Executives
Scott Scherr - Founder, Chairman, Chief Exec. Officer, Pres
Mitch Dauerman - Chief Financial Officer
Analysts
Richard Davis - Needham & Company
Richard Baldry - Canaccord Adams
Justin Bandy - Keybanc Capital Markets
Nathan Schneiderman - Roth Capital Partners LLC
David Cohen – JP Morgan
Franco Torinelli – William Blair & Company, LLC
Ariel Sokol- Wedbush Morgan Securities Inc.
Bradley Whitt - Broadpoint Capital
AJay Kasargod - Piper Jaffray
Jim Bartlett - Bartlett Investors
Ultimate Software Group Inc. (ULTI) Q4 2007 Earnings Call February 6, 2008 5:00 PM ET
Operator
Welcome to the Ultimate Software Fourth Quarter and Year End Financial Results Conference Call.
(Operator Instructions)
Your presenters today Scot Scherr, Chief Executive Officer, President and Founder of Ultimate Software; and Mitch Dauerman, Chief Financial Officer. Well at this time, I would like to turn the conference over to Mich Dauerman, please go ahead.
Mitch Dauerman
Good afternoon and thank you for your interest in Ultimate Software. Before we begin, please be aware that we will be discussing our business outlook and will 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 our 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 publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
I am going to discuss our 2007 results and then update our 2008 guidance. Unless otherwise noted, our discussion will be on a non-GAAP basis for all costs, gross margins, operating margins, net income and EPS to exclude the impact of stock-based compensation and the amortization of acquired intangibles when comparing to the same period in the prior year. Please refer to the reconciliation of the financial information on a GAAP basis to that on a non-GAAP basis in our financial statements than it has to the press release published on our website.
Now, turning to this year’s results. ARR for the quarter was $11 million. Total revenues grew by 28% to $42.1 million and recurring revenues grew by 39% to $24.3 million. GAAP net income was $23.1 million, which included a $19.9 million non-cash tax benefit from the release of the valuation allowance against our deferred tax assets, excluding the tax benefits, GAAP net income was $3.2 million or $0.12 per share compared to net income of $1.8 million or $0.07 per diluted share last year.
On a non-GAAP basis, pretax net income was $6.2 million compared to $3.8 million for the same quarter last year. Pretax EPS was $0.23 per share compared to $0.14 per share last year. For the whole year 2007, new ARR was $31.1 million or only 27% compared to our guidance of 25%. Recurring revenues grew by 36% compared to guidance of 30% to 32% and total revenues grew by 32% compared to guidance of 28% to 30%. On a non-GAAP basis, our operating margins expanded 400 basis points to 11.9% compared to our guidance of 12% to 13%. Excluding the one-time settlement in Q2, non-GAAP EPS was $0.72 for the year compared to our guidance of $0.68 to $0.70.
Now, I am going to turn to some of the P&L details. Recurring revenues continued to drive the revenue growth in Q4 increasing by 39% over Q4 of 2006 and by 36% for the year. Recurring revenues continued to increase as a result of the strength of our inter-sourcing model with 85% of our new client selecting inter-sourcing versus license in the quarter and for the whole year, it was 80%. For the year, the gross margins increased 180 basis points to 74.5%.
Service revenues grew by 11% for the quarter and by 29% for the year. The gross margin for the quarter was 24.8% and for the year, 22.2%. While our targeted gross margin for the year was 25% we made this business decision to further enhance our plans for building the infrastructure needed to roll out our new product offerings particularly with respect to our services organization.
Scott is going discuss this in further detail that the offerings include workplace, our 200 to 700 employee solutions as well as on-boarding and salary planning and budget. License revenues grew 29% for the quarter and 19% for the year. The gross margin for the year was consistent at 87.7%. However, for the quarter, the rate was lower than the comparable quarter of last year and this is due to higher third-party royalty fees as 35% of the license deals included time and attendance.
On the expense side, total operating expenses increased by $4 million and $19 million compared to last year’s fourth quarter. As the percentage of total revenues, operating expenses improved to 45.2% from 45.6% last year. Sales and marketing grew by $2 million as we continued to accelerate our hiring of our work place sales team. In addition, there are the marketing expenses increased due to higher commission expense, which correlates with the growth in recurring revenues as well as higher license revenues.
Research and development grew by $1.3 million compared to Q4 of last year. The increase is principally labor related to the ongoing development of current and new products and offerings. But in addition, we seized capitalization of UltiPro candidate during the quarter, which added to R&D expense as the labor cost are restored to their standard levels, which flow through the income stage.
The increase in G&A was representative of the growth of our business. For the quarter, operating income was $5.8 million this year compared to $3.5 million last year as a percentage of total revenues. Operating margins expanded 320 basis points for the comparative quarter and by 400 basis points for the year. Operating income for the year was $18 million or 11.9% of revenues, compared to $9.1 million or 7.9% of revenues of revenues last year.
New comments about the balance sheet. Total cash and investments and marketable securities were $35.9 million at the end of December. We generated $8.8 in cash from operations for the quarter and $29.1 million for the year. We invested $3.5 in total capital expenditures, including $300,000.00 in capitalized software during the quarter and this brought our total CAPEX up to $13.1 million for the year.
During the quarter, we acquired the source code base for our on-boarding offering for $2 million, payable in cash for the contract terms. As part of our stock repurchase program, we used $3 million in the quarter to acquire 88,000 shares of our common stock. For the year, we used $22 million to acquire 743,000 shares of our common stock. Today, we announced the expansion of our stock repurchase plan by one million shares and plan to continue to use it to mitigate the growth in share count due to stock auction exercises.
We have 1,548,000 shares authorized for repurchase as of today. Accounts receivable increased to $34.7 million compared to $26.6 million at December 31, 2006. DSOs increased by two days from 74 days at December 31, 2006 to 76 days at the end of 2007. Deferred revenues increased $8.7 million from yearend to $51.7 million primarily reflecting the continued growth in our inter-sourcing business, which represents about 60% of the overall deferred revenue balance.
Before turning to the 2008 guidance I would like to cover the Q4 release of the valuation allowance against their deferred tax assets. The impact of billing tax effect is a very complex process and the rules under generally expected accounting principles do not make it transparent for the vast majority of investors. I will however attempt to put this in plain English as much as possible. As we have discussed for over a year now, with our growth in earnings, we have expected to release the reserve against our deferred tax assets or generally speaking, the reserve against our historic net operating losses and then begin to recognize tax expense in our GAAP financial statements.
As of the end of this past quarter, we have met the requirements to release these reserves and accordingly, we have recognized a non-cash income tax benefits earnings of $19.9 million and recorded $19.6 million of deferred tax assets on our balance sheets and increase the goodwill associated with the RTIX acquisition by $300,000.00.
Beginning with 2008, and from that point forward, we will begin to record GAAP basis income tax expense, which is mostly a non-cash item. We expect our 2008 GAAP effective tax rate to be 41% and our non-GAAP effective tax rate to be 40%. Because the company has about $70.4 million of net operating losses available for carry forward, we expect our effective cash tax rate after the utilization of the NOL’s to be in the low single digits.
As a point of reference for 2007, the effective cash tax rate was less than 1%. When we released the valuation allowance this quarter, we had to recalculate the common stock equivalent to include in our share-count for diluted EPS purposes, to take it amongst other things, the higher GAAP effective tax rate. The impact of this calculation was a reduction of the share count by approximately 950,000 shares.
Finally, we would like to update the preliminary guidance that we have provided in October. We are maintaining our ARR growth target rate of 25% and we are increasing our recurring revenue growth target rates to 32% and our total revenue target rate to 25%.
I would like to explain some of the changes that we made to our 2008 preliminary guidance. In the fourth quarter we experienced better than expected recurring revenues. Since our fourth quarter announced that the base for 2008 and they were higher than we planned, we felt comfortable increasing the charges.
We are also expecting that our workplace sales should go from contract to live faster than our traditional sales which positively impact our revenue recognize. We have also focused on our continued goal to lower our implementation anchor average deal, which inevitably will reduce our services revenue growth rate somewhat although it should strengthen our sales efforts.
With the experience of Q4 ’07 behind us, and our plans to accelerate the work place offering, we analyze our current and future infrastructure needs in our services organization and determined to continue to enhance the infrastructure sooner than later. What this means is that our cost will begin earlier in the year, which correlates with the expected sales growth of not only the workplace offering, but also our expectations to broaden a number of recurring services we offer. With this acceleration, we are targeting a 24% gross margin for services in 2008 as opposed to our previous expectation of 25% which still reflects an improvement over the actual margin experienced in 2007.
We still expect that 2008 license revenues will be consistent with 2007 both in dollars and gross margin rates. And I would point out that while the work place sales force is growing, they do not sell any perpetual license and focus strictly on sales days on a current place for monthly recurring basis.
On the operating expense side, we still expect sales and marketing to grow by 20% over 2007 due to accelerating growth of the quota of the sales force and to a lesser extent due to increased commission expense that correlate to a higher recurring revenues. G&A should grow by15%. As I mentioned briefly and Scott is going to discuss further, we are increasing our investment in the development of new product offerings.
Based on our 2007 R&D expense of $28.9 million which is adjusted to include $1.7 million that we capitalized during a year with respect to UltiPro Canada, we expect R&D expense to grow about 20% over 2007.
We are maintaining our operating margin target of 14% to 15%. Another adjustment we made in our financial forecast was to reduce the expected net interest income on our cash investment. Taking into account the current interest rate environment, we decreased our net interest income estimate of $1.7 million to $1 million.
We have adjusted our non-GAAP effective tax rate to 40% from 38% while the sales tax rates should remain below single digit, we intend to use our stock repurchase program to achieve the targeted weighted average share count that is slightly under 27 million shares. Taking all of these revisions into account, we have tightened our non-GAAP pretax EPS guidance to a $1.06 to $1.10 per diluted share, and our non-GAAP after tax EPS guidance to $0.64 to $0.66 per diluted share.
We expect stock based comp and the amortization of acquired intangibles will be approximately $16 million. Capital expenditures in 2007, excluding capitalized software costs were $11.4 million. We expect capital expenditures to be between $13 million and $15 million in 2008.
Although we do not provide quarterly guidance, I would like to reemphasize that we see the greatest leverage in the backend of the year and the least in the first part of the year. Our business is usually seasonally strongest in Q4 and weakest in Q1. Also, since are cost structure is highly labor based, we incur higher employment related taxes and cost in the first quarter than at anytime during the year which impacts Q1 result. With the exception of license revenues and the one-time settlement fee with the business service provider recorded in Q2 of ‘07 as other income, the quarterly patterns for 2008 revenues and expenses are likely to follow the patterns for 2007.
Our upcoming conference schedule includes the Oppenheimer Second Annual Human Capital Management software one-on-one conference in New York on February 12, Roth 20th Annual OC Growth Stock Conference in Laguna Niguel, California on February 20th and the Robert W. Baird & Company 2008 Business Solutions Conference in Boston on February 28th.
If any of you are in town and available to meet, please let us know and now I will turn the call over to Scott.
Scott Scherr
I want to thank you all for participating in our call this evening. Our fourth quarter was a strong finish to a strong year. Our sales team hit the ball out of the park as we expected them to do by producing a record $11 million new ARR in the fourth quarter. Our all important recurring revenues were up by 39% to $24.3 million compared with 2006. 85% of our new customers selected inter-sourcing and we now have more than 800,000 employees live in our inter-sourcing environment.
Total revenues came in at a record of $42 million up 28% over 2006 Q4. In 2006, we became a $100 million revenue franchise. In 2007, we passed the $115 million dollar mark and our recurring revenues increased 36% to $87 million.
Now, let us take a look at some details behind our fourth quarter sales.
It was the best quarter in Ultimate’s history in terms of revenues and number of units. Our tax rates remained high. Both recruitment and performance were at rates above 50% and our tax rate of UltiPro time and attendance was 25%. It is very clear that our sales team is good at executing as expected. 75% of the team achieved their individual goals for the year.
We have begun referring to our long tenured sales team the target companies with 700 to 15,000 employees as the enterprise sales team. We had one turnover in our enterprise group and have replaced that person with a seasoned professional in that territory. This is a veteran team that continues to excel and gets better every year.
In Q4, our enterprise team brought us a number of customers who purchased core UltiPro plus the three add-on products, recruitment, performance, and time and attendance. Some of those were Bright Now Dental with 4200 employees, the Cleveland Indians with 3200 employees, CIRCOR International, a leading provider of valves and fluid control products, the New York Stock Exchange and the San Diego Convention Center. Some other notable wins were, Playboy Enterprises International, the Chicago Board of Options Exchange, Crane Corporation, the publisher of Workforce Management Magazine, Excellus health plan with 7000 employees, Gordon’s the New England seafood company; Great American Insurance Company with 6000 employees, NVIDIA Corporation, the MAZDEC company in computing technologies, and Pike Electric with about 6000 employees.
Now, turning to our work place market.
In 2007, our workplace sales team contributed 5% of our total new ARR number. We expect our workplace team to deliver between 15% and 20% of the total ARR number in 2008. At this time last year, we had one quota carrying person going after companies 200 to 600 employees inside. Today, we have expanded that target market to 200 to 700 employees. Today, we have a sales executive, two directors and 16 quota-carrying salespeople. We have been successful hiring the best of the best in our industry and expect that we will continue to do so.
Our goal with workplace is to have 38 quota-carriers throughout the United States over the next few years. We are well on our way to that goal. We will accelerate that objective when we find exceptional talent or that talent finds us.
In our professional services area, we completed more implementations in the fourth quarter than we have ever previously completed in the quarter. Some companies that went live were Hallmark Cards, Master Lock, Yamaha Motor Manufacturing and Webster Financial Corporation.
Webster, a Connecticut based financial firm with 3500 employees is an example of how our implementation team can work with a goal-focused customer to bring four of our key product slides basically at the same time, where UltiPro, Recruitment, Performance Management and Time and Attendance. Our 12-month retention rate for inter-sourcing remained at 99% and our exceptional customer care continuous to result in many referential customers.
Our shared services team that manages Ultimate inter-sourcing operations was honored as a first place winner by the American Business Awards in New York City for excellence in business performance. At the same time, the American Business Award also honored our customer support team as finalist in two service excellence categories.
2007 was also the third consecutive year and the second year for Ultimate Software to be ranked third on the Great Place to Work Institute’s List of Top 25 medium companies to work for in America.
Now, turning to our product strategy.
Our goal is to provide businesses in the United States and Canada with 200 or more employees the most complete, highest quality and well integrated suite of strategic human resources payroll and talent management solutions.
Our Core UltiPro Package includes Human Resources, benefits management, payroll, tax, self service, business intelligence and a portal. The three main solutions that we have been attaching are recruitment, performance management and time and labor management. In Q4, we delivered salary planning and budgeting. This solution gives executives and managers the online tools they need for rapid calculation of bonuses and/or annual compensation increases eliminating the need for spreadsheets.
In 2008, plan to continue our product enhancement strategy to enable our customers to fully manage the employee life cycle from recruitment to retirement, as a part of that initiative, we will continue to enhance and extend additional areas of functionality.
The first area is on-boarding. We got the opportunity to acquire an exciting technology and took it. We will be rounding out and extending UltiPro on-boarding for our customers by Q2. This is functionality that our customers and prospects want as part of their total UltiPro talent management solution. On-boarding is a web-based tool that gives employees the ability to automate the process of bringing a new employee into their organization quickly. Employees can be given a welcome package online as part of a step by step orientation process that is built into UltiPro and it is easily configurable by Ultimate Software’s customer. We will include standard activities by containing required government and procedural paperwork with the electronic signatures and document storage.
The second area is learning management. It is a feature that is closely tied to performance management. We will allow our customers to link competency based learning goals set during performance reviews to upcoming training opportunities. Learning management helps companies streamline the training registration process, track registration process, track program costs, record employee training achievements and create employee development plans and related details.
The third area is succession planning. Succession planning is an online planning tool for managers and HR teams to flag employees as top promotables and create career plans for the employees based on licenses, skills, training and education for their next job. The executives can refer to the succession plan while still in key positions. They can also review organization charts and identify gap areas for future planning.
We finished the year 750 strong. We accomplished all of our goals and entered 2008 stronger than we have ever been. We continue to expand our product line. We continue to enhance our services and grow our sales team and we continue to strive to get better in all areas of our business.
I am excited about 2008 and I am equally excited about our future beyond that. We are focused, we are committed and we have the energy to make Ultimate all that it can be. Thank you for your continued support. I look forward to sharing our future successes with you. Let us go to the Q&A.
Question and Answer Session
Operator
(Operator Instructions)
Our first question will come from Richard Davis with Needham & Company.
Richard Davis - Needham & Company
First question with regard to pricing, do you anticipate any change in pricing? And then the second, you are going to get this as we are sending out queries to everyone, have you seen any kind of increased obviously caution with regard to terms of buying upgrade, it does not sound like it in terms of your numbers, that is kind of the obligatory Miranda rights that we have to ask these days?
Scott Scherr
We have seen nothing in the pipelines that are strong. We had a strong January. I think, the pricing we have done, I think we are going to come out of this year with a total price somewhere between $18.00 to $21.00 for UltiPro and all the associated modules around that. Did I answer the question?
Richard Davis - Needham & Company
Yes, that is exactly what I needed.
Operator
We will next go Richard Baldry with Canaccord Adams.
Richard Baldry - Canaccord Adams
Can you talk a little specifically about the service revenue line last year sequentially it was up a little over $3 million, this year it is up about $1.7 million, you are still hiring and sort of bringing people in on an aggressive basis there, so I am wondering what seasonally kind of sweep there or was there a record number of implementation. I am surprised that was not a higher figure.
Scott Scherr
I think it is a combination of things. One is, our hiring is slowing down, but at the same time, keep in mind, we have always looked at trying to make the implementations quicker, so you are going to see service revenue growth rates slow down as a result of that. The idea is to get somebody in LIBOR with less cost, (inaudible) for less cost and then that will generate returning revenue sooner. We did make a conscious decision in the quarter to take some other wise billable people and put them on some of these infrastructures, building at workplace, building up some of these other offerings and yet we still were able to get all of our customers live and the way they want it to. Yes, I think we are seeing in the workplace area, the amount of services revenue per recurring revenue, with that ratio and similarly, the ratio of services to add on products is typically lower than our UltiPro core products, so again, that is going to partially explain why the growth rate in services is going to start to perhaps be a little slower.
Richard Baldry - Canaccord Adams
And as a reminder on the pricing front, looking underneath that 12 to 18 potential, do you still view your core system as price at a discount if you want to call it that to your competitors, I know you typically have about 10% per year price escalators, so with that having ramped over the last years, it seems to me that you are still able to walk into the existing spending and lower that for new customers, is that still fair?
Scott Scherr
Yes, I mean that is fear. We increased the base price last 2005. There will be a base price increase in April of this year for the base and yes, I think it is fair to say that we are still coming in less for more.
Richard Baldry - Canaccord Adams
And finally, could you talk a little about the effort in the workplace site to sort of perfect your ability to identify potential clients, build pipelines et cetera. It is a newer area, so can you discuss the time to ramp for productivity in that group versus the enterprise side as a reminder?
Scott Scherr
I think, when we get an enterprise person, as I have said we have only had one, we said that we had quoted that person in the tenth month. We are quoting the workplace people in the seventh month. Once they are up in the ramp in the seventh month, then we expect a deal a month and feel very confident that team can accomplish that. While we were ramping up the sales team, there are also other infrastructures and we call them solution experts, but we have a team of five solution experts who do the demos remotely who are also then on the implementation side, we had a ramp up the implementation people for workplace, which again we did, they do remotely. So it is not only the sales infrastructure that we are at certain point with the workplace, but it is also the other people around it and also support.
A decent number of live finds now on the workplace, so we have been through the process. That we have confidence in the workplace this year.
Richard Baldry - Canaccord Adams
Could you talk about whether you expect some of those workplace sales reps in time to be graduated up to the enterprise side to build a bench of internal promotion capability segment?
Scott Scherr
I think we have made their opportunity equal to what the enterprise guys are. They have the opportunity to make as much money, it is not more money, based on their performance so we are hiring very quality people that could be hired on either team. I see no difference between the two, so yes, that is not the point at all.
Operator
Our next question is from Steve Koenig with Keybanc Capital Markets.
Justin Bandy - Keybanc Capital Markets
You said on the call that the tax rates were high, you said, I think 50% per recruitment and performance and 25% for time and attendance, can you break that down by new customers and existing customers?
Mitch Dauerman
The tax rates we quote are on new customers. We can sell additional products back to the base and in fact our sales back to our client base last year were very strong.
Justin Bandy - Keybanc Capital Markets
And then final question on your closed rates in Q4, I was wondering if you saw any change from what you saw in Q3 of last year and also if your guidance for next year’s base on similar closed rates to what you have seen in 2007?
Scott Scherr
We are still running it over 90% closed rate on the enterprise side when we get the opportunity to go through our process. I think the workplace is a little too early to tell what the close rates will be at this point in time. I see no difference, Q4 we were in the high 90’s. All the units, we did the most units we ever did, there were only two companies that we did not get that went through our process, so I think we keep getting stronger every year.
Operator
Our next question is from Nathan Schneiderman with Roth Capital Partners.
Nathan Schneiderman - Roth Capital Partners LLC
A handful of questions for you, first, to Mitch, I was curious, I know you are not out with ’09 guidance that some of us are going to be modeling, so I was just curious if you envisioned, the guidance as I understand it is 150 to 250 basis point improvement in March and for 08? Do you see a similar ramp on the operating margin side of ’09, faster or slower, just on anything you can say to help us out?
Mitch Dauerman
I think the operating margin would be a little stronger because you will not have Ceridian masking the growth. When you pull out Ceridian over the past several years, you see a 600-basis point expansion for the last three years, so in ’08, it is lower because of that, so I would think that if you are modeling, maybe you are in a 300 to 500 basis point range.
Nathan Schneiderman - Roth Capital Partners LLC
And just in your revenue guidance, I was curious what your general expectations are for contributions for Canada on the revenue side.
Mitch Dauerman
No minimal from Canada. It is mostly all in the United States.
Nathan Schneiderman - Roth Capital Partners LLC
And then Scott, on these new products that you are referencing, you have on-boarding for Q2, what is your sense that they will be scheduled for learning management and succession planning, what are the cross points there?
Scott Scherr
They are all dollar modules. It is like a dollar per employee per month. When we look any new module, when we have to believe that it is of value to our clients, we have to believe that we will have 25% of tax rate with that new module and we have to be able to believe that we can get at least a dollar per employee per month additional.
Operator
Our next question is from David Cohen from JP Morgan.
David Cohen – JP Morgan
Are the tax rates for workplace similar to the enterprise?
Scott Scherr
I think it is too early to say that. It is a little different we have some things that are different in the base of enterprise that are not in the base of workplace. I will start giving the tax rates on the next earnings call with the workplace and my guess is that it is yes.
David Cohen - J.P. Morgan
Did I understand you took up the revenue guidance, I thought I heard you said that there is a bigger base of recurring revenue and therefore you took the growth rate up?
Mitch Dauerman
Yes, with large variants in Q4, we estimated the recurring revenue growth rate, that went up, offset in part by taking down a little bit in the services area and that is how we got to our overall growth rate going to 25%.
David Cohen - J.P. Morgan
But is you have got a bigger base, all of being equal, wouldn’t the grocery be a little bit slower?
Scott Scherr
There must be 12. It is bigger and layering in.
David Cohen - J.P. Morgan
And then, just in terms of the free cash flow for the year came in above 13% of revenues. I know in 2008, you have got the 30 and dragged – is the way to think about the business’ longer term, 13% of revenues, should that be extending with sort of rate, so much?
Scott Scherr
Let me give it to you in terms of the relationship to EPS, only because I have not looked at the way you are, and I would say that typically our free cash flow is going to trail our non-GAAP net income before taxes by the difference in CAPEX versus depreciation and amortization. So, if we are at $1.06 to $1.10, we are probably somewhere between 90 and a dollar on free cash flow. Did that help you up?
David Cohen - J.P. Morgan
Yes. And then the last question, in terms of thinking about the ARR for this year, should we look at the seasonal pattern and expect that to continue?
Scott Scherr
Yes, I think 2007 is a good measure for ARR.
Operator
Our next question is from Franco Turrinelli with William Blair.
Franco Turrinelli - William Blair & Company, L.L.C.
Most of my questions have been answered, but I do have one small housekeeping, and I just want to make sure that I heard you correctly Mitch, provided the preliminary guidance for 2008 on revenue, you have given us both an excluding Ceridian and an including Ceridian number and I think what you have given us now is the 32% that you are referring to reflects the impact of the loss of the Ceridian revenue and I just want to confirm that.
Mitch Dauerman
Yes, that is correct. The numbers we gave take into account Ceridian and you do the map, an in a simple map you will find that the recurring revenue would be about 8% higher and total revenues would be about 5% higher.
Franco Turrinelli - William Blair & Company, L.L.C.
Right so that is what I wanted to clarify, so you refer to having the guidance forward carrying the revenue growth and the comparable number is now 32% growth versus 25% growth including Ceridian so there should be no confusion about what that number represents. As long as I am reading it right that is exactly what I wanted.
Scott Scherr
The 32% takes into account the loss of Ceridian this last nine months of the year.
Franco Turrinelli - William Blair & Company, L.L.C.
I think you said, 25% recurring revenue growth including the entitled Ceridian which was equivalent to 35% growth excluding the impact of Ceridian. I just want to make sure that I am not getting confused because now you have thrown the 32% number and I just want to make sure that that 32% is an increase from 25%. It will probably 40% versus 35% so it would become a 40% increase and 35% if we adjust it for Ceridian in both periods. I think it is just me.
Operator
Our next question is from Michael Nemeroff with Wedbush.
Ariel Sokol- Wedbush Morgan Securities Inc.
Ariel Sokol for Mike Nemeroff. I was hoping if we could kind of focus on the competitive landscape for a second. Are you seeing larger application ventures entering your market or is the existing target market becoming more competitive and then are you seeing larger application vendors in workplace deals?
Scott Scherr
No, our competitive landscape has really not changed, 50% of the time we are seeing service growth and 60% of our business is coming from service bureaus. We are seeing Oracle people sought that 3% of the time and we are seeing loss in about 3% of the time and then there is nobody else that we are seeing of any significance at all in all our deals.
Operator
Our next question is from Brad Whitt with Broadpoint Capital.
Bradley Whitt - Broadpoint Capital
Thanks for taking my questions, most have been answered but, Scott I want to ask you, do you have an approximate or mention of about how much of your ARR came from the workplace group and all of last fiscal year, I know it was 5% in the quarter?
Scott Scherr
5% for the year.
Bradley Whitt - Broadpoint Capital
What was is in the quarter?
Mitch Dauerman
It is probably a little bit higher.
Bradley Whitt - Broadpoint Capital
And so, on the back of envelope here, if I assume, if you are 15% to 20% total ARR for 2008 coming from the workplace group, are you seeing it kind of a flattish ARR from the enterprise team?
Scott Scherr
No, we bumped the enterprise at 10% and we also have a bump with the client based team that was bumped approximately 10% and then we have Annam who sold about 15,000, who did not contribute anything in 2007 but laid very good groundwork on a lot of deals. So, we expect a contribution from that. So, when you add all of that together, it gives me the confidence to say I have confidence this year in the 25% growth in ARR.
Operator
Our next question is from AJay Kasargod with Piper Jaffray.
AJay Kasargod - Piper Jaffray
Can you tell me more details about the performance amongst different verticals, do you see any proud verticals performing well as you expected this quarter or some especially weaker or stronger?
Scott Scherr
We are completely horizontal, we have never been a real vertical company and the beauty of our business is that everybody has payroll. So I think we have missed it. We have all our sales meetings in January and we have high chart to show like all the different verticals. There is no vertical that went more than 10% of our business. I do not think that is at 10%. So it is completely a horizontal business that goes across verticals. I would say we did stay away from certain verticals like government and school boards and indication of things like that. But anything else, we are going to go after it if it is over 200 pays in the United States.
AJay Kasargod - Piper Jaffray
You talked about it before and I believe a lot of the opportunity comes from share gains out in the market but what do you consider your essential need to the current economic environment? What is the risk, if any in your eyes?
Scott Scherr
In 2000, we were a license shop, and we did not have something called inter-sourcing hosted model and it has hurt us. Today we have a hosted model. I think we have a better product that provides value. I think we have tremendous support that is of value to customers and I know we can improve ROI in every deal. We have a hosted model that we are selling 85% of our business. So, I like our business and if you are in a business like ours, where we take business away from people who are looking for something better that helps them grow their businesses, I do not know how we could be in a better position than anyone else out there.
AJay Kasargod - Piper Jaffray
Thank you for that, just on the enterprise, when you do look at your bookings, it looks like you are looking at forecast growth to grow 8% to 10%, what is behind that, I mean, how much are you growing the sales force just to review that on the enterprise side. I just want to understand, where could give room for some performance on the enterprise side?
Scott Scherr
Well, we have 25 quota-carrying salespeople on the enterprise side, the average 10 years over, eight years now, the management of that team is over 10 years. As I have said we have one turnover and we hired a stud in that territory that we believe he can get up very fast under a good manager. The quota of that team last year was $2.5 million, the quota this year is $2.8 million. The number one guy last year on that team did $6.2 million. The number two guy did $4.2 million. Our goal has always been to have on that enterprise team franchise players who have been with us a long time and is going to put up big numbers, so when I put that “2,8” number in and I put the work place number in and I put the one-man and the five-client based sales people in, that gives me confidence of over 25%.
Operator
We will take one more question and that is from a Jim Bartlett with Bartlett Investor.
Jim Bartlett - Bartlett Investors
All my questions have been answered, I will just give my congratulations for the quarter in the year and the last several years, and you guys did a fantastic job.
Scott Scherr
Hey Jim, when we heard your name, both Mitch and I had a big smile on our faces.
Operator
And with that, I would like to turn the conference to Scott Scherr for our closing comments.
Scott Scherr
Okay, thanks and I think its exciting times for us. It seemed like only yesterday, we were breaking through this goal of a hundred million now we are on $150 million and I think everyone out there who knows us, $400 million in terms of operating margin in 2012 is in our sight. We are on target and I look forward to 2008 in sharing our successes with you. Good night everyone.
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