NIC Inc
Q2 2015 Earnings Call Transcript

Published: 9 Aug 2015

[Operator:]

Good day, everyone, and welcome to the NIC Second Quarter 2015 Earnings Announcement. Today's call 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 second-quarter earnings call. The press release for NICs second-quarter 2015 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 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 will open for questions. Any statements included during this call that do not relate to historical or current facts constitute forward-looking statements. These statements include estimates, projections, statements relating to the Company's business plans, objectives, and expected operating results 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 the ability of the Company to renew existing contracts and signed contracts with new state and federal government agencies, as well as possible data security incidents. You should not rely on any forward-looking statement as a prediction or guarantee about the future. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the sections titled Risk Factors and Cautions about Forward-Looking Statements of the Company's most recently filed Forms 10-K and 10-Q. These filings are available on the SEC's website, SEC.gov. Any forward-looking statements made during this call speak only as of the date of this call. We undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Now it is my pleasure to introduce Harry Herington, NIC's Chief Executive Officer and Chairman of the Board.

[Harry Herington:]

Thank you, Angela. Welcome to our second-quarter earnings call, and thank you for joining us today. A few months ago, I was telling a reporter about our business. I shared this with him. Our role from day one was looking at the advancement of technology, determining whether we could or should apply that technology to government, and then convincing government to take the risk and move forward with it. The day we quit evolving with technology will be the day we go out of business. It's true. Early in the history of our Company, we transitioned from dial-up to the Internet. We helped people get election results on their PalmPilot. And later, we enabled government to harness the power of smartphones and other mobile devices. This has been our focus since day one and continues to be our focus every day. The second quarter was no exception. Technology continues to evolve, and we continue to help our government partners evolve with it. A recent advancement is wearable technology. The long-awaited launch of the Apple Watch came this spring. And our team in Arkansas was the first to launch a government app for the new device. The app is called Gov2Go, and it serves as a citizen's digital government assistant that tracks government deadlines in a personalized calendar and sends relevant reminders. When users enter some simple information, the app will sends reminders from a variety of deadlines, including paying property taxes, renewing vehicle registration tags and more. Just a couple of months later, our team in Maryland launched an app for the Apple Watch in partnership with the Maryland Department of Natural Resources. This app allows Maryland's water enthusiasts to discover nearby waterways right from their wrist. The app is one of the first to use geolocation on Apple Watch and helps people locate water trails and access points. The second quarter also produced steady growth and solid financial results. We continue to grow in the same fashion we have for more than 20 years

[Robert Knapp:]

Thank you, Harry. I agree

[Steve Kovzan:]

Thanks, Robert, and good afternoon to everyone on the call. During the second quarter of 2015, NIC earned $0.17 per share, with total revenues of $75.8 million. Total same-state portal revenues grew a respectable 7% for the quarter, driven by the consistent deployment of new services and increased adoption of existing services across several portals. Breaking down the components of same-state revenue growth, same-state IGS transactional revenues grew 11% this quarter due to higher revenues from several key services, including those in Texas and Colorado. Same-state DHR transactional revenues increased 3% this quarter, due mainly to a price increase in one of our state portals in the first quarter of 2015 and a price increase in another during the second quarter of 2014. As we mentioned last quarter, we've reached the anniversary of two price increases in the second quarter of this year. So DHR revenue growth rates are expected to continue to moderate the rest of the year. Finally, same-state time and materials revenues increased 6% this quarter, driven by new projects in Wisconsin, Indiana and Colorado. I'll echo Harry and Robert's comments

[Harry Herington:]

Thank you, Steve. Summing up our second quarter, we delivered solid financial results as we focused on our mission of harnessing the latest technology to drive online government efficiencies. I know our teams are doing just that as I speak. And I look forward to sharing more great outcomes with you next quarter. With that, operator, we will now open the call for questions.

[Operator:]

[Operator Instructions] And we’ll go first to Peter Heckmann with Avondale Partners.

[Peter Heckmann:]

Good afternoon, everyone, nice results. Wondering what you're thinking about the topline growth rate. Sounds like 10% is real solid on the software and services side, but the growth rate of the portal business, that may be running a little bit lower than my expectations now that we're going to anniversary some of these state increases. What do you expect for same-state portal growth here over the next year? And are there any bigger things that you think can help accelerate that growth over the next year?

[Steve Kovzan:]

Well, you know, Pete, to answer your question, certainly the way -- you know, I don't think today we can say we have one or two services that's going to significantly accelerate that growth. The way we've grown historically year over year is by launching hundreds of smaller services. As I've always said, we grow by a lot of bunts and singles in that regard. And I don't think that will change. And certainly, our goal is to continue to grow in the high single digits to low double digits. About this point last year, we were at about 7% same-state growth and finished the year at about 8%. And we are at about 7% this year as well. So, hopefully, we can continue to develop new services and grow the business. But certainly, our long-term growth goals certainly haven't changed.

[Peter Heckmann:]

Okay. And then a couple of the areas that seem to be or seem to have the potential for better adoption in the area of hunting and fishing licenses, recreation licenses, as well as the temporary tag. Can you talk about the opportunities that you're seeing in terms of either rebids at the existing states in hunting and fishing over the next let's say year-and-a-half, or as well as the additional states looking at adopting the temp tag application?

[Robert Knapp:]

Pete, this is Robert. What I would say is in every one of our states, if we don't have that particular service, we're always pursuing that. And certainly, the efforts in the hunting and fishing space with regards that we've talked to you about before in Wisconsin, we believe that certainly will play out very well for us in the future, both in our existing states and potentially others.

[Peter Heckmann:]

Okay, that's helpful. And then my just last question and I'll get back in the queue, but could you remind me how the Wisconsin recreation application goes live here over the next year? Was there one module going live in the fall and the rest in 2016?

[Steve Kovzan:]

I think at first we expected there to be some type of more formal pilot program in the fall. But I think right now, the schedule is that the entire system is set to go live in I believe March of 2016.

[Peter Heckmann:]

Okay, great. Thank you.

[Operator:]

And our next question comes from Brian Kinstlinger with Maxim Group.

[Josh Seide:]

Hi this is Josh Seide in for Brian. Would you mind just elaborating a little bit on the federal opportunities process and the progress that you've seen over the last quarter?

[Harry Herington:]

This is Harry. We don't often speak to the opportunities that are out there, just because we don't want to interpret in too much. But there is some -- I'll just give you a couple of examples, things we're working on that I think everybody is aware of. One opportunity that we've been involved with for quite some time is deals with the Department of Agriculture, the recreational one-stop service. NIC has been in communication with that agency. We've talked with them. They've issued an RFP. This is a very large, complex system. There is an incumbent provider that is providing it. And as you know, unseating an incumbent can be extremely difficult. But it's one that we are excited about. It's one that we are evaluating our options with and are keeping a very close eye on. Another one and one that's gotten a lot of press is 18-S. It's a division of GSA. They are looking for vendors that can quickly provide solutions for federal agencies. We have done that for state agencies for the past 20-some years and feel confident we could provide a solution there. So that's another one we're watching closely. And then there's numerous other agencies that we've been in contact with. We've spoken to them about opportunities. They've expressed interest. I'm extremely excited about the federal opportunity.

[Josh Seide:]

Okay. And as a follow-up, you've spoken previously about increasing your federal sales staff. Can you comment on the level of sales staff you have now versus where you expect it to be in the future potentially with additional recruits?

[Harry Herington:]

I'm not talking about the number, but we did make an investment of well over $1 million this year in the federal, because -- and what I've spoken to in the past is we had to go through and educate in the federal agencies who we were. We had identified the legislation that needed to be changed to allow it, which that's been done. We had to influence regs, federal regs, to entice those agencies. So there was a lot of early-on work that took a lot longer than what we would have hoped that we were very successful at. And then in the past year, once we got all those roadblocks out of the way -- and we were selling during those times. We weren't just trying to change; we were selling during those times to get people excited. And now we have put more feet on the ground, actually going in and trying to move that forward.

[Josh Seide:]

Okay, that's helpful. In the previous states with price increases, did those price increases correspond with contract renewals?

[Steve Kovzan:]

I think you're specifically talking about DHR or driver history record price increases?

[Josh Seide:]

Right. Yes.

[Harry Herington:]

If you are, no, that didn't correspond with renewals.

[Josh Seide:]

Okay, thank you. One last one and I'll get back in the queue. Previously, you've mentioned risk involving Altegrity, a customer of driver's history records, going through bankruptcy. Could you provide an update on that and any potential impact?

[Harry Herington:]

You know, we really don't have any update any more so than the last time we discussed this bankruptcy issue. We've been in discussion with the customers' legal counsel. And we are cautiously optimistic that if the company does emerge from bankruptcy in the near future here that it really won't have any effect on our results of operations or our financials. Thus far, we have not reserved any amount in our financial statements or on our balance sheet related to any receivables from this bankruptcy entity.

[Josh Seide:]

Okay, thank you.

[Operator:]

[Operator Instructions] We’ll go next to John Campbell with Stephens Inc.

[John Campbell:]

Hi guys, good afternoon. Harry, just back on the federal side, obviously it sounds like you guys are incrementally more positive, just given those developments. But I might have missed this, but did you say what the timing was around that Department of Agriculture RFP?

[Harry Herington:]

No, they've issued the RFP. The RFP is out there. Beyond that, I have stated all along, from a state standpoint, timelines don't mean a lot, and federal, it's going to be the same way with the duration for that. All I can say is it's out there and we're excited about the opportunity.

[John Campbell:]

Got it. Is the general timeline, just from your past history, is the general timeline on the federal side roughly similar to the state, or are they just all different -- kind of different animals?

[Harry Herington:]

It changes from agency to agency, from level to level. So federal, what has -- what we have known about federal is there is lot more bureaucracy that you have to get through.

[John Campbell:]

Got it, got it. And so, obviously, the contract win you guys have now, the Department of Motor Carriers, is that a sweetheart deal, or are there others out there that are of that size?

[Harry Herington:]

I wouldn't say it's necessarily a sweetheart. That's one we worked really hard at to get, and it's one we have to deliver on. Are there other opportunities that are that size? Absolutely. We've identified some potential opportunities. And like I said, we are in speaking with those agencies. I'm not going to give information on those specific agencies. It can be anywhere from assisting a specific department within an agency or a specific app or service that that agency is providing.

[John Campbell:]

Got it, got it. Good luck to you guys on the federal front. So, Steve, just one for you. On the Texas vehicle inspection, the stuff that happened kind of late 1Q, were the 2Q rev contributions and I guess the associated expense, were those in line with your expectations? Any surprises there?

[Steve Kovzan:]

Yes, no, no surprises, or no, nothing beyond our expectations. I think we saw revenues generally rebound nicely, as we mentioned on the last call. And second quarter was no exception there.

[John Campbell:]

Got it. And then just back to the motor carrier contract, when is that up for rebid?

[Steve Kovzan:]

Currently, yes.

[John Campbell:]

Got it. You guys feel good about that, heading into that rebid process?

[Steve Kovzan:]

That is in process. We always take all of these rebids as seriously as we possibly can. And we're hopeful that our strong track record there in years past bring it home for us.

[John Campbell:]

Got it. Thanks for taking my questions.

[Harry Herington:]

Hey John, real quick, I want to correct something. I'm so used to dealing with state agencies and how we refer to them. And when I was talking about the recreational one-stop service, I mentioned the Department Of Agriculture. That is pretty common in state, but this one is actually Department of Interior

[John Campbell:]

Got it, noted. Thank you.

[Operator:]

[Operator Instructions] We have no further questions. I would like to turn it back to Mr. Herington for any closing remarks.

[Harry Herington:]

Thank you, Christie. And I want to thank everybody who joined us this afternoon. I look forward to speaking with you in November, when we report on our third-quarter results. Thank you very much.

[Operator:]

That concludes our call for today. Thank you for your participation.