NIC Inc
Q1 2015 Earnings Call Transcript

Published: 5 May 2015

[Operator:]

Good day, and welcome to the NIC Inc. First Quarter 2015 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, ma’am.

[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 2015 earnings announcement was issued 30 minutes ago. Our earnings release is also available on our corporate website at egov.com/investors-relation. You may also call our headquarters at (1877) 234-3468, and we will email the information to you. Following a 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 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 current fiscal year, statements regarding the planned implementation of new portal contracts and projects under existing portal contracts, and statements regarding continued implementation of NIC's business model and its development of new products and services. Forward-looking statements are subject to inherent risks and uncertainties, and there can be no assurance that such statements will prove to be correct. There are a number of important factors that could cause actual results to differ materially from those suggested or indicated by such forward-looking statements. These include, among others, NIC's ability to successfully integrate into its operations recently awarded eGovernment contracts; NIC's ability to implement its new portal contracts, new projects in a timely and cost-effective manner; NIC's ability to successfully increase the adoption and use of eGovernment services; the possibility of reductions in fees or revenues as a result of budget deficits, government shutdowns or changes in government policy; the success of the company renewing existing contracts and in signing contracts with new states and federal government agencies; continued favorable government legislation; NIC's ability to develop new services; existing states and agencies adopting those new services; acceptance of eGovernment services by businesses and citizens; competition; the possibility of security breaches or disruptions through cyber-attacks or other events and any resulting liability; and general economic conditions and the other important cautionary statements and risk factors described in NIC's 2013 annual report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2015. Any forward-looking statements made during this call speak only as of the date of this call, and NIC does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. 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, and thank you for joining us today. When I tell people about our business, there are few words that I use consistently, passion, innovation, collaboration and patience. And virtually every conversation I have about NIC, I can be use one if not all of those words to describe our company and employee. As I look back over the first quarter of this year, those four words once again seems fitting to describe our operational execution and financial results. First of all with passion, I think just about every start of company begins with passion. The founders identify better way of doing something and pursue it wholeheartedly to make it reality, that passion is in our DNA, from our founders to our most recent hirer. Coast to coast we have more than 825 employees who are enthusiastic of our unique technology to make government more accessible and are highly motivated to do what it takes to make good government, great. Recently, a few employees took their passion to eGovernment and went to D.C. to participate in Hackathon for the U.S. department as interior in agriculture. Five developers from Montana, Tennessee and Texas portals and a cheap architect spend their weekend developing services to promote America’s public clients and modest as part of the My America developers summit. They propose some ideas for the Hackathon including a national park online guest book check in and another application they will provide Meta Data driven tips of things to pack and do at national park. They will expend a weekend forming teams and working on those ideas, with open source code ready for anyone to use. I’m proud of the employees, who travelled to D.C. and provided their time and talent in this endeavor as a public service to our country. I also mentioned the importance of innovation and collaboration. At NIC, innovation and collaboration go hand-in-hand. We’re united with our partners in delivering the very best in digital Government services. It takes both parties, us and our partners, to make the latest innovation a reality. Often it also means partnering with the industry. Back in 2009, we began working with the transportation industry and the Federal Motor Carrier safety Administration to deliver commercial driver crash and inspection data effectively and efficiently through the Pre-employment Screening Program or PSP. More than five years later, our team has consistently worked with their partner to make this information more accessible. As of this, the mobile application we developed for PSP and the award winning customer service center and it is easy to see how this combination of innovation and collaboration continues to deliver strong results for our company and the industry. Another winning combination of innovation and collaboration is the work we’ve done with Hunting and Fishing. Today, 14 portals provide some form of online Hunting and Fishing sources with six having dedicated mobile apps. During the first quarter this service continues to expand throughout the NIC’s family of companies. Here are few highlights. Mississippi’s Hunting and Fishing licensing swipe up services and Montana’s hunting licensing service both saw year-over-year double digit percentage of usage increases with constant launch on electronic fish harvest registration system for license commercial fishing operations. Pennsylvania launched in Ainger app to find licensing agents, water access points and more. Utah’s mobile hunting and fishing app now allows a more advice to replace a paper license. The license featured on the mobile advice can be shared with game mode and this season for the first time more Arkansas hunters check game via mobile device than used on the traditional calling number. It is great to see the suite of services performing well across so many portals. I also look forward to the launch of our comprehensive suite of services we are developing for the Department of Natural Resources in Wisconsin. I’m pleased to report this is on track with the full launch anticipated for early 2016. Finally, in addition to passion, innovation and collaboration one of our company strength is patience. Over the years, I think investors have come to appreciate the element of patience required in the process to secure business. In recent months, there’s been lot of speculation from the investment community and media about the future of our relationship with the state of Oklahoma. Some speculated, we would lose the business. Other supported it was changing substantially. I am pleased to report today that we have signed a new contract with State of Oklahoma to continue providing self-funded eGovernment services with potential extensions through March 2020. We will continue to manage existing services and develop new online services for the State. Thank you to the State of Oklahoma for continued place your confidence in us. We’re excited to continue providing award winning site and services for this state. Passion, innovation, collaboration and patience, this is not only how I describe our company but those four element work once during the first quarter to deliver the consistent results our core business was designed to produce. Before I turn the call over to Robert Knapp, NIC’s Chief Operating Officer, I want to take a moment to congratulate him. Last week, State’s group announced the winners of its State’s StateScoop 50 awards. One category included the industry’s leadership of the year award, recognizing a private sector pioneer driving change in government IT with unique solutions, that definitely describes Robert and I’m proud to announce he was indeed honored by State’s Scoop as this year’s winner of the Industry Leadership of the Year Award. Robert has risen through the ranks during his 15 year career at NIC. Today he serves as our Chief Operating Officer, overseeing all of our portal businesses, which includes managing the 30 plus portal team and driver them to collaborate and develop increasingly, innovative way to deliver efficiencies through our federal, state and local government partners. He is passionate about making government more accessible and using the latest technology to achieve that goal. He is also a great leader within our company. I’m very proud of Robert and again congratulations of winning this award. With Robert our same portal operation in addition to the development I just discussed from the first quarter of the year. It is easy to see why I remain optimistic about direction of our company and look forward to even more eGovernment success in the future. And with that, I’ll turn the call over to Robert Knapp, NIC’s Chief Operating Officer for additional operational highlights.

[Robert Knapp:]

Thank you, Harry. I am very honored to receive the StateScoop Industry Leadership of the Year Award, it takes the effort and talents of the entire team to make this company successful. And I am proud to do my part to continue to drive innovation and eGovernment efficiencies on behalf of our government partners. And I agree with what Harry said passion, innovation, collaboration and patience really are at the heart of what makes NIC’s successful. Take the marijuana online services, I spoke about last quarter there has been innovation and collaboration it work in organ as the state just announced the portal will help each partner to Oregon as the state just announced the portal will help its partner to Oregon Liquor Control Commission build a commercial recreational marijuana business licensing service. The service will allow commercial recreational marijuana businesses to apply for license, renew and existing license, pay license fees by credit card, pay applicable taxes and update their license information. Again work has just begun, but I am pleased to see our portals continuing the find ways to bring innovation and efficiencies to this regulated industry. I am also pleased to report that the Louisiana pilot is on track, we are making good progress on our pilot projects and I look forward to the day when we work with multiple agencies under a fully functioning state wide portal. Again, the path of the becoming in enterprise wide portal will take hard work, passion and some patience. But I know we are making the right investments to make that reality. It is also passion, innovation and collaboration that led many of our partners and the online services we have developed with them to be recognize for the StateScoop 50 Awards. As Harry mentioned the StateScoop 50 Awards were announced last week and among the six categories were innovation of the year and State IT Program of the year. I am very proud of our portal teams and their partners, whose work represents more than half of all the entries in those categories. Congratulations to all of our teams and government partners who were recognized as winners in this year’s StateScoop 50 Awards. And while it is great win awards with our partners, we very appreciate winning new business and extending contracts with existing partners. In addition to the new contract with Oklahoma that Harry just mentioned the State of New Jersey recently signed a long-term contract with our trend base subsidiary New Jersey Interactive LLC. The portal will continue to provide enterprise wide self-funded eGovernment services for the state with the base contract of five years and renewals that the state can exercise to extent the contract through May 2022. I would also like to thank the State of Tennessee and Alabama for continuing to partner with us to advance their eGovernment programs. Both states sign one year contract renewals during the first quarter. Again thank you to our partners in Oklahoma, New Jersey, Tennessee and Alabama. Finally, I’ll close by giving a quick shot out and congratulations to our team in Honolulu for being recognized by the Hawaii business magazine as the best small business for the second consecutive year based on confidential employee survey’s and an expensive review of employee benefits have working conditions. NIC’s Hawaii portal to top honors for its focus on wellness. In addition to this honor, they were specifically recognize that the most family friendly business in the state. I am very proud of our team in Honolulu and again congratulations. And with that, I’ll turn the call over to Steve Kovzan, NIC’s Chief Financial Officer.

[Stephen Kovzan:]

Thanks Robert. Good afternoon everyone on the call. During the first quarter of 2015, NIC is earned $0.14 per share with total revenues $70.4 million. For the quarter, total revenues were $65.9 million, up 7% over the prior year quarter driven by the consistent deployment of new services and increased adoption of existing services across several portals. Total same state portal revenues grew respectable 7% for the quarter. Breaking down the components of same-state revenue growth, same-state IGS transactional revenues grew 12% this quarter due to higher revenues from key services including final records in Texas, motor vehicle registrations in Colorado and payment processing in Arkansas. Same-state DHR transactional revenues continued to exceed our expectations and grew 5% this quarter due mainly to a price increase at one of our state portals in the current quarter and two price increases during the second quarter of 2014. With the anniversary of two of the price increases next quarter, we anticipate DHR growth rates to moderate the rest of the year. Finally, same-state time and materials revenues decreased 23% this quarter. Keep in mind, this category of portal revenues is somewhat lumpy quarter-to-quarter and does not have the same degree of predictability as our transaction based DHR and IGS services, which when combined rose 9% in the current quarter continuing to demonstrate that our core portal business is solid with organic transactional revenue growth in line with historical averages. I’d like to provide a bit more color on an item we mentioned in the earnings release that affected our IGS revenues and portal gross profits for the quarter. In Texas, legislation became effective during the first quarter, the changed out vehicles are inspected and registered. This change resulted in a temporary decline in revenues from the vehicle inspection service. You might recall, we launched this service back in the fall of 2012 as the first and the suite of service as we refer to is DPS Direct. It is our single largest IGS service across all of our state portals generating about $15 million in annual revenues from the Texas portal. Prior to the new legislation, when cars were successfully inspected, the owner of a vehicle received a windshield inspection sticker. Separately, when an owner registered a vehicle, they received a second windshield sticker. The new law effective March 1, 2015 eliminated the inspection sticker and make the vehicle registration dependent on passing a vehicle inspection and resulting in a “single sticker” process. Prior to March 1st, we recognized revenues when stickers were shipped to inspection stations. Post March 1st, we now recognize revenues as inspections occur. During the golf course analogy, this transition caused a temporary dip or divot in revenues during February of approximately $700,000 as inspection stations across the state seized the purchasing inspection stickers in anticipation of the March 1 transition. The good news is that we saw revenues bounce back to normal levels in March and are hopeful to avoid any lingering effects in the coming months. Excluding this divot, same-state IGS revenue growth would have been about 14% for the quarter as compared to 12% reported growth. We also incurred approximately $700,000 of non-recurring costs to transition to the new single sticker process. In total, the combined revenue in cost impact reduced our portal gross profit margin for the quarter by approximately 2 percentage points and also significant contributor to our lower operating margin for the quarter. Moving onto our newer portals, our Connecticut portal which launched during the second quarter of 2014 generated revenues of $1.1 million in the first quarter of 2015, while start-up costs for the Louisiana pilot totaled approximately $300,000 in the current quarter. A few back housekeeping items on the portal business. Revenues from the legacy Arizona portal contract which expired at the end of Q1 2014 were approximately $800,000 in the prior year quarter. This will be the last quarter we will trend against revenues from the legacy Arizona portal contract, but also note this will be the last quarter we earn revenues from the legacy Delaware contract as we completed the transition of portal services to the state at the end of Q1. Current quarter revenues from Delaware were approximately $600,000. Moving on, for the quarter software &services revenues were up 14% driven by continued strong performance from the Pre-Employment Screening program which we managed for the U.S. Department of Transportation Federal Motor Carrier Safety Administration. I would echo Harry’s comments that it has been great to see a continued growth of this service that we launched five years ago. I’ll wrap up my comments today with an update on a matter we disclosed in our 2014 Form 10-K filed with the SEC on February 24th, 2015. One of the customers which does business with most of our subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on February 8th of this year. Currently, we’re in the process of evaluating certain matters in connection with this bankruptcy. While we cannot predict the outcome of the bankruptcy or certainty, our legal counsel has been in discussions with the customers’ legal counsel regarding the assumption of our executory contracts when the customer emerges from bankruptcy expected sometime later this year. Based on those discussions, we are cautiously optimistic that the final outcome will not have a material adverse effect if any on our operations or financial results. With that, I’ll turn the call back over to Harry.

[Harry Herington:]

Thank you, Steve. As you heard today, our success has always been driven by our passion, innovation, collaboration and patience, which I feel our employees demonstrate every day. That’s how we remain confident that our teams are doing all the right things to drive the growth of our business for many years to come. With that operator we will now open up the call for questions.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from John Campbell with Stephens Inc. Mr. Campbell your line is open. Please check the mute function on your phone Mr. John Campbell. Seeing that there is no response, we’ll move onto the next question. We’ll take our next question from Brian Kinstlinger with Maxim Group.

[Brian Kinstlinger:]

Congrats on the Oklahoma renewal. First question is I think I know the answer based on your comments, but I’m curious if there’s any changes in the economics, the pricing, your workload or are the terms essentially the same?

[Harry Herington:]

No, in Oklahoma if that’s what you speak, the terms are essentially the same. They are a great partner. They’ve been a great partner. They continue to be a great partner.

[Brian Kinstlinger:]

And then just one more question on Oklahoma. We had seen comments in the press that they were looking for more flexibility with vendors in technology, were they able to achieve that? Is there more flexibility and less exclusiveness for you on certain pieces of their business or would you say you still have first right of refusal maybe on certain situations? I’m just curious how that changed, if they achieved that goal?

[Harry Herington:]

No Brian, we have this basically the same contract we’ve had before. The states always have flexibility that has nothing to do with this rebid and what we went through in Oklahoma every state has flexibility if they want to do something with a different vendor. Our opportunity in Oklahoma is as strong as it’s ever been. I’m very proud of my team there. I’m very proud of the partner there because it’s a – we’ve delivered a lot there. They respect what we’ve got. We respect our partner and it’s a same contract basically that we’ve had all along.

[Brian Kinstlinger:]

And then you mentioned last quarter you’d make some federal sales hires, I’m curious was that completed in the quarter? Do you have more to come? And I guess the same question as it relates to the cyber hires that you guys were going to make.

[Harry Herington:]

Throughout the year, we’re going to be making different hires. I mean that’s something that we plan well in advance and it’s something we’ve talked about before. I think the business planning, budgeting process very serious and what we’ve done is we put a plan in place that we identify when to put the right people in the right spots. It’s not matter of just going out and hiring and yes we have hired in both of those areas, but it’s not matter of just going out and putting bodies in, it’s a matter of getting momentum in the areas you want and then putting the right resources behind that momentum to take it onto the final execution. I have no concerns and it’s not just about the people I mean we’re putting individuals in place, technology in place, other services in place. Everything is right on track.

[Brian Kinstlinger:]

And then Delaware, you mentioned the size of that and I forget so I’m just making sure, does that come out of software & services and or a portal management and does that concluded the end of March? You may have mentioned I was writing too quickly, sorry.

[Harry Herington:]

That’s okay, Brian, hi. The majority of the revenues that we recognized in Delaware are in the portal management There might some small bits and pieces in few of the other line items mainly time and materials but the vast majority of it -- I think 545,000 a quarter roughly comes out of the portal management line.

[Brian Kinstlinger:]

And does that come out fully to zero in the second quarter?

[Harry Herington:]

I’m sorry, I didn’t answer the second part of your question. This is the last quarter that we will recognize any revenue from Denver.

[Brian Kinstlinger:]

Just wanted to make sure, and then two more quick ones. The first, you mentioned the DHR pricing, I was aware of the three, was there a new one that you’d mentioned that received a price increase or are those still the same three and two were [anniversary].

[Stephen Kovzan:]

No, actually two will be coming up on anniversary during the second quarter, okay. So that we have the benefit of them for the full quarter of the first quarter and then we received a new one in the first quarter beginning in January of 2015.

[Brian Kinstlinger:]

Thanks. And then finally, any updates on your federal practice and what you’re seeing the market place?

[Harry Herington:]

The federal is going as strong as we’ve talked about it before, it is -- I have keep using work patience, now you hear me use that word again tomorrow, I have made no secret that this is taking longer than I’m comfortable with but it is the nature of the base and I’m very confident in my team that’s there and we are seeing progress. We’re seeing work agencies that are excited with the self funded or how they call it the no cost contracted vehicle in the federal space.

[Operator:]

We’ll take our next question from Gary Prestopino with Barrington Research.

[Gary Prestopino:]

Hi, good afternoon. Can you quantify what you spent in the quarter in terms of what you’re doing on the federal side and cyber security or how much it was impacted your margins, Harry.

[Stephen Kovzan:]

This is Steve. I think that we probably going to see gradual roll out of the expense in both investments and both of those areas and so we’re going to be spending in different areas throughout the year, Gerry. And it did not have a significant impact from margin standpoint first quarter. It’s certainly lowered little bit but not in a large meaningful way.

[Harry Herington:]

But all of this is, is packed into the numbers that we’ve given and every time discuss during the last quarter call.

[Gary Prestopino:]

Okay. That’s what I wanted to get at, I just wanted to get an idea of how they were hitting the P&L. And then in terms of what you were talking what the federal agencies they’re obviously interested in what you guys can offer with the no cost portal. But what is it just a function of that it just takes so long for an individual agency to make a decision and then implement it, is that the key issue that you’re dealing with, Harry?

[Harry Herington:]

Yes. It’s true for it and you nailed the right there. That is one up I mean the federal state to be roxy and what they have to because they have been stung so many times in the past that they have put so many checks and balances and that takes tremendous time to get there. The other thing is with education them and actually changing some of the rules rights there. So, it was clear all along we knew that we could do the no cost contracts, we’re doing with PSP but we need to change the emplace so that they could see clearly the path that yes this is allowed and that is case. So, that clearly more time to get back comfort level and now it’s a matter of getting through all the right decision makers and giving them comfortable with legal and everything security, and everything else that they’ll actually issue they are free.

[Gary Prestopino:]

So, would you say like the 50 yard line or the 30 yard line.

[Harry Herington:]

It’s hard to tell, I would have said last year I was at the headed well down that path and I have learned in the state business you can’t really predict because then when you think of RP is written some space and you expect to come out and then of [indiscernible] two or three quarters quarter since two, three years. Federal space I think it’s the same way, I would say as far as from a execution standpoint, we are well down the path of the agencies that we’re dealing with that we’ve identified they know who we are, they know they can’t do it, they’ve been educated and I’ve got like I do in the state -- when I talk about them I have got champions in the federal space that want to do business with us. Alright, so that put this all past to 50 and as you know in any sport if that last 10 yards that is often time is most difficult. And I would say that’s what we’ve been countered here just continue to march forward.

[Gary Prestopino:]

Okay. And the lastly just tell us little bit about the Louisiana portal what exactly you’re doing there and when did that, you anticipate that rolling out without of pilot?

[Harry Herington:]

I’ll let Robert speak to that one.

[Robert Knapp:]

Thanks, Harry. I think we spoke to an earlier call, it’s a suite of services that we are doing six different services and I think as we’ve said in this well on our way to putting those in place. I think in our original call or couple of quarters ago, we said that we were take-up to a year and we’re right on track been able to deliver those.

[Operator:]

We’ll take our next question from Allen Klee with Sidoti.

[Allen Klee:]

Could you talk a little about cybersecurity in terms of what you’ve been doing with the increase investment and if you’ve had any new applications that people are doing, states are doing related to it? Thank you.

[Harry Herington:]

What I would speak amongst to say very high level on this just because in those not a lot think you can’t fit on cybersecurity without keeping your hand too much. What we’re doing is we’re making an ongoing investment in our security posture for all of our partners that we represent out there to make it as solid as possible with the online services that we provide try to keep best but the bad guys out and keep the information secure. That includes everything from hiring individuals, hiring individuals going and new penetration testing, have an audit from outside parties coming and check and validate that everything as we said we’re doing is actually working. Having programs that goes through and automating go through and check make sure that you’re not holding information that you should be holding another words the coverage there one and somebody was begin through, there is no sensitive information they could get too. I’m very proud of our stance I will tell you, be in government, dealing with government, this is something that we deal with on an ongoing regular basis and we build solid relationships within the industry and solid relationships within long enforcement.

[Stephen Kovzan:]

And Allen, this is Steve, I just want to clarify one thing. Will you may have a misperception. This increased investment is not our individual portal businesses out in the state, building revenue generating ads. This is really more as Harry would say investment in corporate level folks and services that help keep our boundary safe, our online internet boundary safe so the bad guys can’t get in. So this is, I just wanted to clarify. You’ve mentioned applications that we’ve build and things to that nature and that’s not what this investment is going to.

[Harry Herington:]

Exactly and that’s a great clarifying point. Thank you.

[Allen Klee:]

I’m sorry I always mentioned that because last call you also mentioned that you had a couple of states and had business, but I didn’t real [indiscernible]?

[Harry Herington:]

Okay, yes. And the other thing I think should everyone, because this is for not only on our company, but any company that’s out there that is dealing with online transaction. So there is new rule is coming out that’s going to cause everyone to make investments and PCI, Payment Card Industry and DSS Security. So this is I’m sure you’re hearing on other calls or you should be asking about.

[Allen Klee:]

Okay. My one other question is I do not suppose to expect price increases in driver history records. But you have seen I guess more in the left in this year and less in this year and last and I’m just wondering, if there is anything that’s changed that you can gleam up of why that has happened and as a result and happen again some other states?

[Harry Herington:]

No, I don’t think there is really anything of significant. Most of these contracts Allen as we’ve discussed before typically take place and our safe where we’ve been in there quite some time and it’s typically not our newer portal contracts. But I would say that there is no pattern or anything like that and it’s not something that we expect to occur with regularity going forward. You’re right, we didn’t receive four over the last year or year so, but certainly not something that we expect on a regular basis going forward.

[Operator:]

We’ll take our next question from Peter Heckmann with Avondale.

[Peter Heckmann:]

Good afternoon, everyone. Most of my questions have been answered. But I did want within taxes, you given the delay related to the change in the vehicle inception but you expect to catch-up and if so what that catch-up spread over the next year or what do you expect that catch-up in the second quarter?

[Harry Herington:]

No, sorry, I think we’re all kind of smiling, looking and each other. I think time to tell, if anything that catch-up would be somewhat gradual overtime as we do see a catch-up. But yes, I’m looking at Robert, I think there is, I don’t think really having anything more than that.

[Robert Knapp:]

Yes, it could just be a point in time and they start from there fresh or like Steve said, it could be a just a gradual, nothing that I would expect to hit at any like this quarter.

[Harry Herington:]

Yes the good news is that we saw our revenues bounce back to essentially our expectations and historical level pretty quickly in March from the drop that we saw in February.

[Harry Herington:]

Great. And then just remind me, I don’t think you mentioned in the press release, any change in thought process to your annual guidance or anything that you want to convey today in terms of year-over-year comps either difficult or easy comps as we go throughout the year, anything we should think about from a modeling perspective?

[Harry Herington:]

Pete that’s to me no, we’re very comfortable with where we communicated last quarter and we’re off to the right.

[Operator:]

We’ll take our next question from John Campbell with Stephens Inc.

[Hayden Blair:]

Hey guys this is Hayden Blair stepping in for John. First question, you may have mentioned this, what’s the timeframe for that final outcome on evaluating the bankruptcy?

[Harry Herington:]

I believe it’s sometime later this year from the summer maybe into the early fall approximately.

[Hayden Blair:]

And then I think you said on the Louisiana contract it’d probably take about a year to ramp, will the cost look pretty similar as they did in 1Q for the rest of that time? And then, how do you anticipate that contract beginning to ramp, will you begin to just incorporate DHR services into that or will it just be a full out jump to an enterprise level contract?

[Robert Knapp:]

I’ll answer the first part. From a cost standpoint, I think we expect cost to actually ramp a little bit more than what we saw in the first quarter. We incurred about $300,000 and we definitely expect our cost structure to ramp up. And then we will go through this one year test period or pilot period, but it would be after the pilot period we’re concluded in the state where to evaluate as to whether they want to move forward with a full blown state-wide or enterprise-wide portal that we would then potentially incorporate some of these other revenue sources hopefully DHR being one of them.

[Hayden Blair:]

And then Steve, you may have mentioned this as well, but on the deceleration of the DHR growth, I know there were the two price increases that you’ll be lapping. But can you walk me through just any of those other moving pieces around that deceleration when you do take into consideration?

[Steve Kovzan:]

That’s really it. That’s it – I mean it’s mainly because we’re going to be now coming up against the anniversary of those two price increases in this -- coming up in the second quarter. That’s why we’re just stating the obvious quite frankly that we’ll see a bit of a slowdown in the growth because of those.

[Operator:]

[Operator Instructions] We’ll now take our next question from Brian Kinstlinger with Maxim Group.

[Brian Kinstlinger:]

Just one more on the pricing. How do you think about and when do you approach your customers for new pricing like one of the previous callers said it hadn’t happened in so many years, is it profitability from the state? Is it they’re asking for more services? What determines when you approach them for a greater fee?

[Harry Herington:]

Brian this is Harry, yes, typically it is as we’re dealing in parts, it’s our profit, states don’t make a profit, let’s start this and when we go in and deal with the states and they don’t really cared much about our profit to be honest with you when we speak to them about the an increase its typically because there’s more services that they’re interested in and so we look at them either as getting a specific service say one-stop business shop out the door or it could be that there is from a security standpoint which [indiscernible] making more investments there and that will exist just in those areas, so there’s a variety of things that could come into it. Robert, is there anything you…

[Robert Knapp:]

No, I just think in many cases even the state partner coming to us to talk about projects that they may have that they want to move more quickly and that’s a vehicle for us to be able to add resources as well.

[Steve Kovzan:]

Yes and just to follow onto that again these price increases are coming in states where that there are more mature states, where we built many-many services, where the maintenance of those services has become costly and consumes a lot of our resources and so the state wants to extend beyond what we’re currently doing and this is one of the way that they’re able to do that.

[Brian Kinstlinger:]

And then in Texas, was that – I think that that was factored into your original guidance?

[Harry Herington:]

Well that – not necessarily, it’s something like that’s a little bit difficult to predict, but we’re still comfortable with our existing guidance.

[Brian Kinstlinger:]

And then something we haven’t talked about in a while is the state of Washington you had and then they couldn’t find a funding source. Have they come back to the table or are you still in discussions? Can you maybe update us and anything is going on now?

[Harry Herington:]

Washington has come back into the pipeline. I would say, we have good contact in Washington, we do have several steps, we have had conversations in Washington about opportunity but I really can’t speak any further because they are a pipeline stay until we can get further traction, I don’t want to take my hand.

[Brian Kinstlinger:]

And then finally on the bankruptcy, first of all, is it possibly benefit to you in having a different middleman or what is the risk potentially to your business? Could you maybe give some more detail on both sides of this equation?

[Harry Herington:]

Well, I wouldn’t call it the benefit for sure. Anytime you’ve got a customer and that’s gives a client that’s end user that is going to be bankruptcy, it makes our blood pressure go up a little bit. We structured our contract such to give us this much protection as we can as well as we’re dealing with government. And so that actually helps us a lot. So then when somebody calls the bankruptcy, you still are accountable for the services you receive from the government and so go between from there. Is that makes us unique there.

[Robert Knapp:]

Yes and Brian one thing I might add is that the whole is that this company will absolutely continue to go concerning and continue to pull records, we continue to do business with them today. And the hope is that when they emerge from bankruptcy later this year that its business as usual. We have not had to take any reserves and we’ll obviously be watching this closely, but we’re cautiously optimistic that will be able to move forward.

[Harry Herington:]

And to that point if should they not go forward, which I can’t – we doesn’t have to see it as an issue. Someone else would meet you immediately step up and fill that void.

[Operator:]

We’ll take our next question from Jeffrey Cussler with Imperial Capital.

[Jeffrey Cussler:]

With regard to using your existing technology to improve the value proposition of your existing apps, I’m thinking of things like payment processing and security things like that. Are you able to market or have you been expanding your portfolio of apple things in those areas?

[Harry Herington:]

We continue to not only offer more services and every service anyhow. When do technology comes up, we’re rather sometimes, the apple watch is an example. We’ve already got app on the apple watch, it was after for the watch was out and we’ve got several more brand development as far as our payment processing that is any of our services, we constantly have to evolve this. You have to evolve those not only for the service you’re providing yesterday, but how you provide that today and then the rules and regulations for tomorrow and security for them all whether that’s payment processing, whether that’s licensing whatever that is we’re constant looking that evolving that. So when we walk into the next, or continue whether that’s an existing partner or that’s a new sales opportunity, we can look at and say look this is an off the shelve and equated software, this is living, breathing applications that we can immediately bring in and bring value to that partner.

[Jeffrey Cussler:]

In that same thing, a number of companies have been developing applications I should say really, really analytics for free complies and fraud. What are you doing in that area, what are you doing to expand the application you can offer the clients in those areas, because those seem to be the areas that because you have to do them they’re going to have to put those in?

[Robert Knapp:]

I’m not sure exactly understand the question. What I would say is we focus obviously more on those where we’re going to have business to government interaction. And we do have, we spoken to an application of the last couple of quarters relative to our business identity monitoring.

[Jeffrey Cussler:]

And that’s kind of what I’m thinking of right now.

[Robert Knapp:]

Okay. I mean certainly those are applications, I think we now have, I think we’ve talked about four to five station that we now have that lunched in and continued at more opportunity there. Certainly we see a lot of movement in that area but that just, I would just say we see those applications as opportunity but also we’re more about where that business and government can interact and engage with government and we are tracking compliance and fraud per say.

[Jeffrey Cussler:]

Right. I believe that most of my other questions have been answered. Thank you.

[Robert Knapp:]

Perfect. Thank you.

[Operator:]

It appears there are no further questions as this time. I’d like to turn the conference back to management for any additional or closing remarks.

[Harry Herington:]

Thank you, operator. I want to thank everybody who joined this afternoon. I look forward to speak with you again tomorrow, remember tomorrow is our 2015 Annual Stockholder Meeting, it will at 10 AM central time, and I’ll share more about the evaluation and growth within NIC. We hope that all of our stockholders and investors will join the webcast by visiting the Investor Relation’s page of our website at egov.com to come join me, the Oread Hotel at the heart of the University of Kansas campus in North Kansas. Thank you and I’ll speak to you tomorrow.

[Operator:]

That concludes today’s presentation. Thank you for your participation.