NIC Inc
Q1 2019 Earnings Call Transcript

Published: 7 May 2019

[Operator:]

Good day, and welcome to the NIC 2019 First Quarter Earnings Announcement. Today's conference is being recorded.At this time, I'd like to turn the conference over to Angela Davied. Please go ahead.

[Angela Davied:]

Thank you, operator. Good afternoon, everyone, and welcome to NIC's first quarter earnings call. The press release for NIC's first quarter 2018 earnings announcement was issued 30 minutes ago, our earnings release is also available on our corporate website at egov.com/investor-relations. You can also call our headquarters at [phone], and we will email the information to you.This quarter we are also showing slides as part of our webcast, so I encourage everyone to go online to the IR section of our website at egov. Joining us on the 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 include statements regarding the company's potential financial performance for the 2019 fiscal year or future fiscal years, estimates, projections, expected length of contract terms, statements relating to the company's business plans, objectives and expected operating results, statements relating to potential new contracts or renewals, statements relating to the company's expected effective tax rate, statements relating to possible future dividends and share repurchases 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 and 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 company's ability to identify and acquire suitable acquisition candidates and to successfully integrate any acquired businesses as well as possible data security incidents. 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 sections titled Risk Factors and Caution About Forward-Looking Statements of the company's most recent forms 10-K and 10-Q filed with the SEC.These filings are available at the SEC's website at 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, we undertake 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 introduce Harry Herington, NIC's Chief Executive Officer and Chairman of the Board.

[Harry Herington:]

Thank you, Angela. To begin the call, I want to share about an effort that truly demonstrates the value that NIC delivers to our government partners. Three things that enable us to lead the industry are first, our local teams that support our government partners.Second, our community of government partners that can share best practices and innovation from the cost-to-cost. And third, our ability to deploy solutions quickly and often at no cost to the state. These three unique differentiators and the spirit of NIC came together recently to support the people of Nebraska.We've all heard about the catastrophic flooding that took place across the Missouri River bas, 75% of Nebraska's 93 counties were declared a national emergency. Three people were killed and the state has incurred more than $1 billion in damages.The scenes on the news were horrific. Interstate highways, the retract, farms and entire cities were turned into a vast lake with water stretching as far as the eye could see.Our team in Lincoln stepped up to do their part to help those in need. Even as their own homes were flooded, they focused on helping their fellow Cornhuskers. They rallied support and resources throughout NIC.Team members in Vermont, Illinois, Kansas, Montana and Texas all joined forces and helped launch the Nebraska strong website for Nebraska Governor, Pete Ricketts. Nebraska quickly needed a solution that would aid those in the need a variety of services, but at the same time not place any added burden on state agencies, many of which were already dealing with increased workloads due to the emergency and that is exactly what we delivered, all at no cost to the state.This exemplifies what working with NIC is all about. I am very proud of our team members who pulled together to help everyone in Nebraska get through this difficult time, their struggles and recovery efforts are far from over. But it is my hope that in some small way our work on the Nebraska strong solution is making their lives just a little easier.Now, on the last call I outlined three components of our 2019 strategy, to secure and grow the core business, to enhance and diversify our business with the continued expansion of our vertical strategy and use our financial strength to pursue acquisition opportunities.I am pleased to report we delivered on all of these fronts this quarter. First, earlier this morning we announced the acquisition of the Complia, a Denver-based company founded in 2015 that has developed a best-in-class licensing platform for the highly regulated cannabis and hemp industries.In fact according to Complia they are the only company in the United States to focus exclusively on the regulatory licensing for these industries. The current platform built a three primary aspects of cannabis regulation, business licensing, patient and caregiver registration and employee credentials.We believed there are exceptional market opportunities within the relatively new cannabis regulatory industry. Currently 33 states have legalized medical marijuana with 10 of those states also passing legislation to legalize recreational marijuana. Of the 33 states allow medical marijuana, 18 are NIC partners.NIC and Complia already experiencing fantastic momentum in the market with four states on a contract in Maryland, Montana, Oklahoma and Rhode Island. Each of these states is in NIC enterprise partner and we are providing payment processing for Complia's licensing solution.We have come to know the Complia team quite well and have aggressively pursued those opportunities through a strategic partnership over the past year. As a result, we quickly realize synergies that could be achieved by acquiring Complia. As part of the acquisition, the Complia team would join the NIC family which includes the company's three founders.Our experience providing medical marijuana certificates in Maine and Hawaii, as well as custom licensing system in Oregon enable us to realize this acquisition would greatly expand our ability to quickly deploy a cutting edge, cloud based modular platform. This solution is also highly configurable and scalable. In fact, it is capable of providing licensing for several other highly regulated industries.This is an important aspect that made the acquisition a great investment. In its current form it is a system focused on cannabis and hemp licensing, but this is only the beginning as we begin to build upon a platform and expand its use for additional types of licensing.This along with the other licensing and permitting solutions we have deployed across the country makes NIC the provider of one of the most comprehensive suite of licensing solutions in the United States. Steve will discuss the financial aspects of the acquisition in a moment.But needless to say I'm very excited to deliver on our strategy of pursuing tuck-in acquisition that are strategic, cultural and a financial fit and to expand our expertise in licensing and permitting in ways that position us as a dominant provider in this vertical.In addition to the Complia acquisition, we also have good news to report within our healthcare vertical. Not only is RxGov days away from one life [ph] in Maryland, but NIC was also recently awarded a contract by Nebraska Health Information Initiative on corporate, the state's third-party health information exchange to provide RXGov as Nebraska's new prescription drug monitoring platform.The contract includes a five year base contract and two one year renewal options. I'm very pleased to see RXGov have taken off with these two contracts in Maryland and Nebraska and that we secured this business within less than 12 months of acquiring the technology assets.The transparency, reporting capabilities and electronic health record integration are second to none. And it's good to see states also recognizing that value and partnering with NIC to combat the national opioid epidemic. Thank you to the state of Nebraska and our new partners at the Nebraska Health Information Initiative. Together we will help save lives.This quarter we also added our expertise in the Outdoor Recreation Vertical. In March, our team in Mississippi launched an auto renewal service for the state's Department of Wildlife, Fisheries and Parks. This service allows outdoor enthusiasts to purchase a hunting or fishing license to have it renew automatically 12 months later.This is the first time the state of Mississippi has offered a hunting and fishing license that can renew automatically, regardless of how the original license was purchased. That means even if someone bought a paper license in person at a local bait shop or sporting goods store they can go online and register their license to auto renew. Digital IDs are hot topic in government and this is just one example I talked, NIC is advancing this technology.One more outdoor recreation update this quarter relates to YourPassNow. New Jersey recently became the first state in the nation to offer state park passes on NIC's YourPassNow platform. Now those visiting any of New Jersey's 47 state parks can purchase an annual pass using YourPassNow. Each year the state sells thousands of annual park passes and I'm glad those visiting the Garden State will now have a digital convenience of using their smartphone to purchase a state park pass.As I shared earlier another primary focus first is secure our enterprise contract rebids and renewals. We finalized two contract renewals recently, with both Oklahoma and Pennsylvania extending our contracts for one year. The Oklahoma contract continues through March 2020, while the Pennsylvania contract continues through November 2020. Thank you to our partners in Oklahoma and Pennsylvania.We have innovative projects under way in both states and I know our teams in Oklahoma City and Harrisburg are focused on delivering even more digital government convenience in the coming year.Finally, last week we announced that we had hired a Chief Technology Officer, Brian Anderson joined the NIC team on April 29. He brings outstanding experience and a strong background in leading complex technology organizations and product roadmaps.Brian began his career as a software engineer and has led product management for various organizations. Most recently he served as Executive Vice President and Chief Technology Officer for Lexmark Enterprise Software Division after Lexmark acquired local Kansas based Perceptive Software in 2010.I know Brian's skills and vision will be a great addition to the technology expertise we already have on staff with advancements in cloud innovation, including artificial intelligence and other technologies that will disrupt nearly every aspect of society.It was important that we had a strong leader, right guidance and overseeing all aspects of technology at NIC. Brian welcome to the NIC family. There is incredible momentum building as we kick off 2019, as I shared all elements of our strategy are gaining traction. We secured contracts, enhance our vertical expertise and closed on an exciting acquisition. There is much, much more to come for NIC this year and I will share more about my vision for NIC and the types of new business opportunities we are seeing in the market tomorrow during our annual stockholder meeting.For now, I'll turn the call over to NIC's Chief Financial Officer, Steve Kovzan. Steve?

[Stephen Kovzan:]

Thank you, Harry. In the first quarter of 2019, we earned $0.17 per share compared to $0.23 in the prior year quarter. I have one non-core item to call out for the quarter. Our results reflect approximately $2.6 million severance costs for the departure of our former Chief Operating Officer as previously disclosed, which reduced earnings per share by approximately $0.4.Before I get into the core results for the quarter you will notice slight change in terminology in our earnings release in Quarterly Report on Form 10-Q relating to the use of the term portal which we have now replaced with the term state enterprise. In short, we feel state enterprise better reflects the broader scale and scope of our core business. At a consolidated level, we will continue to segment our revenues and direct costs into the same two categories state enterprise and software and services.The composition of both are unchanged. We also made one other notable change this quarter to break out our selling and administrative expenses into two categories which I will touch on in a moment. Moving on to the core results for the quarter. Total revenues decreased 2% to $85.2 million with state enterprise revenues down 4% from the prior year quarter driven largely by lower revenues from the new Texas payment processing contract which commenced on September 1st, 2018, compared to the legacy contract as we've previously disclosed. For comparison purposes state enterprise revenues in the current quarter included $7.4 million from the new Texas payment processing contract compared to $17.5 million of revenues from the legacy contract in the prior year quarter.Total same state revenues increased a strong 10% for the quarter reaching double digit growth for the first quarter in several years. Breaking down the major components of same state revenue growth. Same state transaction based interactive government services or IGS revenues were up 15% from the prior year quarter driven by payment processing services and a handful of states as well as several other key service. Same state transaction based driver history record or DHR revenues increased 3% over the prior year quarter.As a housekeeping item, first quarter of 2019 marks the anniversary of a price increase we received in one state last year. Thus we expect same state DHR revenue growth to moderate somewhat from the current level for the remainder of the year.And lastly same-state software development revenues which we formally refer to as software development and services revenues decreased 7% for the quarter driven by the timing of various timing materials projects across multiple states.While same-state fixed fee management revenues from our Indiana contract which we formally refer to as portal management revenues were flat for the quarter. On a combined basis same-state development and fixed fee management revenues decreased 4% for the quarter.Software and Services revenues totaled $7.9 million for the quarter up a stellar 34% over the prior year quarter. This outstanding growth resulted mainly from continued strong performance of the federal pre-employment screening program as well as revenues from the recreation.gov service which launched October 1, 2018 and generated approximately $900,000 in revenue during the first quarter, which from a seasonality standpoint we expect to be one of the highest volume quarters of the year for recreation.gov along with the second quarter.Operating income for the quarter decreased 27% resulting in an operating income margin of 18% down from 24% in the prior year quarter. This was primarily driven by significantly lower revenues and profits from the new Texas payment processing contract, legacy contract and to the aforementioned executive severance cost. As I alluded to earlier you will also note the breakout of our selling and administrative expenses into two line items, selling and administrative and enterprise technology and product support.The new selling and administrative category consist of traditional corporate level expenses for sales and marketing, human resources, communications and public relations, legal, finance, accounting, internal audit and executive administration. Historically, this has been a relatively low growth cost category for NIC.The new enterprise technology and product support category consists primarily of expenses related to our corporate I.T, product and security teams that develop, manage and secure our centrally hosted data center infrastructure and centrally developed payment processing solutions and government agency vertical products including outdoor recreation, healthcare and licensing, as well as our other platform solutions including our citizen-centric Gov2Go platform and enterprise micro-services and internal development platforms.In recent years, this has been a higher growth cost category for NIC, so our objective in breaking it out is to create a clearer view of the stepped up investments we are making in our technology platforms and the associated growth trajectory of these costs as compared to the more traditional selling and administrative expense.One final note on this change. We have included a slide on the Investor Relations section of our website breaking out the two new categories and reconciling the totals to the former single category on a quarterly and fiscal year basis for 2016, 2017 and 2018.Now, taking a closer look at our results for the quarter in these expense categories, selling and administrative expenses increased 23% for the quarter and as a percentage of total revenues were 12% compared to 9% in the prior year quarter. Excluding executive severance costs, selling and administrative expense growth would have essentially been flat both in nominal dollars and as a percentage of total revenues.Enterprise technology and product support costs increased 14% for the quarter and as a percentage of total revenues were 8% prior to 7% prior to quarter. The increase was driven by development costs related to continued enhancements to our citizen-centric Gov2Go platform and to higher technology infrastructure costs.Finally, our effective tax rate 26% for the quarter, up from 25% in the prior year quarter, which was driven by a significant portion of executive severance costs that are not-deductible for income tax purpose. As for the Complia acquisition, this was a full business acquisition unlike RxGov which was a technology asset acquisition. The purchase price consisted of $10 million in cash on closing with an earnout ability of up to $5 million based on new contract wins over the next three years.While we have not yet finalized the allocation of the purchase price, we currently anticipate the acquisition will be modestly diluted to our earnings this year. Also as Harry mentioned this is a very scalable platform and we intend to make investments take what is currently a focused platform for licensing within the cannabis and hemp industries and broaden the platform to provide other licensing services and serve other highly regulated industries.Perhaps, you should not rely on our previously issued EPS guidance, which we hope to update as soon as practicable. However, our annual revenue guidance remains unchanged. Going forward, revenues and costs from existing Complia contracts in the four NIC partner states, Harry mentioned will be reported in the software and services category. Like our RxGov prescription drug monitoring solution, we expect revenues from Complia's cannabis regulatory licensing solution to be generated from upfront implementation fees and ongoing annual SaaS subscription fees.We hope to provide additional financial details on our second quarter earnings call in August. But for now, I will echo fairy sentiment that we believe Complia (ph) was an ideal tuck-in acquisitions for NIC. In many ways Complia followed the script of our RxGov asset acquisition last July.In the sense that we built a strong relationship with the founders of a young early stage company that had developed a purpose built, industry leading technology platform that will benefit from NIC's financial strength, digital government expertise, deep state enterprise relationships and nationwide sales network.Complia further expands our expertise in multiple types of licensing and dramatically increases our speed to market with another best in class platform solution. In fact Complia recently deployed their solution in Oklahoma less than 45 days, plus it already integrates seamlessly with our payment processing solution and we believe there may be future applicability with Gov2Go.With that, I will close by welcoming the Complia team to the NIC family and turning the call back over to Harry.

[Harry Herington:]

Thanks, Steve. We're off to a great start and 2019. We generated the highest level of same state quarterly revenue growth we've seen in the past several years and we're making solid progress on our three pronged strategy that I outlined earlier this year. We continue to be the best digital government service provider for a variety of government needs and continue to make the best of state specific tailored solutions with the modular, configurable, a rapidly deployable platforms.With that operator, we will now open up the call for question.

[Operator:]

Thank you. [Operator Instructions] We'll go first to Peter Heckmann with D.A. Davidson and Company.

[Unidentified Analyst:]

Hi, guys. This is Alexis on for Pete today. So firstly, we would love some more insight to any other competitive offerings you're seeing in the cannabis opportunity area? It sounds like Complia has a pretty unique licensing solution. And are you seeing that some of our competitors are already on the same scale that you are in terms of see the sale? Or would you say that NIC's offering is fairly unique right now?

[Harry Herington:]

Hey, Alexis, I don't believe -- it's Harry Herington. First off I want to make sure I clarify some, what we have here is not a seed to sell solution, that is another piece in which Complia - NIC partners with others to provide that component of it. What we provide through this acquisition, what they've - previously is a regulatory suite, that the agencies use, whether it be for medical or recreational cannabis.And I would say as far as the opportunities I never speak ahead of what we have out there, there is plenty of opportunities, we got very excited just in the cannabis, hemp, marijuana realm, but along with the other licensing thing. So I would say that market is very strong.

[Unidentified Analyst:]

Great. Thanks, Harry and it's nice to meet you too. And then just a little housekeeping. Can you tell us what the rec1 [ph] stop revenue was in the quarter?

[Stephen Kovzan:]

Yes, I think we mentioned it earlier it was about $900,000. We think the first - the revenue from recreation.gov will probably be the highest in the first and second quarters of the year from a seasonality standpoint.

[Unidentified Analyst:]

Okay. Thank you. That's helpful. And then just over on the Illinois permitting option, do you have any update on the transactional revenue outlook for that. And then it sounds like you are expanding a lot more into some of the permitting and licensing opportunities for other states. So are you still expecting to market a similar solution to other states and do you have any idea when that might be ready?

[Harry Herington:]

That is - that's a very long question and so I'm going to break it down, look Steve answer part of it, I will jump in as far as licensing permitting is a core function of NIC and it has been - of since 1999, when we first started launching a lot of these citizen-facing, business-facing applications that were transactional based. And so, it continue to expand that absolutely. And with this, along with Illinois, Illinois is a great enterprise solution out there, that we expect and hope to take elsewhere.This one is also a very scalable solution, that depending on the opportunity, whether it be for a single agency or in some cases even enterprise is going to be able to fit in nicely between the two of them and what else we've done here over the past 20 years, we have a very comprehensive suite of services, that put us at the front. I'm very excited. As far as revenue, but Steve is there anything you want to add?

[Stephen Kovzan:]

No, I don't think so. I think we're in terms of Illinois, we're kind of at the final stages of completing the base platform there and should be done with that shortly.

[Unidentified Analyst:]

Okay. Great. Thank you.

[Harry Herington:]

Thank you.

[Operator:]

And we'll go to our next question from Joseph Vafi with Loop Capital.

[Joseph Vafi:]

Hey, guys. Good afternoon. Good results. Congrats on that same-state growth. Just a little bit more on Complia. Just exactly, are there other competitive solutions in the marketplace today? Or - is our states just coupling together their own solutions at this point? Just to give an idea if there is any other leading competitors out there.

[Harry Herington:]

Absolutely. Joseph, this is Harry and then thank you for the compliment on the quarter. Yes, we're very excited. Complia is the only company that had been just focused entirely on this. So other companies out there that are in this space, some of them would say compete with in past, some I would say didn't compete with. And so I would say there is a variety, I couldn't tell you the numbers, there's a variety companies out there.As we looked at responding to the opportunities over the past couple of years, we kept coming back to the same company. We evaluated the other ones that were available, and when we look from a partnering standpoint, they were the ones who we said this is a solid system, this is a scalable system. This is one that NIC feels comfortable with where they've built it. And so I feel very strong that this is a first class solution.

[Joseph Vafi:]

That's great. And obviously this is your bigger acquisitions I think historically. How does the pipeline look from here? And as the company and kind of bandwidth positioned managerial - from a management point of view to continue to have the foot on the accelerator on the M&A pipeline?

[Harry Herington:]

I would say this absolutely in the past, many years is one of our larger ones. Those have been around since the early 2000s we did larger ones back then. And what we've learned is be careful, make sure what you find is a company you can integrate in and it really does fold into your core business.I would say at this one - it's a nice sized acquisition, but we're not limited. I think I mentioned before, we actually bid on a $250 million opportunity that we thought to be great. We got beat out after that and several others.We are aggressively evaluating and conservatively going after opportunities. I mean, we are looking for the right ones that bring value. And yes, that whether it be technology or solutions that we can take to that next step.

[Stephen Kovzan:]

The only thing that I would add Joe, this is Steve is that, I think with both of these acquisitions that we've made within the last year, RxGov and now Complia, they're kind of ideal tuck-in acquisitions that we feel pretty comfortable we should be able to very quickly integrate into the NIC family and still have the bandwidth like Harry said to evaluate and be deliberate with other opportunities that might be out there.

[Joseph Vafi:]

Got it. And I just missed, Steve. What was the purchase price, again? I'm sorry.

[Harry Herington:]

So, a $10 million cash front - upfront payment, and the earnout options based on new contract wins up to $5 million over the next three years.

[Joseph Vafi:]

Great. And then just one final question on renewables. Congrats on the two renewals that you announced. What does the kind of waterfall or the renewal schedule look like from here relative to contract expirations that are coming up for bid? Thanks a lot.

[Stephen Kovzan:]

I would say generally speaking, Joe, there's I think there's probably another four states this year four to five that we're either part of an RFP process, or there's an open procurement process where we expect rebid RFPs to be issued. Over the course of the next year, I think the numbers four or five.

[Joseph Vafi:]

Okay. And give an idea, what would be the overall run rate revenue on those renewals?

[Stephen Kovzan:]

I don't have it off the top of my head, but we just we - we disclosed that every quarter in our 10-Q which we’ll file tomorrow. So, that should be out there. And that includes - and that number also includes state enterprise contracts where we have - where states have renewal options, and also state enterprise contracts where we will go - where we expect go through a full competitive rebid.

[Joseph Vafi:]

Got it. Great. Thanks a lot. Good results.

[Harry Herington:]

Thank you very much.

[Operator:]

And we'll go next to John Campbell with Stephens.

[Unidentified Analyst:]

Hey, guys, this is Carter on for John.

[Harry Herington:]

Hi, Carter.

[Unidentified Analyst:]

Hi. How are you, guys? On the Complia acquisition you mentioned that 33 states, now have legalized, medical marijuana 10 legalize it for recreational use. Are there different contracts for the legalized side versus the recreational side or one contract you only cover both of those?

[Stephen Kovzan:]

Yes, I think generally speaking, most states that have either or both typically have one licensing solution that they do for both.

[Unidentified Analyst:]

Okay. Okay. And of the 29 states, that come played us on a contract with did they use other vendors for this sort of platform, or did they have anybody that they use or that they don't have a platform at all right now?

[Harry Herington:]

In some of the states they of course there's competitors out there that have them, some of the states they have just now passed legislation the process of getting all of that put in place and that's the reason we're excited about the opportunity. And then we've got, before that I just mentioned in which we partnered with them.

[Unidentified Analyst:]

Okay. Okay. Yes, that's helpful on that. One more on the RxGov solution. Is there any update on other new developments outside of the Nebraska win for your sales pipeline. On the last earnings call, I think you guys mentioned that you expects 15 opportunities to come to bid for the next three years with this Nebraska win. Does that change at all?

[Harry Herington\:]

No, we're still expecting to see that type of a pipeline out there, we're very excited about the Nebraska, that is one with our own partner state that we're able to come in and show them the value and the momentum. And I'll tell you there's tremendous momentum out there for this crisis and the solution that we have.It is, Steve mentioned earlier, integrating these solutions seamlessly as possible. Nebraska demonstrate now that we've got Nebraska and Maryland demonstrates just how quickly we've assimilated those and we're moving forward very aggressively.

[Unidentified Analyst:]

Got you. That's helpful. That's it for me. Thanks, guys.

[Harry Herington\:]

Thank you.

[Operator:]

[Operator Instructions] And we'll go next to Gary Prestopino with Barrington Research.

[Gary Prestopino:]

Hi. Good afternoon. Hey, I couldn't write down quick enough here, so I want to get clarity on this Complia. Let me just say there's 33 states that have legal marijuana, 10 have recreational use marijuana or 33 states that have medical, legal marijuana. You've got -- with Complia you've got four states that you're working with right now. The other 29 states do or don't have this kind of licensing requirement they need to adapt it or there's other competitors out there providing the same thing that Complia provides right now.

[Harry Herington\:]

I think Gary just to clarify, I would say the other 29 states may provide licensing and regulatory oversight of these industries in various ways, they may work with other companies, they may do it internally. So it's hard to say what's done in every state. We work -- we also work with -- I think Hawaii, Maine, and Oregon on various aspects of cannabis regulatory licensing and permitting as well. So, it varies state by state.

[Gary Prestopino:]

So, I guess there's probably some entities out there. So what's the differentiating factor for this platform that made it so attractive to you besides the fact that it's scalable and it can be ordered into other licensing requirements, just for the medical marijuana or the marijuana industry or is it just that it's portable and scalable into other applications.

[Stephen Kovzan:]

It's a little bit of both, number one, when we looked at this one and they go through and they have, they're very meticulous, when they went through and looked at -- they built it for medical marijuana, let's just start there for the patients, for the caregivers, for the -- I'm missing the term right up after, the physicians elements of that licensing down to the employees where the credentials [ph] of the employees when they looked at that they've got a comprehensive suite where others have come in and they're providing different types of solutions as we evaluated this early on, we were extremely impressed only with what they were doing in the cannabis and potentially hemp market, that's the only reason we partnered with them.We didn't even look at where we could go beyond that. As we got to know them and started looking at their technology, we quickly realized this could be leveraged in a lot of other be -- whether it would be medical, whether it would be financial, a lot of different other industries, professional licenses that are highly regulated.And so we started kicking the tires started looking at how it was built how it was deployed and became very impressed with this technology and the team that was there and realized even it was just a stand-alone with the cannabis and hemp market, it was more than worth it. But now when you can scale beyond that, it is truly with the presence we bring an extremely valuable asset for us. So I'm very excited about this.

[Gary Prestopino:]

Okay. Just a couple of more questions. Can you talk about some of the services that drove the same state transaction based revenues and ISG?

[Stephen Kovzan:]

Yes, Gary, this is Steve. I would say probably the biggest driver for the quarter were a couple of the states that we had mentioned on our previous earnings call we were expected to see some nice growth this year payment processing in New Jersey, recall that we won the state-wide payment processing contract there some time ago that's starting to kick in.Also in Texas in Indiana, we've had some sizable increases in Texas in Indiana in terms of payment processing revenues and a handful of other states as well. So I would say those are the primary drivers of some of the growth. When I say you're asking for same states of Texas would I just want to correct myself, Texas would not be included in the same state category. So mainly Indiana and New Jersey and a handful of other states.

[Gary Prestopino:]

Okay. And then lastly was the -- when you gave your initial guidance, was that contemplated with the severance?

[Stephen Kovzan:]

No we had mentioned last quarter that it excluded the severance.

[Gary Prestopino:]

Okay. Thank you.

[Stephen Kovzan:]

You bet. Thanks.

[Operator:]

And at this time, I hand the call back over to our speakers for any additional or closing remarks.

[Harry Herington:]

Thank you, Vicky. And thank you to everyone who joined this afternoon. I invite everyone to listen to our 2019 Annual Stockholder Meeting tomorrow at 10

[Operator:]

That does conclude today's conference. We thank you for your participation.