NIC Inc
Q2 2018 Earnings Call Transcript

Published: 2 Aug 2018

[Operator:]

Please good day, and welcome to the NIC 2018 Second Quarter Earnings Announcement. Today’s conference is being recorded. At this time, I would 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 second quarter earnings call. The press release for NIC’s second quarter 2018 earnings announcement was issued 30 minutes ago. And our earnings release is also available on our corporate website at egov.com/investor-relations. You may also call our headquarters at 877-234-3468 and we will e-mail the information to you. Also, this quarter, we are sharing slides as part of our webcast. So, I encourage everyone to go online to the IR page of our website to view them. 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. 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, states and local government agencies, the company’s ability to identify and acquire suitable acquisition candidates and to successfully integrate any acquired businesses, risk related to the outcome of the taxes procurement process as well as possible data security incidents. Any statements regarding our expected effective tax rate for 2018 reflect provisional amounts subject to adjustments 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 second quarter earnings call. During our Annual Stockholder Meeting, I shared with you about the investments we’ve been making in the vertical markets of healthcare, outdoor recreation and enterprise licensing and permitting. As we announced earlier today, NIC acquired the RxOrbit suite of software assets, developed by Leap Orbit, a privately held Maryland-based company with extensive healthcare and IT expertise. This is an exciting development for NIC and strengthens our healthcare expertise and our prescription drug monitoring platform. We would be leveraging the best practices from the PDMP solutions we have developed over the years, including our flagship system in the state of Wisconsin, to offer completely re-imagined approach to PDMP systems, which we are recalling RxGov. We continue to hear every day about the opioid epidemic in this country. According to the centres for Disease Control, approximately 46 people die every day from an overdose involving prescription opioids. Today, 49 states, Washington, D.C. and U.S. territory of Guam have lost authorized in the creation and operation of a PDMP, and 40 states have mandatory query laws requiring the providers, such as doctors, nurses and pharmacists access PDMP data. Although there were legacy systems are already in place, we see significant market potential. In the marketplace, it is common to hear frustrations that legacy systems are a black box of data. Changes are expensive to make, and they do not integrate well with electronic health record systems used by hospitals and healthcare professionals. RxGov addresses all of these challenges. It includes a complete PDMP data platform that is scalable and addresses the comprehensive needs for state PDMP data processing and delivery. One of the biggest concerns with the opioid epidemic is doctor shopping, meaning patients addicted to prescription opioids, trying to get more prescriptions than they are allowed. RxGov’s unique patient-matching algorithm uses machine learning to match a patient’s full name, nicknames, main name, et cetera, into a single patient record. With this functionality, healthcare professionals can quickly detect inappropriate prescribing patterns. RxGov seamlessly integrates with the workflow of electronic health record systems, known in the industry as the EHRs. Controlled substance data and alerts are embedded directly into a patient’s EHR or a pharmacy’s point-of-sale interface. There is no need to log into a separate PDMP portal. In addition, RxGov is a platform-as-a-service, allowing us to deploy this quickly on behalf of government in a matter of days, not months, and provides for easy migration from a legacy system at a minimum cost. The RxGov platform is also completely cloud-based in the Microsoft as your cloud environment, provide an infinite scalability, superior availability and strong data security. We believe RxGov is the best-in-class solution for the boards of pharmacy, pharmacy of health, Medicaid directors, and other agencies responsible for managing a state’s prescription drug monitoring program. We are actively pursuing sales opportunities. And as you may recall, Doug Rogers, our Senior Vice President of Business Development, came to us from Cerner, the nation’s largest provider of electronic health record software. So we have extensive internal knowledge on what the market is looking for with this type of solution. In addition, we’ve entered into a strategic relationship with Leap Orbit to continue assisting with business development efforts as well as providing input about the future roadmap for the RxGov product suite. In a moment, Robert will share more about the market potential, and Steve will cover some of the financial details of the asset acquisition. But I’ll wrap up by saying, I’m very excited to bring choice, flexibility and affordability to the marketplace in the RxGov and look forward to leveraging its growth potential for NIC. Moving on to Texas. As we have shared in the past, our current contracts with the State of Texas expires at the end of August. At this time, our protest of the procurement process and contract award decision continues. Last quarter, we informed you, we’ve submitted a protest with the Texas Department of Information Resources of its decision to award the contract relating to portal operations, maintenance and development services to Deloitte. In the protest, we cited flaws of procurement process and award decision. In May, the protest was initially denied by the procurement department, and we then appealed directly to DIRs Executive Director. At this time, we continue to await a decision. Moving on to more internal focus developments this quarter. One individual, who has been a core part of NIC, is Ross Hartley, one of the company’s co-founders and long-time board member. As we previously announced, Ross retired from the board in June. He has done a great deal for this company, and I will miss his wisdom and his guidance. Ross, from all of us at NIC, thank you for your dedication to the company. With Ross’s retirement, we also welcome two new board members to our Board of Directors, Jay Vijayan and Tony Scott. Jay is a former Chief Information Officer for Tesla and is currently the Founder and Chief Executive Officer of silicon-based Tekion, an innovative-served technology company that serves the automotive retail industry. He was the CIO at Tesla from 2012 to 2016 and was responsible for the company’s information systems, including applications, infrastructure, network, operations and corporate and product security. Prior to Tesla, Jay led the IT business applications organization for VMware and led product development teams for Oracle. Tony served as the Chief Information Officer for the United States under President Barack Obama. Currently, he is the Senior Data Privacy and Cybersecurity Advisor with the global law firm of Squire Patton Boggs. In his past, Tony also led the global information technology group at VMware, served as CIO at Microsoft and Walt Disney Company and was the first Chief Technology Officer of Information Systems and Services at General Motors. We are very fortunate to have two technology leaders with such stellar backgrounds join our Board of Directors. Both gentlemen will bring their passion for innovation and technology as they help guidance NIC. I look forward to working with both of them. Last, but certainly not least, I will close today by congratulating our Chief Security Officer, Jayne Friedland Holland. Jayne was recently honored by the Kansas City Business Room as one of the members of the 2018 class of Women Who Mean Business. That describes Jayne perfectly. She has an amazing focus and provides a unique perspective to our company’s strategy and executive team. She built our Corporate Security department from the ground up and today, is one of the leading experts in the industry on Cybersecurity. She has also done a lot at NIC to mentor other young women in our organization and dedicates her time and resources in the community to advancing education initiatives as well as promoting STEM programming for girls. I’m proud to have her as a member of the executive team and as our Chief Security Officer and as a friend. Congratulations, Jayne. With that, I will turn the call over to Robert Knapp, NIC’s Chief Operating Officer, for additional insights into operations. Robert?

[Robert Knapp:]

Thank you, Harry. During the second quarter of 2018, we had some great developments in our operations that are advancing digital government across the country. First, I want to echo what Harry said about RxGov. The industry has been asking for a better solution and choice, and there is considerable market opportunity within our existing partner states as well as with prospective partners. Broadly speaking, the market can be segmented into two primary components

[Steve Kovzan:]

Thanks, Robert, and good afternoon to everyone on the call. We had a strong second quarter of 2018, earning $0.25 per share compared to $0.19 in the prior year quarter. Core financial results for the quarter include total revenues of $92.5 million, an 8% increase over the second quarter of 2017, with portal revenues of $86.6 million, up 9% over the prior-year quarter. Total same-state portal revenues grew a healthy 8% for the quarter. Breaking down the components of same-state revenue growth, same-state IGS transactional revenues increased 10% this quarter, due mainly to growth from some of our core Maine State services, such as drivers’ license renewals, motor vehicle inspections, and motor vehicle and business registration filings among others. Same-state DHR transactional revenues were up 4% for the quarter, driven by a price increase in one state and higher volumes across several states. And finally, same-state software development revenues increased 39% for the quarter, driven primarily by new projects deployed across several states. Second quarter portal revenues also included approximately $500,000 from our newest partnership in Illinois, as we continue to deliver on the enterprise licensing and permitting platform. Driven by strong same-state portal revenue growth, quarterly operating income increased 14% to $22.4 million, contributing to the increase in our operating income margin to 24% for the quarter from 23% in the prior-year quarter. Finally, for the quarter, our effective tax rate was 24%, down from the 35% in the prior-year quarter, driven by the favorable effects of the recent tax law changes. As for the acquisition of the RxOrbit PDMP technology, the purchase price consisted of an upfront payment of approximately $3.5 million and an additional $3.5 million to be paid in two equal installments, and certain milestones under the acquisition agreement were met. We currently anticipate that the purchase price will be modestly dilutive to earnings this year with incremental operating expenses in 2018 of approximately $1 million, mainly in the form of intangible asset amortization and a subcontract relationship with Leap Orbit for ongoing technical support. However, our 2018 EPS guidance remains unchanged. The intangible assets arising from the asset purchase will be amortized over a three-year period. And with that, I’ll turn the call back over to Harry.

[Harry Herington:]

Thank you, Steve. The business produced solid financial results in the second quarter of 2018 and as you can probably tell from my remarks today, I’m incredibly excited about our reimagined RxGov PDMP solutions, among other developments this quarter, as we continue to work hard to deploy our surplus capital in creative ways to position NIC for new channels of growth in the future. With that, operator, we’ll now open the call for questions.

[Operator:]

Thank you. [Operator Instructions]. And we’ll go first to Joseph Vafi with Loop Capital.

[Joseph Vafi:]

Hey guys, good afternoon. Congrats here on this acquisition. Just – this is a great – I think a great first step on the M&A front. Was just wondering if you have any commentary on how the acquisition pipeline looks from here. Obviously, this one is probably on the smaller side. And maybe it be also help us to get an idea of your appetite for larger deals? And then I have a quick follow-up. Thanks.

[Harry Herington:]

Absolutely, and thank you. This is Harry. Real quick. We’re excited about this technology asset acquisition. I think it’s going to really assist with what we’ve been doing in the PDMP market. As far as appetite for acquisitions, we’ve stated numerous times. We’re constantly looking for the right one. We have actually pursued several, I mentioned those that the – at our recent Annual Stockholder Meeting. And some to the tune of several [ph] hundred million dollars. But we’re only going to make only going to look at that the acquisitions that make sense, and we’re not going to chase those that are overly priced.

[Joseph Vafi:]

Okay. Fair enough. And maybe just also, at a high level, what – when you talk to your customers, and they see the, kind of, explosion of new technologies of third-party hosted solutions in the cloud and from vendors like Amazon and Azure, how is that fit into your business model today and how does they potentially change it to the positive or to the negative as we move forward? Thanks a lot. Hello? [Technical Difficulty]

[Operator:]

[Operator Instructions] And Angela Davied has reconnected.

[Harry Herington:]

Sorry. This is Harry. And I apologize to everyone as I was finishing my comments, I accidentally bumped the phone and disconnected it. So, I do apologize for that. Operator – Joe, I think you had another question?

[Joseph Vafi:]

Yes. just real quick, Harry – just, as you talk to your clients, and they adopt cloud more and more, and they’re starting to use, perhaps, some of these third-party vendors like Azure and AWS, I was wondering what are the positives and negatives to that adoption to your business as it exists today and in the future. Thanks.

[Harry Herington:]

That’s a great question, and it’s one that we are very excited about. The cloud computing is something that we’ve been working on for years. I think we had mentioned several years ago, we had a private cloud, in which we were doing business with the multiple partners. As government became more and more comfortable with the cloud, out there would be the government cloud that both Microsoft and Amazon have up or just the traditional cloud, we have started expanding our services out there. One of the biggest issues that we had from a concerns’ standpoint was security and privacy. And that is one that they have done a phenomenal job at working towards to get everybody more comfortable. There, of course, is cost savings that comes with that, and that’s one of the things that we’re leveraging. And there is a lot more tools that you can use that are cloud-based. At the same time, there is – when you’re dealing with government, there is a history of how they’ve done things in the past and the changes that would have to occur on their part and a lot of regulatory concerns, getting back to privacy, security and how data should flow, that we’re working with them on. I see it is a tremendous positive. I’d let Robert share more.

[Robert Knapp:]

Yes, Joe, this is Robert. The only – the added comment I might make is, obviously, with the cloud comes a strength in availability, and when we are, obviously, trying to process transactions, 24/7 for governments across the country, availability becomes a critical issue. And so that adds a level of enhanced strength to services as we deploy them in the cloud.

[Joseph Vafi:]

Thanks very much for the color.

[Harry Herington:]

Absolutely. Thank you.

[Operator:]

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

[John Campbell:]

Hi guys, congrats on the quarter, the deal and the two new board additions. It sounds like you guys are moving well forward.

[Harry Herington:]

Thanks, John.

[John Campbell:]

On the Texas protest, I know you guys aren’t going to speak to the details there. But at a high level, if the protest is successful, what are the range of outcomes? Is it possible that you guys can win back what you’ve lost? If you guys can’t touch on that, maybe you could tell us what happened in Florida the last time you protested in one?

[Harry Herington:]

That’s a very broad question, and I would be extremely careful in what I would say in Texas. It is an active procurement. I will say there are probably a range of solutions that state could consider. One of them is canceling the entire procurement and putting it back out to bid. One could be awarded to us. I would tell you, I do not see that as what I would consider reasonable. What I would say is, I trust the Department of Information Resources and in particular, the Executive Director there to evaluate everything appropriately and then hopefully, come back with the – with, what we feel, will be the right solution [indiscernible] as soon as we do get clarity on that, one way or the other, we will communicate that. In Florida, as you know, that’s the only other time we have protested, and we protested with other organizations out there. That protest was successful, and they ended up not only eliminating the contract that they had awarded, they did away with the department that awarded the contract itself and restructured it. So that’s one of the reasons why it was not rebid at that time and that the State of Florida has, over the years, attempted to get back to a point, where a contract like ours would serve them well.

[John Campbell:]

Okay, thanks. And then on rec.gov, it seems like you guys are ready to go there. And I mean the $2 million to $3 million of revenue contributions. Steve, maybe, how should we think about the margins there? I’m assuming that’s coming on a – probably, a higher margin than in the state portal rev. Is that about right?

[Steve Kovzan:]

John, how are you? I guess what I would say is this. We are currently at a full, kind of, annual expense run rate, a fully staffed run rate now about $1.5 million. And so obviously, the $2 million to $3 million would offset that. Hopefully, we’re being somewhat reasonable and conservative with our estimates from a revenue standpoint, so that should, kind of, give you a general feel there.

[John Campbell:]

Okay. That’s helpful. And then the $1.5 million of cost you’ve carried there, how many quarters have you been carrying that for rec.gov?

[Steve Kovzan:]

Oh, I would say that it’s been several now. Three or four quarters. My guess is we’ve been fully staffed for at least two full quarters, if not more than that.

[John Campbell:]

Okay, great. Thanks guys.

[Steve Kovzan:]

Thank you.

[Operator:]

[Operator Instructions]. And we’ll go next to Peter Heckmann with Davidson.

[Peter Heckmann:]

Good afternoon, everyone. With the – and I know it’s very sensitive, but with the ongoing protest in Texas, will that potentially delay the transfer or effectively extend the exploration of August 31st into the future until the protest is resolved?

[Harry Herington:]

Hey, Pete, this is Harry. No. Right now, we are proceeding forward according to the contract. We are trying to be the best partner we can throughout all of this. And by our contract terms, we’re not allowing our frustration or our serious concerns with procurement get in the way of where contractually we need to be. Our teams – I’m very proud of the teams there and doing what’s right by not partnering our contract.

[Peter Heckmann:]

Okay. Okay. And then as regards to the FMCSA prescreening application, which expires at the end of this month, I guess, any thoughts you can give us there in terms of whether they may non-renew or extend on the short-term? Are they up against any procurement hauls where they would have to do a rebid? Give us some thoughts there, because we don’t have a lot of experience with federal contracts.

[Robert Knapp:]

Yes, Pete. This is Robert; I’ll jump in, some, kind of, late breaking news. Obviously, we still fully expect FMCSA to proceed with an RFP in the future. But we have received, literally today, a six-month extension to that process. So that’ll, like FMCSA, continue what – the work they’re doing to prepare for a required RFP that they have to issue.

[Peter Heckmann:]

Got it. Okay. That’s very helpful. I appreciate that. And just one follow-up on the rec one-stop, how are you estimating the $2 million to $3 million of revenue? Is that just based on volumes from the incumbent application? And how could there be upside? Would there potentially be more applications you could write? Because there be more marketing that could drive more penetration? Yet is two to three kind of a conservative starting point, or is that pretty fully loaded?

[Harry Herington:]

Hi, Pete. So I would say, generally speaking, our estimate is based on historical volumes primarily. Certainly, if we teeming with Booz Allen Hamilton are successful in driving more usage and growing adoption, which is part of what we’re doing under this contract, teeming with Booz, then, perhaps there could be some upside to that. But again, we’re just trying to be reasonable with initial expectations for the service, and we’re certainly going to try our best to drive more usage and volume and provide more services than historically have been on the service.

[Peter Heckmann:]

Okay, thank you again for that run rate kind of immediately once it launches in October?

[Harry Herington:]

Well, I guess I would say this is that, I think generally speaking, with this type of service in the fourth quarter, kind of, in October, it’s probably, if I had to guess, of the four quarters during the year, it’s probably the seasonally weakest cold or one of the seasonally weakest. So I’m not sure that if we’ll get to that run rate immediately. But over the period of the year, I think that’s generally what the run rate is that we’re expecting on an annual basis.

[Peter Heckmann:]

Okay, that’s helpful. Thanks.

[Harry Herington:]

Thanks Pete.

[Operator:]

And we’ll go next to Gary Prestopino with Barrington Research.

[Gary Prestopino:]

Hey good afternoon, everyone.

[Harry Herington:]

Hi, Gary.

[Gary Prestopino:]

This RxGov product that you want. First of all, Steve, is that $1 million of amortization, is that just for the six months that you own it in 2018, or is that on an annualized basis?

[Steve Kovzan:]

Good question, Gary. So, $1 million that we’re referring to is kind of split somewhat equally this year between amortization and obviously, some staffing costs and an ongoing agreement that we have with Leap Orbit to continue to maintain the system for a period of time. So depending on the timing of when we would potentially make the second installment, which would come in two equal amounts next year, the annual amortization, let’s say, that happens within the next three to six months, the annual amortization on a full purchase price, $7 million purchase price could be as much as $2.3 million for the amortization. But right now, we’ve only paid half.

[Gary Prestopino:]

All right. So, getting it for modeling purposes, I don’t want to get too much into this on the call. But we’re – you’re fully loaded $1 million of incremental expenses for the back half of this year from this acquisition?

[Harry Herington:]

That’s correct.

[Gary Prestopino:]

Okay. And then could you just get some clarity around this, because you went through the slides pretty quickly. I couldn’t write, and we don’t have hard copies of the slides as of yet. But there’s 49 states that authorize this? There’s 40 states that mandate it, right? Is that correct?

[Harry Herington:]

No. There are 49 states plus – and Washington, D.C, Guam, that’s passed legislation requiring with these systems in place.

[Robert Knapp:]

49 states have a PDMP system.

[Gary Prestopino:]

All right.

[Harry Herington:]

But the passed legislation requirement that they have in there. Of those are service states. We’re required to get them in there, the systems in box and put information in there. The other statistic that we were mentioned is the requirement with – of queries. And I’m looking to Robert to address that one.

[Robert Knapp:]

Yes. So, that’s 40 states have mandatory query laws, let’s say healthcare providers are required to access the PDPM to get that information.

[Harry Herington:]

That’s the reason we talk about the number of hospital beds and whatever.

[Gary Prestopino:]

Okay. So, I guess the question I have is that how are they doing now? Are there other software providers out there that are similar to what you purchased? And you – this – or this – and this – in order for this to grow, this all really got o conquest business, right?

[Harry Herington:]

Yes and yes. But I’ll tell you various other vendors out there. There is a significant vendor out there as well that has provided. What I’d call that the basic PDMP service that was requested within the legislation, remember, there is an epidemic our country has been facing for years. And they’ve been out there and trying to think how they get in front of us. And they came up with the legislation they required that the doctors and pharmacists put this information out there to try to get ahead of it. What they have discovered is they’re not getting access to the type of information that need to get ahead of this. Looking for trends, looking for hotspots, doing the different queries, let’s say, from a government standpoint. So they can get ahead of beds and start trying to take down the number of beds. We’re losing almost 50 people a day to overdose from prescription opioids. And so what the needed was a better system, better systems out there. And that’s what the federal government came in and look, we’re willing to the center for Medicare and Medicaid cancer. We’re willing to pay up to 90%, if you will enhance your systems, replace your systems, so that we can get this information and you can get this information. That makes a very fertile ground. That shows the frustration that’s out there with the current systems in place and that’s why we’re excited about. We already have systems in place, not by doing this asset acquisition, this very strong engine, let’s say, where they’ve got their data centers, they’re coming in with the right algorithms, that has given us definitely a leg off [ph] and given us what I would call, a unique system that is necessary right now. Long answer, I apologize.

[Gary Prestopino:]

Yes. I’m just trying to understand it, so this technology has been in a pilot program with the state, excuse me, of Maryland? Has been – is there – go ahead.

[Harry Herington:]

That is correct. The acquisition that we just did of this technology has been a pilot phase in Maryland. They’re actually using that as the best recovery backup there. And it’s working very well. Then you take what we’ve deployed in Wisconsin and other places, you marry those two together, and you come up with that enhanced prescription drug monitoring platform program that is going to be beneficial throughout the country.

[Gary Prestopino:]

So – but there is no other state that’s using this platform, I guess, is what I’m getting at.

[Harry Herington:]

The engine – the asset that we acquired, no. Right now, that is there. It is that has not been taken so that’s the reason that we stepped in. Because we can step in and take this asset from this company and take up a whole new level with the size of company we are and the breath that we have with all of our contracts. So we were a perfect partnership to commit at this and leverage this asset.

[Gary Prestopino:]

Okay. So, you feel you’ve got a bigger, better match up. I mean, is some of the problems with some of the other monitoring systems, does that – is not its real-time or…

[Harry Herington:]

And I got to be real careful to that. I don’t every speak to you, negatively to other people in the same space that I am. What I can tell you is what we heard and what got us really interested in this, is there is frustration in the market. And the frustration in the market has not been able to access to the data that they need that they could go into black box and trying to get that data out is extremely expensive are hard to do – impossible to do at times. And that they’ve got to have access to this information.

[Robert Knapp:]

Gary, I might just add a little bit, where we think obviously, we believe our system – enhanced system is, think if one is around the patient matching algorithms that Harry referenced in terms of concerns over doctor shopping that occur. The engine of the software acquisition that we made has some real strong algorithms to it that we believe are better and are strong that we’ll be able to identify, for example, whether it’s the nick names or mid names or full names and basically you create a single record for that individual and their prescription. And then the other thing we want that one of the things we think is distinctive, the seamless integration that we can bring to the electronic health record and being able to give doctors immediate access that data and in terms of being able to make decisions. And you can imagine, if you’re sitting at emergency room and the doctor needs to pull it up to go to a separate portal to pull that information up his time and that they lose in dealing directly with the patient and potentially, saving lives.

[Gary Prestopino:]

All right. Can I ask one more question? I don’t know I’ll hop…

[Harry Herington:]

Absolutely.

[Gary Prestopino:]

How are – what is your revenue model for this. Is it transactional based? Is a subscription-based and who pays the doctor, the hospital, both?

[Robert Knapp:]

The way we’ve got to – the way we’re looking at it right now, keep in mind, this is one recumbence and of course, we have done our strategy with this, and we’ve looked at where we think the market is. We’re looking as an implementation fee that would potentially go along with us as well as a SaaS setup. And so this will a SaaS opportunity. But however, we’re early into this process. I don’t want just to say, "Hey, this is the only way we’re going to do." But that is how is being done today, is the SaaS model. And so we – that’s what we’ve bombed our teams with.

[Gary Prestopino:]

Okay. Thank you so much.

[Harry Herington:]

Yes. Let me address one other thing that you mentioned, and I’m sorry. And Robert just said, "Harry, you only answered half the question," and that is, primarily, our – we have server our customers to customers we go out and we look at providing access to critical information to the citizen businesses that need that. And at the same time, improving government and how they do things. In this case, we’re doing the same thing except for, we’re going to have two different customer basis. One would be government themselves. They would be the ones that would do the implementation for that and the SaaS to have this system run. We also think there is a market with the hospitals out there that need access and are required in 40 states to have access to this information. So, we actually think it’s a two-pronged sales approach to the states themselves and into those that need to access it.

[Gary Prestopino:]

Okay. Thanks a lot.

[Harry Herington:]

Okay.

[Operator:]

At this time, I would like to hand the call back over to Harry Herington, CEO for any additional comments or closing statements.

[Harry Herington:]

All right. Thank you and I’d like to thank everybody, who has joined this afternoon. This is an exciting time for NIC, we’re very excited about our enhanced PDMP solution, and how well we’re – things are going. I ask that you join us again in November for our third quarter earnings call. Thank you.

[Operator:]

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