NIC Inc
Q2 2020 Earnings Call Transcript

Published: 29 Jul 2020

[Operator:]

Good day and welcome to the NIC Q2 2020 Earnings Conference. Today’s conference is being recorded. At this time, I would like to turn the conference over to Kara Cowie. Please go ahead.

[Kara Cowie:]

Good afternoon. And welcome to NIC’s Earnings Call. The press release for NIC’s earnings announcement was issued 30 minutes ago. Our earnings release is also available on our corporate website at www.egov.com/investor-relations. You may also call our headquarters at [phone] and we will email the information to you. Joining us on the call today are NIC’s CEO, Harry Herington; and Steve Kovzan, NIC’s Chief Financial Officer. Following a reading of our cautionary statement regarding forward-looking information, our CEO and CFO will deliver prepared remarks. Then we’ll open for questions. Any statements made during this call that do not relate to historical or current facts constitute forward-looking statements. These statements often address the company’s potential financial performance for the 2020 fiscal year or future fiscal years, estimates, projections, expected length of contract term, statements relating to the company’s business plans, objectives and expected operating results, statements relating to potential new contracts of renewal, statements relating to the company’s expected effective tax rate, statements relating to possible future dividends and share repurchases, statements related to the ongoing impact of the COVID-19 pandemic and other possible future events, including potential acquisitions and the assumptions upon which those statements are based. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These risks include regional or national business, political, economic, competitive, social and market conditions, including various termination rights of the company and its partners, the ability of the company to renew existing contracts in whole or in part, and to sign contracts with new federal, state and local government agencies, the impact of potential information technology, cyber security or data security breaches or incidents, the company’s ability to identify and acquire suitable acquisition candidates and successfully integrate any acquired businesses, and the impact the COVID-19 pandemic may have on demand for the company’s services as well as its government agency partners, its workforce and the broader economy. You should not rely on any forward-looking statement as a prediction or guarantee about the future. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled Risk Factors and Cautions About Forward-Looking Statements in the company’s most recent Forms 10-K and subsequent reports filed with the SEC. These filings are available at the SEC’s website at www.sec.gov. Any forward-looking statements made during this call speak only as of the date of this call. Except as may be required by applicable law, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Now, it is my pleasure to turn the call over to Harry Herington, NIC’s Chief Executive Officer and Chairman of the Board.

[Harry Herington:]

Thank you, Kara and good afternoon, everyone. I would like to take a moment to welcome Kara Cowie to the NIC family. Kara recently joined our team as our new Director of Corporate Communications and it is an important member of NIC's enhanced marketing and communications department. As companies across our country continue to face issues and concerns with the ongoing COVID-19 crisis, I would like to share how proud I am of our NIC family. Our employees have risen to every challenge from quickly pivoting to a remote work environment while providing seamless support to our state, local and federal partners to helping agencies identify unique digital service needs, never contemplated prior to the pandemic. I'm also very proud of our government partners. We've been working diligently to continue delivering essential services to citizens and businesses. Together, we have worked to help mitigate the still uncertain impact of COVID-19 by enabling businesses and citizens to seamlessly interact with government online instead of inline, which has been our company's focus from the very beginning. In the first half of the year, we responded to the unprecedented and ever-changing COVID-19 pandemic in a variety of ways. Rapidly developing digital solutions for government partners, solutions that are needed more than ever and helping government deliver those digital solutions to citizens and businesses quickly and safely. While we remain cautious as we monitor how this pandemic evolves, we are pleased with our company's financial stability and the success we've achieved in the last quarter. I want to highlight an example how NIC has truly innovated to create new solutions to help our partners address the pandemic and that is our new rapid COVID testing partnership known as TourHealth. I'm excited to announce the launch of TourHealth, a partnership NIC has forged with two market leading companies Impact Health and Next Marketing. TrueHealth is a turnkey and scalable COVID-19 testing solution that includes citizen engagement, assessment and scheduling as well as clinical testing and logistics. TourHealth will leverage Gov2Go, NIC's citizen-centric mobile platform and personal government assistant, persistent engagement, assessment and scheduling purposes. Impact Health is the U.S leader in providing field-based health and wellness services and has led efforts to combat the COVID-19 pandemic through temperature scanning and testing with various FDA, EUA approved kits. Impact Health supports both private and public sector clients including Yale New Haven Health, NASCAR Lowe's and the State of Kansas. Impact Health will supply credentialed clinical professionals to staff the testing units, which are scalable to address immediate hot spot needs, multiple units of teams can be deployed to immediate need locations with the flexibility to procure and/ or administer tests and hopefully soon vaccines. Testing results can be quickly and securely provided to individuals and to government in formats required by state and federal health systems and can be integrated with government contact tracing programs. Next Marketing is a leader in managing mobile tour solution for corporations and government clients including the U.S Air Force, Air National Guard, Cadillac, Ford and General Motors with events ranging from supermarkets to super bowls. Next Marketing will be responsible for on-site logistics including supplying state-of-the-art mobile testing units such as sprinter vans, portable buildings and signage as applicable. Leveraging our expansive government experience the TrueHealth partnership was selected just last week to provide two testing locations in Florida for up 90-days. Our TrueHealth solution was also selected as one of only two vendors approved to provide COVID-19 scheduling, call center and test collection services for state agencies, local governments and municipalities, educational institutions and large private businesses across the state of Utah. While these opportunities could generate meaningful revenue upside, it is too preliminary to provide financial details for these engagements and they have not been considered in our guidance. We'll provide more clarity with our third quarter results. I am very excited about this partnership and how it directly aligns with NIC's mission of making essential services in this case final COVID-19 testing more accessible for citizens across the country. Turning to our traditional business opportunities. I am also excited to announce the state of Iowa is returning to the NIC family as our newest state enterprise partner. After a competitive bid process for the state's e-government application RFP, we were chosen as a winning bidder to provide enterprise digital government services to the state. Recall, we previously worked with the state of Iowa for 15 years before contract concluded in 2017. We look forward to working with the state's executive and IT leadership to consolidate its digital services into a unified experience for all Iowans because we are still in the process of negotiating the contract, we will limit our comments on Iowa. But needless to say, we are thrilled of this award and to partner again with the Hawkeye state to expand digital government for many years to come. Another important program continuing to gain traction is a Pandemic Unemployment Solution in the commonwealth of Virginia. On our last earnings call, we mentioned our team in Virginia began providing a suite of services to enable the commonwealth to rapidly process an unprecedented number of pandemic unemployment assistance, persistent claims. We contracted with a national call center alliance partner to quickly add hundreds of call center support personnel and we deployed a mobile friendly solution through our citizen-centric Gov2Go platform for Virginia residents and particularly for gig-economy workers to file weekly claims electronically. We recently delivered enhancements to improve the building for agency personnel to research and resolve claims which in turn allows for faster claim determination for those citizens in need of assistance. The solution has received rave reviews from end users and has been instrumental in helping the state alleviate the front-end bottlenecks driven by the unprecedented volume of unemployment claims. Speaking of Gov2Go, it was a critical solution this past quarter for many of NIC's in-demand services during COVID-19. More than 1.8 million Americans nationwide now use Gov2Go for digital services that now include performing assessments of the need for a COVID-19 test, learning about available testing sites and navigating unemployment benefits impacting workers. During the quarter, Gov2Go experienced a 44% increase in unique users. We expect usage will continue to rise as we introduce even more touchless government services through Gov2Go. During the quarter, NIC also received three state enterprise contract extensions including two-year extensions in Pennsylvania and Arkansas and a one-year extension in South Carolina. We are proud to have earned our partners trust and will continue to work hard to deliver digital government services demanded by citizens and businesses. Finally the Federal Motor Carrier Safety Administration exercised their last six month extension for our contract to operate the pre-employment screening program through February 2021. We currently expect the FMCSA to issue a re-bid RFP soon and we are excited about the opportunity to continue providing the highest level of service to the FMCSA and the U.S trucking industry for many years to come. Another exciting development is NIC's strategic partnership with Fiserv allowing NIC to help our government partners serve the unbanked and the under banked population using a cash payment solution called Check Free Pay. Through Fiserv agent network NIC gains access to more than 30,000 check-free locations across the country for walk-in payments for government services such as parking tickets. The agent locations collect the cash payments from validated payers, remit the funds directly to the state and then provide payment reconciliation information to NRC's payment platform. Although the first half of 2020 has brought unique challenges for our country. I am proud of how NIC has responded to our government partners and I'm incredibly excited as we continue to expand our opportunities. With that I am pleased to turn the call over to NIC's Chief Finance Officer, Steve Kovzan.

[Steve Kovzan:]

Thank you, Harry. In the second quarter of 2020 we earned $0.20 per share compared to $0.21 in the prior year quarter. Earnings per share in the prior year quarter was higher by $0.01 due to the release of tax reserves resulting from the completion of an IRS exam of our 2016 federal income tax return, which resulted in no changes to our previously filed return. Moving on to core results for the quarter. Same state enterprise revenues grew 4% year-over-year. We had a very weak start to the quarter as the nation's full mitigation response to the pandemic kicked in toward the later half of March extending through the month of April and part of May. This caused unprecedented revenue declines in key revenue segments including driver history records and several interactive government services in our state enterprise businesses, as well as the federal pre-employment screening program, recreation.gov and certain payment processing related services in our software and services businesses. On a monthly basis, total same state revenues were down 10% in April quite possibly the worst month in our company's history from a year-over-year same-state growth standpoint. However, we recovered decently in May with total same state revenues of a modest 4%. Then we saw a significant rebound in June with same state revenues up an eye-popping 20% with improvements in several key revenue growth trends as brick and mortar government offices complying with stay-at-home owners began to slowly open, deadline extensions granted by DMVs to renew auto registrations and drivers licenses began to expire and the country including our national parks started to open back up for business quite rapidly. While it is difficult to quantify, we believe a good portion of the rebound we saw in June was a catch-up of deferred revenues from the softness we experienced in March, April to May. In addition, the pandemic and the need to socially distance pushed more businesses and citizens online to interact with government digitally instead of in line in government offices. Next I'll break down the major components of same state enterprise revenue growth for the quarter, including monthly revenue trends. Same state transaction based Driver History Record or DHR revenues were down 12% for the quarter. On a monthly basis same state DHR revenues were down in unprecedented 15% in April and 16% in May but only down 5% in June. When we saw the country and the broader economy start to open back up. This trend line is certainly heading in the right direction and while our current forecast for the year has DHR revenue softness, most pronounced in the second quarter. We currently anticipate continued weakness in DHR volumes compared to historical levels for at least the remainder of the year, as this service is more closely aligned with broader U.S economic conditions in certain industries as we discussed extensively last quarter. Next same state transaction-based interactive government services or IGS revenues were up 5% for the quarter driven by revenues from the new auto titling and registration system in Wisconsin which launched in the second half of last year, higher DMV related revenues for auto registrations and driver's license services across several states as more citizens migrated online to conduct these transactions as a result of the pandemic. And a particularly strong quarter for outdoor recreation revenues, which grew by nearly 40% as people took to the great outdoors in roads to hunt, fish and socially distance. Offsetting these bright spots for the quarter were revenue declines from over-the-counter payment processing and tax filings as several states granted extensions to pay various taxes, in addition to revenue declines from data access services used for hiring and background checks such as limited criminal history and court record searches, final records such as birth certificates and online police reports. On a monthly basis for the quarter IGS revenue growth was a tale of two extremes. Same state IGS revenues were down 14% in April as the nation was locked down in full mitigation response to the pandemic. In May, same state IGS revenues recovered nicely up a respectable 8%. Then in June same state IGS revenues rebounded sharply growing a phenomenal 25% with nearly every major category of IGS revenue seeing sizable increases. As we stated last quarter, many of our IGS services are not discretionary and we believe a significant portion of IGS transactions will still occur this year, but a portion will be deferred to future periods due to recent government office closures and extensions of deadlines for certain DMV related registrations and tax filings, resulting from the pandemic. Again, we believe a good portion of the rebound we saw in June with a catch-up of revenues deferred from March, April and may but admittedly the timing of this rebound was sooner and its magnitude was greater than we previously projected given how quickly after the nationwide lockdown states began to open back up for business. Thus we do not view this level of growth as a new normal going forward and we have incorporated more modest growth projections into our forecast for the rest of the year, which I will touch on in a moment when I discuss our annual guidance. This is despite the strong IGS growth trends we have seen through the first three weeks of July, driven in part by the exploration of extended tax filing deadlines and continued strength from DMV related services for auto registration and driver's license services among others. Moving on same state revenues from development services increased up 130% or more than $3.2 million from the prior year quarter driven mainly by pandemic unemployment services we have been providing to the commonwealth of Virginia as Harry just discussed. We currently expect to provide these services for the remainder of the year and possibly beyond depending on the duration and severity of the pandemic and the related impact on the level of unemployment claims in Virginia. One last area I want to touch on before I move on to software and services revenues are our ongoing efforts on the outdoor recreation front in Pennsylvania and Illinois. For the quarter, we incurred about $600,000 of state enterprise costs to implement our outdoor recreation platform in Pennsylvania and Illinois compared to $700,000 in the prior year quarter. Earlier this year when we announced our 2020 guidance, we expected to launch Pennsylvania around the midpoint of this year. However, we announced last quarter that because of the lack of state resources during the COVID-19 pandemic, the state requested we move the launch date to September. For similar reasons, the state has again requested to delay the launch and has given us reasonable assurances that January 2021 will be a firm launch date. Thus we will not recognize any corresponding revenue in 2020 versus our previous estimate of approximately $600,000. However, because the adjustments we have made to our project timeline and development resources, we expect to mitigate much of the operating income impact for the remainder of the year. Moving on software and services revenues declined $900,000 or 5% from the prior year quarter, driven mainly by a decline in volume from the federal pre-employment screening program. We spoke at length last quarter about the PSP and our expectation that the revenue softness from the service would be most pronounced in the second quarter due to the impact of the pandemic on the trucking industry. I will not cover any of that ground again on this call other than to say PSP revenues for the quarter came in right where we expected down nearly 27%. On a monthly basis PSP revenues were down 28% in April, 35% in May and 16% in June when we saw the trucking industry start to slowly improve as the broader economy started to open back up. And through the first three weeks of July, PSP revenues were down 12%. While the trend line for PSP is improving, we currently anticipate revenues to decline by 10% to 15% on a year-over-year basis in the second half of 2020, given the ongoing effects of the pandemic on the broader economy and the trucking industry. Next, I'll cover recreation.gov which was a pleasant surprise for the quarter compared to our expectations just a few months ago. We shared last quarter that we saw a year-over-year downturn in recreation.gov revenues of over 20% in the month of March as national parks and campgrounds began to close in order to eliminate crowds and enforce social distancing. This trend continued in April with revenues down 64% but then slowly but surely we saw the national park start to reopen in May following the lead of several states which helped stem the revenue decline and resulted in flat revenue growth for the month. In June, many more national parks and sites reopened and experienced an influx of visitors seeking a safe place to experience the great outdoors and vacation for the summer driving a 94% increase in revenues for the month. While we don't expect this spectacular level of growth to continue in the second half of the year, we are hopeful the national parks and sites remain open as safe destinations during the pandemic and that recreation.gov revenues have a shot at approaching levels we saw in the second half of last year. For the quarter, recreation.gov revenues were up an impressive 15% from the prior year quarter. One last housekeeping item for the software and services businesses. Revenue from our RxGov prescription drug monitoring business and licensing solutions business, which we acquired in May of last year, contributed a combined $900,000 in revenue during the quarter compared to $400,000 in the prior quarter. Moving on to operating expenses. For the quarter, total operating expenses excluding depreciation and amortization increased only 1% or approximately $1 million from the prior year quarter, as we have been hyper focused on monitoring the pandemic and its possible implications to all aspects of our business. And have taken aggressive actions to mitigate potential adverse consequences and buffer potential revenue declines including stringent company-wide cost controls to identify non-essential expenses. State enterprise costs for the quarter were up only 2% as higher costs in Virginia mainly for call center subcontractors to support pandemic unemployment services were partially offset by a $1.8 million decrease in credit card merchant processing fees associated with lower IGS payment processing revenues in certain states, resulting mainly from the pandemic, most notably in New Jersey and Indiana. This contributed to a slight uptick in the state enterprise gross profit margin for the quarter to 41% compared to 40% in the prior year quarter. Software and services costs decreased 2% mainly due to lower merchant processing costs for certain repayment processing services. The decline in the software and services gross profit margin for the quarter to 34% from 37% of prior year quarter was mainly attributable to the decline in higher margin federal PSP revenues. Selling and administrative costs were flat for the quarter, while enterprise technology and product support costs were up approximately 7% compared to the prior year quarter, but on a sequential basis were flat compared to the first quarter of 2020. Depreciation and amortization expense increased by approximately $300,000 or 11% from the prior quarter mainly due to intangible asset, amortization from the RxGov asset acquisition and NIC licensing solutions acquisition. Finally, operating income for the quarter increased 4% resulting in an operating income margin of 20% up from 19% in prior year quarter. To conclude my comments on our quarterly results, we earned no interest in the quarter compared to$600,000 in the second quarter of 2019 and $400,000 in the first quarter of 2020, due mainly to a decrease in the interest earned on our investable cash balance following the federal reserve's emergency cuts to the federal funds rate made in March 2020 in response to the COVID-19 pandemic. When the Fed lowered rates to essentially zero, as a result we do not expect to recognize any interest income for the remainder of the year. I have one other housekeeping item before I turn to our guidance. As we previously announced after a competitive bid processing the state of Florida, Department of Financial Services announced its intent to award us a contract for statewide payment processing services back in January. Unfortunately the award remains under protest by one of the bidders and we have not yet received a ruling from the state. We currently expect the state could issue its ruling any day now. Following our long-standing policy, we will not disclose any financial specifics about this opportunity until after we have a signed contract. Turning now to our guidance. We continue to evaluate the impact COVID-19 may potentially have on our business for the rest of the year, with the goal of being directionally accurate and conservative from a guidance standpoint given what we know today about the pandemic and taking into consideration the key revenue trends we have recently seen in our business. For full year 2020, we continue to expect to come in near the low end of our previously issued guidance for total revenues which was $380.5 million near the low end of our previously issued adjusted EBITDA guidance which was $88.5 million and near the low end of our previously issued EPS guidance of $0.76. The only change in our guidance from last quarter is that we currently expect capital expenditures to range from $5 million to $6 million a year, down about a $1 million from our previous guidance. Capitalized internal use software development costs are expected to range from $9 million to $10 million unchanged from our previous guidance. To conclude my prepared remarks today, despite some significant headwinds in certain key revenue segments resulting mainly from the pandemic, I was quite pleased with our financial results and the resiliency of our business in the second quarter. Furthermore, as CFO of NIC, I take great comfort in our financial strength and flexibility during these uncertain times, including our consistent cash flow, debt-free balance sheet and significant cash surplus. I'm also optimistic our value proposition and business model will resonate with government IT decision makers in these tough economic times when their revenues are declining and they are looking for creative and proven digital government solutions to help alleviate their constraints. I said before and I will say it again this is our time to shine in our industry and we certainly did just that this past quarter. With that I will turn the call back over to Harry.

[Harry Herington:]

Thank you, Steve. I share Steve's optimism and conviction. NIC is financially strong and our business model and expertise will enable us to identify new business opportunities while we continue to help our government partners serve needs of their citizens and businesses. Now I will open the call for questions.

[Operator:]

[Operator Instructions] Our first question from Gary Prestopino from Barrington Research. Please go ahead.

[GaryPrestopino:]

Hi. Good afternoon, everyone. A couple of questions here with this Impact Health partnership that you have could you give us an idea of what the revenue model is there and how you're paid?

[HarryHerington:]

Gary, this is Harry. TourHealth is something I'm very excited about, however, this is something we've just rolled out, we just announced today and we're not ready to speak to the financials on that yet. It's pretty -- it's too premature. We will be speaking that at the next -- on our next call.

[Gary Prestopino:]

Okay. I'm sorry.

[Harry Herington:]

Yes. The only color that I would add, Gary, is that we -- this will not be a transaction based opportunity. It'll be more of a traditional services type opportunity, but we'll leave it at that for now.

[Gary Prestopino:]

Okay and then in terms of leveraging Gov2Go within the partnership could you maybe give us a little more details on just how a citizen would use Gov2Go to get to this the testing of recovery for COVID?

[Harry Herington:]

Absolutely, Gov2Go is the face of it, when you -- consider it this way. When you go in to first determine whether you need a test, you'd walk through and you'd answer some questions as to temperature been exposed things like that and they would walk you through to -- do you need to get a test from that standpoint, it would schedule and probably show you where you can get tests and then would schedule an appointment for you. And then track your progress from there. So it is the face of this opportunity.

[Gary Prestopino:]

Okay and that in those various states Gov2Go incorporated in the website, correct? And that would give you the individual lead into to get to where they need to be for this possible testing.

[Harry Herington:]

Absolutely and it's website it's mobile and we like to think of it as it's technology agnostic, however, we need to get that information to those end users especially during this pandemic.

[Gary Prestopino:]

Okay and then just last question with Iowa. Would you refresh our memory or my memory was that taken in-house by Iowa or was that awarded to another company?

[Harry Herington:]

No that -- your memory is correct, yes, your memory is correct. That was at the end of a contract. They did not renew the contract and it was taken in-house about three years ago. And as they've evaluated it came back out and we're excited to be back in Iowa.

[Operator:]

Our next question will come from Ishfaque Faruk from Sidoti & Company.

[Ishfaque Faruk:]

Hi. Good afternoon, guys. Thanks for taking my question. Congrats on the Iowa award, by the way. So just a couple of quick questions from me. In terms of -- obviously, Harry, you mentioned the contract was taken in-house in 2017. Can you give me a sense for what maybe was the level of the revenue or the earnings from that contract back in 2017 when you guys were still doing the work?

[Steve Kovzan:]

Yes. Ishfaque, I'll take that one. I guess what I would say is that it the revenue was probably not representative of a typical NIC enterprise state the size of Iowa. In fact, it was our smallest revenue state, it was a marginally profitable contract for us and we really only had one at the time revenue generating service that provided the majority of the revenue under the contract and that was DHR revenues. So it was very much a financial outlier in terms of size revenue per capita and just about every other financial metric that you could possibly imagine.

[Harry Herington:]

Yes. We're very excited to be back. They have a new Dan Hanson. They have new individuals that are so excited about what we can bring and that's one of the primary points with Iowa is the energy that we are seeing there especially during this pandemic, but the energy where we can step in with our solutions and make a difference.

[Ishfaque Faruk:]

Got it. Okay. And in terms of -- is that the change in maybe the government decision-maker is that what prompted them -- prompted this contract win? Or was it like your technology advancements and your work and additional services? Could you give me a sense for that?

[Harry Herington:]

Absolutely, it's a combination of both. Part of -- when you're out and you promote the solutions that we're bringing to our other partners throughout the country. And that is always that we're very well known in the digital government industry and what value we bring from there and then you have a change of administration. You have a change of key personnel and then they start seeing what you've done in other states and then our national sales team does a phenomenal job as new people come in, educate them and that's why you saw a return to Virginia, to return to Iowa. That's the nice thing about government is we have an opportunity to go back and show the value that we've given in the past, but more importantly the value we can bring to them in the future. And I always like, yes, we want you, we need you.

[Ishfaque Faruk:]

Got it. Got it. And Harry, maybe you touched on this a little bit and that was your development services in Virginia. That was pretty sizable compared to what I had expected -- what I had expected and maybe some others, too. Could you give me a sense for like why that was maybe a little on the higher end?

[Harry Herington:]

So I will speak a little bit about, if Steve's got anything to add. Virginia was a great solution. What we have there we have a solid general manager there that as Virginia was trying to resolve the issue they have with unemployment and it would you know we're in it now. We're having conversations with different agencies very aware of what's going on. If it came to our attention they were having issue there. We reached out to them and we showed them this is something we can assist you with. And we walked through where our suggestions were and some of the technology we could bring to bear with a partnership with someone else that we can help here. They embraced that and I would say it was a great opportunity as far as more significant than we anticipated. We really didn't know we were walking into as far as the volume until we got there, but by time we were ready to sign the statement of work we knew what it was and the size and very excited about that opportunity.

[Steve Kovzan:]

Yes. Ishfaque, I really don't have anything to add there. We really didn't, last quarter it was unclear in terms of potential financial opportunity there. We knew it was there but I think we kind of took a little bit more conservative approach and waited to see how things panned out during the quarter. So certainly a really nice opportunity there and hopefully one that will be able to help, continue to help the state for the rest of the year.

[Operator:]

Our next question will come from Peter Heckmann with D.A. Davidson. Please go ahead.

[Peter Heckmann:]

Thank you. Good afternoon, everyone. On Fiserv deal, interesting is a few questions there. Is that nationwide or is it just in your portal states? And then could you talk about the timing on the roll out there?

[Harry Herington:]

Yes. I'll start there and yes this is an opportunity within the states in which we have a contract. I mean that is where we're focused right now. There are opportunities outside of portals; we call the state enterprise now outside of those states as we move into additional payment services. We have different contracts that go outside of those. And they'll be -- we'll be able to leverage that as well. So I'm very excited about this. When you think about it and especially in the pandemic when you think about those that you can't get into a government office, you might not have a credit card, you still have to pay your government fees. This is a great alternative.

[Peter Heckmann:]

Got it. Got it. Okay and so do you have to go to then each portal state and have them agree to use it so that might cause the rollout to be over a period of time or is it something that you just go live with and then have to market it?

[Steve Kovzan:]

No. Within -- in each of our contracts whether it's a like I said a portal state or whether it is one of our other payment contracts, we'll have to go to that agency that department any time we're collecting fund, the manner in which we collect funds that is one that's usually regulated. So we'd go to make sure they're comfortable with how we're doing it. But we're working hard on this and Fiserv is working hard on this as well. It's not just NIC out there; both partners are out there communicating the value of this. We're expecting to see great traction.

[Peter Heckmann:]

Got it. Got it. And then acknowledging that fairly unprecedented situation with the pandemic and the impact on miles driven, but would you expect to see any rebound in DHR or just more likely just assume a more normal pattern next year?

[Steve Kovzan:]

Pete, I guess, what I would say is that in the second half of the year we do forecast that on a year-over-year basis, we will still see some weakness in the second half of the year no doubt. We do hope to see an improvement that is a moderation in the decline that we saw here in the second quarter. And we've been seeing that the trend line from April to May to June through the first three weeks of July improve, which is a good thing but I don't think we would expect to return to more normal levels until sometime hopefully in 2021 looking through the dark crystal ball quite frankly.

[Operator:]

And with no further questions that will conclude today's question-and-answer session. And I'd like to turn the call back to Mr. Harrington for any additional or closing remarks.

[Harry Herington:]

Thank you, Savanna. And thank you to everyone who joined us this afternoon. I sincerely hope each of you stay safe and healthy. I'll speak with you next quarter.

[Operator:]

And this concludes today's conference. Thank you for your participation. And you may now disconnect.