UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

Or

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

For the transition period from to

Commission file number 000-26621

NIC INC.

(Exact name of registrant as specified in its charter)

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

25501 West Valley Parkway, Suite 300, Olathe, Kansas 66061

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code:   (877) 234-3468

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐

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.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ☐ No  ☑

On October 23, 2020, the registrant had 67,030,645 shares of common stock outstanding.

NIC INC.

Form 10-Q for the Quarter Ended September 30, 2020

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Changes in Stockholders' Equity	5
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 5.	Other Information	31
Item 6.	Exhibits	33
	Signatures	34

2

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NIC INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

thousands except par value amount

	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash	$	235,348	$	214,380
Trade accounts receivable, net	139,044		85,399
Prepaid expenses & other current assets	18,649		12,944
Total current assets	393,041		312,723
Property and equipment, net	10,107		10,091
Right of use lease assets, net	11,293		10,778
Intangible assets, net	21,426		22,398
Goodwill	5,965		5,965
Other assets	1,608		404
Total assets	$	443,440	$	362,359
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	79,698	$	63,685
Accrued expenses	53,525		25,940
Lease liabilities	4,110		3,776
Other current liabilities	11,998		7,191
Total current liabilities	149,331		100,592
Deferred income taxes, net	2,295		2,463
Lease liabilities	7,618		7,373
Other long-term liabilities	4,854		6,003
Total liabilities	164,098		116,431
Commitments and contingencies (Notes 2, 3 and 6)	—		—
Stockholders' equity:
Common stock, $0.0001 par, 200,000 shares authorized, 67,026 and 66,968 shares issued and outstanding	7		7
Additional paid-in capital	127,358		123,208
Retained earnings	151,977		122,713
Total stockholders' equity	279,342		245,928
Total liabilities and stockholders' equity	$	443,440	$	362,359

See accompanying notes to unaudited consolidated financial statements.

3

NIC INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

thousands except per share amounts

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
State enterprise revenues	$	91,475	$	73,257	$	243,690	$	217,981
Software & services revenues	43,115		17,128		75,608		49,151
Total revenues	134,590		90,385		319,298		267,132
Operating expenses:
State enterprise cost of revenues, exclusive of depreciation & amortization	53,807		43,821		145,954		130,881
Software & services cost of revenues, exclusive of depreciation & amortization	31,290		10,173		52,359		30,094
Selling & administrative	8,817		8,153		25,196		26,473
Enterprise technology & product support	7,342		6,743		21,797		19,933
Depreciation & amortization	3,528		3,524		10,483		9,075
Total operating expenses	104,784		72,414		255,789		216,456
Operating income	29,806		17,971		63,509		50,676
Other income:
Interest income	—		729		389		1,910
Income before income taxes	29,806		18,700		63,898		52,586
Income tax provision	4,715		4,190		13,148		12,113
Net income	$	25,091	$	14,510	$	50,750	$	40,473
Basic net income per share	$	0.37	$	0.21	$	0.75	$	0.60
Diluted net income per share	$	0.37	$	0.21	$	0.75	$	0.60
Weighted average shares outstanding:
Basic	67,025		66,960		67,004		66,858
Diluted	67,025		66,960		67,004		66,858

See accompanying notes to unaudited consolidated financial statements.

4

NIC INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

thousands

	Nine Months Ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Retained Earnings
	Shares	Amount						Total
Balance, January 1, 2020	66,968	$	7	$	123,208	$	122,713	$	245,928
Net cumulative effect of adoption of accounting standard (Note 2)	—	—		—		339		339
Net income	—	—		—		11,863		11,863
Dividends declared	—	—		—		(6,105)		(6,105)
Dividend equivalents on unvested performance-based restricted stock awards	—	—		35		(35)		—
Dividend equivalents canceled upon forfeiture of performance-based restricted stock awards	—	—		(84)		84		—
Restricted stock vestings	228	—		—		—		—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(91)	—		(1,865)		—		(1,865)
Repurchase of shares	(241)	—		(439)		(3,505)		(3,944)
Stock-based compensation	—	—		1,319		—		1,319
Issuance of common stock under employee stock purchase plan	104	—		1,509		—		1,509
Balance, March 31, 2020	66,968	7		123,683		125,354		249,044
Net income	—	—		—		13,796		13,796
Dividends declared	—	—		—		(6,097)		(6,097)
Dividend equivalents on unvested performance-based restricted stock awards	—	—		35		(35)		—
Restricted stock vestings	53	—		—		—		—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(2)	—		(53)		—		(53)
Stock-based compensation	—	—		1,739		—		1,739
Balance, June 30, 2020	67,019	7		125,404		133,018		258,429
Net income	—	—		—		25,091		25,091
Dividends declared	—	—		—		(6,097)		(6,097)
Dividend equivalents on unvested performance-based restricted stock awards	—	—		35		(35)		—
Restricted stock vestings	11	—		—		—		—
Shares surrendered and canceled upon vesting of restricted stock to satisfy tax withholdings	(4)	—		(79)		—		(79)
Stock-based compensation	—	—		1,998		—		1,998
Balance, September 30, 2020	67,026	$	7	$	127,358	$	151,977	$	279,342

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NIC INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

thousands

	Nine Months Ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Retained Earnings
	Shares	Amount						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

See accompanying notes to unaudited consolidated financial statements.

6

NIC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

thousands

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	50,750	$	40,473
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization	10,483		9,075
Stock-based compensation expense	5,056		5,227
Deferred income taxes	(285)		1,464
Provision for losses on accounts receivable	1,135		409
Changes in operating assets and liabilities:
Trade accounts receivable, net	(54,324)		(25,135)
Prepaid expenses & other current assets	(5,705)		761
Other assets	2,212		3,333
Accounts payable	16,013		24,700
Accrued expenses	27,585		1,554
Other current liabilities	3,977		2,052
Other long-term liabilities	(3,671)		(5,211)
Net cash provided by operating activities	53,226		58,702
Cash flows from investing activities:
Capital expenditures	(2,956)		(3,483)
Capitalized software development costs	(6,572)		(6,679)
Business combination	—		(10,000)
Asset acquisition	—		(3,486)
Net cash used in investing activities	(9,528)		(23,648)
Cash flows from financing activities:
Cash dividends on common stock	(18,299)		(16,234)
Proceeds from employee common stock purchases	1,509		1,443
Shares surrendered upon vesting of restricted stock to satisfy tax withholdings	(1,996)		(2,686)
Repurchase of shares	(3,944)		—
Net cash used in financing activities	(22,730)		(17,477)
Net increase in cash	20,968		17,577
Cash, beginning of period	214,380		191,700
Cash, end of period	$	235,348	$	209,277
Other cash flow information:
Non-cash activities:
Contingent consideration - business combination	$	—	$	960
Cash payments:
Income taxes paid, net	$	12,867	$	12,283

See accompanying notes to unaudited consolidated financial statements.

7

NIC INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  THE COMPANY

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 primarily accomplishes this through two channels: its state enterprise businesses and its software & services businesses.

In the Company's 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 digital 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, complete transactions and make electronic payments. 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 payment processing services, 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.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

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 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, 2019, including the notes thereto, set forth in the Company’s 2019 Annual Report on Form 10-K.

Certain amounts in the consolidated statements of income for the three and nine months ended September 30, 2019 were reclassified to conform to the current year presentation. In 2020, the Company began classifying its Texas payment processing contract in the software & services category. The Company reclassified $7.8 million and $23.2 million of revenues for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $20.5 million of cost of revenues for the three and nine months ended September 30, 2019, respectively, from this contract from the state enterprise category to the software & services category. The reclassification had no impact on net income or cash flows for the periods ended September 30, 2019.

Use of estimates

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, 2020.

Recently issued accounting pronouncements

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), to replace the incurred loss impairment methodology in U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables,

8

companies will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. On January 1, 2020, the Company adopted the standard and all the related amendments, using a modified retrospective approach. The adoption of the standard resulted in a cumulative-effect adjustment to retained earnings of approximately $0.3 million. The adoption of the standard did not have a significant impact on the Company’s consolidated earnings or cash flows.

Revenue recognition

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to receive in exchange for those goods or services.  

Disaggregation of Revenue

The Company currently earns revenues from three main sources: (i) transaction-based fees, which consist of interactive government services (“IGS”), driver history records (“DHR”) and other transaction-based revenues, (ii) development services and (iii) fixed-fee services.

The following table summarizes, by reportable and operating segment, the principal activities from which the Company generates revenue for the three months ended September 30 (in thousands):

2020	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	58,192	$	—	$	—	$	58,192
DHR	21,716		—		—		21,716
Other	—		11,266		5,784		17,050
Total transaction-based	79,908		11,266		5,784		96,958
Development services	10,329		—		—		10,329
Fixed-fee services	1,238		—		26,065		27,303
Total revenues	$	91,475	$	11,266	$	31,849	$	134,590
2019	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	46,480	$	—	$	—	$	46,480
DHR	23,076		—		—		23,076
Other	—		9,736		5,890		15,626
Total transaction-based	69,556		9,736		5,890		85,182
Development services	2,463		—		—		2,463
Fixed-fee services	1,238		—		1,502		2,740
Total revenues	$	73,257	$	9,736	$	7,392	$	90,385

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The following table summarizes, by reportable and operating segment, the principal activities from which the Company generates revenue for the nine months ended September 30 (in thousands):

2020	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	156,436	$	—	$	—	$	156,436
DHR	65,172		—		—		65,172
Other	—		30,996		16,087		47,083
Total transaction-based	221,608		30,996		16,087		268,691
Development services	18,369		—		—		18,369
Fixed-fee services	3,713		—		28,525		32,238
Total revenues	$	243,690	$	30,996	$	44,612	$	319,298
2019	State Enterprise		Payments		All Other		Consolidated Total
IGS	$	136,826	$	—	$	—	$	136,826
DHR	70,158		—		—		70,158
Other	—		28,973		17,420		46,393
Total transaction-based	206,984		28,973		17,420		253,377
Development services	7,284		—		—		7,284
Fixed-fee services	3,713		—		2,758		6,471
Total revenues	$	217,981	$	28,973	$	20,178	$	267,132

Transaction-based Revenues

Under the majority of 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, in exchange for transaction-based fees. 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.

Development Services Revenues

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. For services provided under development contracts that result in the transfer of control over time, the underlying deliverable is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date.

Under its development services contracts, the Company typically does not have significant future performance obligations that extend beyond one year. As of September 30, 2020, the total transaction price allocated to unsatisfied performance obligations was approximately $6.5 million.

Fixed-fee Services Revenues

Fixed-fee services revenues primarily consist of state enterprise revenues from providing recurring fixed fee digital government services to the Company’s government partner in Indiana, contracts for the Company's new TourHealth services for rapid and secure COVID-19 testing with Next Marketing and Impact Health, which commenced in August 2020 and other contracts for software-as-a-service (“SaaS”) subscription-based services in the Company's software & services businesses. As of September 30, 2020, 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. TourHealth services contracts are a fixed-

10

fee single performance obligation to provide continuous access to COVID-19 testing services. As of September 30, 2020, the unsatisfied performance obligations related to these contracts was $12.8 million which is expected to be recognized during the fourth quarter of 2020.

Subscription-based service contracts in the Company's software & services businesses are a fixed-fee single performance obligation to provide government partners continuous access to digital services. As of September 30, 2020, the unsatisfied performance obligations related to these contracts was $18.6 million, which will be recognized over the term of such contracts, generally one - five years.

Unearned Revenues

Unearned revenues at September 30, 2020 and December 31, 2019 were approximately $8.9 million and $3.8 million, respectively. The change in the deferred revenue balance for the nine months ended September 30, 2020 was primarily driven by $27.6 million of cash payments received or due in advance of satisfying the Company's performance obligations, offset by $22.5 million of revenues recognized that were previously included in deferred revenue.

Trade accounts receivable

The Company records trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The Company calculates this allowance based on its history of write-offs, and its relationship with, and the expected future economic status of, its customers. Trade accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. The Company’s allowance for doubtful accounts at September 30, 2020 and December 31, 2019 was approximately $1.9 million and $1.2 million, respectively.

3.  GOVERNMENT CONTRACTS

State enterprise contracts

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 government entities desiring to provide access to government information and to digitally complete government-based transactions and payments. NIC typically markets the services and solicits consumers to complete government-based transactions and to enter into subscriber contracts permitting the user to access digital 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 digital 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 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, 15 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 45% and 52% of the Company’s total consolidated revenues for the three and nine months ended September 30, 2020. If any of these contracts is

11

terminated without cause, the terms of the respective contract may require the government to pay the Company a fee to continue to use the Company’s applications.

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.

Software & services contracts

The Company's software & service contracts generally consist of payment processing services, software development and digital government services, other than those provided on an enterprise-wide basis, to federal agencies, as well as state and local governments. The Company has contracts with certain Federal agencies, including 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. The Company also has contracts with certain government and government-related partners for which the Company is responsible for a new rapid and secure COVID-19 testing solution with Next Marketing and Impact Health referred to as TourHealth, featuring digital engagement, assessment and scheduling, as well as in-person clinical testing and logistics.

Expiring contracts

There are currently 11 state enterprise contracts, as well as the Company's contract with the FMCSA, that have expiration dates within the 12-month period following September 30, 2020. Collectively, revenues generated from these contracts represented approximately 28% and 33% of the Company’s total consolidated revenues for the three and nine months ended September 30, 2020. Although six 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 state enterprise 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.

Performance Bond Commitments

At September 30, 2020, the Company was bound by performance bond commitments totaling approximately $25.2 million on certain government contracts and other business relationships.

4.  EARNINGS PER SHARE

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 the three and nine months ended September 30, 2020 and 2019. 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.

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The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net income	$	25,091	$	14,510	$	50,750	$	40,473
Less: Income allocated to participating securities	(266)		(156)		(544)		(443)
Net income available to common stockholders	$	24,825	$	14,354	$	50,206	$	40,030
Denominator:
Weighted average shares - basic	67,025		66,960		67,004		66,858
Performance-based restricted stock awards	—		—		—		—
Weighted average shares - diluted	67,025		66,960		67,004		66,858
Basic net income per share:	$	0.37	$	0.21	$	0.75	$	0.60
Diluted net income per share:	$	0.37	$	0.21	$	0.75	$	0.60

5.  STOCKHOLDERS’ EQUITY

The Company's Board of Directors declared and paid the following dividends during the three and nine months ended September 30, 2020 and 2019 (payment amount in millions):

Declaration Date	Dividend per Share	Record Date	Payment Date	Payment Amount
July 27, 2020	$0.09	September 8, 2020	September 22, 2020	$6.1
April 23, 2020	$0.09	June 11, 2020	June 25, 2020	$6.1
January 27, 2020	$0.09	March 4, 2020	March 18, 2020	$6.1
July 29, 2019	$0.08	September 6, 2019	September 20, 2019	$5.4
May 7, 2019	$0.08	June 11, 2019	June 25, 2019	$5.4
January 28, 2019	$0.08	March 5, 2019	March 19, 2019	$5.4

On October 26, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.09 per share, payable to stockholders of record as of December 4, 2020. The dividend, which is expected to total approximately $6.1 million, will be paid on December 18, 2020, out of the Company’s available cash.

Share Repurchase

In March 2018, the Company's Board of Directors authorized a stock repurchase program allowing the Company to repurchase up to $25 million of common stock. During March 2020, the Company repurchased and retired 241,180 shares at a weighted average purchase price of $16.33 for a total value of $3.9 million under the repurchase program. The Company has made no other repurchases under its share repurchase program.

6.  INCOME TAXES

The Company's effective tax rate was 15.8% and 20.6% for the three and nine months ended September 30, 2020, respectively, compared to 22.4% and 23.0% for the three and nine months ended September 30, 2019, respectively. The Company's effective tax rate for the three and nine months ended September 30, 2020 was lower than the federal statutory rate of 21% primarily due to the favorable impact of the release of reserves for unrecognized income tax benefits resulting from expiration of the statutes of limitations for certain tax years and other favorable tax adjustments recognized upon filing of the Company's 2019 tax return. The Company's effective tax rate for the three and nine months ended September 30, 2019 was higher than the federal statutory rate primarily due to the effect of state income taxes partially offset by the favorable impact of the release of reserves for unrecognized income tax benefits resulting from expiration of the statutes of limitations for certain tax years. 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, a significant portion of which was not deductible for income tax purposes.

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7.  STOCK BASED COMPENSATION

During the nine months ended September 30, 2020, 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 280,789 shares with a grant-date fair value totaling approximately $5.8 million. Such restricted stock awards vest beginning one year from the date of grant in annual installments of 25%. During the nine months ended September 30, 2020, certain management-level employees were granted service-based restricted stock awards totaling 9,256 shares with a grant-date fair value totaling approximately $0.2 million, which vest over two years in 50% installments. In addition, during the nine months ended September 30, 2020, non-employee directors of the Company were granted service-based restricted stock awards totaling 34,607 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 nine months ended September 30, 2020, 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 137,052 shares with a grant-date fair value totaling approximately $2.8 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, 2022. The actual number of shares earned will be based on the Company’s performance related to the following performance criteria over the performance period:

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

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

At the end of the three-year period, the executive officers are eligible to receive up to a specified number of shares based on 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 on 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 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 on the actual number of underlying shares earned during the performance period.

At December 31, 2019, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on February 22, 2017 ended. Based on the Company’s actual financial results from 2017 through 2019, no shares or dividend equivalent shares were earned, and the 87,241 shares subject to the awards were forfeited in the first quarter of 2020.

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 on 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):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
State enterprise cost of revenues, exclusive of depreciation & amortization	$	409	$	370	$	1,167	$	1,127
Software & services cost of revenues, exclusive of depreciation & amortization	46		19		115		75
Selling & administrative	1,329		951		3,185		3,523
Enterprise technology & product support	214		184		589		502
Total stock-based compensation expense	$	1,998	$	1,524	$	5,056	$	5,227

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8.  REPORTABLE SEGMENT AND RELATED INFORMATION

Beginning in the first quarter of 2020, the Company determined that it has two reportable segments: 1) State Enterprise and 2) Payments. Prior to the first quarter of 2020, the Company had one reportable segment: State Enterprise. The change from one to two reportable segments was based on quantitative and qualitative considerations, and was a result of recent changes in the Company's reporting structure to reclassify the current Texas payment processing contract from the state enterprise category to the software & services category. The revised reportable segments reflect the way the Company evaluates its business performance and manages its operations. All prior year amounts have been restated to conform to the current year presentation.

The State Enterprise reportable segment generally includes the Company’s subsidiaries operating digital government services on an enterprise-wide basis for state and local governments. The Payments reportable segment includes the Company's subsidiaries in the software & services category that provide certain payment processing-related, transaction-based services to state and local government agencies in states where the Company does not maintain an enterprise-wide contract and to a few private sector entities. The All Other category primarily includes the Company's subsidiaries in the software & services category that provide software development and digital government services, other than those provided on an enterprise-wide basis, to federal agencies, including the Company's contract with the FMCSA to operate the Federal PSP and the Company's subcontract for the Recreation.gov outdoor recreation service, as well as to other state and local governments and government-related entities, including the Company's RxGov prescription drug monitoring business, NIC Licensing Solutions regulatory licensing business and new TourHealth rapid COVID-19 testing solution with Next Marketing and Impact Health, which commenced in August 2020. Each of the Company’s businesses within the All Other category is an operating segment and has been grouped together to form the All Other category, as none of the operating segments meet 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 ("CODM"), evaluates the performance of its operating 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 CODM. Accordingly, the Company has not presented information relating to segment assets.

The table below reflects summarized financial information for the Company’s reportable segments for the three months ended September 30 (in thousands):

	State Enterprise		Payments		All Other		Other Reconciling Items		Consolidated Total
2020
Revenues	$	91,475	$	11,266	$	31,849	$	—	$	134,590
Costs & expenses	53,807		8,788		22,502		16,159		101,256
Depreciation & amortization	653		1		1,150		1,724		3,528
Operating income (loss)	$	37,015	$	2,477	$	8,197	$	(17,883)	$	29,806
2019
Revenues	$	73,257	$	9,736	$	7,392	$	—	$	90,385
Costs & expenses	43,821		7,271		2,902		14,896		68,890
Depreciation & amortization	721		—		359		2,444		3,524
Operating income (loss)	$	28,715	$	2,465	$	4,131	$	(17,340)	$	17,971

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The table below reflects summarized financial information for the Company’s reportable segments for the nine months ended September 30 (in thousands):

	State Enterprise		Payments		All Other		Other Reconciling Items		Consolidated Total
2020
Revenues	$	243,690	$	30,996	$	44,612	$	—	$	319,298
Costs & expenses	145,954		24,331		28,028		46,993		245,306
Depreciation & amortization	2,035		4		3,335		5,109