Here's Why NIC Inc. Is Plunging Today

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What happened

After the company reported fourth-quarter results and provided investors with guidance for 2017, shares of NIC (EGOV +0.00%), a company focused on digitizing government services, fell by 12% as of 3:30 p.m. EST on Thursday.

So what

The headline numbers from NIC's fourth quarter report looked solid:

Data source: NIC.

By comparison, Wall Street was only expecting NIC to produce $76.1 million in total revenue and show $0.14 in EPS, so the company beat its estimates on both metrics.

However, the markets appear to be reacting negatively to the company's guidance for 2017. NIC's management team said that they will be increasing spending levels in an effort to build out the company's product offering.

As a result, management provided investors with the following guidance:

For perspective, Wall Street was expecting the company to forecast more than $337 million in revenue for the full year and show EPS of at least $0.77 on the bottom line.

The disappointing guidance appears to be the primary reason behind the sell-off today.

Now what

While the investments are expected to cause near-term profits to wane, management was quite confident that they will produce strong results for shareholders over time.

Here's CFO Steve Kovzan commenting on the increased spending plans:

While these investments will dilute our earnings in the short term, they set the stage for higher growth in 2018 and beyond. We remain unwavering in our long-term focus, which has benefited NIC, our partners, and our stockholders well over the years.

NIC's strong quarterly results showed that it is quite adept at creating products that government agencies are willing to pay for. If the company's planned investments can drive increased adoption and reduce churn, then shareholders will likely be rewarded for holding.