Increased Volumes Drive NIC Inc.'s First-Quarter Revenue Higher

By Brian Feroldi Markets Fool.com

Interacting with the government is a notoriously arduous task. As a leading provider of e-government services, NIC (NASDAQ: EGOV)has been growing for years as it works with governments of all sizes to help them bring their information technology and communications into the 21st century.

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Coming into Monday's first-quarter earnings report, investors were looking for the company to build on its past success by posting modest top-line growth through volume gains in its core businesses. Let's take a closer look at the company's results to see if its services remain in demand.

Image Source: Getty Images.

NIC results: The raw numbers

Metric Q1 2017 Q1 2016 Year-Over-Year Change
Revenue $83.2 million $78.4 million 6.1%
Net income $14.0 million $12.9 million 8.5%
Earnings per share $0.21 $0.19 10.5%

Data source: NIC.

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What happened with NIC this quarter?

  • First-quarter portal revenues grew by 5% to $77.2 million. Portal revenue growth was driven primarily by higher volumes from services such as motor vehicle inspections, property tax filings, and business filings. However, those gains were weighed down by 1% growth in driver history records and a 31% decline in same state portal software development revenue.
  • Software and services revenue grew 15% to $6 million. The gains were driven by an uptick in transactional revenue related to payment processing and the federal pre-employment screening program.
  • Total revenue grew by 6% to $83.2 million, which compared favorably to the $82 million in revenue that Wall Street had expected.
  • Operating income only increased by 4% year-over-year due to increased investments in the business.
  • EPS grew by more than 10% to $0.21, which was nicely ahead of the $0.19 that market-watchers had predicted. However, it is worth noting that the adoptionof new accounting rules allowed NIC's tax rate to drop by 300 basis points. That change reduced the company's quarterly income tax provision by $500,000 and boosted EPS by about $0.01.
  • NIC was awarded contract extensions in Alabama,Idaho, North Carolina, and Oklahoma.

What management had to say

CEO Harry Herington was pleased with the company' results during the quarter, stating, "Our teams across the country remain laser-focused on our mission to bring new innovative solutions to our government partners, which continue to deliver more efficiencies to citizens and businesses."

Herington also stated on the conference call that the company continues to make progress at adding new functionality to its new Gov2Go platform. He was particularly excited about the rollout of Gov2Go Pay, a new one-click payment option. When added to the platform's other features, Herington stated that he is convinced that Gov2Go will"transform how people interact with government in the future."

Looking forward

Management reminded investors that 2017 will be a year of internal investment. The company plans to raise its spending as it builds out the functionality of Gov2Go and makes investments toincrease its processing capabilities in states such as Wisconsin and Illinois. As a result, the company reaffirmed its full-year guidance, which calls for 3% revenue growth and a 16% drop in EPS at the midpoint.

NIC's stock barely moved once trading began on Tuesday May 2, 2017 following the release. Nonetheless, its strong renewals and portal revenue growth show that consumers andgovernments alike continue to respond favorably to the company's unique services. As long as NIC can continue to build out its offerings and make it easier for citizens to interact with their governments, it should continue to have success at convincing governments to go online.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends NIC. The Motley Fool has a disclosure policy.