stronger and hopefully we’ll be on the winning side of some of the M&A activity. As far as the complementary products, I’d say right now that’s stabilized.

Laura Lederman – William Blair & Company

Speaking of M&A, final question from me, you’ve not been terribly inquisitive in the past given the sort of frenzy out there. Any thoughts on acquisitions or is it still not much in terms of your outlook going forward?

Mitchell K. Dauerman

We’re still not inquisitive.

Operator

Your next question comes from Ilya Grozovsky – Morgan Joseph.

Ilya Grozovsky – Morgan Joseph

Can you sort of talk to the growth rates in the recurring revenue line? Obviously you guys sound like you added a whole bunch of new customers in the quarter, should we think of it as you did about 26% this quarter year-over-year, should that be stable or do you see that accelerating going forward?

Mitchell K. Dauerman

It probably works out that it’s probably relatively constant for the year. It was 28 for the quarter but you can have some lifts up and down a bit. But again, we think we’re in line with our 27% guidance for the year.

Operator

Your next question comes from Terry Tillman – Raymond James & Associates.

Terry Tillman – Raymond James & Associates

Just two quick questions, just in terms of Mitch I don’t know if I read this wrong but it looked like client funds is up massively. So what I’m wondering is maybe you can give us a comment more on the attach rate on the enterprise side with the tax filing? Then, was this more of an outlier situation or could this be kind of the new base and it keeps building? Then, what the implications are on the model maybe this year or next around that?

Mitchell K. Dauerman

Let’s keep in mind that the funds recorded on the balance sheet are as a moment in time. So it’s which funds we’re holding turning over to the jurisdictions. Qualitatively I’d say they continue to grow so you really want to kind of look at averages balances which have continued to grow. We’ve had virtually 100% attach rates in Workplace and enterprise is very strong, probably over 50% as well as additional customers coming on board.

As far as what that means for the financials, obviously we get paid a fee and we try to minimize the float. To the extent that we do have to carry float because we need clean funds, we’re invested in Treasury repos so we’re getting .01% so whether that number doubles or triples right now it doesn’t do a lot.

Terry Tillman – Raymond James & Associates

Maybe a follow up question, Scott in terms of you talked about how the average size of the Workplace customer picked up nicely in the first quarter. Any commentary on maybe what the unit growth was like in Workplace either for the quarter or any general growth expectation on units on that business versus enterprise for the year?

Scott S. Scherr

What I’m actually hoping for is that the average size will grow and we can achieve our goals quite frankly with less units. I think if the whole year goes like I think it will, I think that will happen but I don’t really have unit targets. I have total dollar targets and annual recurring revenue targets. But clearly even before they went to 1,000 employees and they were only at 700, there were a lot of new hires there, we were training them to go to the higher end of the market and try and concentrate on the four, five, six and seven and now we’re doing the same, we’re trying to go five, six, seven, eight, nine. I think the backlog looks really good. There’s a lot of luxury counts in the backlog. The pipeline is bigger than its ever been as it should be because we have more people there.

Operator

Your next question comes from Bradley G. Whitt – Broadpoint AmTech.

Bradley G. Whitt – Broadpoint AmTech

I’m just curious if you guys have analyzed the possibility of the Workplace team separate from the enterprise team and what you’re seeing there?

Scott S. Scherr

We look at different metrics for the two.

Mitchell K. Dauerman

Brad I would say we’ve been through it before, there’s the recurring revenue. I would say the margins on the recurring revenue would be relatively consistent with enterprise, maybe a little bit higher. Services, we talked about before, services there is a lower revenue per employee cost so the margins there are a little bit lower but that’s what we expect. Again, we’ve always been focused both in Workplace and in enterprise trying to lower our service costs as much as we can so we can sell more business.

Bradley G. Whitt – Broadpoint AmTech

So Mitch, how should we think about – based on the guidance you gave for Q2 it looks like you’re expecting service margins to come down sequentially?

Mitchell K. Dauerman

Yes. Brad, if you go back to last year you’ll see the same trend. Most of that is explainable by just taking W2 revenues out which are very, very high profit. Again, we talked about in terms of guidance for 2010 that we were expecting to see a 15% to 18% gross margin rate for the full year which would obviously imply gross margins are going to be lower pretty much on a quarterly basis all year so that’s been pretty consistent.

Bradley G. Whitt – Broadpoint AmTech

Any updates on free cash flow guidance Mitch?

Mitchell K. Dauerman

I would say right now the same thing. I expect it to be pretty close to pre-tax non-GAAP earnings and that could move a little bit either way.

Bradley G. Whitt – Broadpoint AmTech

Are you seeing any impact on your decision not to acquire, correct me if I’m wrong Mitch, but was it 60 or 90 days upfront or something like that with the sales order? Is that having any impact on cash flow and did it help get more deals over the hurdle this quarter?

Mitchell K. Dauerman

I don’t measure in terms of what it did or didn’t do for cash flow because we pretty much came in where we thought we would come in. In terms of sales the guys would say it helped get the deals done.

Operator

Your next question comes from Raghaven Sarathy – Dougherty & Company.

Raghaven Sarathy – Dougherty & Company

Mitch, I’m trying to understand this recurring revenue guidance. Your second quarter recurring revenue guidance implies that we are looking at 26% year-over-year growth versus 28% that you posted in the first quarter. When I look at the historical data I didn’t see any deceleration in RR growth in the second quarter so can you help us understand why you are looking for a deceleration in RR growth in the second quarter?

Mitchell K. Dauerman

I think the first thing I would probably point to is our guidance was an approximate number just like we did in the first quarter but that doesn’t mean precisely that number. To the extent there is a marginal change upward or downward, there’s nothing significant there. You may know that in our recurring revenue we do have some revenues that run off and terminate so that may explain it and it also might have to do with certain of the timing of when certain clients went live in prior years. I think overall when we give guidance for the year we try to stick with it even if we beat a quarter. We just feel that that is what we’re doing, we’re staying with that 27% growth for the year.

Raghaven Sarathy – Dougherty & Company

Then in terms of operating margin, you’re going to do roughly 7% in the first half and your full year guidance implies that you’re going to do about 14% the second half. Are we going to see a step up in operating margin in the third quarter or how should we think about sort of the margin you had talked inflating in the second half?

Mitchell K. Dauerman

Again, I think fairly consistent. You see the operating margin start to grow in the second half of the year, more so in the fourth quarter. That always gets driven by the customers who are trying to go live January 1 so that drives some service revenues, you get some seasonal employment behavior. Also, you probably recall that because of our vacation pay policy we end up with less compensation expense in the fourth quarter than our normal run rate because of the way that policy is handled.

The other thing that would affect the differentiation from Q3 and Q4 would be just the timing of certain expenses such as a training of when people, our people expend that money. But, I guess the short answer is yes, consistent with prior years and our business plan is the second half would see an expansion in the operating margins.

Operator

Your next question comes from Michael Nemeroff – Wedbush Morgan Securities.

Michael Nemeroff – Wedbush Morgan Securities

If you could just maybe explain the dynamics of the services revenue? Obviously you’re expecting it to be roughly flat for the year. Can you just maybe go in to a little more detail whether that’s by design, whether that’s still customers not choosing to do as much training? Just a little bit more about that?

Mitchell K. Dauerman

You are correct Mike, it gets pretty close to flat for the year. The training estimate for this year we have is comparable to last year so we’re not expecting it to get worse. But then in the implementation side, we do expect to see the number of units decrease in enterprise because again, they’re focused on customers over 1,000 employees. That will shift to Workplace and the revenue, the service revenue per employee in Workplace is less than enterprise. So, it’s not a one for one trade off in terms of the employee shift.

But, quite frankly, it is very much by design in that everything that we do, if we can develop productivity tools that we can pass on to our customers and lower the expense, that’s what we want to do. We want to lower the upfront cost as much as we can. Obviously, it will just help us sell more business.

Michael Nemeroff – Wedbush Morgan Securities

I guess another question around that is at what point in time when the recurring revenue is growing 25% to 30% does the services or the implementation revenue have to at least keep some pace with all the new customers that you’re signing?

Scott S. Scherr

The best answer would be that it did remain flat through that because we were able to pass on the cost by getting more efficient at doing it. That would be a really good thing for us to have that line remain flat as we increased recurring revenue by 25% a year because it would mean we’re getting more efficient, we’re using different tools and we’re getting faster which is what we want.

Michael Nemeroff – Wedbush Morgan Securities

Are there some implementations that are going away from you? Because, I know in the past other companies have done it themselves at the low end and/or used some larger implementation partners to do that. Are you seeing more of that?

Mitchell K. Dauerman

No Mike, we still see about the same amount. We have third party partners for overflow. You have to keep them active so we do give them a few deals to keep them busy but nothing out of the ordinary.

Michael Nemeroff – Wedbush Morgan Securities

Just one last one, I know that the same store sales metric was something that you discontinued last year but if you could maybe of the customers that you have remaining that you didn’t lose to bankruptcy or business closer or acquisition, are the numbers of employees at your overall existing customers, is that less, the same or more than it was last quarter?

Mitchell K. Dauerman

We did discontinue the metric because we think it can be misleading for somebody trying to gage recurring revenues down the road but, I’ll answer your question. It was slightly less at the end of the quarter. For those of you who are listening to that answer and saying, “What does that mean for recurring revenue?” I would point out, just like we saw in prior year, there were spikes that were worse in January/February and turned out in March that it recovered.

We look at same store activity as not the driver of our business model. But, that’s what’s going on. I think if you looked at obviously this quarter compared to last year, it was significantly better. But, I think we have to wait maybe another three months or so to see if that trend is definitely reversed.

Michael Nemeroff – Wedbush Morgan Securities

If you maybe want to hazard a guess as to when you think that might actually go positive? Will it be sometime in 2010 do you think?

Mitchell K. Dauerman

I wouldn’t know. I don’t know and again, I don’t see it as the driver of the model for where we’re going long term so I’m not sure it matters whether I guess right or wrong. I think as long as we’ve done something that’s reasonable, I explained to you what we’re thinking about.

Operator

Your next question comes from Nathan Schneiderman – Roth Capital Partners.

Nathan Schneiderman – Roth Capital Partners

I was hoping we could go back to operating margin for a second. I was hoping you could share with us your current view on margin targets? You’ve laid out in the past that a $400 million revenue, and Mitch I was hoping you could share with us what your current view of operating margin at that level of revenue is?

Mitchell K. Dauerman

I think we’re still going down that same path of around 25%. I think when I’ve talked it’s around 23% so let’s say 23% to 25% but the fundamental business model is to try to expand the operating margin in the 400 to 500 basis point range on a year-over-year basis as we approach either $400 million as an absolute number for a full year or you hit that on a run rate basis.

Nathan Schneiderman – Roth Capital Partners

I’m also trying to understand on the recurring revenue view for the second quarter that the recurring revenue would be up $1.5 million sequentially. It seems like a slower dollar pace of increase than you’ve had in recent quarters. Even if we look at the Q2 in the year ago period obviously the world was a lot worse, then you did nearly $2 million of sequential growth. So, why is the sequential growth likely to be less this year than last? Was there any kind of a onetime nature in the Q1 number that does recur? Just help us understand that.

Mitchell K. Dauerman

There’s not a specific answer that I can give you other than we did have a large amount of starts in January. As Scott talked about, it was the largest number that we ever had and it may be also the timing of lives. It’s also, as I mentioned, there are some recurring revenue fees that expire so that may be masking some of the growth.

Operator

Your next question comes from David E. Cohen – JP Morgan.

David E. Cohen – JP Morgan

Just a quick question on the retention, I understand it was impacted by stuff out of your control. Excluding that, and I’m sorry if you gave it, but what did the retention look like in the quarter?

Mitchell K. Dauerman

We didn’t give that.

Scott S. Scherr

Other than that we really lost six accounts.

David E. Cohen – JP Morgan

So it’s still at the strong historical levels?

Mitchell K. Dauerman

Yes.

David E. Cohen – JP Morgan

Then just thinking about sort of the demand with the selling and I know you talked about this a little bit but are there any sort of themes coming out of the demand conversations the sales people are interested in? Particularly things they’re concerned about, regulatory changes in the HR space, would you talk through some of what’s driving sort of the recent demand?

Scott S. Scherr

Their job is to find companies that are in pain. I think the places where we’re getting our business, the percentages have been the same for years. We’re getting 65% of our business form service bureaus, about 10% from a big ERP and another 25% from different places in enterprise and in Workplace we’re getting about 90% from service bureaus and 10% from others that are probably mostly service bureaus. So, I don’t think it’s changed I think it’s just finding people who are in pain and going through our process. We have about a 90% close rate when we can run our process and we have more feet on the street now than we’ve had. I don’t think it’s any one thing, I think it’s just being consistent year-over-year, not having turnover in the sales force, having good referencable customers and everyone doing their job.

David E. Cohen – JP Morgan

Just last question, any change in sort of how aggressive the competitors are being in terms of pricing?

Scott S. Scherr

Nothing different than quite frankly when I started this thing 20 years ago. They just give it away when they’re against us.

Operator

Your last question comes from Brad Reback – Oppenheimer.

Brad Reback – Oppenheimer

Mitch, just going back to the same store sales question from before, just to be clear the guidance that you’ve laid out assumes no changes in same store sales?

Mitchell K. Dauerman

Well, let’s go back to our guidance for the year implied a 2% reduction. But, keep in mind that’s only a piece of all the calculations that go in to doing recurring revenue which are relatively small relative to new business and retention.

Brad Reback – Oppenheimer

But the point being if the employment picture improve, people continue to hire on the margin that’s only a benefit to you?

Mitchell K. Dauerman

I would have to agree with that.

Operator

At this time I would like to turn the conference back to Scott Scherr with additional or closing remarks.

Scott S. Scherr

Thank you. We appreciate all your time. Have a good night.

Operator

This does conclude today’s conference. We thank you for your participation.

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, Inc. Q1 2010 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts