Business Wire | Jul 29, 2020 04:00PM EDT

NIC Reports Second Quarter 2020 Results

Jul. 29, 2020

OLATHE, Kan.--(BUSINESS WIRE)--Jul. 29, 2020--NIC Inc. (Nasdaq: EGOV), the leading provider of digital government services, announced results for the second quarter of 2020 that ended June 30, 2020, as compared to the second quarter of 2019.

* Total revenues of $93.6 million, a 2% increase. * Operating income of $18.4 million, a 4% increase. * Net income of $13.8 million, a 5% decrease. * Diluted earnings per share of 20 cents, a 5% decrease. Earnings per share in the prior year quarter was positively impacted by 1 cent due to the release of reserves for unrecognized income tax benefits resulting from the completion of an IRS examination of the Company's 2016 federal income tax return, which resulted in no changes to the Company's previously filed return. * Adjusted EBITDA of $23.6 million, a 6% increase.

Additional Financial Highlights:

* Same state revenues of $77.6 million, a 4% increase. Same state transaction-based revenues from Interactive Government Services (IGS) increased 5%. Same state transaction-based revenues from Driver History Records (DHR) decreased 12%, driven by volume declines in several states primarily resulting from the COVID-19 pandemic. Same state revenues from other services (development services & fixed fee management services) increased 87%, driven by pandemic unemployment services provided to the Commonwealth of Virginia. Revenues from the Company's contract with the state of Illinois were excluded from same state revenues in the current quarter because it did not generate comparable revenues for two full comparable periods. * Financial results from the Company's Texas payment processing contract previously included in the State Enterprise category were included in the Software & Services category beginning in the first quarter of 2020. Financial results in the prior year were reclassified to match the current year presentation. * Software & Services revenues of $15.8 million, a 5% decrease, driven primarily by volume declines from the federal Pre-Employment Screening Program resulting from the COVID-19 pandemic. * On July 27, 2020, the Company's Board of Directors declared a regular quarterly cash dividend of 9 cents per share, payable to stockholders of record as of September 8, 2020. The dividend, which is expected to total approximately $6.1 million based on the current number of shares outstanding, will be paid on September 22, 2020 out of the Company's available cash.

Operational Highlights:

Several of the Company's long-term government partners recently extended their relationships with the Company:

* Arkansas extended its contract with the Company for two years. * Pennsylvania extended its contract with the Company for two years. * South Carolina extended its contract with the Company for one year. * The Federal Motor Carrier Safety Administration extended its contract with the Company to provide the Pre-Employment Screening Program for an additional six months through February 27, 2021.

After a competitive bid process, the state of Iowa recently named the Company as the winning bidder to provide enterprise digital government services to the state. The Company and the state are currently in the process of negotiating the contract.

NIC has forged a partnership with two market-leading firms, Impact Health and NEXT Marketing, to create TourHealth, a comprehensive and scalable rapid COVID-19 testing solution. TourHealth will leverage Gov2Go, NIC's citizen-centric mobile platform and personal government assistant, for citizen engagement, assessment and scheduling purposes. The TourHealth partnership was recently selected to provide two testing locations in the state of Florida, and was also selected by the state of Utah as one of only two COVID-19 testing vendors approved to provide scheduling, call center and test collection services for state agencies, local governments and educational institutions.

"We continue to respond to the unprecedented and ever-changing COVID-19 pandemic and are extremely excited about our new TourHealth partnership launching in Florida and Utah," said Harry Herington, NIC's Chief Executive Officer and Chairman of the Board. "We are also very pleased to welcome the state of Iowa back to the NIC family and with the tremendous success of our Virginia unemployment program. All of these are prime examples of how we support our government partners to provide essential services to citizens and businesses."

COVID-19 and Updated Full-Year 2020 Outlook:

NIC continues to evaluate the impact the COVID-19 pandemic may have on its business for the remainder of the year. Based on this ongoing evaluation, the Company continues to expect to come in near the low end of its previously issued guidance for total revenues, which was $380.5 million, adjusted EBITDA, which was $88.5 million, and earnings per share, which was 76 cents. The Company currently expects capital expenditures to range from $5 - $6 million in 2020. The Company's previous guidance for capitalized software development costs of $9 - $10 million for 2020 remains unchanged.

Second Quarter Earnings Call and Webcast Details

On July 29, 2020, the Company will host a call to discuss its 2020 second quarter financial performance and fiscal outlook, and answer questions from the investment community. The call may also include a discussion of Company developments, and forward-looking and other material information about business and financial matters.

Dial-In Information

Wednesday, July 29, 2020 at 4:30 p.m. (EDT)

Call bridge: 1-929-477-0577 (local) or 1-800-437-2398 (tollfree)

Conference 9383063ID:

Call Harry Herington, Chief Executive Officer and Chairman of theleaders: Board

Steve Kovzan, Chief Financial Officer

Webcast Information

To sign in and listen: The Webcast system is available at https://www.egov.com/investor-relations.html

A replay of NIC's second quarter earnings call will be available by visiting https://www.egov.com/investor-relations.html

About NIC

NIC (Nasdaq: EGOV) is a leading digital government solutions and payments company, serving more than 7,000 federal, state and local government agencies across the nation. With headquarters in Olathe, Kansas, and offices in more than 30 states, NIC partners with government to deliver user-friendly digital services that make it easier and more efficient to interact with government - providing valuable conveniences like applying for unemployment insurance, submitting business filings, renewing licenses, accessing information and making secure payments without visiting a government office. In the COVID-19 era and beyond, NIC helps government agencies rapidly deliver new digital solutions to provide essential services to citizens and businesses alike. Having served the public sector for nearly 30 years, NIC continues to evolve with its federal, state and local government partners to deliver innovative and cost-effective digital government to constituents. Learn more at www.egov.com.

Non-GAAP Measures

In addition to the results presented in accordance with U.S. GAAP, the Company presents non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin. Adjusted EBITDA is defined as net income excluding interest, income tax expense, depreciation & amortization, stock-based compensation and other significant non-operating or non-recurring items that are considered expenses or income under U.S. GAAP. Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenues. These measures should be used in addition to, and not as a substitute for, revenues, operating income, operating income margin, net income, earnings per share or other measures of profitability, liquidity or other performance measures computed in accordance with U.S. GAAP. The Company believes the presentation of adjusted EBITDA and adjusted EBITDA margin is useful to investors and other users as these measures represent key supplemental information to compare and evaluate the Company's core underlying business results over time and with other companies. The non-GAAP measures used by the Company may not be comparable to similarly titled non-GAAP measures used by other companies. The attached schedule provides a full reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures. Adjusted EBITDA and adjusted EBITDA margin represent performance measures and are not intended to represent liquidity measures.

Cautionary Statement Regarding Forward-Looking Information

Any statements made in this release that do not relate to historical or current facts constitute forward-looking statements. These statements often address the Company's potential financial performance for the 2020 fiscal year or future fiscal years, estimates, projections, the expected length of contract terms, statements relating to the Company's business plans, objectives and expected operating results, statements relating to potential new contracts or renewals, statements relating to the Company's expected effective tax rate, statements relating to possible future dividends and share repurchases, statements related to the ongoing impact of the COVID-19 pandemic, and other possible future events, including potential acquisitions, and the assumptions upon which those statements are based. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These risks include regional or national business, political, economic, competitive, social and market conditions, including various termination rights of the Company and its partners, the ability of the Company to renew existing contracts - in whole or in part, and to sign contracts with new federal, state, and local government agencies, the impact of potential information technology, cybersecurity or data security breaches or incidents, the Company's ability to identify and acquire suitable acquisition candidates and to successfully integrate any acquired businesses, and the impact the COVID-19 pandemic may have on demand for the Company's services, as well as its government agency partners, its workforce and the broader economy. 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 recent Forms 10-K and subsequent reports filed with the SEC. These filings are available at the SEC's website at www.sec.gov. Any forward-looking statements included in this release speak only as of the date of this release. Except as may be required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

NIC INC.

CONSOLIDATED STATEMENTS OF INCOME AND FINANCIAL SUMMARY

(In thousands, except per share amounts and percentages)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenues:

State enterprise $ 77,804 $ 74,871 $ 152,215 $ 144,724 revenues

Software & services 15,785 16,695 32,493 32,023 revenues

Total revenues 93,589 91,566 184,708 176,747

Operating expenses:

State enterprise costof revenues,exclusive of 45,876 45,081 92,147 87,060 depreciation &amortization

Software & servicescost of revenues,exclusive of 10,344 10,525 21,069 19,922 depreciation &amortization

Selling & 8,316 8,356 16,379 18,320 administrative

Enterprise technology 7,201 6,745 14,455 13,190 & product support

Depreciation & 3,473 3,130 6,955 5,551 amortization

Total operating 75,210 73,837 151,005 144,043 expenses

Operating income 18,379 17,729 33,703 32,704

Other income:

Interest income - 577 389 1,181

Income before income 18,379 18,306 34,092 33,885 taxes

Income tax provision 4,583 3,846 8,433 7,923

Net income $ 13,796 $ 14,460 $ 25,659 $ 25,962



Basic net income per $ 0.20 $ 0.21 $ 0.38 $ 0.38 share

Diluted net income $ 0.20 $ 0.21 $ 0.38 $ 0.38 per share

Weighted average shares outstanding:

Basic 66,999 66,940 66,993 66,806

Diluted 66,999 66,940 66,993 66,806



Key financial metrics:

Total revenue growth 2 % (1 ) 5 % (1 ) % %

Recurring revenues as 94 % 97 % 96 % 97 %a % of total revenues

State enterprise 4 % (13 ) 5 % (14 )revenue growth % %

Same state revenue 4 % 10 % 5 % 10 %growth

Gross profit % - 41 % 40 % 39 % 40 %state enterprise

Software & services (5 ) 181 % 1 % 170 %revenue growth %

Gross profit % - 34 % 37 % 35 % 38 %software & services

Selling &administrative as a % 9 % 9 % 9 % 10 %of total revenues

Enterprise technology& product support as 8 % 7 % 8 % 7 %a % of total revenues

Operating income as a% of total revenues 20 % 19 % 18 % 19 %("operating margin")

State enterprise revenue analysis:

IGS $ 50,055 $ 47,595 $ 98,243 $ 90,347

DHR 20,607 23,396 43,456 47,081

Development services 5,904 2,642 8,041 4,821

Fixed-fee management 1,238 1,238 2,475 2,475 services

Total state $ 77,804 $ 74,871 $ 152,215 $ 144,724 enterprise revenues

NIC INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amount)

(Unaudited)

June 30, December 2020 31, 2019

ASSETS

Current assets:

Cash $ 220,351 $ 214,380

Trade accounts receivable, net 106,537 85,399

Prepaid expenses & other current assets 13,364 12,944

Total current assets 340,252 312,723

Property and equipment, net 10,656 10,091

Right of use lease assets, net 10,957 10,778

Intangible assets, net 21,937 22,398

Goodwill 5,965 5,965

Other assets 1,244 404

Total assets $ 391,011 $ 362,359



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 75,896 $ 63,685

Accrued expenses 27,781 25,940

Lease liabilities 3,905 3,776

Other current liabilities 8,772 7,191

Total current liabilities 116,354 100,592



Deferred income taxes, net 2,862 2,463

Lease liabilities 7,453 7,373

Other long-term liabilities 5,913 6,003

Total liabilities 132,582 116,431



Commitments and contingencies - -



Stockholders' equity:

Common stock, $0.0001 par, 200,000 sharesauthorized, 67,019 and 66,968 shares issued and 7 7 outstanding

Additional paid-in capital 125,404 123,208

Retained earnings 133,018 122,713

Total stockholders' equity 258,429 245,928

Total liabilities and stockholders' equity $ 391,011 $ 362,359

NIC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,

2020 2019

Cash flows from operating activities:

Net income $ 25,659 $ 25,962

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation & amortization 6,955 5,551

Stock-based compensation expense 3,058 3,703

Deferred income taxes 282 976

Provision (recoveries) for losses on accounts 1,043 (148 )receivable

Changes in operating assets and liabilities:

Trade accounts receivable, net (21,725 ) (31,613 )

Prepaid expenses & other current assets (420 ) 1,130

Other assets 1,411 2,191

Accounts payable 12,211 23,616

Accrued expenses 1,841 (1,439 )

Other current liabilities 970 32

Other long-term liabilities (1,700 ) (2,190 )

Net cash provided by operating activities 29,585 27,771



Cash flows from investing activities:

Purchases of property and equipment (2,540 ) (2,831 )

Business combination - (10,000 )

Asset acquisition - (3,486 )

Capitalized software development costs (4,520 ) (4,607 )

Net cash used in investing activities (7,060 ) (20,924 )



Cash flows from financing activities:

Cash dividends on common stock (12,202 ) (10,818 )

Proceeds from employee common stock purchases 1,509 1,443

Shares surrendered upon vesting of restricted stock (1,917 ) (2,637 )to satisfy tax withholdings

Repurchase of shares (3,944 ) -

Net cash used in financing activities (16,554 ) (12,012 )



Net increase (decrease) in cash 5,971 (5,165 )

Cash, beginning of period 214,380 191,700

Cash, end of period 220,351 186,535



Other cash flow information:

Non-cash activities:

Contingent consideration - business combination $ - $ 960

Cash payments:

Income taxes paid, net $ 5,189 $ 6,925

NIC INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

Reconciliation of net 2020 2019 2020 2019income to Adjusted EBITDA

Net income $ 13,796 $ 14,460 $ 25,659 $ 25,962

Add: Income tax expense 4,583 3,846 8,433 7,923

Less: Interest income - 577 389 1,181

Operating income 18,379 17,729 33,703 32,704

Add: Depreciation & 3,473 3,130 6,955 5,551 amortization expense

Add: Stock-basedcompensation expense, 1,739 1,431 3,058 3,703 inclusive of executiveseverance ^(1)

Add: Executive severance - - - 1,526 payments ^(1)

Adjusted EBITDA $ 23,591 $ 22,290 $ 43,716 $ 43,484



Total Revenues $ 93,589 $ 91,566 $ 184,708 $ 176,747



Net income as a % oftotal revenues ("net 15 % 16 % 14 % 15 %profit margin")

Adjusted EBITDA as a % oftotal revenues ("Adjusted 25 % 24 % 24 % 25 %EBITDA margin")



Detail of stock-based compensation expense

State enterprise cost ofrevenues, exclusive of $ 400 $ 395 $ 758 $ 757 depreciation &amortization

Software & services costof revenues, exclusive of 42 21 69 56 depreciation &amortization

Selling & administrative 1,087 857 1,856 2,572

Enterprise technology & 210 158 375 318 product support

Total stock-based $ 1,739 $ 1,431 $ 3,058 $ 3,703 compensation expense

Executive severance expense of $2.6 million related to the departure of the Company's former Chief Operating Officer is included in selling & administrative expense in the consolidated statements of income and financial summary for the three months ended March 31, 2019. These costs(1) consisted of a one-time cash payment of $1.5 million and $1.1 million of stock-based compensation expense associated with the accelerated vesting of certain restricted stock awards. These costs were excluded from Adjusted EBITDA because the Company does not regard these costs as reflective of normal recurring costs to operate its business.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200729005971/en/

CONTACT: Kara Cowie Director of Corporate Communications (816) 813-2350 kara.cowie@egov.com