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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2020

The Company classifies its revenues and cost of revenues into two categories: (1) state enterprise and (2) software & services. The state enterprise category generally includes revenues and cost of revenues from the Company’s subsidiaries operating enterprise-wide digital government services on behalf of state and local governments. The software & services category primarily includes revenues and cost of revenues from the Company’s subsidiaries that provide digital government services, other than those services provided on an enterprise-wide basis, to federal, state and local governments. The primary categories of operating expenses include: state enterprise cost of revenues, software & services cost of revenues, selling & administrative, enterprise technology & product support and depreciation & amortization. State enterprise cost of revenues consists of all direct costs associated with operating digital government services including employee compensation and benefits (including stock-based compensation), payment processing fees required to process credit/debit card and automated clearinghouse transactions, subcontractor labor costs, telecommunications, provision for losses on accounts receivable, and all other costs associated with the provision of dedicated client service such as dedicated facilities. Software & services cost of revenues consists of all direct project costs to provide services such as employee compensation and benefits (including stock-based compensation), payment processing fees required to process credit/debit card and automated clearinghouse transactions, subcontractor labor costs, and all other direct project costs including hardware, software, materials, travel and other out-of-pocket expenses. Selling & administrative expenses consist primarily of corporate-level expenses relating to market development and sales, marketing, human resource management, corporate communications and public relations, administration, legal, finance and accounting, internal audit and all non-customer service-related costs. Enterprise technology & product support consist primarily of corporate-level expenses relating to information technology, product and security teams that support the centrally hosted infrastructure and platforms and SaaS payment processing and vertical platform solutions.

Certain amounts in the consolidated statements of income for December 31, 2019 and 2018 were reclassified to conform to the current year presentation. In 2020, the Company began classifying the current Texas payment processing contract in the software & services category. The Company reclassified $30.4 million and $8.1 million of revenues and $28.2 million and $7.7 million of cost of revenues from this contract from the state enterprise category to the software & services category for the years ended December 31, 2019 and 2018, respectively. The reclassification had no impact on net income or cash flows for the years ended December 31, 2019 and 2018.

Basis of consolidation

The consolidated financial statements include all the Company's direct and indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Segment reporting

The Company reports segment information in accordance with authoritative accounting guidance for segment disclosures based upon the “management” approach, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s segments. In 2019, the Company had only one reportable segment, State Enterprise. During the first quarter of 2020, the Company made a change from one to two reportable segments, State Enterprise and Payments, which was based on quantitative and qualitative considerations, and was a result of recent changes in the Company's reporting structure to reclassify the Texas payment processing contract from the state enterprise category to the software & services category. In August 2020, the Company launched TourHealth services for rapid and secure COVID-19 testing, which during the fourth quarter of 2020, based on quantitative considerations, was included as a third reportable segment. Currently, the Company operates with three reportable segments: State Enterprise, Payments and TourHealth. All prior year amounts have been restated to conform to the current year presentation. See Note 13, Reportable Segments and Related Information, for additional information regarding the Company's segment reporting.

Cash and cash equivalents

Cash and cash equivalents primarily include cash on hand in the form of bank deposits. For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all non-restricted highly liquid instruments purchased with an original maturity of one month or less to be cash equivalents.

Trade accounts receivable

Trade accounts receivableThe Company records trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The Company calculates this allowance based on its history of write-offs, and its relationship with, and the expected future economic status of, its customers. Trade accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

Property and equipment

Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 8 years for furniture and fixtures, 3-10 years for equipment, 3-5 years for purchased software, and the lesser of the term of the lease or 5 years for leasehold improvements. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the period. The cost of maintenance and repairs is charged to expense as incurred. Significant betterments are capitalized.

The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances indicate the carrying value may not be fully recoverable. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flow from the asset group is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flow discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. The Company did not record any impairment losses on property and equipment during the periods presented.

Software development costs and intangible assets

Software development costs and intangible assets, net

The Company has finite-lived intangible assets that consist of capitalized software development costs and acquired software. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method, unless another method of amortization is more appropriate. Such costs are included in depreciation & amortization in the consolidated statements of income. The estimated economic life for finite-lived intangible assets is typically 3 to 5 years from the date the software is placed in production.

Intangible assets are recorded at cost, less accumulated amortization and are evaluated for recoverability of possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts of the asset group to the future undiscounted cash flows the assets are expected to generate. If such review indicated that the carrying amount of an intangible asset group was not recoverable, an impairment loss would be recognized for the amount by which the carrying value of the intangible asset group exceeds its estimated fair value. The Company has not recorded any impairment losses on intangible assets during the periods presented.

The majority of the costs incurred by the Company to obtain a contract, which consist primarily of salaries of business development employees working to obtain the contract, are fixed in nature, occur regardless of whether a contract is obtained and are expensed as incurred. The Company expenses as incurred all employee costs to start up, operate and maintain digital government services on an enterprise-wide basis as costs of performance under the contracts because, after the completion of a defined contract term, the government entity with which the Company contracts typically receives a perpetual, royalty-free license to the applications the Company developed, excluding applications provided on a SaaS basis. Such costs are included in state enterprise cost of revenues in the consolidated statements of income. Other costs to fulfill a contract, such as the procurement of property and equipment and certain software development costs, are accounted for under other authoritative guidance.

Goodwill and intangible assets

Goodwill and intangible assetsIn accordance with ASC 350, Intangibles - Goodwill and Other, the Company evaluates the carrying value of goodwill, at least annually or more frequently whenever events or changes in circumstances indicate that the fair value of the reporting unit may be less than its carrying amount. Impairment tests are performed annually during the fourth quarter and are performed at the reporting unit level. As of December 31, 2020, the Company did not identify any impairment of goodwill.

Accrued expenses

As of each balance sheet date, the Company estimates expenses which have been incurred but not yet paid or for which invoices have not yet been received. Significant components of accrued expenses consist primarily of payment processing fees, subcontractor costs, employee compensation and benefits (including incentive compensation, bonuses, vacation, health insurance and employer 401(k) contributions) and third-party professional service fees.

Revenue recognition

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales and usage-based taxes, if applicable, are excluded from revenues.

Disaggregation of Revenue

The Company currently earns revenues from three main sources: (i) transaction-based fees, which consist of IGS, DHR and other transaction-based revenues, (ii) development services and (iii) fixed-fee services. The following table summarizes, by reportable segment, the principal activities from which the Company generates revenue (in thousands):


	Reportable Segments
	State Enterprise		Payments		TourHealth		All Other		Consolidated Total
December 31, 2020
IGS	$	209,903	$	—	$	—	$	—	$	209,903
DHR	85,337		—		—		—		85,337
Other	—		41,092		22,415		20,799		84,306
Total transaction-based	295,240		41,092		22,415		20,799		379,546
Development services	31,530		—		—		—		31,530
Fixed-fee services	4,950		—		39,219		5,209		49,378
Total revenues	$	331,720	$	41,092	$	61,634	$	26,008	$	460,454

December 31, 2019
IGS	$	183,987	$	—	$	—	$	—	$	183,987
DHR	91,059		—		—		—		91,059
Other	—		37,976		—		22,019		59,995
Total transaction-based	275,046		37,976		—		22,019		335,041
Development services	10,285		—		—		—		10,285
Fixed-fee services	4,950		—		—		3,929		8,879
Total revenues	$	290,281	$	37,976	$	—	$	25,948	$	354,205

December 31, 2018
IGS	$	195,155	$	—	$	—	$	—	$	195,155
DHR	100,241		—		—		—		100,241
Other	—		10,936		—		19,813		30,749
Total transaction-based	295,396		10,936		—		19,813		326,145
Development services	12,146		—		—		—		12,146
Fixed-fee services	4,950		—		—		1,659		6,609
Total revenues	$	312,492	$	10,936	$	—	$	21,472	$	344,900

Transaction-based Revenues

The Company recognizes revenue from providing outsourced digital services to its government partners primarily utilizing the Company's internally developed proprietary applications. Under these contracts, the Company agrees to provide continuous access to digital government services that allow end-user consumers to complete secure transactions, such as applying for a permit, retrieving government records, or filing a government-mandated form or report. The contractual promise to provide continuous access to each of these digital government services is a single stand-ready performance obligation. The processing of transactions is highly automated based on contractual terms with the Company's government partners.

Transaction-based fees earned by the Company are typically usage-based and calculated based on the number of transactions processed each day at the contractual net fee earned by the Company for each transaction. These usage-based fees are deemed to be variable consideration that meets the practical expedient within ASC 606 whereby the

Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these arrangements, the usage-based fees are fully constrained and recognized once the uncertainties associated with the constraint are resolved, which is when the related transactions occur each day.

The Company satisfies its performance obligation by providing access to digital solutions over the contractual term and by processing transactions as they are initiated by end-user consumers. The performance obligation is satisfied when the Company provides the access and it is used by the end-user consumer.

In most of its transaction-based revenue arrangements, the Company acts as an agent and recognizes revenue on a net basis. The gross transaction fees collected by the Company from end-user consumers on behalf of its government partners are not recognized as revenue but are accrued as accounts payable when the services are provided at the time of the transactions. The Company must remit a certain amount or a percentage of these fees to government agencies regardless of whether the Company ultimately collects the fees from the consumer. As a result, trade accounts receivable and accounts payable reflect the gross amounts outstanding at the balance sheet dates.

Under certain contracts, the Company’s government partners may receive consideration for a portion of the transaction fee remitted to the Company. In circumstances where the Company receives a discernible benefit equal to or greater than the fair value of the consideration in the arrangement, the consideration paid to the government partner is recorded on a gross basis within costs of revenues. Otherwise, the consideration paid to the government partner is accounted for on a net basis as a reduction in the transaction-based fee recorded within revenue.

Development Services Revenues

The Company earns development services revenues primarily under contracts to provide software development and other time and materials services to its government partners. The Company identifies each performance obligation in its software development and services contracts at contract inception, which are generally combined into a single promise. The contract pricing is either at stated billing rates per hour or a fixed amount. These contracts are generally short-term in nature and not longer than one year in duration.

For services provided under development contracts that result in the transfer of control over time, the underlying deliverable is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date. For fixed-fee contracts, the Company utilizes the input method and recognizes revenue based on the labor expended to date relative to the total labor expected to satisfy the contract performance obligation. This input measure of progress is used because it best depicts the transfer of assets to the customer, which occurs as the Company incurs costs to deliver the promise in the contracts. Certain development contracts include substantive customer acceptance provisions. In contracts that include substantive customer acceptance provisions, the Company recognizes revenue at a point in time upon customer acceptance.

Under its development contracts, the Company typically does not have significant future performance obligations that extend beyond one year. As of December 31, 2020, the total transaction price allocated to unsatisfied performance obligations was approximately $7.2 million.

Fixed-fee Services Revenues

Fixed-fee services revenues primarily consist of revenues from providing recurring fixed-fee services for the Company’s government partner in Indiana and other contracts for SaaS subscription-based services in the Company's software & services businesses. The Indiana contract has a single performance obligation to provide a broad scope of services to manage the digital government services for the state of Indiana. The Company satisfies its performance obligation by providing services to the state over time. The contract can be terminated without a penalty by the state with a 30-day notice, and accordingly, the period over which the Company performs services is commensurate with a month to month contract. Consideration consists of a fixed-monthly fee that is recognized monthly as the performance obligation is satisfied. As of December 31, 2020, the Company’s Indiana state enterprise contract had unsatisfied performance

obligations for one month. The total transaction price allocated to the unsatisfied performance obligation is not significant.

The SaaS subscription-based service contracts in the Company's software & services businesses are a fixed-fee single performance obligation to provide government partners continuous access to digital services. The Company satisfies its performance obligation by providing access to digital services over the contractual term. The Company recognizes revenue for the fixed subscription fees ratably over the non-cancelable term of the contract, commencing on the date the customer has access to the solution. As of December 31, 2020, the unsatisfied performance obligations related to these subscription obligations was $17.3 million, which will be recognized over the term of such contracts, generally 1 - 5 years.

TourHealth Services Revenues

In August 2020, the Company began providing a rapid and secure COVID-19 testing solution referred to as TourHealth, featuring digital engagement, assessment and scheduling, as well as in-person clinical testing and logistics. TourHealth service contracts are either a transaction-based (per test) or fixed-fee single performance obligation to provide continuous access to COVID-19 testing services over a specified period of time. The Company satisfies its performance obligation by providing services to the government partners over time.

For TourHealth transaction-based fee contracts, the fees earned by the Company are typically usage-based and calculated based on the number of tests processed each day at the contractual fee earned by the Company for each test. These usage-based fees are deemed to be variable consideration that meets the practical expedient within ASC 606, which are fully constrained and recognized once the uncertainties associated with the constraint are resolved, which is when the related testing service occurs each day. For TourHealth fixed-fee contracts, consideration consists of a fee that is recognized monthly as the performance obligation is satisfied. As of December 31, 2020, the unsatisfied performance obligations related to these fixed-fee contracts was $2.0 million which is expected to be recognized during the first quarter of 2021.

Unearned and Unbilled Revenues

The Company records unearned revenues when cash payments are received or due in advance of the Company’s satisfaction of the performance obligation(s). At each balance sheet date, the Company determines the portion of unearned revenues that will be earned within one year and records that amount in other current liabilities in the consolidated balance sheets. The remainder, if any, is recorded in other long-term liabilities. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Unearned revenues at December 31, 2020 and 2019 were approximately $6.7 million and $3.8 million, respectively. The change in the deferred revenue balance for the year primarily reflects $31.4 million of cash payments received or due in advance of satisfying performance obligations, offset by $28.5 million of revenues recognized that were previously included in deferred revenue.

Unbilled revenues is recorded when revenue is recognized in advance of the amounts invoiced to the customer and is recorded in other current assets in the consolidated balance sheets. Unbilled revenues at December 31, 2020 and 2019 were approximately $13.2 million and $3.4 million, respectively. The change in the unbilled revenue balance for the year primarily reflects additions to the unbilled revenue balance of $41.1 million and $31.3 million of amounts billed during the period.

Contract Costs

Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. For the years ended December 31, 2020 and 2019, the incremental costs incurred to obtain contracts with customers were insignificant.

Costs incurred to fulfill customer contracts, are deferred and recorded within other current assets and other assets when such costs relate directly to a contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future and the Company expects to recover those costs. Contract fulfillment costs may include software implementation costs and setup costs for certain SaaS solutions. These costs are recognized as assets and amortized over the expected term of the contract to which the implementation relates, which is the period over which services are expected to be provided to the customer. For the years ended December 31, 2020 and 2019, the costs incurred to fulfill contracts with customers were insignificant.

Leases

All of the Company's lease arrangements are considered operating leases and are included in right of use lease assets and lease liabilities on the consolidated balance sheet. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheet and are expensed on a straight-line basis over the term of the lease.

On the commencement date of a lease, the Company recognizes a lease liability and corresponding right of use lease asset based on the present value of lease payments over the lease term. Lease agreements generally do not provide an implicit rate and therefore the Company's incremental borrowing rate at the commencement date is used to determine the present value of lease payments. Accretion of the discount on the lease liability is calculated under the effective interest method and included in operating lease cost. The right of use asset also includes any initial direct costs and prepaid lease payments and excludes any lease incentives received by the lessor. The right of use asset is amortized over the lease term and is included in operating lease cost. The result is a single operating lease cost recognized on a straight-line basis over the term of the lease.

Certain of the Company's leases have both lease and non-lease components. The Company has elected the practical expedient to account for these components as a single lease component for all leases.

Stock-based compensation

Stock-based compensationThe Company measures stock-based compensation cost for service-based restricted stock awards at the grant date based on the fair value of the award and recognizes expense on a straight-line basis over the employee’s requisite service period for the entire award (generally the vesting period of the grant). The Company measures stock-based compensation cost for performance-based restricted stock awards at the date of grant, based on the fair value of shares expected to be earned at the end of the performance period and recognizes expense ratably over the performance period based upon the probable number of shares expected to vest. See Note 12, Stock-based Compensation and Employee Benefit Plans, for additional information.

Income taxes

The Company, along with its wholly owned subsidiaries, files a consolidated federal income tax return. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

The Company does not recognize a tax benefit for uncertain tax positions unless management’s assessment concludes that it is “more likely than not” that the position is sustainable based on its technical merits. If the recognition threshold is met, the Company recognizes a tax benefit based upon the largest amount of the tax benefit that is more likely than not probable, determined by cumulative probability, of being realized upon settlement with the taxing authority. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidated statements of income.

Earnings per share

The Company applies the two-class method of computing earnings per share as the Company's service-based restricted stock awards are entitled to non-forfeitable dividends and are therefore considered to be participating securities. The two-

class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common stockholders. Basic earnings per share is calculated by first allocating earnings between common stockholders and participating securities. Earnings attributable to common stockholders are divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to dilutive potential common shares outstanding during the period. The dilutive effect of shares related to the Company’s employee stock purchase plan is determined based on the treasury stock method. The dilutive effect of service-based restricted stock awards is based on the more dilutive of the treasury stock method or the two-class method assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than the participating unvested restricted stock awards. The dilutive effect of performance-based restricted stock awards is based on the treasury stock method.

Business combinations

The Company accounts for the acquisition of a business in accordance with ASC 805, Business Combinations, which requires the identifiable assets acquired, the liabilities assumed and any noncontrolling interests in an acquired business to be recorded at their fair values as of the date of acquisition. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. Fair value measurements require extensive use of estimates and assumptions, particularly with respect to intangible assets, which are based on all available information at the date of acquisition, including estimates of future cash flows to be generated by the acquired assets, useful lives and discount rates. The use of different valuation techniques and assumptions could change the amounts and useful lives assigned to the assets and liabilities acquired and related amortization expense. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Comprehensive income

The Company has no components of other comprehensive income or loss and, accordingly, the Company’s comprehensive income is the same as its net income for all periods presented.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. At December 31, 2020, there were no customers that accounted for 10% or more of the Company's total accounts receivable. At December 31, 2019, LexisNexis Risk Solutions accounted for approximately 14% of the Company’s total accounts receivable.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently issued accounting pronouncements

Credit Losses

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), to replace the incurred loss impairment methodology in U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, companies will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. On January 1, 2020, the Company adopted the standard and all the related amendments, using a modified retrospective

approach. The adoption of the standard resulted in a cumulative-effect adjustment to retained earnings of approximately $0.3 million. The adoption of the standard did not have a significant impact on the Company’s consolidated earnings or cash flows.