NIC Inc
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to NIC's 2013 Second Quarter Earnings Announcement Conference Call. [Operator Instructions] I'd like to remind everyone, this conference call is being recorded today, Thursday, August 1, 2013 at 4

[Angela Skinner:]

Thank you, Matt. Good afternoon, everyone, and welcome to NIC's second quarter earnings call. The press release for NIC's second quarter 2013 earnings announcement was issued 30 minutes ago. Our earnings release is also available on our corporate website at egov.com/investors. You may also call our headquarters at 1(877) 234-3468, and we will e-mail 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 contained in this release 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, 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 could be no assurance that such statements will prove to be correct. There are a number of important facts that could cause actual results to differ materially from those adjusted or indicated by such forward-looking statements. These include, among others, NIC's ability to integrate into its operations recently awarded eGovernment contracts; NIC's ability to implement its new portal contracts 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; NIC's ability to collect outstanding accounts receivables from the Commonwealth of Pennsylvania; the success of the company in renewing existing contract and signing contracts with new states and federal government agencies; continued favorable government legislation; NIC's ability to successfully transition out of expired contracts; NIC's ability to develop new services; existing states and agencies adopting those new services; acceptance of eGovernment services by business and citizens; competition; the possibility of security breaches through cyber attacks; general economic conditions; and the other important cautionary statements and risk factors described in NIC's 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2013. Any forward-looking statements made during this presentation speak only as of the date of this call. 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's my pleasure to introduce Harry Herington, NIC's Chief Executive Officer and Chairman of the Board.

[Harry H. Herington:]

Thank you, Angela. Welcome to our second quarter earnings call, and thank you for joining us today. "Government needs to be smarter, quicker and more responsive to the needs of the American people." Those are not my words -- that is what President Obama said a few weeks ago as he delivered his vision for how technology can be used to make government more efficient. In his remarks, he said that the federal government will continue to adopt good ideas from the private sector. Things like being able to track government applications, the same way you would track a package from the moment it is shipped until it reaches your front doorstep, or entering your contact information on one form, one time, as opposed to typing the same information repeatedly into various forms. One way that the federal government is gathering ideas from the private sector is through the White House Presidential Innovation Fellows program. The White House kicked off the second round of this program in late June, announcing 43 new participants. These individuals will serve their country for the remainder of 2013, working on projects with the goal of creating real and substantial changes that will, in a very short time frame, benefit the American people, save taxpayers' money and help create new jobs. At NIC, we are proud to, once again, have one of our own employees serve at the White House as part of this exclusive group. In fact, NIC is just one of a very small select number of organizations to have an employee serve in each class. Hillary Hartley, NIC's Director of Integrated Marketing, is serving in the second round of the Presidential Innovation Fellows class. And like NIC employee, Dan Chapman, who served in the inaugural class, Hillary will also work on the MyUSA project. This project is designed to create tools and services to enable a unified experience across the websites of the federal government, one of the President's key points in his remarks about the government using technology better. Again, congratulations to Hillary. I know she will do an excellent job of representing NIC and contributing to this program. It is encouraging to hear our eGovernment services discussed at the highest levels of government. And I would add to that the federal government should look no further than to their peers at the state level for innovative use of technology that delivers results to the citizens and businesses. It is what NIC has been helping state governments accomplish for more than 20 years. We have developed thousands of online government services that make interacting with government more efficient and secure for citizens and businesses. These eGovernment services are what helps drive exceptional growth in our business during the second quarter. Specifically, this quarter demonstrated the strength of all aspects of our business. And the growth that can result from adding new partners, launching new services and driving the adoption or use of existing services. During the quarter, NIC expanded its family of state partnerships to include Wisconsin. The contract includes a 5-year base agreement, plus 5 1-year renewals the state can exercise to extend the contract through 2023. Our team in Madison is already busy prioritizing projects, including the redesign of wisconsin.gov, a mobile app for Department of Transportation, and a business one-stop registration. Steve will talk about more about the financial impact of Wisconsin in 2013, but I will close by saying that we appreciate the confidence that Wisconsin has placed in us, and we look forward to partnering with them for years to come. More developments continue to come from Virginia as we enter the last few weeks of the transition period. As we shared with you on the last call, we will continue to work with Department of Game and Inland Fisheries to provide the online hunting and fishing license service. This quarter, we have another large non-DMV service to add to the list. We will continue to partner with the Supreme Court of Virginia to provide online payments for approximately 130 general district courts. This agreement is for 12 months, with the option for a 12-month renewal. I am pleased that our team in Richmond will continue to serve 2 of our largest non-DMV agency partners in the Commonwealth. I also have an update regarding the Pennsylvania matter we discussed last quarter. On the last call, I shared with you that our payments from the Commonwealth was under review by the Treasurer. Since that time, we disclosed in a filing that the Pennsylvania Treasurer had issued a press release stating that it had rejected 4 invoices from our Pennsylvania subsidiary, Pennsylvania Interactive, totaling approximately $3.5 million for the portal's work through April 30. Let me begin by saying that we believe that we are legally entitled to full payment from the Commonwealth, which totals $5.1 million through June 30. And we are in preliminary discussion with the administration regarding this matter. We also expect the portal to become self-funded during the second half of the year. However, like all of our agreements, we view this as a long-term partnership and our focus remains on delivering the eGovernment services that we were hired to develop. In fact, our team in Harrisburg is working to deliver several services, including the redesign of pa.gov and numerous other agency websites. We continue to operate in good faith from hiring additional resources and continue to make significant investments to negotiate new statements of work for new services. And we remain committed to be in the best partner that the Commonwealth of Pennsylvania has ever had. Finally, before I turn the call over to Robert for operational highlights for the quarter, I want to thank my team and our partners in Oklahoma for the way they responded to the horrific tornadoes that struck on May 20. Soon after the tornado disaster, Oklahoma's Governor, Marie Farland, requested for a website to be created to provide state-approved release information. Within 2 hours, our Oklahoma team launched the OK Strong site, a comprehensive online disaster recovery site for those needing assistance or wanting help. Not long after OK Strong was developed, our team worked with State Information Officer, Alec Bennett to build additional online services to assist recovery efforts. In fact, at NIC, it was all hands on deck as I challenged every employee across the company to think of ways we could use eGovernment services to help those hit by this devastation. In addition to building and launching the OK Strong site, our Oklahoma portal built, Owner Connect, Pet Connect and Donor Connect. Owner Connect served as a photo gallery and allowed citizens to upload images of items they found, descriptions of the items and contact information where the items could be retrieved. Pet Connect provided an online gallery of pets displaced by the tornado that were taken to area and pet shelters. And Donor Connect operated similar to a bridal registry as it provided a list of the donations that were needed by local nonprofitable organizations, allowed individuals to upload a form stating that they would fulfill a particular donation need, and then tracked the remaining balance of items that were still needed. This suite of services that would have taken -- normally, have taken weeks to develop, was launched within just 4 days. I tell our employees every day what we do in NIC truly makes a difference in the world. And in this example, it is easy to see how the contributions of our Oklahoma team really did make a difference in their community. I'm very proud of the work they did. And with that, I'll turn the call over to Robert Knapp, NIC's Chief Operating Officer, for additional operational highlights.

[Robert W. Knapp:]

Thank you, Harry. I couldn't agree more with Harry. In this quarter, the main growth drivers of the business delivered strong and, in some case, record results. Harry spoke about how we grew the business by adding new partners, and I'll round out the discussion by sharing how we grew the business by having new services and increasing the adoption of existing services. In Arkansas, roughly $170 million of assets are unclaimed in the state. This money results from companies that are unable to locate the rightful owner and subsequently, transferring the unclaimed funds to the state. A new service was launched by our Arkansas team this quarter that allows individuals to log onto the system, check for their property and submit a claim. The new system provides significant efficiencies, slashing the time it takes to process a claim from 1 month to just 1 week. Since the statewide launch of this system in March, Deputy State Auditor Janet Harris said more than 6,200 online claims have been received and helped double the agency's productivity. Another new service that launched this quarter comes from a division of NIC that we don't often mention. NIC Services, which is included in the software and services component of our business. NIC Services has a few standalone payment processing contracts such as facilitating online payments for marriage licenses in Clark County, Nevada. During the quarter -- second quarter, you may recall we announced the launch of a new service in the state of North Carolina, an online lien agent system called liensnc.com. In response to legislation that passed in North Carolina, anyone furnishing labor or materials in connection with construction projects such as contractors, subcontractors, suppliers, et cetera, must give written notice to a designated mechanical lien agent of the owner to preserve their lien rights. The new liensnc.com allows these interested parties to efficiently and securely record their lien rights through a web-based online system. For years, we have operated a similar service in our Utah portal. However, unlike the Utah service, the use of liensnc.com is mandated by law and is not part of a larger state government contract. Rather, the liensnc.com contract is held by Liens NC, LLC, a coalition of 9 title insurance underwriters in North Carolina, serving as founding members. Launched on April 1 of this year, this service generated more than $400,000 of revenues in the second quarter, making it NIC Services' most financially significant contract to date. While we're not certain how the service will perform over the course of the year, we're off to a great start. The service actually just won its first award of outstanding achievement from the Interactive Media Council, a nonprofit organization of leading web designers, developers, programmers and other web-related professionals. Congratulations to our NIC Services team. We are very excited about the future of the new liensnc.com. One of the great values of partnering with NIC is our library of more than 7,500 unique online services and the ability to take that foundational code from one service and customize it for rapid deployment in another state. One service that continues to drive results and spread across the NIC family of portals is the Vehicle Temporary Tag Service. This service, once again, performed very well in our New Jersey portal with volumes increasing 10% sequentially over the first quarter of this year. Rhode Island has become the latest NIC partner to launch a temporary tag service, referred to as plates-on-demand in the ocean state, the NIC team in Providence continues to enroll new dealerships into the program daily and is preparing for December 31 when the use of all legacy cardboard plates will be discontinued and the new service becomes mandatory. We also continue to do more work for our state court systems. In Colorado, we completed the launch of the court's e-filing payment processing and billing system in the second quarter. Attorneys practicing law in Colorado can now use the online system to make online payments for cases in district courts, county courts and courts of appeal. As we have discussed in the past, our team in Nebraska has developed one of the most comprehensive state e-filing systems in the nation. We began building the system back in 2007 and have been making enhancements ever since. During the second quarter, the system processed its 1 millionth electronically-filed document. As Nebraska's State Court Administrator Janice Walker put it, the e-filing system, "Represents a monumental shift in the way court services are delivered to the citizens in Nebraska. Electronic filing exemplifies how government will operate in the 21st century." Janet, I agree completely. And at NIC, we believe that our work of transforming temporary vehicle tag and court filing systems, not only helps drive results at NIC, but also provides great efficiencies for government and the businesses and citizens it serves. Before I close with partner contract renewal updates, I have an update about the Arizona transition. The state provided for a transition period by extending our contract for 6 months, taking us essentially through the end of this year, with the ability to extend the contract for up to 1 year total. Our team in Phoenix has focused on providing a smooth as transition as possible as this partnership continues to draw to a close. Finally, I'll close with those state partners that continued to place their confidence in NIC during the second quarter. After completing a competitive rebid process, the state of Vermont signed a new 3-year contract, that also includes a 3-year renewal option of the state that can take the contract through 2021. The states of New Jersey and New Mexico signed 1 year renewal extensions. And Idaho signed a new 2-year contract, extending its contract through June 2015. Thank you to our partners in Vermont, New Jersey, New Mexico and Idaho for continuing to place your confidence in us. We appreciate your partnerships and look forward to delivering the very best in eGovernment innovation in the years to come. And with that, I'll turn the call over to Steve Kovzan, NIC's Chief Financial Officer. Steve?

[Stephen M. Kovzan:]

Thanks, Robert, and good afternoon to everybody on the call. The contribution of new portals and new services that Harry and Robert just spoke about combined to drive exceptionally strong results this quarter. The company earned $0.16 per share, with total revenues growing 27% to a record $65.9 million. This compares to earnings per share of $0.09 and total revenues of $52 million in the prior year quarter. Before I get into the details of the quarter, on the face of our -- the income statement in our press release, you may note that our earnings per share for the quarter is $0.16, whereas if you calculate on the face of the income statement, it may come out to $0.17. I would refer you to Note 1 in the Form 10-Q that we just filed for the second quarter, regarding the earnings per share calculation for the quarter, essentially related to the income allocated to our participating securities. Okay. Quarterly portal revenues were a record $62.1 million, up 27% over the prior year quarter, driven by strong revenue growth from new state portals in Pennsylvania, Oregon and Maryland, and from new services in our Texas, Colorado and New Jersey portals, among others. As Harry mentioned, we've not collected any amounts recorded as revenues from the Commonwealth of Pennsylvania, and we are involved in preliminary discussions with the administration regarding this matter. It was great to see that across the board, our existing portals are growing at a healthy pace. With total same-state portal revenues up 19% for the quarter. Taking a closer look at the impressive same-state growth this quarter, same-state non-DMV transactional revenue, the growth engine of our business, was up a stellar, 40%, from the prior-year quarter, with approximately 2/3 of our portals posting double-digit non-DMV growth rates this quarter. This growth was driven mainly by the Texas motor vehicle inspection service, as part of DPS Direct, which generated approximately $3.7 million of revenues for the quarter. Our New Jersey portal with revenues growing more than $1.9 million from the prior year quarter, and our Colorado portal, with the new court payment system, contributing significantly to the portal's over all non-DMV revenue growth of more than $1 million in the quarter. Same-state DMV transactional revenues increased 5% this quarter. We've not seen this level of growth in more than 5 years, so it's obviously nice to have DMV working as a modest tailwind as opposed to the headwind that it's been in the past. Same-state portal management revenues were up 9% from the prior year quarter, again, due to the increase in Delaware's annual fixed fee from $1.3 million to $2 million beginning in the fourth quarter of last year, as we've previously discussed. And finally, same-state time and materials revenue was the only category for the revenue to decline this quarter. As expected, down 30% from the prior year quarter primarily because of the expiration of certain Texas Master Work Order projects in August of last year. As a quick note, before I move on to our newer portals, I wanted to comment on the overall health and vitality of our core business. While significant revenue contributions from 2 of our largest states, in Texas and New Jersey, propelled our same-state total revenue growth rate to a phenomenal 19% this quarter, the rest of our existing states performed quite well also. Excluding Texas and New Jersey from the same-state revenue growth calculation, in addition to Arizona and Virginia, given our ongoing transition out of those contracts, the total revenue growth of our existing states approximated 9% this quarter, in line with our historical same-state growth rates over the past 3 years of between 8% and 10%. Needless to say, we were pleased to see this level of growth from the core business this quarter. Moving on to our newer portals. Current quarter revenues from our portals in Oregon, Maryland and Pennsylvania were a combined $5.2 million with current quarter's cost of portal revenues for these portals totaling $2.8 million. In the prior year quarter, we recognized $1.4 million of revenues from Maryland and Oregon, with no revenues in Pennsylvania. And $1.8 million of startup costs for the Oregon and Maryland portals. Beginning next quarter, both Maryland and Oregon will move into the same-state revenue category. Revenue contributions from new portals and strong same-state revenue growth contributed to the increase in our portal gross profit percentage for the current quarter, which was 44%, up from 38% the prior year quarter. We continue to ramp up our operations in Pennsylvania in the second quarter as we invest in significantly more this quarter as compared with the first quarter of this year, which normalized our gross profit percentage in Pennsylvania to be closer to the company-wide average for the quarter. Finally, operating income for the quarter increased by 67%, resulting in a 27% operating margin, up from 20% in the prior year quarter, driven mainly by the higher portal gross profit percentage in the quarter. I'll conclude my detailed remarks today with our newest portal, Wisconsin. As a housekeeping item, we incurred approximately $200,000 of startup costs in Wisconsin during the second quarter. Currently, we expect to begin generating revenues from the driver record service by the fourth quarter of this year. However, we expect the Wisconsin portal will be dilutive for all of fiscal 2013 due to the startup costs for the development of the new portal. In summary, our second quarter results highlighted the historic growth drivers of our business; new portals and new services. While our strong year-to-date results have exceeded our expectation, putting us currently on pace to comfortably achieve or exceed the high end of our previous total revenue and earnings estimates for the year. With that, I'll turn the call back over to Harry.

[Harry H. Herington:]

Thanks, Steve. This was a quarter of exceptionally strong financial results at NIC, and I am very pleased with the efforts of all of our portals. And from the very newest in Wisconsin to the more mature portals, as they all work to deliver the very best in eGovernment services for the citizens and businesses across the country. With that, Matt, we will open the call for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Jeff Kessler of Imperial Capital.

[Jeffrey T. Kessler:]

It's good to be back asking questions on these conference calls. First question I have is you recently got a payment services function in the state of Mississippi. And I'm wondering if you plan to expand that directed payment services to other states? You mentioned it briefly in your introductory remarks, and I'm wondering if this is going to be a stand-alone service that you can break out to other states? And perhaps to other, I would say other agencies within the same states?

[Robert W. Knapp:]

Jeff, this is Robert Knapp. I -- just to clarify, I think you meant North Carolina relative to that?

[Jeffrey T. Kessler:]

Yes, I apologize.

[Robert W. Knapp:]

Did you have [indiscernible]?

[Jeffrey T. Kessler:]

I may have known something you didn't.

[Robert W. Knapp:]

You know, Jeff, I mean, as we look at similar to all of our services, we look for that opportunity. We talked about temporary tags where we can expand that service. Certainly, the liens NC project is one that we hope to capitalize on. We took that from Utah, and we're able to bring that to North Carolina. And we, certainly, are going to look to take that to other places. It was a little bit unique and that this was more of a private enterprise relationship in terms of that being with the association. And so we may find places like that, or we may find places within our existing state contracts to put that to service.

[Jeffrey T. Kessler:]

Okay. My second question is if you want to call it backwards filling New Jersey. You are in -- sorry, you've got, obviously, certain services -- apps that you're providing New Jersey without the base portal in place. Are you in negotiation or are you planning to try to get the entire state infrastructure -- the way you would have on a normal basis?

[Harry H. Herington:]

Jeff, it's Harry. Actually in Jersey, we're operating with a full-portal team there, as far as enterprise-wide solution. It's not funded as extensively as some of our others. But with the non-DMV growth that we've had, and we were able to launch, we're able to treat it as a -- almost a traditional NIC enterprise-wide portal. So we're serving all of the agencies and we are aggressively looking at other non-DMV applications that we can launch. And I would say, yes, of course, DMV is always on the table, as far as we're at discussions that will remain that I can't discuss here.

[Jeffrey T. Kessler:]

Okay. One final question, that is, at the beginning of Harry's remarks, you talked about the federal government. And I know with regard to -- you've had a couple of federal contracts already. Are you adding at a level of familiarity with the right people in the federal government that you can begin to talk about the type of thing that you intimated that there could be, at some point in time in the future, if you want to call it a website -- a fed biz ops website that actually is useful for the citizenry in terms of expanding its capabilities and using obviously a number of companies, but one of them possibly being you?

[Harry H. Herington:]

What I would say, and then I'm taking in everything that you said to me, you actually covered a lot of ground there. First, I'll just go back to the White House Innovation Fellows and what we've done there. I've had 2 of my strongest employees be selected, and it's quite an honor for them to be selected in there, and they not only influence how the government is looking at how they are serving the citizens first, businesses as well throughout the country, and being the guiding force there, we are building strong relationships just there, influencing where the federal government is headed to serve the citizens and been able to demonstrate everything we've done across the country. So just those 2 alone, over the past year, is tremendous for us. But that is almost late to the game, because we, as you referenced, we had a contract, a really great contract, self-funded contract in the federal space right now. We have been working aggressively. We've told the investment community. We've shared with our partners. We've been working aggressively to educate the federal space, look at the rules and regs that would enable self-funded. And we have a lot of good conversations going on. The biggest thing I have learned through this entire process is how extremely slow anything moves through the federal space.

[Jeffrey T. Kessler:]

I guess my question was, again, how far have you gotten in terms of getting them away from the use it or lose it budget considerations that they've been under? And beginning to consider a self-funded model, which obviously in the past has been alien to them?

[Harry H. Herington:]

Yes, I would say we have made some great traction with some agencies, not an enterprise-wide, not -- I'm sorry, I haven't sat down with Obama and told him this is what you need to be doing -- I'd love to if anybody can get me that invitation. But from an agency by agency, and especially looking at some specific services and regulatory responsibility they have in the industry, we have those to the point where they influenced some other regs to authorize it. So yes, we're having great traction there. The federal government is massive, and so it will take a while before you start seeing that filter out in a lot of areas. We're being almost laser-focused.

[Operator:]

Your next question comes from the line of Peter Heckmann of Avondale Partners.

[Peter J. Heckmann:]

Did you -- Robert, I guess I'm not still not totally clear. You dropped a word in there as part of the North Carolina lien system that -- was it the most significant stand-alone app? I mean, I inferred that this was perhaps larger than I originally expected. Could you clarify that comment? And then, as well, clarify, was this recorded in the software and services revenue line?

[Robert W. Knapp:]

Yes, Pete. It's -- I mean, 2 things. One, it is in that software and services component; and two, my most -- that the comment about most significant was tied specifically to NIC Services, which is a division of NIC that does some small payment processing contracts. So clearly, relative to those, this was the most significant of those.

[Peter J. Heckmann:]

Perfect, that helps. And then, as regards Pennsylvania, to the extent that you can provide any clarity, has Pennsylvania Interactive begun levying the incremental fee on driver records at this point? If I remember correctly, the original start date was July 1. And if not, can you talk about maybe potentially doing some additional revenue generation in the back half? Can you talk about some of the factors that may play into that?

[Harry H. Herington:]

Yes, I know and I might be real careful because, of course, the sensitive nature of where we're at with Pennsylvania -- what we had said earlier is that we had -- on today's call that we expect in the second half of this year to go, so that it is self-funded, what I was referring to there, of course, is one of the first services we typically launch -- our revenue generate services, so we typically launch is the driver abstract -- driver history abstract records. And we have not launched that yet. I wouldn't say that we -- I'm trying to figure out how to word this. Our dates when we come out, and we talked about launching services, especially with a new portal, those dates are always soft dates. Those are dates that, as we get in, build the relationships, look at the priorities of the partner and what they need to get out there. And go from there, as well as some of the political issues. And as you know, there are political issues that deal with this one. Those dates are fluid. This was fluid on this one. I don't have any concerns. We continue to operate in good faith there, continue making investments.

[Peter J. Heckmann:]

Okay, that's helpful. And then with the SEC contract, did that cease in June? Also trailing?

[Harry H. Herington:]

Yes, that one is done. We are done, and we have transitioned out.

[Peter J. Heckmann:]

Okay. And then just last question, Steve. Can you talk a little bit about some of the factors that contributed to the 5% same-state DMV growth? Were there some DMV price increases in there or was it other factors?

[Stephen M. Kovzan:]

No, I'm pleased to say that price increases were not a component of that growth. As we've shared with you in the past, Pete, we have limited to no transparency as to the processes and procedures that go on behind the scenes with insurance companies in terms of frequency of record pulls or what macroeconomic factors may be driving this. For the last 5 years, essentially, DMV or driver records has been flat -- a flat growth piece of business for us. And in many years -- in many quarters, it was down year-over-year. So it's essentially been a headwind to us. We've seen, over the last 3 quarters, actually positive growth starting with the fourth quarter of '12. And in the first 2 quarters of this year, we've actually seen a bit of a tailwind in terms of DMV. Perhaps it relates to the overall health of the economy. Hard to know, but I wish I could tell you that, but I don't have an answer for you.

[Operator:]

Your next question comes from the line of Brian Kinstlinger of Sidoti & Company.

[Brian Kinstlinger:]

So the first question is a follow-up on the federal piece. I guess, I'm interested in, if you feel like you're further along in the sales process than 1 month ago or 1 year ago, and my guess is yes, but what gives you that confidence? Is there anything tangible you measure to tell you that you're closer than say, 3 months ago?

[Harry H. Herington:]

Yes. There's things that I measure, but not anything that I can necessarily point anyone to because it's going to be the traction we get with our meetings, traction we get, like I said, as we influence how some other RFIs are coming with RFIs or request for information, we've seen some of those come out that have a self-funded flavor with it. And so as we see that, we know that we're making good traction. We know they are moving the ball forward. Here's a part that, I guess, is the further we get into it, the more that we learn. And it's the flip side of the coin. I always told people to be patient. You got to be patient as we go through this. I am learning more myself just what patience means. The level of bureaucracy that you have to go through to get these things from every step -- and the dealers, the approval process, every step of the way in the federal space is moving much slower than we anticipated. I was concerned initially -- we weren't doing the right things, that we didn't know how to navigate through those waters because it's federal not state. And I learned that actually, we're quite good at navigating through those waters, it's just that those waters are very thick. And so it's taken us longer than I like to get certain things done, but I look at it and I see great traction. We're making the right decisions, we're doing the right thing.

[Brian Kinstlinger:]

The other question I have in the federal space. Did you think the sequester at all is changing the behavior -- even though it's self-funded, people don't necessary understand that, so is the sequester in any way shape or form slowing the process or is it unclear since this is fairly new grounds for you?

[Harry H. Herington:]

I think initially, it slowed it because nobody knew really what it was going to mean for them and there was an instant panic throughout the country, when they were going through that. As everybody came to terms with it and they could look at what was happening, then it started actually assisting us with the discussion. Because again, as I said before, whether it's at a state level or a federal level, the agencies are constantly being challenged, that are being forced by the legislature to do more services, to provide more regulatory oversight of business and citizens. And they're going to have to do it with less. Now they are truly looking, when anything comes out new, how are we going to fund it? And we're right there speaking with them, on those that can be self-funded. So I would say any slowness we had before because of their concern or confusion, has pretty much gone by the wayside.

[Brian Kinstlinger:]

Right. A couple of states I want to touch on. One, I'm not sure you mentioned Washington. Have you been in discussion or have they, in any way shape or form, found a source of funding? Where does that stand?

[Harry H. Herington:]

We are in discussions with individuals throughout the Washington area, just educate them in what we've done in other states. Because they are -- they're trying to figure out how they can fund that operation and we're very interested in what they come up with. So I would say we're in an educational stand with them and we are, trust me, very interested to see if they can get this one resolved.

[Brian Kinstlinger:]

And on Wisconsin, I think, Steve you mentioned the dilutive this year clearly, at what point did that turn profitable? Would that with the first quarter of next year? Or would it be a second quarter? Would you even -- can you venture a guess?

[Stephen M. Kovzan:]

Yes, at this point, I probably won't speculate. I think it depends on the timing of certain projects that the state has us focused on right now. After when we turn profitable. We're hoping that the driver records service in Washington is up by the fourth quarter of this year. So hopefully, it starts to kick in and be modestly, at a minimal, modestly -- make a tribute modestly to our bottom line once driver records kick in. But as we get a little further along in engagement, given the fact that just announced it and we've got people on the ground and we're moving forward, we'll provide you hopefully next quarter a little bit more clarity on our progress in Wisconsin.

[Harry H. Herington:]

S the CEO, I'll just tell you what I said earlier. Those dates are fluid. Just because those -- just as you're dealing with it, we're new there.

[Brian Kinstlinger:]

Great, the last question I got, maybe you can remind me the annual guidance? And I think I read in your press release only that there were no numbers, but you said you reiterate that you could give us at least, the high-end, but given where you're trending in the first half of the year. It seems to me that a lot has happened that you weren't expecting at the beginning of the year positively, whether it's Virginia, whether it's the new states, the new applications that you highlighted. So I guess I'm wondering, I would've expected, a potentially a change to your outlook, maybe call for the reasons, or maybe something that's offsetting some of these growth factors in the second half of the year?

[Harry H. Herington:]

No. I think quite frankly, the intention with my final statement in my prepared remarks, and what we put in the press release, Brian, is we said that given our results to date, we're on pace to comfortable meet or exceed our numbers. So while we didn't put out new numbers and new guidance, I think clearly earning $0.32 through the first half of the year puts us on pace to, again, pretty comfortably meet or exceed our numbers for the year.

[Brian Kinstlinger:]

What was the high end again, of the range?

[Stephen M. Kovzan:]

I think the high end of our range is $0.46.

[Brian Kinstlinger:]

$0.46, great, thank you.

[Operator:]

Your next question comes from the line of Raghavan Sarathy of Dougherty & Company.

[Raghavan Sarathy:]

I know you talked about Pennsylvania. So from, sort of the expectation perspective, so it looks like you have recognized $5 million -- roughly $5 million of revenues in the first half. Steve, you talked about, but I think when you originally gave guidance, you are expecting between $7 million and $7.5 million of revenue from Pennsylvania. Should we expect revenue in the back half of the year? Or how should we think about revenue from Pennsylvania for the back half of the year?

[Stephen M. Kovzan:]

Well, without giving specific numbers for the second half of the year, Rag, clearly, our year-to-date performance in Pennsylvania has exceeded our initial expectations and our initial guidance that we provided several months back. So while I can't predict what the second half of the year looks like, I will say this, the first and second quarters of the year are our seasonally strongest quarters, with the third and particularly, the fourth quarter of the year being the seasonally weakest. So assuming that we're successful in converting the portal to a self-funded operation, and that goes sometime in the second half of the year, I would expect some seasonality, certainly in the second half of the year but certainly, stay tuned. We've got to get across that finish line first before we can kind of start speculating what the second half of the year might look like. But certainly through the first half of the year, the Pennsylvania portals exceeded our expectations.

[Raghavan Sarathy:]

Kind of a related question before I can move on to other things. So you've kind of qualitatively said you're expecting to exceed, from a revenue perspective, a high end of meet or exceed. So you did $127 million in the first half of the high-end, you're going to do another $111 million in the second half, you're expecting some deceleration sequentially, probably $56 [ph] million a quarter. Is that some revenue drop off of maybe potentially you're not -- we shouldn't be factoring in Pennsylvania? I'm just trying to understand why the revenue would drop off that much?

[Stephen M. Kovzan:]

I don't -- I'm not sure that I intimated anything necessarily about revenue, Rag. I think, we intimated that our pace through the first half of the year comfortable puts us in a position to meet or exceed the high-end of our guidance. So you can interpret that as you'd like, but there's -- I think we've shared with you everything that we're aware of in the second half of the year, including extending our contract for 6 months in Arizona, and any other contracts that we're currently in transition on. Robert provided some color on the additional service that we have going on in Virginia, that will extend past the August 31 transition date. So I think we've provided you everything that we're aware of in terms of second half of the year.

[Raghavan Sarathy:]

Okay. And then in terms of New Jersey, I didn't quite catch. Did you say that the revenue from New Jersey increased $2 million sequentially from the $2.2 million it did in the first quarter?

[Stephen M. Kovzan:]

No. I said it was up about $1.9 million from the second quarter of last year.

[Raghavan Sarathy:]

Okay. One final question, I know you'll disclose this on the Q. What was the gross billings figure for the quarter?

[Stephen M. Kovzan:]

I'm looking at our Chief -- no, our days sales outstanding was 7. But we're looking it up right now, Rag.

[Operator:]

[Operator Instructions] Our next question comes from the line of Rod Alan [ph] of RK Capital [ph].

[Unknown Analyst:]

Just a follow-up question on Pennsylvania. Of the $5.1 million in revenues from Pennsylvania recognized to date, can you give us a sense, how much of that is project-based? Or timing materials versus the more traditional self-funded?

[Harry H. Herington:]

Yes. So the $5.1 million that be we've recognized to date, we've classified in our DMV revenue line. So that's kind of where we've classified it because we've earned revenues on a per record basis, through the first 6 months of the year.

[Unknown Analyst:]

So it's tied to transactional-based DMV revenues?

[Stephen M. Kovzan:]

It is tied to transactional-based DMV revenues, but it's revenues that are due to us from the state. As we mentioned, the portal is not yet self-funded. The hope that, that will happen sometime in the second half of the year.

[Unknown Analyst:]

Okay. Does that mean that the driver record pools have been quite strong? Or is it something that you need to catch up to?

[Stephen M. Kovzan:]

No. I think we're just getting, again, we're just getting paid on a per record basis based on actual volumes. And just a point of clarification to the previous question. The gross billings, as we've disclosed that in the Form 10-Q that we just recently filed relating to the calculation of our days sales outstanding, was $921.8 million.

[Operator:]

Your next question comes from the line of Gary Prestopino of Barrington Research.

[Gary F. Prestopino:]

Most of my questions have been answered. But what are the other 3 states still with RFPs in the market, Harry?

[Harry H. Herington:]

So I think you're talking about Louisiana, Connecticut, and Washington.

[Gary F. Prestopino:]

Yes. They're still out there, right?

[Harry H. Herington:]

Yes, those are still outstanding.

[Gary F. Prestopino:]

And then just for modeling purposes, maybe you can get just a little more specific on what kind of tax rate are you expecting for the entire year?

[Harry H. Herington:]

Around 40% for the entire year, conservatively.

[Operator:]

Your next question is a follow-up question from the line of Peter Heckmann of Avondale Partners.

[Peter J. Heckmann:]

Just one quick follow-up. On Texas DPS, when that contract originally went live last September, I believe it went live with the emissions kiosks. At the time, there was a talk of a number of other applications regarding hazardous waste and concealed carry. Can you give us an update on if some of those other applications have gone live? And if so, have they included an incremental revenue stream? And looking forward, would we expect to see the DPS portion of Texas contract continue to grow?

[Robert W. Knapp:]

Pete, this is Robert. We continue to work on that suite of applications, and they're ongoing. The concealed carry is one that of -- specifically of that suite, that has launched relative to -- it's all part of the overall, kind of revenue stream, if you will, that's being produced there. But we continue to work with DPS on a multitude of those applications, as we go forward.

[Harry H. Herington:]

But, certainly, Pete, as a point of clarification, they're significantly smaller.

[Robert W. Knapp:]

Yes.

[Harry H. Herington:]

Than by most all comparisons what we launched with the vehicle inspection service.

[Robert W. Knapp:]

Correct.

[Operator:]

Your next question is a follow-up question from Raghavan Sarathy of Dougherty & Company.

[Raghavan Sarathy:]

Just a clarification question. So you mentioned that the contract in Arizona has been extended, after you transition because of projects. Can you -- how much revenue are you recognizing from Arizona now, such as so that we can have our expectations right?

[Harry H. Herington:]

Well, the fixed fee -- the annual fixed fee that we've been recognizing ratably over the course of the year, maybe the annual fixed fee is $3 million. And so roughly, we would expect that level of revenue allocated over the next 2 quarters to continue through the end of the year.

[Raghavan Sarathy:]

And then on Virginia, you talked about a couple of applications that you have brought online. But the revenue from Virginia, how much are you generating? You also have that on migrations, I mean, those 2 pieces?

[Stephen M. Kovzan:]

I'm sorry?

[Raghavan Sarathy:]

On Virginia, you talked about a couple of new services coming online, right? Game and Inland Fisheries and then the some in Virginia? That is an addition to the migration revenue you're getting transitions revenues, is that right?

[Stephen M. Kovzan:]

No. The revenue -- Virginia revenues for the quarter were about 2% of our revenues for the second quarter. We continue to include Virginia in the same-state revenue category this quarter. We do expect services and our revenues to continue -- or to decline next quarter, particularly heading into third quarter and in the fourth quarter. We will retain 2 services on a go-forward basis. There are 2 largest non-DMV services with supreme courts and Department of Inland District Fisheries. Those will continue on. And as we mentioned last quarter, one of the services was probably north of $0.5 million a year, and the other one is a little bit smaller than that.

[Operator:]

There are no further questions at this time. Please continue.

[Harry H. Herington:]

Thank you, Matt. And I want to thank everybody for joining us this afternoon. And I look forward to speaking with you again next quarter. Have a great day.

[Operator:]

Ladies and gentlemen, this concludes NIC's 2013 Second Quarter Earnings Announcement Conference call for today. Thank you for participating, you may now disconnect your lines.