Ulti, AI and me

I was listening to a Rule Breakers (public) podcast and David “rerecommended” ULTI, so I started following it. Also, my company recently spun my division off into a standalone entity (actually purchased by private equity). I was hoping we would finally get some cool, new software instead of that old PeopleSoft crap. Well I just found out we will be using ULTI for our benefits and paycheck management.

Now, going back to the AI thread of a while back, the site says this:

Artificial Intelligence and Machine Learning
Built on natural language processing and machine learning, Ultimate’s AI platform enables UltiPro to automatically understand, predict, and prescribe personalized actions from relevant HCM data within the solution, helping organizations better understand their people and drive change.

  • it is everywhere. (also see Facebook messenger as used by TDAmeritrade chatbot for more AI)
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I bought a starter position in ULTI a couple weeks ago after hearing that podcast and doing research on the company.

What I like:

-P/S ratio of 7 vs WDAY at 14 and PAYC at 14.
-number 1 rated HRM cloud software.
-Growing at 20%
-rated one of the best companies to work for at Glassdoor
-large TAM


From the last earnings announcement:

Financial Outlook

As a result of our strong Enterprise sales going upmarket in 2016 and 2017, the time-to-live periods in the backlog have expanded by 2-3 months. We also experienced the same business effect with our Mid-Market sales for which the related backlog expanded by 1-2 months. This extension of time-to-live periods caused the revision to our financial guidance for the second half of 2017, which impacted our full-year guidance for 2017. It is important to note that the extension of the time-to-live periods does not change the overall value of recurring revenues from these customers and is essentially a timing issue.

They are getting larger customers and it is taking longer to implement their software. If I determine they are handling the upmarket move well I will add to my position.

long ULTI


The growth ratings are:

Composite Rating 74 Fail
EPS Rating 90 Pass
RS Rating 20 Fail
Group RS Rating A Pass
SMR Rating A Pass
Acc/Dis Rating B- Pass

3 years sales growth only 24%, A little low.
3 year EPS growth 23%, also a bit low. only 1 Q of EPS growth acceleration.
1 Q of increasing fund ownership.

They are ranked #20 in their stock group, higher rated in the group are:

RS is obvious when you look at the chart, so from a short-term speculator point of view you would not be interested in this stock, but from a long term Rule Breaker’s point of view, RS is meaningless.

Article from the 8/2/17 earnings release:
Shares of Ultimate Software Group (ULTI) plunged after the enterprise software provider reported second-quarter revenue that missed views and cut its full-year guidance.

Ultimate stock fell 11.9% to 200.01 on the stock market today.

Ultimate, which specializes in HCM SaaS — human-capital management software as a service — cited a change in expectations involving large accounts that will push out revenue recognition.

In the June quarter, Ultimate said it earned 93 cents, up 22% from a year earlier, with revenue rising 20% to $224.7 million. Analysts had projected sales of $228 million and profit of 91 cents.

“The company lowered its recurring revenue guidance by roughly $20 million for the second half, driven by longer-than-expected implementation time frame, and it now expects roughly 22% recurring revenue growth for 2017, down from the prior view of ‘in excess of 25%,’ and total revenue growth of approximately 20%, compared with its earlier view of 24%,” said Justin Furby, a William Blair analyst in a report.

Next earnings due: 11/1, so if you think there is a turnaround then buy soon. If they are going to have systemic problems with larger integrations, then lots of trouble down the road.

I think I will go ahead and add this to my “DG Strategy” portfolio, whereby I buy a fixed amount of each David Gardner new rec (2RB and 1SA) per month and then also buy the occasional old rec when something comes along.

For this board, it is likely they don’t have the consistent growth we would be looking for.

FYI BLKB was also on this podcast and they jumped after earnings. OA was on the podcast and was bought out the next day.

NuVasive had a nice little pop after earnings, and still has lots of room before it reaches new highs.

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