Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. NIC INC (1065332) 10-K published on Feb 21, 2019 at 4:20 pm
Reporting Period: Dec 30, 2018
Some of our business services involve the collection, transmission and use of an individual’s protected health information or other sensitive personal information, which may be subject to the Health Insurance Portability and Accountability Act ("HIPAA") or other state privacy and security laws and regulations. In some cases, we also use aggregated and de-identified data as defined by HIPAA for analytical purposes, particularly related to improving the quality of services we provide. At the federal level, HIPAA imposes extensive privacy and security requirements governing the transmission, use and disclosure of health information. These increasingly complex laws, regulations and industry requirements are subject to change and compliance with them may result in significant expenses associated with increased operational and compliance costs, particularly as we continue to offer new services in this field. To the extent that either we or our vendors with whom we share information are found to be out of compliance with such applicable laws and regulations or experience a data security breach, we could be subject to litigation, regulatory risks, reputational harm and damages, fines or penalties. Failure to comply with federal or state statutes or regulations may also result in criminal penalties or civil sanctions.
We charge for digital access to government services based on usage and, depending upon government policies, also on a fixed or sliding scale bulk basis. Our fees are set by negotiation with the government agencies that control the records and are typically approved by a government sanctioned oversight authority. Generally, our contracts outline the total fee to be paid by the end-user consumer, as well as our share of the fee. We have limited control over the level of fees we are permitted to retain. We recognize revenues from transactions (primarily information access fees and filing fees) as we provide access to applications and process transactions initiated by end-user consumers. We bill certain end-user consumers, including high-volume DHR data resellers to the auto insurance industry, monthly. We typically receive most payments within 25 days of billing and remit payment to governments within 30 to 45 days of the transaction. The gross fees that we collect on behalf of government agencies for data access are accrued as accounts receivable and accounts payable at the time revenue from the access of public information is recognized. We typically must remit a certain amount or percentage of these fees to government agencies regardless of whether we ultimately collect the fees. The pricing of transactions varies by the type of transaction and by state.
We use same state revenue growth to measure the financial performance of our state portals that generate revenues for two full comparative periods. Due to the expiration of our contract with the state of Iowa on November 30, 2016, the operating results for this state were removed from the same state category for the year ended December 31, 2016. In addition, our contract with the state of Tennessee expired on March 31, 2017; however, due to the ongoing transition of services back to the state throughout the fourth quarter of 2016, the operating results for this state were removed from the same state category for the years ended December 31, 2017 and December 31, 2016. The operating results for our Louisiana portal, which commenced on July 1, 2016, were excluded from the same state category for 2017 and 2016 because it had not generated revenues for two full comparable periods. Because our legacy Texas contract expired on August 30, 2018 and our new Texas payment processing contract commenced on September 1, 2018, operating results for this state were removed from the same state category for the year end December 31, 2018. Furthermore, our Illinois contract, which we entered into in
Portal revenues in 2018 increased 3%, or approximately $9.2 million, over 2017, mainly driven by a 9% increase in same state portal revenues and an $8.1 million increase in revenues from our new Texas payment processing contract. These increases were partially offset by a $16.7 million decrease in revenues from the legacy Texas portal contract, which expired on August 31, 2018 and a $1.8 million decrease in revenues from the legacy Tennessee portal contract, which expired on March 31, 2017. We currently expect total portal revenues to decline modestly in 2019 due mainly to the transition to the new Texas payment processing contract, which has significantly lower annual revenues than the legacy Texas portal contract. However, we currently expect same state revenues to grow approximately 8-10% in 2019, and combined with the new Texas payment processing contract, which we currently expect will generate approximately $24 million in revenues in 2019, should offset much of the loss in revenues from the legacy Texas portal contract.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Expenses are recognized in the statement of income in a manner similar to current accounting guidance. ASU 2016-02, as amended by ASU No. 2018-11, Targeted Improvements, requires entities to adopt the standard using one of two modified retrospective approaches. 1) retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.
The Company will adopt the accounting standard on January 1, 2019 using the modified retrospective approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. The Company will elect the package of practical expedients permitted under the transition guidance within the new standard, which allows the Company to not to reassess (i) whether expired or existing contracts contain a lease under the new standard, (ii) the lease classification for expired or existing leases or (iii) whether previously-capitalized initial direct costs would qualify for capitalization under the new standard. In addition, the Company will not elect to use hindsight during transition.