Delaware
|
52-2077581
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
Large accelerated filer ☒
|
Accelerated filer ☐
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company ☐
|
Emerging growth company ☐ |
PART I - FINANCIAL INFORMATION
|
||||||||
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
|
||||||||
|
||||||||
NIC INC.
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
(UNAUDITED)
|
||||||||
thousands except par value amount
|
||||||||
|
||||||||
|
||||||||
|
June 30, 2017
|
December 31, 2016
|
||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
135,386
|
$
|
127,009
|
||||
Trade accounts receivable, net
|
79,349
|
82,722
|
||||||
Prepaid expenses & other current assets
|
12,382
|
15,033
|
||||||
Total current assets
|
227,117
|
224,764
|
||||||
Property and equipment, net
|
9,653
|
9,726
|
||||||
Intangible assets, net
|
4,484
|
3,588
|
||||||
Deferred income taxes, net
|
1,511
|
2,307
|
||||||
Other assets
|
1,984
|
477
|
||||||
Total assets
|
$
|
244,749
|
$
|
240,862
|
||||
|
||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
58,717
|
$
|
73,252
|
||||
Accrued expenses
|
22,207
|
23,395
|
||||||
Other current liabilities
|
3,794
|
3,150
|
||||||
Total current liabilities
|
84,718
|
99,797
|
||||||
|
||||||||
Other long-term liabilities
|
8,172
|
7,162
|
||||||
Total liabilities
|
92,890
|
106,959
|
||||||
|
||||||||
Commitments and contingencies (Notes 1 and 2)
|
-
|
-
|
||||||
|
||||||||
Stockholders' equity:
|
||||||||
Common stock, $0.0001 par, 200,000 shares authorized,
|
||||||||
66,265 and 65,982 shares issued and outstanding
|
7
|
7
|
||||||
Additional paid-in capital
|
108,996
|
106,669
|
||||||
Retained earnings
|
42,856
|
27,227
|
||||||
Total stockholders' equity
|
151,859
|
133,903
|
||||||
Total liabilities and stockholders' equity
|
$
|
244,749
|
$
|
240,862
|
NIC INC.
|
||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME
|
||||||||||||||||
(UNAUDITED)
|
||||||||||||||||
thousands except per share amounts
|
||||||||||||||||
|
||||||||||||||||
|
Three months ended
|
Six months ended
|
||||||||||||||
|
June 30, | June 30, | ||||||||||||||
Revenues:
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Portal revenues
|
$
|
79,374
|
$
|
75,513
|
$
|
156,572
|
$
|
148,710
|
||||||||
Software & services revenues
|
5,952
|
5,297
|
11,931
|
10,490
|
||||||||||||
Total revenues
|
85,326
|
80,810
|
168,503
|
159,200
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization
|
49,009
|
46,123
|
96,041
|
89,738
|
||||||||||||
Cost of software & services revenues, exclusive of depreciation & amortization
|
1,779
|
1,445
|
3,542
|
2,858
|
||||||||||||
Selling & administrative
|
13,131
|
11,165
|
24,791
|
22,507
|
||||||||||||
Depreciation & amortization
|
1,688
|
1,736
|
3,301
|
3,400
|
||||||||||||
Total operating expenses
|
65,607
|
60,469
|
127,675
|
118,503
|
||||||||||||
Operating income before income taxes
|
19,719
|
20,341
|
40,828
|
40,697
|
||||||||||||
Income tax provision (Notes 1 and 6)
|
6,950
|
7,280
|
14,074
|
14,742
|
||||||||||||
Net income
|
$
|
12,769
|
$
|
13,061
|
$
|
26,754
|
$
|
25,955
|
||||||||
|
||||||||||||||||
Basic net income per share
|
$
|
0.19
|
$
|
0.20
|
$
|
0.40
|
$
|
0.39
|
||||||||
Diluted net income per share
|
$
|
0.19
|
$
|
0.20
|
$
|
0.40
|
$
|
0.39
|
||||||||
|
||||||||||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
66,248
|
65,953
|
66,147
|
65,846
|
||||||||||||
Diluted
|
66,248
|
65,967
|
66,147
|
65,859
|
NIC INC. | ||||||||||||||||||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
||||||||||||||||||||
(UNAUDITED)
|
||||||||||||||||||||
thousands
|
||||||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
Additional
|
|||||||||||||||||||
|
Common Stock
|
Paid-in
|
Retained | |||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Total
|
|||||||||||||||
Balance, January 1, 2017 (previously reported)
|
65,982
|
$
|
7
|
$
|
106,669
|
$
|
27,227
|
$
|
133,903
|
|||||||||||
Cumulative effect of adoption of new
|
||||||||||||||||||||
accounting standard
|
-
|
-
|
409
|
(409
|
)
|
-
|
||||||||||||||
Balance, January 1, 2017 (as adjusted)
|
65,982
|
7
|
107,078
|
26,818
|
133,903
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
26,754
|
26,754
|
|||||||||||||||
Restricted stock vestings
|
319
|
-
|
107
|
-
|
107
|
|||||||||||||||
Dividends declared
|
-
|
-
|
-
|
(10,692
|
)
|
(10,692
|
)
|
|||||||||||||
Dividend equivalents on performance-based restricted
|
||||||||||||||||||||
stock awards
|
-
|
-
|
-
|
(55
|
)
|
(55
|
)
|
|||||||||||||
Dividend equivalents cancelled upon forfeiture of
|
-
|
|||||||||||||||||||
performance-based restricted stock awards
|
-
|
-
|
-
|
31
|
31
|
|||||||||||||||
Shares issuable in lieu of dividend payments on unvested
|
||||||||||||||||||||
performance-based restricted stock awards
|
-
|
-
|
(83
|
)
|
-
|
(83
|
)
|
|||||||||||||
Shares surrendered and cancelled upon vesting of
|
||||||||||||||||||||
restricted stock to satisfy tax withholdings
|
(123
|
)
|
-
|
(2,614
|
)
|
-
|
(2,614
|
)
|
||||||||||||
Stock-based compensation
|
-
|
-
|
3,178
|
-
|
3,178
|
|||||||||||||||
Issuance of common stock under employee stock purchase plan
|
87
|
-
|
1,330
|
-
|
1,330
|
|||||||||||||||
Balance, June 30, 2017
|
66,265
|
$
|
7
|
$
|
108,996
|
$
|
42,856
|
$
|
151,859
|
NIC INC.
|
||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(UNAUDITED)
|
||||||||
thousands
|
||||||||
Six months ended
|
||||||||
June 30,
|
||||||||
2016
|
||||||||
2017
|
(as adjusted)
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
26,754
|
$
|
25,955
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Provision for losses (recoveries) on accounts receivable
|
379
|
(23
|
)
|
|||||
Depreciation & amortization
|
3,301
|
3,400
|
||||||
Stock-based compensation expense
|
3,178
|
3,005
|
||||||
Deferred income taxes
|
796
|
51
|
||||||
Excess tax benefits from stock-based compensation
|
-
|
427
|
||||||
(Gain) loss on disposal of property and equipment
|
39
|
(4
|
)
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Decrease in trade accounts receivable, net
|
2,994
|
2,941
|
||||||
(Increase) decrease in prepaid expenses & other current assets
|
2,651
|
(2,168
|
)
|
|||||
(Increase) in other assets
|
(1,507
|
)
|
(26
|
)
|
||||
Increase (decrease) in accounts payable
|
(14,535
|
)
|
1,599
|
|||||
(Decrease) in accrued expenses
|
(1,271
|
)
|
(1,515
|
)
|
||||
Increase in other current liabilities
|
644
|
169
|
||||||
Increase in other long-term liabilities
|
1,010
|
746
|
||||||
Net cash provided by operating activities
|
24,433
|
34,557
|
||||||
Cash flows from investing activities:
|
||||||||
Purchases of property and equipment
|
(2,395
|
)
|
(2,748
|
)
|
||||
Proceeds from sale of property and equipment
|
7
|
6
|
||||||
Capitalized internal use software development costs
|
(1,692
|
)
|
(1,142
|
)
|
||||
Net cash used in investing activities
|
(4,080
|
)
|
(3,884
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Cash dividends on common stock
|
(10,692
|
)
|
-
|
|||||
Proceeds from employee common stock purchases
|
1,330
|
1,114
|
||||||
Tax withholdings related to stock-based compensation awards
|
(2,614
|
)
|
(2,073
|
)
|
||||
Net cash used in financing activities
|
(11,976
|
)
|
(959
|
)
|
||||
Net increase in cash
|
8,377
|
29,714
|
||||||
Cash, beginning of period
|
127,009
|
98,388
|
||||||
Cash, end of period
|
$
|
135,386
|
$
|
128,102
|
||||
Other cash flow information:
|
||||||||
Non-cash investing activities:
|
||||||||
Capital expenditures accrued but not yet paid
|
$
|
83
|
$
|
27
|
||||
Cash payments:
|
||||||||
Income taxes paid
|
$
|
12,405
|
$
|
13,941
|
||||
Cash dividends on common stock previously restricted for payment of dividend
|
$
|
-
|
$
|
36,456
|
Three months ended
|
Six months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income
|
$
|
12,769
|
$
|
13,061
|
$
|
26,754
|
$
|
25,955
|
||||||||
Less: Income allocated to participating securities
|
(117
|
)
|
(114
|
)
|
(245
|
)
|
(234
|
)
|
||||||||
Net income available to common stockholders
|
$
|
12,652
|
$
|
12,947
|
$
|
26,509
|
$
|
25,721
|
||||||||
Denominator:
|
||||||||||||||||
Weighted average shares - basic
|
66,248
|
65,953
|
66,147
|
65,846
|
||||||||||||
Performance-based restricted stock awards
|
-
|
14
|
-
|
13
|
||||||||||||
Weighted average shares - diluted
|
66,248
|
65,967
|
66,147
|
65,859
|
||||||||||||
Basic net income per share:
|
||||||||||||||||
Net income
|
$
|
0.19
|
$
|
0.20
|
$
|
0.40
|
$
|
0.39
|
||||||||
Diluted net income per share:
|
||||||||||||||||
Net income
|
$
|
0.19
|
$
|
0.20
|
$
|
0.40
|
$
|
0.39
|
NIC Enterprise Contract
|
State
|
Year Services
Commenced
|
Contract Expiration Date
(Renewal Options Through)
|
NICUSA, IL Division
|
Illinois
|
2017
|
6/29/2023 (6/29/2027)
|
Louisiana Interactive, LLC
|
Louisiana
|
2015
|
1/28/2020
|
Connecticut Interactive, LLC
|
Connecticut
|
2014
|
1/9/2020
|
Wisconsin Interactive Network, LLC
|
Wisconsin
|
2013
|
5/13/2018 (5/13/2023)
|
Pennsylvania Interactive, LLC
|
Pennsylvania
|
2012
|
11/30/2019 (11/30/2022)
|
NICUSA, OR Division
|
Oregon
|
2011
|
11/22/2021
|
NICUSA, MD Division
|
Maryland
|
2011
|
8/10/2018 (8/10/2019)
|
Mississippi Interactive, LLC
|
Mississippi
|
2011
|
12/31/2017 (12/31/2021)
|
New Jersey Interactive, LLC
|
New Jersey
|
2009
|
5/1/2020 (5/1/2022)
|
Texas NICUSA, LLC
|
Texas
|
2009
|
8/31/2018
|
West Virginia Interactive, LLC
|
West Virginia
|
2007
|
6/30/2021 (6/30/2024)
|
Vermont Information Consortium, LLC
|
Vermont
|
2006
|
6/8/2019
|
Colorado Interactive, LLC
|
Colorado
|
2005
|
4/30/2019 (4/30/2023)
|
South Carolina Interactive, LLC
|
South Carolina
|
2005
|
7/15/2019 (7/15/2021)
|
Kentucky Interactive, LLC
|
Kentucky
|
2003
|
8/31/2018
|
Alabama Interactive, LLC
|
Alabama
|
2002
|
3/19/2020 (3/19/2022)
|
Rhode Island Interactive, LLC
|
Rhode Island
|
2001
|
7/1/2018 (7/1/2019)
|
Oklahoma Interactive, LLC
|
Oklahoma
|
2001
|
3/31/2018 (3/31/2020)
|
Montana Interactive, LLC
|
Montana
|
2001
|
12/31/2019 (12/31/2020)
|
Hawaii Information Consortium, LLC
|
Hawaii
|
2000
|
1/3/2019 (3-year renewal
options)
|
Idaho Information Consortium, LLC
|
Idaho
|
2000
|
6/30/2018
|
Utah Interactive, LLC
|
Utah
|
1999
|
6/5/2019
|
Maine Information Network, LLC
|
Maine
|
1999
|
7/1/2018
|
Arkansas Information Consortium, LLC
|
Arkansas
|
1997
|
6/30/2018
|
Indiana Interactive, LLC
|
Indiana
|
1995
|
7/31/2017 (7/31/2018)
|
Nebraska Interactive, LLC
|
Nebraska
|
1995
|
4/1/2019 (4/1/2021)
|
Kansas Information Consortium, LLC
|
Kansas
|
1992
|
12/31/2022 (annual 1-year
renewal options)
|
● |
Operating income growth (three-year compound annual growth rate);
|
● |
Total consolidated revenue growth (three-year compound annual growth rate); and
|
● |
Return on invested capital (three-year average).
|
Three months ended
|
Six months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization
|
$
|
345
|
$
|
327
|
$
|
657
|
$
|
782
|
||||||||
Cost of software & services revenues, exclusive of depreciation & amortization
|
27
|
15
|
44
|
32
|
||||||||||||
Selling & administrative
|
1,332
|
1,041
|
2,477
|
2,191
|
||||||||||||
Stock-based compensation expense before income taxes
|
1,704
|
1,383
|
3,178
|
3,005
|
||||||||||||
Income tax benefit
|
(601
|
)
|
(495
|
)
|
(1,096
|
)
|
(1,089
|
)
|
||||||||
Net stock-based compensation expense
|
$
|
1,103
|
$
|
888
|
$
|
2,082
|
$
|
1,916
|
Outsourced
Portals
|
Other Software
& Services
|
Other Reconciling Items
|
Consolidated
Total
|
|||||||||||||
2017
|
||||||||||||||||
Revenues
|
$
|
79,374
|
$
|
5,952
|
$
|
-
|
$
|
85,326
|
||||||||
Costs & expenses
|
49,009
|
1,779
|
13,131
|
63,919
|
||||||||||||
Depreciation & amortization
|
668
|
23
|
997
|
1,688
|
||||||||||||
Operating income (loss) before income taxes
|
$
|
29,697
|
$
|
4,150
|
$
|
(14,128
|
)
|
$
|
19,719
|
|||||||
2016
|
||||||||||||||||
Revenues
|
$
|
75,513
|
$
|
5,297
|
$
|
-
|
$
|
80,810
|
||||||||
Costs & expenses
|
46,123
|
1,445
|
11,165
|
58,733
|
||||||||||||
Depreciation & amortization
|
856
|
18
|
862
|
1,736
|
||||||||||||
Operating income (loss) before income taxes
|
$
|
28,534
|
$
|
3,834
|
$
|
(12,027
|
)
|
$
|
20,341
|
Outsourced
Portals
|
Other Software
& Services
|
Other Reconciling Items
|
Consolidated
Total
|
|||||||||||||
2017
|
||||||||||||||||
Revenues
|
$
|
156,572
|
$
|
11,931
|
$
|
-
|
$
|
168,503
|
||||||||
Costs & expenses
|
96,041
|
3,542
|
24,791
|
124,374
|
||||||||||||
Depreciation & amortization
|
1,353
|
46
|
1,902
|
3,301
|
||||||||||||
Operating income (loss) before income taxes
|
$
|
59,178
|
$
|
8,343
|
$
|
(26,693
|
)
|
$
|
40,828
|
|||||||
2016
|
||||||||||||||||
Revenues
|
$
|
148,710
|
$
|
10,490
|
$
|
-
|
$
|
159,200
|
||||||||
Costs & expenses
|
89,738
|
2,858
|
22,507
|
115,103
|
||||||||||||
Depreciation & amortization
|
1,706
|
31
|
1,663
|
3,400
|
||||||||||||
Operating income (loss) before income taxes
|
$
|
57,266
|
$
|
7,601
|
$
|
(24,170
|
)
|
$
|
40,697
|
● |
IGS: mainly consists of transaction fees from interactive government services, referred to as IGS, from sources other than digital access to motor vehicle driver history records, for transactions conducted by business users and consumer users through our portals and which are generally recurring. For a representative listing of the IGS applications we currently offer through our portals, refer to Part I, Item 1 in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 22, 2017.
|
● |
DHR: mainly consists of transaction fees from driver history records, referred to as DHR, for providing digital access to motor vehicle driver history records from our state portals to data resellers, insurance companies, and other pre-authorized customers on behalf of our state partners, and which are generally recurring.
|
● |
Portal software development and services: these are revenues from the performance of application development projects and other time and materials services for our government partners. While we actively market these services, they do not have the same degree of predictability as our transaction-based or portal management revenues and are not generally recurring. As a result, these revenues are excluded from our recurring portal revenue percentage.
|
● |
Portal management: these are revenues from the performance of fixed fee portal management services for our current government partner in the state of Indiana and are generally recurring.
|
Three months ended
|
Six months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
Key Financial Metrics
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Revenue growth - outsourced portals
|
5
|
%
|
6
|
%
|
5
|
%
|
9
|
%
|
||||||||
Same state revenue growth - outsourced portals
|
7
|
%
|
6
|
%
|
6
|
%
|
9
|
%
|
||||||||
Recurring portal revenue as a % of total portal revenues
|
97
|
%
|
96
|
%
|
97
|
%
|
96
|
%
|
||||||||
Gross profit % - outsourced portals
|
38
|
%
|
39
|
%
|
39
|
%
|
40
|
%
|
||||||||
Revenue growth - software & services
|
12
|
%
|
11
|
%
|
14
|
%
|
14
|
%
|
||||||||
Gross profit % - software & services
|
70
|
%
|
73
|
%
|
70
|
%
|
73
|
%
|
||||||||
Selling & administrative expenses as a % of total revenues
|
15
|
%
|
14
|
%
|
15
|
%
|
14
|
%
|
||||||||
Operating income margin % (operating income as a % of total revenues)
|
23
|
%
|
25
|
%
|
24
|
%
|
26
|
%
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||
Portal Revenue Analysis
|
2017
|
% Change
|
2016
|
2017
|
% Change
|
2016
|
||||||||||||||||||
IGS transaction-based
|
$
|
50,217
|
11
|
%
|
$
|
45,276
|
$
|
96,142
|
10
|
%
|
$
|
87,209
|
||||||||||||
DHR transaction-based
|
25,689
|
(1
|
%)
|
25,830
|
53,858
|
2
|
%
|
52,956
|
||||||||||||||||
Portal software development
|
2,193
|
(30
|
%)
|
3,132
|
4,022
|
(33
|
%)
|
5,995
|
||||||||||||||||
Portal management
|
1,275
|
-
|
1,275
|
2,550
|
-
|
2,550
|
||||||||||||||||||
Total
|
$
|
79,374
|
5
|
%
|
$
|
75,513
|
$
|
156,572
|
5
|
%
|
$
|
148,710
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||
Cost of Portal Revenue Analysis
|
2017
|
% Change
|
2016
|
2017
|
% Change
|
2016
|
||||||||||||||||||
Fixed costs
|
$
|
28,135
|
2
|
%
|
$
|
27,615
|
$
|
56,015
|
3
|
%
|
$
|
54,606
|
||||||||||||
Variable costs
|
20,874
|
13
|
%
|
18,508
|
40,026
|
14
|
%
|
35,132
|
||||||||||||||||
Total
|
$
|
49,009
|
6
|
%
|
$
|
46,123
|
$
|
96,041
|
7
|
%
|
$
|
89,738
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||
Software & Services Revenue Analysis
|
2017 |
% Change
|
2016
|
2017
|
% Change
|
2016
|
||||||||||||||||||
NIC Federal
|
$
|
4,278
|
17
|
%
|
$
|
3,651
|
$
|
8,202
|
14
|
%
|
$
|
7,205
|
||||||||||||
Other
|
1,674
|
2
|
%
|
1,646
|
3,729
|
14
|
%
|
3,285
|
||||||||||||||||
Total
|
$
|
5,952
|
12
|
%
|
$
|
5,297
|
$
|
11,931
|
14
|
%
|
$
|
10,490
|
● |
fund operations if unforeseen costs arise;
|
● |
support our expansion into other federal, state and local government agencies beyond what is contemplated if unforeseen opportunities arise;
|
● |
expand our product and service offerings beyond what is contemplated if unforeseen opportunities arise;
|
● |
fund acquisitions;
|
● |
respond to unforeseen competitive pressures; and
|
● |
acquire technologies beyond what is contemplated.
|
Period |
Total Number of Shares Purchased
|
Average Price
Paid Per Share
|
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
|
Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs
|
||||||||||||
April 20, 2017
|
|
264
|
$
|
21.20
|
|
N/A
|
|
N/A
|
||||||||
May 5, 2017
|
797
|
21.45
|
N/A
|
N/A
|
||||||||||||
May 6, 2017
|
686
|
21.45
|
N/A
|
N/A
|
||||||||||||
May 7, 2017
|
|
55
|
|
21.45
|
|
N/A
|
|
|
N/A
|
|||||||
Total
|
1,802 | N/A |
N/A
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
|
|
101
|
The following financial information from NIC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in XBRL (Extensible Business Reporting Language) includes (i) Unaudited Consolidated Balance Sheets at June 30, 2017 and December 31, 2016, (ii) Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016, (iii) Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2017, (iv) Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (v) the Notes to Unaudited Consolidated Financial Statements (submitted electronically herewith).
|
|
NIC INC.
|
|
|
Dated: August 2, 2017
|
/s/ Stephen M. Kovzan
|
|
Stephen M. Kovzan
|
|
Chief Financial Officer
|
Exhibit
Number
|
|
Description of Exhibit
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
|
|
|
|
101
|
|
The following financial information from NIC’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017, formatted in XBRL (Extensible Business Reporting Language) includes (i) Unaudited Consolidated Balance Sheets at June 30, 2017 and December 31, 2016, (ii) Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016, (iii) Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2017, (iv) Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (v) the Notes to Unaudited Consolidated Financial Statements (submitted electronically herewith).
|
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Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 17, 2017 |
|
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | EGOV | |
Entity Registrant Name | NIC INC | |
Entity Central Index Key | 0001065332 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 66,267,128 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Common stock, par | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 66,265,000 | 65,982,000 |
Common stock, shares outstanding | 66,265,000 | 65,982,000 |
CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Revenues: | ||||
Portal revenues | $ 79,374 | $ 75,513 | $ 156,572 | $ 148,710 |
Software & services revenues | 5,952 | 5,297 | 11,931 | 10,490 |
Total revenues | 85,326 | 80,810 | 168,503 | 159,200 |
Operating expenses: | ||||
Cost of portal revenues, exclusive of depreciation & amortization | 49,009 | 46,123 | 96,041 | 89,738 |
Cost of software & services revenues, exclusive of depreciation & amortization | 1,779 | 1,445 | 3,542 | 2,858 |
Selling & administrative | 13,131 | 11,165 | 24,791 | 22,507 |
Depreciation & amortization | 1,688 | 1,736 | 3,301 | 3,400 |
Total operating expenses | 65,607 | 60,469 | 127,675 | 118,503 |
Operating income (loss) before income taxes | 19,719 | 20,341 | 40,828 | 40,697 |
Income tax provision (Notes 1 and 6) | 6,950 | 7,280 | 14,074 | 14,742 |
Net income | $ 12,769 | $ 13,061 | $ 26,754 | $ 25,955 |
Basic net income per share | $ 0.19 | $ 0.20 | $ 0.40 | $ 0.39 |
Diluted net income per share | $ 0.19 | $ 0.20 | $ 0.40 | $ 0.39 |
Weighted average shares outstanding: | ||||
Basic | 66,248 | 65,953 | 66,147 | 65,846 |
Diluted | 66,248 | 65,967 | 66,147 | 65,859 |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company
NIC is a leading provider of digital government services that help
governments use technology to provide a higher level of service to
businesses and citizens and increase efficiencies. The Company
accomplishes this currently through two channels: its primary
outsourced portal businesses and its software & services
businesses.
In its primary outsourced portal businesses, the Company generally
designs, builds, and operates internet-based portals on an
enterprise-wide basis on behalf of state and local governments
desiring to provide access to government information and to
complete secure government-based transactions through multiple
online channels, including mobile devices. These portals consist of
websites and applications the Company has built that allow
businesses and citizens to access government information online and
complete transactions, such as applying for a permit, retrieving
government records, or filing a government-mandated form or report.
Typically operating under multiple-year contracts (See
Note 2), NIC markets the services and solicits users to
complete government-based transactions and to enter into subscriber
contracts permitting users to access the portal and the government
information contained therein in exchange for transactional and/or
subscription user fees. The Company typically manages operations
for each contractual relationship through separate local
subsidiaries that operate as decentralized businesses with a high
degree of autonomy. NIC’s business model allows the Company
to generate revenues by sharing in the fees the Company collects
from online transactions. The Company is typically responsible for
funding the up-front investments and ongoing operations and
maintenance costs of the outsourced government portals.
The Company’s software & services businesses primarily
include its subsidiaries that provide software development and
digital government services, other than outsourced portal services,
to state and local governments as well as federal agencies (See
Note 2).
Basis of presentation
The
Company classifies its revenues and cost of revenues into two
categories: (1) portal and (2) software & services. The portal
category generally includes revenues and cost of revenues from the
Company’s subsidiaries operating outsourced portals 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 software development and
services, other than outsourced portal services, to state and local
governments as well as federal agencies. The primary categories of
operating expenses include: cost of portal revenues, cost of
software & services revenues, selling & administrative and
depreciation & amortization. Cost of portal revenues consists
of all direct costs associated with operating government portals on
an outsourced basis including employee compensation and benefits
(including stock-based compensation), 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. Cost
of software & services revenues consists of all direct project
costs to provide software development and services such as employee
compensation and benefits (including stock-based compensation),
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 human
resource management, administration, information technology,
security, legal, finance and accounting, internal audit and all
non-customer service related costs from the Company’s
software & services businesses, including compensation and
benefits, information systems and office rent. Selling &
administrative expenses also consist of management incentive
compensation, including stock-based compensation, and
corporate-level expenses for market development and public
relations.
Certain amounts included in the unaudited consolidated statement of
cash flows for the six-month period ended June 30, 2016 were
reclassified to conform to the current year presentation. The
reclassifications had no effect on total cash flows or the income
statement for the three- and six-month periods ended June 30,
2016.
Adoption of accounting standard
In
March 2016, the Financial Accounting Standards Board
(“FASB”) issued new authoritative literature,
Improvements to Employee Share-Based Payment Accounting (“ASU
2016-09”), which simplifies several aspects of accounting for
employee share-based payment transactions, including accounting for
income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash
flows. The Company adopted the standard on January 1, 2017, which
is effective for the annual reporting period beginning January 1,
2017, including interim periods within that reporting period.
Adoption of the standard resulted in a decrease in retained
earnings of approximately $0.4 million and a corresponding increase
in additional paid-in capital in the Company’s unaudited
consolidated balance sheet at January 1, 2017, reflecting
a cumulative-effect adjustment associated
with the Company’s policy election to account for forfeitures
of awards as they occur. Previously, the Company estimated and
excluded compensation cost related to awards not expected to vest
based on estimated forfeitures. Furthermore, changes in
presentation as a result of the adoption of ASU 2016-09 increased
both cash provided by operating activities and cash used in
financing activities by approximately $2.5 million in the
Company’s unaudited consolidated statement of cash flows for
the six-month period ended June 30, 2016.
Upon adoption of ASU 2016-09, excess tax benefits or deficiencies
from share-based award activity are reflected in the consolidated
statement of income prospectively as a component of the provision
for income taxes, whereas previously such benefits or deficiencies
were recognized in additional paid-in capital in the consolidated
balance sheet. Excess tax benefits resulted in a reduction of the
Company’s provision for income taxes of approximately $0.1
million and $0.5 million, respectively, for the three- and
six-month periods ended June 30, 2017.
Earnings per share
Unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are included in the
computation of earnings per share pursuant to the two-class method
for all periods presented. 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. The Company’s service-based
restricted stock awards contain non-forfeitable rights to dividends
and are participating securities. Accordingly, service-based
restricted stock awards were included in the calculation of
earnings per share using the two-class method for all periods
presented. Unvested service-based restricted shares totaled
approximately 0.6 million for each of the periods ended June 30,
2017 and 2016. 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.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
Concentration of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash
and accounts receivable. The Company limits its exposure to credit
loss by depositing its cash with high credit quality financial
institutions and monitoring the financial stability of those
institutions. The Federal Deposit Insurance Corporation
(“FDIC”) provides deposit insurance coverage up to
$250,000 per depositor for deposit accounts at each FDIC-insured
depository institution. At June 30, 2017, the amount of cash
covered by FDIC deposit insurance was approximately $8.2 million,
and approximately $127.2 million of cash was above the FDIC deposit
insurance limit. The Company performs ongoing credit evaluations of
its customers and generally requires no collateral to secure
accounts receivable.
Recently issued accounting pronouncements
Credit Losses
In June 2016, the FASB issued a new standard to replace the
incurred loss impairment methodology in current 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, the Company 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.
The new standard will be effective for the Company beginning
January 1, 2020, with early adoption permitted beginning January 1,
2019. Application of the amendments is through a cumulative-effect
adjustment to retained earnings as of the effective date. The
Company is currently evaluating the new standard and the estimated
impact it will have on the Company’s financial
statements.
Leases
In February 2016, the FASB issued a new standard related to leases
to increase transparency and comparability among organizations by
requiring the recognition of lease assets and lease liabilities on
the balance sheet. Most prominent among the amendments is the
recognition of assets and liabilities by lessees for those leases
classified as operating leases under current U.S. GAAP. Under the
new standard, disclosures are required to meet the objective of
enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases.
The
standard is effective for the annual reporting period beginning
January 1, 2019, including interim periods within that reporting
period. The Company will be required to recognize and measure
leases at the beginning of the earliest period presented using a
modified retrospective approach. Early application is permitted.
The Company is currently evaluating the effects that the standard
will have on its consolidated financial statements, which the
Company anticipates could be significant, due mainly to its
non-cancellable leases for office space. As further described in
Note 7, Commitments and Contingencies, of the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on February 22, 2017, as of
December 31, 2016, the Company had minimum lease commitments under
non-cancellable operating leases totaling $17.9
million.
Revenue from Contracts with Customers
In May 2014, the FASB issued a new standard related to revenue
recognition. Under the new standard, revenue is recognized when a
customer obtains control of promised goods or services in an amount
that reflects the consideration which the entity expects to receive
in exchange for those goods or services. In addition, the standard
requires expanded disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with
customers. The FASB has issued several amendments to the standard,
including clarification on accounting for licenses of intellectual
property and identifying performance obligations.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application (the
modified retrospective approach). The standard is effective for the
annual reporting period beginning January 1, 2018, including
interim periods within that reporting period. The Company currently
expects it will adopt the standard using the modified retrospective
approach during the first quarter of 2018.
The Company has established an implementation team that has
completed a preliminary impact assessment of the new standard and a
scoping of its revenue sources by type of service provided under
its contracts with customers. The Company continues to assess the
standard and is currently evaluating a sample of customer contracts
for each revenue source to determine the estimated impact the
standard will have on the Company’s sources of revenue and
financial statements.
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OUTSOURCED GOVERNMENT CONTRACTS |
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OUTSOURCED GOVERNMENT CONTRACTS |
2. OUTSOURCED GOVERNMENT CONTRACTS
The Company’s outsourced government portal contracts
generally have an initial multi-year term with provisions for
renewals for various periods at the option of the government. The
Company’s primary business obligation under these contracts
is generally to design, build, and operate internet-based portals
on an enterprise-wide basis on behalf of governments desiring to
provide access to government information and to complete
government-based transactions online. NIC typically markets the
services and solicits users to complete government-based
transactions and to enter into subscriber contracts permitting the
user to access the portal and the government information contained
therein in exchange for transactional and/or subscription user
fees. The Company enters into statements of work with various
agencies and divisions of the government to provide specific
services and to conduct specific transactions. These statements of
work preliminarily establish the pricing of the online transactions
and data access services the Company provides and the division of
revenues between the Company and the government agency. The
government oversight authority must approve prices and revenue
sharing agreements. The Company has limited control over the level
of fees it is permitted to retain.
The Company is typically responsible for funding the up-front
investments and ongoing operations and maintenance costs of the
government portals, and generally owns all of the intellectual
property in connection with the applications developed under these
contracts. After completion of a defined contract term, the
government partner typically receives a perpetual, royalty-free
license to use the applications and digital government services
built by the Company only in its own state. However, certain
proprietary customer management, billing and payment processing
software applications that the Company has developed and
standardized centrally and that are utilized by the Company’s
portal businesses, are being provided to a number of government
partners on a software-as-a-service (“SaaS”) basis, and
thus would not be included in any royalty-free license. If the
Company’s contract expires after a defined term or if its
contract is terminated by a government partner for cause, the
government agency would be entitled to take over the portal in
place, and NIC would have no future revenue from, or obligation to,
such former government partner, except as otherwise provided in the
contract.
Any renewal of these contracts beyond the initial term by the
government is optional and a government may terminate its contract
prior to the expiration date if the Company breaches a material
contractual obligation and fails to cure such breach within a
specified period or upon the occurrence of other events or
circumstances specified in the contract. In addition, 14 contracts
under which the Company provides enterprise-wide outsourced portal
and digital government services, as well as the Company’s
contract with the Federal Motor Carrier Safety Administration
(“FMCSA”), can be terminated by the other party without
cause on a specified period of notice. Collectively, revenues
generated from these contracts represented approximately 62% and
61% of the Company’s total consolidated revenues for the
three- and six-month periods ended June 30, 2017, respectively. In
the event that any of these contracts is terminated without cause,
the terms of the respective contract may require the government to
pay the Company a fee in order to continue to use the
Company’s applications in its portal.
Under a typical portal contract, the Company is required to fully
indemnify its government clients against claims that the
Company’s services infringe upon the intellectual property
rights of others and against claims arising from the
Company’s performance or the performance of the
Company’s subcontractors under the contract. At June 30,
2017, the Company was bound by performance bond commitments
totaling approximately $5.8 million on certain outsourced portal
contracts.
The following is a list of the contracts in each state through
which the Company has the ability to provide enterprise-wide
outsourced digital government services to multiple government
agencies:
Outsourced federal contract
The Company’s subsidiary NIC Federal, LLC has a contract with
the FMCSA to develop and manage the FMCSA’s Pre-Employment
Screening Program (“PSP”) for motor carriers
nationwide, using a transaction-based business model. During the
third quarter of 2017, the FMCSA exercised the second of its two
one-year renewal options, extending the current contract through
August 31, 2018.
Any renewal of the contract with the FMCSA beyond the current term
is at the option of the FMCSA and the contract can be terminated by
the FMCSA without cause on a specified period of notice.
Expiring contracts
There are currently 4 contracts under which the Company provides
enterprise-wide outsourced portal and digital government services
that have expiration dates within the 12-month period following
June 30, 2017. Collectively, revenues generated from these
contracts represented approximately 10% and 9% of the
Company’s total consolidated revenues for the three- and
six-month periods ended June 30, 2017, respectively. Although
certain of these contracts have renewal provisions, any renewal is
at the option of the Company’s government partner. As
described above, if a contract is not renewed after a defined term,
the government partner would be entitled to take over the portal in
place, and NIC would have no future revenue from, or obligation to,
such former government partner, except as otherwise provided in the
contract.
The contract under which the Company’s subsidiary, NICUSA
Inc. (“NICUSA”), managed digital government services
for the state of Tennessee expired on March 31, 2017. For the
six-month period ended June 30, 2017 revenues from the Tennessee
portal contract were approximately $1.8 million, compared to $2.0
million and $4.3 million in the three- and six- month periods ended
June 30, 2016, respectively.
The contract under which the Company’s subsidiary, Iowa
Interactive, LLC managed digital government services for the state
of Iowa expired on November 30, 2016. For the three- and six-month
periods ended June 30, 2016, revenues from the Iowa portal contract
were approximately $0.5 million and $0.9 million,
respectively.
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STOCK BASED COMPENSATION |
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STOCK BASED COMPENSATION |
3. STOCK BASED COMPENSATION
During the three- and six-month periods ended June 30, 2017, the
Compensation Committee of the Board of Directors of the Company
granted to certain management-level employees and executive
officers, service-based restricted stock awards totaling 2,152
shares and 230,847 shares, respectively, with a grant-date fair
value totaling approximately $0.1 million and $5.1 million,
respectively. Such restricted stock awards vest beginning one year
from the date of grant in annual installments of 25%. In addition,
during the three-month period ended June 30, 2017, non-employee
directors of the Company were granted service-based restricted
stock awards totaling 37,464 shares with a grant-date fair value
totaling approximately $0.8 million. Such restricted stock awards
vest one year from the date of grant. Restricted stock is valued at
the date of grant, based on the closing market price of the
Company’s common stock, and expensed using the straight-line
method over the requisite service period (generally the vesting
period of the award). The Company records forfeitures when they
occur.
During the first quarter of 2017, the Compensation Committee of the
Board of Directors of the Company also granted to certain executive
officers performance-based restricted stock awards pursuant to the
terms of the Company’s executive compensation program
totaling 110,678 shares with a grant-date fair value totaling
approximately $2.4 million, which represents the maximum number of
shares the executive officers can earn at the end of a three-year
performance period ending December 31, 2019.
The actual number of shares earned will be based on the
Company’s performance related to the following performance
criteria over the performance period:
At the end of the three-year period, the executive officers are
eligible to receive up to a specified number of shares based upon
the Company’s performance relative to these performance
criteria over the performance period. In addition, the executive
officers will accrue dividend equivalents for any cash dividends
declared during the performance period, payable in the form of
additional shares of Company common stock, based upon the maximum
number of shares to be earned by the executive officers for each
performance-based restricted stock award. Such hypothetical cash
dividend payment shall be divided by the fair value of the
Company’s common stock on the dividend payment date to
determine the maximum number of notional shares to be awarded. At
the end of the three-year performance period and on the date some
or all of the shares are paid under the agreement, a pro rata
number of notional dividend shares will be converted into an
equivalent number of dividend shares paid and granted to the
executive officers based upon the actual number of underlying
shares earned during the performance period.
At December 31, 2016, the three-year performance period related to
the performance-based restricted stock awards granted to certain
executive officers on February 24, 2014 ended. Based on the
Company’s actual financial results from 2014 through 2016,
59,437 of the shares subject to the awards and 4,945 dividend
shares were earned. The remaining 21,503 shares subject to the
awards were forfeited in the first quarter of 2017.
Stock-based compensation cost for performance-based restricted
stock awards is measured at the grant date based on the fair value
of shares expected to be earned at the end of the performance
period, and is recognized as expense over the performance period
based upon the probable number of shares expected to vest.
The following table presents stock-based compensation expense
included in the Company’s unaudited consolidated statements
of income (in thousands):
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STOCKHOLDERS' EQUITY |
6 Months Ended |
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Jun. 30, 2017 | |
STOCKHOLDERS' EQUITY |
4. STOCKHOLDERS’ EQUITY
Dividends
On July 31, 2017, the Company’s Board of Directors declared a
regular quarterly cash dividend of $0.08 per share, payable to
stockholders of record as of September 6, 2017. The dividend, which
is expected to total approximately $5.4 million, will be paid on
September 20, 2017 out of the Company’s available cash.
A dividend equivalent of $0.08 per share will also be paid
simultaneously on the unvested shares of service-based restricted
stock.
On May 2, 2017, the Company’s Board of Directors declared a
regular quarterly cash dividend of $0.08 per share, payable to
stockholders of record as of June 6, 2017. The dividend, totaling
approximately $5.4 million, was paid on June 20, 2017 on 66,264,853
outstanding shares of common stock. A dividend equivalent of
$0.08 per share was also paid simultaneously on 613,524 unvested
shares of service-based restricted stock. This dividend was paid
out of the Company’s available cash.
On January 30, 2017, the Company’s Board of Directors
declared a regular quarterly cash dividend of $0.08 per share,
payable to stockholders of record as of March 7, 2017. The
dividend, totaling approximately $5.3 million, was paid on March
21, 2017 on 66,131,192 outstanding shares of common stock. A
dividend equivalent of $0.08 per share was also paid simultaneously
on 643,339 unvested shares of service-based restricted stock. This
dividend was paid out of the Company’s available cash.
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DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS |
6 Months Ended |
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Jun. 30, 2017 | |
DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS |
5. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS
On April 28, 2017, NIC Inc. (the “Company”) entered
into Amendment No. 3 to Amended and Restated Credit Agreement (the
“Amendment’), which amends the Amended and Restated
Credit Agreement, dated as of August 6, 2014, by and between the
Company and Bank of America, N.A. (the “Credit
Agreement”). The Amendment extended the maturity date
to May 1, 2019. The other material terms of the Credit Agreement
remain unchanged, including customary representations and
warranties, affirmative and negative covenants and events of
default.
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INCOME TAXES |
6 Months Ended |
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Jun. 30, 2017 | |
INCOME TAXES |
6. INCOME TAXES
The
Company’s effective tax rate was approximately 35% and 34%,
respectively, for the three- and six-month periods ended June 30,
2017 compared to 36% for each of the three- and six-month periods
ended June 30, 2016. The Company’s effective tax rate in the
current quarter and year-to-date periods was lower than the prior
year quarter and year-to-date periods mainly due to favorable
benefits related to the domestic production activities deduction,
which the Company began recognizing in the third quarter of
2016, and
favorable benefits related to excess tax deductions for the vesting
of restricted stock awards, which the Company began recognizing in
the provision for income taxes in the first quarter of 2017 upon
the adoption of ASU 2016-09 (See Note 1).
The Company’s reserve for unrecognized income tax benefits,
including interest and penalties, included in other long-term
liabilities in the unaudited consolidated balance sheet at June 30,
2017 and the consolidated balance sheet at December 31, 2016 were
approximately $7.7 million and $6.6 million, respectively. The
increase was mainly due to a reserve for unrecognized income tax
benefits related to the domestic production activities deduction
recorded during the six-month period ended June 30, 2017.
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REPORTABLE SEGMENT AND RELATED INFORMATION |
7. REPORTABLE SEGMENT AND RELATED INFORMATION
The Outsourced Portals segment is the Company’s only
reportable segment and generally includes the Company’s
subsidiaries operating outsourced state and local government
portals. The Other Software & Services category primarily
includes the Company’s subsidiaries that provide software
development and digital government services, other than outsourced
portal services, to state and local governments as well as federal
agencies. Each of the Company’s businesses within the Other
Software & Services category is an operating segment and has
been grouped together to form the Other Software & Services
category, as none of the operating segments meets the quantitative
threshold of a separately reportable segment. There have been no
significant intersegment transactions for the periods reported. The
summary of significant accounting policies applies to all operating
segments.
The measure of profitability by which management, including the
Company’s chief operating decision maker, evaluates the
performance of its segments and allocates resources to them is
operating income (loss) before income taxes. Segment assets or
other segment balance sheet information is not presented to the
Company’s chief operating decision maker. Accordingly, the
Company has not presented information relating to segment
assets.
The table below reflects summarized financial information for the
Company’s reportable and operating segments for the
three-month period ended June 30 (in thousands):
The table below reflects summarized financial information for the
Company’s reportable and operating segments for the six-month
period ended June 30 (in thousands):
The Company’s Texas portal contract accounted for
approximately 20% of the Company’s total consolidated
revenues for the three- and six-month periods ended June 30, 2017
and approximately 19% and 20% of the Company’s total
consolidated revenues in each of for the three- and six-month
periods ended June 30, 2016, respectively. No other state portal
contract accounted for more than 10% of the Company’s total
consolidated revenues.
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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Basis of presentation |
Basis of presentation
The
Company classifies its revenues and cost of revenues into two
categories: (1) portal and (2) software & services. The portal
category generally includes revenues and cost of revenues from the
Company’s subsidiaries operating outsourced portals 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 software development and
services, other than outsourced portal services, to state and local
governments as well as federal agencies. The primary categories of
operating expenses include: cost of portal revenues, cost of
software & services revenues, selling & administrative and
depreciation & amortization. Cost of portal revenues consists
of all direct costs associated with operating government portals on
an outsourced basis including employee compensation and benefits
(including stock-based compensation), 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. Cost
of software & services revenues consists of all direct project
costs to provide software development and services such as employee
compensation and benefits (including stock-based compensation),
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 human
resource management, administration, information technology,
security, legal, finance and accounting, internal audit and all
non-customer service related costs from the Company’s
software & services businesses, including compensation and
benefits, information systems and office rent. Selling &
administrative expenses also consist of management incentive
compensation, including stock-based compensation, and
corporate-level expenses for market development and public
relations.
Certain amounts included in the unaudited consolidated statement of
cash flows for the six-month period ended June 30, 2016 were
reclassified to conform to the current year presentation. The
reclassifications had no effect on total cash flows or the income
statement for the three- and six-month periods ended June 30,
2016.
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Adoption of accounting standard |
Adoption of accounting standard
In
March 2016, the Financial Accounting Standards Board
(“FASB”) issued new authoritative literature,
Improvements to Employee Share-Based Payment Accounting (“ASU
2016-09”), which simplifies several aspects of accounting for
employee share-based payment transactions, including accounting for
income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash
flows. The Company adopted the standard on January 1, 2017, which
is effective for the annual reporting period beginning January 1,
2017, including interim periods within that reporting period.
Adoption of the standard resulted in a decrease in retained
earnings of approximately $0.4 million and a corresponding increase
in additional paid-in capital in the Company’s unaudited
consolidated balance sheet at January 1, 2017, reflecting
a cumulative-effect adjustment associated
with the Company’s policy election to account for forfeitures
of awards as they occur. Previously, the Company estimated and
excluded compensation cost related to awards not expected to vest
based on estimated forfeitures. Furthermore, changes in
presentation as a result of the adoption of ASU 2016-09 increased
both cash provided by operating activities and cash used in
financing activities by approximately $2.5 million in the
Company’s unaudited consolidated statement of cash flows for
the six-month period ended June 30, 2016.
Upon adoption of ASU 2016-09, excess tax benefits or deficiencies
from share-based award activity are reflected in the consolidated
statement of income prospectively as a component of the provision
for income taxes, whereas previously such benefits or deficiencies
were recognized in additional paid-in capital in the consolidated
balance sheet. Excess tax benefits resulted in a reduction of the
Company’s provision for income taxes of approximately $0.1
million and $0.5 million, respectively, for the three- and
six-month periods ended June 30, 2017.
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Earnings per share |
Earnings per share
Unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are included in the
computation of earnings per share pursuant to the two-class method
for all periods presented. 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. The Company’s service-based
restricted stock awards contain non-forfeitable rights to dividends
and are participating securities. Accordingly, service-based
restricted stock awards were included in the calculation of
earnings per share using the two-class method for all periods
presented. Unvested service-based restricted shares totaled
approximately 0.6 million for each of the periods ended June 30,
2017 and 2016. 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.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
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Concentration of credit risk | Concentration of credit
risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash
and accounts receivable. The Company limits its exposure to credit
loss by depositing its cash with high credit quality financial
institutions and monitoring the financial stability of those
institutions. The Federal Deposit Insurance Corporation
(“FDIC”) provides deposit insurance coverage up to
$250,000 per depositor for deposit accounts at each FDIC-insured
depository institution. At June 30, 2017, the amount of cash
covered by FDIC deposit insurance was approximately $8.2 million,
and approximately $127.2 million of cash was above the FDIC deposit
insurance limit. The Company performs ongoing credit evaluations of
its customers and generally requires no collateral to secure
accounts receivable.
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Recently issued accounting pronouncements |
Recently issued accounting pronouncements
Credit Losses
In June 2016, the FASB issued a new standard to replace the
incurred loss impairment methodology in current 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, the Company 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.
The new standard will be effective for the Company beginning
January 1, 2020, with early adoption permitted beginning January 1,
2019. Application of the amendments is through a cumulative-effect
adjustment to retained earnings as of the effective date. The
Company is currently evaluating the new standard and the estimated
impact it will have on the Company’s financial
statements.
Leases
In February 2016, the FASB issued a new standard related to leases
to increase transparency and comparability among organizations by
requiring the recognition of lease assets and lease liabilities on
the balance sheet. Most prominent among the amendments is the
recognition of assets and liabilities by lessees for those leases
classified as operating leases under current U.S. GAAP. Under the
new standard, disclosures are required to meet the objective of
enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases.
The
standard is effective for the annual reporting period beginning
January 1, 2019, including interim periods within that reporting
period. The Company will be required to recognize and measure
leases at the beginning of the earliest period presented using a
modified retrospective approach. Early application is permitted.
The Company is currently evaluating the effects that the standard
will have on its consolidated financial statements, which the
Company anticipates could be significant, due mainly to its
non-cancellable leases for office space. As further described in
Note 7, Commitments and Contingencies, of the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on February 22, 2017, as of
December 31, 2016, the Company had minimum lease commitments under
non-cancellable operating leases totaling $17.9
million.
Revenue from Contracts with Customers
In May 2014, the FASB issued a new standard related to revenue
recognition. Under the new standard, revenue is recognized when a
customer obtains control of promised goods or services in an amount
that reflects the consideration which the entity expects to receive
in exchange for those goods or services. In addition, the standard
requires expanded disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with
customers. The FASB has issued several amendments to the standard,
including clarification on accounting for licenses of intellectual
property and identifying performance obligations.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application (the
modified retrospective approach). The standard is effective for the
annual reporting period beginning January 1, 2018, including
interim periods within that reporting period. The Company currently
expects it will adopt the standard using the modified retrospective
approach during the first quarter of 2018.
The Company has established an implementation team that has
completed a preliminary impact assessment of the new standard and a
scoping of its revenue sources by type of service provided under
its contracts with customers. The Company continues to assess the
standard and is currently evaluating a sample of customer contracts
for each revenue source to determine the estimated impact the
standard will have on the Company’s sources of revenue and
financial statements.
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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Computation of Basic and Diluted Earnings Per Share |
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
|
OUTSOURCED GOVERNMENT CONTRACTS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Enterprise-Wide Outsourced Digital Government Services to Multiple Governments Agencies |
The following is a list of the contracts in each state through
which the Company has the ability to provide enterprise-wide
outsourced digital government services to multiple government
agencies:
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STOCK BASED COMPENSATION (Tables) |
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Stock-based Compensation Expense |
The following table presents stock-based compensation expense
included in the Company’s unaudited consolidated statements
of income (in thousands):
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REPORTABLE SEGMENT AND RELATED INFORMATION (Tables) |
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Information for Reportable Segments |
The table below reflects summarized financial information for the
Company’s reportable and operating segments for the
three-month period ended June 30 (in thousands):
The table below reflects summarized financial information for the
Company’s reportable and operating segments for the six-month
period ended June 30 (in thousands):
|
Computation of Basic and Diluted Earnings per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Numerator: | ||||
Net income | $ 12,769 | $ 13,061 | $ 26,754 | $ 25,955 |
Less: Income allocated to participating securities | (117) | (114) | (245) | (234) |
Net income available to common stockholders | $ 12,652 | $ 12,947 | $ 26,509 | $ 25,721 |
Denominator: | ||||
Weighted average shares - basic | 66,248 | 65,953 | 66,147 | 65,846 |
Performance-based restricted stock awards | 14 | 13 | ||
Weighted average shares - diluted | 66,248 | 65,967 | 66,147 | 65,859 |
Basic net income per share: | ||||
Net income | $ 0.19 | $ 0.20 | $ 0.40 | $ 0.39 |
Diluted net income per share: | ||||
Net income | $ 0.19 | $ 0.20 | $ 0.40 | $ 0.39 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Income Taxes [Line Items] | |||||
Effective tax rate | 35.00% | 36.00% | 34.00% | 36.00% | |
Other Long-Term Liabilities | |||||
Income Taxes [Line Items] | |||||
Unrecognized income tax benefits | $ 7.7 | $ 7.7 | $ 6.6 |
Reportable Segments and Related Information - Additional Information (Detail) - Segment |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Segment Reporting Information [Line Items] | ||||
Number of reportable segment | 1 | |||
Customer Concentration Risk | Consolidated Revenues | ||||
Segment Reporting Information [Line Items] | ||||
Concentration risk percentage | 62.00% | 61.00% | ||
Texas NICUSA, LLC | Customer Concentration Risk | Consolidated Revenues | ||||
Segment Reporting Information [Line Items] | ||||
Concentration risk percentage | 20.00% | 19.00% | 20.00% | 20.00% |
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