Ultimate Software (ULTI) reported revenues of $52.3 million, up 5% year over year. Recurring revenues (primarily consisting of Intersourcing revenues and Maintenance revenues) came in at $35.7 million, up 24% from a year ago.

Service revenues came in at $15.9 million, beating management’s expectations. License revenues came in at $0.6 million for the quarter. Gross margin was 55.1%. Operating margin came in at 8% compared to 9% in the year-ago quarter.

Net income came in at $0.1 million or break-even earnings per share compared to a net income of $0.6 million or 2 cents per share in the year-ago quarter. Quarterly net income missed the Zacks Consensus Estimate of 2 cents per share.

For 2009, revenues increased 10% year over year to $196.6 million. Recurring revenues increased 25% to $133.4 million. Recurring revenues as a percentage of total revenues increased to 68% from 60% last year. Client retention rate remained strong at 97%.

During the quarter, Ultimate generated $7.3 million of cash from operations and repurchased 188,600 shares for $5.0 million. The company also used $1.8 million in capital expenditures. As of December 31, 2009, Ultimate had 1,014,575 shares left under its stock repurchase plan. At the end of the quarter, Ultimate had $33.2 million of cash and short-term investments. Deferred revenues were $68.6 million compared to $63.5 million a year ago.

Outlook

Going forward, management expects revenues of $55 million in the first quarter of 2010. Recurring revenues are projected at $39 million. Operating margin is estimated to be 6%.

For 2010, management expects revenues to increase approximately 18%. Recurring revenues are estimated to increase by approximately 27% in 2010 and should represent 27% of total revenues. Gross margin is projected between 15% and 18%. License revenues are estimated to come at $1.4 million. Operating margin is forecasted to come at 10%.

Ultimate Software is well positioned to take advantage of the growth in on-demand payroll systems. We believe the company will be able to grow in the long term, given its strong annual recurring revenue bookings.

Headquartered in Florida, Ultimate Software delivers Web-based payroll and employee management solutions to organizations of all sizes within the U.S.

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