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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-24347
THE ULTIMATE SOFTWARE GROUP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 65-0694077
------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
2000 ULTIMATE WAY, WESTON, FL 33326
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(954) 331 - 7000
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Company is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 1, 2003 there were 17,332,768 shares of the Registrant's
Common Stock, par value $.01, outstanding.
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PAGE(S)
-------
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002 3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 19
Item 4 - Controls and Procedures 19
PART II-OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 19
SIGNATURES 20
CERTIFICATIONS 21-22
2
PART 1--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
As of As of
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,394 $ 8,974
Accounts receivable, net 7,794 10,381
Prepaid expenses and other current assets 1,634 1,273
-------- --------
Total current assets 17,822 20,628
Property and equipment, net 6,917 7,233
Capitalized software, net 2,372 2,753
Other assets 542 529
-------- --------
Total assets $ 27,653 $ 31,143
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,350 $ 2,693
Accrued expenses 4,893 5,529
Current portion of deferred revenue 20,145 20,874
Current portion of capital lease obligations 637 767
Current portion of long term debt 497 501
-------- --------
Total current liabilities 28,522 30,364
Deferred revenue, net of current portion 4,954 6,941
Capital lease obligations, net of current portion 225 361
Long term debt, net of current portion 720 845
-------- --------
Total liabilities 34,421 38,511
-------- --------
Stockholders' (deficit):
Preferred Stock, $.01 par value, 2,000,000 shares authorized,
no shares issued or outstanding in 2003 and 2002 -- --
Series A Junior Participating Preferred Stock, $.01 par value,
500,000 shares authorized, no shares issued or outstanding
in 2003 and 2002, respectively -- --
Common Stock, $.01 par value, 50,000,000 shares authorized,
17,590,415 and 15,869,043 shares issued in 2003
and 2002, respectively 176 168
Additional paid-in capital 71,830 68,602
Accumulated deficit (77,720) (75,084)
-------- --------
(5,714) (6,314)
Treasury stock, at cost, 257,647 and 240,447 shares in 2003
and 2002, respectively (1,054) (1,054)
-------- --------
Total stockholders' (deficit) (6,768) (7,368)
-------- --------
Total liabilities and stockholders' (deficit) $ 27,653 $ 31,143
======== ========
The accompanying unaudited notes to condensed consolidated financial
statements are an integral part of these financial statements.
3
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the Three Months
Ended March 31,
-----------------------------
2003 2002
-------- --------
Revenues, net:
License $ 1,213 $ 1,395
Recurring 6,861 3,934
Services 6,328 5,627
-------- --------
Total revenues, net 14,402 10,956
-------- --------
Cost of revenues:
License 243 140
Recurring 2,291 1,950
Services 4,435 4,558
-------- --------
Total cost of revenues 6,969 6,648
-------- --------
Operating expenses:
Sales and marketing 4,089 4,538
Research and development 4,329 4,331
General and administrative 1,618 1,130
-------- --------
Total operating expenses 10,036 9,999
-------- --------
Operating loss (2,603) (5,691)
Interest expense (53) (72)
Interest and other income 20 40
-------- --------
Net loss $ (2,636) $ (5,723)
======== ========
Net loss per share -- basic and diluted $ (0.16) $ (0.36)
======== ========
Weighted average shares outstanding:
Basic and diluted 16,718 15,885
======== ========
The accompanying unaudited notes to condensed consolidated financial
statements are an integral part of these financial statements.
4
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months
Ended March 31
-------------------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net loss $ (2,636) $ (5,723)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,300 1,439
Provision for doubtful accounts 161 32
Non-cash issuance of stock options for board fees 31 21
Changes in operating assets and liabilities:
Accounts receivable 2,426 4,253
Prepaid expenses and other current assets (361) (98)
Other assets (13) (3)
Accounts payable (343) 263
Accrued expenses (636) (1,112)
Deferred revenue (2,716) 5,365
-------- --------
Net cash (used in) provided by operating activities (2,787) 4,437
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (605) (623)
-------- --------
Net cash used in investing activities (605) (623)
-------- --------
Cash flows from financing activities:
Repurchase of treasury stock -- (119)
Principal payments on capital lease obligations (266) (579)
Principal payments on borrowings under Credit Facility (129) --
Net proceeds from issuances of Common Stock 3,207 9
-------- --------
Net cash provided by (used in) financing activities 2,812 (689)
-------- --------
Net (decrease) increase in cash and cash equivalents (580) 3,125
Cash and cash equivalents, beginning of period 8,974 8,464
-------- --------
Cash and cash equivalents, end of period $ 8,394 $ 11,589
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 43 $ 60
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
- The Company entered into capital lease obligations to acquire new equipment
totaling $0.0 and $ 0.4 in the three months ended March 31, 2003 and 2002,
respectively.
The accompanying unaudited notes to condensed consolidated financial
statements are an integral part of these financial statements.
5
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of The
Ultimate Software Group, Inc. and subsidiary (the "Company") have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. The information in this report
should be read in conjunction with the Company's consolidated audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 filed with the SEC on March 31,
2003 (the "Form 10-K").
The unaudited condensed consolidated financial statements included
herein reflect all adjustments (consisting only of normal, recurring
adjustments), which are, in the opinion of the Company's management, necessary
for a fair presentation of the information for the periods presented. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Interim
results of operations for the three months ended March 31, 2003 and 2002 are not
necessarily indicative of operating results for the full fiscal years or for any
future periods.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations have historically been
insufficient to fund its operations. Shortfalls in cash flows from operations
have been funded primarily through the private and public sale of equity
securities and, to a lesser extent, equipment financing and borrowing
arrangements.
On January 23, 2003, the Company raised $0.2 million of capital through
the private sale of 50,000 shares of the Company's common stock, par value $0.01
per share ("Common Stock"), and a warrant to purchase 5,000 shares of Common
Stock at $4 per share to a shareholder of the Company. On March 13, 2003, the
Company raised an additional $3.0 million of capital through the private sale of
750,000 shares of the Company's Common Stock and a warrant to purchase 75,000
shares of Common Stock at $4 per share to Ceridian Corporation ("Ceridian"). The
additional capital raised in January 2003 and March 2003 is collectively
referred to as "Recent Capital Raised."
On February 10, 2003, the Company entered into a services agreement
with Ceridian (the "Ceridian Services Agreement") under which Ceridian will pay
Ultimate Software a total of $2.25 million in four equal installments during
each of the calendar quarters of 2003 in exchange for additional services
provided by Ultimate Software in 2003. The Company received a payment of
$562,500 from Ceridian during March 2003. The Ceridian Services Agreement
terminates on December 31, 2003.
6
On March 27, 2003, the Company amended its revolving line of credit
agreement with Silicon Valley Bank (the "Credit Facility") to extend the
expiration date of the agreement to May 28, 2004. The Company was not in
compliance with the Quick Ratio financial covenant of the Credit Facility, as
defined in the Credit Facility (the "Quick Ratio"), for the month ended March
31, 2003. On April 29, 2003, the Company and Silicon Valley Bank amended the
Credit Facility to modify the Quick Ratio by reducing the requirement from a
ratio of 2.0 to 1.0 to 1.75 to 1.0. This loan modification was effective for the
month ended March 31, 2003 and each month thereafter through the revised
expiration date of May 28, 2004. As a result of the loan modification, the
Company is in compliance with all debt covenants pursuant to the Credit
Facility, as amended from time to time.
The Company believes that cash and cash equivalents, cash generated
from operations and available borrowings under the existing revolving line of
credit with Silicon Valley Bank will be sufficient to fund its operations for at
least the next 12 months. This belief is based upon, among other factors,
management's expectations for future revenue growth, improvements in gross
margins, controlled operating expenses and collections of accounts receivable.
However, the Company may seek to raise additional funds during such period
through the sale of additional shares of the Company's common stock, par value
$0.01, or other securities. There can be no assurance that the Company will be
able to raise such funds on terms acceptable to the Company.
3. CONCENTRATION OF REVENUES
During the three months ended March 31, 2003, one of the Company's
customers, Ceridian, accounted for 15.8% of total revenues. No other customer
accounted for more than 10% of total revenues in 2003 or 2002.
Of the 15.8% of total revenues recognized from Ceridian, 13.4% relates
to recurring revenue recognized pursuant to the Original Ceridian Agreement,
discussed below, and 2.4% relates to services revenue recognized under the
Ceridian Services Agreement (see Note 2).
During 2001, the Company and Ceridian reached an agreement, as amended
in 2002, which granted Ceridian a non-exclusive license to use UltiPro software
as part of an on-line offering that Ceridian intends to market primarily to
businesses with under 500 employees (the "Original Ceridian Agreement"). The
aggregate minimum payments that Ceridian is obligated to pay the Company under
the Original Ceridian Agreement over the minimum term of the agreement is $42.7
million. To date, Ceridian has paid to the Company a total of $16.5 million
under the Original Ceridian Agreement. The parties expect the minimum term of
the Original Ceridian Agreement to extend until March 2008 (the "Ceridian
Term"). A minimum of approximately $642,000 has been and will be recognized as
subscription revenue, a component of recurring revenue, on a monthly basis, from
the Original Ceridian Agreement for the period beginning August 28, 2002 through
the end of the Ceridian Term.
Services revenue from the Ceridian Services Agreement is recognized on
a straight-line basis from the date of the agreement, February 10, 2003, through
the expiration of such agreement, or December 31, 2003.
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," establishes standards for the reporting and
display of comprehensive income and its components in a full set of financial
statements. The objective of SFAS No. 130 is to report a measure (comprehensive
income) of all changes in equity of an enterprise that result from transactions
and other economic events in a period other than transactions with owners.
Comprehensive loss is equal to net loss for all periods presented.
7
5. EARNINGS PER SHARE
The following is a reconciliation of the shares used in the
computation of basic and diluted net loss per share (in thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
2003 2002
------ ------
Weighted average shares outstanding 16,718 15,885
Effect of dilutive stock options -- --
------ ------
Dilutive shares outstanding 16,718 15,885
====== ======
Options outstanding which are not included in the
calculation of diluted loss per share
because their impact is antidilutive 5,295 4,690
====== ======
6. STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with
Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, the Company recognizes no compensation
expense related to employee stock options since options are granted at a price
equal to the market price of the underlying stock on the date of grant.
The Company's Nonqualified Stock Option Plan (the "Plan") authorizes
the grant of options to directors, officers and employees of the Company for up
to 9,000,000 shares of the Company's Common Stock. As of March 31, 2003,
3,460,145 shares of the Company's Common Stock are available for grant. Options
granted generally have a 10-year term, vesting 25% immediately and 25% for each
of the following three years.
The pro forma information below is based on provisions of Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation ("SFAS No. 123"), as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148").
8
The following pro forma information regarding net loss and net loss per
share, as required by SFAS No. 123, has been determined as if the Company had
accounted for its stock-based compensation plan under the fair value method. The
fair value of each option granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants: risk-free interest rates of 2.84% for 2003 and
2.72% for 2002, a dividend yield of 0% for all periods presented, expected
volatility of 46% for 2003 and 68% for 2002 and an expected life of four years
for each of the periods presented. The Company's pro forma information is as
follows (in thousands, except per share amounts):
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
2003 2002
------- -------
Net loss:
As reported $(2,636) $(5,723)
Stock-based employee compensation as determined under fair
value method for all awards (493) (547)
------- -------
Pro forma $(3,129) $(6,270)
======= =======
Net loss per share:
As reported, basic and diluted $ (0.16) $ (0.36)
Pro forma, basic and diluted $ (0.19) $ (0.39)
7. RECENT ACCOUNTING LITERATURE
SFAS No. 148, issued in December 2002, amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS 123 to require prominent
disclosures in not only annual, but also interim, financial statements about the
effect the fair value method would have had on reported results. The transition
and annual disclosure requirements of SFAS No. 148 are effective for fiscal
years ending after December 15, 2002. The Company adopted the disclosure
provisions of SFAS No. 148 as of January 1, 2003 and continues to follow APB No.
25 in accounting for employee stock options.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 expands previously
issued accounting guidance and disclosure requirements for certain guarantees
and requires recognition of an initial liability for the fair value of an
obligation assumed by issuing a guarantee. The provision for initial recognition
and measurement of liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company adopted FIN
45 as of January 1, 2003. Adoption did not have a material impact on the
Company's unaudited consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities," ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," for
certain entities that do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company is currently
evaluating the impact of adopting FIN 46. However, the Company does not believe
that it is party to any arrangement that would fall within the scope of FIN 46.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of The Ultimate Software Group, Inc. ("Ultimate Software" or the
"Company") should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-Q. This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed below and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002
filed with the SEC on March 31, 2003, including Exhibit 99.1 thereto. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company licenses software under non-cancelable license agreements
and provides services including maintenance, implementation, training and
consulting services. In accordance with the provisions of The American Institute
of Certified Public Accountants Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," license revenues are generally recognized when a
non-cancelable license agreement has been signed, the product has been shipped,
no significant vendor obligations remain and collection of the related
receivable is considered probable.
For multiple-element arrangements, each element of the arrangement is
analyzed and the Company allocates a portion of the total fee under the
arrangement to the elements based on the fair value of the element, regardless
of any separate prices stated within the contract for each element. Fair value
is generally considered the price a customer would be required to pay if the
element were to be sold separately. The Company applies the residual method as
allowed under SOP 98-9, "Modifications of 97-2, Software Revenue Recognition
With Respect to Certain Transactions" in accounting for any element of an
arrangement that remains undelivered.
Recurring revenues include maintenance revenues and subscription
revenues. Maintenance revenues are derived from maintaining, supporting and
providing periodic updates for the Company's software. Subscription revenues are
principally derived from per employee per month ("PEPM") fees earned through the
hosted offering branded "Intersourcing" (the "Intersourcing Offering"), hosting
services offered to customers that license UltiPro on a perpetual basis ("Base
Hosting") and the business service provider sales channel, as well as revenues
generated from the Original Ceridian Agreement, as defined below. Maintenance
revenues are recognized ratably over the service period, generally one year.
Maintenance and support fees are generally priced as a percentage of the initial
license fee for the underlying products. Subscription revenues are recognized
ratably over the term of the related contract upon the delivery of the product
and services.
Subscription revenues generated from the Intersourcing Offering are
recognized in accordance with Emerging Issues Task Force ("EITF") No. 00-21,
"Revenue Arrangements with Multiple Deliverables" as a services arrangement
since the customer is purchasing the right to use UltiPro rather than licensing
the software on a perpetual basis. Fair value of multiple elements in
Intersourcing arrangements is assigned to each element based on the guidance
10
provided by EITF 00-21. Subscription revenues generated from Base Hosting are
recognized in accordance with EITF 00-3, "Application of AICPA Statement of
Position 97-2 to Arrangements That Include the Right to Use Software Stored on
Another Entity's Hardware," which provides guidance as to the application of SOP
97-2 to hosting arrangements that include a license right to the software. Fair
value of multiple elements in Base Hosting arrangements is assigned in
accordance with guidelines provided by SOP 97-2.
Services revenues include revenues from fees charged for the
implementation of the Company's software products and training of customers in
the use of such products, fees for other services, including the provision of
payroll-related forms and the printing of Form W-2's for certain customers, as
well as certain reimbursable out-of-pocket expenses. Revenues for training and
implementation consulting services are recognized as services are performed.
Other services are recognized as the product is shipped or as the services are
rendered.
Arrangement fees related to fixed-fee implementation services contracts
are recognized using the percentage of completion accounting method. Percentage
of completion is measured at each reporting date based on hours incurred to date
compared to total estimated hours to complete.
The Company recognizes revenue in accordance with the SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). Management believes the Company is currently in compliance with the
current provisions set forth in SOP 97-2, SOP 98-9, EITF 00-21, EITF 00-3 and
SAB No. 101. However, the accounting profession continues to discuss various
provisions of these guidelines with the objective of providing additional
guidance on their future application. These discussions and issuance of new
interpretations, once finalized, could lead to changes in the way revenue is
recognized.
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. There were no software costs
capitalized during 2003 and 2002. Capitalized software is amortized using the
straight-line method over the estimated useful lives of the assets which are
typically three years. Amortization of capitalized software was $380,000 and
$455,000 for the three months ending March 31, 2003 and 2002, respectively.
Accumulated amortization of capitalized software was $3.3 million for the period
ended March 31, 2003 and $1.6 million for the period ended March 31, 2002.
CONCENTRATION OF REVENUES
During the three months ended March 31, 2003, one of the Company's
customers, Ceridian Corporation, accounted for 15.8% of total revenues. No other
customer accounted for more than 10% of total revenues in 2003 or 2002. Due to
the significant concentration of total revenues with this single customer, the
Company has exposure if this customer loses its credit worthiness. See Note 3 of
the unaudited Notes to Condensed Consolidated Financial Statements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts at an amount
estimated to be sufficient to provide adequate protection against losses
resulting from collecting less than full payment on accounts receivable. A
considerable amount of judgment is required when the realization of receivables
is assessed, including assessing the probability of collection and current
credit-worthiness of each customer. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, an additional provision for doubtful accounts may be required.
11
OVERVIEW
Ultimate Software designs, markets, implements and supports
technologically advanced payroll and workforce management solutions. The
Company's mission is to become the premier infrastructure provider of Internet
payroll and workforce management solutions.
Ultimate Software's UltiPro Workforce Management ("UltiPro") is a
Web-based solution designed to deliver the functionality businesses need to
manage the employee life cycle, whether their processes are centralized at
headquarters or distributed across multiple divisions or branch offices.
UltiPro's human resources ("HR") and benefits management functionality is wholly
integrated with a flexible payroll engine, reporting and analytical
decision-making tools, and a central Web portal that can serve as the customer's
gateway for its workforce to access company-related and personal information.
Ultimate Software believes that UltiPro helps customers streamline HR and
payroll processes to significantly reduce administration and operational costs,
while also empowering executives and staff to access critical information
quickly and perform routine business activities efficiently.
UltiPro Workforce Management is marketed both through the Company's
direct sales team as well as through alliances with business service providers
(BSPs) that market co-branded UltiPro to their customer bases. Ultimate
Software's direct sales team focuses on companies with more than 500 employees
and sells both on a license (typically in-house) and service basis (typically
hosted and priced on a per-employee-per-month basis). The Company's BSP
alliances focus primarily on companies with under 500 employees and typically
sell an Internet solution priced on a monthly/service basis, sharing revenue
with Ultimate Software.
The Company's direct sales force markets UltiPro as an in-house payroll
and workforce management solution and alternatively as the Intersourcing
Offering. Intersourcing provides Web access to comprehensive workforce
management functionality for organizations that need to simplify the information
technology (IT) support requirements of their business applications. Ultimate
Software believes that Intersourcing is attractive to companies that are
striving to focus on their core competencies to increase sales and profits.
Through the Intersourcing model introduced in 2002, the Company provides the
hardware, infrastructure, ongoing maintenance and backup services for its
customers at a BellSouth data center.
INTERSOURCING OFFERING
In 2002, the Company introduced the Intersourcing Offering, which is a
hosting service through which the Company provides the hardware, infrastructure,
ongoing maintenance and back-up services for its customers at a BellSouth data
center. Different types of hosting arrangements include the sale of hosting
services as a part of the Intersourcing Offering, discussed below, and, to a
lesser extent, the sale of hosting services to customers that license UltiPro on
a perpetual basis. Hosting services, available in a shared or dedicated
environment, provide Web access to comprehensive workforce management
functionality for organizations that need to simplify the information technology
(IT) support requirements of their business applications and are priced on a
per-employee-per-month basis. In a shared environment, commonly used for
Intersourcing, Ultimate Software provides an infrastructure with applicable
servers shared among many customers who use a Web browser to access the
application software through the data center. In a dedicated environment,
servers are dedicated to specific customers that purchase this particular
service. The majority of the Company's hosting arrangements are provided through
a shared environment.
The Intersourcing Offering is designed to provide an appealing pricing
structure to customers who prefer to minimize the initial cash outlay associated
with typical capital expenditures. Intersourcing customers purchase the right to
use UltiPro on an ongoing basis for a specific term in a shared or dedicated
hosted environment. The pricing for Intersourcing, including both the hosting
element as well as the right to use UltiPro, is on a per-employee-per-month
basis.
12
CERIDIAN SERVICES AGREEMENT
On February 10, 2003, the Company entered into a services agreement
with Ceridian Corporation ("Ceridian") (the "Ceridian Services Agreement") under
which Ceridian is required to pay Ultimate Software a total of $2.25 million in
four equal installments during each calendar quarter of 2003 in exchange for
additional services provided by Ultimate Software in 2003. The Ceridian Services
Agreement terminates on December 31, 2003. Ceridian paid the Company the first
installment of $562,500 during March 2003. Services revenue is recognized on a
straight-line basis from February 10, 2003 through December 31, 2003.
ORIGINAL CERIDIAN AGREEMENT
During 2001, Ultimate Software and Ceridian reached an agreement, as
amended in 2002, which granted Ceridian a non-exclusive license to use UltiPro
software as part of an on-line offering that Ceridian intends to market
primarily to businesses with under 500 employees (the "Original Ceridian
Agreement"). The aggregate minimum payments that Ceridian is obligated to pay
Ultimate Software under the Original Ceridian Agreement over the minimum term of
the agreement is $42.7 million. To date, Ceridian has paid to Ultimate Software
a total of $16.5 million under the Original Ceridian Agreement. The parties
expect the minimum term of the Original Ceridian Agreement to extend until March
2008.
COMPANY BACKGROUND
The Company is a Delaware corporation formed in April 1996 to assume
the business and operations of The Ultimate Software Group, Ltd., a limited
partnership founded in 1990. Ultimate Software's headquarters are located at
2000 Ultimate Way, Weston, Florida 33326 and its telephone number is (954)
331-7000. To date, the Company derives no revenue from customers outside of the
United States and has no assets located outside of the United States.
13
RESULTS OF OPERATIONS
The following table sets forth the Statement of Operations data of the
Company, as a percentage of total revenues, for the periods indicated.
For the Three Months
Ended March 31,
--------------------------
2003 2002
------ ------
Revenues:
License 8.4% 12.7%
Recurring 47.7 35.9
Services 43.9 51.4
------ ------
Total revenues 100.0 100.0
------ ------
Cost of revenues:
License 1.7 1.3
Recurring 15.9 17.8
Services 30.8 41.6
------ ------
Total cost of revenues 48.4 60.7
------ ------
Operating expenses:
Sales and marketing 28.4 41.4
Research and development 30.1 39.5
General and administrative 11.2 10.3
------ ------
Total operating expenses 69.7 91.2
------ ------
Operating loss (18.1) (51.9)
Interest expense (0.3) (0.6)
Interest and other income 0.1 0.3
------ ------
Net loss (18.3)% (52.2)%
====== ======
REVENUES
The Company's revenues are derived from three principal sources:
software licenses ("license revenues"), recurring revenues and services
revenues.
License revenues include revenues from software license agreements for
the Company's products, entered into between the Company and its customers in
which the license fees are noncancellable. License revenues are generally
recognized upon the delivery of the related software product when all
significant contractual obligations have been satisfied. Until such delivery,
the Company records amounts received when contracts are signed as customer
deposits that are included with deferred revenues in the condensed consolidated
balance sheets.
Recurring revenues include maintenance and subscription revenues.
Maintenance revenues are derived from maintaining, supporting and providing
periodic updates for the Company's software. Subscription revenues are
principally derived from per employee per month ("PEPM") fees earned through the
Intersourcing Offering, Base Hosting and the BSP sales channel, as well as
revenues generated from the Original Ceridian Agreement. Maintenance revenues
are recognized ratably over the service period, generally one year. Subscription
revenues are recognized ratably over the term of the related contract upon the
delivery of the product and services. All of the Company's customers that
purchased software during 2003 and 2002 also purchased maintenance and support
service contracts. Maintenance and support fees are generally priced as a
percentage of the initial license fee for the underlying products.
Services revenues include revenues from fees charged for the
implementation of the Company's software products and training of customers in
the use of such products, fees for other services, including the provision of
payroll-related forms and the printing of Form W-2's for certain customers, as
14
well as revenue generated from the Ceridian Services Agreement and certain
reimbursable out-of-pocket expenses. Service revenues are recognized as services
are performed and delivered.
Total revenues, consisting of license, recurring and services revenues,
increased 31.5% to $14.4 million for the three months ended March 31, 2003 from
$11.0 million for the three months ended March 31, 2002.
License revenues decreased 13.1% to $1.2 million for the three months
ended March 31, 2003 from $1.4 million for the three months ended March 31,
2002. The decrease in license revenues for the three-month period is primarily
due to a reduction in the number of units sold by the Company's direct sales
channel during the first quarter of 2003.
Recurring revenues increased 74.4% to $6.9 million for the three months
ended March 31, 2003 from $3.9 million for the three months ended March 31,
2002. The increase in the three month period is primarily due to (i) the
recognition of subscription revenue, beginning on August 28, 2002, under the
Original Ceridian Agreement, as amended from time to time, (ii) an increase in
maintenance revenues generated from incremental licenses sold in 2002 and, to a
lesser extent, (iii) revenues recognized pursuant to the Intersourcing Offering,
which was introduced in 2002.
Services revenues increased 12.5% to $6.3 million for the three months
ended March 31, 2003 from $5.6 million for the three months ended March 31,
2002. The increase in services revenues for the three-month period was
principally due to the revenue recognized under the Ceridian Services Agreement
beginning February 10, 2003, and, to a lesser extent, an increase in
reimbursable out-of-pocket expenses and an increase in training revenues.
COST OF REVENUES
Cost of revenues consists of the cost of license, recurring and
services revenues. Cost of license revenues primarily consists of fees payable
to a third party for software products distributed by the Company and, to a
lesser degree, amortization of capitalized software costs. Capitalized software
is amortized using the straight-line method over the estimated useful life of
the related asset, which is typically three years. Cost of recurring revenues
consists of costs to provide maintenance and technical support to the Company's
customers, the cost of periodic updates and the costs of subscription revenues,
including costs associated with the Intersourcing Offering and amortization of
capitalized software. Cost of services revenues primarily consists of costs to
provide implementation services and training to the Company's customers and, to
a lesser degree, costs, costs related to sales of payroll-related forms and
costs associated with reimbursable out-of-pocket expenses.
Total cost of revenues, consisting of license, recurring and services
revenues, increased 4.8% to $7.0 million for the three months ended March 31,
2003 from $6.6 million for the three months ended March 31, 2002.
Cost of license revenues increased 73.6 % to $243,000 for the three
months ended March 31, 2003 from $140,000 for the three months ended March 31,
2002 primarily due to an increase in third party fees. Cost of license revenues,
as a percentage of license revenues, increased to 20.0% for the three months
ended March 31, 2003 as compared to 10.0% for the three months ended March 31,
2002 principally due to lower license revenues.
Cost of recurring revenues increased 14.2% to $2.3 million for the
three months ended March 31, 2003 from $2.0 million for the three months ended
March 31, 2002. The increase in the three-month period was primarily
attributable to costs associated with the Intersourcing Offering, including
depreciation and amortization of related computer equipment, and increased costs
of maintenance revenues principally due to higher labor costs. Cost of recurring
revenues, as a percentage of recurring revenues, decreased to 33.4% for the
three months ended March 31, 2003 as compared to 49.6% for the three months
ended March 31, 2002. The decrease in the three-month period ended March 31,
2003 was primarily a result of the absorption of these costs into an increased
recurring revenue base.
15
Cost of services revenues decreased 2.7 % to $4.4 million for the three
months ended March 31, 2003 from $4.6 million for the three months ended March
31, 2002. The decrease in the three-month period was primarily due to lower
labor costs for implementation services. Cost of services revenues, as a
percentage of services revenues, for the three months ended March 31, 2003
decreased to 70.1% as compared to 81.0% for the three months ended March 31,
2002. The decrease in the three-month period was primarily due to a reduction in
the labor costs as well as an expanded services revenue base.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, sales
commissions, travel and promotional expenses, and facility and communication
costs for direct sales offices, as well as advertising and marketing costs.
Sales and marketing expenses decreased 9.9 % to $4.1 million for the three
months ended March 31, 2003 from $4.5 million for the three months ended March
31, 2002 primarily due to lower labor costs, including sales commissions. Sales
and marketing expenses, as a percentage of total revenues, decreased to 28.4% as
compared to 41.4% for the three months ended March 31, 2003 and 2002,
respectively. The decrease in the three-month period was primarily a result of
the combination of a reduction in labor costs and an increase in the total
revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of software
development personnel costs. Research and development expenses of $4.3 million
for the three-month period ended March 31, 2003 were consistent with the prior
year comparable period. A slight increase in labor costs, principally benefit
costs, was offset by a decrease in the amortization of capitalized software due
to the cessation of the capitalizable period for certain software. Research and
development expenses, as a percentage of total revenues, decreased to 30.0% for
the three months ended March 31, 2003 as compared to 39.5% for the period ended
March 31, 2002 principally due to the absorption of these costs in an increased
total revenue base.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries and
benefits of executive, administrative and financial personnel, as well as
external professional fees and the provision for doubtful accounts. General and
administrative expenses increased 43.2% to $1.6 million for the three months
ended March 31, 2003 from $1.1 million for the three months ended March 31,
2002. General and administrative expenses, as a percentage of total revenues,
increased to 11.2% for the three months ended March 31, 2003 as compared to
10.3% for the three months ended March 31, 2002. The increase in general and
administrative expenses was primarily due to an increase in the provision for
doubtful accounts and higher professional fees principally as a result of
compliance with recent corporate governance rules.
INTEREST EXPENSE
Interest expense decreased 26.4% to $53,000 for the three months ended
March 31, 2003 from $72,000 for the three months ended March 31, 2002. The
decrease in interest expense for the three-month period was primarily due to a
decrease in capital lease obligations.
INTEREST AND OTHER INCOME
Interest and other income decreased 50.0% to $20,000 for the three
months ended March 31, 2003 from $40,000 for the three months ended March 31,
2002. The decrease in interest and other income for the three-month period was
primarily due to the reduction of funds available for investment in 2003.
16
INCOME TAXES
No provision or benefit for federal, state or foreign income taxes was
made for the three months ended March 31, 2003 due to the operating losses and
operating loss carryforwards from prior periods incurred in the respective
periods. Net operating loss carryforwards available at December 31, 2002 expire
at various times through the year 2022, and are available to offset future
taxable income. The timing and levels of future profitability may result in the
expiration of net operating loss carryforwards before utilization. Additionally,
utilization of such net operating losses may be limited as a result of
cumulative ownership changes in the Company's equity instruments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations have historically been
insufficient to fund its operations. Shortfalls in cash flows from operations
have been funded primarily through the private and public sale of equity
securities and, to a lesser extent, equipment financing and borrowing
arrangements.
As of March 31, 2003, the Company had $8.4 million in cash and cash
equivalents, reflecting a net decrease of $0.6 million since December 31, 2002.
The working capital deficit was $10.7 million and $9.7 million as of March 31,
2003 and December 31, 2002, respectively. The decrease in working capital
resulted primarily from the funding of operations, partially offset by Recent
Capital Raised, as defined below.
Net cash used in operating activities was $2.8 million for the three
months ended March 31, 2003 as compared to cash provided by operating activities
of $4.4 million for the three months ended March 31, 2002. During February 2002,
the Company received $6.0 million from Ceridian as a prepayment by Ceridian of
minimum guaranteed payments for 2003 due to the Company pursuant to the original
Ceridian agreement, as amended from time to time. During the three months ended
March 31, 2003, the Company received $0.6 million from Ceridian pursuant to the
Ceridian Services Agreement.
Net cash used in investing activities totaling $0.6 million for the
three months ended March 31, 2003 was consistent with the prior year comparable
period due to similar capital expenditures for both periods.
Net cash provided by financing activities for the three months ended
March 31, 2003 was $2.8 million as compared to net cash used in financing
activities of $0.7 million for the three months ended March 31, 2002. The
increase in net cash provided by financing activities was primarily due to the
proceeds from Recent Capital Raised.
During the first quarter of 2003, the Company raised an aggregate total
of $3.2 million of capital through the private sales of 800,000 shares of the
Company's Common Stock and warrants to purchase 80,000 shares of the Company's
Common Stock at $4 per share ("Recent Capital Raised"). As the Company's revenue
mix shifts from license revenue to recurring revenue, particularly through the
Intersourcing Offering, and cash inflow consequently shifts from relatively
large, one-time upfront payments to recurring monthly payments, the Company may
continue to seek to raise additional funds through the sale of additional shares
of Common Stock or other securities.
The Company has a revolving line of credit (the "Credit Facility") with
Silicon Valley Bank, which is secured by all of the Company's assets, including
a negative pledge on intellectual property, and bears interest at a rate equal
to Prime Rate plus 1.0% per annum (reduced to Prime Rate plus 0.5% per annum
upon two consecutive quarters of net profitability). The Credit Facility
provides working capital financing for up to 75% of the Company's eligible
accounts receivable, as defined, financing for eligible equipment purchases for
up to $2.5 million with additional limits for software purchases, and stand-by
letters of credit for up to $0.5 million. The maximum amount available under the
Credit Facility is $5.0 million. The Credit Facility, as amended, expires on May
28, 2004. As of March 31, 2003, the Company had $1.2 million outstanding under
the eligible equipment purchases portion of the Credit Facility, with an
aggregate of $3.8 million available under the Credit Facility. The Company was
17
not in compliance with the Quick Ratio financial covenant of the Credit
Facility, as defined in the Credit Facility (the "Quick Ratio"), for the month
ended March 31, 2003. On April 29, 2003, the Company and Silicon Valley Bank
amended the Credit Facility to modify the Quick Ratio by reducing the
requirement from a ratio of 2.0 to 1.0 to 1.75 to 1.0. This loan modification
was effective for the month ended March 31, 2003 and each month thereafter
through the revised expiration date of May 28, 2004. As a result of the loan
modification, the Company is in compliance with all debt covenants pursuant to
the Credit Facility, as amended from time to time. Under the terms of the Credit
Facility, no dividends may be paid on the Company's Common Stock without the
consent of Silicon Valley Bank.
The Company believes that cash and cash equivalents, cash generated
from operations, including Recent Capital Raised, and available borrowings under
the Credit Facility will be sufficient to fund its operations for at least the
next 12 months. This belief is based upon, among other factors, management's
expectations for future revenue growth, improvements in gross margins,
controlled operating expenses and collections of accounts receivable. However,
as discussed above, the Company may seek to raise additional funds during such
period through the sale of additional shares of Common Stock or other
securities. There can be no assurance that the Company will be able to raise
such funds on terms acceptable to the Company.
QUARTERLY FLUCTUATIONS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results may fluctuate as a result
of a number of factors, including, but not limited to, increased expenses
(especially as they relate to product development and sales and marketing),
timing of product releases, increased competition, variations in the mix of
revenues, announcements of new products by the Company or its competitors and
capital spending patterns of the Company's customers. The Company establishes
its expenditure levels based upon its expectations as to future revenues, and,
if revenue levels are below expectations, expenses can be disproportionately
high. A drop in near term demand for the Company's products could significantly
affect both revenues and profits in any quarter. Operating results achieved in
previous fiscal quarters are not necessarily indicative of operating results for
the full fiscal years or for any future periods. As a result of these factors,
there can be no assurance that the Company will be able to establish or, when
established, maintain profitability on a quarterly basis. The Company believes
that, due to the underlying factors for quarterly fluctuations, period-to-period
comparisons of its operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs,
including, but not limited to, statements concerning the Company's operations
and financial performance and condition. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
are intended to identify such forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. The Company's actual
results could differ materially from those contained in the forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those discussed in the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations as well as those discussed in the
Company's Form 10-K, including Exhibit 99.1 thereto. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of its operations, the Company is exposed to
certain market risks, primarily interest rates. Uncertainties that are either
non-financial or non-quantifiable, such as political, economic, tax, other
regulatory or credit risks are not included in the following assessment of the
Company's market risks.
INTEREST RATES. Cash equivalents consist of money market accounts with
original maturities of less than three months. Interest on the Credit Facility,
as amended, which expires on May 28, 2004, is based on Prime Rate plus 1.0% per
annum. As of March 31, 2003, $1.2 million was outstanding under the Credit
Facility and the interest rate was 5.75% per annum. Changes in interest rates
could impact the Company's anticipated interest income from interest-bearing
cash accounts, or cash equivalents, as well as interest expense on current and
future borrowings under the Credit Facility.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within the 90
days prior to the filing date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer (the "CEO") and the Chief
Financial Officer (the "CFO"), of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Securities Exchange Act of
1934 Rule 13a-15. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and procedures
are effective in timely alerting them to material information required to be
included in the Company's periodic SEC reports. In addition, there have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect those controls subsequent to the date of their
evaluation, including any corrective actions with respect to significant
deficiencies or material weaknesses. It should be noted that the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant
changes in internal controls or other factors that could significantly affect
our internal controls subsequent to the date of such evaluation.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
10.10 Fourth Loan Modification Agreement dated April 29,
2003 by and between the Company and Silicon Valley
Bank
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
No report on Form 8-K was filed with the SEC during the quarter ended
March 31, 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ULTIMATE SOFTWARE GROUP, INC.
Date: May 14, 2003 By: /s/ MITCHELL K. DAUERMAN
--------------------------------
Executive Vice President, Chief
Financial Officer and Treasurer
(Authorized Signatory and
Principal Financial and
Accounting Officer)
20
CERTIFICATIONS
I, Scott Scherr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Ultimate Software
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
the Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ SCOTT SCHERR
- ---------------------------------
Scott Scherr
Chief Executive Officer
21
CERTIFICATIONS
I, Mitchell K. Dauerman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Ultimate Software
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
the Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ MITCHELL K. DAUERMAN
- ---------------------------------------------
Mitchell K. Dauerman
Chief Financial Officer
(Principal Financial and Accounting Officer)
22