Most government services have a reputation for being slow and inefficient, which is why an increasing number of federal, state, and local governments are turning to NIC (NASDAQ:EGOV) to help bring them into the 21st century. The company specializes in building and operating online portals that allow citizens and businesses to access information and make secure transactions through the web, greatly streamlining government functions.

Image source: Getty Images.

Coming into Thursday's third-quarter earnings report, shareholders of NIC were expecting that the company's recent history of modest top- and bottom-line growth would continue. Let's take a closer look at its results to see how it fared during the quarter.

NIC Q3: The raw numbers

MetricQ3 2016Q3 2015Change
Revenue $80.4 million $75.0 million 7.2%
Net income  $16.2 million $12.8 million 26.6%
Earnings per share $0.24 $0.19 26.3%

Data source: NIC.

What happened with NIC this quarter?

  • Total portal revenue grew by 7%, to $75.0 million, or by 5% on a same-state basis. Revenue from interactive government services jumped by 12%, while revenue from driver history records were down by 1%. Portal software development revenue plunged by 27%, but management said that was mostly caused by the timing of project-based initiatives.
  • Revenue from software and services rose by 9%, to $5.4 million.
  • Despite the decent revenue growth, NIC's operating income grew by only 2% during the period as the company's operating margin shrunk to 25%, down from 27% last year.
  • NIC had a number of favorable tax breaks go its way this quarter, pulling its overall tax rate down to 20%. That's sharply lower than the 36% rate that it paid a year ago, and boosted its EPS by about $0.05. 
  • The company was awarded a handful of one-year contract extensions with government agencies that include the State of Maryland, Stafford County in Virginia, and the Federal Motor Carrier Safety Administration. 
  • NIC's Board of Directors announced that it will be paying a special cash dividend of $0.65 this quarter. Moving forward, the company plans on paying a regular quarterly cash dividend of $0.08 per share.

What management had to say

Harry Herington, NIC's CEO and chairman, said that he was pleased with the company's progress during the period, noting, "Every day our goal is to launch new digital government solutions and to enhance existing online services in order to deliver efficiencies to citizens and businesses -- the third quarter of 2016 was no exception." 

He also commented on the company's decision to return capital to shareholders through its newly announced dividend policy, saying that "we believe the time is right to initiate a regular quarterly cash dividend, as it solidifies our commitment to providing ongoing value to stockholders and reinforces our positive outlook." 

Looking forward

NIC's third-quarter results showed yet again that its unique service offering is resonating with government agencies across the country. As long as the company can successfully convince its customers to renew their contracts while also steadily adding more government agencies to the mix, then it should easily be able to march its revenue and net income higher over time.

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