SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

(Exact name of registrant as specified in its charter)

(Address of principal executive offices, including Zip Code)

Form 10-Q for the Quarter Ended ~~September 30, 2019~~March 31, 2020

CONSOLIDATED BALANCE SHEETS

thousands except par value amount

See accompanying notes to unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

thousands except per share ~~amount~~amounts

See accompanying notes to unaudited consolidated financial statements.

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes to unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Recently issued accounting pronouncements

Disaggregation of Revenue


	Three Months Ended March 31, 2020
	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	48,187	$	—	$	—	$	48,187
DHR	22,849		—		—		22,849
Other	—		10,016		5,464		15,480
Total transaction-based	71,036		10,016		5,464		86,516
Development services	2,137		—		—		2,137
Fixed-fee services	1,238		—		1,228		2,466
Total revenues	$	74,411	$	10,016	$	6,692	$	91,119

	Three Months Ended March 31, 2019
	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	42,751	$	—	$	—	$	42,751
DHR	23,685		—		—		23,685
Other	—		9,352		5,534		14,886
Total transaction-based	66,436		9,352		5,534		81,322
Development services	2,179		—		—		2,179
Fixed-fee services	1,238		—		441		1,679
Total revenues	$	69,853	$	9,352	$	5,975	$	85,180

Transaction-based Revenues

Development ~~services~~Services Revenues

Fixed-fee ~~Management~~ Services Revenues

~~Leases~~Trade accounts receivable

~~On the commencement date of a lease, the~~appropriate allowance for estimated uncollectible accounts. The Company ~~recognizes a lease liability and corresponding right of use lease asset~~calculates this allowance based on its history of write-offs, and its relationship with, and the present value of lease payments over the lease term. Lease agreements generally do not provide an implicit rate and therefore the Company's incremental borrowing rate at the commencement date is used to determine the present value of lease payments. Accretion of the discount on the lease liability is calculated under the effective interest method and included in operating lease cost. The right of use asset also includes any initial direct costs and prepaid lease payments and excludes any lease incentives received by the lessor. The right of use asset is amortized over the lease term and is included in operating lease cost. The result is a single operating lease cost recognized on a straight-line basis over the term of the lease.

~~Certain of the Company's leases have both lease and non-lease components. The Company has elected the practical expedient to account for these components as a single lease component for all leases.~~

~~Business combinations~~

3. GOVERNMENT CONTRACTS

State enterprise contracts

Software & services ~~contract~~contracts

Performance Bond Commitments

~~The goodwill was included within the Software & Services category, which is further described in Note 12,~~ ~~and~~ represents future economic benefits that the Company expects to achieve as a result of the acquisition. The acquired capitalized software has an estimated amortization period of five years, the acquired customer relationships have an estimated amortization period of seven years and the non-compete and trade names each have an estimated amortization period of three years. The goodwill and intangible assets associated with this acquisition are deductible for tax purposes.

~~5. GOODWILL AND INTANGIBLE ASSETS, NET~~

September 30, 2019 December 31, 2018

Gross Carrying
Value

Accumulated
Amortization

Net Book
Value

Gross Carrying
Value

Accumulated
Amortization

Net Book
Value
Software development costs $ 28,868
$ (15,431 ) $ 13,437
$ 22,190
$ (11,647 ) $ 10,543
Purchased software 11,241
(2,479 ) 8,762
$ 3,555
$ (494 ) 3,061
Customer relationships 425
(25 ) 400
—
—
—
Non-compete agreements 250
(35 ) 215
—
—
—
Trade name 35
(5 ) 30
—
—
—
Total $ 40,819
$ (17,975 ) $ 22,844
$ 25,745
$ (12,141 ) $ 13,604

~~6. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS~~

~~(1) The September 30, 2019 column excludes previously made lease payments during the nine months ended September 30, 2019.~~

Operating lease cost⁽¹⁾

Right of use assets obtained in exchange for new lease liabilities ⁽²⁾

~~(1) Includes short-term and variable lease costs, which are not significant.~~

~~(2) Includes $12.6 million for operating leases existing on January 1, 2019 and $2.4 million for operating leases that commenced in the nine months ended September 30, 2019.~~

8.4. EARNINGS PER SHARE


	Three Months Ended March 31,
	2020		2019
Numerator:
Net income	$	11,863	$	11,502
Less: Income allocated to participating securities	(129)		(127)
Net income available to common stockholders	$	11,734	$	11,375
Denominator:
Weighted average shares - basic	66,987		66,670
Performance-based restricted stock awards	—		—
Weighted average shares - diluted	66,987		66,670

Basic net income per share:	$	0.18	$	0.17

Diluted net income per share:	$	0.18	$	0.17

5. STOCKHOLDERS’ EQUITY

The Company's Board of Directors declared and paid the following dividends (payment amount in millions):

Declaration Date

Dividend per Share

Record Date

Payment Date

Payment Amount

January 27, 2020

$0.09

March 4, 2020

March 18, 2020

$6.1

January 28, 2019

$0.08

March 5, 2019

March 19, 2019

$5.4

The Company's effective tax rate for the three and nine months ended September 30, 2018 differed from the federal statutory rate due to the release of uncertain tax benefits due to the expiration of the statute of limitations for certain tax years in

7. STOCK BASED COMPENSATION

~~11. STOCK BASED COMPENSATION~~

•Operating income growth (three-year compound annual growth rate); and

•Total consolidated revenue growth (three-year compound annual growth rate).

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
State enterprise cost of revenues, exclusive of depreciation & amortization $ 370
$ 361
$ 1,127
$ 1,166
Software & services cost of revenues, exclusive of depreciation & amortization 19
36
75
112
Selling & administrative 951
1,324
3,523
3,183
Enterprise technology & product support 184
156
502
504
Stock-based compensation expense $ 1,524
$ 1,877
$ 5,227
$ 4,965


	Three Months Ended March 31,
	2020		2019
State enterprise cost of revenues, exclusive of depreciation & amortization	$	358	$	361
Software & services cost of revenues, exclusive of depreciation & amortization	28		35
Selling & administrative	768		1,716
Enterprise technology & product support	165		160
Total stock-based compensation expense	$	1,319	$	2,272

8. REPORTABLE SEGMENT AND RELATED INFORMATION

State Enterprise
Software
& Services
Other Reconciling Items
Consolidated
Total
2019
Revenues $ 241,169
$ 25,963
$ —
$ 267,132
Costs & expenses 151,340
9,635
46,406
207,381
Depreciation & amortization 2,005
2,211
4,859
9,075
Operating income (loss) $ 87,824
$ 14,117
$ (51,265 ) $ 50,676

2018
Revenues $ 248,230
$ 18,021
$ —
$ 266,251
Costs & expenses 148,577
6,689
41,844
197,110
Depreciation & amortization 2,490
78
4,083
6,651
Operating income (loss) $ 97,163
$ 11,254
$ (45,927 ) $ 62,490

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with our Unaudited Consolidated Financial Statements and the related Notes included in this Quarterly Report on Form 10-Q.

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q regarding NIC Inc. and its subsidiaries (referred to herein as “the Company”, “NIC”, “we”, “our” or “us”) and its business, which are not current or historical facts, are “forward-looking statements” that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements of plans and objectives, statements of future economic performance or financial projections, statements regarding the planned implementation of new contracts and new projects under existing contracts, the expected length of contract terms, statements relating to our business plans, objectives and expected operating results, statements relating to our expected effective tax rate, statements relating to possible future dividends and share repurchases, statements regarding the expected effects of changes in accounting standards, statements of assumptions underlying such statements, statements related to the ongoing impact of the COVID-19 pandemic and statements of our intentions, hopes, beliefs, expectations, or predictions of the future. For example, statements like we “expect,” we “believe,” we “plan,” we “intend,” or we “anticipate” are forward-looking statements. Investors should be aware that our actual operating results and financial performance may differ materially from our expressed expectations because of risks and uncertainties about the future including those risks discussed in this Quarterly Report on Form 10-Q and in our ~~2018~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February ~~21, 2019.~~20, 2020.

There are a number of important factors that could cause actual results to differ materially from those suggested or indicated by such forward-looking statements. These include, among others, our success in renewing existing contracts and in signing contracts with new states and with federal and state government agencies; our ability to successfully increase the adoption and use of digital government services; the possibility of security breaches or disruptions through cyber-attacks or other events and any resulting liability; our ability to implement new contracts and any related technology enhancements in a timely and cost-effective manner; the possibility of reductions in fees or revenues as a result of budget deficits, government shutdowns, or changes in government policy; continued favorable government legislation; acceptance of digital government services by businesses and citizens; our ability to identify and acquire suitable acquisition candidates and to successfully integrate any acquired businesses; competition; general economic conditions; the impact of the COVID-19 pandemic as discussed under “RISK FACTORS” in Part II, Item IA of this Quarterly Report on Form 10-Q, and the other factors ~~discussed~~ under “RISK FACTORS” in Part I, Item 1A and “Cautions About Forward Looking Statements" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of NIC’s ~~2018~~2019 Annual Report on Form 10-K filed on February ~~21, 2019~~20, 2020 with the SEC. Investors should read all of these discussions of risks carefully.

All forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. Except as may be required by applicable law, we will not update the information in this Quarterly Report on Form 10-Q if any forward-looking statement later turns out to be inaccurate. Investors are cautioned not to put undue reliance on any forward-looking statement.

OVERVIEW OF OUR BUSINESS MODEL

In fiscal year 2019, businesses and citizens completed over $22 billion in secure transactions and payments through the digital services we operate on behalf of our government partners in our state enterprise and software & services businesses.

IGS: fees from a wide variety of interactive government services, other than digital access to motor vehicle driver history records, for transactions conducted by business users and consumers. For a representative listing of the IGS applications we currently offer through our state enterprise businesses in conjunction with our government partners, refer to Part I, Item 1 in our ~~2018~~2019 Annual Report on Form 10-K, filed with the SEC on February ~~21, 2019.~~20, 2020.

DHR: fees from ~~driver history records for~~ providing data resellers, insurance companies, and other pre-authorized customers digital access to state motor vehicle driver history records on behalf of our state partners.

•Development Services: revenues from the performance of software development projects and other time and materials services for our government partners. While we actively market these services, they do not have the same degree of predictability as our transaction-based or fixed-fee services.

•Fixed-Fee Services: our state enterprise business in Indiana earns fixed fees from the performance of digital government services for numerous government agencies.

•Payments: primarily transaction-based fees from contracts with state and local governments for payment processing-related, transaction-based services that are not part of an enterprise-wide state contract. The majority of revenues from these sources are recurring.

•~~NIC~~ Federal: primarily transaction-based, fees from contracts with certain Federal agencies in the United States, including the Department of Transportation's Federal Motor Carrier Safety Administration ("FMCSA") to manage the Pre-Employment Screening Program ("PSP") and transaction-based revenues we earn as a subcontractor to Booz Allen Hamilton on its Recreation.gov contract. The majority of our Federal revenues are generally recurring under the respective contracts.

•Other: primarily implementation and SaaS subscription revenues from our RxGov prescription drug monitoring business and our recently acquired NIC Licensing Solutions regulatory licensing business. The majority of revenues from these sources are recurring.

•Fixed costs include costs such as employee compensation and benefits (including stock-based compensation), subcontractor labor costs, telecommunications costs, provision for losses on accounts receivable, and all other costs associated with the provision of dedicated client service such as dedicated office facilities.

•Variable costs fluctuate with the level of revenues and primarily include interchange fees required to process credit/debit card transactions, bank fees to process automated clearinghouse transactions and, to a much lesser extent, costs associated with revenue share arrangements with certain state partners. A significant percentage of our transaction-based revenues are generated from online applications whereby users pay for information or transactions via credit/debit cards. We typically earn a portion of the credit/debit card transaction amount, but also must pay an associated interchange fee to the financial institution that processes the credit/debit card transaction. We earn a lower incremental gross profit percentage on these transactions as compared to our DHR and other IGS transactions. However, we plan to continue to implement these services because they are needed by our government partners and they contribute favorably to our operating income and cash flow growth.

NOVEL CORONAVIRUS DISEASE 19 ("COVID-19")

RESULTS OF OPERATIONS


	Three Months Ended March 31,
(dollar amounts in thousands)	2020			2019			Change		% Change
State enterprise revenues	$	74,411		$	69,853		$	4,558	7%
Software & services revenues	16,708			15,327			1,381		9%
Total	$	91,119		$	85,180		$	5,939	7%

Recurring revenues as % of total revenues	98		%	97		%

Three Months Ended September 30, Nine Months Ended September 30,
(dollar amounts in thousands) 2019 2018 Change % Change 2019 2018 Change % Change
State Enterprise Revenues $ 81,084
$ 80,884
$ 200
—% $ 241,169
$ 248,230
$ (7,061 ) (3)%
Software & Services
Revenues
9,301
6,144
3,157
51% 25,963
18,021
7,942
44%
Total $ 90,385
$ 87,028
$ 3,357
4% $ 267,132
$ 266,251
$ 881
—%

Recurring revenues as %
of total revenues
97 % 97 % 97 % 97 %

State Enterprise Revenues

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:


	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
(dollar amounts in thousands)	2019		2018		Change			% Change	2019		2018		Change			% Change	(dollar amounts in thousands)	2020		2019		Change		% Change
IGS transaction-based	$	54,308	$	51,085	$	3,223		6%	$	160,015	$	156,463	$	3,552		2%	IGS transaction-based	$	48,187	$	42,751	$	5,436	13%
DHR transaction-based	23,076		25,555		(2,479		)	(10)%	70,158		79,439		(9,281		)	(12)%	DHR transaction-based	22,849		23,685		(836)		(4)%
Development services	2,462		3,006		(544		)	(18)%	7,283		8,615		(1,332		)	(15)%	Development services	2,137		2,179		(42)		(2)%
Fixed fee management services	1,238		1,238		—			—%	3,713		3,713		—			—%
Fixed-fee services																	Fixed-fee services	1,238		1,238		—		—%
Total	$	81,084	$	80,884	$	200		—%	$	241,169	$	248,230	$	(7,061	)	(3)%	Total	$	74,411	$	69,853	$	4,558	7%

* Represents the combined growth of development services and ~~fixed fee management~~fixed-fee services revenues.

Software & Services Revenues


	Three Months Ended March 31,
(dollar amounts in thousands)	2020		2019		Change		% Change
Payments	$	10,016	$	9,352	$	664	7%
Federal	5,464		5,534		(70)		(1)%
Other	1,228		441		787		178%
Total	$	16,708	$	15,327	$	1,381	9%

State Enterprise Cost of Revenues


	Three Months Ended March 31,
(dollar amounts in thousands)	2020		2019		Change		% Change
Fixed costs	$	25,591	$	23,987	$	1,604	7%
Variable costs	20,680		17,991		2,689		15%
Total	$	46,271	$	41,978	$	4,293	10%

Software & Services Cost of Revenues


	Three Months Ended March 31,
(dollar amounts in thousands)	2020		2019		Change		% Change
Fixed costs	$	3,248	$	2,653	$	595	22%
Variable costs	7,476		6,744		732		11%
Total	$	10,724	$	9,397	$	1,327	14%

Selling & Administrative

Enterprise Technology & Product Support

Depreciation & Amortization


	Three Months Ended March 31,
(dollar amounts in thousands)	2020		2019		Change		% Change
Depreciation	$	1,001	$	1,025	$	(24)	(2)%
Amortization	2,481		1,396		1,085		78%
Depreciation & amortization	$	3,482	$	2,421	$	1,061	44%

Our effective tax rate was approximately 22.4% and 23.0% for the three and nine months ended September 30, 2019, respectively, compared to 18.9% and 22.8% for the three and nine months ended September 30, 2018. The effective tax rate for the three and nine months ended September 30, 2019 was lower than our customary effective rate as a result of the release of reserves to our liability for unrecognized tax benefits due to the expiration of statutes of limitations for certain tax years. The effective tax rate24.5% for the three months ended ~~September 30, 2019 also reflects a decrease in the previously estimated research and development tax credit~~March 31, 2020 compared to 26.2% for ~~the 2018 and 2019 tax years upon filing our 2018 federal tax return during the current quarter. For the nine~~three months ended ~~September 30, 2019, the~~March 31, 2019. The higher effective tax rate in the prior year period was ~~also impacted~~primarily driven by the release of uncertain tax benefits from the completion of an IRS tax examination of our 2016 consolidated U.S. federal income tax return, which resulted in no changes to our previously filed return. We remain subject to U.S. federal examination for amended tax returns filed in 2016 and the tax years ending after December 31, 2016. For the nine months ended September 30, 2019, the effective tax rate was also impacted by approximately $2.6 million of executive severance costs, ~~incurred in the first quarter of 2019,~~ as ~~previously disclosed,~~further discussed above, a significant portion of which iswere not deductible for income tax purposes.

The effective tax rate for the three and nine months ended September 30, 2018 was lower than our customary effective rate primarily driven by the release of reserves to our liability for unrecognized income tax benefits due to the expiration of the statute of limitations for certain tax years and, to a lesser extent, an increase in the previously estimated research and development tax credit for the 2017 and 2018 tax years upon filing our 2017 federal tax return during the prior year quarter. See Note 10, Income Taxes, in the Notes to Unaudited Consolidated Financial Statements.

Liquidity and Capital Resources

Operating Activities

Cash flows provided by operating activities were ~~$58.7~~$16.9 million infor the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$49.6~~$1.1 million infor the first ~~nine months~~quarter of ~~2018.~~2019. The increase was mainly the result of fluctuations in working capital mainly associated with the timing of payments to and receipts from our government ~~partners, partially offset by a decrease in net income.~~partners.

Investing Activities

Cash flows used in investing activities were ~~$23.6~~$3.3 million infor the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$13.3~~$5.6 million infor the first ~~nine months~~quarter of ~~2018.~~2019. The ~~increase~~decrease was primarily due to cash paid to acquire ~~Complia~~software technology in the Leap Orbit asset acquisition in the prior year totaling approximately ~~$10.0 million and an increase in capitalized software development costs of $0.9~~$1.7 million.

Financing Activities

Cash flows used in financing activities were ~~$17.5~~$10.4 million for the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$16.0~~$6.6 million for the first ~~nine months~~quarter of ~~2018.~~2019. The increase in the first quarter of 2020 was primarily due to ~~a $1.5~~the repurchase of our shares totaling $3.9 million and an increase in our quarterly dividend payment of $0.7 million. Additionally, we paid $1.9 million in 2020 in tax withholdings related to the vesting of employee stock-based compensation ~~awards.~~awards compared to $2.6 million in 2019.

Liquidity

We recognize revenues primarily from providing outsourced digital government services at the contractual net fee earned for each transaction. In these arrangements, we are acting as an agent and the gross transaction fees collected by us from consumers on behalf of our government partners are not recognized as revenue but are accrued as accounts payable when the services are provided at the time of the transactions. We must remit a certain amount or percentage of these fees to government agencies regardless of whether we ultimately collect the fees from the consumer. As a result, trade accounts receivable and accounts payable reflect the gross amounts outstanding at the balance sheet dates. We typically collect most of our accounts receivable prior to remitting amounts payable to our government partners.

We believe our working capital and current ratio are important measures of our short-term liquidity. Working capital, defined as current assets minus current liabilities, was ~~$206.0~~$216.0 million at ~~September 30, 2019,~~March 31, 2020, compared to ~~$197.2~~$212.1 million at December 31, ~~2018.~~2019. The increase in our working capital was primarily due to cash generated from operations in the ~~period, partially offset by cash used for the Complia acquisition and Leap Orbit asset acquisition.~~period. Our current ratio, defined as current assets divided by current liabilities, was ~~2.7~~2.8 and ~~3.2~~3.1 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

At ~~September 30, 2019,~~March 31, 2020, our cash balance was ~~$209.3~~$217.6 million compared to ~~$191.7~~$214.4 million at December 31, ~~2018.~~2019. We believe that our currently available liquid resources and cash generated from operations will be sufficient to meet our operating requirements, capital expenditure requirements and potential dividend payments for at least the next 12 months without the need for additional capital. We have a $10.0 million unsecured revolving credit facility (the “Credit Agreement”) with a bank that is available to finance working capital, issue letters of credit and finance general corporate purposes. The Credit Agreement also includes an accordion feature that will allow us to increase the available capacity under the Credit Agreement to $50 million, subject to securing additional commitments from the bank. We can obtain letters of credit in an aggregate amount of $5.0 million,, which reduces the maximum amount available for borrowing under the Credit Agreement. In total, we had $4.8 million in available capacity to issue additional letters of credit and $9.8 million of unused borrowing capacity at ~~September 30, 2019~~March 31, 2020 under the Credit Agreement. We were in compliance with all of our covenants under the Credit Agreement at September 30, 2019. As further discussed in Note 6 of the Notes to Unaudited Consolidated Financial Statements on this Form 10-Q, on May 1, 2019, we entered into an amendment to our Credit Agreement that, among other things, amended and extended our Credit Agreement from May 1, 2019 to May 1, 2021.March 31, 2020.

At ~~September 30, 2019,~~March 31, 2020, we were bound by performance bond commitments totaling approximately ~~$10.9~~$25.2 million on certain government ~~contracts.~~contracts and other business relationships.

We currently expect our capital expenditures to range from approximately ~~$4.5~~$6.0 million to ~~$5.5~~$7.0 million in fiscal year ~~2019,~~2020, which we intend to fund from our cash flows from operations and existing cash reserves. This estimate includes capital expenditures for normal fixed asset additions in our state enterprise businesses including equipment upgrades and enhancements, and in our centralized hosting environment to support and enhance corporate-wide information technology and security infrastructure, including Web servers, software licenses, and office equipment. We currently expect our capitalized internal-use software development costs to range from approximately ~~$8.0~~$9.0 million to ~~$9.0~~$10.0 million in fiscal year ~~2019.~~2020. This estimate includes costs

related to the enhancement of centralized customer management, billing and payment processing

solutions that support our business operations and accounting systems in addition to our citizen-centric Gov2Go enterprise platform, enterprise microservices platform and enterprise licensing and permitting platform.

~~Acquisitions~~

On May 1, 2019, we completed the stock acquisition of Complia, a regulatory licensing platform business. Under the terms of the purchase agreement, the selling shareholders received purchase consideration of $10 million in cash and are eligible to receive additional consideration of up to $5 million. See Note 4, Acquisitions, in the Notes to Unaudited Consolidated Financial Statements.

Dividends

We paid dividends of ~~$0.24~~$0.09 and $0.08 per common share ~~($0.08 per quarter)~~ during the first ~~nine months~~quarter of 2020 and 2019, ~~and 2018. The total cash dividends paid for both the three months ended September 30, 2019 and 2018 were $5.4 million.~~respectively. The total cash dividends paid during the first ~~nine months~~quarter of 2020 and 2019 ~~and 2018~~ were ~~$16.2~~$6.1 million and ~~$16.1~~$5.4 million, respectively.

On ~~October 28, 2019,~~April 23, 2020, our Board of Directors declared a regular quarterly cash dividend of ~~$0.08~~$0.09 per share, payable to stockholders of record as of ~~December 4, 2019.~~June 11, 2020. The dividend, which is expected to total approximately ~~$5.4~~$6.1 million, will be paid on ~~December 18, 2019,~~June 25, 2020, out of our available cash.

Share Repurchase

In March 2018, the Company announced that its Board of Directors authorized a stock repurchase program allowing us to repurchase up to $25 million of common stock. During the three months ended March 31, 2020, we purchased an aggregate of 241,180 shares under the repurchase program at a weighted average purchase price of $16.33 for a total value of $3.9 million. The remaining $21.1 million of value authorized under the repurchase program remains available for share repurchases.

Future Financing

We may need to raise additional capital within the next 12 months to further:

•fund operations if unforeseen shortfalls in revenues or higher costs arise;

•support our expansion into other federal, state and local government agencies beyond what is contemplated if unforeseen opportunities arise;

•expand our product and service offerings beyond what is contemplated if unforeseen opportunities arise;

•fund acquisitions;

•respond to unforeseen competitive pressures; and

•acquire technologies beyond what is contemplated.

Any projections of future earnings and cash flows are subject to substantial uncertainty. If our cash generated from operations and the unused portion of our line of credit are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or issue debt securities. If we need to obtain new debt or equity financing in the future, the terms and availability of such financing may be impacted by economic and financial market conditions, as well as our financial condition and results of operations at the time we seek additional financing. The sale of additional equity securities could result in dilution to our stockholders. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

Off-Balance Sheet Arrangements and Contractual Obligations

We had unused outstanding letters of credit totaling approximately $0.2 million at ~~September 30, 2019.~~March 31, 2020.

As of ~~September 30, 2019,~~March 31, 2020, there have been no material changes outside the ordinary course of business from the disclosures relating to contractual obligations contained under “Off-Balance Sheet Arrangements and Contractual Obligations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~21, 2019.~~20, 2020. While we have significant operating lease commitments for office space, those commitments are generally tied to the period of performance under related contracts, except for our headquarters. We have income tax uncertainties of approximately ~~$6.1~~$5.1 million at ~~September 30, 2019.~~March 31, 2020. These obligations are classified as non-current on our consolidated balance sheet, as resolution is expected to take more than a year. We estimate that these matters could be resolved in one to three years. However, the ultimate timing of resolution is uncertain.

CRITICAL ACCOUNTING POLICIES

We have updated our accounting policies related to leases in conjunction with the adoption of ASC 842 as well as for business combinations in conjunction with our recent acquisition as further described in Note 2 in the Notes to Unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no ~~other~~ material changes in our critical accounting policies from the information provided under “Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~21, 2019.~~20, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk.

Our results of operations are exposed to financial market risks due primarily to changes in interest rates on our interest-bearing cash accounts. We currently have no principal amounts of indebtedness outstanding under our line of ~~credit, the terms of which are discussed in Note 6 to Unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~credit.

Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. Based on our cash balances as of ~~September 30, 2019,~~March 31, 2020, a one percent change in interest rates would not have a significant impact on our cash flows or results of operations.

We do not use derivative financial instruments.

ITEM 4. CONTROLS AND PROCEDURES

a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that material information required to be disclosed in its filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting that occurred during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in litigation arising from the operation of our business that is considered routine and incidental to our business. We do not believe the results of such litigation will have a material adverse effect on our business, results of operations, financial condition or cash flow.

ITEM 1A. RISK FACTORS

~~There~~Except as otherwise described herein, there were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018, filed~~2019.

The continued spread of novel coronavirus disease 19 (“COVID-19"), or any similar widespread infectious disease outbreak, could harm our operations.

In January 2020, the World Health Organization (“WHO”) declared COVID-19 a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. An outbreak and spread of COVID-19, or any similar widespread infectious disease outbreak, could harm our operations in a variety of ways, which may include the following, without limitation:

•While historically our revenues and earnings have been relatively predictable as a result of our recurring transaction-based business model, we anticipate the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

•As the COVID-19 pandemic progresses in the United States and negatively affects business and citizen consumers who use the digital services we operate on behalf of our government partners, we have experienced a decrease in volumes for certain services. If certain of our high volume, commercially valuable services we operate on behalf of our government partners experience a further decrease in volumes, such as the driver history record service we operate in the vast majority of our enterprise states and the federal Pre-Employment Screening Program we operate on behalf of the Department of Transportation Federal Motor Carrier Safety Administration, our revenues and profits could decline.

•Several government agency partners are allowing citizens 60 to 90 day extensions for certain required filings and renewals. The actions have impacted the amount and timing of the revenues we recognize for these services, and we expect these trends to continue for at least the next several months.If our government partners were to reduce fees for digital services to its citizens, or allow for citizens to further defer the payment for licenses, permits or registrations, it may reduce or defer the portion of fees we earn for providing digital government services.

•We generate a portion of our revenue from in-person transactions at brick-and-mortar government agency offices (over-the-counter or “OTC”), many of which are currently closed.To the extent the locations where these OTC transactions take place remain closed, we would not be able to be able to execute transactions in this way.There can be no assurance that a decrease in OTC transactions would result in a proportional increase in online digital transactions for the same service, and thus our revenues and profits could decline.

•To the extent that transactions from digital sources increase as fewer citizens and businesses chose in-person transactions, it may strain our technological resources, which may require us to make additional IT infrastructure and bandwidth investments, which may require substantial financial resources and require significant management attention.

•The closing of local, state or national parks and recreation areas has reduced the fees we earn for providing digital reservations, permits, park entrance fees or other authorizations for park or recreation experiences. To the extent local, state or national parks and recreation areas remain closed or the threat of COVID-19 reduces demand for future travel, the fees we earn on such digital reservations, permits, park entrance fees and other authorizations may continue to decline.

•In response to COVID-19 concerns, we have imposed strict travel restrictions, temporarily closed all our offices and shifted to remote operations to ensure social distancing and the health and safety of our employees which may have negative impacts on our business development efforts. Most of our government partners and potential government partners have implemented similar measures, which may limit our ability to provide or sell our services to them. Our government partners may also delay or cancel purchasing decisions or projects in light of uncertainties arising from the COVID-19 outbreak.

•Remote work-from-home restrictions makes us more dependent on certain technologies that allow us to operate our business remotely and collaborate without face-to-face meetings both internally and with our customers. To the ~~SEC~~extent we may experience a technological disruption in our work-from-home capabilities, we would anticipate a negative impact on ~~February 21, 2019.~~our business operations. Further, to the extent supply chains are disrupted, it may become more difficult to provide necessary technology to our employees working from remote locations.

•If one of our key employees or executive officers were to contract an infectious disease that impacted their ability to work for an extended period, even with an adequate succession plan, it could harm our business until that employee or executive officer recovers or until a permanent replacement is found. Hiring and training new employees may require substantial resources and management attention, particularly in a remote workforce situation. Further, because we are self-insured for healthcare, the medical costs associated with treating our employees that contract an infectious disease such as COVID-19 could be significant.

•To the extent a widespread infectious disease outbreak such as COVID-19 impacts the economic conditions in the United States, our partners could have less funding for digital government services, which may reduce the revenues we recognize for those services.

•COVID-19 has negatively affected the economic conditions in the United States and resulted in the Federal Reserve lowering interest rates to near zero, which has reduced the interest income we earn on our investable cash and increased the amount of fees we pay for commercial banking services. Any reduction in the earnings credit rate set by our commercial banking partners, which a bank calculates on non-interest bearing customer deposits and uses to offset service charges, could further increase fees we pay for commercial banking services.

•The stock market has been unusually volatile during the COVID-19 outbreak and such volatility may continue, which may negatively affect our stock price.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, whether the virus recurs seasonally, and the impact of these and other factors on our employees, government partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

During the ~~third~~first quarter of ~~2019,~~2020, we repurchased and canceled 241,180 shares at an aggregate cost of approximately $3.9 million pursuant to our previously announced stock buyback program and acquired and ~~cancelled~~canceled shares of common stock surrendered by employees to pay income taxes due upon the vesting of restricted stock as follows:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1)
January 1 - January 31, 2020	7,606	(2)	$	22.06	-	$	25,000
February 1 - February 29, 2020	83,376	(2)	20.33		-	25,000
March 1 - March 31, 2020	241,180		16.33		241,180	21,062
Total	332,162		17.47		241,180

Period Total Number of Shares Purchased
Average Price
Paid Per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs (1)
July 17, 2019 775
$ 17.04
N/A N/A
July 19, 2019 1,323
17.01
N/A N/A
July 30, 2019 449
18.34
N/A N/A
July 31, 2019 289
18.14
N/A N/A
Total 2,836
17.34

(1) In March 2018, we announced that our Board of Directors had authorized a stock buyback program allowing the Company to repurchase up to $25 million of our common stock. Share repurchases may be made in the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements and may be made under a Rule 10b5-1 plan. ~~No purchases have been made under this program.~~

(2) Shares of common stock surrendered by employees to the Company to pay income taxes due upon the vesting of restricted stock. The Company canceled these shares.

ITEM 5. OTHER INFORMATION

We are providing the following disclosure in lieu of providing this information in a current report on Form 8-K pursuant to Item 5.07, “Submission of Matters to a Vote of Security Holders.”

At the 2020 Annual Meeting of Stockholders of the Company held on April 27, 2020, stockholders of the Company voted on three proposals and cast their votes as described below. The proposals are described in the Company’s definitive proxy statement filed with the SEC on March 12, 2020.

Proposal 1

The following directors were elected to serve until the 2020 Annual Meeting of Stockholders and until their successors are elected and qualified, as set forth below:


Name	For	Withheld	Broker Non-Votes
Harry H. Herington	54,784,068	1,963,233	5,610,119
Art N. Burtscher	55,516,086	1,231,215	5,610,119
Venmal (Raji) Arasu	53,998,206	2,749,095	5,610,119
C. Brad Henry	53,847,314	2,899,987	5,610,119
Alexander C. Kemper	55,711,251	1,036,050	5,610,119
William M. Lyons	52,605,041	4,142,260	5,610,119
Antony Scott	54,002,531	2,744,770	5,610,119
Jayaprakash Vijayan	56,431,956	315,345	5,610,119
Pete Wilson	53,385,147	3,362,154	5,610,119

Proposal 2

Company stockholders approved, on an advisory basis, the compensation of the Company’s named executive officers as set forth in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders, as set forth below:


For	Against	Abstentions	Broker Non-Votes
54,773,610	1,887,726	85,965	5,610,119

Proposal 3

Company stockholders ratified the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020, as set forth below:


For	Against	Abstentions	Broker Non-Votes
62,088,005	248,092	21,323	—

ITEM 6. EXHIBITS



31.1*			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**			Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

101			The following financial information from NIC’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in iXBRL (Inline Xtensible Business Reporting Language) includes (i) Consolidated Balance Sheets at ~~September 30, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iv) Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and (v) the Notes to Unaudited Consolidated Financial Statements (submitted electronically herewith).

104			The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in iXBRL (included as Exhibit 101).

* Filed herewith.

** Pursuant to Item 601(b)(32) of Regulation S-K, this Exhibit is furnished rather than filed with this Quarterly Report on Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		NIC INC.

Dated:	~~October 30, 2019~~April 28, 2020	/s/ Stephen M. Kovzan
		Stephen M. Kovzan
		Chief Financial Officer



Delaware			52-2077581
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	EGOV	The Nasdaq Stock Market, LLC


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
ASSETS	ASSETS					ASSETS
Current assets:						Current assets:
Cash		$	209,277	$	191,700	Cash	$	217,587	$	214,380
Trade accounts receivable, net		106,081		80,904		Trade accounts receivable, net	101,814		85,399
Prepaid expenses & other current assets		12,972		13,730		Prepaid expenses & other current assets	18,375		12,944
Total current assets		328,330		286,334		Total current assets	337,776		312,723
Property and equipment, net		10,506		10,256		Property and equipment, net	10,150		10,091
Right of use lease assets, net		11,667		—		Right of use lease assets, net	9,901		10,778
Intangible assets, net		22,844		13,604		Intangible assets, net	22,109		22,398
Goodwill		5,965		—		Goodwill	5,965		5,965

Other assets		355		332		Other assets	794		404
Total assets		$	379,667	$	310,526	Total assets	$	386,695	$	362,359

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:						Current liabilities:
Accounts payable		$	84,792	$	60,092	Accounts payable	$	88,056	$	63,685
Accrued expenses		25,706		24,150		Accrued expenses	21,118		25,940
Lease liabilities		3,996		—		Lease liabilities	3,642		3,776
Other current liabilities		7,856		4,883		Other current liabilities	8,951		7,191
Total current liabilities		122,350		89,125		Total current liabilities	121,767		100,592

Deferred income taxes, net		2,245		781		Deferred income taxes, net	3,183		2,463
Lease liabilities		8,062		—		Lease liabilities	6,607		7,373
Other long-term liabilities		7,099		8,931		Other long-term liabilities	6,094		6,003
Total liabilities		139,756		98,837		Total liabilities	137,651		116,431

Commitments and contingencies (Notes 2, 3, 4 and 6)		—		—
Commitments and contingencies (Notes 2, 3 and 6)						Commitments and contingencies (Notes 2, 3 and 6)	—		—

Stockholders' equity:						Stockholders' equity:
Common stock, $0.0001 par, 200,000 shares authorized, 66,961 and 66,569 shares issued and outstanding		7		7
Common stock, $0.0001 par, 200,000 shares authorized, 66,968 and 66,968 shares issued and outstanding						Common stock, $0.0001 par, 200,000 shares authorized, 66,968 and 66,968 shares issued and outstanding	7		7
Additional paid-in capital		121,706		117,763		Additional paid-in capital	123,683		123,208
Retained earnings		118,198		93,919		Retained earnings	125,354		122,713
Total stockholders' equity		239,911		211,689		Total stockholders' equity	249,044		245,928
Total liabilities and stockholders' equity		$	379,667	$	310,526	Total liabilities and stockholders' equity	$	386,695	$	362,359


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	40,473		$	48,422		Net income	$	11,863	$	11,502
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization	9,075			6,651			Depreciation & amortization	3,482		2,421
Stock-based compensation expense	5,227			4,965			Stock-based compensation expense	1,319		2,272
Deferred income taxes	1,464			1,043			Deferred income taxes	603		1,076
Provision for losses on accounts receivable	409			350
Provision (recoveries) for losses on accounts receivable							Provision (recoveries) for losses on accounts receivable	347		(186)

Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Trade accounts receivable, net	(25,135		)	4,688			Trade accounts receivable, net	(16,306)		(32,464)
Prepaid expenses & other current assets	761			(1,018		)	Prepaid expenses & other current assets	(5,431)		(1,205)
Other assets	3,333			226			Other assets	697		1,069
Accounts payable	24,700			(12,983		)	Accounts payable	24,371		20,008
Accrued expenses	1,554			(3,032		)	Accrued expenses	(4,822)		(3,183)
Other current liabilities	2,052			92			Other current liabilities	1,416		422
Other long-term liabilities	(5,211		)	151			Other long-term liabilities	(675)		(664)
Net cash provided by operating activities	58,702			49,555			Net cash provided by operating activities	16,864		1,068

Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property and equipment	(3,483		)	(4,000		)	Purchases of property and equipment	(1,060)		(1,484)
Business combination	(10,000		)	—

Asset acquisition	(3,486		)	(3,555		)	Asset acquisition	—		(1,743)
Capitalized software development costs	(6,679		)	(5,783		)	Capitalized software development costs	(2,192)		(2,417)
Net cash used in investing activities	(23,648		)	(13,338		)	Net cash used in investing activities	(3,252)		(5,644)

Cash flows from financing activities:							Cash flows from financing activities:
Cash dividends on common stock	(16,234		)	(16,138		)	Cash dividends on common stock	(6,105)		(5,402)
Proceeds from employee common stock purchases	1,443			1,382			Proceeds from employee common stock purchases	1,509		1,443
Tax withholdings related to stock-based compensation awards	(2,686		)	(1,209		)
Shares surrendered upon vesting of restricted stock to satisfy tax withholdings							Shares surrendered upon vesting of restricted stock to satisfy tax withholdings	(1,865)		(2,609)
Repurchase of shares							Repurchase of shares	(3,944)		—
Net cash used in financing activities	(17,477		)	(15,965		)	Net cash used in financing activities	(10,405)		(6,568)

Net increase in cash	17,577			20,252
Net increase (decrease) in cash							Net increase (decrease) in cash	3,207		(11,144)
Cash, beginning of period	191,700			160,777			Cash, beginning of period	214,380		191,700
Cash, end of period	$	209,277		$	181,029		Cash, end of period	$	217,587	$	180,556

Other cash flow information:							Other cash flow information:
Non-cash investing activities:
Contingent consideration - business combination	$	960		$	—

Cash payments:							Cash payments:
Income taxes paid, net	$	12,283		$	13,206		Income taxes paid, net	$	4,391	$	3,637



	As of May 1, 2019
Current assets	$	451
Software	4,200
Customer relationships	425
Non-compete agreements	250
Trade name	35
Goodwill	5,965
Other assets	11
Total assets acquired	11,337

Accrued expenses and other liabilities	(377		)
Net assets acquired	$	10,960



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


	Three Months Ended September 30,				Nine Months Ended September 30,							Three Months Ended March 31,

		2019		2018			2019			2018						2020	2019
Revenues:											Revenues:
State enterprise revenues	$	81,084	$	80,884	$	241,169		$	248,230		State enterprise revenues	$	74,411	$	69,853
Software & services revenues	9,301		6,144		25,963			18,021			Software & services revenues	16,708		15,327
Total revenues	90,385		87,028		267,132			266,251			Total revenues	91,119		85,180
Operating expenses:											Operating expenses:
State enterprise cost of revenues, exclusive of depreciation & amortization	50,408		48,224		151,340			148,577			State enterprise cost of revenues, exclusive of depreciation & amortization	46,271		41,978
Software & services cost of revenues, exclusive of depreciation & amortization	3,586		2,226		9,635			6,689			Software & services cost of revenues, exclusive of depreciation & amortization	10,724		9,397
Selling & administrative	8,153		8,514		26,473			24,285			Selling & administrative	8,064		9,964
Enterprise technology & product support	6,743		6,176		19,933			17,559			Enterprise technology & product support	7,254		6,445
Depreciation & amortization	3,524		2,441		9,075			6,651			Depreciation & amortization	3,482		2,421
Total operating expenses	72,414		67,581		216,456			203,761			Total operating expenses	75,795		70,205
Operating income	17,971		19,447		50,676			62,490			Operating income	15,324		14,975
Other income:											Other income:
Interest income	729		153		1,910			212			Interest income	389		604
Income before income taxes	18,700		19,600		52,586			62,702			Income before income taxes	15,713		15,579
Income tax provision	4,190		3,698		12,113			14,280			Income tax provision	3,850		4,077
Net income	$	14,510	$	15,902	$	40,473		$	48,422		Net income	$	11,863	$	11,502

Basic net income per share	$	0.21	$	0.24	$	0.60		$	0.72		Basic net income per share	$	0.18	$	0.17
Diluted net income per share	$	0.21	$	0.24	$	0.60		$	0.72		Diluted net income per share	$	0.18	$	0.17

Weighted average shares outstanding:											Weighted average shares outstanding:
Basic	66,960		66,562		66,858			66,476			Basic	66,987		66,670
Diluted	66,960		66,598		66,858			66,507			Diluted	66,987		66,670



	Nine Months Ended September 30, 2019
	Common Stock				Additional Paid-in Capital			Retained Earnings
	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Total
Balance, January 1, 2019	66,569		$	7	$	117,763		$	93,919		$	211,689
Net income	—		—		—			11,502			11,502
Dividends declared	—		—		—			(5,402		)	(5,402		)
Dividend equivalents on unvested performance-based restricted stock awards	—		—		27			(27		)	—
Dividend equivalents canceled upon forfeiture of performance-based restricted stock awards	—		—		(122		)	122			—
Restricted stock vestings	364		—		—			—			—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(153	)	—		(2,609		)	—			(2,609		)
Stock-based compensation	—				2,272			—			2,272
Shares issuable in lieu of dividend payments on performance-based restricted stock awards	3		—		—			—			—
Issuance of common stock under employee stock purchase plan	128		—		1,443			—			1,443
Balance, March 31, 2019	66,911		7		118,774			100,114			218,895
Net income	—		—		—			14,460			14,460
Dividends declared	—		—		—			(5,416		)	(5,416		)
Dividend equivalents on unvested performance-based restricted stock awards	—		—		27			(27		)	—
Restricted stock vestings	47		—		—			—			—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(2	)	—		(28		)	—			(28		)
Stock-based compensation	—		—		1,431			—			1,431
Balance, June 30, 2019	66,956		7		120,204			109,131			229,342
Net income	—		—		—			14,510			14,510
Dividends declared	—		—		—			(5,416		)	(5,416		)
Dividend equivalents on unvested performance-based restricted stock awards	—		—		27			(27		)	—
Restricted stock vestings	8		—		—			—			—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(3	)	—		(49		)	—			(49		)
Stock-based compensation	—		—		1,524			—			1,524
Balance, September 30, 2019	66,961		$	7	$	121,706		$	118,198		$	239,911


																		Three Months Ended March 31, 2020
	Nine Months Ended September 30, 2018																	Common Stock					Additional Paid-in Capital		Retained Earnings
	Common Stock				Additional Paid-in Capital				Retained Earnings									Shares	Amount								Total
	Shares		Amount					Total
Balance, January 1, 2018	66,271		$	7			$	111,275				$	56,960			$	168,242
Net cumulative effect of adoption of accounting standard	—		—		—				208			208
Balance, January 1, 2020															Balance, January 1, 2020			66,968	$	7	$	123,208	$	122,713	$	245,928
Net cumulative effect of adoption of accounting standard (Note 2)															Net cumulative effect of adoption of accounting standard (Note 2)			—	—		—		339		339
Net income	—		—		—				15,508			15,508			Net income			—	—		—		11,863		11,863
Dividends declared	—		—		—				(5,370		)	(5,370		)	Dividends declared			—	—		—		(6,105)		(6,105)
Dividend equivalents on unvested performance-based restricted stock awards	—		—		34				(34		)	—			Dividend equivalents on unvested performance-based restricted stock awards			—	—		35		(35)		—
Dividend equivalents canceled upon forfeiture of performance-based restricted stock awards	—		—		(140		)		140			—			Dividend equivalents canceled upon forfeiture of performance-based restricted stock awards			—	—		(84)		84		—
Restricted stock vestings	202		—		—				—			—			Restricted stock vestings			228	—		—		—		—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(81	)	—		(1,132		)		—			(1,132		)	Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings			(91)	—		(1,865)				(1,865)
Repurchase of shares															Repurchase of shares			(241)	—		(439)		(3,505)		(3,944)
Stock-based compensation	—		—		1,511				—			1,511			Stock-based compensation			—			1,319		—		1,319

Issuance of common stock under employee stock purchase plan	122		—		1,382				—			1,382			Issuance of common stock under employee stock purchase plan			104	—		1,509		—		1,509
Balance, March 31, 2018	66,514		7		112,930				67,412			180,349
Net income	—		—		—				17,011			17,011
Dividends declared	—		—		—				(5,385		)	(5,385		)
Dividend equivalents on unvested performance-based restricted stock awards	—		—		33				(33		)	—
Restricted stock vestings	44		—		—				—			—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(2	)	—		(32		)		—			(32		)
Stock-based compensation	—		—		1,576				—			1,576
Balance, June 30, 2018	66,556		7		114,507				79,005			193,519
Net income	—		—		—				15,902			15,902
Dividends declared	—		—		—				(5,383		)	(5,383		)
Restricted stock vestings	14		—		—				—			—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(3	)	—		(43		)		—			(43		)
Stock-based compensation	—		—		1,877				—			1,877
Balance, September 30, 2018	66,567		$	7	$	116,341			$	89,524		$	205,872
Balance, March 31, 2020															Balance, March 31, 2020			66,968	$	7	$	123,683	$	125,354	$	249,044



	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	State Enterprise		Software & Services		Consolidated Total		State Enterprise		Software & Services		Consolidated Total
IGS	$	54,308	$	—	$	54,308	160,015		—		$	160,015
DHR	23,076		—		23,076		70,158		—		70,158
Other	—		9,301		9,301		—		25,963		25,963
Total transaction-based	77,384		9,301		86,685		230,173		25,963		256,136
Development services	2,462		—		2,462		7,283		—		7,283
Fixed fee management services	1,238		—		1,238		3,713		—		3,713
Total revenues	$	81,084	$	9,301	$	90,385	$	241,169	$	25,963	$	267,132

	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	State Enterprise		Software & Services		Consolidated Total		State Enterprise		Software & Services		Consolidated Total
IGS	$	51,085	$	—	$	51,085	$	156,463	$	—	$	156,463
DHR	25,555		—		25,555		79,439		—		79,439
Other	—		6,144		6,144		—		18,021		18,021
Total transaction-based	76,640		6,144		82,784		235,902		18,021		253,923
Development services	3,006		—		3,006		8,615		—		8,615
Fixed fee management services	1,238		—		1,238		3,713		—		3,713
Total revenues	$	80,884	$	6,144	$	87,028	$	248,230	$	18,021	$	266,251



	September 30, 2019							December 31, 2018
	Gross Carrying Value		Accumulated Amortization			Net Book Value		Gross Carrying Value		Accumulated Amortization			Net Book Value
Software development costs	$	28,868	$	(15,431	)	$	13,437	$	22,190	$	(11,647	)	$	10,543
Purchased software	11,241		(2,479		)	8,762		$	3,555	$	(494	)	3,061
Customer relationships	425		(25		)	400		—		—			—
Non-compete agreements	250		(35		)	215		—		—			—
Trade name	35		(5		)	30		—		—			—
Total	$	40,819	$	(17,975	)	$	22,844	$	25,745	$	(12,141	)	$	13,604



	September 30, 2019			December 31, 2018
Fiscal Year
2019⁽¹⁾	$	1,208		$	4,673
2020	4,028			3,403
2021	3,092			2,604
2022	2,534			2,082
2023	1,157			698
Thereafter	861			690
Total future minimum lease payments	12,880			14,150
Less: interest	(822		)	N/A
Total lease liabilities	$	12,058		N/A



	September 30, 2019
Operating lease cost⁽¹⁾	$	4,312
Weighted-average discount rate	3.7		%

Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities	3,367
Right of use assets obtained in exchange for new lease liabilities ⁽²⁾	15,020



	State Enterprise		Software & Services		Other Reconciling Items			Consolidated Total
2019
Revenues	$	81,084	$	9,301	$	—		$	90,385
Costs & expenses	50,408		3,586		14,896			68,890
Depreciation & amortization	722		1,032		1,770			3,524
Operating income (loss)	$	29,954	$	4,683	$	(16,666	)	$	17,971

2018
Revenues	$	80,884	$	6,144	$	—		$	87,028
Costs & expenses	48,224		2,226		14,690			65,140
Depreciation & amortization	683		22		1,736			2,441
Operating income (loss)	$	31,977	$	3,896	$	(16,426	)	$	19,447


•	~~Fixed Fee Management Services:~~ ~~our state enterprise business in Indiana earns fixed fees from the performance of digital government services for numerous government agencies.~~


•	~~Other~~: primarily transaction-based fees from contracts with state and local governments that are not part of an enterprise-wide state contract and revenues from our RxGov prescription drug monitoring and our newly acquired NIC Licensing Solutions businesses. The majority of revenues from these sources are recurring.