Letter to Shareholders

Fellow Shareholders,

We executed on our growth strategy in 2017. Total revenues were up 20% to $941 million and recurring revenues were up 23% to $802 million, both compared with 2016 and both record highs. These results give us confidence that we will achieve what we call our ‘Fifth Championship’ in 2018—surpassing $1 billion in total revenues—and lay the foundation for us to achieve our ‘Sixth-Championship’ of $2 billion in the year 2022.

Sales finished the year strong, giving us what we need to achieve our 2018 goals, and they set the table for a successful 2019. Our sales management leaders and infrastructure are today the same as they were entering 2017, and for the first time since 2008, we are not changing the territory parameters. Our Enterprise team remains focused on companies larger than 2,500 employees in size, and our Midmarket and Strategic teams cover companies with 300 to 2,500 employees.1

Our sales teams believe, as I do, that we are on the cusp of a tipping point for Ultimate, and they are at the forefront of making it happen. Their longevity with Ultimate continues to be a powerful differentiator for us and translates to product and industry expertise unmatched in the human capital management (HCM) marketplace.

Our marketing metrics quantify the strength of our positivity about future growth and are the most impressive we have ever had. For the 2017 year, we had a record number of campaign responders from companies with 300+ employees tell us they are looking to buy a new HCM solution within the next 12 months—a 52% increase over 2016 and our largest annual increase ever. For the fourth quarter of 2017 alone, the number of these looking-to-buy-in-12-months-or-less responders increased by 91% compared with 2016’s fourth quarter. In our thought leadership workshops that we held across the United States in 2017, we had an 84% increase in the number of attendees who said their companies are looking to buy a new HCM solution within 12 months. Excluding our customers and employees, unique visitors to our company website in 2017 increased 25% over 2016 while our search engine-generated traffic increased 90% over 2016 and was our best year ever.

52%

Increase

In prospects
Looking to Buy
within the next
12 months

Our 2017 media exposure increased 222% versus 2016’s. Ultimate was featured as a thought and practice leader in The Wall Street Journal, The Washington Post, and magazines such as Forbes, Entrepreneur, CIO, Inc., and Fortune on topics about workplace communication, culture, corporate responsibility, employee benefits, diversity, artificial intelligence, successful corporate growth strategies, and trends in 401(k) employer matching. The announcement of Ultimate’s sponsorship of the Miami HEAT jersey and our associated joint activities, in particular, was covered in 274 articles in publications such as USA Today, The Washington Post, MSN, and ESPN for a combined media reach of 370.3 million in one day.

2017 was a milestone year for our product development team. In addition to a successful rollout of our UltiPro fall release with 360 new features, including 55 created from customer ideas, our team continued its track record of innovation and leadership in HCM with the introduction of XanderTM, our new artificial intelligence platform that instantly analyzes free-form text from employees’ open-ended survey answers and deciphers more than 100 emotions, 70 workplace themes, and the overall sentiment of an individual employee or group, expanding the predictive and prescriptive capabilities already in UltiPro and giving management teams invaluable insights.

Our product development team also introduced UltiPro Connect, the new hub for our partner ecosystem where our partners can publish integrations for customer consumption after testing them in our sandbox environment. The benefit to our customers is reduced time and costs to integrate and extend our solutions because they can access the UltiPro Connect marketplace to browse available partner applications and services, build their own integrations without having to start from scratch, leverage knowledge from the community, and more.

We survey our customers twice a year to ask for their feedback. In our Fall 2017 survey, we had our highest participation rate ever—70% compared with 66% in our Fall 2016 survey. Of the live customers surveyed, 92% indicated they are satisfied or extremely satisfied with our core UltiPro products.

In January 2018, Ultimate was honored to be ranked #1 in the Large Company category of Fortune magazine’s 2018 list of 40 Best Workplaces in Technology, making this our third consecutive year to be recognized as #1. Rankings were based on survey responses from more than 79,000 employees at technology companies across the United States. We were also honored to be ranked #2 on Indeed.com’s 2017 Best Companies to Work at in the US and #10 on Glassdoor’s Large Company list of Best Places to Work in 2018. In February 2018, Fortune ranked Ultimate #3 on its 2018 100 Best Companies to Work For list, marking our seventh consecutive year in the top 25 on this respected list.

2018

Goal,

$1 Billion
in total
revenues

Looking back at 2017, a number of additional honors reflect our focus on people and validate our belief that an environment of trust and collaboration leads to innovation and business success. People magazine ranked Ultimate #2 on its list of Companies That Care. Forbes ranked Ultimate #7 on its 2017 list of the 100 Most Innovative Growth Companies. All key HCM analyst firms ranked Ultimate a leader—Gartner in its Magic Quadrant, Forrester in its Wave, and Nucleus Research in its HR Value Matrix.2 The National Customer Service Association named Ultimate’s services team Service Organization of the Year in the Large Business category for 2017. Forbes, in partnership with Just Capital, named Ultimate to its list of The Just 100: America’s Best Corporate Citizens, after analyzing 1,000 publicly traded companies to determine the companies with the best and ‘most just’ business behavior based on seven metrics. (For more detail on awards and recognition, see the Business Highlights section of this report.)

Our ‘People First’ culture is rooted in trust and drives our business success. We compete for and hire the industry’s most talented people. We take care of them like family, and we entrust them to create products and services based on this fundamental principle. At the close of 2017, we had 4,208 UltiPeeps. Our employee retention rate was 94% for the year and is unusually high for the technology sector. Our people-centric culture inspires game-changing thinking. It inspires innovation, collaboration, and listening. The proof is in our UltiPro offering—the industry’s finest set of HCM products and services on the market today, in our view. With more than 4,100 organizations as customers and 37 million people records in our Ultimate cloud, we believe we continue to lead the cloud industry in numbers of customers using a unified human resources, payroll, talent, and time and labor management solution suite.

We look forward to topping our total revenues objective of $1 billion in 2018. We are continuing to expand the infrastructure we have been working on for the last two years to position us to achieve $2 billion in total revenues in 2022. We have long-tenured leaders and team members in place, we have award-winning solutions bettering the work lives of the people using them, and we have many passionately supportive customers who are eager to share their customer experiences. At the same time, we have the energy and vision of positivity typical of a young company committed to forging new pathways in all that we do.

"My father
taught me about
running a successful
business: Make your
people your No. 1
priority, and the
rest will follow."

-SCOTT SCHEER

A 2017 Forbes'
Quote of the Day

We thank you, our shareholders, customers, employees, and partners for your continuing support.

Signature of Scott Scherr

SCOTT SCHERR

Chairman of the Board,

Chief Executive Officer, and Founder

"My father
taught me about
running a successful
business: Make your
people your No. 1
priority, and the
rest will follow."

-SCOTT SCHEER

A 2017 Forbes'
Quote of the Day

Headshot of Scott Scherr
Milestones Financial Highlights