Surviving the dot-com bust

Two companies specializing in e-government software and services have weathered the dot-com industry bust, either gaining in profitability or nearing it during the past year.

Both EzGov Inc. and NIC (formerly the National Information Consortium) provide software and services for Web portals and related applications, with most of their business coming from the state and local government market.

Mirroring the fallout in the commercial market, many government-focused Internet firms folded or were bought out during the past year, including Fedcenter.com and govWorks (as documented in the movie "Startup.com").

But EzGov and NIC believe they have it made.

Atlanta-based EzGov had its second consecutive profitable quarter in the first quarter of this year, earning more than $6 million in revenue. That puts the company on pace to double its 2001 revenue of $12.2 million, company officials said. Plans include making an aggressive push into the federal market.

Overland Park, Kan.-based NIC last month reported a 54 percent increase in revenues during the same period last year. During an April 25 Webcast conference call, chief executive officer Jim Dodd said it was the "finest quarter" in the company's 11-year history, reporting a record-high $12.4 million in revenue.

The public company reported positive earnings before interest, taxes, depreciation and amortization of $500,000 in the first quarter, compared with a loss of $500,000 in the same period last year. Net loss for the current quarter was $900,000, or 2 cents per share.

"I think if they've made it this far, they'll survive," Thomas Meagher, first vice president for equity research at BB&T, said of the two companies. "There's no doubt about that. But the question, obviously from an investor standpoint, is, 'Are the numbers going to be there?' "

EzGov is a much more attractive company in terms of profitably, he said.

"I think the difference between EzGov and NIC is that the EzGov model is essentially a software licensing model whereas I believe NIC is looking more to the outsourced service model," Meagher said. "I think the software licensing model can be a lot more profitable in a much quicker time frame."

During the past year, EzGov has done just that. It scaled back its hosting services and focused more on its core business: software development and licensing, said Ed Trimble, president and CEO.

The company has formed several major alliances with integrators, such as EDS, IBM Corp. and PricewaterhouseCoopers, which use its FlexFoundation product, a Web-based commercial off-the-shelf software platform for payments, e-forms and business rules.

Internationally, the company has established itself in Great Britain through an alliance with EDS. The companies built an online tax filing system for the Inland Revenue, the equivalent of the U.S. Internal Revenue Service, and an online money claims application for the Court Service, an executive agency that carries out administrative and support tasks for courts there.

NIC continues to focus on the state and local government market. The company provides online government services for businesses and citizens for more than 1,000 state and local agencies, reaching nearly 50 million people in the country, according to company officials. The company has also helped develop and manage 16 state government Web portals.

The company usually provides state and local governments with three means of financing e-government applications: States pay for the entire implementation upfront; the company assumes the technological investment, recouping it by charging convenience fees for e-government applications (commonly called a "self-funding" model); or a combination of the two.

Dodd said that more than two-thirds of NIC's revenues come from transaction-based revenues and outsourcing contracts, "and we see that kind of mix into the indefinite future."

But Meagher said industry analysts have never "really been enamored" with the self-funding model because adoption rates for e-government have been very slow. "I think it really caused the investment community some concern because [NIC] would build the site, they would maintain it and they would hope to get revenues off of it at some point in time, and that was a very, very slow process, much slower than they had anticipated in terms of adoption," he said. "And that's why it took a lot longer I think than they had anticipated to get themselves to where they are right now."

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