Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

On AprilJuly 26, 2019, the registrant had 66,913,11766,959,777 shares of common stock outstanding.

NIC Inc., together with its subsidiaries (the "Company" or "NIC") is a leading provider of digital government services that help governments use technology to provide a higher level of service to businesses and citizens and increase efficiencies. The Company accomplishes this currently through two channels: its state enterprise businesses and its software & services businesses.

In the Company's primary state enterprise businesses, it generally designs, builds, and operates digital government services on an enterprise-wide basis on behalf of state and local governments desiring to provide access to government information and to complete secure government-based transactions through multiple online channels. These digital government services consist of websites and applications the Company has built that allow consumers, such as businesses and citizens, to access government information online and complete transactions. The Company typically manages operations for each contractual relationship through separate local subsidiaries that operate as decentralized businesses with a high degree of autonomy. The Company is typically responsible for funding the up-front investments and ongoing operations and maintenance costs of the digital government services. The Company’s software & services businesses primarily include its subsidiaries that provide software development and digital government services, other than those services provided under state enterprise contracts, to federal agencies as well as state and local governments.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The consolidated financial statements include all of the Company's direct and indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, changes in stockholders' equity and cash flows of the Company as of the dates and for the interim periods presented. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2018, including the notes thereto, set forth in the Company’s 2018 Annual Report on Form 10-K.

Certain amounts in the consolidated statements of income for the three and six months ended March 31,June 30, 2018 were reclassified to conform to the current year presentation. The reclassification had no impact on net income or cash flows for the period ended March 31,June 30, 2018.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Expenses are recognized in the statement of income in a manner similar to current accounting guidance. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

On January 1, 2019, the Company adopted the standard and all the related amendments, using a modified retrospective approach at the beginning of the period of adoption. Under this approach, the comparative information was not restated and continues to

be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company not to reassess (i) whether expired or existing contracts contain a lease under the new standard, or (ii) the lease classification for expired or existing leases. In addition, the Company did not elect to use hindsight and excluded any lease contracts with terms of twelve months or less during transition.

The adoption of the standard resulted in the recognition of ROU lease assets and lease liabilities of $12.6 million and $12.9 million, respectively, as of January 1, 2019. The adoption of the standard did not have ana significant impact on the Company’s consolidated earnings or cash flows for the quarterthree and six months ended March 31,June 30, 2019.

Under certain contracts with its government partners, the Company agrees to provide continuous access to digital government services that allow consumers to complete secure transactions, such as applying for a permit, retrieving government records, or filing a government-mandated form or report. The Company satisfies its performance obligation by providing access to applications over the contractual term and by processing transactions as they are initiated by consumers. The performance obligation is satisfied when the Company provides the access and it is used by the consumer.

The Company earns development services revenues primarily under contracts to provide software development and other time and materials services to its government partners. These contracts are generally not longer than one year in duration. For services provided under development contracts, the performance obligation is either satisfied over time or at a point in time upon customer acceptance.

Under its development services contracts, the Company typically does not have significant future performance obligations that extend beyond one year. As of March 31,June 30, 2019, the total transaction price allocated to unsatisfied performance obligations was approximately $3.8$6.2 million.

ManagementFixed-fee management services revenues primarily consist of revenues from providing recurring fixed fee digital government services for the Company’s government partner in Indiana. As of March 31,June 30, 2019, the Company’s Indiana contract had unsatisfied

performance obligations for one month. The total transaction price allocated to the unsatisfied performance obligation is not significant.

Unearned revenues at March 31,June 30, 2019 and December 31, 2018 were approximately $3.1$2.6 million and $1.7 million, respectively. The change in the deferred revenue balance for the threesix months ended March 31,June 30, 2019 is primarily driven by cash payments received or due in advance of satisfying ourthe Company's performance obligations, offset by $1.1$4.7 million of revenues recognized that were included in the deferred revenue at the beginning ofduring the period.

The Company’s state enterprise contracts generally have an initial multi-year term with provisions for renewals for various periods at the option of the government. The Company’s primary business obligation under these contracts is generally to design, build, and operate digital government services on an enterprise-wide basis on behalf of governments desiring to provide access to government information and to digitally complete government-based transactions. NIC typically markets the services and solicits consumers to complete government-based transactions and to enter into subscriber contracts permitting the user to access online applications and the government information contained therein in exchange for transactional and/or subscription user fees. The Company enters into statements of work with various agencies and divisions of the government to provide specific services and to conduct specific transactions. These statements of work preliminarily establish the pricing of the online transactions and data access services the Company provides and the division of revenues between the Company and the government agency. The government oversight authority must approve prices and revenue sharing agreements. The Company has limited control over the level of fees it is permitted to retain.

The Company is typically responsible for funding the up-front development and ongoing operations and maintenance costs of digital government services and generally owns all the intellectual property in connection with the applications developed under these contracts. After completion of a defined contract term or upon termination for cause, the government partner typically receives a perpetual, royalty-free license to use the applications built by the Company only in its own state. However, certain enterprise applications, proprietary customer management, billing, payment processing and other software applications that the Company has developed and standardized centrally are provided to government partners on a software-as-a-service (“SaaS”) basis, and thus would not be included in any royalty-free license. If the Company’s contract expires after a defined term or if its contract is

terminated by a government partner for cause, the government agency would be entitled to take over the applications in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

Any renewal of these contracts beyond the initial term by the government is optional and a government may terminate its contract prior to the expiration date if the Company breaches a material contractual obligation and fails to cure such breach within a specified period or upon the occurrence of other events or circumstances specified in the contract. In addition, 16 contracts under which the Company provides enterprise-wide digital government services, as well as the Company’s contract with the Federal Motor Carrier Safety Administration (“FMCSA”), can be terminated by the other party without cause on a specified period of notice. Collectively, revenues generated from these contracts represented approximately 58%59% of the Company’s total consolidated revenues for both the

Under a typical state enterprise contract, the Company is required to fully indemnify its government partners against claims that the Company’s services infringe upon the intellectual property rights of others and against claims arising from the Company’s performance or the performance of the Company’s subcontractors under the contract. At March 31,June 30, 2019, the Company was bound by performance bond commitments totaling approximately $10.8 million on certain state enterprise contracts.

The Company’s subsidiary NIC Federal, LLC has a contract with the FMCSA to develop and manage the FMCSA’s Pre-Employment Screening Program (“PSP”) for motor carriers nationwide, using a transaction-based business model. In February 2019, the FMCSA extended the current contract through August 27, 2019, and included three six-month renewal options. The contract can be terminated by the FMCSA without cause on a specified period of notice.

There are currently 1513 state enterprise contracts, as well as the Company's contract with the FMCSA, that have expiration dates within the 12-month period following March 31,June 30, 2019. Collectively, revenues generated from these contracts represented approximately 46%38% and 39% of the Company’s total consolidated revenues for the three and six months ended March 31,June 30, 2019. Although certainfour of these state enterprise contracts have renewal provisions, any renewal is at the option of the Company’s government partner. As described above, if a contract is not renewed after a defined term, the government partner would be entitled to take over the applications in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

The contract under which the Company managed digital government services for the state of Texas expired on August 31, 2018. For the three months ended March 31, 2018 revenues from theThe Texas contract were $17.5 million, which accounted for approximately 20% of the Company's total consolidated revenue for both the three and six months ended March 31,June 30, 2018. For the six months ended June 30, 2018 revenues from the Texas contract were $35.8 million.

During 2018, the Company entered into a purchase agreement to acquire certain prescription drug monitoring software technology assets of a Maryland-based, privately held company, Leap Orbit LLC ("Leap Orbit"). The purchase price consisted of initial cash consideration of approximately $3.6 million and potential additional consideration of approximately $3.5 million if certain conditions under the agreement arewere met. The transaction was accounted for as an asset acquisition, as substantially all of the value related to the prescription drug monitoring software technology acquired. The Company paid the additional consideration of $1.7$3.5 million in the first quarterhalf of 2019, which was included in the cost of the acquired assets in the consolidated balance sheet. The acquired software has an estimated amortization period of three years. The Company currently expects to make a final payment for additional consideration of $1.7 million in the second quarter of 2019.rebranded its prescription drug monitoring platform as RxGov.

The Company has a revolving bank credit facility with Bank of America, N.A. Under the Amended and Restated Credit Agreement ("Credit Agreement"), the credit facility provides $10 million of unsecured financings available to finance working capital, issue letters of credit and finance general corporate purposes. The Credit Agreement also includes an accordion feature that allows the Company to increase the available capacity under the Credit Agreement to $50 million, subject to securing additional commitments from the bank. The Company can obtain letters of credit in an aggregate amount of $5 million, which reduces the maximum amount available for borrowing under the Credit Agreement.

On May 1, 2019, the Company entered into Amendment No. 4 to Amended and Restated Credit Agreement (the “Amendment’), which amendsamended the Credit Agreement, dated as of August 6, 2014, as previously amended, between the Company and Bank of America, N.A..N.A. The Amendment extended the maturity date of the revolving credit facilityCredit Agreement to May 1, 2021, and also increased the purchase price of a permitted acquisition, as well as the aggregate purchase price of all such permitted acquisitions during the term of the Credit Agreement.  Additionally, the Amendment removesremoved the previous two-tier structure on interest rates and providesprovided that the interest rate on any amounts borrowed by the Company under the Credit Agreement will be at what was previously the lower tier, which is (i) an annual rate adjusted daily and benchmarked to LIBOR for a one-month term,LIBOR, plus a margin of 1.15% of face value per annum, or (ii) an annual rate benchmarked to LIBOR with a term equivalent to such borrowing, plus a margin of 1.15% of face value per annum.  The other material terms of the Credit Agreement remain unchanged, including customary representations and warranties, affirmative and negative covenants and events of default.

The Company leases office space and certain equipment under noncancelable operating leases. Leases have terms which range from 1one year to 9nine years, some of which include options to renew the lease. The exercise of lease renewal options isare at the Company’s sole discretion and are included in the lease term when it is reasonably certain the Company will exercise the option based on the basis of economic factors. The weighted average remaining lease term for operating leases as of March 31,June 30, 2019 was 3.83.7 years.

The aggregate future lease payments for operating leases as of March 31,June 30, 2019 and December 31, 2018 which(which is under previous accounting standards,standards), are as follows (in thousands):

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method for all periods presented. The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common stockholders. The Company’s service-based restricted stock awards contain non-forfeitable rights to dividends and are participating securities. Accordingly, service-based restricted stock awards were included in the calculation of earnings per share using the two-class method for all periods presented. Unvested service-based restricted shares totaled 0.7 million for both of the three and six months ended March 31,June 30, 2019 and 2018. Basic earnings per share is calculated by first allocating earnings between common stockholders and participating securities. Earnings attributable to common stockholders are divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to dilutive potential common shares outstanding during the period. The dilutive effect of shares related to the Company’s employee stock purchase plan is determined based on the treasury stock method. The dilutive effect of service-based restricted stock awards is based on the more dilutive of the treasury stock method or the two-class method assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than the participating unvested restricted stock awards. The dilutive effect of performance-based restricted stock awards is based on the treasury stock method.

On May 7,July 29, 2019, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.08 per share, payable to stockholders of record as of June 11,September 6, 2019. The dividend, which is expected to total approximately $5.4 million, will be paid on June 25,September 20, 2019, out of the Company’s available cash.

The Company's effective tax rate was 26.2%21.0% and 24.9%23.4% for the three and six months ended June 30, 2019, respectively, compared to 24.3% and 24.6% three and six months ended June 30, 2018, respectively. The decrease in the Company's effective tax rate for the three months ended March 31,June 30, 2019 and 2018, respectively. Thewas primarily driven by the release of uncertain tax positions as a result of the completion of an IRS examination of the Company's effective tax rate was higher than the applicable2016 consolidated U.S. federal statutory income tax rate of 21.0% primarily because of state income taxesreturn, which resulted in no changes to the Company's previously filed return. The Company remains subject to U.S. federal examination for amended tax returns filed in 2016 and non-deductible expenses. The increase inthe tax years ending after December 31, 2016. For the six months ended June 30, 2019, the effective tax rate was mainly due toimpacted by approximately $2.6 million of executive severance costs forincurred in the three months ended March 31,first quarter of 2019, as previously disclosed, a significant portion of which is not deductible for income tax purposes.

During the threesix months ended March 31,June 30, 2019, the Compensation Committee of the Board of Directors of the Company granted to certain management-level employees and executive officers, service-based restricted stock awards totaling 291,935305,743 shares with a grant-date fair value totaling approximately $5.0$5.2 million. Such restricted stock awards vest beginning one year from the date of grant in annual installments of 25%. In addition, during the first half of 2019, non-employee directors of the Company were granted service-based restricted stock awards totaling 47,560 shares with a grant-date fair value of approximately $0.8 million. Such restricted stock awards vest one year from the date of grant. Restricted stock is valued at the date of grant, based on the closing market price of the Company’s common stock, and expensed using the straight-line method over the requisite service period (generally the vesting period of the award). The Company records forfeitures when they occur.

During the threesix months ended March 31,June 30, 2019, the Compensation Committee of the Board of Directors of the Company granted performance-based restricted stock awards to certain executive officers pursuant to the terms of the Company’s executive compensation program totaling 111,135 shares with a grant-date fair value totaling approximately $1.9 million. This represents the maximum number of shares the executive officers can earn at the end of a three-year performance period ending December 31, 2021. The actual number of shares earned will be based on the Company’s performance related to the following performance criteria over the performance period:

At the end of the three-year period, the executive officers are eligible to receive up to a specified number of shares based uponon the Company’s performance relative to these performance criteria over the performance period. In addition, the executive officers will accrue dividend equivalents for any cash dividends declared during the performance period, payable in the form of additional shares of Company common stock, based uponon the maximum number of shares to be earned by the executive officers for each performance-based restricted stock award. Such hypothetical cash dividend payment shall be divided by the fair value of the Company’s common stock on the dividend payment date to determine the maximum number of notional shares to be awarded. At the end of the three-year performance period and on the date some or all of the shares are paid under the agreement, a pro rata number of notional dividend shares will be converted into an equivalent number of dividend shares paid and granted to the executive officers based uponon the actual number of underlying shares earned during the performance period.

At December 31, 2018, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on February 22, 2016 ended. Based on the Company’s actual financial results from 2016 through 2018,

64,846 of the shares and 4,226 of dividend equivalent shares were earned. The remaining 73,345 shares subject to the awards were forfeited in the first quarter of 2019.

Stock-based compensation cost for performance-based restricted stock awards is measured at the grant date based on the fair value of shares expected to be earned at the end of the performance period and is recognized as expense over the performance period based uponon the probable number of shares expected to vest.

The following table presents stock-based compensation expense included in the Company’s unaudited consolidated statements of income (in thousands):

The state enterpriseState Enterprise segment is the Company’s only reportable segment and generally includes the Company’s subsidiaries operating digital government services on an enterprise-wide basis for state and local governments. The softwareSoftware & servicesServices category primarily includes the Company’s subsidiaries that provide software development and digital government services, other than those provided on an enterprise-wide basis, to federal agencies as well as other state and local governments. Each of the Company’s businesses within the Software & Services category is an operating segment and has been grouped together to form the Software & Services category, as none of the operating segments meets the quantitative threshold of a separately reportable segment. There have been no significant intersegment transactions for the periods reported. The summary of significant accounting policies applies to all operating segments.

The measure of profitability by which management, including the Company’s chief operating decision maker, evaluates the performance of its segments and allocates resources to them is operating income (loss). Segment assets or other segment balance sheet information is not presented to the Company’s chief operating decision maker. Accordingly, the Company has not presented information relating to segment assets.

The table below reflects summarized financial information for the Company’s reportable and operating segments for the three months ended March 31,June 30, (in thousands):

The legacy contract under which the Company managed digital government services for the state of Texas expired on August 31, 2018 and accounted for approximately 20% of the Company's total consolidated revenues for the three and six months ended March 31,June 30, 2018. The Company's state enterprise contract with the state of Colorado accounted for approximately 10% of the Company's total consolidated revenues for the three and six months ended March 31,June 30, 2019. No other government partner accounted for more than 10% of the Company's total consolidated revenues for any period presented.

We are a leading provider of digital government services that help governments use technology to provide a higher level of service to businesses and citizens and increase efficiencies. We accomplish this through two channels: our state enterprise businesses and our software & services businesses.

In our primary state enterprise businesses, we generally enter into contracts primarily with state and local governments to design, build, and operate digital government services on an enterprise-wide basis on their behalf. We typically enter into multi-year contracts and manage operations for each government partner through separate local subsidiaries that operate as decentralized businesses with a high degree of autonomy. The internet-based services that we build, allow businesses and citizens to access government information through multiple digital channels and complete secure transactions. We are typically responsible for funding the up-front development and ongoing operations and maintenance costs of the digital government services. Our unique business model allows us to generate revenues by sharing in the fees collected from digital government transactions. Our government partners benefit because they reduce their financial and technological risks, increase their operational efficiencies, and gain a centralized, customer-focused presence on the internet, while businesses and citizens gain a faster, more convenient, and more cost-effective means to interact with governments.

On behalf of our government partners, we enter into statements of work with various agencies and divisions of the government to provide specific services and to conduct specific transactions. These statements of work preliminarily establish the pricing of

We also provide certain payment processing services to state and local agencies in states where we do not maintain an enterprise-wide contract and to a few private sector entities and will continue to market these services to other entities in the future. In some cases, we enter into contracts to provide consulting, software development and management services to governments in exchange for an agreed-upon fee.

For additional information on our government contracts, refer to Note 3, Government Contracts, in Part I, Item 1 of this Quarterly Report on Form 10-Q. The loss of a contract due to the expiration, termination or failure to renew the contract, if not replaced, could significantly reduce our revenues and profitability. In addition, any changes made to the amount or percentage of fees retained by us, or to the amounts charged for the services offered, could materially affect the profitability of our contracts. 

We classify our revenues into two primary categories based uponon our segments reporting:reporting segments: (1) state enterprise and (2) software & services. Each of these categories are described below:

fixed fee management services revenues are generally recurring while development services revenues are generally non-recurring. Each of these revenue sources are further described below:

The primary categories of operating expenses include: cost of revenues, selling & administrative, enterprise technology & product support, and depreciation & amortization. Each of these categories are described below:

Total revenues for the three and six months ended March 31,June 30, 2019 were $85.2$91.6 million and $176.7 million, respectively, both of which are a 2%1% decrease from the three and six months ended March 31,June 30, 2018. Recurring revenues as a percentage of total revenues for both the three and six months ended March 31,June 30, 2019 waswere 97% compared to 98%96% for the three months ended March 31,June 30, 2018 and 97% for the six months ended June 30, 2018.

In the table below, we have categorized our state enterprise revenues according to the underlying source of revenue, with the corresponding percentage change from the comparative prior year period:

The following table summarizes key financial metrics for state enterprise revenues. For the three and six months ended March 31,June 30, 2019, the results of the legacy Texas contract, the new Texas payment processing contract and the Illinois contract were excluded from the same-state enterprise category asbecause they both did not generate revenues for two full comparable periods.

State enterprise revenues infor the current quarterthree months ended June 30, 2019 decreased 4%, or approximately $3.5$3.7 million, from the comparable prior year quarterperiod largely due to a $17.5an $18.3 million decrease in revenues from the legacy Texas contract, which expired on August 31, 2018. This decrease was partially offset by a 10%, or approximately $6.3$6.9 million, increase in same-state enterprise revenues and a $7.4$8.0 million increase in revenues from the Texas payment processing contract, which commenced on September 1, 2018.

The 10% increase in same-state revenues for the three months ended June 30, 2019 was mainly due to higher revenues in Indiana, New Jersey and Colorado, among other states. Same-state IGS revenues increased 14% for the three months ended June 30, 2019 due, in part, to higher payment processing volumes in Indiana and New Jersey and higher motor vehicle renewals in Colorado, among other services. Same-state DHR revenues grew 4% for the three months ended June 30, 2019 mainly due to higher volumes

The 10% increase in same-state revenues for the six months ended June 30, 2019 was mainly due to higher revenues in Indiana, New Jersey and South Carolina, and Pennsylvania, among other states. Same-state IGS revenues increased 15% infor the threesix months ended March 31,June 30, 2019 driven in part by higher payment processing volumes in Indiana and New Jersey and higher driver's license renewals in South Carolina, among other services. Same-state DHR revenues grew 3% in4% for the threesix months ended March 31,June 30, 2019 mainly due to a prior period price increase in one state and higher volumes across several states. Same-state revenue growth for other services declined 4% primarily due to the timing of projects for development services in certain states.

In the table below, we have categorized our software & services revenues by business, with the corresponding percentage change from the comparative prior year period:

Software & services revenues for the three months ended June 30, 2019 increased 34%47%, or approximately $2.0$2.8 million, over the comparable prior year quarterperiod mainly driven by growth in transactions from our NIC Federal business. This includes our subcontracting relationship with Booz Allen Hamilton on its Recreation.gov contract, which launched on October 1, 2018 and our contract with the FMCSA due to increased demand for the PSP service offering. To a lesser extent, our Other software and services revenue increased due to new RxGov prescription drug monitoring contracts in Maryland and Nebraska.

Software & services revenues for the six months ended June 30, 2019 increased 40% or approximately $4.8 million, over the comparable prior year period driven mainly by growth in transactions from our NIC Federal business. This includes our subcontracting relationship with Booz Allen Hamilton on its Recreation.gov contract, which launched on October 1, 2018 and our contract with the FMCSA due to increased demand for the PSP service offering. To a lesser extent, our Other software and services revenue increased due to new RxGov prescription drug monitoring contracts in Maryland and Nebraska.

In the table below, we have categorized our state enterprise cost of revenues between fixed and variable costs, with the corresponding percentage change from the comparative prior year period:

State enterprise cost of revenues infor the three and six months ended March 31,June 30, 2019 were relatively flat compared to the corresponding comparable prior year period as the increase in same-state costs and costs associated with the new Texas payment processing contract were offset by decreases in costs from the legacy Texas contract. The increase in variable costs was primarily attributable to an increase in credit card interchange fees associated with higher IGS payment processing revenues in Texas, Indiana and New Jersey. The decrease in fixed costs was primarily attributable to lower employee compensation related costs associated with the expiration of the legacy Texas contract on August 31, 2018.

State enterprise gross profit percentage was 37% infor the three and six months ended March 31,June 30, 2019 compared to 40% infor the prior year period.three and six months ended June 30, 2018. The decrease was largely attributable to significantly lower revenues and profit margins from the new Texas payment processing contract compared to the legacy Texas contract. We carefully monitor our state enterprise gross profit percentage to strike a balance between generating a solid return for our stockholders and delivering value to our government partners through ongoing investment in our state enterprise operations (which we believe also benefits our stockholders).

In the table below, we have categorized our software & services cost of revenues between fixed and variable costs, with the corresponding percentage change from the comparative prior year period: