Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NIC Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NIC Inc. and Subsidiaries (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 22, 2018
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015
Kansas City, Missouri
February 22, 2018
NIC INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amount)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
ASSETS
|
Current assets:
|
|
|
|
Cash
|
$
|
160,777
|
|
|
$
|
127,009
|
|
Trade accounts receivable, net
|
103,938
|
|
|
82,722
|
|
Prepaid expenses & other current assets
|
12,843
|
|
|
15,033
|
|
Total current assets
|
277,558
|
|
|
224,764
|
|
Property and equipment, net
|
10,306
|
|
|
9,726
|
|
Intangible assets, net
|
5,214
|
|
|
3,588
|
|
Deferred income taxes, net
|
667
|
|
|
2,307
|
|
Other assets
|
1,986
|
|
|
477
|
|
Total assets
|
$
|
295,731
|
|
|
$
|
240,862
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
88,920
|
|
|
$
|
73,252
|
|
Accrued expenses
|
26,501
|
|
|
23,395
|
|
Other current liabilities
|
3,673
|
|
|
3,150
|
|
Total current liabilities
|
119,094
|
|
|
99,797
|
|
|
|
|
|
Other long-term liabilities
|
8,395
|
|
|
7,162
|
|
Total liabilities
|
127,489
|
|
|
106,959
|
|
|
|
|
|
Commitments and contingencies (Notes 2, 3, 6, 7 and 9)
|
—
|
|
|
—
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
Common stock, $0.0001 par, 200,000 shares authorized, 66,271 and 65,982 shares issued and outstanding
|
7
|
|
|
7
|
|
Additional paid-in capital
|
111,275
|
|
|
106,669
|
|
Retained earnings
|
56,960
|
|
|
27,227
|
|
Total stockholders' equity
|
168,242
|
|
|
133,903
|
|
Total liabilities and stockholders' equity
|
$
|
295,731
|
|
|
$
|
240,862
|
|
The accompanying notes are an integral part of these consolidated financial statements.
45
NIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amount)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
Portal revenues
|
$
|
311,351
|
|
|
$
|
296,998
|
|
|
$
|
273,502
|
|
Software & services revenues
|
25,157
|
|
|
20,917
|
|
|
18,874
|
|
Total revenues
|
336,508
|
|
|
317,915
|
|
|
292,376
|
|
Operating expenses:
|
|
|
|
|
|
Cost of portal revenues, exclusive of depreciation & amortization
|
191,572
|
|
|
180,287
|
|
|
168,166
|
|
Cost of software & services revenues, exclusive of depreciation & amortization
|
8,890
|
|
|
5,958
|
|
|
5,432
|
|
Selling & administrative
|
50,780
|
|
|
47,063
|
|
|
43,098
|
|
Depreciation & amortization
|
6,929
|
|
|
6,749
|
|
|
8,385
|
|
Total operating expenses
|
258,171
|
|
|
240,057
|
|
|
225,081
|
|
Operating income before income taxes
|
78,337
|
|
|
77,858
|
|
|
67,295
|
|
Income tax provision
|
26,723
|
|
|
22,025
|
|
|
25,316
|
|
Net income
|
$
|
51,614
|
|
|
$
|
55,833
|
|
|
$
|
41,979
|
|
|
|
|
|
|
|
Basic net income per share
|
$
|
0.77
|
|
|
$
|
0.84
|
|
|
$
|
0.63
|
|
Diluted net income per share
|
$
|
0.77
|
|
|
$
|
0.84
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
Basic
|
66,209
|
|
|
65,913
|
|
|
65,555
|
|
Diluted
|
66,266
|
|
|
65,966
|
|
|
65,640
|
|
The accompanying notes are an integral part of these consolidated financial statements.
46
NIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Total
|
Balance, January 1, 2014
|
65,303
|
|
|
$
|
7
|
|
|
$
|
94,690
|
|
|
$
|
9,441
|
|
|
$
|
104,138
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
41,979
|
|
|
41,979
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,456
|
)
|
|
(36,456
|
)
|
Dividend equivalents on unvested performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
(159
|
)
|
|
(159
|
)
|
Dividend equivalents cancelled upon forfeiture of performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
17
|
|
|
65
|
|
|
82
|
|
Restricted stock vestings
|
365
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
73
|
|
Shares surrendered and cancelled upon vesting of restricted stock to satisfy tax withholdings
|
(106
|
)
|
|
—
|
|
|
(1,838
|
)
|
|
—
|
|
|
(1,838
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,441
|
|
|
—
|
|
|
6,441
|
|
Excess tax deductions relating to stock-based compensation
|
—
|
|
|
—
|
|
|
413
|
|
|
—
|
|
|
413
|
|
Shares issuable in lieu of dividend payments on performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Issuance of common stock under employee stock purchase plan
|
75
|
|
|
—
|
|
|
1,131
|
|
|
—
|
|
|
1,131
|
|
Balance, December 31, 2015
|
65,637
|
|
|
7
|
|
|
100,929
|
|
|
14,870
|
|
|
115,806
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
55,833
|
|
|
55,833
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(43,301
|
)
|
|
(43,301
|
)
|
Dividend equivalents on unvested performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
|
(202
|
)
|
Dividend equivalents cancelled upon forfeiture of performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
Restricted stock vestings
|
390
|
|
|
—
|
|
|
136
|
|
|
—
|
|
|
136
|
|
Shares surrendered and cancelled upon vesting of restricted stock to satisfy tax withholdings
|
(120
|
)
|
|
—
|
|
|
(2,137
|
)
|
|
—
|
|
|
(2,137
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,997
|
|
|
—
|
|
|
5,997
|
|
Excess tax deductions relating to stock-based compensation
|
—
|
|
|
—
|
|
|
590
|
|
|
—
|
|
|
590
|
|
Shares issuable in lieu of dividend payments on performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
Issuance of common stock under employee stock purchase plan
|
75
|
|
|
—
|
|
|
1,114
|
|
|
—
|
|
|
1,114
|
|
Balance, December 31, 2016
|
65,982
|
|
|
7
|
|
|
106,669
|
|
|
27,227
|
|
|
133,903
|
|
Cumulative effect of adoption of accounting standard (Note 2)
|
—
|
|
|
—
|
|
|
409
|
|
|
(409
|
)
|
|
—
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
51,614
|
|
|
51,614
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,393
|
)
|
|
(21,393
|
)
|
Dividend equivalents on unvested performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
110
|
|
|
(110
|
)
|
|
—
|
|
Dividend equivalents cancelled upon forfeiture of performance-based restricted stock awards
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
31
|
|
|
—
|
|
Restricted stock vestings
|
319
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares surrendered and cancelled upon vesting of restricted stock to satisfy tax withholdings
|
(122
|
)
|
|
—
|
|
|
(2,676
|
)
|
|
—
|
|
|
(2,676
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,464
|
|
|
—
|
|
|
5,464
|
|
Shares issuable in lieu of dividend payments on performance-based restricted stock awards
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of common stock under employee stock purchase plan
|
87
|
|
|
—
|
|
|
1,330
|
|
|
—
|
|
|
1,330
|
|
Balance, December 31, 2017
|
66,271
|
|
|
$
|
7
|
|
|
$
|
111,275
|
|
|
$
|
56,960
|
|
|
$
|
168,242
|
|
The accompanying notes are an integral part of these consolidated financial statements.
47
NIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(as adjusted)
|
|
(as adjusted)
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
51,614
|
|
|
$
|
55,833
|
|
|
$
|
41,979
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation & amortization
|
6,929
|
|
|
6,749
|
|
|
8,385
|
|
Stock-based compensation expense
|
5,464
|
|
|
5,997
|
|
|
6,441
|
|
Deferred income taxes
|
1,640
|
|
|
(886
|
)
|
|
(1,918
|
)
|
Provision for losses on accounts receivable
|
552
|
|
|
142
|
|
|
290
|
|
Loss on disposal of property and equipment
|
49
|
|
|
24
|
|
|
98
|
|
Excess tax benefits related to stock-based compensation
|
—
|
|
|
590
|
|
|
413
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
(Increase) in trade accounts receivable, net
|
(21,769
|
)
|
|
(2,501
|
)
|
|
(23,184
|
)
|
Decrease (increase) in prepaid expenses & other current assets
|
2,191
|
|
|
(2,449
|
)
|
|
(1,082
|
)
|
(Increase) decrease in other assets
|
(1,509
|
)
|
|
(51
|
)
|
|
20
|
|
Increase in accounts payable
|
15,669
|
|
|
12,119
|
|
|
19,730
|
|
Increase in accrued expenses
|
2,251
|
|
|
2,136
|
|
|
1,234
|
|
Increase (decrease) in other current liabilities
|
522
|
|
|
553
|
|
|
(305
|
)
|
Increase in other long-term liabilities
|
1,233
|
|
|
2,903
|
|
|
909
|
|
Net cash provided by operating activities
|
64,836
|
|
|
81,159
|
|
|
53,010
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property and equipment
|
(4,771
|
)
|
|
(5,646
|
)
|
|
(4,454
|
)
|
Proceeds from sale of property and equipment
|
7
|
|
|
8
|
|
|
4
|
|
Capitalized internal use software development costs
|
(3,565
|
)
|
|
(2,576
|
)
|
|
(992
|
)
|
Net cash used in investing activities
|
(8,329
|
)
|
|
(8,214
|
)
|
|
(5,442
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Cash dividends on common stock
|
(21,393
|
)
|
|
(43,301
|
)
|
|
—
|
|
Cash restricted for payment of dividend
|
—
|
|
|
—
|
|
|
(36,456
|
)
|
Proceeds from employee common stock purchases
|
1,330
|
|
|
1,114
|
|
|
1,131
|
|
Tax withholdings related to stock-based compensation awards
|
(2,676
|
)
|
|
(2,137
|
)
|
|
(1,838
|
)
|
Net cash used in financing activities
|
(22,739
|
)
|
|
(44,324
|
)
|
|
(37,163
|
)
|
|
|
|
|
|
|
Net increase in cash
|
33,768
|
|
|
28,621
|
|
|
10,405
|
|
Cash, beginning of period
|
127,009
|
|
|
98,388
|
|
|
87,983
|
|
Cash, end of period
|
$
|
160,777
|
|
|
$
|
127,009
|
|
|
$
|
98,388
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
Capital expenditures accrued but not yet paid
|
$
|
855
|
|
|
$
|
273
|
|
|
$
|
—
|
|
Cash payments:
|
|
|
|
|
|
Income taxes paid, net of refunds
|
$
|
21,303
|
|
|
$
|
19,847
|
|
|
$
|
27,222
|
|
Cash dividends on common stock previously restricted for payment of dividend
|
$
|
—
|
|
|
$
|
36,456
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
48
NIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
NIC Inc. (the “Company” or “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. Operating under multiple-year contracts, 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 services, other than outsourced portal services, to state and local governments as well as federal agencies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 in the consolidated statements of cash flows for the years ended
December 31, 2016
and
2015
were reclassified to conform to the current year presentation. The reclassifications had no effect on total cash flows, net income or the balance sheet as of and for the years ended
December 31, 2016
and
2015
.
Basis of consolidation
The consolidated financial statements include all the Company's direct and indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Segment reporting
The Company reports segment information in accordance with authoritative accounting guidance for segment disclosures based upon the “management” approach, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s segments. 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. Authoritative guidance for segment disclosures also requires disclosures about products and services and major customers. See Note 11, Reportable Segments and Related Information, for additional information regarding our segment reporting.
Cash and cash equivalents
Cash and cash equivalents primarily include cash on hand in the form of bank deposits. For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all non-restricted highly liquid instruments purchased with an original maturity of one month or less to be cash equivalents.
Trade accounts receivable
The Company records trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The Company calculates this allowance based on its history of write-offs, the level of past-due accounts, and its relationship with, and the economic status of, its customers. Trade accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.
The Company’s allowance for doubtful accounts at
December 31, 2017
and
2016
was approximately
$0.6 million
and
$0.4 million
, respectively.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of
8 years
for furniture and fixtures,
3
-
10
years for equipment,
3
-
5
years for purchased software, and the lesser of the term of the lease or
5
years for leasehold improvements. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the period. The cost of maintenance and repairs is charged to expense as incurred. Significant betterments are capitalized.
The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances indicate the carrying value may not be fully recoverable. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flow from the asset group is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flow discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. The Company did not record any material impairment losses on property and equipment during the periods presented.
Software development costs and intangible assets
The Company expenses as incurred all employee costs to start up, operate, and maintain government portals on an outsourced basis as costs of performance under the contracts because, after the completion of a defined contract term, the government entity with which the Company contracts typically receives a perpetual, royalty-free license to the applications the Company developed, excluding applications provided on a Software-as-a-Service (“SaaS”) basis. Such costs are included in cost of portal revenues in the consolidated statements of income.
The Company accounts for the costs of developing internal use computer software in accordance with authoritative accounting guidance for internal use computer software, whereby certain costs of developing internal use computer software are capitalized and amortized over their estimated useful life. For internal use software, the estimated economic life is
typically
36
months from the date the software is placed in production. At
December 31, 2017
and
2016
, such costs are included in intangible assets in the consolidated balance sheets.
The Company carries intangible assets at cost less accumulated amortization. Intangible assets are generally amortized on a straight-line basis over estimated economic lives of the respective assets. At each balance sheet date, or whenever events or changes in circumstances warrant, the Company assesses the carrying value of intangible assets for possible impairment based primarily on the ability to recover the balances from expected future cash flows on an undiscounted basis. If the sum of the expected future cash flows on an undiscounted basis were to be less than the carrying amount of the intangible asset, an impairment loss would be recognized for the amount by which the carrying value of the intangible asset exceeds its estimated fair value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The Company has not recorded any material impairment losses on intangible assets during the periods presented.
Accrued expenses
As of each balance sheet date, the Company estimates expenses which have been incurred but not yet paid or for which invoices have not yet been received. Significant components of accrued expenses consist primarily of payment processing fees, employee compensation and benefits (including incentive compensation, bonuses, vacation, health insurance and employer 401(k) contributions), third-party professional service fees, and miscellaneous other accruals.
Revenue recognition
Portal revenues
The Company recognizes revenue from providing outsourced digital government services (primarily transaction-based information access fees and filing fees) net of the transaction fees due to the government when the services are provided at the time of the transactions. The fees that the Company must remit to state agencies for data access and other statutory fees are accrued as accounts payable when the services are provided at the time of the transactions. The Company must remit a certain amount or percentage of these fees to government agencies regardless of whether the Company ultimately collects the fees. As a result, trade accounts receivable and accounts payable reflect the gross amounts outstanding at the balance sheet dates.
Revenue from service contracts to provide portal consulting, application development, and management services to governments are recognized as the services are provided at rates provided for in the contract.
Amounts received prior to providing services are recorded as unearned revenue. At each balance sheet date, the Company determines the portion of unearned revenue that will be earned within one year and records that amount in other current liabilities in the consolidated balance sheets. The remainder, if any, is recorded in other long-term liabilities. Unearned revenues at
December 31, 2017
and
2016
were approximately
$1.4 million
and
$1.1 million
, respectively.
Software & services revenues
The Company’s software & services revenues primarily include revenues from subsidiaries that provide software development and services, other than outsourced portal services, to state and local governments as well as federal agencies. The Company’s subsidiary, NIC Federal, LLC (“NIC Federal”) currently earns a significant portion of its revenues from its contract with the Federal Motor Carrier Safety Administration (“FMCSA”) to develop and manage the FMCSA’s Pre-Employment Screening Program (“PSP”) for motor carriers nationwide, using a transaction-based business model. NIC Federal recognizes revenue from its contract with the FMCSA (primarily transaction-based information access fees) when the services are provided at the time of the transactions. NIC Federal also earns a portion of its revenues from fixed fee and time and materials application development and outsourced maintenance contracts with other government agencies and recognizes revenues as the services are provided.
Stock-based compensation
The Company measures stock-based compensation cost for service-based restricted stock awards at the grant date based on the calculated fair value of the award, and recognizes an expense on a straight-line basis over the employee’s requisite service period for the entire award (generally the vesting period of the grant). The Company measures stock-based compensation cost for performance-based restricted stock awards at the date of grant, based on the fair value of shares expected to be earned at the end of the performance period, and recognizes an expense ratably over the performance period based upon the probable number of shares expected to vest. See Note 10, Stock-based Compensation and Employee Benefit Plans, for additional information.
Income taxes
The Company, along with its wholly owned subsidiaries, files a consolidated federal income tax return. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.
The Company does not recognize a tax benefit for uncertain tax positions unless management’s assessment concludes that it is “more likely than not” that the position is sustainable, based on its technical merits. If the recognition threshold is met, the Company recognizes a tax benefit based upon the largest amount of the tax benefit that is more likely than not probable, determined by cumulative probability, of being realized upon settlement with the taxing authority. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidated statements of income.
Fair value of financial instruments
The carrying values of the Company’s accounts receivable and accounts payable approximate fair value.
Comprehensive income
The Company has no components of other comprehensive income or loss and, accordingly, the Company’s comprehensive income is the same as its net income for all periods presented.
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
at
December 31, 2017
,
2016
and
2015
. 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 (amounts in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
51,614
|
|
|
$
|
55,833
|
|
|
$
|
41,979
|
|
Less: Income allocated to participating securities
|
(479
|
)
|
|
(492
|
)
|
|
(385
|
)
|
Net income available to common stockholders
|
$
|
51,135
|
|
|
$
|
55,341
|
|
|
$
|
41,594
|
|
Denominator:
|
|
|
|
|
|
Weighted average shares - basic
|
66,209
|
|
|
65,913
|
|
|
65,555
|
|
Performance-based restricted stock awards
|
57
|
|
|
53
|
|
|
85
|
|
Weighted average shares - diluted
|
66,266
|
|
|
65,966
|
|
|
65,640
|
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
|
Net income
|
$
|
0.77
|
|
|
$
|
0.84
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
Net income
|
$
|
0.77
|
|
|
$
|
0.84
|
|
|
$
|
0.63
|
|
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. At
December 31, 2017
and
2016
, LexisNexis Risk Solutions accounted for approximately
16%
and
21%
, respectively, of the Company’s total accounts receivable.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently issued accounting pronouncements
Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,
Financial Instruments-Credit Losses
(Topic 326), 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 ASU 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.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, 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. As part of the adoption of this standard on January 1, 2017, the Company was required to recognize a cumulative-effect adjustment associated with the Company’s policy election to account for forfeitures of awards as they occur, on a modified retrospective basis which resulted in a decrease in retained earnings of approximately
$0.4 million
and a corresponding increase in additional paid-in capital. Previously, the Company estimated and excluded compensation cost related to awards not expected to vest based on estimated forfeitures. Furthermore, the Company applied the retrospective method for the presentation of excess tax deductions and cash paid by the Company when directly withholding shares for tax withholdings. As a result, both cash provided by operating activities and cash used in financing activities increased by
$2.7 million
and
$2.3 million
in the consolidated statements of cash flows for the years ended
December 31, 2016
and
2015
, respectively.
Upon adoption of the standard, excess tax benefits or deductions 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 deductions 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
$0.5 million
for the year ended
December 31, 2017
.
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which will update the existing guidance on accounting for leases and require new qualitative and quantitative disclosures about the Company’s leasing activities. The new standard requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. The ASU 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 operating leases for office space. As further described in Note 7, Commitments and Contingencies, as of
December 31, 2017
, the Company had minimum lease commitments under non-cancellable operating leases totaling
$16.0 million
.
Revenue from Contracts with Customers
In May 2014, the FASB issued a new standard related to revenue recognition (“ASC 606”). 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.
ASC 606 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 in retained earnings on the Company’s balance sheet at the date of initial application (the modified retrospective approach). The Company adopted the standard using the modified retrospective approach on January 1, 2018.
The Company established an implementation team that has completed an impact assessment of ASC 606. Based upon its assessment, the Company identified
three
primary revenue sources:
|
|
•
|
Transaction-based: this source primarily consists of transaction-based fees from interactive government services (“IGS”), driver history records (“DHR”) and other revenues streams. Transaction-based fees accounted for approximately
95%
of the Company’s total revenues for the year ended December 31, 2017.
|
|
|
•
|
Portal software development and services: this source primarily consists of the performance of project-based, application development and other time & materials services for the Company’s government partners. These services accounted for approximately
3%
of the Company’s total revenues for the year ended December 31, 2017.
|
|
|
•
|
Portal management and other fixed fee services: this source primarily consists of recurring fixed fee portal management services for the Company’s government partner in Indiana. These services accounted for approximately
2%
of the Company’s total revenues for the year ended December 31, 2017.
|
The Company completed contract reviews for each of its
three
primary revenue sources and concluded that its revenue recognition policies for transaction-based fees and portal management and other fixed fees will remain substantially unchanged under ASC 606. Based on the varying terms of the Company’s portal software development and services contracts, revenue may be recognized under the new standard either over time using an input or output method as services are provided or upon completion of a project, depending upon the terms of the specific contract. Recognizing such revenue over time (as opposed to at a point in time) will represent a change under ASC 606. However, because the Company’s portal software development and services projects are typically short-term in nature and represent a relatively small portion of its total consolidated revenues, the Company does not currently expect any changes to its revenue recognition policy to have a material impact on the Company's consolidated financial statements in any annual or quarterly period. The Company did not have any significant software development and services contracts not substantially complete as of December 31, 2017 and, therefore, there is not a significant cumulative adjustment to retained earnings on the Company’s balance sheet upon adoption of ASC 606 as of January 1, 2018.
3. OUTSOURCED GOVERNMENT CONTRACTS
State enterprise contracts
The Company’s outsourced state master 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 digital government services 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 digital government services, 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, payment processing and other 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,
15
contracts under which the Company provides enterprise-wide outsourced portal and digital government services, as well as the Company’s contract with the FMCSA can be terminated by the other party without cause on a specified period of notice. Collectively, revenues generated from these contracts represented approximately
61%
of the Company’s total consolidated revenues for the year ended
December 31, 2017
. If 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 state master 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
December 31, 2017
, the Company was bound by performance bond commitments totaling approximately
$5.8 million
on certain state enterprise contracts (See Note 6).
The following is a summary of the state contracts through which the Company currently generates meaningful revenue and has the ability to provide enterprise-wide outsourced digital government services to multiple government agencies:
|
|
|
|
|
|
|
|
|
NIC Portal Entity
|
|
Portal Website (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
|
|
8/11/2019
|
|
Mississippi Interactive, LLC
|
|
Mississippi
|
|
2011
|
|
12/31/2019
|
(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
|
|
10/24/2021
|
(10/24/2025)
|
Nebraska Interactive, LLC
|
|
Nebraska
|
|
1995
|
|
4/1/2019
|
(4/1/2021)
|
Kansas Information Consortium, LLC
|
|
Kansas
|
|
1992
|
|
12/31/2022
|
(annual renewal options)
|
Outsourced federal contract
The Company’s subsidiary NIC Federal has a contract with the FMCSA to develop and manage the FMCSA’s PSP for motor carriers nationwide, using the Company’s 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
. The contract can be terminated by the FMCSA without cause on a specified period of notice.
Expiring contracts
There are currently
nine
contracts under which the Company provides enterprise-wide outsourced portal and digital government services, as well as the Company’s contract with the FMCSA, that have expiration dates within the
12
-month period following
December 31, 2017
. Collectively, revenues generated from these contracts represented approximately
43%
of the Company’s total consolidated revenues for the year ended
December 31, 2017
. 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.
As previously disclosed, NIC has been informed by representatives of the state of Texas that Texas NICUSA has been selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that Texas NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and development services set forth in the Texas RFO. The current agreement between the state of Texas and Texas NICUSA expires on August 31, 2018. The Texas portal accounted for approximately
20%
of our total consolidated revenues for the year ended December 31, 2017.
The contract under which the Company’s subsidiary, NICUSA Inc. (“NICUSA”), managed the state of Tennessee’s official government portal expired on
March 31, 2017
. For the years ended
December 31, 2017
,
2016
and
2015
, revenues from the Tennessee portal contract were approximately
$1.8 million
,
$7.5 million
and
$9.0 million
, respectively.
The contract under which the Company’s subsidiary, Iowa Interactive, LLC, managed the state of Iowa’s official government portal expired on
June 30, 2016
. For the years ended
December 31, 2016
and
2015
, revenues from the Iowa portal contract were approximately
$1.6 million
and
$1.8 million
, respectively.
The contract under which the Company’s subsidiary, Delaware Interactive, LLC, managed the state of Delaware’s official government portal expired on
March 31, 2015
. For the years ended
December 31, 2015
, revenues from the Delaware portal contract were approximately
$0.6 million
.
4. INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Gross Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross Carrying
Value
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Internal use capitalized software
|
|
$
|
13,610
|
|
|
$
|
(8,396
|
)
|
|
$
|
5,214
|
|
|
$
|
10,045
|
|
|
$
|
(6,457
|
)
|
|
$
|
3,588
|
|
Amortization expense for internal use capitalized software totaling approximately
$1.9 million
,
$1.3 million
and
$1.1 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively, is included in depreciation & amortization in the consolidated statements of income. The total estimated intangible asset amortization expense in future years is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
|
2018
|
|
$
|
2,415
|
|
2019
|
|
1,958
|
|
2020
|
|
841
|
|
|
|
$
|
5,214
|
|
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Equipment
|
$
|
30,411
|
|
|
$
|
31,426
|
|
Purchased software
|
10,028
|
|
|
11,781
|
|
Furniture and fixtures
|
5,669
|
|
|
5,468
|
|
Leasehold improvements
|
2,249
|
|
|
2,073
|
|
|
48,357
|
|
|
50,748
|
|
Less accumulated depreciation
|
(38,051
|
)
|
|
(41,022
|
)
|
Property and equipment, net
|
$
|
10,306
|
|
|
$
|
9,726
|
|
Depreciation expense for the years ended
December 31, 2017
,
2016
and
2015
was approximately
$5.0 million
,
$5.5 million
and
$7.3 million
, respectively.
6. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS
On
April 28, 2017
, 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 Credit Agreement provides that the interest rate on any amounts borrowed by the Company will be at an annual rate benchmarked to LIBOR with a term equivalent to such borrowing or at an annual rate adjusted daily and benchmarked to LIBOR for a one-month term, in each event plus a margin of
1.15%
or
1.25%
depending on the Company’s consolidated leverage ratio. The margin is either
1.15%
(if the Company’s consolidated leverage ratio is less than
1.50
:1) or
1.25%
(if the Company’s consolidated leverage ratio is greater than or equal to
1.50
:1).
The other material terms of the Credit Agreement remain unchanged, including customary representations and warranties, affirmative and negative covenants and events of default. The Credit Agreement also continues to require the Company to maintain compliance with the following financial covenants (in each case, as defined in the Credit Agreement):
|
|
•
|
Consolidated tangible net worth of at least
$36 million
(plus the amount of net proceeds from equity issued, or debt converted to equity, in each case after the date of the Credit Agreement); and
|
|
|
•
|
Consolidated maximum leverage ratio of
1.50
:1 (the ratio of total funded debt to EBITDA).
|
The Company was in compliance with each of these covenants at
December 31, 2017
. The Company issues letters of credit mainly as collateral for an office lease, and to a much lesser extent, as collateral for performance on one of its outsourced government portal contracts. These irrevocable letters of credit are generally in force for
one year
. In total, the Company and its subsidiaries had unused outstanding letters of credit of approximately
$0.9 million
at
December 31, 2017
. The Company was not required to cash collateralize these letters of credit at
December 31, 2017
. The Company had
$4.1 million
in available capacity to issue additional letters of credit and
$9.1 million
of unused borrowing capacity at
December 31, 2017
under the Credit Agreement. Letters of credit may have an expiration date of up to one year beyond the expiration date of the Credit Agreement. The Credit Agreement also includes an accordion feature that allows the Company to increase the available capacity under the Credit Agreement to
$50 million
, subject to securing additional commitments from the bank.
The Company has a
$1.0 million
line of credit with a bank in conjunction with a corporate credit card agreement.
At
December 31, 2017
, the Company was bound by performance bond commitments totaling approximately
$5.8 million
on certain outsourced government portal contracts.
7. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company and its subsidiaries lease office space and certain equipment under noncancelable operating leases. Future minimum lease payments under all noncancelable operating leases at
December 31, 2017
are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
2018
|
$
|
4,921
|
|
2019
|
3,501
|
|
2020
|
2,609
|
|
2021
|
2,244
|
|
2022
|
1,789
|
|
Thereafter
|
967
|
|
Total minimum lease payments
|
$
|
16,031
|
|
Rent expense for operating leases for the years ended
December 31, 2017
,
2016
and
2015
was approximately
$5.1 million
,
$4.9 million
and
$4.5 million
, respectively.
Litigation
The Company is involved from time to time in legal proceedings and litigation arising in the ordinary course of business. However, the Company is not currently a party to any material legal proceedings.
8. STOCKHOLDERS’ EQUITY
Dividend policy
In 2016, the Company’s Board of Directors approved a dividend policy pursuant to which it plans to make, subject to subsequent declaration, regular quarterly cash dividends of
$0.08
per share, beginning with the declaration and payment of a cash dividend in the first quarter of 2017. For each dividend paid, a dividend equivalent is paid simultaneously on unvested shares of service-based restricted stock. In addition, holders of performance-based restricted stock accrue dividend equivalents, for each of the dividend declared, that could be earned and become payable in the form of additional shares of common stock at the end of the respective performance period to the extent that the underlying shares of performance-based restricted stock were earned. All dividends were paid out of the Company's available cash.
Dividends
On
January 29, 2018
, 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 6, 2018
. The dividend, which is expected to total approximately
$5.4 million
, will be paid on
March 20, 2018
.
In
2017
, the Company's Board of Directors declared the following dividends (payment in thousands):
|
|
|
|
|
|
Declaration Date
|
Dividend per Share
|
Record Date
|
Payment Date
|
Payment
|
January 30, 2017
|
$0.08
|
March 7, 2017
|
March 21, 2017
|
$5,342
|
May 2, 2017
|
$0.08
|
June 6, 2017
|
June 20, 2017
|
$5,350
|
July 31, 2017
|
$0.08
|
September 6, 2017
|
September 20, 2017
|
$5,351
|
October 30, 2017
|
$0.08
|
December 5, 2017
|
December 19, 2017
|
$5,350
|
On
November 1, 2016
, the Company’s Board of Directors declared a special cash dividend of
$0.65
per share, payable to stockholders of record as of
November 16, 2016
. The dividend, totaling approximately
$43.3 million
, was paid on
December 9, 2016
.
On
November 2, 2015
, the Company’s Board of Directors declared a special cash dividend of
$0.55
per share, payable to stockholders of record as of
November 13, 2015
. The dividend, totaling approximately
$36.5 million
, was paid on
January 4, 2016
.
9. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current income taxes:
|
|
|
|
|
|
Federal
|
$
|
22,533
|
|
|
$
|
20,433
|
|
|
$
|
23,876
|
|
State
|
2,550
|
|
|
2,478
|
|
|
3,358
|
|
Total
|
25,083
|
|
|
22,911
|
|
|
27,234
|
|
Deferred income taxes:
|
|
|
|
|
|
Federal
|
1,576
|
|
|
(857
|
)
|
|
(1,754
|
)
|
State
|
64
|
|
|
(29
|
)
|
|
(164
|
)
|
Total
|
1,640
|
|
|
(886
|
)
|
|
(1,918
|
)
|
Total income tax provision
|
$
|
26,723
|
|
|
$
|
22,025
|
|
|
$
|
25,316
|
|
Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
Stock-based compensation
|
$
|
997
|
|
|
$
|
1,899
|
|
Federal benefit of state uncertain tax positions
|
919
|
|
|
1,392
|
|
Accrued vacation
|
660
|
|
|
1,035
|
|
Deferred rent
|
119
|
|
|
275
|
|
State net operating loss carryforwards
|
266
|
|
|
222
|
|
Allowance for doubtful accounts
|
135
|
|
|
160
|
|
Other
|
316
|
|
|
299
|
|
|
3,412
|
|
|
5,282
|
|
Less: Valuation allowance
|
(257
|
)
|
|
(189
|
)
|
Total
|
3,155
|
|
|
5,093
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment & capitalized internal use software development costs
|
(2,488
|
)
|
|
(2,786
|
)
|
Net deferred tax asset
|
$
|
667
|
|
|
$
|
2,307
|
|
The Company has identified certain estimated state net operating loss (“NOL”) carryforwards that it might be unable to use. Based on a review of applicable state tax statutes, the Company concluded that there is substantial doubt it would be able to realize the full amount of certain estimated NOL carryforwards in states where the Company cannot file a consolidated income tax return or where future taxable income will not be sufficient to utilize the state NOL before it expires. As a result,
the Company recorded a deferred tax asset valuation allowance totaling approximately
$0.3 million
and
$0.2 million
, respectively, at
December 31, 2017
and
2016
.
The following table reconciles the statutory federal income tax rate and the effective income tax rate indicated by the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Statutory federal income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Domestic production activities deductions
|
(2.6
|
)%
|
|
(8.7
|
)%
|
|
—
|
%
|
Federal and state tax credits
|
(2.0
|
)%
|
|
(2.0
|
)%
|
|
(1.2
|
)%
|
Excess tax benefits from restricted stock vestings
|
(0.7
|
)%
|
|
—
|
%
|
|
—
|
%
|
State income taxes
|
1.8
|
%
|
|
1.4
|
%
|
|
2.1
|
%
|
Uncertain tax positions
|
1.6
|
%
|
|
3.3
|
%
|
|
0.9
|
%
|
Nondeductible expenses
|
0.7
|
%
|
|
0.6
|
%
|
|
1.0
|
%
|
Other
|
0.3
|
%
|
|
(1.3
|
)%
|
|
(0.2
|
)%
|
Effective federal and state income tax rate
|
34.1
|
%
|
|
28.3
|
%
|
|
37.6
|
%
|
The Company’s effective tax rate in
2017
was lower than the statutory federal income tax rate due mainly to favorable benefits related to the domestic production activities deduction, the federal research and development credit, and excess tax benefits from restricted stock vestings, partially offset by the one-time charge as a result of the new tax law described below.
The Company's lower effective tax rate in
2016
was due mainly to favorable benefits related to the domestic production activities deduction, the federal research and development credit, an adjustment to certain deferred tax liabilities related to a previous acquisition of a business and the filing of the Company’s
2014
and
2013
amended federal income tax returns during the fourth quarter of
2016
.
During the third quarter of
2016
, the Company completed its study of qualifying activities for the domestic production activities deduction and began recognizing tax benefits for the deduction upon the filing of its fiscal
2015
federal income tax return. The Company recognized tax benefits, included in its income tax provision for
2016
, of approximately
$1.5 million
for the
2016
tax year and approximately
$1.4 million
for the
2015
tax year, related to the domestic production activities deduction.
During the fourth quarter of
2016
, the Company amended its federal income tax returns for the
2014
and
2013
tax years and recognized tax benefits, included in its income tax provision for
2016
, of approximately
$1.2 million
for the
2014
tax year and
$1.0 million
for the
2013
tax year, related to the domestic production activities deduction.
Excess tax benefits in the amount of
$0.5 million
were recognized as a component of income tax expense during
2017
, resulting from restricted stock vestings. Prior to the adoption of ASU 2016-09, excess tax benefits of
$0.6 million
and
$0.4 million
were recognized as additional paid-in capital during
2016
and
2015
, respectively.
The following table provides a reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits (included in other long-term liabilities in the consolidated balance sheets) for the years ended
December 31, 2017
,
2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balance at January 1
|
$
|
6,599
|
|
|
$
|
3,721
|
|
|
$
|
2,798
|
|
Additions for tax positions of prior years
|
576
|
|
|
1,754
|
|
|
338
|
|
Additions for tax positions of current years
|
1,646
|
|
|
1,589
|
|
|
1,094
|
|
Expiration of the statute of limitations
|
(788
|
)
|
|
(439
|
)
|
|
(366
|
)
|
Reductions for tax positions of prior years
|
(13
|
)
|
|
(26
|
)
|
|
(143
|
)
|
Balance at December 31
|
$
|
8,020
|
|
|
$
|
6,599
|
|
|
$
|
3,721
|
|
The increase in the amount of the consolidated liability for unrecognized income tax benefits in
2017
was mainly due to the domestic production activities deduction that the Company began recognizing in
2016
.
At
December 31, 2017
,
2016
and
2015
, there were approximately
$7.1 million
,
$5.2 million
and
$2.6 million
, respectively, of unrecognized tax benefits that if recognized would affect the Company’s annual effective tax rate. It is reasonably possible that events will occur during the next 12 months that would cause the total amount of unrecognized tax benefits to increase or decrease. However, the Company does not expect such increases or decreases to be material to its financial condition or results of operations.
The Company, along with its wholly owned subsidiaries, files a consolidated U.S. federal income tax return and separate income tax returns in many states throughout the U.S. The Company remains subject to U.S. federal examination for the tax years ended on or after
December 31, 2013
. State income tax returns are generally subject to examination for a period of
three
to
five
years after filing of the respective return.
The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense in the consolidated statements of income. Accrued interest and penalty amounts were not significant at
December 31, 2017
,
2016
and
2015
.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, among other changes, reduces the statutory federal corporate income tax rate from 35% to 21%. In the fourth quarter of 2017, Company recognized a one-time charge totaling approximately
$0.3 million
to reduce net deferred tax assets as of
December 31, 2017
, based on the anticipated reduction in the Company's prospective effect tax rate resulting from the Tax Act. The Company will receive the benefit of the reduced statutory federal corporate income tax rate starting January 1, 2018, which will be partially offset by changes in certain deductions (most notably the elimination of the domestic production activity deductions). Due to the complexities of the new tax legislation, the SEC has issued Staff Accounting Bulletin ("SAB") 118 which allows for the recognition of provisional amounts during a measurement period similar to the measurement period used when accounting for business combinations. The Company has recorded a provisional re-measurement of its deferred tax assets and liabilities, resulting in a minimal impact on its 2017 income tax provision. The Company will continue to assess the impact of the new tax legislation, as well as any related future regulations and rules, and will record any additional impacts as identified during the measurement period, if necessary.
10. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS
The following table presents stock-based compensation expense included in the Company’s consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cost of portal revenues, exclusive of depreciation & amortization
|
$
|
1,276
|
|
|
$
|
1,390
|
|
|
$
|
1,404
|
|
Cost of software & services revenues, exclusive of depreciation & amortization
|
86
|
|
|
62
|
|
|
83
|
|
Selling & administrative
|
4,102
|
|
|
4,545
|
|
|
4,954
|
|
Stock-based compensation expense before income taxes
|
$
|
5,464
|
|
|
$
|
5,997
|
|
|
$
|
6,441
|
|
Stock option and restricted stock plans
The Company has a stock compensation plan (the “NIC plan”) to provide for the granting of restricted stock awards, incentive stock options or non-qualified stock options to encourage certain employees of the Company and its subsidiaries, and directors of the Company to participate in the ownership of the Company and to provide additional incentive for such employees and directors to promote the success of its business through sharing in the future growth of such business. The Company did not grant any stock options in
2017
,
2016
, or
2015
. Instead, the Company currently expects to continue to grant only restricted stock awards.
As approved by the Company’s Board of Directors and stockholders, the number of shares the Company is authorized to grant under the NIC plan is
15,825,223
common shares. The Company made non-material changes to the NIC plan in 2016 to increase grantee tax withholding rights under new accounting rules that became effective for the Company in 2017 (see Note 2). At
December 31, 2017
, a total of
3,938,916
shares were available for future grants under the NIC plan.
Restricted stock
During
2017
, the Compensation Committee of the Board of Directors of the Company (the “Committee”) granted to certain management-level employees and executive officers, service-based restricted stock awards totaling
250,039
shares with a grant-date fair value totaling approximately
$5.4 million
. Such restricted stock awards vest beginning
one
year from the date of grant in annual installments of
25%
. In addition, 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.
During the first quarter of
2017
, the Committee 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:
|
|
•
|
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).
|
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, 2017
, the
three
-year performance period related to the performance-based restricted stock awards granted to certain executive officers on February 23, 2015 ended. Based on the Company’s actual financial results from 2015 through 2017, no shares or dividend equivalent shares were earned. The
91,820
shares subject to the awards will be forfeited in the first quarter of 2018.
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.
At
December 31, 2015
, the
three
-year performance period related to the performance-based restricted stock awards granted to certain executive officers on
February 5, 2013
ended. Based on the Company’s actual financial results from
2013
through
2015
,
96,732
of the shares subject to the awards and
6,990
dividend shares were earned. The remaining
18,964
shares subject to the awards were forfeited.
A summary of service-based restricted stock activity for the year ended
December 31, 2017
is presented below:
|
|
|
|
|
|
|
|
|
Service-based Restricted
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Outstanding at January 1, 2016
|
633,451
|
|
|
$
|
17.89
|
|
Granted
|
292,448
|
|
|
$
|
21.46
|
|
Vested
|
(268,352
|
)
|
|
$
|
17.67
|
|
Canceled
|
(47,661
|
)
|
|
$
|
19.20
|
|
Outstanding at December 31, 2017
|
609,886
|
|
|
$
|
19.59
|
|
Expected to vest at December 31, 2017
|
609,886
|
|
|
$
|
19.59
|
|
The fair value of service-based restricted stock vested during the years ended
December 31, 2017
,
2016
and
2015
was approximately
$4.7 million
,
$4.6 million
and
$4.7 million
, respectively. The weighted average grant date fair value per share of service-based restricted stock granted during the years ended
December 31, 2017
,
2016
and
2015
was
$21.46
,
$17.67
and
$16.69
, respectively.
A summary of performance-based restricted stock activity for the year ended
December 31, 2017
is presented below:
|
|
|
|
|
|
|
|
|
Performance-
based
Restricted
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Outstanding at January 1, 2016
|
310,951
|
|
|
$
|
17.94
|
|
Granted
|
110,678
|
|
|
$
|
22.00
|
|
Vested
|
(59,437
|
)
|
|
$
|
19.41
|
|
Canceled
|
(21,503
|
)
|
|
$
|
19.41
|
|
Outstanding at December 31, 2017
|
340,689
|
|
|
$
|
18.91
|
|
Expected to vest at December 31, 2017
|
53,841
|
|
|
$
|
22.15
|
|
The fair value of performance-based restricted stock vested during the years ended
December 31, 2017
,
2016
and
2015
was approximately
$1.2 million
,
$1.6 million
and
$0.8 million
, respectively. The weighted average grant date fair value per share of performance-based restricted stock granted during the years ended
December 31, 2017
,
2016
and
2015
was
$22.00
,
$17.62
and
$17.11
, respectively.
At
December 31, 2017
, the total intrinsic value of nonvested restricted stock awards expected to vest was approximately
$11.2 million
. At
December 31, 2017
, the Company had approximately
$8.2 million
of total unrecognized compensation cost related to nonvested restricted stock awards. The Company expects to recognize this cost over a weighted average period of approximately
two
years from
December 31, 2017
.
Income taxes
During the year ended
December 31, 2017
, excess tax benefits of
$0.5 million
were recognized within income tax expense upon restricted stock vestings. Prior to the adoption of ASU 2016-09, excess tax benefits of
$0.6 million
and
$0.4 million
, respectively, were recognized as additional paid-in capital upon restricted stock vestings during
December 31, 2016
and
2015
.
Employee stock purchase plan
In 1999, the Company’s Board of Directors approved an employee stock purchase plan (“ESPP”) intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. A total of
2,321,688
shares of NIC common stock have been reserved for issuance under this plan. Terms of the plan permit eligible employees to purchase NIC common stock through payroll deductions up to the lesser of
15%
of each employee’s compensation or
$25,000
. Amounts deducted and accumulated by the participant are used to purchase shares of NIC’s common stock at
85%
of the lower of the fair value of the common stock at the beginning or the end of the offering period, as defined in the plan.
In the offering period commencing on April 1, 2016 and ending on March 31, 2017,
86,998
shares were purchased at a price of
$15.29
per share, resulting in total cash proceeds to the Company of approximately
$1.3 million
. In the offering period commencing on April 1, 2015 and ending on March 31, 2016,
74,976
shares were purchased at a price of
$14.86
per share, resulting in total cash proceeds to the Company of approximately
$1.1 million
. In the offering period commencing on April 1, 2014 and ending on March 31, 2015,
75,328
shares were purchased at a price of
$15.02
per share, resulting in total cash proceeds to the Company of approximately
$1.1 million
. The current offering period under this plan commenced on
April 1, 2017
. The closing fair market value of NIC common stock on the first day of the current offering period was
$20.20
per share.
The fair values of the offerings were estimated on the dates of grant using the Black-Scholes model using the assumptions in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
Offering
|
|
March 31, 2017
Offering
|
|
March 31, 2016
Offering
|
Risk-free interest rate
|
1.02
|
%
|
|
0.62
|
%
|
|
0.27
|
%
|
Expected dividend yield
|
2.69
|
%
|
|
3.04
|
%
|
|
3.07
|
%
|
Expected life
|
1.0 year
|
|
|
1.0 year
|
|
|
1.0 year
|
|
Expected stock price volatility
|
23.07
|
%
|
|
28.54
|
%
|
|
37.86
|
%
|
Weighted average fair value of ESPP rights
|
$
|
4.58
|
|
|
$
|
4.40
|
|
|
$
|
4.88
|
|
The Black-Scholes option-pricing model was not developed for use in valuing employee ESPP rights, but was developed for use in estimating the fair value of traded stock options that have no vesting restrictions and are fully transferable. In addition, it requires the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price appreciation, or should not be used to predict the value ultimately realized by employees who receive equity awards. Because changes in the subjective assumptions can materially affect the fair value estimate and
because employee stock options have characteristics significantly different from those of traded options, the use of the Black-Scholes option-pricing model may not provide a reliable estimate of the fair value of employee ESPP rights.
Defined contribution 401(k) profit sharing plan
The Company and its subsidiaries sponsor a defined contribution 401(k) profit sharing plan. In accordance with the plan, all full-time employees are eligible immediately upon employment and non-full time employees are eligible upon reaching
1,000
hours of service in the relevant period. A discretionary match by the Company of an employee’s contribution of up to
5%
of base salary and a discretionary contribution may be made to the plan as determined by the Board of Directors. Expense related to Company matching contributions totaled approximately
$2.7 million
,
$2.5 million
and
$2.2 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
11. REPORTABLE SEGMENTS 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 have 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 Company’s Chief Executive Officer has been identified as the chief operating decision maker ("CODM"). The measure of profitability by which management, including the CODM, 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 CODM. 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 years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outsourced
Portals
|
|
Other Software
& Services
|
|
Other
Reconciling
Items
|
|
Consolidated
Total
|
2017
|
|
|
|
|
|
|
|
Revenues
|
$
|
311,351
|
|
|
$
|
25,157
|
|
|
$
|
—
|
|
|
$
|
336,508
|
|
Costs & expenses
|
191,572
|
|
|
8,890
|
|
|
50,780
|
|
|
251,242
|
|
Depreciation & amortization
|
2,698
|
|
|
97
|
|
|
4,134
|
|
|
6,929
|
|
Operating income (loss) before income taxes
|
$
|
117,081
|
|
|
$
|
16,170
|
|
|
$
|
(54,914
|
)
|
|
$
|
78,337
|
|
2016
|
|
|
|
|
|
|
|
Revenues
|
$
|
296,998
|
|
|
$
|
20,917
|
|
|
$
|
—
|
|
|
$
|
317,915
|
|
Costs & expenses
|
180,287
|
|
|
5,958
|
|
|
47,063
|
|
|
233,308
|
|
Depreciation & amortization
|
3,230
|
|
|
77
|
|
|
3,442
|
|
|
6,749
|
|
Operating income (loss) before income taxes
|
$
|
113,481
|
|
|
$
|
14,882
|
|
|
$
|
(50,505
|
)
|
|
$
|
77,858
|
|
2015
|
|
|
|
|
|
|
|
Revenues
|
$
|
273,502
|
|
|
$
|
18,874
|
|
|
$
|
—
|
|
|
$
|
292,376
|
|
Costs & expenses
|
168,166
|
|
|
5,432
|
|
|
43,098
|
|
|
216,696
|
|
Depreciation & amortization
|
4,649
|
|
|
47
|
|
|
3,689
|
|
|
8,385
|
|
Operating income (loss) before income taxes
|
$
|
100,687
|
|
|
$
|
13,395
|
|
|
$
|
(46,787
|
)
|
|
$
|
67,295
|
|
The following table identifies each type of service, customer and portal partner that accounted for
10%
or more of the Company’s total consolidated revenues for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Consolidated Revenues
|
|
2017
|
|
2016
|
|
2015
|
Type of Service
|
|
|
|
|
|
Motor Vehicle Driver History Record Retrieval
|
31
|
%
|
|
33
|
%
|
|
35
|
%
|
|
|
|
|
|
|
Motor Vehicle Registrations
|
14
|
%
|
|
14
|
%
|
|
13
|
%
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
LexisNexis Risk Solutions
|
19
|
%
|
|
22
|
%
|
|
23
|
%
|
(Resells motor vehicle driver history records to the insurance industry)
|
|
|
|
|
|
|
|
|
|
|
|
Portal Partner
|
|
|
|
|
|
Texas
|
20
|
%
|
|
20
|
%
|
|
21
|
%
|
12. UNAUDITED QUARTERLY OPERATING RESULTS
The unaudited quarterly information below is subject to seasonal fluctuations resulting in lower portal revenues in the fourth quarter of each calendar year due to the lower number of business days in the quarter and a lower volume of business-to-government and citizen-to-government transactions during the holiday periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
(in thousands, except per share amount)
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenues:
|
|
|
|
|
|
|
|
Portal revenues
|
$
|
77,198
|
|
|
$
|
79,374
|
|
|
$
|
76,434
|
|
|
$
|
78,345
|
|
Software & services revenues
|
5,979
|
|
|
5,952
|
|
|
8,099
|
|
|
5,127
|
|
Total revenues
|
83,177
|
|
|
85,326
|
|
|
84,533
|
|
|
83,472
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of portal revenues, exclusive of depreciation & amortization
|
47,032
|
|
|
49,009
|
|
|
47,377
|
|
|
48,154
|
|
Cost of software & services revenues, exclusive of depreciation & amortization
|
1,763
|
|
|
1,779
|
|
|
3,169
|
|
|
2,179
|
|
Selling & administrative
|
11,660
|
|
|
13,131
|
|
|
12,091
|
|
|
13,898
|
|
Depreciation & amortization
|
1,613
|
|
|
1,688
|
|
|
1,810
|
|
|
1,818
|
|
Total operating expenses
|
62,068
|
|
|
65,607
|
|
|
64,447
|
|
|
66,049
|
|
Operating income before income taxes
|
21,109
|
|
|
19,719
|
|
|
20,086
|
|
|
17,423
|
|
Income tax provision
|
7,124
|
|
|
6,950
|
|
|
6,066
|
|
|
6,583
|
|
Net income
|
$
|
13,985
|
|
|
$
|
12,769
|
|
|
$
|
14,020
|
|
|
$
|
10,840
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
0.21
|
|
|
$
|
0.16
|
|
Diluted net income per share
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
0.21
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
66,046
|
|
|
66,248
|
|
|
66,267
|
|
|
66,270
|
|
Diluted
|
66,046
|
|
|
66,248
|
|
|
66,267
|
|
|
66,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
(in thousands, except per share amount)
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenues:
|
|
|
|
|
|
|
|
Portal revenues
|
$
|
73,197
|
|
|
$
|
75,513
|
|
|
$
|
74,997
|
|
|
$
|
73,291
|
|
Software & services revenues
|
5,193
|
|
|
5,297
|
|
|
5,376
|
|
|
5,051
|
|
Total revenues
|
78,390
|
|
|
80,810
|
|
|
80,373
|
|
|
78,342
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of portal revenues, exclusive of depreciation & amortization
|
43,615
|
|
|
46,123
|
|
|
45,140
|
|
|
45,409
|
|
Cost of software & services revenues, exclusive of depreciation & amortization
|
1,413
|
|
|
1,445
|
|
|
1,495
|
|
|
1,605
|
|
Selling & administrative
|
11,342
|
|
|
11,165
|
|
|
11,676
|
|
|
12,880
|
|
Depreciation & amortization
|
1,664
|
|
|
1,736
|
|
|
1,674
|
|
|
1,675
|
|
Total operating expenses
|
58,034
|
|
|
60,469
|
|
|
59,985
|
|
|
61,569
|
|
Operating income before income taxes
|
20,356
|
|
|
20,341
|
|
|
20,388
|
|
|
16,773
|
|
Income tax provision
(1) (2)
|
7,462
|
|
|
7,280
|
|
|
4,153
|
|
|
3,130
|
|
Net income
|
$
|
12,894
|
|
|
$
|
13,061
|
|
|
$
|
16,235
|
|
|
$
|
13,643
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
Diluted net income per share
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
65,739
|
|
|
65,953
|
|
|
65,978
|
|
|
65,981
|
|
Diluted
|
65,739
|
|
|
65,967
|
|
|
66,005
|
|
|
66,041
|
|
|
|
(1)
|
The Company’s lower effective tax rate in the third quarter of
2016
(
20%
) was primarily attributable to favorable benefits related to the domestic production activities deduction and federal research and development credit, which increased basic and diluted earnings per share by approximately
$0.05
during the quarter. (See Note 9)
|
|
|
(2)
|
The Company’s lower effective tax rate in the fourth quarter of
2016
(
19%
) was primarily attributable to the Company amending its 2014 and 2013 federal income tax returns to recognize favorable benefits related to the domestic production activities deduction, which increased basic and diluted earnings per share by approximately
$0.03
during the quarter. (See Note 9)
|