NIC Inc
Q1 2018 Earnings Call Transcript

Published: 1 May 2018

[Operator:]

Ladies and gentlemen, please standby, we are about to begin. Good day. And welcome to the NIC 2018 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 may also call our headquarters at 1-877-234-3468 and we will email the information to you. Following the reading of our cautionary statement regarding forward-looking information, CEO, Harry Herington; Chief Operating Officer, Robert Knapp; and Steve Kovzan, NIC’s Chief Financial Officer 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 2018 fiscal year estimates, projections, the 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 and the potential effect of tax law changes, 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, including 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, states 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. Any statements regarding our expected effective tax rate for 2018 reflect provisional amounts subject to adjustment during the one-year measurement period permitted under applicable law. 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. And now, it is my pleasure to introduce Harry Herington, NIC’s Chief Executive Officer and Chairman of the Board.

[Harry Herington:]

Thank you, Angela. Welcome to our first quarter earnings call. Today, I want to begin with an update on Texas. On April 16th, NIC submitted a formal protest with the Texas Department of Information Resources challenging the agency’s decision to award the contract for portal operations, maintenance and development services to another vendor. Following our debrief meeting with the State of Texas and after reviewing procurement documents we identified discrepancies that gave us serious concerns related to procurement and selection process. We did not make this decision lightly. In fact, protesting the procurement is a rare occurrence for NIC. This is only the second time in our 26-year history that we have filed a protest. However, we have an obligation to our stockholders and to our employees to ensure this is a fair, transparent and competitive procurement process. Since this is an ongoing administrative procurement issue, we will not be answering any questions about the protest following our prepared remarks. Moving on, the company continues to make good progress in some of the critical areas I outlined during the guidance call in March. Our core business continues to perform well. We continue to see progress with the federal government opportunities and we’re developing new solutions to bolster a vertical strategy in the areas of outdoor recreation, healthcare and enterprise licensing and permitting. Tomorrow is our Annual Stockholder Meeting and I will provide update on many of these topics during the meeting. I invite you to join us at 11 a.m. Eastern here how NIC continues to set itself apart from the competition and pave the way for bright future. As for now, let’s take a look at how the business performed during the first quarter of 2018. The year is off to a solid start, with healthy finance performance. One of the key metrics of the financial health of our core business is same-state revenue growth. During the first quarter, same-state quarter revenues increased 7% in line with our historical average of mid to upper single-digit growth. Our growth was driven by key services such as drivers’ license renewals, income tax filing and corporation filings across several states. I was also pleased to see several of our portals and the government partners launch new innovative revenue-generating services, which Rob will discuss in a moment. Turning to federal, I have good news to report as it relates recreation.gov. You may recall that the incumbent provider protested award to Booz Allen Hamilton and appeal the ruling by the U.S. Court of Federal Claims to deny the protest. The federal court recently upheld the rulings of U.S. Court of Federal Claims. The protest is very close to being final. However, one last hurdle is a 45-day window which we are currently in for the incumbent protest ruling all the way to the United States Supreme Court. Even if this is playing out in the core system, our team has been working with Booz Allen Hamilton and our government partners on the completely re-envisioned citizen-centric recreation.gov, which remains on track for launch later this year. And with the protest in the final stages we hope to provide more financial details on future calls. Finally, regarding a vertical solutions, our teams continue to develop new services and innovative enhancements to advance our expertise in the vertical areas, I mentioned earlier. One example I will share is on the healthcare front. As Wisconsin continues to enhance its prescription drug monitoring program, we have built new functionality that shows prescribers of controlled substances when a patient has a treatment agreement and a new reporting feature provides individual prescribers a view of their own metrics compared to every prescribing metrics in the same area of specialty. In other words, prescribers can now see the prescribing practices compare with state-wide print. Again, all positive development, we believe set us apart from the competition in this vertical. I will close with this, one of the main topics I will address tomorrow on the Annual Stockholder Meeting is a question is NIC’s approach to digital government still relevant. I will look forward to discussing this with you tomorrow. With that, I will turn the call over to Robert Knapp, NIC’s Chief Operating Officer for additional insight in our operations. Robert?

[Robert Knapp:]

Thank you, Harry. I am very pleased to begin my remarks today by recognizing my mentor, my friend and my boss, Harry Herington. Recently the government trade publication, StateScoop recognize 50 of the top government technology leaders and initiatives, which included Harry, who was named as a 2018 Industry Leader of the Year. As StateScoop says, the award goes to private-sector pioneers driving change in government IT with unique solutions. That describes Harry perfectly. I have known him for nearly 20 years and during this time he has led our company not only as one of our founders, but more importantly, as one who is always encouraging employees to be innovative, to think about consumer needs and how we can improve government interactions, and that same spirit continues today. Harry owns the vision of our vertical strategy and he is leading our teams to make Gov2Go a disruptive solution. It is an honor and a privilege to work for him. So, with that, Harry, congratulations from me and the nearly 1,000 employees in NIC. This is a well-deserved award and we are very proud to have you as our CEO. In addition to Harry being honored by StateScoop, several solutions developed by NIC teams and our government partners won 2018 State IT Innovation of the Year awards. This includes Louisiana’s Alexa Drivers Test, the National Rollout of Gov2Go, the New Maryland Business Express portal, Mississippi’s chatbot, Missi, the Concealed Handgun Permit application developed for the Nebraska State Patrol, the New Jersey Campground Reservation System and new system for the Oregon Government Ethics Commission and the Utah Practice Driver License Platform. Also congratulations to our government partners honored in each of the following four categories, State Executive of the Year, State leadership of the Year, State Up & Comer and State Cybersecurity Leader of the Year. We are very proud to work with all of you and appreciate our partnership with you. Now let’s take a look at a few of the innovative services our portals have recently launched. One new solution comes from the State of Maryland, our team and their government partners in Annapolis recently developed the next-generation of the state’s business one-stop solution, Business Express, which as I have just mentioned, recently won a StateScoop Innovation of the Year award, not only does this new business one-stop include more information and functionality to make it easier to start and grow business in Maryland, it includes the first state government chatbot used for business purposes. Now entrepreneurs and business owners can receive conversational responses to their customer service questions around-the-clock, all year long, with this technology. The team powered this machine learning chatbot technology to provide humanlike responses to more than 1,500 questions and it’s off to a great start. In just the first month since this chatbot launched on Business Express, it has answered more than 2,250 customer service requests. Our teams have also been working diligently to improve our suite of solutions that allow government officials to conduct a variety of tasks in the field with or without Wi-Fi or cellular connectivity. I’ve shared in the past about our on-the-go payment solutions that allow credit and debit card payments to be collected in the field. We recently expanded that solution in Nebraska to include in on-the-go mobile inspection functionality for inspectors to track cattle. During the first quarter, Arkansas became the latest state to use this technology. The Arkansas Department of Labor became the first state agency in Arkansas to begin accepting mobile payments for field inspections. Currently on-the-go is in pilot phase in the state for use by amusement ride inspectors but will be rolled out across the agency soon. Our partner, Ralph Hudson, who is the Deputy Director for the Arkansas Department of Labor, says, our on-the-go solutions fit perfectly into his larger mission to eliminate all paper processes from the agency, which includes paper checks. We fully support this mission and are glad on-the-go will help accomplish the agency’s goals. Supporting our outdoor recreation vertical strategy and also recently a StateScoop 50 Innovation of the Year award winner, New Jersey recently launched a new comprehensive Campground Reservation System in partnership with the New Jersey Department of Environmental Protection, replacing an incumbent system. This new web-based mobile-friendly system allows people to find available parks sites, reserve campsites and search by location, availability and park amenities. In just the first week the system process to approximately 800 reservations, with nearly 5,000 processed during the first quarter. More importantly, our team developed this solution with multistate or reuse in mind, as we expect to take this system and configure it for the needs of other state parks systems across the country. And finally, I would like to close today by sharing with you several states who have extended their contracts with us. The State of Kansas extended the base term of its contract with us through December 2022. The extension also includes two two-year renewal options the state may exercise to take the contract through April 2026. In Kentucky our subsidiary received a two-year contract extension from the Commonwealth of Kentucky, taking its contract through August 2020. And the company’s subsidiary Oklahoma Interactive LLC received a one-year contract renewal from the State of Oklahoma extending its contract through March 2019. Thank you to our partners in Kansas, Kentucky and Oklahoma for extending your contracts with us. We value our partnership and look forward to launching new innovative solutions in the future. And what that, I’ll turn the call over to Steve Kovzan, NIC’s Chief Financial Officer. Steve?

[Steve Kovzan:]

Thanks, Robert, and good afternoon to everyone on the call. I’ll keep my comments relatively brief today as I covered a lot of territory on our 2018 Guidance Call in March. We had a solid first quarter of 2018, earning $0.23 per share, compared to $0.21 in the prior year quarter. Core financial results for the quarter include total revenues of $86.7 million, 4% increase over the first quarter of 2017, with portal revenues of $80.8 million, up 5% over the prior year quarter. Total same-state portal revenues grew a respectable 7% for the quarter, breaking down the components of same-state revenue growth. Same-state IGS transactional revenues increased 10% this quarter, due mainly to some of our core main state services, as Harry mentioned, such as income tax filings, drivers license renewals and business filings, among others. Same-state DHR transactional revenues were up 1% for the quarter and finally same-state software development revenues increased 27% for the quarter, driven primarily by new projects developed by our Indiana portal. For comparative purposes, revenues from the legacy Tennessee portal contract totaled approximately $1.8 million in the prior year quarter. As previously disclosed our contract with the State of Tennessee expired on March 31, 2017. Next, software and services revenues were down slightly for the quarter, decreasing by 1%, driven by the previously announced loss of the parking meter payment service as part of the City of Portland, Oregon contract in the second quarter of 2017. Our operating margin was 24% in the first quarter, down slightly from 25% the prior year quarter, reflecting investments we discussed in March on our Guidance Call, such as Gov2Go, the enterprise licensing and permitting platform we are building for Illinois and other states, and recreation.gov, in addition to the loss of revenue and profit contribution from the legacy Tennessee portal contract. Finally, for the quarter, our effective tax rate was 25%, down from 34% in the prior year quarter, driven by the favorable effects of the recent tax law changes. In addition, results in the current quarter also include a tax deficit related to lower tax deductions from the vesting of restricted stock awards. This discrete tax item increased our effective tax rate by approximately 1% and decreased earnings per share for the current quarter by approximately $0.01. You may also recall the results in the prior year quarter included excess tax benefits from the vesting of restricted stock awards, which decreased the company’s effective tax rate by approximately 2% and increased earnings per share for the prior year quarter by approximately $0.01. Absent any unforeseen discrete items, we expect our effective tax rate to be closer to 24% for the remainder of 2018. In conclusion, I was pleased with our financial performance in the first quarter of 2018 and I am confident we are pursuing the right strategies and making the right investments to help keep NIC at the head of the pack within the digital government industry. With that, I’ll turn the call back over to Harry.

[Harry Herington:]

Thank you, Steve. I agree, we had solid financial results this quarter and investments we are making in the brighter solutions are setting the stage for continued growth in those areas. With that, Operator, we will now open up the call for question.

[Operator:]

Yes, sir. Thank you. [Operator Instructions] We first go to Joseph Vafi with Loop Capital.

[Joseph Vafi:]

Gentlemen and Angela, good afternoon. Maybe we just get an update, first, I know, I think, Harry, you mentioned, there was an RFP rolling out there last quarter when we last spoke, I was wondering if you can update on that to the extent you can? And then if there was any other RFP’s you think that are starting to percolate this year? And I have a follow-up.

[Harry Herington:]

Hi, Joe. What I would tell you is what I mentioned was, we had in the pipeline a couple of opportunities, I still fully expect to see one or two those by the end of the year. There is nothing on the street right now.

[Joseph Vafi:]

Okay. That’s helpful. And maybe just one housekeeping question, perhaps, I know, the software services gross margin has been kind of low a few quarters versus historical levels. I know there are some moving parts to that. But do you expect over time to see that rebound here moving forward? Thanks.

[Steve Kovzan:]

Hi, Joe. This is Steve. I think for the most part our margin in the software business around, I don’t know, somewhere around 62%, 63%, not too far off what we expect to kind of see for the year. As I mentioned, last quarter was a little bit higher because we had some extra revenues from the City of Portland. So it’s really depending on opportunities that we see and the investments we have to make in any of those opportunities, certainly not an unreasonable margin going forward.

[Joseph Vafi:]

Great. Thanks very much.

[Harry Herington:]

Thank you.

[Operator:]

Next question comes from Peter Heckmann with Davidson Brokerage.

[Peter Heckmann:]

Hi. Good afternoon, everyone.

[Harry Herington:]

Hi, Pete.

[Peter Heckmann:]

I wanted to follow-up, could you give us an update on Illinois permitting and licensing, where we are with the roll out there and whether or not yet you still see additional states looking at enterprise permitting and licensing contracts or upgrades we might see later in the year?

[Robert Knapp:]

Hey, Pete. It’s Robert. Yeah. We are on track with our efforts in Illinois and what I would guess I would say is, in general we absolutely do see interest in licensing from other states whether that is replacements of enterprise type systems or subsets within the licensing market and we certainly believe that the product we are delivering for Illinois we will have that reuse and that capability.

[Peter Heckmann:]

Great. Great. And then on the Federal Motor Carrier Pre-Employment Screening application, I believe the current contract expires August 31 of the year. Do you anticipate a short-term renewal we’d see that in the next quarter or so or is that something that that you expect potentially the agency to rebid?

[Robert Knapp:]

Hey, Pete. It’s Robert, again. I guess, I won’t comment on any specifics. What I would tell you is we feel very comfortable with where we are both in the existing contract and the future as it goes forward.

[Harry Herington:]

We do expect them to come out with a rebid…

[Robert Knapp:]

Right.

[Harry Herington:]

… at some point, we are going to have to from procurement standpoint.

[Peter Heckmann:]

Okay. Okay. That’s helpful. I’ll get back in the queue.

[Harry Herington:]

Well, thanks, Pete.

[Operator:]

Next question comes from John Campbell with Stephens.

[John Campbell:]

Hey, guys. Good afternoon.

[Harry Herington:]

Hi, John.

[Robert Knapp:]

Hi, John.

[John Campbell:]

Steve, could you maybe provide just a little bit more color on the -- just the total incremental investment spend in the quarter and maybe just kind of talk to some of those individual pieces?

[Steve Kovzan:]

Yeah. I mean, I think, the items that we called out, John, on our Guidance Call were all areas that we invested in throughout the quarter, so Illinois in the licensing and permitting platform. We did not recognize any revenue this quarter from Illinois and we are working on delivering the remaining functionality of the core platform there. R1S [ph], certainly we have kind of fully ramped our team and we are hitting a run rate of about $1.5 million a year what we are spending on R1S. Again, continuing to invest in Gov2Go, again about an incremental $1.5 million this year, so about a total of $3 million in spend as we are expecting this year for Gov2Go and also throughout the year we are making incremental investments in sales and marketing. So I would say, all those items we spent on in the first quarter and we will continue to spend on throughout the rest of the year.

[John Campbell:]

Okay. And as far as the phasing of that investment spend, is it lump or is that just kind of ratably throughout the year?

[Steve Kovzan:]

I think it’s fairly ratable throughout the year. Generally speaking it may ramp a bit as the year goes on, but fairly ratable for most of the major components. Illinois, R1S, Gov2Go, sales and marketing might continue to ramp little bit throughout the rest of the year.

[John Campbell:]

Okay. And then a higher level question for Harry. I’m not sure how much thought you guys are putting this, I am assuming you probably have put a lot of thought in this, but any -- just any thoughts around Blockchain and whether state governments are -- is that something they are looking at potentially on auto or property records and then is that something you guys maybe start to look at from an investment standpoint?

[Harry Herington:]

Yeah. Absolutely. Yeah. Blockchain, of course, is something that we look at and we give a lot of thought to, in fact, last year we had our partner conference and we educated them during that partner conference on some of the aspects of that and where they could potentially use it. We are not at a point now where the -- I would say another drop makes a some any of our partners have embraced, some that we are deploying, but I do see like giving traction future just like cloud computing that has.

[Robert Knapp:]

Yeah. I might just add, John. This is Robert. We’ve seen what I would call some pilot type of opportunities in a few states whereby they are testing the scalability and the usability of it, primarily with as you just pointed out with documents whether that be different filings or land records, they have been a couple of areas that we have seen it. And even to take what area we talk about with our partner in conferences that further we even had a hack upon inside of NIC, whereby we have utilized the technology and become familiar with it as we look to our portals to innovate and find the right opportunities for it.

[John Campbell:]

Okay. Great. Thanks, guys.

[Harry Herington:]

Thank you.

[Robert Knapp:]

Thanks, John.

[Operator:]

We will go next to Saliq Khan with Imperial Capital.

[Saliq Khan:]

Great. Thank you. Good evening, guys.

[Harry Herington:]

Hi, Saliq.

[Robert Knapp:]

Hi, Saliq.

[Saliq Khan:]

Yes. A couple of quick questions from my end. The first one being is that if you take a look at the value proposition that you guys are communicating to you states and the other agencies that you are working with, how are you -- what is the value propositions look like in relation of these agencies going internal and have been going in terms of quite some time, so what are you doing to be able to offset the reference to go internal?

[Harry Herington:]

This is Harry. I am processing your question, because we have dealt with since day one, agencies that are partners of our, something they do internal something that we do, we have got a couple of contract as -- I assume that’s what you are referring to…

[Saliq Khan:]

That’s right.

[Harry Herington:]

… that have decide to take those contracts back. And you know what I would encourage you to listen to my call tomorrow, because I will be addressing that during the call tomorrow. But to put it very succinctly, people look at different models and they look at different ways of providing solutions. This is one that is common within government and that we got our eyes on.

[Saliq Khan:]

Yeah. You wanting is the -- with the loss of City of Portland, what do you see over the next 18 months or so where you can kind of prop up services in the software portion of the business and how should that be thinking about that?

[Harry Herington:]

Portland is a unique situation in that where there was more of a payment processing solution that we had that then was taken our standalone contract for them, that was then taken back over by a vendor, there was probably end-to-end solution that we don’t provide. So that’s one that when we get those opportunities we are going to check some hard and heavy and we are out there looking all the time, but we realize that there’s a risk for that when it’s independent standalone opportunity that someone else might be able to step in and provide a different solution.

[Robert Knapp:]

Yeah. I guess, the other thing that I would say, Saliq, is that, we are facing a little bit of a headwind on the software and services line to a minor extent with City of Portland. This should be the last quarter where we experienced kind of growth headwind, because that parking meter service ended at the end of the first quarter of last year. But then recall, in 2017 we had a fairly large one-time bumped from the year past now service to the senior park pass, I think, that was about an incremental $2.8 million in revenue that we only expected to happen for a brief period of time. So, certainly, and until we can start to get some more traction in other areas including federal at least for 2018 we will see a bit of a growth headwind on the software and services line in general, as we guided to you this year.

[Saliq Khan:]

Got it. And just one more at my end guys, with roughly $162 million in cash, I know you guys have spoken a lot about M&A opportunities over the years, but not really executed on any of them to shut assuming is because you’re becoming very selective as well in regards to multiples and was the best strategic case for the overall business. With all that being said, how should I be thinking about the best use of cash going forward?

[Harry Herington:]

Well, first off, what you said is absolutely correct, and the reason that we came out from behind the curtain, so to speak, talk about that, people were aware that we were taking a little bit more aggressive approach and we have been very selective as we look through these opportunities to make sure we find the right one and also at the right value and it something that we are going to continue to look at. As far as the cash, I think, our track record speaks for itself and that we have always been coming this is the Board level discussion, I have been in the company that has given back to the stockholders, if we can’t find effective use of that cash, we do have the quarterly the regular dividends now and we did say that one point that if we don’t find a place that we can make the right investments we would consider, special dividend, I think, it’s premature from there and we also have the share repurchase program out there that I want to make sure that we have plenty of liquidity, should we decide to go down that path. So I will tell you we will continue to be and this is I will not say very firmly, we will continue to be the best stewards of this for our stockholders that we have approved and we have been for 26 years.

[Saliq Khan:]

Okay. Thank you, guys.

[Harry Herington:]

Thank you.

[Steve Kovzan:]

Thanks, Saliq.

[Operator:]

[Operator Instructions] We next move to Gary Prestopino with Barrington Research.

[Gary Prestopino:]

Hey. Good afternoon, everyone.

[Harry Herington:]

Hi, Gary.

[Robert Knapp:]

Hi, Gary.

[Gary Prestopino:]

Harry, if you could answer this question it may be quite helpful, but you said this is only the second time you ever protested the contract or procurement process on the contract. What was the outcome of the first protest?

[Harry Herington:]

The outcome of the first protest was an interesting one, it was over 10 years ago and we protested in Florida. Florida had put out an enterprise-wide opportunity. We felt that it was so egregious what they did us and others protested that one. Ultimately they canceled the procurement and ultimately they actually disbanded the agency responsible for procurement based off of this and other issues. I wouldn’t expect it at that level, of course, on what we are doing here. I tell you that to reinforce, we don’t protest lightly. I mean that was one that was so bad that the governor’s office got involved and made major changes in State of Florida. In Texas, after reviewing everything, we felt very strongly that we owe it to the stockholders to step forward and protest this one. And it’s the only two we have ever. We have had other issues where we have look at and said, did they follow the rules, is there some improper and typically what we do is we just inform behind-the-scenes, we can use our lobbyist, we do other things to apply pressure and say, we have some concerns here, but we are not the type company to just crack bow, because there is an opportunity there to crack bow.

[Gary Prestopino:]

Well, when you say they cancel the procurement and disbanded whatever the agency, were you the actual operator of that contract at the time that you were protesting it, so went back to you?

[Harry Herington:]

No. At that point, there -- it was a new opportunity that they were putting out and it has been awarded to and I never speak about vendors or former vendors that are out there and more intuitive to a vendor, and like I said, we protested, others protested, and it went away.

[Gary Prestopino:]

Okay. And then as far as the State of Illinois goes, I think, my notes say that there’s going to be a payment this year of about $600,000 for work there and then there’s annual maintenance payment as well. But when can we start to see transactional revenue start flowing through the P&L from Illinois?

[Steve Kovzan:]

Yeah. We expect some of that this year very minimal in 2018 but from in 2018 and ongoing as we look for future opportunities in Illinois to add to the platform, because there is -- we will start with a smaller subset of licenses and grow that within the state.

[Harry Herington:]

Keep in mind in Illinois, it’s an interesting contract in that. They’re actually paying us to come in and delivered and then from a growth standpoint we have an opportunity for more complex things to either get a transaction or fixed fee and those are still to be identified down the road.

[Steve Kovzan:]

Yeah.

[Gary Prestopino:]

And do you have to go to each individual state agency to have them sign into the portal or is that -- or real estate agencies on there or the partner ones that you would want?

[Robert Knapp:]

Yeah. What I would say is, we have the support of the centralized IT division in Illinois for the purposes of an enterprise licensing platform, but certainly we have -- we go to each agency to show them the power of the solution and get to them to buy into that solution.

[Gary Prestopino:]

Okay. You have to really go to the agencies and get them to buy in?

[Harry Herington:]

Yeah. Which is common…

[Robert Knapp:]

Right.

[Harry Herington:]

This is how we operate in every state that we are in. We have an oversight, whether it would be a Board or an office and then we go from agency to agency, door-to-door, we show them the value. We get a buzz going and we get an energy level going within that state, sometimes it also becomes us and how do we get on, how do we participate, those type of things. And we are at the very early stages of that, where you try to get that again buzz going and that heightened energy within the state and we expect to see attraction after that.

[Gary Prestopino:]

Okay. Thank you.

[Harry Herington:]

Absolutely.

[Robert Knapp:]

Thanks, Gary.

[Operator:]

Next question comes from Allen Klee with Sidoti.

[Allen Klee:]

Good evening. You’ve mentioned software development revenues were up 27% driven by new time and material project in Indiana. Could you maybe give us a little information on that and maybe size it for us? Thank you.

[Steve Kovzan:]

Well, Allen, this is Steve. I would say that it was probably a number of projects that we delivered in Indiana, so I wouldn’t say, it was necessarily one project up. But recall, under that contract the core funding comes from a fixed fee that were paid and then while we earn a substantial portion of our revenue from transactions we also earn a decent part of our revenue there on a project basis and on time and materials basis. So they had a particularly good quarter and I don’t think I could necessarily point to one particular project or anything that stood out. So as you might also recall, we are trending against a fairly down year last year when we saw a decent drop in some of these time and material projects.

[Allen Klee:]

Okay. Thank you. And then just on your buyback opportunity, I know the last time you spoke to us, you mentioned, $25 million authorization, it didn’t look like you actually bought back any shares this quarter and given where the stock has been, I am a little, I’m not quite sure I understand what you’re thinking is, so maybe you could just help with that?

[Harry Herington:]

Okay. Yeah. I mean and I am going to thank to the appropriate way to respond to the question. First off, as we look at it we have to look at it what we feel is a in program, but at the same time when we spoke to that it was during a winter which we couldn’t do anything because we were just within…

[Robert Knapp:]

Quite period.

[Harry Herington:]

It’s quite period. Thank you from there.

[Robert Knapp:]

Yeah. And so, Allen, I think, the other thing is that, we evaluate all of our investment opportunities, whether that would be acquisitions, whether that be investing in the business and when we had authorize the buyback program we processed it by saying we never going to buy back shares at opportunistically when it makes sense for us to do that. We haven’t bought any shares. But certainly if it made sense for us and it’s something we are comfortable with we would do it.

[Allen Klee:]

Okay. Thank you.

[Harry Herington:]

Yeah.

[Operator:]

With no further questions in queue, I would like to turn the conference back over to management for closing remarks.

[Harry Herington:]

Thanks, Shannon, and thank you to everybody who joined us this afternoon. Please join us tomorrow for our Annual Stockholder Meeting, where I will share my thoughts and what -- we will continue to make us successful in the future. You can join us via the webcast by visiting the Investor Relations page at our website at egov.com or I invite you to come in person to the Olathe Convention Center located at the Embassy Suites Hotel just down the street from our corporate headquarters in Olathe, Kansas. Thank you very much.

[Operator:]

Thank you. Ladies and gentlemen that does conclude today’s conference. We thank you for your participation. You may now disconnect.