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Edited Transcript of EGOV earnings conference call or presentation 27-Apr-20 12:30pm GMT

Q1 2020 NIC Inc Earnings Call

OLATHE Apr 28, 2020 (Thomson StreetEvents) -- Edited Transcript of NIC Inc earnings conference call or presentation Monday, April 27, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angie Davids

NIC Inc. - SVP of Marketing & Communications

* Harry H. Herington

NIC Inc. - Chairman of the Board & CEO

* Stephen M. Kovzan

NIC Inc. - CFO

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Conference Call Participants

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* Gary Frank Prestopino

Barrington Research Associates, Inc., Research Division - MD

* Ishfaque Ahmed Faruk

Sidoti & Company, LLC - Analyst

* Peter James Heckmann

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

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Presentation

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Operator [1]

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Good day and welcome to the first quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Angie Davids. Please go ahead.

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Angie Davids, NIC Inc. - SVP of Marketing & Communications [2]

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Thank you, operator. Good morning, everyone, and welcome to NIC's first quarter earnings call. The press release for NIC's first quarter 2020 earnings announcement is issued 30 minutes ago. Our earnings release is also available on our corporate website at www.egov.com/investor-relations. You may also call our headquarters at (844) 944-3468, and we will e-mail the information to you.

Joining us on the call today are NIC's CEO, Harry Herington; and Steve Kovzan, NIC's Chief Financial Officer. Following a reading of our cautionary statement regarding forward-looking information, our CEO and CFO will deliver prepared remarks. Then we'll open for questions.

Any statements made during this call that do not relate to historical or current facts constitute forward-looking statements. These statements often address the company's potential financial performance for the 2020 fiscal year or future fiscal years, estimates, projections, the expected length of contract terms, statements relating to the company's business plans, objectives and expected operating results, statements relating to potential new contracts or renewals, statements relating to the company's expected effective tax rate, statements relating to possible future dividends and share repurchases, statements related to the ongoing impact of the COVID-19 pandemic and other possible future events, including potential acquisitions and the assumptions upon which those statements are based. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. These risks include regional or national business, political, economic, competitive, social and market conditions, including various termination rights of the company and its partners, the ability of the company to renew existing contracts in whole or in part and to sign contracts with new federal, state and local government agencies, the impact of potential information technology, cybersecurity or data security breaches or incidents, the company's ability to identify and acquire suitable acquisition candidates and successfully integrate any acquired businesses and the impact the COVID-19 pandemic may have on demand for the company's services as well as its government agency partners, its workforce and the broader economy.

You should not rely on any forward-looking statement as a prediction or guarantee about the future. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled Risk Factors and Cautions About Forward-Looking Statements of the company's most recent Forms 10-K and subsequent reports filed with the SEC. These filings are available at the SEC's website at www.sec.gov. Any forward-looking statements made during this call speak only as of the date of this call. Except as may be required by applicable law, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Now it is my pleasure to introduce Harry Herington, NIC's Chief Executive Officer and Chairman of the Board.

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [3]

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Thank you, Angie, and thanks to everyone joining us for today's call. As you have probably already predicted, the impact of COVID-19 on NIC and our unique role assisting our government partners with their response will shape a great deal of what we will discuss with you this afternoon. Many of our investors know I'm a very straightforward individual and that NIC has a long history of providing appropriate transparency into our business and strategies, and this call will be no different. Steve Kovzan and I will provide relevant operational and financial results for the first quarter of 2020. However, a lot occurred in the final weeks of the quarter as the COVID-19 crisis gripped our nation. Needless to say, NIC's priorities quickly evolved as our government partners responded to this unprecedented event.

To begin, I would like to recognize the tremendous job government has done navigating through the COVID-19 pandemic. For the first time in history, governments across the nation were forced to close agency offices and transitioned almost all government operations online. In addition, this occurred during a critical time when citizens and businesses needed access to government information, guidance and services the most. The challenges our government faces are unprecedented. And many of the agencies NIC supports pursued creative strategies to keep government operating, including transitioning many of their services online as branch offices physically closed.

I would also like to recognize NIC's nearly 1,000 employees who have gone above and beyond, working unbelievable hours these past several weeks and keeping our operations running smoothly as NIC quickly transitioned into a completely virtual workforce and delivering essential services to our government partners and communities during this national pandemic. This crisis has absolutely brought out the best in NIC employees and their incredible efforts have taken many forms, from our technology teams rapidly adding hosting capacity at all hours of the day and night to ensure that COVID-19 informational websites could withstand traffic spikes that were at times in excess of 2,000% of normal traffic to our application specialists who would routinely receive a phone call late in the day with a request from the governor's office and then work nonstop through the night to deliver tested solutions that will be launched to coincide with the governor's press conference. The scenarios I just described happened countless times during the past few weeks and illustrate our commitment to doing our best to support government and help agencies take care of the systems and businesses they serve every day. Working virtually side by side with our government partners, we have launched more than 130 COVID-19-specific services since mid-March as well as dozens of informational websites that state agencies are using as a primary communication channel.

Here are some of the examples of essential solutions NIC has quickly deployed. In Louisiana, our team digitized a manual triplicate form process that COVID-19 testing teams in the field are required to complete and transitioned it to a simple, single, easy-to-use online submission. The service was so successful that it's now being used in more than 200 testing facilities statewide, including drive-through locations. In addition, our team in West Virginia recently implemented the same technology and launched a similar solution for its testing locations. In Kansas and Rhode Island, our teams designed and launched a personal protective equipment marketplace that allows suppliers to fast-track making personal protective equipment available to necessary health care establishments. And in Virginia, we provided a suite of services to enable the state to rapidly process an unprecedented number of unemployment claims by quickly adding call center functionality and deploying a mobile-friendly solution for residents to file weekly claims electronically. In the first week since the application launched, more than 52,000 Virginians used this mobile service to submit unemployment filings. And at points in time, we had more than 2,500 people using the application simultaneously. We are proud of the essential services NIC teams have provided to government during this crisis and are thankful for the trust they have placed in us during this critical time.

Our multi-dimensional COVID-19 response has required additional investment to increase bandwidth and expand our technical and operational capacity to keep digital government open for business. These unanticipated near-term investments were in direct response to pandemic support and were not planned for. Yet as an essential service provider to government and as part of our value proposition, we made the decision to do what was necessary to keep our digital solutions functioning under unprecedented user demand. While these investments might have a modest negative near-term impact to our bottom line, we are confident this is a correct decision for NIC because it was the right thing to do for our communities.

While no company, including NIC, is immune to the financial impacts of COVID-19, we do believe that because of NIC's history, the confidence placed in us by our government partners and the strength of our business model, NIC will remain strong throughout this crisis and beyond. Government faces a potential long-term period of reduced tax revenues, expanded recovery payments and tremendous competition for how to use each budget dollar. NIC's proven transaction-based model provides government with the confidence that their digital services will continue to serve and expand as necessary and will not yet be another draw on their limited agency budgets. In recent days, the media and government leaders have focused on reopening the economy and businesses returning to work.

It is important to realize NIC never left. Prior to and during the COVID-19 response, NIC continues to secure new long-term contracts and deliver operational wins. To date, this year, we have continued our 2019 momentum by securing several contract extensions. These include rebids or extensions for enterprise businesses in Alabama, Kentucky, Louisiana, New Jersey, New Mexico and the Department of Transportation's pre-employment screening program, which are more fully described in our earnings release. We have maintained phenomenal long-term relationships with all these partners, and we thank them for continuing to place their trust in NIC. NIC also secured a significant win with our RxGov portfolio. On the same day that Maine issued their stay-in-place order in March, the state awarded NIC a 5-year contract for our RxGov platform, becoming the third state to sign up for our RxGov solution to manage prescription drug monitoring. In addition, I am pleased to announce we recently finalized the implementation of our cannabis licensing solution for the state of Missouri and the state has contracted for additional module, which NIC will be deploying over the next several months. Our agreement in Missouri runs through mid-2024 with renewal options that the state may exercise through mid-2026. I would like to personally thank Missouri and our long-term partner in Maine for giving us the privilege to deploy our industry-leading vertical solutions in your states.

Finally, there is tremendous concerns surrounding the unknown economic impact of COVID-19 on our country. However, I would remind everyone, for the past 28 years, NIC's core business has remained financially stable in both good economic times and bad. We are debt-free and we continue to generate consistent cash flows, which provides a significant financial flexibility and confidence in these uncertain times. This financial flexibility enabled us to repurchase over 241,000 shares under our $25 million repurchase program at highly attractive prices during a 5-day period in mid-March when the market first started to negatively react to the COVID-19 crisis. We executed a 10b5-1 automated trading plan under our recent opening trading window that commenced when the trading window closed on March 18. However, despite the strength of our balance sheet and the confidence we have in our business, we canceled the plan on March 22 because we felt it was prudent given the uncertainty of the pandemic on the broader economy.

As I say in uncertain times, cash is king, and now it's the guiding principle with our decision. To this end, I will close my remarks on a positive note by informing everyone that after careful consideration, our Board of Directors renewed their commitment to continue our regular quarterly cash dividend. Now more than ever, we feel it's important to support our economy by returning much needed cash directly to our individual and institutional stockholders and indirectly through their various investments in mutual funds, 401(k) plans and other retirement accounts.

With that, I am pleased to turn the call over to NIC's Chief Financial Officer, Steve Kovzan.

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Stephen M. Kovzan, NIC Inc. - CFO [4]

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Thank you, Harry. In the first quarter of 2020, we earned $0.18 per share compared to $0.17 in the prior year quarter. Before we move on to the core results for the quarter, as a housekeeping item, beginning in the first quarter of this year, we reclassified the Texas payment processing contract in our income statement from the state enterprise category to the software and services category in both the current and prior year quarters given that our business in Texas is limited to payment processing like the other payment-related contracts in our software and services category and is not a traditional enterprise contract where we develop and manage digital government services and handle payment processing. We've also included a supplemental schedule in the Investor Relations section of our egov.com site that lays out the classification on a quarterly and annual basis, beginning with the third quarter of 2018 when the Texas payment processing contract commenced.

Moving on to core results for the quarter. Same-state enterprise revenues grew 7% year-over-year. We had a very strong start to the quarter before the nation's full mitigation response to COVID-19 kicked in toward the latter half of March. As a result, our same-state growth for the quarter was modestly below our internal expectations, reflecting a partial month impact of COVID-19 on certain of our state enterprise services, most notably Driver History Records and to a lesser extent, Interactive Government Services, in addition to certain of our software and services businesses, including the federal pre-employment screening program and the federal Recreation.gov service, which I will speak to more in a moment. But first, I'll break down the major components of same-state enterprise growth for the quarter.

Same-state transaction-based Driver History Record or DHR revenues were down 4% year-over-year. For the month of March, same-state DHR revenues were down 8% compared to March 2019 and were clearly impacted by the epidemic as we have never seen monthly same-state DHR revenues declined to this extent in our company's history. As we've discussed in the past, we don't have ideal transparency into what drives DHR volumes over time and this situation is no different. However, when speaking with our various contacts in the industry, including data resellers, and based on media reports, we suspect lower DHR volumes could be the result of several factors that seem reasonable to us at this point.

First, a temporary pause in the second half of March for both government and industry participants to adjust to stay-at-home orders and work-from-home arrangements could have led to fewer record pools by data resellers and insurance carriers. As an example, one of our government partners was unable to update bulk DHR records for a 2-week period starting in late March due to work-from-home staffing challenges. Fortunately, the state was able to resume updating records the second week of April. Second, several large auto insurers announced they will be sending refunds to customers as insurance claims had fallen due to fewer drivers on the road, which could be leading to fewer DHR pools. Also, law enforcement across the country is issuing fewer citations for driving violations in response to social distancing guidelines, which could also be contributing to lower DHR volumes. Third, auto and home sales, which have historically prompted DHR record pools, are at a standstill and could be contributing to the softness as well. And finally, with companies hiring fewer employees during this sudden economic downturn, particularly in the retail, travel, restaurant and entertainment industries, companies are conducting fewer background checks, which could be contributing to fewer DHR pools.

While it is difficult to predict the magnitude and duration of the pandemic's impact on DHR volumes with any precision, we expect this softness will be most pronounced in the second quarter with most of the country on full lockdown and the broader economy in sharp decline and potentially to a lesser extent in the third and fourth quarters when we hope the country and the economy start to slowly open back up.

Next, same-state transaction-based Interactive Government Services or IGS revenues were up a solid 13% for the quarter driven by higher payment processing revenues in certain states, most notably in New Jersey; revenues from the new auto titling and registration system in Wisconsin, which launched in the second half of last year; higher hunting and fishing licensing revenues in certain states as well as higher revenues and several other online services across our state enterprise business. For the month of March, same-state IGS revenues were up 8% compared to March 2019. Over the last several days of the month, we saw brick-and-mortar government offices closed in several of our enterprise states to comply with stay-at-home orders stemming from the COVID-19 pandemic and saw several DMVs also allow citizens 60- to 90-day extensions to renew auto registrations and driver's licenses, which contributed to lower IGS revenues in certain of our states. On the flip side, we saw a substantial increase in volumes from several online services across our state enterprise businesses as transactions previously conducted in government offices moved online.

While it is difficult to predict the impact of the COVID-19 pandemic on IGS revenues for the rest of the year with precision given only a partial month of results under our belts, it's important to remember most of our IGS services are not discretionary. And as a result, we believe most IGS transactions will ultimately occur this year, but a portion will be deferred to future periods. Furthermore, many point-of-sale services we manage in brick-and-mortar government offices are payment processing related, for which we expect revenue declines to be partially offset by an increase in online transactions for the same services or partially offset by a corresponding decline in merchant processing costs, which could approximate 60% of point-of-sale revenues.

One last area I want to touch on before I move to our software and services businesses is our ongoing efforts on the outdoor recreation front in Pennsylvania and Illinois. For the quarter, we incurred about $900,000 of state enterprise costs to implement our outdoor recreation platform in Pennsylvania and Illinois, up from about $500,000 in the prior year quarter when we were exclusively focused on Pennsylvania. Earlier this year, when we announced our 2020 guidance, we expected to launch Pennsylvania around the midpoint of this year. However, because of the lack of state resources during the COVID-19 pandemic, including the inability to work with point-of-sale agents out in the field during the lockdown, the state of Pennsylvania recently requested we move the launch date in September, which, given the circumstances, is entirely reasonable. Unfortunately for us, that pushes the launch out of the busy season for hunting and fishing and reduces the revenues we currently expect to generate in 2020 to around $600,000, down from our previous estimate of $2.4 million. However, because of adjustments we have made to our project time line and development resources, we expect the operating income impact will be less than the revenue impact, somewhere in the neighborhood of only $1 million for the year, which we have incorporated into our forecast for the year, which I will discuss shortly. However, there's a silver lining coming from this situation in that because of the delay, we negotiated an extra year to our contract, which now extends to 12 years in total. We very much appreciate the state's partnership and look forward to a successful launch of a solution later this year.

Moving on. Software and services revenues were up $1.4 million or 9% over the prior year quarter, driven mainly by revenues from our RxGov prescription drug monitoring business and recently acquired NIC Licensing Solutions business, which contributed a combined $800,000 in revenue during the quarter, and growth from the Texas payment processing contract.

I will now touch on our 2 largest federal contracts: the pre-employment screening program, or PSP, which we operate on behalf of the Federal Motor Carrier Safety Administration; and the Recreation.gov outdoor recreation service we operate as a subcontractor with Booz Allen Hamilton.

I'll address the PSP first. For the quarter, PSP revenue growth was flat, in large part because of the 5% decline in revenues for the month of March. In speaking with our government counterparts and based on trade publications and communications from the American Trucking Association, we currently anticipate the continued softening in PSP volumes in the coming months as a result of several factors, which I will touch on briefly. But before I do, as a reminder, the PSP is not a mandatory service for motor carriers and other companies associated with the trucking industry. However, the good news is that the trucking industry is critically essential during the COVID-19 pandemic. And we expect trucking companies will continue to hire drivers and thus pull PSP records, albeit at a slower pace over the next several months for the following reasons.

First, because of the rapid deterioration in the broader economy from the COVID-19 pandemic, starting mostly in the second half of March, we suspect driver turnover is decreasing as truckers are holding on to their jobs, which could be contributing to fewer PSP record pools. Second, the FMCSA temporarily lifted their hours of service regulation due to the COVID-19 pandemic. So truckers are spending more time on the road, which reduces the need to have as many drivers on staff. Furthermore, because the nation's roadways are less congested, truckers are completing routes in less time, which also necessitates fewer drivers. Third, while the movement of nondurable goods remains relatively strong, trucking companies that deliver raw goods to manufacturers are cutting pay, reducing the hours for truckers and pulling back spending as an initial demand for consumer products gives way to a national economic downturn, which could also be contributing to lower PSP volumes. Finally and to a lesser extent, the motor coach industry, including such companies as Greyhound Lines, is highly tourism-based, and nearly all bus travel have ceased due to the COVID-19 pandemic. While the motor coach industry is a very small portion of the overall motor carrier industry, it too could be contributing to fewer PSP record pools.

As evidence of softening PSP revenues, through the first 3 weeks of April, PSP volumes are down around 25% year-over-year. And we expect this softness to be most pronounced in the second quarter then hopefully moderate in the back half of the year as the country and economy start to slowly open back up.

Next, I'll cover Recreation.gov. For the quarter, Rec.gov revenues were up 5%. Through the first 2 months of the year, Rec.gov revenues were up over 25%. But then in March, we saw a downturn of over 20% as popular, iconic national parks and sites such as Yellowstone, Yosemite and the Washington Monument began to close the last several days of the month to eliminate crowds and enforce social distancing. Furthermore, the U.S. Forest Service recently closed most campgrounds, which are likely to remain closed at least through May. We expect this revenue softness to continue through much of the second quarter, then hopefully improve in the back half of the year when our national parks and recreation areas start to slowly open back up. On a positive note, our outdoor recreation activity at the state level, specifically hunting and fishing licensing, was strong for the first quarter ending March.

Moving on to operating expenses. Depreciation and amortization expense increased by approximately $1.1 million or 44% from the prior year quarter driven mainly by intangible asset amortization from the RxGov asset acquisition, which totaled approximately $800,000 for the quarter, up $500,000 in the prior year quarter; and from the NIC Licensing Solutions acquisition, which closed on May 1, 2019, and totaled approximately $250,000 for the quarter.

Operating income for the quarter increased 2%, resulting in an operating income margin of 17%, down from 18% in the prior year quarter. Recall that selling and administrative expenses in the prior year quarter reflect executive severance costs totaling $2.6 million, which reduced EPS by $0.04. Excluding these costs, the operating income margin in the prior year quarter would have been approximately 21%. The decline in the operating margin in the current quarter mainly reflects the aforementioned decline in high-margin DHR revenues for the quarter, incremental costs to implement our comprehensive outdoor recreation solution in Pennsylvania and Illinois and modest dilution from the company's recently acquired RxGov and NIC Licensing Solutions businesses, including higher amortization expense.

To conclude my comments on our quarterly results, interest income was $400,000, down from $600,000 in the first quarter of 2019, due mainly to a decrease in interest we earn on our average investable cash balance following the Federal Reserve's emergency cuts to the federal funds rate made in March 2020 in response to the COVID-19 pandemic, lowering rates to essentially 0. As a result, we expect interest income, if any, for the remainder of the year to be insignificant. Recall that our previously issued EPS guidance for 2020 reflects approximately $0.02 from interest income, so we expect to fall well short of that and well short of the $0.03 in interest income we earned in 2019.

Turning now to our guidance. We have tried our best to evaluate the impact COVID-19 may potentially have on our business for the rest of the year. We have endeavored to be conservative yet directionally accurate from a guidance standpoint given what we know today and taking into consideration we have only a partial month of results from the COVID-19 pandemic and won't know the full effect until future periods. That being said, for full year 2020, we currently expect to come in at the low end of our previously issued guidance for total revenues, which was $380.5 million, at the low end of our previously issued adjusted EBITDA guidance, which was $88.5 million, and at the low end of our previously issued EPS guidance of $0.76. Our current forecast for 2020 assumes we will offset a portion of the revenue softness I just covered in my prepared remarks with a combination of lower variable credit card interchange fees resulting from lower IGS revenues and stringent cost controls over discretionary spending, focusing on critical investments, including open positions.

Furthermore, we expect to incur significantly lower company-wide travel costs as our current forecast assumes the country will remain on lockdown through much of the second quarter and gradually start to open in the back half of the year. We currently expect our effective tax rate before any discrete items to be between 25% and 26% in 2020. However, if we were to ultimately recognize potential discrete tax items due to the expiration of statutes of limitations, our effective tax rate could be closer to 24% in 2020. Our previous guidance for capital expenditures and capitalized software development costs for 2020 remains unchanged with capital expenditures currently expected to range from $6 million to $7 million and capitalized internal-use software development costs to range from $9 million to $10 million.

In conclusion, despite some unprecedented revenue softness in our business resulting from the COVID-19 pandemic, NIC is a strong, essential company helping the government remain open for business. Our company was built 28 years ago to enable businesses and citizens to interact with government online instead of in-line at government offices. Social distancing due to the pandemic is pushing more businesses and citizens to interact with government digitally, including many who didn't before. And our hope is they find the experience easy and convenient and continue to do so after the pandemic ends. Furthermore, our consistent cash flow, debt-free balance sheet and significant cash surplus provides us financial strength and comfort during these uncertain times. While we are not immune to the financial impact of the COVID-19 pandemic, we believe we will be resilient and stand to fare better than many companies throughout the crisis. If the country does slide into an extended recessionary period, I believe our value proposition and business model will resonate with government even more so during tough economic times as we continue to help government reduce their financial and technology risks, increase their operational efficiencies and avoid significant costs while providing businesses and citizens a safer, faster, more convenient and more cost-effective means to interact with government. This is our time to shine in our industry, and I could not be prouder than I am now to be the CFO of NIC.

That wraps up my prepared remarks today. So I'll turn the call back over to Harry.

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [5]

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Thank you, Steve. We are in the midst of unprecedented times. And although our business was impacted in the first quarter, I'm extremely pleased with NIC's overall performance. As I stated earlier, we are a financially stable, debt-free company that continues to generate consistent cash flows. We have a proven business model designed to perform in any economic situation, strong relationships with our government partners and a team of dedicated employees across the country who have more than risen to the occasion during this crisis. While it is too soon to know how this health crisis will impact our lives and our economy for the remainder of 2020, I am by temperament an optimist with an appetite for innovation. And I believe NIC is well positioned as any company could be at this moment.

With that, operator, we will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Gary Prestopino from Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [2]

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Steve, could I just ask you? You went through some things pretty quickly related to the Pennsylvania contract and the Illinois contract in terms of flips and takes. But from when you gave your guidance, you basically said it would be an incremental operating loss of $3.1 million this year with revenues offset by expenses. Has that increased now? I mean, I think you said something about a $1 million impact. I'm just trying to get an idea of what the total impact of this is going to be this year due to COVID-19.

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Stephen M. Kovzan, NIC Inc. - CFO [3]

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That's right, Gary. Yes, that's right. So our expected revenues from Pennsylvania will be down about $1.8 million this year with the shift to the September launch, but the bottom line impact from that shift is not $1.8 million. It's about $1 million. So yes, to your point, it's an extra $1 million in bottom line impact from both Pennsylvania and Illinois for the year because of the shift in the project time line.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [4]

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Okay. And then it's good to see that the whole online part of your business model is really coming through here in the market. Harry, do you think that given this, what's going on here, that this just really sets a great example for why more states should really move to your model over time? And how can you capitalize on this?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [5]

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Yes. Gary, I would agree with that statement. I think the states and government as a whole are going to be moving more towards providing as many service as they can from a digital standpoint. And of course, my teams are laser-focused on that right now and educating. You've got a couple of different things. Number one, I'd like to tell people some of the innocence is now lost in agencies and government personnel realized they have to find a way to provide access to information online that they might not have known of in the past. And it goes beyond just the citizens in the businesses. There's also a concern in government offices of interacting with individuals coming in and trying to do social distancing. So I absolutely see an opportunity here, first and foremost. So we're going to focus on helping them get through this COVID-19 crisis that they're facing.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [6]

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Okay. And I would assume that most of your sales and marketing activity has just totally shut down at this point?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [7]

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I would say the majority -- I mean it would -- from an integrity standpoint, this isn't the time to go knocking on doors and saying, "Hey, we got a solution for you." At the same time, there are -- we launched a couple of services during the last month. There are some things, and you just heard me talk about Maine, where as they were in the process of shutting down and saying, "All right, everybody's got to go home," they got that contract signed. We got a couple of extensions signed within -- in the past week. So government has to continue to function. And we are going to be very respectful. We're going to work with them as we identify them. And you've heard me in my remarks, some opportunities -- although the majority of what we did with COVID-19 did not generate any revenue because that's the right thing to do for our communities, for our partners, there were some opportunities that do, and so we're working on those. But I would say my entire team is engaged in this. They're engaged in the right way. Number one, short term, how do we take care of our employees? How do we take care of our government partners? Over the long term, what does this mean for our stockholders? What does this mean for our company? I'm -- Steve said it great. He's never been prouder as CFO. I've never been prouder as CEO of this company and where everybody is headed.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [8]

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Okay. And then lastly, any comments on the Florida Department of Financial Services payment contract. Is that still obvious -- is it still under protest?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [9]

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Yes. And we have a policy, but I will give you just a little bit, and it's obvious. It is under protest. Unfortunately, it also all slowed down due to the COVID-19, and they stopped all administrative hearings basically until they sort through this.

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Operator [10]

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We will now move to our next question from Peter Heckmann from D.A. Davidson.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [11]

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I was wondering as regards the federal and state tax deadlines being pushed to July from April, do you do much in the way of property tax payments either in your consumers or businesses that were -- just thinking off the second quarter, we could see maybe a little bit of further push into the third quarter.

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [12]

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Yes. Absolutely, Pete. That is one of the areas that we do, work throughout the country with different partners from there. It's interesting. There's different stories coming out on that. We're watching it very closely. Where you've seen a push from a federal standpoint, there are some of the states that have not yet signaled even though they are income tax from property tax that they're going to push that out. So we're watching it, that -- the property tax payments fund, a lot of the local emergency services and those type of things. So it's an interesting one to watch.

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Stephen M. Kovzan, NIC Inc. - CFO [13]

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So yes. And Pete, just as a follow-on to that, yes, while that may happen, we expect it to be more of an issue of a -- just deferred to a future period as opposed to completely lost for the year.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [14]

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Yes, yes, yes. I'm just trying to think about in terms of just kind of getting the second quarter at the right position. And then within cannabis licensing, congratulations on Missouri. Remind us, is that the fourth or how many states are you working with on that solution now?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [15]

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So we are in, I think, 5. That makes 5 states in total now with the cannabis. Actually, I think it's 6. I take that back because we -- because the -- when we acquired Complia, they were working in 4 of our enterprise states, and then we launched our West Virginia service and now Missouri. So that makes 6.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [16]

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Okay. All right. And then anything to think about with the new contract in Louisiana, any notable terms and conditions we should be thinking about? Or just that's required a new contract for some sort of apparent reason?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [17]

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That's correct. Business as usual in Louisiana for us.

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Operator [18]

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(Operator Instructions) We will now move to our next question from Ishfaque Faruk from Sidoti & Company.

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Ishfaque Ahmed Faruk, Sidoti & Company, LLC - Analyst [19]

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A couple of questions from me. First of all, in terms of the Florida payment processing contracts, you briefly touched on that, Harry. Do you expect that to get like a few quarters out like a resolution to it of some sort? I know you briefly said that there are some hearings.

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [20]

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Yes. Again, it's hard for me to really predict what's going to happen when you're in the midst of this, and we don't really go that far down the path. I will -- what I will say, government has -- let me word this correct. Government is working really hard to make sure they continue to function in every area, and Florida is no different. This was just sort of a temporary pause as they went through and determined what is the best way to deal with everybody working remotely, including the courts. But you've seen that throughout the country. The agencies, the courts, everyone has stepped up, saying, "We've got to continue forward." So I expect it to follow its normal progression now that we're past this little bit of a pause.

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Ishfaque Ahmed Faruk, Sidoti & Company, LLC - Analyst [21]

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Got it. Very helpful. Okay. And Harry, in your earlier remarks, you briefly touched on Virginia and claim -- unemployment processing claims. Do you expect to do some more of that? And that is not a very high revenue-generating service to you, is it?

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [22]

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Well, that's a couple of different questions. First, I will start on the unemployment. We don't do a lot of unemployment throughout the country. So it's -- let's start there. There's been -- as you know, in the media and in government, these are very strong systems, but they weren't designed for the impact they're getting right now. And in Virginia, we were able to step in and assist. We're talking with a few of our other partners to see if there is areas in which we can bring similar solutions, whether that's to assist with some of the call centers, some of the entry points into some file and the services, things like that. How about you, Steve, from...

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Stephen M. Kovzan, NIC Inc. - CFO [23]

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Yes. I guess what I would say at this point in time, Ishfaque, we will be monetizing that work that we're doing in Virginia, but we'll hold off until future periods to kind of provide color there until we have a little bit more clarity.

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Ishfaque Ahmed Faruk, Sidoti & Company, LLC - Analyst [24]

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Got it. And lastly, on the -- Steve, you gave a lot of color on the DHR side. In terms of -- obviously, Q2 is going to be on the low end in terms of what you've seen previously. Do you expect some of that to come back like by the end of Q2? Or how are you guys thinking of it internally for your own planning purposes?

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Stephen M. Kovzan, NIC Inc. - CFO [25]

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Well, just generally speaking, when we're thinking about our forecast, yes, certainly going to be most pronounced in the second quarter. And our hope is that there is some pent-up demand in that as the country and the economy start to slowly open back up, which we're actually starting to see now, probably a little sooner than we expected, start to slowly back up in the latter part of the year. So yes, we expect that to moderate. And there could be some pent-up demand there from data resellers and insurance companies, I should say.

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Operator [26]

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(Operator Instructions) And as there are no further questions in the queue, I would like to turn the call back to our speakers for any additional or closing remarks.

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Harry H. Herington, NIC Inc. - Chairman of the Board & CEO [27]

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Thank you, Sergei, and thank you to everyone who joined us this morning. I sincerely hope each of you stays safe and remain healthy. And you need to recognize social distancing does not mean you need to be socially isolated. I tell my employees all the time, we need each other now more than ever. So don't forget to reach out to your family and friends with an e-mail, a text or a phone call during this time. Also, I look forward to speaking with you again at our virtual Annual Stockholder Meeting at 11:00 a.m. Central today. With that, thank you, and stay healthy.

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Operator [28]

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Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.