In response to sharing bummer news with investors during its fourth-quarter earnings call, shares of NIC (NASDAQ:EGOV), a provider of digital government services, fell 19% as of 11:45 a.m. EST on Thursday.
The headline numbers from the fourth-quarter looked fine. Revenue grew 6% to $83.5 million, which was ahead of the $81.2 million that analysts were expecting. Net income and EPS both fell by 20%, but that was mainly caused by changes to the company's tax rate. Overall, the $0.16 in earnings per share during the quarter matched Wall Street's estimate.
However, management dropped a bit of a bombshell on its earnings call. CEO Harry Herington informed shareholders that the company is no longer in the running to manage texas.gov and other existing digital government services for the state of Texas. However, the company was able to share that it has been selected to negotiate a contract relating to the state's payment processing needs.
This news troubled Wall Street because the state of Texas is currently a major customer for the company. What's more, the fact that NIC didn't win the contract renewal also indicates that its internal investments are not providing the company with as much of a competitive advantage as had otherwise been assumed.
The uncertainty surrounding the situation with the state of Texas caused management to hold off on issuing guidance for 2018. However, management did say that they will share full-year guidance once the negotiations with the state are over.
The disappointing news caused shares to fall sharply.
In 2016 the state of Texas represented about 20% of NIC's total portal revenue, so there's no doubt that it losing out on that contract is going to have a significant impact on the company's revenue and net income moving forward. For that reason, I do not consider today's big drop to be much of a buying opportunity.