By a News Reporter-Staff News Editor at Computer Weekly News -- NIC Inc. (NASDAQ: EGOV), the dominant provider of eGovernment services, announced net income of $6.2 million and earnings per share of 9 cents on total revenues of $60.8 million for the three months ended December 31, 2013. In the fourth quarter of 2012, the Company reported net income of $8.6 million and earnings per share of 13 cents on total revenues of $56.2 million.
Results for the quarter include $2.5 million in legal defense and other third party costs, net of insurance reimbursement, included in selling & administrative expenses related to the previously disclosed SEC matter for the Company's Chief Financial Officer. These costs lowered earnings per share for the quarter by approximately 2 cents. During the quarter, a jury cleared NIC's CFO of any liability in connection with all of the claims alleged by the SEC and the matter has concluded.
The Company's effective tax rate in the current quarter increased to 44 percent from 30 percent in the prior year quarter. The higher effective tax rate in the current quarter was driven primarily by changes in state taxes, including true-ups upon the filing of state returns in the fourth quarter, which lowered earnings per share by approximately 1 cent. The lower effective tax rate in the prior year quarter was due to several factors, including the favorable outcome of an IRS examination and the related decrease in the liability for uncertain tax positions, along with changes in state taxes, which increased earnings per share in the prior year quarter between 1 and 2 cents. The Company currently expects its effective tax rate to approximate 40 percent in 2014. Fourth Quarter 2013 Performance Fourth quarter 2013 portal revenues were $57.3 million, a 7 percent increase over the fourth quarter of 2012. On a same state basis, portal revenues were up 4 percent in the current quarter. Same state transaction-based revenues from non-driver record (non-DMV) services rose 8 percent over the fourth quarter of 2012, and same state DMV revenues increased 5 percent, while same state software development revenues decreased 21 percent, primarily because the Company cycled against a strong quarter of project-based, time and materials revenues in the prior year quarter.
Current quarter revenues from the Company's newest portals in Pennsylvania, which began generating revenues in the current quarter, and Wisconsin, which began generating revenues in the third quarter of 2013, were a combined $2.6 million. Revenues from the Virginia state agency partnerships were $0.8 million in the current quarter, while revenues from the Virginia state portal contract in the prior year quarter were $1.8 million.
Portal gross profits increased to $21.7 million, a 3 percent increase over the prior year quarter. NIC's portal gross profit percentage was 38 percent in the current quarter, compared to 39 percent in the prior year quarter.
Software & services revenues were $3.5 million, up 25 percent from the fourth quarter of 2012, driven by a 16 percent, or $0.3 million, increase in revenues from the federal Pre-employment Screening Program, and $0.3 million of revenues from a new construction lien service launched in the state of North Carolina during the year. These services contributed to a 30 percent increase in software & services gross profits to $2.3 million for the quarter.
"NIC's portal revenue growth this quarter was in line with our expectations, as we cycled against the exceptional growth we've experienced the past four quarters," said NIC Chief Executive Officer and Chairman of the Board Harry Herington. "We have always vowed not to manage quarter by quarter, and our long-term vision continues to pay off as we experienced one of the most exceptional years of growth in NIC's history." Operational Highlights During the fourth quarter, the Wisconsin Department of Natural Resources signed an agreement with NIC's subsidiary, Wisconsin Interactive Network, to provide the state's online and point of sale hunting and fishing licensing system. The agreement to provide these services in Wisconsin, which is the second largest hunting and fishing licensing state in the nation, extends beyond the current master contract with the state and runs through May 2021. The system also includes applications, draws, harvest registration, commercial licensing, recreational vehicle renewals, snowmobile passes, and kiosks. The hunting and fishing licensing component will be piloted in the fall of 2015 with a full launch of the system in March 2016.
Also, the State of Oklahoma signed a one-year renewal extension with NIC's subsidiary, Oklahoma Interactive, LLC, taking the contract through 2015.
As previously announced, the State of Connecticut signed a three-year contract with NIC's subsidiary, Connecticut Interactive, LLC, in January 2014. The contract also includes additional renewal terms at the option of the state that could extend the contract through 2020. Full-Year 2013 Performance Fiscal year 2013 total revenues rose 19 percent to $249.3 million, and portal revenues grew 19 percent to $235.2 million, exceeding the high end of the Company's 2013 revenue guidance. Revenue growth in 2013 was driven by the strong performance from the Texas motor vehicle inspection service launched in September 2012, and new non-DMV services in New Jersey and Colorado. On a same state basis, portal revenues were 14 percent higher than in 2012, with same state non-DMV transactional revenues growing 27 percent and same state DMV revenues up 5 percent for the year. Same state time & materials revenues relating to portal software development decreased 20 percent for the year, due primarily to the expiration of certain Texas Master Work Order projects in August 2012, as previously disclosed.
Portal gross profits increased to $92.1 million, a 23 percent increase over the prior year, and NIC's portal gross profit percentage increased to 39 percent in 2013, up from 38 percent in 2012. Current year results include a one-time, non-cash, pre-tax charge of $5.1 million included in cost of portal revenues, reflecting the write off of outstanding accounts receivable due from the Commonwealth of Pennsylvania as previously disclosed.
Software & services revenues were $14.1 million, up 20 percent from 2012, driven by a 15 percent, or $1.1 million, increase in revenues from the federal Pre-employment Screening Program and $1.2 million of revenues from the new construction lien service launched in the state of North Carolina during the year. These services contributed to a 26 percent increase in software & services gross profits to $9.7 million for the year.
Selling & administrative expenses in 2013 reflect $4.0 million of costs, net of insurance reimbursement, related to the recently concluded SEC matter, compared to $0.5 million in 2012. As a percentage of total revenues, selling & administrative expenses were 16 percent in both the current and prior years.
Depreciation & amortization expense increased 32 percent in 2013 due mainly to capital expenditures for the Texas motor vehicle inspection service and to enhance corporate-wide information technology and security infrastructure. As a percentage of total revenues, depreciation & amortization expense was 3 percent in both the current and prior years.
Operating income increased 22 percent to $52.6 million for the year, and NIC's operating income margin was 21 percent in the current year, up from 20 percent in the prior year.
NIC earned 49 cents per share in 2013, up from 40 cents in 2012, exceeding the high end of the Company's 2013 earnings guidance.
On October 28, 2013, NIC's Board of Directors declared a special cash dividend of $0.35 per share to stockholders of record on November 8, 2013. The dividend, totaling $23.0 million, was paid on January 2, 2014 from NIC's cash reserves.
"This was an outstanding year of growth for NIC," said NIC Chief Financial Officer Steve Kovzan. "We continued to add new state partners and generated exceptional same-state revenue growth by deploying online services on behalf of our government partners that business and citizens demand." Full-Year 2014 Outlook For full-year 2014, NIC currently expects total revenues of $260.0-270.0 million, with portal revenues ranging from $246.0-255.0 million and software & services revenues ranging from $14.0-15.0 million. The Company also currently expects operating income to range from $57.5-62.5 million and net income of $34.7-37.7 million, with earnings per share ranging from 53-58 cents.
Portal gross profit margins for the year are currently expected to approximate 40 percent, while software & services gross profit margins are currently expected to be in the upper-60 percent range.
Selling & administrative expenses are currently expected to approximate 16 percent of total revenues. Depreciation & amortization expense as a percentage of total revenues is currently expected to range from 3 to 4 percent in 2014, with capital expenditures currently expected to range from $6.5-7.0 million for the year.
"Our financial guidance reflects healthy organic revenue growth in line with historical averages, as we cycle against exceptional growth in 2013," said Steve Kovzan, NIC's Chief Financial Officer. "Investment years in our new Wisconsin and Connecticut portals, set the stage for continued bottom line growth beyond 2014, while we also enter 2014 with a solid new state pipeline, which we hope will contribute favorably to our long-term success."
Keywords for this news article include: NIC, Finance, Software.
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