Making Money In Government Online Payments

By Jeffrey Green (@epaymentsguy)

Government online payment-processing services provider NIC Inc. seeks to keep its payment-processing component “simple and efficient,” and it appears to be paying dividends, as the company on May 6 reported a 6.9 percent increase in first quarter revenues. Net income, however, dipped by 6 percent.

Total revenues were $65.4 million, which compared with $61.2 million during the same period ended March 31 last year, partially affected by a two percentage point increase in the effective tax rate. Net income was $9.4 million, down from $10 million a year earlier.

“Consistency is the foundation that drives many great corporations,” Harry Herington, NIC chairman and CEO, commented to analysts during a conference all to discuss the company’s earnings. “For us, consistency takes many forms. The payment-processing component of any online government transaction needs to be simple and efficient, whether you are registering for a car in Texas or registering your boat in Maine.”

During the quarter, NIC subsidiary Colorado Interactive LLC struck a five-year renewed partnership deal with the state of Colorado. The agreement includes renewal options that the state can exercise to extend the contract for an additional four years, NIC noted in its earnings release. It also added Connecticut as a new state partner in January, and it began generating revenues from the relationship in April.

However, tight state budgets also are posing problems for the company. During the analyst call, Herington noted that three years ago Delaware approached NIC and requested an alternative funding arrangement. At the time, Delaware was unable to use driver history records as an initial funding source and proposed that the enterprise-wide eGovernment initiative be financed by a single state agency that would pay NIC an annual fixed fee of approximately $2 million from appropriated budgeted dollars.

NIC took up the approach, knowing the risk of being paid directly by single-state agency. Since the execution of the contract, it developed 55 services and mobile applications for 17 state agencies in Delaware. While pleased with the work NIC has done, the state now is struggling with the ongoing use of appropriated taxpayer dollars to pay for NIC’s services, Herington said.

“Admittedly, our services are not inexpensive, but we believe they are the best top-shelf eGovernment solutions in the country,” he said on the call. “It is also relevant to note that Delaware is facing a multimillion-dollar budget shortfall with the legislative requirement to pass a balanced budget. As a result, the state has indicated that they will bring their eGovernment services back in-house when the current contract term expires at the end of September.”

Despite the setback, Herington refused to consider the Delaware deal a failure. “It was a beneficial contract for both the state and NIC,” Herington said. “While I am disappointed this funding model did not work for the state, I am committed to continuing to explore revenue models that are a departure from our traditional self-funded model in situations where they make sense.”

Also during the call, Robert Knapp, the company’s chief operating officer, noted that NIC also has experienced beneficial relations with a variety of other states. The company processed nearly $150 million in tax payments for Kentucky during the quarter, he said, while processing approximately $13 million in eLicense sales for both resident and nonresident hunting and fishing licenses for Montana, and more than $50 million in transfer taxes in Vermont, he said.

Moreover, NIC processed more than $22 million in South Carolina property taxes in January, and its work with Hawaii’s state judiciary to develop the eTraffic service resulted in 37,000 citations paid using a mobile device or nearly $3.5 million in fine, Knapp said.

“As you can tell, secure payment processing really is critically important part of what we do for our government partners,” he said.

NIC developed an online solution to monitor suspicious corporate-identity activity, and during quarter Maine became the second state to use the online corporate fraud monitoring service. Operated through the Secretary of State’s office, the new service allows business owners and registered agents to be notified automatically of any filing process against their business entities. Utah was the first state to launch the service, Knapp said.

During the quarter, portal revenues rose 6.9 percent, to $61.5 million from $58 million, driven by deployment of new services and increased adoption of existing ones across several portals. Software and services revenues were up 22 percent, to $3.9 million from $3.2 million.

Among legacy portal contracts, revenues from the Virginia state agency partnerships were $600,000, down from $1.5 million a year earlier. Revenues Arizona were $800,000, down from $900,000, Steve Kovzan, the company’s chief financial officer, said on the call.

In NIC’s newer portals, current portal revenues from Pennsylvania and Wisconsin were $2.4 million and $1.2 million respectively, he said. In the prior-year quarter, revenues from Pennsylvania were $2.6 million, while the Wisconsin portal did not begin generating revenues until Q3 2013.