NIC (NASDAQ:EGOV), a leading provider of e-services for governments, reported its second-quarter results on Wednesday, Aug. 2. Sales rose to record levels thanks to volume gains in the company's transaction businesses, but higher spending levels caused the company's margins and profits to dip.

Let's take a closer look at the company's second-quarter results to get a better sense of what happened during the period.

Man on laptop in front of government building

Image source: Getty Images.

NIC Q2 results: The raw numbers

Metric Q2 2017 Q2 2016 Year-Over-Year Change
Revenue $85.3 million $80.8 million 5.6%
Net income $12.8 million $13.1 million (2.2%)
Earnings per share $0.19 $0.20 (5%)

Data source: NIC. 

What happened with NIC this quarter?

  • Total revenue of $85.3 million was more than $2 million above what Wall Street had estimated.
  • Portal revenues grew 5% to $79.4 million. On a same-state basis, portal revenue grew by 7%.
  • Transaction-based revenue from Interactive Government Services grew 12% thanks to higher volumes of motor vehicle inspections and business filings. However, transaction-based revenue from driver history record retrieval once again weighed on overall results and only grew 1%. 
  • Software and services revenue grew 12% to $6 million. 
  • Operating margin declined by 200 basis points due to higher development costs and elevated general and administrative expenses.
  • Net income and EPS both declined slightly as a result of the declining margins. However, the $0.19 in EPS came in a penny better than what market watchers had predicted.
  • NIC signed a six-year contract with Illinois to develop a licensing and permitting platform. The agreement also features many one-year renewal options that can be used to extend the contract through 2027 at the state's discretion.
  • One-year contract extensions were signed in Rhode Island, New Mexico, and from the Federal Motor Carrier Safety Administration. A two-year contract extension was awarded in the state of Pennsylvania.

What management had to say

CEO Harry Herington kept his comments brief and to the point:

I was pleased to see continued solid growth of our core business during the second quarter. Transaction based services are the foundation of our business, and every quarter I am impressed with the new services our teams launch on behalf of our government partners.

On the call with investors, Herington said the company remains in the bidding process with the state of Texas over extending its running of the Texas.gov site. While he didn't offer any specifics on the timeline, he said that he has "great confidence" in the company's Texas team. 

Herington ended his prepared remarks on the call by praising his company's recent performance:

We are executing well in our core business, which continues to deliver solid revenue growth. And our work to advance in emerging technologies for government continues to evolve. And I am incredibly proud of the innovative solutions our teams delivered this past quarter. And look forward to what new innovations our team may come up with [in] the second half of the year.

Looking forward

NIC's management team didn't make any changes to its full-year guidance, but did note that the company might be able to book an additional $2.4 million in revenue from Illinois if it can deliver the first phase of its core platform in time. 

NIC's shares didn't move much in response to this better-than-expected quarter. The reason for the muted response is likely concern that the company might not win the bidding process for Texas.gov.

Stepping back from that risk, the odds continue to look favorable that all levels of government will move their services online in an effort to better serve their citizens. As long as NIC continues to invest in its capabilities and deepen its relationships with governments, then it should stand a good chance at retaining its existing customers at a high rate while steadily winning new business in the future.

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