Competitive Analysis September 2008

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Ultimate Software

Company Overview

Ultimate Software has been in business since 1990 and has been publicly traded for 10 years (NASDAQ: ULTI) The company realized revenue of $151 million in 2007 and has approximately 850 employees

Ultimate provides strategic HR, payroll, and talent management solutions for organizations of all sizes The company serves approximately 1,600 customers representing more than 3 million employees

The company feels it offers both the best software and support Among their proposed product differentiators is the fact that Ultimate has joined all the product functions onto a single database, while competing products typically have a database for each separate function, such as payroll, HR, recruiting, performance management, succession planning, onboarding, salary planning, and time and attendance

Ultimate feels it is very different from other organizations The President and CEO came from ADP in 1990 and designed the application to address ADP’s shortcomings Ultimate voluntarily compares itself to ADP in pre-sales discussions The company continues to invest heavily in research & development and customer service

This analysis will focus on Ultimate’s UltiPro solution, which is offered as both a software license and an SaaS model, which the company refers to as Intersourcing Details of both these offerings are contained in this analysis

Sales Channel Mix

Ultimate Software markets and sells its products and services primarily through its direct sales force Currently, only Epicor is a reseller for software licensing Ultimate also has a few existing OEM customers but no longer takes on new ones The CEO feels that using OEMs is “supporting potential competitors ” In addition, Ultimate uses PEOs (Professional Employer Organizations) for outsourcing workers’ compensation insurance and other items for its Intersourcing customers

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Section A: Licensed Software Offering

UltiPro Pricing Structure

The core software licensed product includes the following functionality: Payroll Administration • Human Resources • Benefits Administration •

Recruiting & Staffing •

Training Programs •

Standard Reports Library • eAdministration • eSystem Administration • COBRA Compliance • FMLA Tracking • Performance Tracking •

Health & Wellness Tracking •

OSHA/Worker’s Compensation •

Enterprise Integration Tools • eTime Entry • eStandard Reports • eEmployee Self-Service • eManagement • eBenefits Enrollment •

eTraining Schedules & Enrollment • Compensation Management • Training Management • Rapid Pay • Cognos Catalogue •

UltiPro is offered as a licensed purchase for larger organizations (typically >1,000ee) Software license pricing for the core product is approximately $70,000 at the 500ee level, and $110,000 at the 1,000ee level

*Pricing includes five UltiPro concurrent users and five Congnos Impromptu named users.

Salary, Budgeting, Recruiting, Time and Attendance, and Onboarding are add-on modules Of those, only Time and Attendance is licensed; Onboarding, Performance, and Recruiting must be purchased as a hosted solution Software license pricing for the Time and Attendance module is approximately $55,000 at 500ee and $85,000 at the 1,000ee level Software license pricing for the Hosted Add-on modules are approximately $5ee as a one time set-up fee and $1ee monthly fee for recruiting, performance and on-boarding

As clarification, Ultimate offers two different recruiting tools: Recruiting & Staffing, contained in the core solution; and a Recruiting add-on module The big difference is functionality The recruiting and performance section in the core product is just for tracking purposes For example, there is no applicant interface Applicants can be tracked, but they have to be keyed into UltiPro core

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However, with the add-on modules, a full package is delivered including full applicant tracking, and an on-line application Key features of the Performance Management add-on module, include 360-degree peer review and on-line performance appraisals

With a software license sale, the contract terms typically include a license agreement for the product, an annual maintenance agreement, per-day training rates, and hourly charges for implementation Typical payment terms include a deposit at the time the contract is signed and additional payments on specific payment dates designated in the contract Payment for implementation and training services under the contract is typically made as such services are provided

Ultimate offers a Time and Attendance add-on module through a strategic partnership with Infor Corporation (formerly Workbrain Corporation) Ultimate has the right to market and distribute Infor’s Time and Attendance product as part of the UltiPro solution Ultimate Software has rebranded Infor Express as “UltiPro Time and Attendance ” Software license pricing for the Time and Attendance module is approximately $55,000 at 500ee and $85,000 at the 1,000ee level

Time clocks are available for $680 to $2,600, per clock, depending on type Other talent management modules such as Recruitment, Performance Management, and On-boarding are offered as add-ons, but are only offered as a hosted solution These are each priced at $1 PEPM (per employee per month), plus a one time set up fee of $5 per employee, per module Software license pricing for the core product is approximately $70,000 at the 500ee level and $110,000 at the 1,000ee level

Software Core Product Implementation Fees

Implementation costs are based on company profile Ultimate claims it needs to have a potential customer complete a survey in order to provide accurate implementation pricing However, the company provided general estimates of implementation pricing The implementation might be as little as $30,000 or as much as $100,000 The variables would be the number of employees and the amount of history

In terms of what exactly is included, Ultimate allows customers to decide what tasks they need help with and what tasks they can do themselves or do not need Ultimate then works up a price based on the exact needs of each customer There is no standard set of included (or not included) items as everything is specific for each customer

Ultimate prefers not to use the Big Bang method of implementation (i e everything implemented at once) Ultimate puts together a Project Plan based on what it feels will be needed for

implementations, but if along the way modifications are needed (e g the client doing the conversion by itself), Ultimate is open to that The company prefers to use a phased approach that usually takes three or four months Implementation begins with a kickoff meeting Customers fill out the client analysis tool and Ultimate then spends several days digesting the information Ultimate says it employs best practices and expertise derived from former payroll managers and consultants Configuring the product properly from the ground up ensures that it works well out of the gate Because of this, Ultimate claims that its customers are usually willing to serve as a reference on the first day they run a payroll The product is configurable to meet customer requirements while remaining in compliance

A standard implementation includes connecting the customer to its insurance and benefits carriers through Ultimate’s Benefits Carrier Connection Service

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Ultimate assumes there will be three to five benefit carriers it will need to connect to More than likely, Ultimate will already have connected to those carriers in the past and will simply have to modify the fields The 401(k) provider, benefits, and insurance providers are the most difficult ones, but for the most part, Ultimate has already worked with them The bottom line is that the standard implementation includes the interfaces to those providers

Pricing for What is Not Included in the Core Product Implementation

Activating employee and manager self-service is an additional cost As a side note, many clients self-implement manager and employee self-service to lower their cost Time and Attendance is |very unique, and is really dependent on how many pay policies and overtime rules that a customer may have For up to about 500 employees, Time and Attendance implementation is estimated to be approximately $40,000 Performance, Recruiting, and On-boarding implementation also depend on the company’s specific requirements, and typically cost between $12,000 and $18,000 for each module

Training is always a separate fee on top of implementation Ultimate does offer Web classes (some fee-based and some free) It also has user conferences that have very detailed training But, on average a customer will spend 12 to 18 days in training at a rate of $595 per day On the low end, training costs are about $7,000 It is usually the Administrator that needs to be trained and he then uses the “Train the Trainer” method to educate everyone else People that run reports may want to also take a class directly from Ultimate

Any additional items would be priced at Ultimate’s hourly rate of $165 per hour

Services Included in Implementation Fees

The details of any implementation plan are fully discussed beforehand, but in general, functions such as setting up employee benefit plans, attendance plans, and loading balances are all included in a regular implementation The plan might include 80 hours or 600 hours, depending on how much work the customer’s team will undertake Balances can then be imported from other applications

Data can be imported and cleaned up Some organizations prefer to do that on their own to reduce implementation time Ultimate can provide a turnkey implementation following a detailed analysis, or rely on the customer for some aspects of the project

Configuration Activities

In terms of matching the Ultimate configuration to a particular customer’s organizational set up, Ultimate claims it can readily do this First, it maps the company’s organizational structure into divisions, units, or whatever system the company uses Customers can then run reports on divisions, units, or even a particular manager All of that is built into the UltiPro system Ultimate claims it has yet to see a configuration that it could not manage

History Data Loading by Ultimate

Loading history data, which is included in standard implementations, is billed at the company’s standard hourly rate of $165 per hour Ultimate will load as much history as the customer wants Some customers have Ultimate load upwards of five or seven years history, which obviously requires more hours of Ultimate’s time It is not so much a case of simply importing historical data, but rather “getting rid of the garbage ” What customers reportedly love about Ultimate is that they start clean and then build everything from there, as opposed to having to deal with the old inefficiencies from their previous solution Ultimate points out that implementation may prove to be a great time to change processes that the customer previously used

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Pricing Structure for Software Support

The 20-percent maintenance fee for software licensing includes all updates, upgrades, and patches, as well as customer support Pager support is available 24/7

Ultimate offers only a single support level However, there are “critical levels” that generate a faster customer support response time For example, payroll is considered a critical function, so if a customer cannot run payroll, Ultimate will try to respond within 10 or 20 minutes Two hours is the maximum response time for any call ticket

Discounting

The software license pricing provided above is what Ultimate considers to be “heavily discounted ” For example, the standard list price for 1,000 employees using UltiPro is $149,750 The discounted price is $110,000, which represents a 27 percent discount off of list price Ultimate considers this as a “fairly lean” margin for the company, and it reminds customers that there have been times when Ultimate has had to walk away from deals where the margins were too lean Heavier discounts begin at the 5,000 employee level for software licensing

With regard to discounting for Time and Attendance, Ultimate states that it has to pay a royalty to Infor (Workbrain) for each sale Therefore, the price does not go much below $85 per employee at higher employee levels Ultimate does not typically sell Time and Attendance to companies under the 500 employee level That is why the price per employee is so high at the lower levels: $283 per employee for 150 employees, and $110 per employee for 500 employees

Ultimate salespeople are not afraid to take anything to their managers However, this only happens when the customer is showing serious purchase interest At the end of fiscal quarters it becomes a bit more competitive Ultimate does not have additional flexibility, though, when it comes to additional modules, such as the dollar-per-employee, per month for Performance and Recruiting Those are fairly firm prices

Ultimate feels it has an unbelievable service/support model The company will not compromise this model simply to get a big-name customer In order to support all of this, discounts are capped

Managed Hosting Option

A second model, whereby a customer purchases the software and Ultimate hosts it, is also available This method makes sense for customers wanting to make a capital purchase with the possibility of eventually bringing the application in-house The pricing for this option is as follows:

Managed Hosting Option Pricing

Setup Fee $25/employee

Host Fee $2 50/PEPM

Implementation and Professional Services $165/hour Education Services and End-User Training $595/person/day

The $2 50 PEPM charge is for Payroll and HR only Benefits, Self Service, Self Service Manager, Time and Attendance, and so forth, would be additional

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There are infrastructure costs (setup fees) associated with hosting Ultimate goes and buys the hardware and tools itself, and then refreshes that hardware every two years In order to cover these costs, hosting customers pay a one-time initial set up fee of $25 per employee for infrastructure setup Were new employees to be added (say from 1,000 to 1,020), an invoice would be sent at the end of the quarter for those new 20 employees being added to the baseline Customers do not pay for replacement employees— except for when the total number of employees increases above the baseline

Applications are hosted in Ultimate’s hosting centers in Atlanta and Miami, and both hosting centers have strong redundancy backup

There is a two-year commitment on the hosting option at Ultimate No discounts are typically given for longer contracts, but reps may be willing to take the issue to Ultimate management for further discussion on a case-by-case basis Ultimate boasts a very high client retention rate of 98 percent, so it is willing to go far to keep their clients happy

Software Positioning

Ultimate would find it difficult to be competitive at levels below 500 employees for software licensing The sweet spot is at about 2,000 employees The company typically refers small companies to its Intersourcing solution, which it calls its small business model

With regard to ADP and Ceridian, Ultimate feels they are great for small employers, but for any company with more than 1,000 employees, cost issues start being encountered Additionally, the issue of service enters the picture when dealing with ADP

Relative Competitive Strengths

Ultimate’s key differentiator is that everything is fully integrated The company claims that the extent of this integration is unique Competitors speak of integration, but in reality only offer interfaces Ultimate claims to be the only vendor with a truly integrated solution Ultimate’s data resides in a single table If HR is touched, Payroll is automatically updated, and vice versa Multiple users can work in the same database and record Anything saved is immediately made available to all other users In other words, Ultimate claims that its application is “truly” integrated by offering real-time information rather than serving as an interface that must be run after hours or every couple of hours before updates can be made

In terms of other facets supposedly making it “unique,” Ultimate has the best of both worlds: a great product with many awards and a superior service model The company has been voted the number-one place to work among organizations with fewer than 1,000 employees Ultimate says this is a statement of how well the company founder treats employees The company’s vision is that if good employees take care of customers, the customers will remain and the company will prosper The company has a 98 percent client retention rate and a 99 percent employee retention rate Ultimate can easily find reference customers

Other competitive strengths include: Reporting .

• Customers can run real-time reports anytime or can schedule them to automatically run and be delivered

Flexibility .

• Customers have complete control of their data Payroll .

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Perceived Key Competition

Among the key competitors named by Ultimate Software staff are ADP, Paychex, Lawson, SAP, and PeopleSoft/Oracle The company’s annual report also names Ceridian and Kronos as primary competitors

About 60 percent of Ultimate’s 2007 business came from ADP The company also has success against Ceridian Larger players such as PeopleSoft, Oracle, and SAP may beat Ultimate, but only because they have international and financial capabilities Ultimate concentrates on Payroll and HR in the United States and Canada

When faced with head–to-head competition, Ultimate invites customers to visit its hosting center in Miami The company contends that customers that visit the Miami center are more likely to purchase the product

Prospective customers are advised to listen to expert third-parties rather than salespeople The company uses a 2006 Forrester report in its sales presentations to show potential customers how Ultimate compares to competitors, such as ADP and Lawson

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Section B: Subscription “SaaS” Offering

Overall SaaS Pricing Model/Structure

SaaS product is the same software as the licensed product There are two SaaS packages: “Workplace” for 200-700ee and full “Intersourcing” for >1000ee

UltiPro Core Intersourcing includes the following functionality for a base list price of $12 PEPM: UltiPro’s Business/Employee Portal

•

Benefits Administration •

UltiPro Business Intelligence • Payroll Processing • Employee Self-Service • Administration •

Tax Filing & Wage Garnishment Processing •

PC Timesheet Entry •

New Hire Reporting •

General Ledger Reporting •

Human Resource Management •

Standard and Ad-hoc Reports Library •

Cognos 8 Report Writer •

Unlimited Document Archiving •

W-2 Print Services •

Data Exchange Services for 4 File Transfers (Health &Welfare Benefit Carrier, 401k, •

Tax filing, and Direct Deposit )

The employee portal included in the core package allows employees to type in their own

information, upload photos, and fill out any required forms for insurance or Social Security Ultimate explains that the portal is just a way for employees to get information Employees can choose their preferred language, such as English, Spanish, or French, and that language will be displayed during every session

Typical pricing for the core solutions Intersourcing monthly subscription is $11 at the 150 and 500ee levels and $10 at the 1,000ee level

Add-ons to the UltiPro Core include the following: Time and Labor Management .

• $4 PEPM UltiPro Time and Attendance tracks time and attendance labor metrics and supports a variety of time-capture mechanisms

Performance Management .

• $1 PEPM With this component, users can have 360-degree reviews, 180-reviews, and client-facing reviews Employees that work with clients are rated by those clients, and users can align it with corporate goals to drive revenues For instance, a plan could be put together to encourage an employee to read certain books The employee could complete a journal on what is being done each day, week, month, or quarter The goal would be to reward employees who are doing well and driving revenue to the organization

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Recruitment Management .

• $1 PEPM This option, also referred to occasionally as

eRecruitment, is essentially a job page If users enter information into Monster, Ultimate can set up a link on Career Builder Users can click on it and it displays in their job page Career Builder and Monster charge for resume management and it can be quite expensive This way, it is the user’s data Ultimate states they might as well have it rather than storing it on Career Builder

Manager Self Service .

• $1 PEPM This option gives managers access to employee information As authorized through UltiPro’s roles-based security, managers can view and change staff data independently Manager Self-Service must be included if the customer wants a Time and Attendance system Customers must be able to view employee schedules If Time and Attendance is not needed, Manager Self-Service would not be included

Benefits Enrollment .

• $1 PEPM UltiPro Benefits Enrollment allows employees to review their benefit choices and make selections on the Web Benefits administrators have tools to monitor enrollment progress

Compensation Management (Salary Planning & Budgeting) .

• $1 PEPM This often

replaces the Excel spreadsheets used to track employee raises The entire process is automated Ultimate claims that HR and finance love the capability because it replaces paperwork

Time Clocks .

• One-time purchase cost varies based on type of clock Barcode, Proximity, Fingerprint Scanner from $680 to $2,600 per clock

HR and Payroll

HR and Payroll are both part of the core solution under the Intersourcing model These two modules are not bundled together as a pair, but rather are bundled with other modules as part of the core solution HR and Payroll are only available as part of the core solution for Intersourcing and cannot be purchased separately

Minimum Contract Terms

The minimum contract term for Ultimate is 24 months Initial contracts are for two years 99 9 percent of the time, but upon expiration, contracts renew for one year intervals No price breaks are available for longer term contracts However, the company says it will renegotiate fees at each renewal

Software Implementation Fees

Install, Set-up, Configuration, and Customization Process

Ultimate claims to have a “unique” implementation process In terms of the general features included in a SaaS implementation, Ultimate outlines the following:

The employee master file information is loaded into the system •

Employees are trained on their specific tasks •

Ultimate sets up a week-to-week chart that shows what Ultimate and the customer are •

expected to deliver Most customers prefer weekly meetings to review progress

The implementation staff has a limited workload and is paid according to the customer’s evaluation All of the requested functionality is made available at the same time Ultimate prefers to get everything up and running at one time so the implementation of the additional capabilities does not extend for six or eight months

Ultimate Intersourcing implementations average between six and ten weeks, depending on the amount of assistance the customer can provide Some implementations take as little as two weeks

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Ultimate’s implementation process is designed to allow customers to quickly begin use of UltiPro core payroll, benefits, and human resources functionality The up-front implementation fee provides one complete implementation phase Any subsequent phases are an additional cost on a time-and-materials basis The implementation occurs virtually and is divided into seven phases Below is a list of services, deliverables, and customer responsibilities associated with each phase of the process The typical timeframe for each phase is indicated in parentheses Note that this timing is based on a six-week implementation cycle from start to live date Individual customer live dates may impact these timeframes The implementation process easily accommodates live dates at the start of any month

Planning (Weeks 1 and 2)

Ultimate Software Services Deliverables Customer Responsibilities

Welcome call with •

customer project leader Send implementation •

informational documents Schedule UltiPro Basic •

Employee Administration and UltiPro Basic Payroll Processing training Implementation overview •

with customer project team Establish project • milestone dates Provision customer’s • UltiPro environment Implementation • documentation * Intersourcing system Services manual • * Workplace training offering * Implementatiozn Methodology and • responsibilities Project milestone • dates chart Customer’s UltiPro • environment

Assign project leader and •

project team members Participate in a welcome •

call (Project Leader) Review implementation • informational documents Participate in • implementation overview (project team)

Review project milestone •

dates

Analysis

(Week 2)

Request and review analysis •

supporting documentation (interface layouts, sample checks, calculation rules, etc ) Facilitate analysis meeting(s) •

to survey and compile business rule requirements

Coordinate data conversion •

analysis meeting Help customer assess •

reporting requirements Participant in meetings with •

customer and third-party

Request for • analysis supporting documents Standard workplace • project plan Participate in analysis • meeting(s) Provide requested • supporting documents Work with Ultimate •

Software to assess reporting requirements Initiate contact with third •

party interface vendors to determine and coordinate next steps for setup and testing

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Configuration (Weeks 2 and 3; Security built in Week 4)

Configure core business •

rules in UltiPro Provide customer •

guidance on setup of ancillary UltiPro tables (if applicable)

Setup interface •

templates and automation Build UltiPro security •

(post-data conversion) Configuration phase •

acceptance form completion and signoff

Business rules for core HR/ •

payroll functionality One of each of the •

following interface files, using standard UltiPro functionality:

* 401(k) export

* Health & Welfare export

* General Ledger export

* Time and Attendance import and Master File export

* ACH/direct deposit export

Automation of the ACH/ •

direct deposit interface via FTP with PGP encryption or SFTP

Customer access to UltiPro •

(post-data conversion)

Review and approve •

system configuration Configure ancillary UltiPro •

tables (if applicable) Create ad-hoc reports in •

Cognos Query Studio Assign employee roles •

and qualifiers after UltiPro security is established Additional portal •

configuration if applicable (creation of links, attach documents, and so forth) Attend UltiPro Basic •

Employee Administration and UltiPro Basic Payroll Processing training Configuration phase •

acceptance form signoff

Data Conversion

(Week 3)

Create data mapping •

instructions

Convert master file (i e current •

employee setup information) and opening balance (i e summary year-to-date numbers by earning/deduction/tax code) data for active employees and current year terminations Run tax reconciliation on •

opening balances

Convert final opening balances •

(just before live processing, after last payroll in current system is posted)

Master file data conversion •

acceptance form completion and sign-off

Opening balance data •

conversion acceptance form

Converted master •

file data from one source file Converted opening •

balance data from one source file, reconciled to source data Issues and • assumptions document for master file and opening balance data conversion Customer access •

to UltiPro

Remit employee data in •

standard template format provided by Ultimate Software

Provide opening balance •

reports for reconciliation Perform dual maintenance •

of employee master file data in UltiPro and current system through last payroll prior to live date

Review converted data for •

accuracy

Master file data conversion •

acceptance form sign-off Opening balance data •

conversion acceptance form sign-off

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Testing

(Weeks 4 and 5)

Run parallel test •

Work with customer •

to resolve testing/data discrepancies Test interface content •

and structure

Test workflow and security •

Parallel testing acceptance •

form completion and sign-off

Tested and verified •

data

paychecks Tested and verified •

interfaces Tested and verified •

reports

workflow and security

Run parallel test •

Work with Ultimate •

Software to address testing/data discrepancies Coordinate interface •

testing with vendors Test workflow and security • Attend applicable • eLearning courses Parallel testing •

acceptance form sign-off

Production

(Week 6)

Initialize UltiPro for live •

processing

Support live processing •

Production processing •

acceptance form completion and sign-off

Checks and direct • deposit advices Customer-selected • standard interfaces Customer-selected • standard reports

Process first live payroll •

Production processing •

acceptance form sign-off

Support Transition

(Week 7)

Submit “Transition Package” to •

Support team

Coordinate formal transition call •

with Support team and client Participate in support transition call •

Outstanding •

action items list

Participate in support •

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The activation process for Recruitment is as follows:

Activation Process for Recruitment

Coordinate UltiPro •

recruitment site creation, which includes predefined setup for the following:

* Candidate application dispositions

* Candidate/Application Source o Interview types * Offer statuses * Expense categories * Work hours * Task priorities * Task statuses * Requisition Reason * Approval template 1 * Approval Template 2 * Contact types * Form letter Template * Assessments * Assessment detail

Configure recruitment roles •

in UltiPro

Welcome call with customer •

to discuss

* Log on procedures * Training

* Client analysis tool (CAT) to assist customer with implementation

* System testing checklist * Data integration with core UltiPro and review of imported data

* Support contact information

Performance management to •

UltiPro integration procedures Review of imported data •

Support contact information • Customer UltiPro • recruitment environment Implementation • documentation * Recruitment training information * Client analysis tool (CAT) * System testing checklist Support contact • information

Participate in welcome call •

(Project Leader)

Review integrated data from •

UltiPro for accuracy Attend recruitment training •

Complete client analysis tool •

(CAT) to aid in Recruitment configuration Complete recruitment • implementation process: * Complete customer- specific assessment information * Complete modifications of predefined tables (if applicable)

* Create requisition templates * Coordinate job board cross-posting testing with vendors

* Perform testing per system testing checklist

* Open requisitions and post on job board

* Initialize UltiPro recruitment for live processing

Live processing •

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Implementation Pricing SaaS Products

Implementation budgets—essentially one-time setup fees—are based on the number of active employees at the time of implementation A typical range is between $50 and $100 per employee Of that, the core is $50 Time and Attendance is $20, and the other add-ons are $5 per active employee Ultimate charges this flat fee regardless of the number of hours required to complete the implementation Rather than billing according to the number of hours needed for the implementation, Ultimate charges the flat fee and then works until the customer is satisfied Although this is the company’s claim, there are clearly items that are not included in the core implementation for which the customer must pay additional fees

What is Included/Not Included

As discussed in detail for software license implementation, the implementation of Ultimate’s Intersourcing product includes planning, analysis, configuration, data conversion, testing, production, and transition services The company maintains that the implementation fee includes everything needed to get the job done and will work until the customer is satisfied, regardless of the number of hours

However, the company did identify several tasks that customers must pay extra for: Loading

• employee history in excess of one year Printing direct deposit advices (DDAs)

•

Data conversions •

Creation of interfaces in excess of the four included •

Set-up for data exchange services with third parties •

Training in excess of first three occurrences •

Pricing for Items Not Included

Implementation or other consulting services which are outside the scope of services outlined in the purchase order are billed at the rate of $160 per hour for remote services Onsite services are billed at the rate of $1,600 per day

With regard to training, Ultimate offers a Web-based, instructor-led training for no charge for the first three occurrences of each training class Additional training above the three occurrences is $295 per class eLearning courseware is available for unlimited use at no charge

One of each of the following four interface files is included at no extra charge (creation of additional interfaces files is $2,000 per interface file format):

Standard 834 Health & Welfare • 401(k) • General Ledger • Time

• and Attendance import/Master File data export

Ultimate offers data exchange services, essentially automated file transfers to third-party vendors The price is $1,000 per file setup

Customers can opt to have Ultimate print the direct deposit advices (DDAs) at the rate of $ 50/DDA

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Ultimate estimates the following hours per task (charged at the rates mentioned on the previous page) for data conversion activities:

Estimated Hours for Various Data Conversions

Date Type to Convert Hours (estimated)

Beneficiaries 2

Contacts 2

Dependents 5

Employee Status History 3

Job History (up to 7 years) 8

Job History (7 years and greater) 10

Review History 3

The above estimates are based on the following assumptions:

All data files will be provided in Ultimate Software’s standard load table format •

Hours are per conversion file (i e if more than one file is supplied for any type of data, •

hours should be applied to each file)

Customer will provide all code translations of source code to UltiPro code •

Any code in historical data not currently used (i e not in current UltiPro setup) will be •

provided and set up prior to conversion of data; missing codes will not display For job history, one system generated record exists per employee in the Master File •

data that cannot be removed/replaced All data converted “as is” without validation •

Services Included in Implementation Fees

Each new customer at Ultimate is assigned a Project Manager Ultimate meets with the customer to plan the entire process and works backward from the start date Each party’s responsibilities for each week are agreed upon and meetings are conducted each week to discuss progress In short, every step is planned to hit the deadline As Ultimate points out, any vendor can make promises, but delivery is the tough part Ultimate claims it delivers better than anyone else in the marketplace

Configuration Activities

With regard to configuration activities that need to be done to match the customer’s organizational/ division setup, at Ultimate the limit for organization levels is four, but there are breakdowns within each level such as jobs, location, and so forth The application does not support more than four organization levels; additional levels are not available, even for a fee However, any of the four evels can be renamed as desired The company says that most organizations use two or three main levels

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History Data Loading by Ultimate

Ultimate will load new customers’ history for one year as long as it is provided in a flat file of information This is included in the core implementation fee Extra charges— estimated at $150 or $160 per hour—do apply to working on and loading a customer’s historical data going back more than one year

However, the typical amount of time required for this is small Even large organizations with up to 20 years history typically require only several hours work A new customer provides an Excel sheet and Ultimate loads it and maps everything over It does not matter if there is one employee history or 35,000 employee histories; it is all part of the mapping process and uploading into the software

Customer Support for Workplace / Intersourcing Product

Support is included in the monthly subscription cost for Intersourcing customers There is no additional charge for maintenance and no other fees associated with any other support types Customer service is available 24/7 During regular business hours in any U S time zone, customers can call their named service representative for immediate access to a support professional who can help resolve issues For issues arising after regular business hours, customers can dial an after-hours support paging system for quick response However, Ultimate claims that if a customer needs to speak with the Director of Client Services at 2 a m on a Saturday, for example, that they’ll make it happen to ensure that the customer is happy

Ultimate Software’s support services also include:

Web site to submit service requests, check the status of requests in progress, find product •

information, and access training

Direct access telephone support through the National Support Center •

Access to support representatives through an emergency after-hours pager •

Charging for the Addition of Employees

New employees are brought into the system as part of the new-hire process, and are added to the HR, Payroll, and Time and Attendance systems No setup fees are incurred as new employees are added New employees are added to the employee count for the next billing cycle

Frequency of Billing

Customers are billed quarterly for the number of employees on record for the most recent quarter The purchase order specifically states: ”The Subscription Fees are due quarterly and invoiced 30 days in advance of the quarter based on the number of active employees during the month two months prior to the start of the Quarter The amount due upon the effective date of the purchase order is payment for the quarter commencing on the first live date ”

Minimum Customer Size and/or Monthly Revenue

The minimum number of employees, or minimum monthly investment to get started, is 200 employees On occasion, Ultimate will permit smaller companies that are indicating a strong likelihood of solid growth to start at 150 employees

Although a new customer could conceivably start even at the one employee level, everything would be at the 200 level pricing structure In fact, several current Ultimate customers have 130 employees and are being billed for 200 employees As they add more employees, their costs per employee will go down Those organizations pay a flat fee of, say, $2,200 per month

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Discounting

Representatives indicate that they would rather be upfront and honest: here is the price and here is what it is going to be for the future That being said, special discounts are often made at the end of fiscal quarters One caveat is that Ultimate typically does not discount the setup costs or ongoing processing costs

As shown previously, the list price for the core Intersourcing solution is $12 PEPM The company will discount that slightly ($1) right off the bat, so most customers start at $11 PEPM The next tiered discount does not come until the customer reaches 1,000 employees, at which point the price drops to $10 PEPM (17% discount off list) While a Workplace sales representatives claimed that companies who grow to 2,000, 3,000, or 5,000 employees are not offered an additional discount (most likely because Workplace sales representatives do not sell to companies of that size), enterprise sales representatives claim that the PEPM drops by about 50% at those levels

Typical SaaS Contract Terms

Termination Penalty

According to the Ultimate SaaS contract, customers cannot cancel the agreement during the initial 24-month contract term After the initial term, the customer may terminate the agreement by giving Ultimate written notice at least 90 days prior to the next renewal period In the event of cancellation, the customer must compensate Ultimate for any hours worked as well as outstanding expenses The agreement does not require an additional penalty for termination

Access to Data Once SaaS Term Ends

Customers who do not renew their contract with Ultimate are able to obtain a report containing their historical data This process includes creating a report—called an “end file”—containing all of the employee master file information Ultimate creates this file for the customer, who then can import it into a new system Generally, Ultimate includes just the last year of data based on this being all the customer generally needs However, Ultimate can upload the customer’s entire history upon request

Positioning of SaaS Software Products

Even though Ultimate’s Annual Report distinguishes between UltiPro Intersourcing and Workplace, neither the company Web site nor Ultimate sales reps discuss these as being two separate products offerings The difference is positioned more as two separate target markets for essentially the same offering rather than two separate products

Ultimate positions its SaaS solution as a “total business solution ” In fact, the portal shows the close integration between HR, payroll, benefits administration, and other HR activities UltiPro serves as a company’s one-stop workplace portal—the center of company-related activities Ultimate claims it gives customers total control over their payroll and HR processes, which is said to improve efficiencies and reduce administrative costs In addition, roles-based security gives everyone in the organization access to exactly what they need to get their jobs done

Ultimate uses a single integrated database and single sign-on This is the most commonly presented positioning message Ultimate handles the entire backend in a single database, from the time the prospective employee fills out an application through the end of the employee’s lifecycle Data needs to be entered only one time In representative practical terms, this means that the user can get HR and Time and Attendance reports with a single logon from a single system Moreover, everything occurs in real time Applicants are in the database immediately and subject to reporting

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Perceived Relative Competitive Strengths

In terms of relative strengths of Ultimate’s SaaS offering, the company first points to its integration UltiPro is a single database solution, meaning there is no synchronizing It includes Payroll, HRIS, Self Service, Recruiting, Benefits Administration, Performance Management, and Time and Labor management

Secondly, Ultimate claims that its reporting is a key differentiator as it has the ability to run hundreds of pre-authored reports or create new reports in seconds Ultimate claims its reporting is superior to any competitor Instead of just being data, reporting can be strategic information useful in decision-making for HR and payroll UltiPro’s report writer is built into the solution and reports off of any of the fields in any of the areas mentioned above, with true point-in-time and historical reporting UltiPro stores all of the customer’s historical data, pay history, online statements, W2s, job history, and so forth, for as long as the customer is using the solution

The company also sees performance management as one of its major differentiators Employees are able to list accomplishments in a journal throughout the year Managers can establish goals for each employee that matche the corporate goals

Ultimate Software claims to be the only HR and payroll provider that dedicates all of its resources to human resources and payroll research and development, because HR, payroll, and talent management solutions are all that it sells It has the flexibility to process payroll and print checks on-demand, according to the customer’s schedule

Ultimate also claims it is unique in the way that it handles terminated employees UltiPro does not archive terminated employees and does not bill the customer to store them Ultimate leaves this data there for as long as the customer needs it for full reporting

Ultimate received ISO 27001 certification which means that it cannot be hacked Only 60 companies in the United States have received that particular ISO certification In addition, the company hires organizations to attempt to hack into the system The bottom line is that all the information is secure Ultimate takes security very seriously and strives to make the information 100 percent secure

Finally, Ultimate touts its customer service The company boasts a 99 percent client retention rate Customers have access to dedicated support specialists who are Certified Payroll Professionals (CPPs), certified for quality customer service from the Service & Support Professionals Association, and have an average of 11 years industry experience In terms of pricing, the company offers PEPM pricing with no hidden charges

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Section C: Other Product/Service/Price Information

Mix of Customers

Customers Using Licensed Software

Ultimate reports that 30 percent of its 1,600 customers (480 customers) use its licensed software According to customer size, the following percentages apply to licensed software:

None of the company’s small customers use licensed software •

15 percent of midsized companies use licensed software •

52 percent of large customers use licensed software •

Ultimate’s client/server application is rarely sold to organizations with fewer than 1,000 employees Customers are increasingly moving toward the Web-based application to avoid hardware and IT management expenses Certain customers want to avoid application support and management as much as possible and prefer to reduce IT costs Some customers find that the hosted model is somewhat more cost-effective than an in-house implementation

Customers Using SaaS Software

The majority (70 percent or 1,120 customers) of Ultimate’s customers use

Intersourcing Virtually all of Ultimate’s customers with fewer than 1,000 employees purchase the software as a service, with a few noted exceptions Most larger customers are moving to the Web-based application as well A few customers prefer to retain control, but according to Ultimate, nearly all are comfortable with software as a service A major reason for this is security, which was addressed above in the section concerning relative competitive strengths According to customer size, the following percentages apply to SaaS:

100 percent of small customers use Intersourcing •

85 percent of midsized companies use Intersourcing •

48 percent of large customers use Intersourcing •

Customers of Each Type and Size Being Sold To

Ultimate claims that 85 percent of all new customers choose Intersourcing, compared to 80 percent in 2007 As shown above, customers who choose the software license model tend to be larger companies, and to a lesser extent, midsized companies

Ultimate has recently developed a separate sales force targeting companies with 200 to 700 employees The company has set goals of increasing its 2008 annual recurring revenues by 30 percent over 2007 and by another 30 percent in 2009 Based on December 2007 market data from Dun & Bradstreet, Ultimate Software estimates that its approximate market share to be 3 percent of the 15,000-and-larger employee space; 6 percent in the 700 to 15,000 employee space; and less than 2 percent in the 200 to 700 employee space

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Payroll Tax Management Service

UltiPro includes tax management to deliver federal, state, and local tax updates automatically every quarter as part of the core Intersourcing solution This means that Ultimate pushes the federal and state taxes to the government It then has the responsibility to follow up on any inquiries from the government

Ultimate Software Responsibilities

Prepare, deposit, and file customer’s payroll taxes for those federal, state, and local •

jurisdictions listed by customer on the company profile report (provided with the standard company set up package) and any updates provided to Ultimate Software by the customer Prepare a quarterly tax statement for each Federal Employer Identification Number (FEIN) This •

statement will include a summary of tax liabilities reported throughout the quarter, account reconciliation and printed returns filed at quarter end

Provide customer with a named tax representative •

Answer tax agency correspondence for tax deposits and returns filed by Ultimate Software •

File amended returns as required for returns processed by UltiPro Tax Filing Services •

Provide W2 agency filings •

Ultimate has the obligation to pay customer’s tax liabilities and Wage Attachments (to the •

extent that customer has deposited funds with Ultimate Software)

Ultimate will prepare and deposit customer’s wage attachment liabilities for those federal, state, •

and local payment processing units and any individual third party to which an employee of the customer owes a debt and has agreed or is compelled by appropriate governmental authority to resolve by attachment of employee’s wages Ultimate Software will make available a report of wage attachment activity to the customer summarizing funds collection and disbursement transactions completed Ultimate Software is not obligated to commence providing payment services until it has received all information necessary to disburse wage attachment liabilities Ultimate is not responsible for providing additional administrative services, including, but •

not limited to: agency research, account reconciliation, wage attachment data input, and adjustments The customer is solely responsible for the setup for the wage attachments in the UltiPro Software in accordance with the user manuals

Ultimate Software is not responsible for any preexisting errors or similar matters arising prior to •

commencement of these services by Ultimate Software or for any errors that may occur in the event that Ultimate Software is not provided with the necessary or accurate information by the customer;

Ultimate Software will print checks, and if the option pursuant to the agreement is selected, •

direct deposit advices for customer based on the information from each completed payroll as set forth in the data remittance section below Ultimate Software is not responsible for the shipping of the checks and optional direct deposit advices to the customer

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Customer’s Responsibilities

Data remittance The customer will complete its payroll before 12:00 noon (customer’s local •

time), no less than two days prior to the applicable check date

Funds collection One business day prior to the payroll check date for tax liabilities not requiring •

a “next day” payment date, Ultimate Software will ACH Debit the designated bank account for the total tax liabilities and wage attachments associated with the given pay period For any tax liability within a given pay period requiring a “next day” payment, Ultimate Software will reverse-wire the designated bank account for the total tax liabilities associated with the payroll Ultimate Software will collect funds to cover the total payroll tax liability by the customer

Record of tax disbursement and wage attachments Ultimate Software will not be liable for any •

invalidity or inaccuracy unless the customer notifies Ultimate Software within twenty-four hours Upon Ultimate Software making available to customer any and all records of tax disbursements prepared and wage attachments by Ultimate Software pursuant to this agreement, customer will examine them for their validity and accuracy according to customer’s records The customer will immediately notify Ultimate Software of any inaccuracies

Payroll tax service is included in the core Intersourcing package at no additional charge Although the payroll tax service was done years ago through Ceridian, these services are now provided in-house

Currently, the payroll tax management service is available only to Intersourcing customers and a select group of software license customers Ultimate launched an internal tax filing department in February 2008 The department, which currently has 60 customers and concentrates solely on tax filing and garnishments, is growing slowly The internal tax filing is made available to a limited number of customers with manageable operations, i e , not those operating in 40 different states with many federal IDs The typical customer operates in perhaps 15 states with two federal IDs

Benefits Carrier Connection Service

Ultimate’s core product includes a link to its client’s health and welfare carrier and actually transmits employee enrollment data from UltiPro directly to the benefits carrier Ultimate can setup a

connection to the customer’s insurance carrier for any benefits changes Ultimate then automatically sends a file to the employee’s insurance carrier with new-hire information The feed can be setup for short-term or long-term disability The data can be imported back into the general ledger As long as the application is no older than 20 years, it will be accepted for import The data does not have to be reentered and automatically flows into the general ledger

Ultimate provides one free connection to a health and welfare carrier (medical) If an additional connection is needed for dental or disability, there is an extra $2,000 charge for each new connection Ultimate says that the medical connection is sufficient for most organization, but if customers need to add dental and vision, they be easily added

The benefits carrier connection service is provided directly by Ultimate The only caveat is that the insurance carrier must be able to accept the transmitted file, and Ultimate claims that 99 percent do

The benefits carrier service is the same regardless of whether the customer chooses the license or SaaS model

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Types of Software Support Services

Maintenance Support

Ultimate claims to be a recognized customer support leader, with its Support Services having been certified by the Support Center Practices (SCP) since 1999 Ultimate is committed to helping customers on a day-to-day basis in a timely manner The company does not want customers to have to wait two or three days for assistance

As discussed previously, support for the Intersourcing model is included with the subscription price and is available 24/7 It also includes a named representative, Web site to submit service requests, direct access telephone and emergency after-hours pager support

Support for the software license option is available at 20 percent of the license cost The following are key features of maintenance and support for software licensing:

Toll-free product & technical support help desk •

New software features and product updates •

HR & payroll legislative revisions and updates •

Federal, state, & local tax law regulatory compliance •

Access and use of Ultimate Software’s client support Web site •

Single-point of contact to handle client support needs •

In addition, Ultimate includes a customer feedback component with its software license support The company performs regular client satisfaction surveys and maintains contact with its UltiPro customer advisory board members Support staff participates in regional user group meetings Ultimate’s support services include a customer support center on the Web, Web-based support self-service, a toll-free customer support line, and continuous access to support representatives through an emergency after-hours pager Customers have 24/7 access to professionals who are experienced in using UltiPro’s Web-based payroll and workforce management solutions

Technical Support Representatives

It is estimated that Ultimate currently has approximately 90 customer service representatives, with each representative handling no more than 25 customers Ultimate compares this ratio to its competitors, such as ADP and Paychex, where customers must call in to a queue-based CSR pool Ultimate claims that ADP and Paychex have CSR to customer ratios of about 370 to one Ultimate’s customer service representatives are experts—certified as payroll professionals and as human resources professionals

Authorization for Calling In

Ultimate customers typically have a system administrator who serves as the company liaison for support issues Usually, another HR and PR person are also authorized to call While these employees are typically identified as the main contact person for the company, any customer or employee can log a support ticket Additionally, Ultimate can give mangers access to unlimited, delivered reports

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Training Services

Ultimate maintains that UltiPro Intersourcing is easy to implement, and many customers choose to attend the full implementation training program and take an active role in their implementation, thus reducing their overall implementation costs Training is designed to prepare clients to implement the UltiPro solution, perform daily operating tasks, and maintain UltiPro Class schedules are arranged to correspond to the phases of implementation

Depending on the course topics, customers have their choice of training environments: training centers located through out the United States, mobile facilities, or eLearning With in-classroom training, class sizes are limited to between 10 and 15 students

The eLearning curriculum uses both instructor-led Web conferences and self-paced courseware Ultimate Software’s training curriculum is designed to establish a foundation for those who will be using UltiPro solutions, both during the initial activation period and for ongoing processing The live, Web-based courses require students to fully participate and demonstrate mastery of key concepts and skills before advancing to more complex topics The instructional team includes APA, ASTD, STC, and SHRM members

Web-based, instructor led training for Intersourcing customers is free for the first three classes Additional training is $295 per course, per participant eLearning courses are available for unlimited use at no charge Software license customers must pay an additional charge for training, which averages 12 to 18 hours at $595 per person, per day, resulting in an average training fee of almost $9,000

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Section D: Company Information

Markets Targeted

As discussed previously, Ultimate has a separate sales force for companies between 200 and 700 employees This is where the focus has been for the past 18 months These customers are sold the Intersourcing solution, and software licensing is not an option for these sales reps According to Ultimate, 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 Ultimate originally focused on larger companies with at least 1,000 employees, and these

customers were sold the software licensing model

While small companies (200 to 700 employees) have little option but to purchase the Intersourcing model, larger organizations are given more of a choice The trend is clear in that larger organizations are more likely to choose the software license model; however, Ultimate leaves the door open for large companies to go with an Intersourcing solution as well

According to the Ultimate 2007 Annual Report, the Intersourcing offering is primarily offered to two main groups of customers based on their relative sizes Companies with over 700 employees are sold the full Intersourcing offering solution, which contains all available functionality of UltiPro Core Companies with 200 to 700 employees receive Workplace, which provides limited functionality of UltiPro Core and is designed to give customers a high degree of convenience since Ultimate Software handles system setup, business rules, and other situations for customers “behind the scenes ” However, Intersourcing sales reps claim that Workplace and Intersourcing are one in the same, with the difference being purely semantics

The target markets are defined more by size than industry Ultimate sells to a wide variety of industries, and the industry does not seem to be much of a factor in terms of which Ultimate product is most appropriate For example, Ultimate has customers from oil and gas, medical and nonprofits, as well as Playboy and Hooters A more complete list of vertical industries is provided in the next section of this analysis

Number of Customers

Ultimate has approximately 1,600 customers representing 9,000 unique EINs (some customers have upwards of 40-50 EINs) No customer accounted for more than 10 percent of total revenues in 2007, 2006, or 2005 There does not seem to be a predominance of any particular vertical industry Ultimate’s customers operate in a wide variety of industries including:

Manufacturing • Food services • Sports • Technology • Finance • Insurance • Retail • Real estate • Transportation • Communications •

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Competitive Analysis September 2008

Contents

Ultimate Software

Company Overview

Sales Channel Mix

Section A: Licensed Software Offering

UltiPro Pricing Structure

Software Core Product Implementation Fees

Pricing Structure for Software Support

Discounting

Managed Hosting Option

Managed Hosting Option Pricing

Software Positioning

Relative Competitive Strengths

Perceived Key Competition

Section B: Subscription “SaaS” Offering

Overall SaaS Pricing Model/Structure

Software Implementation Fees

Planning (Weeks 1 and 2)

Analysis

(Week 2)

Configuration (Weeks 2 and 3; Security built in Week 4)

Data Conversion

(Week 3)

Testing

(Weeks 4 and 5)

Production

(Week 6)

Support Transition

(Week 7)

Activation Process for Recruitment

Estimated Hours for Various Data Conversions

Customer Support for Workplace / Intersourcing Product

Discounting

Typical SaaS Contract Terms

Positioning of SaaS Software Products

Perceived Relative Competitive Strengths

Section C: Other Product/Service/Price Information

Mix of Customers

Payroll Tax Management Service

Benefits Carrier Connection Service

Types of Software Support Services

Training Services

Section D: Company Information

Markets Targeted

Number of Customers