Q4 2019 Earnings Call
Please standby everyone we're about to begin.
Good day, everyone and welcome to the and I see Q4 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to empty Davis Senior Vice President Marketing Communications. Please go ahead.
Thank you operator, good afternoon, everyone and welcome.
Fourth quarter earnings call. The press release <unk> fourth quarter 2019 earnings announcement was issued 30 minutes ago earnings release is also available on our corporate website.
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Joining us on the call today, and I see CEO , Harry Herington, excuse called here and I, just chief Financial Officer.
Following the reading of our cautionary statement regarding forward looking information, our CEO and CFO , what do they go prepared remark.
[laughter] any statements made during this call that you're not really true to work all occurred.
Such forward looking statements.
Statements include statements regarding the company's potential financial performance for the 2020 fiscal year estimates projections and get collectively the contract terms statements relating to the company's business plans objectives.
Hi, Good operating result statements related relating to potential new contracts renewals statements relating to the company's expected effective tax rate.
Thats related to possible future dividends and share repurchases.
Possible future events, including potential acquisitions any assumptions upon which the students are going.
Forward looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward looking statements. These risks can quickly drill our national business political economic competitive social and market conditions, including barrier termination rights of the company in its partners.
The ability of the company to read into your existing contracts in whole or in park and to sign contracts.
Federal state and local government agencies, the company's ability to identify and acquire suitable acquisition candidates and successfully integrate any acquired businesses as well as possible data security.
You should not rely on any forward looking statement that the prediction or guarantee about the future.
Discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements included in the sections titled Let's factors.
Cautions about forward looking statements other companies. Most recent Form 10-K engine Q filed with the FCC.
These filings are available at the Rpcs website.
He started W.
Any forward looking statements made during this call speak only as of the during this call.
Except as may be required by applicable law.
No obligation to update or revise publicly any forward looking statements, whether as a result information future events, where otherwise.
Now, it's my pleasure to introduce Harry Herington, Iraqis, Chief Executive Officer, and chairman of the door.
Thank you Andrea.
28 years, it actually has been consistently evolving and innovating continued to lead the digital government industry.
That evolution has included executing on a vision anchored by three key strategies first and foremost to secure and grow or corestate into parts business second to enhance and diversified overall business with the continued investment in our vertical solutions and third to leverage our financial strength for returning capital structures.
On a quarterly cash dividends and proactively export strategic acquisition.
Fourth quarter, and full year results or drink reflection or excuse me on these strategies and the resulting momentum as we continue to transform NRC for the future.
Hi, good perspective, I'm pleased to share there for the fourth consecutive quarter.
We saw double digit growth in same cigarette runners trapping all 2019 with a growth rate up 11% in the fourth quarter and a 10% for all 2019.
Highest level.
In a group we have seen in the past five years.
No.
Software and services business had another strong quarter with revenues growing 20% over the per quarter and 30% for all of 2019.
Steve will share more details by results for the quarter end of your annual guidance for 2020 later on this call.
I would also like saying five or state partners in Connecticut, Hawaii main Mississippi, and Montana renewing contracts within I see in the fourth quarter.
We ended 2019, securing 15 extensions or street enterprise contracts, including a new contract or expand or services in the study, Virginia and we are laser focused on continuing this momentum and 2020.
Our next focus area was on the expansion of our vertical solutions.
I'm pleased to announce a pending new development in our payments vertical where the state of Florida.
Earlier this month after your long competitive bid process. We were selected unanimously that's a stage enterprise payment provider with the border Department of financial services officially announce your content toward your NAXI or contract repayment collection.
Testing services. However, we have not yet signed a contract for the state as award is currently under purchase.
We know first hand experience over the years, it's not uncommon proposition and government procurement. Nevertheless.
We could not be more excited about the opportunity to service in a sense of the state of Florida.
Toward further solidifies our leadership in the digital government payment space and validates our decision.
Just a quick focus on the payments were able to grow at worst acquire business.
Since there's opportunity it's still an active procurement rubies, serving all practice not common further at this time.
An important element there were continuing momentum and 29 team was addition, or Brian I understand because our chief Technology Officer.
Brent has brought at his attention and vision to the years of vertical product development and delivery.
Technology leadership has been invaluable to and I see as a whole an extremely beneficial as we evolve or vertical platforms and research and development team.
In 2020, we have no intention of slowing down a priority. This year will be on accelerating the momentum. There was gained 20 I mean are driving additional growth and innovation across from state Debra and Birchall Division.
The bottom, but I want to touch on today, it's our financial strength or solid performance, which consistently generates strong cash flows allowed board of directors to declare regular cash dividend totaling 32 cents per share in 2019.
And I'm very pleased to announce our board of directors recently approved a 12.5% increase in a regular quarterly cash dividend to nine cents per share for the first quarter 2020, which I believe is an incredibly strong reflection of our optimism in the future growth performance has been actually.
Before I turn the call Steve I want to stress how excited we are pretty your hit the evolution of it actually continues to happen at a rapid pace and we are it's driven as we've ever been over the past 28 years.
More accessible for everyone through technology and improve the digital government experience for businesses and citizens and our government partners with that.
Turn call over to in Oxys, Chief Financial Officer, Steve jobs.
Thanks Terry.
The fourth quarter of 29 team, we are 15 cents per share flat versus the prior year quarter.
I have one noncore items to call out EPS was two cents higher in the fourth quarter due to discrete tax items will fully described in our earnings release.
Moving onto the core results for the quarter.
As a reminder, this was the first quarter, where revenues from the legacy Texas contract, we're not headwind to our growth comparison.
Furthermore, we.
We began including revenues from the Texas payments contract in the same state categories in the fourth quarter.
Capped off the year with another quarter Schroedahl same state enterprise revenue growth, which increased 11% compared to the fourth quarter of last year, reaching double digit growth for the fourth consecutive quarter, if you're just mentioned.
Breaking down the major components of same state growth.
Same state transaction based interactive government services for my guess revenues were up a strong 16% driven by payment processing revenues in New Jersey in Texas revenues from the new auto tied to Lincoln registration system in Wisconsin.
As well as other services across our state enterprise businesses.
Same state transaction based driver history Records for DHR revenues were flat compared to the prior year quarter, which was down sequentially from 2% growth in the third quarter of 29 team and down from 3% growth for full year fiscal 2019.
As we've discussed in the past, we do not have transparency into what drives DHR volumes overtime and the fourth quarter is no different.
Well one quarter does not make a trend we are hopeful DHR volumes going forward will rebound.
Lastly, on a combined basis same state development and fixed fee management revenues were down 3% from quarter.
Software and services revenues were up $1.2 million for 20% over the prior year quarter. This robust growth was attributable to continued strong performance of the federal Preemployment screening program into revenues from our recently acquired or ex girlfriend, and I see licensing solutions businesses, which contributed a combined 800000.
Dollars in revenue during the quarter.
Depreciation and amortization expense increased by approximately $1.1 million from the prior year quarter, driven mainly by intangible asset amortization from the Rx Gov asset acquisition closed in the third quarter of 28 towards excuse me 2018.
Which total approximately $700000 for the quarter.
$500000 from the prior year quarter.
And from Acomplia acquisition closed on May Onest of 29 team, which total approximately $250000 for the quarter.
Operating income for the quarter decreased 7%, resulting in an operating income margin of 13% down from 16% in the prior year quarter.
All that state enterprise gross profit margins. Consequently, operating income margins are seasonally lowest in the fourth quarter of each calendar year due to lower number of business days during the holiday season.
The decline in operating income in the operating.
Arjun compared to prior year quarter.
Mainly reflects costs to implement our comprehensive outdoor recreation solution in Pennsylvania in Illinois.
And modest dilution from the company's recently acquired Rx goes in and I see licensing solutions businesses, including higher amortization expense.
We currently expect along for Pennsylvania outdoor recreation solution around the midpoint of this year.
And the Illinois outdoor recreation solution in the first half of 2021.
Which I'll touch on more when I discuss our full year 2020 guidance in a moment.
Now I'll recap full year 2019 results.
Total revenues were $354.2 million in 2019 up 3% from 2018, while state enterprise revenues were $320.7 million flat to last year.
Full year 2019 included $30.4 million from the new Texas payment processing contract compared to $8.1 million in the prior year. The part of your also included $49 million in revenues from the legacy Texas contract.
Headline for 29, King was our phenomenal same state enterprise revenue growth of 10% highs we've seen in the past five years with same state by Gs revenues up 16% and same state DHR revenues of 3%.
As a reminder, revenues from Texas, and Illinois were excluded from the same state category for the full 2019 fiscal year.
Software and services revenues increased to still or 38% $33.5 million driven by full year revenues from the federal Recreation Dot Gov service as well as higher volumes from the federal DRG Preemployment screening program and revenues from our recently acquired Rx Cogs and and I see licensing solutions businesses, which contributed I think.
For mental $2.3 million of revenue.
Are you thinking.
Operating income decreased 17% to $62.4 million third year with operating margins of 18% down from 22% in 2018.
Mainly reflecting lower revenues and profitability from a new Texas payment processing contract compared to the legacy Texas contract.
In addition to higher cost to implement our outdoor recreation solution, Pennsylvania in Illinois, which totaled more than $3 million for the year and two dilution from the company's recently acquired or Exco, and and I see licensing solutions businesses, including higher amortization expense.
Our effective tax rate for the year was 22% compared to 23% in 2018.
After tax rate in 2019 was positively impacted by certain discrete tax items more fully described in our earnings release pieces. These discrete tax items positively impacted EPS by five cents for the year, whereas in 2018 discrete tax items positively impacted EPS by two cents.
We closed out 2019 with earnings per share of 75 cents.
Now, let's move onto our guidance for fiscal year 2020.
We currently expect total revenues to range from $380.5 million to $391 million.
Earnings per share drain from 76 to 81 cents.
Adjusted EBITDA, which excludes non cash operating expenses for depreciation and amortization and stock based compensation.
To range from $88.5 million to $93 million.
The high end of our guidance reflects a 10% increase in total revenues with healthy upper single digit same state enterprise revenue growth.
In line with historical averages, but down from the stellar 10% change day growth in 2019.
As a housekeeping note beginning in 2020, we intend to reclassify, the Texas payment processing contract.
From the state Enterprise segment, just software and services given that our business in Texas is limited to payment processing and it's not a traditional enterprise contract, where we developed and manage digital government services and handle payment processing.
So this end we have not incorporated the new Florida payments Award Harry just mentioned into our guidance because it is currently under protest. Furthermore, we will refrain from discussing the financial potential the opportunity until the protest has concluded in a contract has been signed.
Nevertheless, I Echo Harry's comments in that we're incredibly excited about the Florida Award.
The overall growth potential of our payments vertical.
Next I'll provide some color on substantial investments, we will continue to make in our outdoor recreation platform, including the development of a comprehensive campground reservation solution.
Currently expects to launch, Pennsylvania around the midpoint of this year and Illinois in the first half of 2021 and.
And as a reminder, we currently expect each state to generate around $3.5 million annually and healthy margin transaction based revenues over the lives of those long term contracts.
2020 guidance reflects approximately $2.4 million, an incremental revenues from Pennsylvania. Following its anticipated mid year launch with total combined development implementation costs for Pennsylvania, and Illinois spread throughout the year expected to approximate $5.5 million.
Contributing to a combined.
Contributing to combined operating losses of approximately $3 million.
My last piece of revenue guidance pertains to our recently acquired Rx Gov, PD, MP and and I see licensing solutions businesses.
We currently expect combined revenues from these businesses to range from $4.5 million to $7 million 2020.
The low end of this range, mainly reflects full year revenue run rates from both businesses and a modest amount up sell an add on growth from existing contracts with the high end of the range, reflecting incremental revenues from opportunities in the sales pipeline.
Moving on to capital expenditures and capitalized software development costs.
We currently expect capital expenditures to range from $6 million to $7 million in 2020 up from $4.3 million in 2019, reflecting higher I GE infrastructure refreshment needed in a handful of enterprise states and requirements for the Pennsylvania outdoor recreation contract. In addition to other normal fixed assets.
And in our centralized hosting environment to sporting enhance like GE and security infrastructure and for our various verticals and platform solutions.
So.
We expect capitalized internal use software development costs will range from $9 million to $10 million in 2020 up from $8.3 million in 2019, reflecting ongoing investments in our platform solutions, including outdoor recreation and the aforementioned camp ground reservation solution.
Addition to enhancements to our industry, leading payment processing solutions.
Depreciation and amortization expense is expected to increase by $3 million to $3.5 million in 2020 compared to 29 team.
Due mainly to higher amortization of capitalized software development costs related to previous and ongoing investments in our various platform solutions and a full year of purchase accounting amortization from our recently acquired ARX Gov, and I see licensing solutions business.
Moving on we expect to generate modestly lower interest income on our investable cash balances in 2020, given the decline in interest rates, we saw in the back half of 2019.
Our EPS guidance for 2020 reflects approximately two cents from interest income compared to the three cents we earned.
In 2019.
From an income tax standpoint, we currently expect our effective tax rate before.
Any discrete tax items to approach, 26% in 2020 as we've recently seen changes in certain state tax laws that are required us to alter how we a portion of our revenues by state, which is modestly increase our state effective tax rate and thus our overall effective tax rate. However, if we were to ultimately recognized.
Central discrete tax items due to the expiration of statutes of limitations, our effective tax rate could be closer to 25%.
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In closing.
Our guidance reflects continued strong same state enterprise revenue growth in line with historical averages driven by the expected deployment of dozens of new services across several states. In addition to incremental revenue contributions from our recently acquired Rx Covenant I see licensing solutions businesses.
Our guidance also reflects continued investments in key government vertical solutions outdoor recreation payments licensing health care, where we have been winning significant new business to drive long term growth.
That wraps up my prepared remarks today, so I'll turn the call back over to here. Thank you Steve.
Certainly pleased with our historical results, but more importantly, I'm pleased with minimum I see everyday at Nic 2020 will be a year of continued digital government leadership as we focus on growing our state enterprise contracts enhancing and diversifying our overall business through a vertical solutions and leveraging our financial strength to return capital to stockholders.
With that smart, let's open up the call for questions.
Thank you if you'd like to ask a question at this time, placing us by pressing star one on your telephone keypad, if you've seen a speakerphone. Please make sure you mean functions turnouts signal to reach us once again that star one to ask a question and we'll pause for please call me.
Well take our first question from Peter Heckmann Davidson.
Hi, good afternoon, everyone. Thanks for all the detail.
I think you've seen during Oh, Hey, I might've missed it did you quantify what your expectations were for any increase in revenue from Virginia in 2020.
No we didn't specifically quantify that I.
Any any increase that we did you receive from Virginia would be kind of captured in our our expectations for same store growth.
Okay. Okay, and then you had made a comment but I didn't quite catch about revenue related to yes, he and I think Richie Onestop could you repeat that regard revenue for 2020.
No I did we didn't make any specific comments on PSP or what creation multiple for 22.
Joel just forgot today.
Okay and then so.
As a follow up there than on the PSP.
I think the current extension expires as a much 30 days or so and any updated expectations in terms of the potential read that are all other extension anything you haven't seen yet.
Yeah, I think this area and we're of course, we're in conversations with them and you know I can't speak to that when it's sort of an open negotiate show procurement item yeah. There's no RFP on this on the street today Pete. So you know we're we're in discussions with AWS.
Continuing business, there, but nothing finalizes as of yet.
Okay, well, congrats on Florida, and we'll look forward to hear more about one in future quarters.
I appreciate it thank you.
Once again, everyone Star one is kind of question or comment.
Next to Gary Prestopino with Barrington Research.
Good afternoon, everyone.
Well the gearing.
Several questions here okay.
With the outdoor recreation contracts.
But you putting in Pennsylvania, and you got when Youre moving here.
I guess my understanding of that.
This platform kind of be plug and play.
You know across all 50 states that was the case and I don't know, if I'm right or wrong, but I guess, what I'm getting at is that.
Looking at 2.4 million of incremental revenue 5.5 million the development cost and the was 3 million passengers starts gaining more traction.
Scale at a much better rate I mean is gonna be that much in development costs as you roll it out some states.
Gary that Terry you're looking at December I wouldn't I never call, a plug and play and the reason for that because every state has their own rules and regulations, but that being said when you look at the platform that we're building and we're taking these through opportunities and what we get from Wisconsin to really come out with the Premier platform. Then it's just a matter of Taylor and I'm going forward for the most.
So we're very excited about these investments because what it does give us when the data yeah, and Gary I guess, the other thing that I would add just echoing.
My remarks is that we are going to be building in enhancing I.
Can't ground reservation solutions, specifically for the state of Illinois.
That's that's driving some some of that but absolutely our expectation.
These are the first two states that said, we are deploying using kind of the new cloud based platform based on.
Our deployment in Wisconsin, but absolutely going forward, we expect us to scale and and be able to do it quicker and more efficiently anything interesting.
We're very excited about these opportunities to very two very large states from 100, and cutting and fishing line licensing standpoint and.
Upon both of their.
Full deployment, which we expect 2021 it's.
Seven plus million dollars, an incremental healthy margin revenue when we should have captured the Georgia the complexity out there with them. So yes, that's right I think you're looking at the right way.
Right, that's where I just wanted to get an idea of the level of investment that's going on here.
And then in terms of the knick licensing and Rx business or spot club, you said, you're going to do want to have to 7 million or revenues. This year is that correct.
Correct.
Okay with that you know how does that work out to be relative to your overall corporate operating margin in that situation. What do you still putting a lot of development in there and it's going to mute the margin going forward.
This year, all Gil I would I would say that we are certainly making said well you know and we'll continue to make some.
Modest in reasonable investments in those platforms. It certainly.
You know not to the level that we are investing around to report outdoor recreation platforms. Because there are a little bit more purpose built set so certainly not to that to that same extent.
Okay and then two other quick questions you just as you well when you gave the additional guidance last last January February .
Contemplate the release of the tax reserves or just kind of like a non operational thing that just dropped off.
Yeah, no when we give our guidance like I mentioned in my remarks, you know I I think that we expect our absent any of these discrete tax items for exploration statutes of limitations, we expect to be a little closer to 26% because of the uptick that we're seeing our state effective tax rates, but if the euro.
Goes by and we see no similar you know amounts of discrete items for statutes of limitations, our effective tax rate can be closer to 25% and thats really all I was saying there.
Okay, lastly, beyond what you're dealing with the.
The outdoor recreation and got some licensing.
Prescription drug monitoring said new services across several states could you maybe just talk a little bit about that in terms of what point of services, how many just needs.
Just to get used to get an idea in the magnitude of houses in shaping up.
Yeah, So you know without.
Specifically mentioning you know new services.
I think as you're familiar with our business, Gary we grow by a lot of bugs and singles right. So these are these are dozens and dozens and services across a number of stage next year.
And you know historically, we've been able to grow same state revenues on average you know 8% to 9% that's kind of what our guidance reflects in 2020, certainly down a little bit from a really really strong year in in 2019, and what drove our our outsized growth in 2019 was.
You know quite frankly, a few sizable new payments contracts.
New Jersey, and a larger footprint payment processing that we've been doing a in Indiana and you know so an example of love what we'll continue to drive some or same store growth into next year's this new auto tightening and and registration solution that we just launched in Wisconsin here in the second half of of 2019 that will contain.
And you to.
Drive growth in 2020, but thats from a materially out from the materiality standpoint, that's one of the that's one of the larger ones.
Okay. Thank you.
Here.
And just an additional reminder, try to answer this star one if you have a question teller counts at this time that star one well Pos another please.
It appears we have no further questions you enter Q at this time I'll turn the call back over to our speakers for any additional remarks.
Thank you, sorry, and I'd like thank everybody, who joined US this afternoon.
Speaking with you at our annual stockholders meeting on April 27, everybody have a great day.
Everyone. This concludes today's call. This thank you for your participation you may now disconnect.
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