NIC Inc. Annual Report 2013

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FY2013 Annual Report · NIC Inc.

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It’s All
About
Access

Anatomy of Modern Government

N I C 2013 AN N UAL R E P ORT

NIC 2013 ANNUAL REPORT

Our lifeblood is coming up with new ways to
apply technology to improve government.

HAR RY H E R I N GTON

Chief Executive Officer and

Chairman of the Board, NIC Inc.

LETTER TO STOCKHOLDERS

Paraphrasing what Winston Churchill once said,

Representative democracy is the worst form of government
ever conceived, except for every other kind ever tried.

It’s true! We all have our complaints: too bureaucratic,
overwhelming, unresponsive, uncaring.

I have a slightly different take. Government is composed of focused, caring, hardworking public servants—many people who could make better

money in the business world, but choose government to make a difference. The problem is bureaucracy. Because in this complicated world it has

to be. The frustration comes when we need to interact with government. But you know what? This is the 21st century. Smart people invent better

ways of doing things. It happens by utilizing technology. And interacting with our imperfect-but-still-best-ever form of government is something

technology can help us do better—in fact, much better.

It’s the whole reason we created NIC. For over 20 years we’ve been the people behind eGovernment, creating the technology that makes it

click. In the process of connecting citizens directly to their government, we make it more accessible, more reactive, easier to understand, and

simpler to deal with. The whole premise of government “of the people, by the people and for the people” finally becomes more than just a blue-

sky notion. It becomes a hands-on reality.

We build services without any guarantees that anyone will use them. And, if no one uses them, there’s no return on our investment. This singular

focus has been successful in building our business, and continues to deliver advantages to our partners every day. Our lifeblood is coming up

with new ways to apply technology to improve government. And the majority of the costs to develop and manage an online service do not require

appropriated taxpayer dollars.

In technology more than most fields, it’s the details. And it always takes a laser focus to get them right. Behind the scenes it’s complicated, but

to the user, it’s simple. As devices get smaller and more mobile, the services we build must work on them. Our philosophy is “mobile first.” If an

app doesn’t work on a small handheld screen over the local coffee shop Wi-Fi, it simply doesn’t work.

As I mentioned earlier, we’re well aware of the delicate nature of our relationship to government. Partners but separate. We know the various

governments we work with so intimately because we have to. We consider ourselves the R&D shop to the partners we serve and public servants

to the people they serve. It’s a unique blend.

And as we begin doing things on an even larger scale for the federal government, we become even more conscious of the need for passion and

patience. It helps that our headquarters are in the heartland—in Kansas, not D.C. It gives us perspective and serves as a constant reinforcement

of our culture of caring. We go so far as to encourage every one of our people to give back. We ask them to find community causes that interest

them. And we support them in their efforts.

It’s part of what makes us what we are: not just another remote government contractor but real people in the communities we serve—the people

behind eGovernment. Our single defining purpose is to make government more accessible to everyone through technology.

Together we’re making good government great.

Chief Executive Officer and

Chairman of the Board, NIC Inc.

NIC 2013 ANNUAL REPORT

Connecting
People to Their
Government

Some barriers are meant to be broken. The Berlin Wall fell.
Apartheid ended. Men landed on the moon.

It is not the people versus the government. The people are the

technology, security, and funding—all of which is largely and purposely

government. Connecting with government is not a privilege, but a

unnoticeable to citizens or business owners as they make their way

right. Sometimes that access happens by breaking down barriers of

through government online services or mobile applications. But, it is

racial, gender, and class inequality. Oftentimes, that access is more

that carefully balanced and strategically planned infrastructure upon

subtle—breaking down the barriers to government through technology

which our reputation depends and from which our financial success is

with the swipe of a tablet to retrieve necessary information, or just

derived. It constitutes the anatomy of modern eGovernment.

a few clicks to complete a required business filing. Millions of these

everyday connections between the people and their government are

2013 may be remembered as the turning point when “dot gov” became

what NIC is all about. It is our sole, defining purpose. And yet, making

the primary means of government for millions of Americans. And NIC

eGovernment connections ‘click’ requires a vast infrastructure of

was there, making government accessible one transaction at a time.

partnership, user experience, innovation, mobility, payment processing,

AL A BA MA
Services Commenced: 2002
Alabama.gov’s user-friendly design was
recognized for the third consecutive year
with a Communicator Award from the
International Academy of Visual Arts.

AR KA N SAS
Services Commenced: 1997
Arkansas.gov was recognized as a finalist in
the 2013 “Best of the Web” competition.

C OLO RAD O
Services Commenced: 2005
The Colorado Department of Motor Vehicles
continued to receive accolades for the “Save
Time. Renew Online!” campaign, with a W3
Award from the International Academy of
Visual Arts.

CO N N E CTI CUT
Services Commenced: 2014
In January 2014, NIC through its Connecticut
Interactive subsidiary, secured a five-year
contract with renewals that can extend the
agreement through 2020.

DE L A wAR E
Services Commenced: 2011
The portal helped launch the Veteran’s
Directory, which was recognized as one
of the best business-to-government eGov
services of 2013.

HAwAI I
Services Commenced: 2000
Hawaii.gov was recognized as a finalist in
the 2013 “Best of the Web” competition.

I DAH O
Services Commenced: 2000
The state signed a two-year contract
extension with Idaho Information
Consortium through June 2015.

I N D I A NA
Services Commenced: 1995
The myBMV website was recognized as one
of the best government-to-citizen eGov
services of 2013.

I OwA
Services Commenced: 1997
The portal assisted the Iowa Motor Vehicle
Division in creating the State’s first multi-
lingual mobile application.

KAN S AS
Services Commenced: 1992
The state signed a one-year contract
extension with Kansas Information
Consortium through Dec. 2014.

K E NT U CKY
Services Commenced: 2003
The commonwealth signed a one-year
contract extension with Kentucky
Interactive through Aug. 2014.

MAI N E
Services Commenced: 1999
The state signed a two-year contract
extension with Maine Information Network
through June 2016. In addition, Maine.gov
took fifth place in the 2013 “Best of the Web”
competition.

MARYLAN D
Services Commenced: 2011
In 2013, the portal helped launch MD
Prepares, the state’s official emergency
management mobile application.

MI S S I S S I PPI
Services Commenced: 2011
MS.gov was recognized as a finalist in the
2013 “Best of the Web” competition.

M ONTANA
Services Commenced: 2001
The Prescription Drug Registry received an
honorable mention for outstanding eGov
services launched in 2013.

NE B RAS KA
Services Commenced: 1995
Nebraska.gov was recognized as a finalist in
the 2013 “Best of the Web” competition.

NE w JE R S EY
Services Commenced: 2009
The state signed a one-year contract
extension with New Jersey Interactive
through June 2014.

OK LAH OMA
Services Commenced: 2001
The state signed a one-year contract
extension with Oklahoma Interactive
through Dec. 2014.

OR E G ON
Services Commenced: 2011
The Oregon Secretary of State’s Business
Xpress was recognized as one of the best
business-to-government eGov services of 2013.

PE N N SYLVAN IA
Services Commenced: 2012
In 2013, the portal helped mobile-enable
hundreds of state agency websites.

R H OD E I S LAN D
Services Commenced: 2001
RI.gov was recognized as a finalist in the
2013 “Best of the Web” competition.

S OUTH CAR OLI NA
Services Commenced: 2005
SC.gov took fourth place in the 2013 “Best
of the Web” competition ranking of state
web portals.

NIC PORTALS

TE N N E S S E E
Services Commenced: 2000
TN.gov received top honors taking first place
in the 2013 “Best of the Web” competition.

TE XAS
Services Commenced: 2009
Texas.gov was recognized as a finalist in the
2013 “Best of the Web” competition.

UTAH
Services Commenced: 1999
Utah.gov took second place in the 2013 “Best
of the Web” competition ranking of state
web portals.

VE R M ONT
Services Commenced: 2006
The state signed a new contract with
Vermont Information Consortium to manage
its eGov services for up to six years.

wE ST VI R G I N IA
Services Commenced: 2007
The state signed a one-year contract
extension with West Virginia Interactive
through June 2014.

wI S CON S I N
Services Commenced: 2013
In 2013, NIC through its Wisconsin
Interactive Network subsidiary, secured a
new partnership with the state of Wisconsin.
The contract term is for five years with state
renewal options through 2023.

N Ew M E X I CO
(S TATE AG E N CY PARTN E R)
Services Commenced: 2009
The Department of Motor Vehicles and
its parent, the New Mexico Taxation and
Revenue Department signed a one-year
contract extension with New Mexico
Interactive through 2014.

VI R G I N IA
(S TATE AG E N CY PARTN E R)
Services Commenced: 2013
In 2013, Virginia Interactive signed contracts
with two of its largest legacy agency
partners, the Virginia Supreme Court and
the Department of Game & Inland Fisheries,
to continue operating eGov services on
behalf of the agencies.

PR E-E M PLOYM E NT
S CR E E N I N G PR OG RAM
Services Commenced: 2009
The Pre-Employment Screening Program
received an honorable mention as an
outstanding government-to-business eGov
service in 2013.

NIC 2013 ANNUAL REPORT

NIC Leadership Team

R O B E RT w . K NAPP

Chief Operating Officer

AI M I M. D AU G HTE RY

Chief Accounting Officer

Robert W. Knapp was appointed to the position of Chief Operating

Aimi M. Daughtery has served as the Company’s Chief Accounting

Officer in January 2012. From February 2009 until this appointment,

Officer since January 2011. Ms. Daughtery joined the Company

he served as the Company’s Executive Vice President. Mr. Knapp

in November 2007 and served as the Company’s Controller until

joined the Company in November 1999 and has served in various

January 2011. Prior to joining the Company, Ms. Daughtery served as

management capacities, including Director of Marketing for the

the Controller of Mediware Information Systems, Inc. for one year

Company’s Indiana portal subsidiary, President and General Manager

and served as a Manager of Financial Planning and Analysis at Wells

of the Company’s Kansas portal subsidiary, Regional Manager, and

Fargo Financial for one year. Prior to these positions, Ms. Daughtery

most recently Vice President of Portal Operations. Prior to joining

worked at Deloitte & Touche LLP for 12 years, most recently serving

the Company, Mr. Knapp was a director of information systems with

as an audit Senior Manager until her departure. Ms. Daughtery is

Alltel. Mr. Knapp holds a B.S. in business administration and an

a Certified Public Accountant and holds a B.A. in accounting from

M.B.A from the University of Tulsa.

Buena Vista University.

PiCtureD left tO right:

R OB E RT w . K NAPP, Chief Operating Officer; A I M I M . DAU G HTE RY, Chief Accounting Officer; wI L L IA M F. B R AD L E Y, J R. , executive Vice

President, Chief Administrative Officer, general Counsel, and Secretary; HAR RY H. H E R I N GTO N, Chief executive Officer and Chairman of the Board;

R ON TH OR N B U R G H, Senior Vice President of Business Development; S TE P H E N M . KOVZ AN Chief financial Officer

NIC LEADERSHIP

wI L LI AM F. B RAD LEY, J R.

R ON TH OR N B U R G H

executive Vice President, Chief Administrative Officer,

Senior Vice President of Business Development

general Counsel, and Secretary

Ron Thornburgh is the Senior Vice President of Business

William F. Bradley, Jr. was appointed to the positions of Executive

Development, where he leads the Company’s national sales team and

Vice President and Chief Administrative Officer in January 2012.

marketing efforts. Mr. Thornburgh began his career in the Kansas

From May 2006 until this appointment, he served as the Company’s

Secretary of State’s office. Starting as a student in the mailroom, he

Chief Operating Officer. He has served as the Company’s Secretary

worked his way through the ranks and was elected in 1994 to the

since May 1998 and General Counsel since July 1998. In addition,

first of four terms in office. In 2002 he was recognized as a Digital

Mr. Bradley served as a director from May 1998 to February 1999,

Government “Agent of Change” by the Massachusetts Institute

and Executive Vice President of Strategy, Policy and Legal from July

of Technology after leading Kansas to national prominence with

1998 to May 2006. From January 1995 to the present, he has served

the introduction of the Kansas Online Uniform Commercial Code

in various executive capacities with the Company’s subsidiaries,

filing system in July 2001. He has served on several government

including President and CEO of Indiana Interactive from September

association and nonprofit boards, including five-time honorary

1995 to May 2001. Prior to joining the Company in 1995, he was

chairman of the Kansas Law Enforcement Special Olympics Torch

engaged in the private practice of law in Kansas for 14 years. From

Run and Past President of the National Association of Secretaries of

June 1987 to September 1993, as a volunteer, Mr. Bradley organized

State. Mr. Thornburgh holds a B.S. degree in Criminal Justice from

and led the ad hoc group that created the Information Network of

Washburn University.

Kansas (INK), a quasi-state entity. He served as INK’s first chairman

as it procured and then oversaw the outsourced state portal

ST E PH E N M. KOVZA N

contracts in Kansas. Mr. Bradley holds a B.A. degree in English from

Chief financial Officer

the University of Kansas, and a J.D. degree from the University of

Stephen M. Kovzan has served as the Company’s Chief Financial

Kansas School of Law.

Officer since August 2007. Mr. Kovzan joined the Company in October

1999 and served as the Company’s Controller until September 2000,

HAR RY H. H E R I N GTON

at which time he became the Company’s Vice President of Financial

Chief executive Officer and Chairman of the Board

Operations and Chief Accounting Officer, serving as such until

Harry H. Herington is the Company’s Chief Executive Officer and

August 2007. Prior to joining the Company, Mr. Kovzan served as a

Chairman of the Board. Mr. Herington joined NIC in 1995, and is

business assurance manager with PricewaterhouseCoopers LLP. Mr.

considered one of the early founders that helped transform the

Kovzan is a Certified Public Accountant and holds a B.S. in business

small Kansas start-up into a nationally recognized company. During

administration from the University of Tulsa and an M.S. in business

his career at NIC he has served in various operational capacities

from the University of Kansas.

leading the Company’s core business and became CEO and Chairman

in 2008. In 2012, he received the Ernst & Young Entrepreneur of the

Year® Award for technology in the Central Midwest Region. Before

joining NIC, Mr. Herington began his career in law enforcement in

Texas and Kansas, later serving as the Associate General Counsel for

the League of Municipalities. Mr. Herington holds a B.S. degree from

Wichita State University and a J.D. degree from the University of

Kansas School of Law.

NIC 2013 ANNUAL REPORT

Better Access
= Better
Government

We know that the nation that goes
all-in on innovation today will own
the global economy tomorrow.

PR E S I D E NT OBA MA

State of the Union Address, Jan. 2014

We agree with the President—100 percent. And, NIC is doing its part to push

innovation in the area of eGovernment services. We believe innovation includes

how government interacts with businesses and citizens online. In 2013, NIC

launched more than 650 new online services. We’ve only scratched the surface

of how government can be more accessible online. We believe that whatever

can be conducted over the Internet, definitely should be.

Here are a few examples of new services
we helped launch in 2013:

N E B RAS KA AD D S TO CLI CK D MV

The suite of online services offered by Nebraska’s Department of Motor Vehicles at ClickDMV.ne.gov

continued to expand this year with the addition of an online service to receive a second or replacement

handicap parking permit, as well as the Ignition Interlock Permit Eligibility online service. The replacement

handicap parking permit service eliminates the need for handicapped drivers to make a trip to the DMV,

saving 160 disabled citizens a month a trip to the Nebraska DMV for a second or replacement handicap

parking permit. Last year, the Nebraska DMV received more than 86,000 calls related to those charged with

driving under the influence, including inquiries about ignition interlock permits, driver license reinstatement

requirements, driver license points, and more. Now users can check their eligibility status and get many

other related questions answered online.

A r kAn sAs U nClAI m e d P roP e rT y

In Arkansas, the state has nearly $170 million in assets that remain as unclaimed property. This includes

assets such as dormant bank accounts, life insurance benefits, and utility deposits, for which a rightful

owner cannot be found. The new site, developed in partnership by NIC’s Little Rock team and the Office of

the State Auditor, allows users to log in and check for their unclaimed property among real-time data, and

then submit a claim. The new system has reduced claims processing times from 30 to 7 days.

mArylAn d Ce nTrAl B Us I n e s s

lI Ce n s I nG s ysTe m

The first of its kind in Maryland, NIC’s team in Annapolis helped launch the Central Business Licensing System

in February. The new system allows business owners to register a new business or establish a tax account

through a single site, reducing the time required to register a new business from 10 weeks to 5-7 days.

“With the launch of Maryland’s first online business registration system, we take another important step

forward in breaking down barriers to job creation,” said Maryland Gov. Martin O’Malley. “Today, we’re

officially launching another tool for more efficient, more streamlined government; a tool for easing the

administrative burden on businesses and therefore helping entrepreneurial Marylanders create jobs and

expand opportunity.”

Today, we’re officially launching another tool
for more efficient, more streamlined
government; a tool for easing the
administrative burden on businesses...

MART I N O’MALLEY

Maryland Governor

NEw SERVICES

NIC 2013 ANNUAL REPORT

Quick stats

QU I Ck s TAT 00 1:

NIC’s services not only make government more accessible,
they make our country safer. The Company continues to see
strong results from its self-funded federal service, the
Pre-Employment Screening Program (PSP).

This study estimated:

A 2013 study by the Federal motor Carrier

safety Administration found that trucking and

bus companies using the Pre-employment

screening Program decreased both their crash

rates and instances of drivers placed out-of-

service due to safety violations.

within the 12-month
time frame of the study

1 0

QU ICk sTAT 0 02:

NIC’s Director of Integrated Marketing, Hillary Hartley, was
the second NIC employee in 18 months to be selected by the
White House to participate in the Presidential Innovation
Fellows program.

NEw SERVICES

QU ICk sTAT 0 03:

In 2013, the University of Utah surveyed nearly 1,500 companies
regarding online government business services in Arkansas,
Indiana, and Kansas, revealing:

1 1

NIC 2013 ANNUAL REPORT

keep
in Touch

Have you heard of Luke Wroblewski? He is the former
Chief Design Architect at Yahoo! and Lead User Interface
Designer at eBay.

He spoke to our technology innovation teams this past fall at our

design accordingly—code written once and used across multiple

annual Tech Conference. His message? It echoed our mantra,

devices. Today, mobile first is somewhat synonymous with touch first—

“mobile first.”

incorporating elements that work with all of the desktop devices that

allow for navigation directly by touching the screen rather than clicking

It is the leading aspect of our Company’s research-and-development

a mouse or keyboard.

mindset and an area that evolves with every advancement in mobile

technology. In fact, NIC has been developing mobile solutions since

Wherever government connections can take place, we believe

2002. There was a time when mobile first meant taking a lean

accessing government should be as easy as using the interactive

version of a website and coding it to render properly on a mobile

device of your choice. Who knows where future technology will lead,

device. From there, mobile advanced to responsive design that would

but wherever that is, NIC will be leading the way in harnessing it to

automatically detect the device being used and scale content and

make government more accessible.

1 2

Providing real-time
traffic information can
help motorists avoid
delays and, in turn,
reduce congestion
on our roadways.
The SmartWay App is
easy to navigate, and
can be customized
to provide only the
information the user
wants. We’re pleased
so many travelers are
taking advantage of this
free resource.

J OH N S CH R OE R

TDOT Commissioner

MOBILE

1 3

In 2013, NIC launched a total of 326 native and responsive-designed

mobile applications. Here are a few of the highlights:

Te n n e s s e e s mArT WAy moB I le AP P

In its first six months, the Tennessee SmartWay mobile application was

downloaded more than 100,000 times. Created in partnership with the

Tennessee Department of Transportation (TDOT), the application allows

motorists to avoid troubles on Tennessee highways. The application

monitors traffic speeds, allows users to save any TDOT road camera as

a favorite, sends incident notifications related to users’ specific routes,

and more.

P e n n sylvAn IA moB I le W e B

With the launch of the Pennsylvania portal, our team in Harrisburg

went to work to quickly redesign the PA.gov portal and place 113

agency pages into responsive design. This allowed main agency pages

to be viewed properly from any type of mobile device. In the first three

months after the pages were placed into responsive design, nearly 20

percent of total traffic came from a mobile device.

k An sAs Cr I m I nAl H I sT ory r eC or d s eArCH

In partnership with the Kansas Bureau of Investigation, NIC’s team in

Topeka updated the State’s Criminal History Record Search service,

making it mobile-enabled. In addition to working across multiple mobile

devices, the enhanced service also uses KanAccess, a new Kansas.gov

single sign on.

NIC 2013 ANNUAL REPORT

5
TOP

NEW NIC
native mobile Apps

Convenience is key to further the adoption of EVs, which
are part of Hawaii’s clean transportation future and move
us toward reducing our dependency on imported oil. The
EV Stations Hawaii app is a great example of our state
using new technology to advance the widespread use of
electric vehicles in Hawaii.

NE I L AB E R CR OM B I E

Hawaii Governor

1 . e v sTATIon s HAWAI I

4. re eF d eF e n de r

Named the best “Energy Mobile App” by the Web

One of the first mobile application games launched by

Marketing Association, the EV Stations Hawaii mobile

NIC, Reef Defender helps kids learn that what happens

application leads drivers to locate publicly available

on land affects the ocean. The application features the

electric vehicle charging stations throughout Hawaii. The

ancient Hawaiian technique of using a system of land and

app is complete with a map and directions to the nearest

sea stewardship involving the entire ahupua’a (watershed).

charging station.

2 . m ArylAn d P r e PAr e s

5. m s.Gov moB I le

The enhanced mobile application for the official website

Launched in partnership with the Maryland Emergency

of the State of Mississippi provides quick reference to

Management Agency, the Maryland Prepares mobile

state agencies, services, alerts, social media, news,

application provides emergency information and alerts on-

and more.

the-go in the event of an emergency. Users can send an “I’m

Safe” message via text messaging, email, or social networks.

3 . myev e nTs2Go

Used by organizations including the National Governors

Association and the Idaho Department of Education,

MyEvents2Go places conference and event information

at your fingertips. Features include a conference agenda,

speaker bios, travel information, and more.

1 4

MOBILE

Quick stats

QU I Ck s TAT 00 4:

NIC puts its mobile-first philosophy into action.

By mId-2013

oF All nIC
PArTner sTATe

P orTAl s ITe s

Were moBI le-enAB led
vs. 31% of non-NIC state sites.

QU I Ck s TAT 00 5:

QU ICk sTAT 00 6:

In 2013, nIC sUBmITTed on AverAGe,

3 neW moBI le
APPLICATIONS

To vAr IoUs APP sT ores
(ITU n e s , G o o G le P lA y, eTC. )

eve ry W e e k!

According to recent data from the PeW r eseArCH CenTer’s
“InTerneT And Amer ICAn lIFe” ProjeCT,
oF U.s. AdUlTs
oWn Cell PHones,
and 56% of those are smartphones.

QU ICk sTAT 007:

nIC moBIle APP doWnloAded mosT oFTen I n 2013?
THe mArylAnd PrACTICe drIvInG TesT – doWnloAded more THAn

1 5

NIC 2013 ANNUAL REPORT

open for
Business

In the anatomy of modern eGovernment, 24/7 connection
is the expectation, not the exception. Secure payment
processing is a key component in keeping government
“storefronts” open online around the clock.

In 2013, NIC processed $25 billion securely on behalf of its government

partners. Sometimes, simply providing a government agency with the ability

to accept credit cards makes a big difference in making government more

accessible. When payment options are limited, it creates an unnecessary barrier

for citizens and businesses to connect with government. We have been bringing

this access to local municipalities for years, and in 2013 we added Winfield,

West Virginia; Sayre, Oklahoma; and Murfreesboro, Tennessee, to the list of

cities whose residents can now use credit or debit cards to pay for a variety of

government services.

1 6

PAYMENTS & S ECURITY

NIC Services is the division that manages the Company’s
payment processing system that enables our partners to
accept debit and credit cards.

NIC Services launched its largest partnership in 2013 with a new service in the state of North Carolina —an online lien agency system,

LiensNC.com. We believe in good governance of industry. Sometimes this results in developing new eGovernment services for agencies

such as the Secretary of State’s office. Other times, good governance of industry happens outside of government—as is the case with

LiensNC.com. In response to legislation that passed in North Carolina, the owner of construction projects that meet the statutory criteria

must appoint an authorized lien agency. Also, anyone furnishing labor or materials in connection with construction projects, such as

contractors, subcontractors, suppliers, etc. must give written notice to a designated mechanical lien agent of the owner to preserve their

lien rights. The new LiensNC.com service allows these interested parties to efficiently and securely record their lien rights through a web-

based online system. What’s unique about the LiensNC partnership, is that it is not part of a larger state contract. Rather, the partnership

is with LiensNC LLC, a coalition of nine title insurance underwriters in North Carolina.

Chief Security Officer
Jayne Friedland
Holland emphasizes
cybersecurity to
partners and works
with them constantly
on ways to better
safeguard critical
government data and
sensitive personal
information.

None of the convenience of various payment

forms really matters unless the payments are

processed securely. Our Security team speaks

to our partners extensively about government

cybersecurity and along with portal security teams,

helps our partners protect personal information to

the best of their ability and helps them understand

compliance with the Payment Card Industry’s Data

Security Standards.

JAYN E FR I E D LAN D H OLLAN D

Chief Security Officer

Earlier this year, NIC’s Chief Security Officer Jayne Friedland Holland,

shared with Computerworld magazine one of the “15 Ways to Protect

eCommerce Sites:” “Employees also need to be educated on the laws

and policies that affect customer data and be trained on the actions

required to keep it safe.” In June, she shared in a guest column for

Government Security News, “Passwords are the first line of defense in

protecting against hackers and malicious software.”

1 7

NIC 2013 ANNUAL REPORT

What Are
Good
Connections
Worth?

Connecting people with government
continues to be a growing need and a
thriving business.

2013 was one of NIC’s strongest years yet as we continued to see record growth

from our eGovernment services. The DPS Direct suite of services launched on behalf

of the Texas Department of Public Safety during the third quarter of 2012, continued

to perform strongly throughout 2013, as did the New Jersey Temporary Vehicle Tag

t s m

s
e
B
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0 13

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rBes ma G a Z i

registration service—these among other services helped contribute to NIC’s record

ranks companies with annual revenue between $5

levels of same state non-DMV revenue growth.

million and $1 billion that have been publicly traded for

at least a year. Criteria include earnings growth, sales

Helping people connect with their government also continued to bring national

growth and return on equity—in the past 12 months and

recognition to NIC in 2013. In May, NIC was once again selected to the Barron’s

over 5 years—as well as stock performance. This is the

400 Index. Making this index for at least two consecutive years places NIC in a very

highest ranking NIC has received from Forbes, and the

exclusive group—just 1.5 percent of all companies in North America remain on the list

Company continues to be the only Kansas company to

for two consecutive years. By November, NIC received more good news that Forbes

make the list.

ranked us no. 11 on its list of the “100 Best Small Companies in America.” The list

1 8

FINANCIALS

FInAnCIAl H IGHlIGHTs:

million

In ToTAl revenUes

UP 19% over 2012

oPerATInG
margins,

ComPAred WITH 20% In 2012

mIllIon In
OPERATING INCOME

million

In ToTAl PorTAl revenUes

1 9

NIC 2013 ANNUAL REPORT

FInAnCIAl H IGHlIGHTs:

27%

sAme sTATe

non-dmv

revenUe GroWTH
o v er 2012

$23 million

reTUrned To sToCkHolders
sPeCIAl CAsH dIvIdend oF $0.35 Per sHAre

deClAr ed In oCToBer 201 3

$0.49

eArnInGs Per sHAre In 2013 UP 23% From 2012

eGov’s sToCk PrICe InCreAsed neArly 52% In 2013

kAnsAs CITy sTAr
noTed By THe
strongest performing stocks AmonG PUBlICly TrAded kAnsAs CITy ComPAnIes

As one oF THe

2 0

2013 was one of NIC’s strongest years
yet as we continued to see record
growth from our eGovernment services.

FINANCIALS

mIllIon
or

per share has been returned
To sToCkHolders I n sPeCIAl CAs H
dIvI dends sInCe 2007.

eArn InG s Per sHAre

ToTAl r evenUes (I n mIllIons)

$0.50

$0.45

$0.40

$0.35

$0.30

$0.25

$0.20

$0.15

$0.10

$0.05

$0.00

2
1

0
$

4
0
0
2

0
1

0
$

5
0
0
2

7
1

0
$

6
0
0
2

9
1

0
$

7
0
0
2

9
1

0
$

8
0
0
2

2
2

0
$

9
0
0
2

8
2

0
$

0
1
0
2

5
3

0
$

1
1
0
2

0
4

0
$

2
1
0
2

9
4

0
$

3
1
0
2

$250

$200

$150

$100

$50

5
5
$

4
0
0
2

9
5
$

5
0
0
2

1
7
$

6
0
0
2

5
8
$

7
0
0
2

0
0
1
$

8
0
0
2

2
3
1
$

9
0
0
2

1
6
1
$

0
1
0
2

0
8
1
$

1
1
0
2

0
1
2
$

2
1
0
2

9
4
2
$

3
1
0
2

2 1

NIC 2013 ANNUAL REPORT

A Home
Game Has
Advantages

At NIC, we know that creating
access to government cannot
happen from a remote
corporate headquarters.

It takes place one local, dedicated, capital city team at a time

working to bring access to government in the customized way

that is necessary for that state. And, while we believe access

to government is a key way to improving people’s lives, we also

invest our time, talents, and resources in the communities in

which we serve. To us, giving back to the community is not only

our corporate culture, it’s our way of life. It’s in our DNA. It’s who

we are as an NIC family.

Less than 24 hours after the devastating May 20, 2013 tornado

in Moore, Okla., NIC’s Oklahoma City team worked with the

Governor to launch the OKStrong disaster recovery website.

Following the development of the OKStrong site, the team worked

with State Chief Information Officer Alex Pettit to build additional

Donor Connect operated similar to a bridal registry providing a list

online services to assist with recovery efforts, launching Owner

of donations that were needed by local non-profit organizations,

Connect, Pet Connect, and Donor Connect online services. Owner

allowing individuals to upload a form stating they would fulfill a

Connect served as a photo gallery and allowed citizens to upload

particular donation need, and then tracking the remaining balance

images of items they found, descriptions of the items, and contact

of items that were still needed. This suite of services that would

information. Pet Connect provided an online gallery of pets

have normally taken a team more than two weeks to develop, was

displaced by the tornado that were taken to area pet shelters, and

launched within just four days.

2 2

COMMUNITY

I firmly believe the No. 1 job I have is to set the culture of
the company. That’s going to drive success. That’s going
to drive integrity. That’s going to drive everything about
the company.

N I C CE O HAR RY H E R I N GTO N

As quoted in the May 19, 2013 “Corner Office”

column in the New York Times

Each year, NIC recognizes the individuals
that go above and beyond in giving back
to their community with the Citizen and
Team of the Year awards.

In 2013, NIC’s Corporate Communications Specialist, Dessi Tomova, won the Citizen of the

Year award for organizing and participating in several local community involvement activities.

She played a key role in increasing NIC corporate employee participation in a variety of

community and wellness initiatives. NIC’s Hawaii team won the Company’s Team of the

Year award for their work to clean up area beaches, clearing trails, adopting families during

the holidays, and more. The Hawaii team also created a dedicated website that tracks their

community involvement, complete with employee profiles that list their favorite charities and

recent participation.

Wellness plays a big role in NIC’s culture and its volunteer efforts. Several times a year, NIC

teams are competing in charity run-walks or donating blood. These efforts culminated with NIC

being named as one of the healthiest employers in Greater Kansas City in December 2013.

Ride4Cops, which NIC’s CEO Harry
Herington founded in 2009,

was featured on NBC’s Today Show. Accompanied by governors, secretaries of state,

and attorneys general, Harry led by example in his spare time, and took his message

of supporting families of fallen officers to eight states in 2013: Connecticut, Delaware,

Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, and Vermont. In August,

the Massachusetts Ride4Cops ceremony in Boston paid tribute to MIT Officer Sean Collier

who was murdered earlier in the year in conjunction with the Boston Marathon bombing.

Harry shared with the Today Show, “The most rewarding part is the family members. I was

unprepared for the emotion—they are so grateful that someone remembers their fallen

hero—remembers them as a person.”

B E S U R E T O V I S I T:

R I D E4C O P S.C O M

2 3

NIC 2013 ANNUAL REPORT

Awards

The Best of Web

1st Place

Tennessee

2nd Place

Utah

4th Place

South Carolina

5th Place

Maine

Finalists

Arkansas, Hawaii, Mississippi, Nebraska,
Rhode Island, and Texas.

2 4

AwARDS

AAmv A PACe A WAr d

Honorable mention

Texas, TV Commercials, “Hector”

silver: Professional services

Honorable mentions:

Arkansas, Arkansas.gov

Government-to-Business

Indiana, Economic Development Corporation

and “The Hendersons”

silver: educational Website

Project Information Management System

B e sT F IT I nTeG rAT or AWAr ds

Best Fit Integrator exceptional

service Award

Arkansas, Education Services: Arkansas

Career Pathways Data Management System

Best Fit Integrator long Term

service Award

South Carolina, “Palmetto Pay” Payment

Processing Solutions

Indiana, Learn More Indiana

NIC Technologies, Department of

Transportation, Pre-Employment Screening

silver: mobile Websites for education

Program

Indiana, Learn More Indiana

silver: mobile marketing for education

Hawaii, Electronic Marriage and Civil Union

Winner: Government-to-Citizen

Indiana, Learn More Indiana

dIG ITAl Gove r n m e nT

ACH I eve m e nT A WAr d

Winner: Government-to-Government

Arkansas, Arkansas Centralized Electronic

Best Fit Integrator Performance Award

Network of Sex Offender Registry (CENSOR)

Arkansas, Licensing: Arkansas State Board of

Oklahoma, Oklahoma Office of Management

Nursing Online License Application System

and Enterprise Services’ Legislative Analysis

B e sT oF sTATe

Winner: Best Web-Based Community

Winner: Government Internal

Application

Utah, Utah.gov

B ronz e QU I ll AWAr d

Honorable mention

Texas, 2012 Texas.gov Marketing Campaign

Texas, 2012 Texas.gov Online ads

Texas, 2012 Texas.gov TV Commercials

Arkansas, Arkansas State Jobs Applicant

Tracking Module

Winners: Government-to-Business

Delaware, Veteran Directory (GIC) with Single

Sign-on provisioned by Delaware Interactive

Hawaii, Hawaii Maintains Sustainable Fisheries

Registration System

Indiana, myBMV website

Indiana, INSPECT, Prescription Drug

Monitoring System

Mississippi, Department of Wildlife, Hunting

and Fishing License Suite

Tennessee, Department of Transportation’s

SmartWay mobile application

Utah, My Case

Honorable mention: Government-to-Citizen

Montana, Montana’s Prescription Drug Registry

driving digital Government Award

Nebraska, Nebraska Handicap Parking Permit

Application and Management System

Oklahoma, Governor Mary Fallin’s Governors

Appointment Suite of Services

dAvey AWAr d

Gold: Government Website

Arkansas, Arkansas.gov

silver: Government Website

Maine, Maine.gov

Maryland, Maryland.gov

with Electronic Fishing Trip Reporting

exCe lle nCe.Gov A WAr d

Kansas, Kansas Courts Mobile Services

Finalist

New Jersey, Alcotest Inquiry System

Oregon, Oregon Secretary of State’s

Business Xpress

Utah, One-Stop Business Registration

2 5

NIC 2013 ANNUAL REPORT

Awards

G m I s e lITe A CH I eve r AWAr d

Gold: Website/Government

PTI

Portal redesign

South Carolina, SC.gov

Maryland, Maryland.gov

leader in Innovative Application of Web 2.0

Technologies and Civic/social media Tools

Gold: mobile & Web-Based Technology/

Delaware, Public Integrity Reporting System

H e r m e s Cr eATIve A WAr d

Gold

Mississippi, Mississippi Department of Wildlife,

mobile Website

Maryland, Maryland.gov

Fisheries, & Parks Android Mobile Application

moB I le We B A WAr d

Winner

Utah, MDI 2.0

Hor Izon AWAr d

Bronze

Utah, Utah.gov

IACA m e r IT A WAr d

merit Award

Best energy mobile Application

sTevI e AWAr d

Hawaii, EV Stations Hawaii

Customer service department of the y ear,

Public services & education

outstanding mobile Government Website

Texas, Texas.gov

Maryland, Maryland.gov

nAGW P I n nACle A WAr d

Innovator Award for emerging media

s U m m IT Cr eATIve A WAr d

South Carolina, UCC Online - SC Secretary

of State

state/ nGo

Hawaii, eHawaii.gov

I nTe rACTIve m e dIA A WAr d (I mA)

Government: ImA Best in Class Award

nAsCIo A WAr d

outstanding Achievement

Maryland, Maryland.gov

silver: Government

Indiana, Indiana State Fair

Arkansas, Arkansas.gov

Arkansas, Gov2Go

Maryland, Maryland.gov

Mississippi, MS.gov

Texas, Texas.gov

Utah, Utah.gov

outstanding Achievement

Delaware, Delaware.gov HTML5

Professional License

Delaware, Delaware State Police Mobile

CrimeStoppers App for iOS and Android

Nebraska, Nebraska Handicap Parking Permit

Application and Management System

Bronze: Government

Indiana, IN.gov

Maine, Maine.gov

Finalist: Fast Track

Utah, Bill Watch

TH e Com m U n ICATor AWAr d

silver: education

Indiana, Learn More Indiana

Finalist: open Government Initiatives

Gold: Government

Utah, uGATE

Indiana, IN.gov

mArCom A WAr d

Gold: design (Web)/Website redesign

Maryland, Maryland.gov

Finalist: Government-to-Citizen

Utah, My Case

silver: Government

Indiana, Indiana State Fair

Maine, Maine.gov

2 6

Gold: Homepage

Indiana, IN.gov

silver: Homepage

Mississippi, MS.gov

silver: Integrated Campaign - Business-to-

Consumer

Texas, 2012 Texas.gov Advertising Campaign

silver: structure and navigation

Mississippi, MS.gov

silver: Travel/Tourism

Indiana, Indiana State Fair

Gold: visual Appeal

Indiana, IN.gov

silver: v isual Appeal

Indiana, Learn More Indiana

Indiana, Indiana State Fair

silver: Web application and services

Alabama, Alabama.gov

Texas, Texas Driver License Renewal

UTAH I n nov ATIon A WAr d

We B AWA r d

Honorable mention

Government standard of excellence

Utah, Utah.Gov Master Index

Maine, Maine.gov

vI s UAl e xCe lle nCe I n TH e

m U lTI m e dIA ArTs (ve mA)

Government Website Winners

Alabama, Alabama.gov

Maryland, Maryland.gov

Utah, Utah.gov

W3 AWAr d

Gold:

Alabama, Alabama.gov

outstanding Website, Government

Mississippi, MS.gov

outstanding Achievement

Texas, Texas.gov

Best Government rich media online

Campaign

Texas, Texas.gov 2012 Online Advertising

Colorado, Save Time. Renew Online! Marketing

Campaign

Maryland, Maryland.gov

silver:

Colorado, Colorado.gov

Hawaii, eHawaii.gov

Indiana, IN.gov

Mississippi, MS.gov

Rhode Island, RI.gov

South Carolina, SC.gov

Winner: Best of Government

Utah, Utah.gov

We sTe r n ATTor n eys G e n e rAl

AWAr d (WAGGy)

Best redesign

Arkansas, Attorney General website

AwARDS

2 7

NIC 2013 ANNUAL REPORT

Board of Directors

G OV. PETE wI LS ON

Director

Governor Wilson, 80, is a Principal at Bingham Consulting Group,

a business consulting firm. He previously served as Governor and

U.S. Senator for the state of California and Mayor of San Diego. He

is also a Director of The Irvine Corporation and U.S. Telepacific

Corporation. He became an NIC Director in 1999.

R OS S C. HARTLEY

Director

Mr. Hartley, 66, is a co-founder of NIC and former President of The

Hartley Insurance Group. He is also a Director of the Empire District

Electric Company. He became a Director of the original companies

that ultimately formed NIC Inc. beginning in 1991, and later an NIC

Director upon the Company’s formation in 1998.

G OV. C. B RAD H E N RY

Director

Governor Henry, 50, is of counsel to the law firm of Lester, Loving

and Davies in Edmond, Okla., and is a founding member of Henry-

Adams Companies, LLC. He was appointed by President Obama

to the federal Council of Governors. He previously served as the

Governor of Oklahoma, and was only the third governor in the state

to serve two consecutive terms. He became an NIC Director in 2011.

P i C t u r e D l e f t tO r i g h t :

G OV. PETE wI LS ON, R OS S C . HAR T LE Y , G OV. C. B RAD H E N RY, ALE XAN D E R C . K E M P E R, KAR E N S . EVAN S, G OV. DAN I E L J.

EVAN S, wI LLIAM M . L YON S, AR T N. B U R TS CH E R, HAR RY H. H E R I N GTO N

2 8

CORPORATE & STOCKHOLDER INFORMATION

ALE XAN D E R C. K E M PE R

Director

wI LLIAM M. LYON S

Director

Mr. Kemper, 48, is Chairman of The Collectors Fund, a private

Mr. Lyons, 58, is the former President and CEO of American Century

equity fund, and Chairman and Chief Executive Officer of C2FO,

Companies, Inc., a Kansas City-based investment manager. Mr. Lyons

a trade settlement company. He is a Director of UMB Financial

is also a Director of Morningstar, Inc. and the NASDAQ Stock Market,

Corp., AXA, ArtUSA, and several privately held companies. He

NASDAQ OMX BX, and NASDAQ OMX PHLX (all wholly owned

became an NIC Director in 2007.

subsidiaries of the NASDAQ OMX Group (NASDAQ: NDAQ )). He

KAR E N S. EVAN S

Director

became an NIC Director in 2009.

ART N. B U RTS CH E R

Ms. Evans, 54, is an independent consultant and the National

lead independent Director

Director of U.S. Cyber Challenge, a nationwide talent search and

Mr. Burtscher, 63, is President-Western Region of Westwood

skills development program focused on the cyber workforce.

Trust. He is also a Director of Novation, and several privately held

She previously served as the de facto Chief Information Officer

companies. He became an NIC Director in 2004 and was named

under President George W. Bush. She became an NIC Director

Lead Director in 2008.

in 2011.

G OV. DAN I E L J. EVAN S

Director

HAR RY H. H E R I N GTON

Chairman of the Board and Chief executive Officer

Mr. Herington, 54, is the Chief Executive Officer of NIC and

Governor Evans, 88, is Chairman of Daniel J. Evans Associates

previously served as the Company’s President, Chief Operating

Consulting, a public policy consulting firm, and previously served

Officer, and Executive Vice President of Portal Operations. He

as Governor and U.S. Senator for the state of Washington. He is

became an NIC Director in 2006.

also a Director of Costco Wholesale Corporation and Archimedes

Technology Group. He became an NIC Director in 1998.

Committee
Memberships

AU dIT C om m IT Te e

Art N. Burtscher, Chair · Karen S. Evans · Alexander C. Kemper · William M. Lyons

C o m P e n sAT Ion C om m IT Te e

Alexander C. Kemper, Chair · Art N. Burtscher · Daniel J. Evans

C. Brad Henry · Pete Wilson

C or P orATe Gov e r nAnCe & nom I nATI nG C om m IT Te e

William M. Lyons, Chair · Daniel J. Evans · Karen S. Evans · Ross C. Hartley

C. Brad Henry · Pete Wilson

Contacting the
Board of Directors

Communications to NIC’s Board of Directors should be

sent via e-mail to board@egov.com or in writing to:

Board of directors, n IC Inc.

25501 West Valley Parkway, Suite 300

Olathe, Kansas 66061

The Board’s committee charters, the Company’s

Code of Business Conduct and Ethics, and Corporate

Governance Principles and Best Practices may be

found on the Company’s website at www.egov.com/

Investors/CorporateGov and may be obtained in print

by contacting the Investor Relations Department at

invest@egov.com or (913) 498-EGOV.

2 9

NIC 2013 ANNUAL REPORT
NIC 2013 ANNUAL REPORT

Corporate
Information

3 0

CORPORATE & STOCKHOLDER INFORMATION

Outside
Counsel

Independent Registered
Public Accountants

stinson l eonard street ll P

PricewaterhouseCoopers llP

1201 Walnut Street

Suite 2900

Kansas City, Missouri 64106

(816) 842-8600

www.stinsonleonard.com

1100 Walnut Street

Suite 1300

Kansas City, Missouri 64106

(816) 472-7921

www.PwC.com

Stockholder Information

A n n UAl m e eT I nG

The Annual Meeting of NIC Inc. stockholders will be held on May 6, 2014 at The Oread, 1200 Oread Avenue, Lawrence, KS 66044.

A formal notice about how to access the proxy statement and proxy form (along with the 2013 Form 10-K), will be mailed in advance of the meeting

to all stockholders of record entitled to vote. Stockholders are encouraged to attend the meeting, but those unable to do so are asked to sign and

return the proxy form.

sT o Ck l I sT I nG

NIC Inc.’s common stock is traded on NASDAQ Global Select market under the symbol “EGOV.”

I nv e sT or r e lAT Ion s

Copies of NIC’s Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, and other publications are available free of charge upon request.

Inquiries should be directed to:

Angela davied

Director of Corporate Communications &

Investor Relations

25501 West Valley Parkway,

Suite 300

Olathe, Kansas 66061

(913) 754-7054

(877) 234-EGOV

adavied@egov.com

Important information is included in the most recent Form 10-K, which

is included in this annual report. These documents can also be viewed

online at www.egov.com/Investors.

r eG I sTe r An d TrAn s F e r AG e nT

Computershare

250 Royall Street

Canton, MA 02021

(781) 575-2000

www.computershare.com

3 1

NIC 2013 ANNUAL REPORT

Credits

Bernstein-rein

TrAde mAr k s & r eG I sTe r e d s e rvICe m Ar k s

Kansas City, Missouri

www.bernstein-rein.com

NIC Inc. is a registered service mark of NIC Inc. The NIC logo and

“The People Behind eGovernment” are registered trademarks of NIC Inc. Certain

Blue ocean Consulting

other name and logos protected by trademark appear in this report. Rather than list

Olathe, Kansas

www.1boc.com

the names and entities that own these trademarks or insert a trademark symbol with

each mention of the trademark, NIC Inc. states that it is using the names only for

informational purposes and to the benefit of the trademark owner with no intention of

infringing upon that trademark.

3 2

_________________________________________________________________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended December 31, 2013



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

For the transaction period from to

Commission file number 000-26621

NIC INC. (Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

52-2077581
(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
Common Stock, $0.0001 par value per share

Name of Each Exchange on Which Registered
The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None
___________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No 

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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):

Large accelerated filer 
Non-accelerated filer 
(Do not check if a smaller reporting company)

Accelerated filer 
Smaller reporting company 

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

The aggregate market value of voting stock held by non-affiliates of the registrant, as of June 30, 2013, was approximately
$991,897,097 (based on the closing price for shares of the registrant’s common stock as reported by the NASDAQ Global Select
Market on that date). Shares of common stock held by each executive officer, director and holder of 10% or more of the outstanding
common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status for
purposes of this calculation is not intended as a conclusive determination of affiliate status for other purposes.

On February 12, 2014, 65,035,010 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be issued in connection with its Annual Meeting of Stockholders to be held
in 2014 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS
NIC INC.
FORM 10-K ANNUAL REPORT

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

PART I

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

PART III

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Item 15.

Exhibits, Financial Statement Schedules

PART IV

Page

1
12
21
21
22
22

24
25
35
36
58
58
58

59
59
59
60
60

PART I

CAUTIONS ABOUT FORWARD LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K regarding NIC Inc. and its subsidiaries (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 of assumptions underlying such statements, and statements of NIC’s or
management’s 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 risks related to economic and competitive conditions. Any forward-looking statements made in this Form
10-K speak only as of the date of this report. We will not necessarily update the information in this Annual Report on Form 10-K if
any forward-looking statement later turns out to be inaccurate. No one should assume that results projected in or contemplated by the
forward-looking statements will continue to be accurate in the future. Details about risks affecting various aspects of our business
are included throughout this Form 10-K. Investors should read all of these risks carefully, and should pay particular attention to risks
affecting competition issues discussed on page 11, the other specific risk factors discussed on pages 12 to 21, the factors discussed
in the introduction to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and
commitments and contingencies described in Notes 2, 3, 6, 7 and 9 to the Consolidated Financial Statements included in this
Form 10-K. Other factors not presently identified may also cause actual results to differ.

AVAILABLE INFORMATION

Our website address is http://www.egov.com. Through this website, we make available, free of charge, on the Investor

Relations section of our website (http://www.egov.com/Investors/Financials/Pages/SEC.aspx) our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports (if any), as soon as reasonably
practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). We
also make available through our website other reports filed with the SEC under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange
Act. We do not intend for information contained in our website to be part of this Annual Report on Form 10-K.

The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at

100F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding the issuers that file electronically with the SEC.

FREQUENTLY USED TERMS

In this Annual Report on Form 10-K, we use the terms “NIC,” “the Company,” “we,” “our,” and “us” to refer to NIC Inc.

and its subsidiaries, unless the context otherwise requires. All references to years, unless otherwise noted, refer to our fiscal year,
which ends on December 31. We use the term “eGovernment” to refer to electronic government, and we use the term “portal” to
refer to an official government website outsourced to NIC. We use the term “enterprise-wide” to refer to our portals that provide
state-wide services to multiple government agencies, which excludes our New Mexico portal, which serves only the New Mexico
Motor Vehicle Division and its parent (the New Mexico Taxation and Revenue Department) and our agreements to provide
eGovernment services for two state agencies in the Commonwealth of Virginia. We also use the term “partner” to refer to our
government clients, with whom we have contractual relationships for eGovernment services.

INDUSTRY AND MARKET DATA

Industry and market data and survey and study results disclosed in this Form 10-K were obtained from industry, university,
public interest, government and general publications. We have not independently verified the industry and market data or survey or
study results obtained from these publications. Actual future industry and market conditions and results may differ materially from
the conditions and results forecasted or reported in these publications.

ITEM 1. BUSINESS

Business Overview

NIC is a leading provider of eGovernment services that helps governments use the Internet to reduce internal costs, increase
efficiencies, and provide a higher level of service to businesses and citizens. We accomplish this currently through two channels: our
primary outsourced portal businesses and our software & services businesses. In our primary outsourced portal businesses, we
generally enter into long-term contracts with state and local governments to design, build, and operate Internet-based,
enterprise-wide portals on their behalf. These portals consist of websites and applications we have built that allow businesses and
citizens to access government information online and complete secure transactions, such as applying for a permit, retrieving
government records, or filing a government-mandated form or report. The business model supporting most of our long-term
contracts is a self-funded model. Our self-funded business model is one where we absorb the costs to build the portal’s technical

infrastructure and develop eGovernment services. After a service has launched, we and our government partners share a portion of
the fees generated from electronic transactions, which are paid by the end users of the service. Our government partners benefit by
reducing their financial and technology risks, increasing their operational efficiencies, and gaining a centralized, customer-focused
presence on the Internet, while businesses and citizens receive a faster, more convenient, and more cost-effective means to interact
with governments. We are typically responsible for funding up-front investment and ongoing operations and maintenance costs of
the government portals.

We typically enter into multi-year contracts with our government partners and manage operations for each contractual

relationship through separate local subsidiaries that operate as decentralized businesses with a high degree of autonomy. Our
business plan is to increase our revenues by delivering new services to a growing number of government entities within our existing
contractual relationships and by signing long-term portal contracts with new government partners.

Our software & services businesses operate primarily through NIC Technologies, LLC (“NIC Technologies”), our

subsidiary, which provides software development and services, other than enterprise-wide outsourced portal services, to state and
local governments as well as federal agencies.

Segment Information

Our Outsourced Portals segment is our only reportable segment and generally includes our subsidiaries that operate

outsourced state and local government portals and the corporate divisions that support portal operations. The Other Software &
Services category primarily includes our subsidiaries that provide software development and services, other than enterprise-wide
outsourced portal services, to state and local governments as well as federal agencies. For additional information relating to our
reportable and operating segments, refer to Note 11 in the Notes to Consolidated Financial Statements included in this Form 10-K.

Industry Background

The market for business-to-government and citizen-to-government transactions

Government regulation of commercial and consumer activities requires billions of transactions and exchanges of large

volumes of information between government agencies and the businesses they regulate and the citizens they serve. These
transactions and exchanges include, but are not limited to: motor vehicle driver history record retrieval, motor vehicle registrations,
tax returns, permit applications, and requests for government-gathered information. Government agencies typically defray the cost
of processing these transactions and of storing, retrieving, and distributing information through a combination of general tax
revenues, service fees, and charges for direct access to public records.

The limits of traditional government transaction methods

Traditionally, government agencies have transacted, and in many cases continue to transact, with businesses and citizens

using processes that are inconvenient and labor-intensive, require extensive paperwork, and use outmoded technology and large
amounts of scarce staff resources. Transactions and information requests are often made in person or by mail, which increases the
potential for the compromise of sensitive personal information or errors that require revisions and follow-ups, particularly if the
transactions and information requested are processed manually. Even newer methods, including telephone response systems, rely on
multiple systems and potentially incompatible data formats, and require significant expertise and expenditures to introduce and
maintain. As a result, businesses and citizens often have no choice but to face costly delays to complete essential tasks. These delays
include waiting in line at a government agency, for answers by telephone, for responses by mail, or for payments by check. In
addition, government agencies may not use modern methods of electronic payment, leaving businesses and citizens unable to pay
certain fees online or at the counter using credit/debit cards or electronic checks, or government agencies may require advance
payment rather than monthly billing. Businesses and citizens encounter further inconvenience and delay because they usually can
work with government agencies only during normal business hours. Even when electronic alternatives are available, they often
require a cumbersome process of multiple contacts with different government agencies or outdated payment methods. Increases in
the level of economic activity and in the population have exacerbated these problems and increased the demand for new services.

Growth of the Internet, electronic commerce, and eGovernment

The Internet is a global medium that enables billions of people worldwide to share information, communicate, and conduct

business electronically. The Pew Research Center, a nonprofit, nonpartisan group that provides information on the issues shaping
America, launched the Pew Internet & American Life Project to study the social impact of the Internet.

According to the Project’s Spring 2013 survey on Internet access, 85% of all American adults use the Internet, compared to

just 64% of all American adults 10 years ago. Nearly all, 91%, use a search engine to find information on the Internet, with 67%
using the Internet to visit a local, state, or federal government website. In addition, Americans continue to access the Internet through
various devices: 61% of American adults have a laptop computer, 58% have a desktop computer, 56% have a smartphone, 26% own
an e-book reader, and 34% own a tablet computer. Among smartphone owners, young adults, minorities, those with no college
experience, and those with lower household income levels are more likely than other groups to say that their phone is their main
source of Internet access.

This recent data points to a rapid increase in mobile technology use. One goal of the White House 2012 Digital Government

Strategy: “Building a 21st Century Platform to Better Serve the American People,” is to “enable the American people and an
increasingly mobile workforce to access high-quality digital government information and services anywhere, anytime, on any
device.” According to a 2013 Pew study, 63% of all cell phone owners use the device to access the Internet – up from 38% just three
years ago. In addition the Pew study noted that “21% of all adult cell phone owners now do most of their online browsing using their
mobile phone – and not some other device such as a desktop or laptop computer.”

In its “Analytical Perspectives of the Budget of U.S. Government,” the Office of Management and Budget of the Obama
Administration stated that it is committed to building a 21st century government that is more efficient and effective for the American
people, with information technology as a critical component of reaching that goal. Therefore, the federal government is planning to
invest $82.0 billion on information technology (“IT”) in fiscal year 2014. According to IT consultancy Gartner, worldwide IT
spending is estimated to reach $3.8 trillion by the end of 2014, $100 billion more than 2013.

Acceptance of the Internet as a medium for eGovernment

The acceptance of the Internet and electronic commerce presents a significant opportunity for the development of

eGovernment, in which government agencies conduct transactions and distribute information over the Internet. By using the
Internet, government agencies can increase the volume and efficiency of interactions with constituents without significantly
increasing expenditures or demands on current personnel. In addition, regardless of physical distance, businesses and citizens can
obtain government information quickly and easily over the Internet. For example, motor vehicle administrators can provide
instantaneous responses to auto insurers’ requests for driving record data by allowing controlled access to government databases
through the Internet. This online interaction reduces costs for both government and users and decreases response times compared to
providing the same data by mail.

Challenges to the implementation of eGovernment services

Despite the potential benefits of eGovernment, barriers to creating successful Internet-based services occasionally preclude

governments from implementing them. Some of these barriers are similar to those the private sector encounters, including:

●

the high cost of implementing and maintaining Internet technology in a budget-constrained environment;

the need to quickly assess the requirements of potential customers and cost-effectively design and implement eGovernment
services that are tailored to meet these requirements;

the intense competition for qualified technical personnel; and

the need for updated Internet and mobile friendly payment methods, that are secure and compliant with Payment Card
Industry standards.

Governments also face some unique challenges that exacerbate the difficulty of advancing to Internet-based services,

including:

●

lengthy and potentially politically charged appropriations processes that make it difficult for governments to acquire
resources and to develop Internet services quickly;

a diverse and substantially autonomous group of government agencies that have adopted varying and fragmented
approaches to providing information and transactions over the Internet;

a lack of marketing expertise to ensure that services are designed to meet the needs of businesses and citizens, to increase
the awareness of the availability of the services, and to drive adoption of the online service delivery channel;

security and privacy concerns that are amplified by the confidential nature of the information and transactions available
from and conducted with governments and the view that government information is part of the public trust;

changes in administration and turnover in government personnel among influencers and key decision makers; and

barriers to use of credit/debit cards and electronic check payments.

We believe many private sector service providers generally do not address the unique needs of enterprise-wide
eGovernment. Most service providers do not fully understand and are not well-equipped to deal with the unique political, regulatory,
and security structures of governments. These providers, including large systems integrators, typically take a time-and-materials,
project-based pricing approach and provide “off-the-shelf” solutions designed for other industries that may not adequately address
the needs of government.

What We Provide to Governments

We provide Internet-based eGovernment services designed to meet the needs of governments, businesses, and citizens. The

key elements of our service delivery are:

Customer-focused, one-stop government portal

Using our marketing and technical expertise and our government experience, we generally design, build, and operate

Internet-based portals on an enterprise-wide basis for our state and local government partners and Internet-based services for our
federal partners that are designed to meet their needs as well as those of the businesses and citizens they serve. Our enterprise-wide
outsourced portals are designed to create a single point of presence on the Internet that allows businesses and citizens to reach the
website of every government agency in a specific jurisdiction from one online location. We strive to employ a common look and feel
in the websites of all government agencies associated with each state’s government portal and make them useful, appealing, and
easy to use. In addition to developing and managing the government portal, we develop applications that allow businesses and
citizens to complete processes that have traditionally required separate offline interactions with several different government
agencies or older generation electronic access. These applications permit businesses and citizens to conduct transactions with
government agencies and to obtain information 24 hours per day and seven days per week using the latest technology and payment
methods. We also help our government partners generate awareness and educate businesses and citizens about the availability and
potential benefits of eGovernment services.

Compelling and flexible financial models for governments

With our self-funded business model, we allow governments to implement comprehensive eGovernment services at

minimal cost and risk. We take on the responsibility and cost of designing, building, and operating government portals and
applications, with minimal use of government resources. We employ our technological resources and accumulated expertise to help
governments avoid the risks of selecting and investing in new and often untested technologies that may be implemented by unproven
third-party providers. We implement our services rapidly, efficiently, and accurately, using our well-tested and reliable
infrastructure and processes. Once we establish a portal and the associated applications, we manage transaction flows, data exchange
and payment processing, and we fund ongoing costs from the fees received from portal users, who access information and conduct
transactions through the portal. A 2013 study by the University of Utah of nearly 1,500 businesses in three NIC partner states, found
that 95% approve of their state’s eGovernment services, with 90% preferring to conduct business with state government online and
96% saying that eGovernment services save their business time. In addition, the majority of the businesses surveyed said they
believe fees associated with eGovernment services are reasonable and that eGovernment services reinforce the perception that the
state is business-friendly. A 2012 study by the University of Utah found that by placing just nine high-volume services online and by
utilizing NIC’s self-funded business model, the state of Utah avoided approximately $61 million in costs related to the operations of
its official web portal and the development of online services from fiscal years 2007 through 2011. We are also able to provide
specific fee-based application and outsourced portal solutions to governments who cannot or do not wish to pursue a self-funded
portal solution.

Focused relationship with governments

We form relationships with governments by developing an in-depth understanding of their interests and then aligning our

interests with theirs. By tying our revenues to the development of successful services and applications, we work to assure
government agencies and constituents that we are focused on their needs. Moreover, we have pioneered and encourage our partners
to adopt a model for eGovernment policymaking that involves the formation of oversight boards to bring together interested
government agencies, business and consumer groups, and other vested interest constituencies in a single forum. We work within this
forum to maintain constant contact with government agencies and constituents and strive to ensure their participation in the
development of eGovernment services. We attempt to understand and facilitate the resolution of potential disputes among these
participants to maximize the benefits of our services. We also design our services to observe relevant privacy and security
regulations, so that they meet the same high standards of integrity, confidentiality, and public service as government agencies strive
to observe in their own actions.

Government Contracts

Our outsourced enterprise-wide state contracts

The following is a summary of the portals in each state through which we provide enterprise-wide outsourced portal

services to multiple government agencies at December 31, 2013:

NIC Portal Entity
Wisconsin Interactive Network, LLC
Pennsylvania Interactive, LLC*
NICUSA, OR Division
NICUSA, MD Division
Delaware Interactive, LLC
Mississippi Interactive, LLC
New Jersey Interactive, LLC
Texas NICUSA, LLC
West Virginia Interactive, LLC
NICUSA, AZ Division

Portal Website (State)
www.wisconsin.gov (Wisconsin)
www.pa.gov (Pennsylvania)
www.oregon.gov (Oregon)
www.maryland.gov (Maryland)
www.delaware.gov (Delaware)
www.ms.gov (Mississippi)
www.nj.gov (New Jersey)
www.Texas.gov (Texas)
www.WV.gov (West Virginia)
www.AZ.gov (Arizona)

Vermont Information Consortium, LLC www.Vermont.gov (Vermont)
www.Colorado.gov (Colorado)
Colorado Interactive, LLC
www.SC.gov (South Carolina)
South Carolina Interactive, LLC
www.Kentucky.gov (Kentucky)
Kentucky Interactive, LLC
www.Alabama.gov (Alabama)
Alabama Interactive, LLC
www.RI.gov (Rhode Island)
Rhode Island Interactive, LLC
www.OK.gov (Oklahoma)
Oklahoma Interactive, LLC
www.MT.gov (Montana)
Montana Interactive, LLC
www.TN.gov (Tennessee)
NICUSA, TN Division
www.eHawaii.gov (Hawaii)
Hawaii Information Consortium, LLC

www.Idaho.gov (Idaho)
www.Utah.gov (Utah)
www.Maine.gov (Maine)

Idaho Information Consortium, LLC
Utah Interactive, LLC
Maine Information Network, LLC
Arkansas Information Consortium, LLC www.Arkansas.gov (Arkansas)
Iowa Interactive, LLC
Indiana Interactive, LLC
Nebraska Interactive, LLC
Kansas Information Consortium, Inc.

www.Iowa.gov (Iowa)
www.IN.gov (Indiana)
www.Nebraska.gov (Nebraska)
www.Kansas.gov (Kansas)

Year Services
Commenced
2013
2012
2011
2011
2011
2011
2009
2009
2007
2007

2006
2005
2005
2003
2002
2001
2001
2001
2000
2000

2000
1999
1999
1997
1997
1995
1995
1992

Contract Expiration Date
(Renewal Options Through)
5/13/2018 (5/13/2023)
11/30/2017 (11/30/2022)
11/22/2021
8/10/2016 (8/10/2019)
9/25/2014 (9/25/2017)
12/31/2015 (12/31/2021)
6/30/2014
8/31/2016 (8/31/2018)
6/30/2014
In transition period – 3/26/2014
(6/26/2014)
6/8/2016 (6/8/2019)
5/18/2014
7/15/2014
8/31/2014 (8/31/2015)
2/28/2015 (2/28/2017)
2/28/2014
12/31/2014
12/31/2015 (12/31/2020)
9/30/2014 (3/30/2016)
1/3/2016 (unlimited 3-year
renewal options)
6/30/2015
6/5/2016 (6/5/2019)
7/1/2016 (3/14/2018)
6/30/2018
3/31/2014
7/1/2014
1/31/2016
12/31/2014 (12/31/2017)

*See Note 2 in the Notes to Consolidated Financial Statements included in this Form 10-K for discussion of the Pennsylvania
contract.

Contract Developments

During the first quarter of 2013, we received a one-year contract extension from the state of Kansas, a two-year contract
extension from the state of Nebraska and a four-month contract extension from the state of Vermont. Additionally, we received a
five-month contract extension from the state of Rhode Island.

During the second quarter of 2013, we were awarded a five-year contract by the state of Wisconsin to manage its
government portal, which includes an option for the government to extend the contract up to an additional five years. In addition, we
were awarded a new three-year contract from the state of Vermont, which includes an option for the government to extend the
contract for one additional three-year period. We also received a two-year contract extension from the state of Idaho, one-year
contract extensions from the Commonwealth of Kentucky and the state of New Jersey, and six-month contract extensions from the
state of Iowa and the state of Arizona with respect to the expiring Arizona portal contract.

During the third quarter of 2013, we received a two-year contract extension from the state of Maine. In addition, we

received a six-month contract extension from the state of West Virginia and a three-month contract extension from the state of Iowa.

During the fourth quarter of 2013, we received a one-year contract extension from the state of Oklahoma, a six-month

contract extension from the state of West Virginia and a three-month contract extension from the state of Arizona with respect to the
expiring Arizona portal contract.

During the first quarter of 2014, we were awarded a three-year contract with the state of Connecticut to manage its

government portal, which includes renewal options for the government to extend the contract up to an additional three years. In
addition, the Company received a three-month contract extension from the state of Iowa and a two-month contract extension from
the state of Rhode Island.

Portal Agreements

Our outsourced government portals operate under separate contracts that generally have an initial multi-year term. Under a

typical self-funded contract, a government agrees that:

●

we have the right to develop a comprehensive Internet portal owned by that government to deliver eGovernment services;

the portal we establish is the primary electronic and Internet interface between the government and its businesses and
citizens;

it will advocate the use of the portal for all commercially valuable applications in order to support the operation and
expansion of the portal;

it will sponsor access to agencies and local governments for the purpose of our entering into agreements with these
agencies to develop applications for their data and transactions and to link their Web pages to the portal; and

it will establish a policy-making and fee approval authority, which typically includes agency members, business customers,
and others, to establish prices for services and to set other policies.

In return, we agree to:

develop, manage, market, maintain, and expand that government’s portal and information and electronic commerce
applications;

assume the investment risk of building and operating that government’s portal and applications without the direct use of tax
dollars;

process electronic payments;

bear the risk of collecting transaction fees; and

have an independent audit conducted upon that government’s request.

We typically own all the intellectual property in connection with the applications we develop under our government portal
contracts. After completion of a defined contract term, our government partner typically receives a perpetual, royalty-free license to
use the software only in its own portal. However, certain customer management, billing, and payment processing software
applications that we have developed and standardized centrally and that are utilized by our portal businesses, are being provided to
an increasing number of our government partners on a software-as-a-service, or “SaaS,” basis, and thus would not be included in any
royalty-free license. If our contract was not renewed after a defined term or if our contract was terminated by our government partner
for cause, the government agency would be entitled to take over the portal in place with no future obligation of or to us, except as
otherwise provided in the contract and except for the services we provide on a SaaS basis, which would be available to our partners
on a fee-for-service basis. We also provide certain payment processing services on a SaaS basis to a few private sector companies
and to state and local agencies in states where we do not maintain an enterprise-wide outsourced portal contract, and may continue to
market these services to other entities in the future. Historically, however, revenues from these services have not been material. In
some cases, we enter into contracts to provide consulting, application development, and portal management services to governments
in exchange for an agreed-upon fee.

We also enter into separate agreements with various agencies and divisions of our government partners for the sale of

electronic access to public records and to conduct other transactions. These agreements preliminarily establish the pricing of the
electronic transactions and data access services we provide and the amounts we must remit to the agency. These terms are then
submitted to the policy-making and fee approval authority for approval. Generally, our contracts provide that the amount of any fees
we retain is set by governments to provide us with a reasonable return or profit. We have limited control over the level of fees we are
permitted to retain. Any changes made to the amount or percentage of fees retained by us, or to the amounts charged for the services
offered, could materially affect the profitability of the respective contract to us. We do have the general ability to control certain of
our expenses in the event of a reduction in the amount or percentage of fees we retain; however, there may be a lag in the time it takes
to do so should we determine it is necessary.

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 we breach a material contractual obligation and fail 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 we
provide enterprise-wide outsourced state portal services can be terminated by the other party without cause on a specified period of
notice. Collectively, revenues generated from these contracts represented 57% of our total consolidated revenues for the year ended
December 31, 2013. In the event that any of these contracts is terminated without cause, the terms of the respective contract may
require the government to pay a fee to us in order to continue to use our software in its portal. In addition, the loss of one or more of
our larger state portal partners, such as Alabama, Arkansas, Colorado, Indiana, Montana, New Jersey, Pennsylvania, Tennessee,
Texas, or Utah, as a result of the expiration, termination, or failure to renew the respective contract, if such partner is not replaced,
could significantly reduce our revenues and profitability. See the discussion below under “Expiring Contracts” regarding the
expiration of our contracts with the Commonwealth of Virginia and the state of Arizona.

Our other outsourced state contracts

Our subsidiary, New Mexico Interactive, LLC, has a contract to manage eGovernment services for the New Mexico Motor
Vehicle Division (“MVD”) and its parent, the New Mexico Taxation and Revenue Department. During the second quarter of 2013,
we received a one-year contract extension from the MVD to manage the state’s driver history database through June 30, 2014.

During the second quarter of 2013, our subsidiary, Virginia Interactive, LLC (“VI” or “Virginia Interactive”), signed an
agreement with the Department of Game and Inland Fisheries to provide eGovernment services from September 1, 2013 through
February 28, 2015, which includes an option for the agency to extend the contract for one additional six-month period through
August 31, 2015. During the third quarter of 2013, VI signed an agreement with the Office of the Executive Secretary of the
Supreme Court of Virginia to provide eGovernment services from September 1, 2013 through August 31, 2014, which includes an
option for the agency to extend the contract for one additional 12-month period through August 31, 2015.

Our software & services businesses

NIC Technologies has a contract with the Federal Motor Carrier Safety Administration (“FMCSA”) to develop and manage
the FMCSA’s Pre-Employment Screening Program (“PSP”) for motor carriers nationwide, using the self-funded, transaction-based
business model. During the first quarter of 2014, the FMCSA exercised a one-year renewal option for the PSP contract, extending its
term through February 16, 2015. NIC Technologies also designs and develops online campaign expenditure and ethics compliance
systems for federal and state government agencies. Its contract with the state of Michigan expires on March 31, 2014, and its
contract with the Federal Election Commission (“FEC”) expired on June 30, 2013. For the year ended December 31, 2013, revenues
from the FEC contract accounted for less than 1% of our total consolidated revenues.

Any renewal of these software & services contracts beyond the initial term is optional and a government agency may

terminate its contract prior to the expiration date if we breach a material contractual obligation and fail to cure such breach within a
specified period or upon the occurrence of other events or circumstances specified in the contract. The contract with the FMCSA can
be terminated by the other party without cause on a specified period of notice. The loss of the contract with the FMCSA, as a result
of the expiration, termination, or failure to renew the contract, if not replaced, could significantly reduce our revenues and
profitability. In addition, we have limited control over the level of fees we are permitted to retain under the contract with the
FMCSA. Any changes made to the amount or percentage of fees retained by us, or to the amounts charged for the services offered,
could materially affect the profitability of this contract to us.

Expiring contracts

As of December 31, 2013, there were 15 contracts under which we provide outsourced portal services or software

development and services that have expiration dates within the 12-month period following December 31, 2013. Collectively,
revenues generated from these contracts represented 38% of our total consolidated revenues for the year ended December 31, 2013.
As described above, if a contract is not renewed after a defined term, the government partner would be entitled to take over the portal
in place with no future obligation by us, except as otherwise provided in the contract and except for the services we provide on a
SaaS basis, which would be available to the government agency on a fee-for-service basis.

The contract under which our subsidiary, Virginia Interactive, provided outsourced portal services to agencies of the

Commonwealth of Virginia expired on August 31, 2012. As more fully disclosed in a Form 8-K filed by us with the SEC on April
18, 2012, VI chose not to agree to terms mandated by the Commonwealth of Virginia for a new contract. VI provided transition
services as required by the contract through August 31, 2013. The costs we incurred in transitioning out of VI’s contract with the
Commonwealth of Virginia, including employee retention bonuses, operating lease termination costs, and fixed asset impairment,
did not have a material impact on our consolidated results of operations, cash flows, or financial condition. For the year ended
December 31, 2013, revenues from the legacy Virginia portal contract accounted for approximately 2% of our total consolidated
revenues.

During the first quarter of 2013, our subsidiary, NICUSA, Inc. (“NICUSA”), chose not to respond to a request for proposal
issued by the state of Arizona for a new contract. The contract under which NICUSA provided outsourced portal services to agencies
of the state of Arizona expired on June 26, 2013. However, during the second quarter of 2013, we received a six-month contract
extension from the state of Arizona to provide transition services through December 26, 2013, which included options for the
government to extend the contract for two additional three-month periods. During the fourth quarter of 2013, the state of Arizona
exercised a three-month renewal option, extending its contract term through March 26, 2014. We have evaluated the costs which
may be incurred in transitioning out of NICUSA’s contract with the state of Arizona, including employee retention bonuses,
operating lease termination costs, and fixed asset impairment, which are not expected to have a material impact on our consolidated
results of operations, cash flows, or financial condition. For the year ended December 31, 2013, revenues from the Arizona portal
contract accounted for approximately 1% of our total consolidated revenues.

Our Portal Service Offerings

We work with our state and local government partners to develop, manage, and enhance comprehensive, enterprise-wide,

Internet-based portals to deliver eGovernment services to their constituents. Our portals are designed to provide user-friendly,
convenient, secure multi-channel access, including mobile access, to in-demand government information and services, and include
numerous fee-based transaction services and applications that we have developed. These fee-based services and applications allow
businesses and citizens to access constantly changing government information and to file necessary government documents. The
types of services and the fees charged vary in each portal installation according to the unique preferences of that jurisdiction. In an
effort to reduce the frustration businesses and citizens often encounter when dealing with multiple government agencies, we handle
cross-agency communications whenever feasible and shield businesses and citizens from the complexity of older, mainframe-based
systems that agencies commonly use, creating an intuitive and efficient interaction with governments. We also provide industry-
compliant payment processing systems that accommodate credit/debit cards and electronic checks, as applicable.

Some of the online services we currently offer in different jurisdictions include:

Product or Service
Motor Vehicle Driver History Record
Retrieval

Description
For those legally authorized businesses,
this service offers controlled instant
look-up of driving history records.
Includes commercial licenses.

Primary Users
Insurance companies

Vehicle Title, Lien & Registration

Provides controlled interactive title,

Insurance companies, lenders, citizens

registration, and lien database access.
Permits citizens to renew their vehicle
registrations online.

Motor Vehicle Inspections

Allows licensed state inspection stations

Businesses

to file certified motor vehicle and
emissions testing inspections online.

Temporary Vehicle Tags

Records temporary vehicle tag

Automobile dealerships, citizens, law

registration of a newly purchased car in
real time with the state and issues a
customized temporary plate for display on
the vehicle.

enforcement

Driver’s License Renewal

Permits citizens to renew their driver’s
license online using a credit/debit card.

Citizens

Hunting and Fishing Licenses

Permits citizens to obtain and pay for
outdoor recreation licenses over the
Internet or from point-of-purchase retail
kiosks.

Citizens

Health Professional License Services

Allows users to search databases on
several health professions to verify
license status.

Hospitals, clinics, health insurers, citizens

Professional License Renewal

Permits professionals to renew their

Attorneys, doctors, nurses, architects, and

licenses online using a credit/debit card.

other licensed professionals

Business Registrations and Renewals

Allows business owners to search for and
reserve a business name, submit and pay
for the business registration, and renew
the business registration on an annual
basis.

Businesses

Secretary of State Business Searches

Allows users to access filings of

Attorneys, lenders

corporations, partnerships, and other
entities, including charter documents.

Uniform Commercial Code (UCC)
Searches and Filings

Permits searches of the UCC database to
verify financial liens, and permits filings
of secured financial documents.

Attorneys, lenders

Product or Service
Limited Criminal History Searches

Description
For those legally authorized, provides

Primary Users
Schools, governments, human resource
professionals, nonprofits working with
children or handicapped adults

Legal professionals, citizens

users with the ability to obtain a limited
criminal history report on a specified
individual.

Allows authorized users to search court
record databases, make payments for
court fines, and in some cases
electronically file court documents.

Provides authorized access to birth, death,
marriage, domestic partnership and civil
union certificates.

Citizens

Court Services

Vital Records

Income and Property Tax Payments

Allows users to file and pay for a variety
of state and local income and property
taxes.

Businesses and citizens

Payment Processing

Permits use of the Internet for secure

Businesses and citizens

industry-compliant credit/debit card and
electronic check payment processing both
online and at the point of retail sale for
government agency transactions.

In addition to these services, we also provide customer service and support. Our customer service representatives serve as a

liaison between our government partners and businesses and citizens.

Revenues

In our outsourced state and local portal businesses, we currently earn revenues from three main sources: transaction-based

fees, time and materials-based fees for application development, and fixed fees for portal management services. In most of our
outsourced portal businesses, the majority of our revenues are generated from transactions, which generally include the collection of
transaction-based fees and subscription fees from users. The following table reflects the underlying sources of portal revenues as a
percentage of total portal revenues for the years ended December 31:

Percentage of Portal Revenues:
Transaction-based
Time and materials fees for application development
Fixed fees for portal management

2013

2012

2011

90%
6%
4%

87%
8%
5%

86%
9%
5%

The following table identifies each type of service, customer, and portal partner that accounted for 10% or more of our total

consolidated revenues in any of the past three years:

Type of Service
Motor Vehicle Driver History Record Retrieval

(This is the highest volume, most commercially
valuable service we offer)

Motor Vehicle Registrations

Customer
LexisNexis Risk Solutions

(Resells motor vehicle driver history records
to the insurance industry)

Portal Partner
Texas

Percentage of Total Consolidated Revenues
2013
2011
2012

34%

36%

13%

22%

10%

23%

28%

23%

21%

* Motor Vehicle Registrations accounted for less than 10% of our total consolidated revenues in 2011.

Our contracts with data resellers, including LexisNexis Risk Solutions, are generally self-renewing until canceled by one
side or the other, and generally may be terminated at any time after a 60-day notice. These contracts may be terminated immediately
at the option of any party upon a material breach of the contract by the other party. Furthermore, these contracts are immediately
terminable if the state statute allowing for the public release of these records is repealed.

Sales and Marketing

We have two primary sales and marketing goals:

●

to retain and grow our revenue streams from existing government relationships; and

to develop new sources of revenues through new government relationships.

We have well-established sales and marketing processes for achieving these goals, which are managed by our national sales

division and a marketing department within most of our outsourced portal businesses.

Developing new sources of revenue

We focus our new government sales and marketing efforts on increasing the number of governments and government

agencies that are receptive to a public/private model for delivering information and/or completing transactions over the Internet. We
meet regularly with interested government officials to educate them on the public/private model and its potential advantages for their
jurisdictions. Members of our management team are also regular speakers at conferences devoted to the application of Internet
technologies to facilitate the relationship between governments and their citizens. In states where we believe interest is significant,
we seek to develop supportive, educational relationships with professional and business organizations that may benefit from the
government service improvements our service delivery can produce. We also focus our corporate marketing efforts on key
government decision makers through the use of print media, advertising, white paper development, media relations, and corporate
communications. In addition, we continue to develop relationships with key government decision makers to expand our
opportunities to manage eGovernment services in the federal arena.

Once a government decides to implement a public/private model for managing Internet access to information resources and
transactions, it typically starts a selection process that operates under special rules that apply to government purchasing. These rules
typically require open bidding by possible service providers against a list of requirements established by the government under
existing procedures or procedures specifically created for the Internet provider selection process. We respond to requests for bids
with a proposal that outlines in detail our philosophy and plans for implementing our business model. Once our proposal is selected,
we enter into negotiations for a contract.

Growing existing markets

In our existing state and local government relationships, our marketing efforts focus on:

●

expanding the number of government agencies that provide services or information on the government portal;

identifying new information and transactions that can be usefully and cost-effectively delivered over the Internet;

working with the governance authorities in our existing markets to ensure that online services are priced in a manner to
encourage usage; and

increasing the number of potential users who do business with governments over the Internet.

Although each government’s unique political and economic environment drives different marketing and development

priorities, we have found many of our core applications to be relevant across multiple jurisdictions. Most of our enterprise-wide
outsourced portal businesses have a director of marketing and additional marketing staff who meet regularly with government,
business, and consumer representatives to discuss potential new services. We also promote the use of our extensive library of unique
revenue-generating eGovernment services to existing and new customers through speaking engagements and targeted advertising to
organizations for professionals, including lawyers, bankers, and insurance agents who have a need for regular interaction with
government. We identify services that have been developed and implemented successfully for one government and replicate them in
other jurisdictions.

Technology and Operations

Over the past 22 years, we have made substantial investments in the development of Internet-based applications and

operations specifically designed to allow businesses and citizens to transact with and receive information from governments. The
scope of our technological expertise includes network engineering as it applies to the interconnection of government systems to the
Internet, Internet security, Web-to-legacy system integration, Web-to-mainframe integration, Web-to-mobile integration, database
design, website administration, Web page development, and payment processing. Within this scope, we have developed and
implemented a comprehensive Internet portal framework for governments, and a broad array of stand-alone products and services
using a combination of our own proprietary technologies and commercially available, licensed technologies. We believe that our

technological expertise, coupled with our in-depth understanding of governmental processes and systems, has made us adept at
rapidly creating tailored portal services that keep our partners on the forefront of eGovernment.

Each of our government partners has unique priorities and needs in the development of its eGovernment services. More
than half of our employees work in the Internet services, application development, and technology operations areas, and most are
focused on a single government partner’s application needs. Our employees develop an understanding of a specific government’s
application priorities, technical profiles, and information technology personnel and management. At the same time, all of our
development directors are trained by experienced technical staff from our other operations, and there is frequent communication and
collaboration, which ensures that our government partners can make use of the most advanced eGovernment services we have
developed throughout our organization.

Some of our portals and applications are physically hosted in each jurisdiction in which we operate on servers that we own
or lease. The rest of our portals and applications are hosted at a central data facility operated by a third party, with backup at a similar
facility in another location. We also provide links to sites that are maintained by government agencies or organizations that we do
not manage. Our businesses provide uninterrupted online service 24 hours per day and seven days a week, and our operations
maintain extensive backup, security, and disaster recovery procedures.

History has proven that our systems and applications are scalable and can easily be replicated from one government entity

to another. We focus on sustaining low-overhead operations, with all major investments driven by the objective of deploying the
highest value-added technology and applications to each operation.

Finally, we have designed our government portals and applications to be compatible with virtually any existing system and
to be rapidly deployable. To enable speed and efficiency of deployment, we license commercially available technology whenever
possible and focus on the integration and customization of these “off-the-shelf” hardware and software components when necessary.
While we expect that commercially licensed technology will continue to be available at reasonable costs, there can be no assurance
that the licenses for such third-party technologies will not be terminated or that we will be able to license third-party technology and
applications for future services. While we do not believe that any one individual technology or application we license is material to
our business, changes in or the loss of third party licenses could lead to a material increase in the costs of licensing or to our products
becoming inoperable or their performance being materially reduced, with the result that we may need to incur additional
development or procurement costs in an attempt to ensure continued performance of our services.

We regard our intellectual property as important to our success. We rely on a combination of nondisclosure and other

contractual arrangements with governments, our employees, subcontractors and other third parties, copyrights and privacy and trade
secret laws to protect and limit the distribution of the proprietary software applications, documentation, and processes we have
developed in connection with the eGovernment services we offer.

Competition

We face intense competition in all sectors of our business. We believe that the principal factors upon which our businesses

compete are:

●

our unique understanding of government needs;

the quality and fit of eGovernment services;

speed and responsiveness to the needs of businesses and citizens; and

cost-effectiveness.

We believe we compete favorably with respect to the above-listed factors. In most cases, the principal alternative for our

services is a government-designed and managed service that integrates other vendors’ technologies, products, and services.
Companies that have expertise in marketing and providing technical electronic services to government entities compete with us by
further developing their services and increasing their focus on this segment of their business. Many of our potential competitors are
national or international in scope and have greater resources than we do.

Additionally, in some geographic areas, we may face competition from smaller consulting firms with established

reputations and political relationships with potential government partners. Examples of companies that may compete and/or
currently compete with us are the following:

●

large systems integrators, including CGI and Unisys;

traditional software applications developers, including Microsoft and Oracle;

traditional consulting firms, including IBM Corp. and Accenture, Ltd.; and

electronic transaction payment processors, including ACI Worldwide, Inc. (which acquired Official Payments Holdings,
Inc. in 2013) and Link2Gov Corp.

Seasonality

The use of some of our eGovernment services is seasonal, particularly the accessing of motor vehicle driver history records,
resulting in lower revenues from this service in the fourth quarter of each calendar year, due to the lower number of business days in
this quarter and a lower volume of transactions during the holiday period.

Employees

As of December 31, 2013, we had 773 full-time employees, of which 140 were working in corporate operations, 619 were
in our outsourced portal businesses and 14 were in our software & services businesses. Our future success will depend, in part, on
our ability to continue to attract, retain, and motivate highly qualified technical and management personnel. We also employ
independent contractors to support our application development, marketing, sales, and administrative departments. Our employees
are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our
relations with our employees are good.

ITEM 1A. RISK FACTORS

Our operations are subject to a number of risks and uncertainties, including those described below. If any of these risks

actually occur, our business, financial condition, and results of operations could be materially adversely affected. In that case, the
value of our common stock could decline substantially.

Security breaches or unauthorized access to sensitive information and/or personal information that we store, process,

use or transmit in our business may harm our reputation and adversely affect our business and results of operations.

A significant challenge to electronic commerce is the secure transmission of sensitive and/or personal information over
information technology networks and systems which process, transmit and store electronic information, and manage or support a
variety of business processes. The collection, maintenance, use, disclosure, and disposal of sensitive and personal information by
our businesses are regulated at the state and federal levels. Furthermore, we are required to comply with the Payment Card Industry’s
Data Security Standards, or PCI DSS, and the rules and standards promulgated by the National Automated Clearing House
Association, or NACHA, because we provide online payment and electronic check processing services. Because we provide the
electronic transmission of sensitive and personal information released from and filed with various government entities and we
perform online payment and electronic check processing services, we face the risk of a security breach, whether through computer
hacking, acts of vandalism or theft, malware, computer viruses, or other forms of cyber attack that could lead to significant
disruptions or compromises of our information technology networks and systems or the unauthorized release or use of sensitive or
personal information.

We rely on encryption and authentication technology purchased or licensed from third parties to provide the security and

authentication tools to effectively secure transmission of confidential information, including user credit card information and
banking data. Advances in computer capabilities, new discoveries in the field of cryptography, threats that evolve ahead of tools
designed to counter them, or other developments may result in the breach or compromise of technology used by us to protect
transaction data. Data breaches can also occur as a result of non-technical issues, such as so-called “social engineering.”

Despite the various security measures we have in place to protect sensitive and personal information from unauthorized
disclosure and to ensure compliance with applicable laws and regulations, our information technology networks and systems and
those of our third party vendors and service providers can never be made completely secure against security incidents, and a breach
may still occur. Even the most well protected information, networks, systems, and facilities remain potentially vulnerable, because
(i) attempted security breaches or disruptions may occur in the future, (ii) the techniques used in such attempts are constantly
evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in
fact, may not be detected for an extended period and (iii) the security methodologies, protocols, systems and procedures used for
protection are implemented by humans at each level, and human errors may occur. Accordingly, we may be unable to anticipate
these techniques or to implement adequate security barriers or other preventative measures, or if such measures are implemented,
and even if appropriate training is conducted in support of such measures, human errors may still occur. It is virtually impossible for
us to entirely mitigate this risk. A party, whether internal or external, who is able to circumvent our security measures could
misappropriate information, including, but not limited to user credit card information or other sensitive and personal information, or
cause interruptions or direct damage to our government portals or their users.

Under payment card rules and our contracts with our credit card processors, if there is a breach of payment card
information that we store, process, or transmit, we could be liable to the payment card issuers for their cost of issuing new cards and
related expenses, and to partners for costs of notification and remediation, and for any damages to users under state laws or our
partner contracts. If we fail to follow Payment Card Industry Data Security Standards, we could incur significant fines imposed by
the Payment Card Industry or jeopardize our ability to give customers the option of using payment cards to fund their payments or
pay their fees, even if there is no compromise of personal information. In addition, if we fail to follow NACHA security
requirements, we may be liable for substantial fines and penalties, cease and desist orders, and other sanctions that could restrict or
eliminate our ability to provide certain of our services in one or more states or accept certain types of transactions in one or more
states, or could force us to make costly changes to our business practices. If we were unable to accept payment cards or process
checks electronically, our business would be negatively impacted.

In addition, any noncompliance with privacy laws or a security breach involving the misappropriation, loss or other

unauthorized access, use or disclosure of sensitive or personal information, or other significant disruption involving our information
technology networks and systems (whether or not caused by a breach of our contractual obligations or our negligence), may lead to
negative publicity, impair our ability to conduct our business, or cause us to incur potentially significant liability, damages or
remediation costs. It may also cause the governments with whom we contract to lose confidence in us, any of which may cause the
termination or modification of our government contracts and impair our ability to win future contracts. Actual or anticipated attacks
and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, to train
employees, and to engage third party security experts and consultants. Our technology errors and omissions insurance may not
protect against all of the costs, liabilities, and other adverse effects arising from a security breach or system failure. If we fail to
reasonably maintain the security of confidential information, we may suffer significant reputational and financial losses and our
results of operations, cash flows, financial condition, and liquidity may be adversely affected.

Because we have outsourced portal and software development and service contracts with a limited number of

governments, the termination or non-renewal of certain of these contracts may harm our business.

Currently, we have 29 portals (which includes our Connecticut portal that was awarded a three-year contract by the state of

Connecticut in the first quarter of 2014 to manage the state’s government portal) through which we provide enterprise-wide
outsourced portal services to state governments. These contracts typically have multi-year terms with provisions for renewals for
various periods at the option of the government. However, a government typically has the option to terminate its contract prior to the
expiration date if we breach a material contractual obligation and fail to cure such breach within a specified period or upon the
occurrence of other events or circumstances specified in our contracts.

In addition, we currently have 15 contracts under which we provide enterprise-wide outsourced state portal services that

can be terminated by the other party without cause on a specified period of notice. Collectively, revenues generated from these
contracts represented 57% of our total consolidated revenues for the year ended December 31, 2013. The Texas portal, which is one
of the 15 contracts noted above, accounted for approximately 23% of our total consolidated revenues for the year ended December
31, 2013. In the event that any of these contracts is terminated without cause, the terms of the respective contract may require the
government to pay a fee to us in order to continue to use our software in its portal. Also, the contract with the FMCSA can be
terminated by the other party without cause on a specified period of notice.

Furthermore, we currently have 15 contracts under which we provide enterprise-wide outsourced portal services or

software development and services that have expiration dates within the 12-month period following December 31, 2013.
Collectively, revenues generated from these contracts represented 38% of our total consolidated revenues for the year ended
December 31, 2013. Our Arizona portal contract was extended by the state of Arizona to March 26, 2014, in order for NICUSA to
provide transition services in connection with the June 26, 2013 expiration of the contract. For the year ended December 31, 2013,
revenues from the Arizona portal contract accounted for approximately 1% of our total consolidated revenues. If a contract is not
renewed after a defined term, the government partner would be entitled to take over the portal in place with no future obligation to
us, except as otherwise provided in the contract and except for the services we provide on a software-as-a-service, or SaaS, basis,
which would be available to the government agency on a fee-for-service basis.

The loss of a contract with one or more states or the FMCSA, as a result of the expiration, termination, or failure to renew
the contract, if not replaced, could significantly reduce our revenues and profitability. If these revenue shortfalls were to occur, our
business, results of operations, cash flows, and financial condition would be harmed. We cannot be certain if, when, or to what
extent, governments might fail to renew or terminate any or all of their contracts with us.

Because we generally grant our government partners fully-paid, perpetual licenses to use and modify the software and
applications we develop, and such licenses continue upon a termination by them for cause or the natural expiration of our portal
contracts, our government partners could elect to take over the operation and maintenance of our portal software themselves, or
hire a competitor to operate and maintain our portal software. Any such decision to do so could adversely affect our revenues
and profits.

After termination for cause or the natural expiration of our portal contracts, it is possible that governments and their

contractors may operate the portals themselves using the perpetual use license we typically are contractually obligated to provide to
them. This license generally permits the government to use and modify the software programs and other applications we have
developed for them in the operation of their portals (excluding software applications that we provide on a SaaS basis) on a perpetual,
royalty-free basis. This perpetual use license could make it easier and more cost effective for our customers to elect not to enter into
a new contract with us after the expiration of one of our portal contracts. Any such election could adversely affect our revenues and
profits. Additionally, anyone using our software programs and other applications may inadvertently allow our intellectual property
or other information to fall into the hands of third parties, including our competitors. In the event that a contract is terminated prior to
the natural expiration of the term without cause, the terms of the respective contract typically require the government to pay a fee to
us in order to continue to use our software in its portal.

The growth in our revenues may be limited by the number of governments and government agencies that choose to

provide eGovernment services using our business model and by the finite number of governments with which we may contract
for our eGovernment services.

Our revenues are generated principally from contracts with state governments and government agencies within a state to

provide eGovernment services on behalf of those government entities to complete transactions and distribute public information
electronically. The growth in our revenues largely depends on government entities adopting our business model. We cannot assure
that government entities will choose to provide eGovernment services or continue to provide eGovernment services at current levels,
or that they will provide such services with private assistance or by adopting our model. Generally, under our self-funded business
model, we initially generate a high proportion of our revenues from a limited number of transaction-based services we provide on
behalf of a limited number of government agencies within a state, as other agencies consider participating in the portal. The failure to
secure contracts with certain government agencies, particularly those agencies that control motor vehicle driver history records,
could result in revenue levels insufficient to support a portal’s operations on a self-sustained, profitable basis. In addition, as there is
a finite number of states remaining with which we can contract for our services, future increases in our revenues may depend, in part,
on our ability to expand our business model to include multi-state cooperative organizations, local governments, and federal
agencies and to broaden our service offerings to diversify our revenue streams across our lines of business. We cannot assure that we
will succeed in expanding into new markets, broadening our service offerings, or that our services will be adaptable to those new
markets.

Some government partners may require specific government legislation to be passed for us to initiate and maintain our
government contracts, and any failure to pass such legislation or any repeal or modification of or successful challenge to such
legislation could adversely affect our business and results of operations.

Because a central part of our business includes the execution of contracts with governments under which we remit a portion

of user fees charged to businesses and citizens to state agencies, it is sometimes necessary for governments to draft and adopt
specific legislation before the government can circulate a request for proposal (“RFP”) to which we can respond or can otherwise
award such a contract. Furthermore, the maintenance of our government contracts requires the continued acceptance of our
approach, including any enabling legislation and any implementing regulations. In the past, various entities that use the portals we
operate to obtain government information have challenged the authority of governments to electronically provide these services
exclusively through portals like those we operate, and other parties have challenged the contract awarding process in particular
instances. A successful challenge in the future could result in a proliferation of alternative ways to obtain these services, which
would harm our business, results of operations, cash flows, and financial condition. The repeal or modification of any enabling
legislation or other legal challenge would also harm our business, results of operations, cash flows, and financial condition.

We earn a significant percentage of our revenues from a limited number of services and customers, and any reduction

in demand for those services from those customers could adversely affect our results of operations.

We obtain a high proportion of our revenues from a limited number of services. A significant portion of our revenues is

derived from data resellers’ use of our portals to access motor vehicle driver history records for the automobile insurance industry.
Transaction-based fees charged for access to motor vehicle driver history records accounted for approximately 34% of our total
consolidated revenues for the year ended December 31, 2013. One of these data resellers, LexisNexis Risk Solutions, accounted for
approximately 22% of our total consolidated revenues during this period, or approximately three-quarters of our revenues earned for
access to motor vehicle driver history records. This service is expected to continue to account for a significant portion of our
revenues in the near future. However, regulatory changes or the development or increased use of alternative information sources,
such as credit scoring, could materially reduce our revenues from this service. Our contracts with data resellers generally may be
terminated at any time after a 60-day notice and may be terminated immediately at the option of any party in certain circumstances.
A reduction in revenues from currently popular services would harm our business, results of operations, cash flows, and financial
condition.

We could suffer significant losses and liability if our operations, systems or platforms are disrupted or fail to perform

properly or effectively.

The continued efficiency and proper functionality of our technical systems, platforms, and operational infrastructure is

integral to our performance. As we grow, we continue to purchase equipment and to upgrade our technology and network
infrastructure to handle increased traffic on our Internet-based portals. We may experience occasional system interruptions and
delays that make our applications and eGovernment services unavailable or slow to respond and prevent businesses and citizens
from accessing information and services on our government portals. Any such interruptions or delays in the future could cause users
to stop visiting our government portals and could cause our government partners to penalize us or terminate agreements with us. Our
operations, systems and platforms may also be disrupted or fail due to catastrophic events such as natural disasters,
telecommunications failures, power outages, cyber-attacks, terrorist attacks, or other catastrophic events. If any of these
circumstances occurred, our business could be harmed.

The Internet-based services for some of our portals and applications are physically hosted individually by the state or city

where we provide services on servers that we typically own or lease. Our other portals and applications are hosted at a leased
Computer Data Center (“CDC”) on servers that we own with a near real-time backup CDC located in a different geographic region

of the country. CDC servers are virtually segmented by government partner while housing more than one government partner’s
services. An outage in one of the servers hosted outside one of the CDCs could affect that government partner’s services. An outage
at both of our leased CDCs, or at one CDC and to the connection to our backup facility, could affect more than one government
partner’s services. Any of these system failures could harm our business, results of operations, cash flows, and financial condition.
Our insurance policies may not adequately compensate us for any losses that may occur due to any failures of or interruptions in our
systems.

Our portal revenues could be harmed as a result of government budget deficits.

The majority of our portal revenues are derived from fees we charge to users for transactions conducted through our portals

and share with our government partners. Budget-strapped governments may seek to reduce our transaction revenues from our
self-funded business model or our profit margin on transactions, or may decide to operate the portals themselves. In addition,
approximately 6% of our portal revenues in 2013 were derived from time and materials-based fees for application development and
approximately 4% of our portal revenues in 2013 were derived from fixed fees for portal management services, both of which are
paid directly to us by governments. In the event of budget deficits, our government clients may be required to curtail discretionary
spending on such projects and our portal revenues could be harmed.

If our rate of growth continues or accelerates, we may not effectively manage our growth, which would adversely affect

our business and our results of operations.

Our growth rate may continue or may accelerate if we experience increased acceptance of our services under new or

existing government contracts. If we cannot manage our growth effectively, we may not be able to coordinate the activities of our
technical, accounting, and marketing staffs, and our business could be harmed. As part of our growth plan, we must implement new
operational procedures and internal controls to expand, train, and manage our employees and to coordinate the operations of our
various subsidiaries. If we cannot successfully implement our recently awarded eGovernment contracts in a timely and
cost-effective manner or effectively manage the growth of our government portals, staff, software installation and maintenance
teams, offices and operations, our business and results of operations may be adversely affected.

Our business will be adversely affected if we are unable to hire, integrate, train, or retain the qualified personnel that

our business requires.

The growth in our business has resulted in an increase in the responsibilities for both existing and new management

personnel. Some of our personnel are presently serving in more than one managerial capacity. Furthermore, compensation paid to
executive and management personnel may not reflect market rates that could be obtained elsewhere. The loss of any of our
executives or key employees could harm our business. In addition, we currently expect that we will need to hire additional personnel
in all areas throughout 2014, including personnel for new operations in jurisdictions in which we may obtain contracts. We may not
be able to retain our current key employees or attract, integrate, or retain other qualified employees in the future. If we do not
succeed in attracting new personnel or integrating, retaining, and motivating our current personnel, our business could be harmed. In
addition, new employees generally require substantial training in the presentation, policies, and positioning of our government
portals and other services. This training will require substantial resources and management attention.

Because a major portion of our accounts receivable is generated from a small number of users, negative trends in their

businesses could cause us significant credit loss and negatively impact our results of operations and financial condition.

LexisNexis Risk Solutions and other data resellers that represent a significant portion of our business have a period of time,
generally within 25 days of billing, to remit payment. As a result, we are subject to a significant concentration of credit risk that these
users will not pay for their purchases. Our credit risk may increase due to liquidity or solvency issues experienced by these users. At
December 31, 2013, LexisNexis Risk Solutions accounted for approximately 23% of our consolidated accounts receivable. In
addition, our business is generally subject to the risk that our customers and counterparties will fail to meet their obligations when
due. While we perform ongoing credit evaluations of our customers, we generally do not require collateral to secure accounts
receivable. If we were unable to collect a major portion of our accounts receivable, we may suffer significant losses and our results
of operations, cash flows, financial condition, and liquidity may be adversely affected.

Increases in credit/debit card association and automated clearing house fees may result in the loss of customers or a

reduction in our earnings.

From time to time, credit/debit card and electronic check processors increase the fees (interchange and assessment fees)

that they charge companies such as us. We could attempt to pass these increases along to our government client customers, but this
might result in the loss of those customers. If we elect not to pass along such increased fees to our government client customers in the
future, we may have to absorb all or a portion of such increases thereby increasing our operating costs and reducing our earnings.

We may suffer substantial harm to our business if our government partners are not satisfied with our services or

services provided by our third-party credit/debit card or electronic check processors.

We depend to a large extent on our relationships with our government partners, our reputation for high quality professional
services and our commitment to preserving public trust to attract and retain customers. Through these relationships, we estimate that

we processed nearly $25 billion of credit/debit card and electronic check payments for our government partners in 2013. As a result,
if one of our government partners is not satisfied with our services or services provided by our third-party credit/debit card or
electronic check processors, it may be more damaging to our business than to other businesses.

We depend on subcontractors or the third parties with whom we partner for certain projects, deliverables, or financial
transaction processes. If these parties fail to satisfy their obligations to us or we are unable to maintain these relationships, our
operating results and business prospects could be adversely affected.

Certain large and complex projects and certain transactions require that we utilize subcontractors or that our services and
solutions integrate with the software, systems, or infrastructure requirements of other vendors and service providers. Our ability to
serve our clients and deliver and implement our solutions in a timely manner depends on our ability to retain and maintain
relationships with subcontractors, vendors, and service providers and the ability of these subcontractors, vendors, and service
providers to meet their obligations in a timely manner, as well as on our effective oversight of their performance. There is a risk that
we may have disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by the
subcontractors or customer concerns about the subcontractors. Disputes with subcontractors could lead to litigation. Adverse
judgments or settlements in legal disputes may result in significant monetary damages or injunctive relief against us. In addition, if
any of our subcontractors fails to perform on a timely basis the agreed-upon services, our ability to fulfill our obligations as a prime
contractor may be jeopardized. Subcontractor performance deficiencies could result in the termination of our contract for default. A
termination for default could expose us to liability for damages and have an adverse effect on our business prospects, results of
operations, cash flows, and financial condition and our ability to compete for future contracts and orders.

We may become subject to liability under rules and standards for processing electronic direct debit payments from bank

accounts and credit card payments.

Our electronic check processing for online payments made by direct debit to a bank account is governed by rules and

standards promulgated by the NACHA, an industry trade association of banking institutions and regional automated clearing house
associations. Under those rules, we may become potentially liable for failing to handle transactions in accordance with those rules,
or for failing to return funds within the prescribed time frame to the bank account of the person or entity disputing our authorization
to debit those funds, before the dispute regarding our authorization is resolved. Our agreements with governmental agencies at the
state, federal, and local levels transfer this obligation for rapid funds return during dispute resolution to the government agencies
affected, but in the event that such return does not happen, we may be potentially liable notwithstanding the government’s failure,
and we may not be able to obtain reimbursement from the government involved or from the individual user or entity that initiated the
debit without authorization. If this were to happen, our business, results of operations, cash flows, and financial condition may be
adversely affected. Our credit card and electronic check processing is also subject to the applicable rules of the particular card
association or clearinghouse and applicable law. Additionally, we may become subject to laws governing money transmitters and
anti-money laundering for certain services we offer. If our interpretations, or those of our government partners, of any laws, rules,
regulations, or standards are determined to be incorrect, we could be exposed to significant financial liability, substantial fines and
penalties, cease and desist orders, and other sanctions that could restrict or eliminate our ability to provide certain of our services in
one or more states or accept certain types of transactions in one or more states, or could force us to make costly changes to our
business practices. Even if we are not forced to change our business practices, the costs of compliance and obtaining necessary
licenses and regulatory approvals could be substantial.

We may become liable for violations of the Driver Privacy Protection Act as adopted federally or in each state.

We act as an outsourced manager on behalf of states, for electronic access to records pertaining to motor vehicles and motor
vehicle operators (driver history records) by users and certain permitted resellers. These records are the largest group of records for
which we process electronic access for state agencies, and are processed in the majority of our portal states. These records contain
“personal information” and “sensitive personal information” as defined by the federal Driver Privacy Protection Act, and state
versions of that Act adopted in every state (collectively, the “DPPA”). The DPPA regulates categories and circumstances under
which “personal information” and “sensitive personal information” may be disclosed to requestors. Each state has procedures for
complying with the DPPA, and such procedures may vary from state to state. We closely follow each respective state’s existing
compliance procedures for general access, with our electronic access. If we fail to follow such procedures, or we grant access to
users not in compliance with such procedures, or if such procedures are deemed inadequate in some way, our business, results of
operations, cash flows, and financial condition may be adversely affected. The DPPA permits statutory damages to be awarded to
the subjects of such records, even without proof of actual damage, for certain infringements or violations of the DPPA. We may be
potentially liable for such damages in such instances, and we may have no recourse against the state, or the state may not be jointly
and severally liable with us.

We may become liable for violations of the Fair Credit Reporting Act as adopted federally.

Our PSP service for the FMCSA requires that PSP record data be disclosed in compliance with the Fair Credit Reporting
Act (“FCRA”). We may also have other online services that are or become subject to the FCRA. If we fail to follow such procedures,
or we grant access to users not in compliance with such procedures, or if such procedures are deemed inadequate in some way, or if
other services we offer are deemed subject to the FCRA, we may become subject to monetary fines, penalties or damages, and our
business, results of operations, cash flows, and financial condition may be adversely affected. The FCRA permits statutory damages

to be awarded to the subjects of such records, even without proof of actual damage, for certain infringements or violations of the
FCRA. In addition, any failure to comply with the FCRA may result in reputational damage.

We may become liable for violations of the Safe, Accountable, Efficient Transportation Equity Act: A Legacy for Users

if we disclose Pre-employment Screening Program (PSP) record data improperly.

A federal law known as the Safe, Accountable, Efficient Transportation Equity Act: A Legacy for Users

(“SAFETEA-LU”) limits access to PSP record data to commercial driving operator applicants, their prospective employers, and the
employers’ agents, and can only be used in screening applicants for employment. Because the service is only useful if data access is
quick and easy, we employ sophisticated systems of online agreements and validation information gathering, plus third party
verification systems, to verify the identity and bona fides of any requestor. These systems may be incomplete or contain errors or
omissions, or their operation may be flawed, resulting in improper disclosure or disclosure for an improper purpose or to improper
persons. If we fail to follow appropriate procedures, or we grant access to users not in compliance with such procedures, or if such
procedures are deemed inadequate in some way, we may become subject to monetary fines, penalties, or damages, and our business,
results of operations, cash flows, and financial condition may be adversely affected. Furthermore, the magnitude of the potential
number of transactions accessed through our PSP service may result in monetary damages that are correspondingly large. In
addition, any failure to comply with SAFETEA-LU may result in reputational damage.

Compliance with changing regulation of corporate governance, public disclosure and other regulatory requirements or

industry standards may result in additional expenses.

Changing laws, regulations, and standards relating to corporate governance, public disclosure and other regulatory

requirements or industry standards, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the
Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Global Select Market rules, or Payment Card Industry standards
are creating uncertainty for companies such as ours. These new or changed laws, regulations, and standards are subject to varying
interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining
adequate and appropriate standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving
laws, regulations, and standards have resulted in, and certain regulations could continue to result in, increased general and
administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. Further, as a result of increasing regulation, our board members and executive officers could face an increased risk of
personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining
qualified board members and executive officers, which could harm our business. If our efforts to comply with new or changed laws,
regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities in the laws
themselves or related to practice, our reputation may be harmed.

If our competitors become more successful in developing and selling products for government-managed services, then

our business could be adversely affected.

The principal alternative to our model is a government-designed and managed service that utilizes other vendors’

technologies, products, and services. Companies that have expertise in marketing and providing technical electronic services to
government entities compete with us by further developing their services and increasing their focus on this area of their businesses.
Many of our potential competitors are national or international in scope and have greater resources than we do. These resources
could enable our potential competitors to initiate severe price cuts or take other measures in an effort to gain market share.
Additionally, in some geographic areas, we may face competition from smaller consulting firms with established reputations and
political relationships with potential government partners. If we do not compete effectively or if we experience any pricing
pressures, reduced profit margins or loss of market share resulting from increased competition, our business, results of operations,
cash flows, and financial condition may be adversely affected.

Our intellectual property rights are valuable and any inability to protect them could harm our company.

We regard our intellectual property as important to our success. We rely on a combination of nondisclosure and other
contractual arrangements with governments, our employees, subcontractors, and other third parties, copyrights and privacy and
trade secret laws to protect and limit the distribution of the proprietary applications, documentation and processes we have
developed in connection with the eGovernment services we offer. Despite our precautions, third parties may succeed in
misappropriating our intellectual property or independently developing similar intellectual property. If we fail to adequately protect
our intellectual property rights and proprietary information or if we become involved in litigation relating to our intellectual property
rights and proprietary technology, our business could be harmed. Any actions we take may not be adequate to protect our proprietary
rights, and other companies may develop technologies that are similar or superior to our proprietary technology.

The fees we collect for many of our services are subject to government regulation that could limit growth of our

revenues and profitability.

Under the terms of our self-funded outsourced government portal contracts, we remit a portion of the transaction fees we
collect to state agencies. Generally, our contracts provide that the amount of any transaction fees we charge is set by governments to

provide us with a reasonable return or profit. We have limited control over the level of transaction fees we are permitted to retain.
Our business, results of operations, cash flows, and financial condition may be harmed if the level of fees we are permitted to retain
in the future is too low or if our costs rise without a commensurate increase in fees.

Because we have certain outsourced portal contracts that contain performance bond requirements and/or

indemnification provisions, we may suffer monetary liability and damages if claims arise under such contracts. In addition, any
failure to meet such obligations, whether or not a performance bond is in place, may result in reputational damage.

We are bound by performance bond commitments on certain outsourced portal contracts. Performance deficiencies by us or
our subcontractors could result in a default of a performance bond, which could expose us to liability and have an adverse effect on
our business prospects, on our financial condition, and on our ability to compete for future outsourced portal contracts. Further,
under certain of our outsourced portal contracts, we are required to fully indemnify our government clients against claims arising
from our performance or the performance of our subcontractors. If we fail to meet our contractual obligations, our performance or
our subcontractors’ performance gives rise to claims, if our government partners are otherwise held liable for claims related to the
services provided under our contracts, or if our government partners seek to hold us liable for claims or damages related to the
services provided under our contracts, we could be subject to legal liability, monetary damages and loss of customer relationships.

Our business will suffer if we lose the right to provide access to the content filed or distributed through our outsourced

portals or we are held liable for the content that we pass to users from government entities.

We do not own or create the content filed or distributed through our outsourced portals. We depend on the governments
with which we contract to supply information and data feeds to us on a timely basis to allow businesses and citizens to complete
transactions and obtain government information. We cannot assure that these data sources will continue to be available in the future.
Government entities could terminate their contracts to provide data. Changes in regulations could mean that governments no longer
collect some types of data or that the data is protected by more stringent privacy rules preventing uses now made of it. Moreover, our
data sources are not always subject to exclusive agreements, so that data included in our services also may be included in those of
our potential competitors. In addition, we depend upon the accuracy and reliability of government computer systems and data
collection for the content distributed through our portals. The loss, unavailability, or inaccuracy of our data sources in the future, or
the loss of our exclusive right to distribute some of the data sources, could harm our business, results of operations, cash flows, and
financial condition.

Because we aggregate and distribute sometimes private and sensitive public information over the Internet, we may face
potential liability for defamation, libel, negligence, invasion of privacy, copyright or trademark infringement, and other claims based
on the nature and content of the material that is published on or distributed through our outsourced government portals. Most of the
agreements through which we obtain consent to disseminate this information do not contain indemnity provisions in our favor.
These types of claims have been brought, sometimes successfully, against online services and websites in the past. We cannot assure
that our general liability or errors and omissions insurance will be adequate to indemnify us for all liability that may be imposed.
Any liability that is not covered by our insurance or is in excess of our insurance coverage could severely harm our business
operations and financial condition.

Because a large portion of our business relies on a contractual bidding process whose parameters are established by

governments, the length of our sales cycles is uncertain and could lead to shortfalls in our financial results for a particular
period and harm our financial condition.

Our dependence on a bidding process to initiate many new projects, the parameters of which are established by

governments, results in uncertainty in our sales cycles because the duration and the procedures for each bidding process vary
significantly according to each government entity’s policies and procedures. The time between the date of initial contact with a
government for a bid and the award of the bid may range from as little as 180 days to up to several years. The bidding process is
subject to factors, over which we have little or no control, including:

●

political acceptance of the concept of government agencies contracting with third parties to receive or distribute public
information, which has been offered traditionally only by the government agencies and often without charge;

the internal review process by the government agencies for bid acceptance;

the need to reach a political accommodation among various interest groups;

changes to the bidding procedure by the government agencies;

changes to state legislation authorizing government’s contracting with third parties to receive or distribute public
information;

changes in government administrations;

the budgetary restrictions of government entities;

the competition generated by the bidding process;

●

the possibility of cancellation or delay by the government entities; and

government’s manner of drafting bid documents, which may partially, or not at all, utilize our method of providing
eGovernment services.

We depend on the bidding process for a significant part of our business. Therefore, any material delay in the bidding

process, changes to bidding practices and policies, the failure to receive the award of a bid, or the failure to execute a contract may
disrupt our financial results for a particular period and harm our financial condition.

We may need more working capital to fund operations and expand our business, and any failure to obtain such needed

working capital would adversely affect our business.

We believe that our current financial resources and cash generated from operations will be sufficient to meet our present

working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional
capital before this period ends to further:

●

fund operations, if unforeseen costs or revenue shortfalls arise;

support our expansion into other states and government agencies beyond what is contemplated in 2014 if unforeseen
opportunities arise;

expand our product and service offerings beyond what is contemplated in 2014 if unforeseen opportunities arise;

respond to unforeseen competitive pressures; and

acquire technologies beyond what is contemplated.

Our future liquidity and capital requirements will depend upon numerous factors, including the success of our existing and
new service offerings and potentially competing technological and market developments. However, any projections of future cash
flows are subject to substantial uncertainty. If current cash, lines of credit, and cash generated from operations are insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity securities, issue debt securities, or draw on the unused
portion of our line of credit. The sale of additional equity securities could result in dilution to our stockholders. From time to time,
we expect to evaluate the acquisition of or investment in businesses and technologies that complement our various eGovernment
businesses. Acquisitions or investments might affect our liquidity requirements or cause us to sell additional equity securities or
issue debt securities. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If
adequate funds were not available on acceptable terms, our ability to develop or enhance our applications and services, take
advantage of future opportunities, or respond to competitive pressures would be significantly limited. This limitation could harm our
business, results of operations, cash flows, and financial condition.

The seasonality of use for some of our eGovernment services may harm our quarterly results.

The use of some of our eGovernment services is seasonal, particularly the accessing of motor vehicle driver history records,
resulting in lower revenues from this service under existing portal contracts in the fourth quarter of each calendar year, due to the
smaller number of business days in this quarter and a lower volume of transactions during the holiday period.

Our quarterly results of operations may be volatile and difficult to predict. If our quarterly results of operations fail to
meet the expectations of public market analysts or investors, the market price of our common stock may decrease significantly.

Our future revenues and results of operations may vary significantly from quarter to quarter due to a number of factors,

many of which are outside of our control, and any of which may harm our business. These factors include:

●

the commencement, completion, or termination of contracts during any particular quarter;

the introduction of new eGovernment services by us or our competitors;

technical difficulties or system downtime affecting the Internet generally or the operation of our eGovernment services;

the amount and timing of operating costs and capital expenditures relating to the expansion of our business operations and
infrastructure;

the result of negative cash flows due to capital investments; and

the incurrence of significant charges related to acquisitions.

Due to the factors noted above, our financial performance in a particular quarter may be lower than we anticipate and if we
are unable to reduce spending in that quarter, our results of operations for that quarter may be harmed. One should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of future performance. It is possible that in some future

periods our results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of
our common stock may decline.

We may be subject to intellectual property infringement claims, which are costly to defend and could limit our ability to

use certain technologies in the future.

We may become subject to claims alleging infringement of third-party intellectual property rights. Our portal contracts

require us to indemnify our government partners for infringing software we build or use. Any claims could subject us to costly
litigation, and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual
property that is the subject of the alleged infringement. Licenses for such intellectual property may not be available on acceptable
terms or at all. Litigation regarding intellectual property rights is common in the Internet and software industries. We expect
third-party infringement claims involving Internet technologies and software products and services to increase. If an infringement
claim is filed against us, we may be prevented from using certain technologies and may incur significant costs resolving the claim.
We cannot assure that our applications and services do not infringe on the intellectual property rights of third parties. In addition, we
have agreed, and expect that we may agree in the future, to indemnify certain of our customers against claims that our services
infringe upon the intellectual property rights of others. We could incur substantial costs in defending ourselves and our customers
against infringement claims. In the event of a claim of infringement, we and our customers may be required to obtain one or more
licenses from third parties. We cannot assure that we or our customers could obtain necessary licenses from third parties at a
reasonable cost or at all.

We depend on technology licensed to us by third parties, and the loss of access to, or improper management of the

licensing of, this technology could delay implementation of our services or force us to pay higher license fees or fines.

We license numerous third-party technologies and applications that we incorporate into our existing service offerings, and

on which, in the aggregate, we are substantially dependent. There can be no assurance that the licenses for such third-party
technologies will not be terminated or that we will be able to license third-party technology and applications for future services.
While we do not believe that one individual technology or application we license is material to our business, changes in or the loss of
third party licenses could lead to a material increase in the costs of licensing, or to our products becoming inoperable or their
performance being materially reduced. The result could be that we may need to incur additional development or procurement costs
in an attempt to ensure continued performance of our services, and either the cost of such undertakings or the failure to successfully
complete such undertakings could have a material adverse effect on our business, results of operations, cash flows, and financial
condition. Additionally, because of the decentralized nature of our operations, licensing of third party technology can be complex
and difficult to track and continually monitor. Our inability to do so could result in fines, an increase in licensing fees, or the
temporary inability to utilize the third party technology until licensing issues are resolved.

We are subject to independent audits as requested by our government customers. Deficiencies in our performance

under a government contract could result in contract termination, reputational damage, or financial penalties.

Each government entity with which we contract for outsourced portal services has the authority to require an independent

audit of our performance and financial management of contracted operations in each respective state. The scope of audits could
include inspections of income statements, balance sheets, fee structures, collections practices, service levels, security practices, and
our compliance with contract provisions and applicable laws, regulations, and standards. We cannot assure that a future audit will
not find any material performance deficiencies that would result in an adjustment to our revenues and result in financial penalties.
Moreover, the consequent negative publicity could harm our reputation among other governments with which we would like to
contract. All of these factors could harm our business, results of operations, cash flows, and financial condition.

A prolonged economic slowdown could harm our operations.

A prolonged economic slowdown or recession could materially impact our operations to the extent it results in reduced

demand for Internet-based access to governmental services. In addition, it may hinder our efforts to obtain new business by
distracting the attention of governments or impairing the ability of governments to hear or act upon our value proposition due to
reduced personnel or turnover. These same factors may also jeopardize our renewal or rebid opportunities on existing contracts. If
current market and economic conditions deteriorate, we may experience adverse impacts on our business, results of operations, cash
flows, and financial condition.

Our cash could be adversely affected if any of the financial institutions in which we hold our cash fails or becomes

subject to other adverse conditions in the financial or credit markets.

Our cash primarily includes cash on hand in the form of bank deposits. We maintain our cash with major financial
institutions. Deposits with these financial institutions exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.
At December 31, 2013, the amount of cash covered by FDIC deposit insurance was $10.1 million, and $64.1 million of cash was
above the FDIC deposit insurance limits. These balances could be impacted if one or more of the financial institutions with which
we deposit funds fails or becomes subject to other adverse conditions in the financial or credit markets. To date, we have
experienced no loss or lack of access to our invested cash; however, we can provide no assurance that access to our invested cash
will not be impacted or that we will not lose deposited funds in excess of FDIC insurance limits as a result of the failure or
insolvency of any these financial institutions or adverse conditions in the financial and credit markets.

We may be unable to integrate new technologies and industry standards effectively, which may adversely affect our

business and results of operations.

Our future success will depend on our ability to enhance and improve the responsiveness, functionality, and features of our
services in accordance with industry standards and to address the increasingly sophisticated technological needs of our customers on
a cost-effective and timely basis. Our ability to remain competitive will depend, in part, on our ability to:

●

enhance and improve the responsiveness, functionality, and other features of the government portals we offer;

continue to develop our technical expertise;

develop and introduce new services, applications, and technology to meet changing customer needs and preferences; and

influence and respond to emerging industry standards and other technological changes in a timely and cost-effective
manner.

We cannot assure that we will be successful in responding to the above technological and industry challenges in a timely
and cost-effective manner. If we are unable to integrate new technologies and industry standards effectively, our business could be
harmed.

Our strategic alliances and potential acquisitions may entail numerous risks and uncertainties which could adversely

affect our business and results of operations.

As part of our business strategy, we have made and may continue to enter into strategic alliances or to make acquisitions
that we believe will complement our existing businesses, increase traffic to our government partners’ sites, enhance our services,
broaden our software and applications offerings or technological capabilities, or increase our profitability. Future alliances or
acquisitions could present numerous risks and uncertainties, including:

●

the inability to successfully market, distribute, deploy, and manage new products and services that we have limited or no
experience in managing;

the diversion of management’s attention from our core business;

risks associated with entering markets in which we have limited or no experience;

adverse effects on existing business relationships with existing suppliers and customers;

erosion of our brand equity in the eGovernment or financial markets;

difficulties in the assimilation of operations, personnel, technologies, and information systems of the acquired companies;

the risk that an acquired business will not perform as expected or will have profit margins significantly lower than ours;

potential loss of key employees, particularly those of acquired businesses;

potentially dilutive issuances of equity securities, which may be freely tradable in the public market;

impairment, restructuring, and other charges related to goodwill and other long-lived intangible assets; and

the incurrence of debt and related interest and other expenses.

We cannot assure that we will be able to successfully integrate products or technologies of strategic alliances or new

businesses we may acquire in the future. We also may not realize cost efficiencies or synergies that we anticipate.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal administrative office occupies a total of approximately 29,000 square feet of leased space at 25501 West

Valley Parkway, Suite 300, Olathe, Kansas 66061. All of our subsidiaries also lease their facilities. We do not own any real property
and do not currently anticipate acquiring real property or buildings in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Litigation

We are involved from time to time in legal proceedings and litigation arising in the ordinary course of business. However,

we are not currently a party to any material legal proceedings. As discussed in Note 7 in the Notes to Consolidated Financial
Statements included in this Form 10-K with respect to the prior civil action by the SEC against our Chief Financial Officer, we were
not a party to the civil action, but were obligated to provide indemnification in certain circumstances (including advancing certain
defense costs) to our Chief Financial Officer in accordance with our certificate of incorporation and bylaws and our indemnification
agreement with him. On December 2, 2013, a federal jury of seven persons in Kansas City, Kansas, cleared our Chief Financial
Officer of any liability in connection with all alleged violations brought by the SEC against him. The SEC’s right to appeal the
outcome of the trial has expired and the civil action by the SEC against our Chief Financial Officer is concluded.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Global Select Market under the symbol “EGOV.” The following table shows

the range of high and low sales prices reported on the NASDAQ Global Select Market for the periods indicated.

Fiscal Year Ended December 31, 2013

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Fiscal Year Ended December 31, 2012

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

19.35
19.30
24.15
25.99

15.62
15.51
16.68
20.54

High

Low

13.81
12.70
15.42
16.83

11.25
9.95
12.59
13.58

As of February 12, 2014, there were approximately 236 holders of record of shares of our common stock.

Dividend Policy

On October 28, 2013, our Board of Directors declared a special cash dividend of $0.35 per share, payable to stockholders of

record as of November 8, 2013. The dividend, totaling approximately $23.0 million, was paid on January 2, 2014, out of our
available cash.

On November 5, 2012, our Board of Directors declared a special cash dividend of $0.25 per share, payable to stockholders
of record as of November 23, 2012. The dividend, totaling approximately $16.3 million, was paid on December 5, 2012, out of our
available cash.

Any future determination as to the payment of dividends will be made at the discretion of our Board of Directors and will
depend on our operating results, financial condition, capital requirements, general business conditions, and such other factors as our
Board of Directors deems relevant.

Performance Graph

The performance graph below compares the annual change in our cumulative total stockholder return on our common stock
during a period commencing on December 31, 2008, and ending on December 31, 2013 (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend reinvestment and (B) the difference between
our share price at the end and the beginning of the measurement period; by (ii) the share price at the beginning of the measurement
period) with the cumulative total return of each of: (a) the NASDAQ Composite (U.S.) Index and (b) a Peer Group, assuming a
$100 investment on December 31, 2008. On February 27, 2009, we paid a special cash dividend of $0.30 per share; on February 26,
2010, we paid a special cash dividend of $0.30 per share; on December 30, 2010, we paid a special cash dividend of $0.25 per share;
on January 3, 2012, we paid a special cash dividend of $0.25 per share; and on December 5, 2012, we paid a special cash dividend of
$0.25 per share, all of which are included in the presentation of our performance. We did not pay any other dividends on our
common stock during the period commencing on December 31, 2008, and ending on December 31, 2013. The stock price
performance on the graph below is not necessarily indicative of our future price performance.

Comparison of Cumulative Total Return Among
NIC Inc., NASDAQ Composite (U.S.) Index and Peer Group

Total Return to Shareholders
(Assumes $100 investment on 12/31/2008)

$700.00

$600.00

$500.00

$400.00

$300.00

$200.00

$100.00

$0.00

12/31/2008

12/31/2009

12/31/2010

12/31/2011

12/31/2012

12/31/2013

NIC

Nasdaq

Peer Group

Total Return Analysis
NIC Inc.
NASDAQ Composite
Peer Group

12/31/2008
$ 100.00
$ 100.00
$ 100.00

12/31/2009
12/31/2010
$ 210.67 $ 238.75
$ 168.22
$ 143.89
$ 157.67
$ 133.41

12/31/2011
$ 327.26
$ 165.19
$ 189.32

12/31/2012
$ 416.06
$ 191.47
$ 224.70

12/31/2013
$ 633.26
$ 264.84
$ 295.19

The Peer Group consists of five companies, each with a business focus similar to that of NIC. While not all of the
companies provide services exclusively to governments, the services provided are similar to those we provide. The members of the
Peer Group are as follows: Towers Watson & Co (TW), Accenture, Ltd. (ACN), International Business Machines Corp. (IBM),
Maximus, Inc. (MMS), and ACI Worldwide, Inc. (ACIW). Watson Wyatt Worldwide, Inc. was included in the Peer Group until
January 1, 2010, when it merged with Towers Perrin to form Towers Watson & Co (TW). Official Payments Holdings, Inc. (OPAY)
was included in the Peer Group until November 5, 2013, when it was acquired by ACI Worldwide, Inc.

The performance graph and related text are being furnished to and not filed with the SEC, and will not be deemed to be
“soliciting material” or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section
18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate such information by
reference into such a filing.

Share Repurchases

During the fourth quarter of 2013, we acquired and cancelled shares of common stock surrendered by employees to pay

income taxes due upon the vesting of restricted stock or the exercise of options as follows:

Period
October 24, 2013
October 25, 2013
October 27, 2013
November 5, 2013

Total Number of
Shares Purchased
731
233
129
276

Average Price
Paid per Share
25.16
$
24.90
24.90
23.34

ITEM 6. SELECTED FINANCIAL DATA

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

Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs
N/A
N/A
N/A
N/A

The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and

related Notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this
Form 10-K (amounts in thousands in the tables below, except per share data).

Consolidated Statement of Income Data:
Total revenues
Operating income
Net income
Net income per share - basic
Net income per share - diluted

2013

249,279
52,610
32,038
0.49
0.49

Year Ended December 31,
2011

2012

2010

210,172
43,192
26,339
0.40
0.40

180,899
38,508
22,942
0.35
0.35

161,534
29,398
18,363
0.28
0.28

2009

132,886
22,021
13,946
0.22
0.22

As discussed in Note 4 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for

the year ended December 31, 2009, which was filed with the SEC on March 16, 2010, we acquired the then-current portal
management contracts for the state of Texas (collectively, the “Acquired Texas Contracts”) in the second quarter of 2009. The
Acquired Texas Contracts expired on December 31, 2009, except certain Master Work Order projects expired on August 31, 2012
and others will expire on August 31, 2014. During the third quarter of 2009, we entered into a new seven-year contract with the state
of Texas to manage the state’s official government portal (the “New Texas Contract”). The New Texas Contract commenced on
January 1, 2010 and runs through August 31, 2016. We did not begin earning revenues under the New Texas Contract until 2010.

Consolidated Balance Sheet Data:
Total assets
Long-term debt (includes current portion

2013

2012

December 31,
2011

2010

2009

179,974

145,140

144,354

111,376

123,608

of notes payable/capital lease obligations)

Dividends declared per share:

October 28, 2013
November 5, 2012
October 24, 2011
December 3, 2010
February 1, 2010
February 3, 2009

Total stockholders' equity

0.35
-
-
-
-
-
91,936

-
0.25
-
-
-
-
78,924

-
-
0.25
-
-
-
65,077

-
-
-
0.25
0.30
-
53,270

-
-
-
-
-
0.30
66,559

As further discussed in Note 8 in the Notes to Consolidated Financial Statements included in this Form 10-K, we declared
a special cash dividend in October 2013 totaling approximately $23.0 million, which was paid out of our available cash in January
2014; we declared a special cash dividend in November 2012 totaling approximately $16.3 million, which was paid out of our
available cash in December 2012; we declared a special cash dividend in October 2011 totaling approximately $16.2 million, which
was paid out of our available cash in January 2012; we declared and paid a special cash dividend totaling approximately $16.2
million out of our available cash in December 2010; we declared and paid a special cash dividend totaling approximately $19.3
million out of our available cash in February 2010; and we declared and paid a special cash dividend totaling approximately $19.2
million out of our available cash in February 2009.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Caution about Forward-Looking Statements

Statements in this Annual Report on Form 10-K regarding NIC 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 portal contracts, statements of assumptions underlying such statements, and statements of the
Company’s or management’s 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 2013 Annual Report on Form 10-K.

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, NIC’s ability to successfully integrate into its
operations recently awarded eGovernment contracts; NIC’s ability to implement its new portal contracts in a timely and
cost-effective manner; NIC’s ability to successfully increase the adoption and use of eGovernment services; the possibility of
reductions in fees or revenues as a result of budget deficits, government shutdowns, or changes in government policy; the success of
the Company in renewing existing contracts and in signing contracts with new states and federal government agencies; continued
favorable government legislation; NIC’s ability to develop new services; existing states and agencies adopting those new services;
acceptance of eGovernment services by businesses and citizens; competition; the possibility of security breaches through cyber
attacks and any resulting liability; general economic conditions; and the other factors discussed under “CAUTIONS ABOUT
FORWARD LOOKING STATEMENTS” in Part I and “RISK FACTORS” in Part I, Item 1A of this 2013 Annual Report on
Form 10-K. Investors should read all of these discussions of risks carefully.

All forward-looking statements made in this Form 10-K speak only as of the date of this report. We will not necessarily

update the information in this 2013 Annual Report on Form 10-K if any forward-looking statement later turns out to be inaccurate.
Investors are cautioned not to put undue reliance on any forward-looking statement.

What We Do – An Executive Summary

We are a leading provider of eGovernment services that help governments use the Internet to reduce internal costs, increase
efficiencies, and provide a higher level of service to businesses and citizens. We accomplish this currently through two channels: our
primary outsourced portal businesses and our software & services businesses.

In our primary outsourced portal business, we generally enter into contracts primarily with state and local governments to

design, build, and operate Internet-based enterprise-wide portals on their behalf. We typically enter into multi-year contracts and
manage operations for each government partner through separate local subsidiaries that operate as decentralized businesses with a
high degree of autonomy. Our portals consist of websites and applications that we build, which allow businesses and citizens to
access government information through multiple online channels, including mobile, and complete secure transactions, including
applying for a permit, retrieving government records, or filing a government-mandated form or report. We help increase our
government partners’ revenues by expanding the distribution of their information assets and increasing the number of financial
transactions conducted with governments. We do this by marketing portal services and soliciting users to complete
government-based transactions and to enter into subscriber contracts that permit users to access the portal and the government
information contained therein in exchange for transactional and/or subscription user fees. We are typically responsible for funding
up-front investment and ongoing operations and maintenance costs of the government portals. Our unique self-funded business
model allows us to generate revenues by sharing in the fees collected from eGovernment transactions. Our partners benefit because
they reduce their financial and technology risks, increase their operational efficiencies, and gain a centralized, customer-focused
presence on the Internet, while businesses and citizens gain a faster, more convenient, and more cost-effective means to interact with
governments.

On behalf of our government partners, we enter into separate agreements with various agencies and divisions of the

government to provide specific services and to conduct specific transactions. These agreements preliminarily establish the pricing of
the electronic transactions and data access services we provide and the division of revenues between the Company and the
government agency. The government oversight authority must approve prices and revenue sharing agreements. We have limited
control over the level of fees we are permitted to retain. Any changes made to the amount or percentage of fees retained by us, or to
the amounts charged for the services offered, could materially affect the profitability of the respective contract to us. We typically
own all the intellectual property in connection with the applications developed under these contracts. After completion of a defined
contract term, the government partner typically receives a perpetual, royalty-free license to use the software only in its own portal.
However, certain customer management, billing and payment processing software applications that we have developed and
standardized centrally and that are utilized by our portal businesses, are being provided to an increasing number of our government
partners on a software-as-a-service, or “SaaS,” basis, and thus would not be included in any royalty-free license. If our contract was
not renewed after a defined term or if our contract was terminated by our government partner for cause, the government agency
would be entitled to take over the portal in place with no future obligation of the Company, except as otherwise provided in the

contract and except for the services we provide on a SaaS basis, which would be available to our partners on a fee-for-service basis.
We also provide certain payment processing services on a SaaS basis to a few private sector companies and non-NIC portal states,
and may continue to market these services to other entities in the future. Historically, however, revenues from these services have
not been significant. In some cases, we enter into contracts to provide consulting, application development and portal management
services to governments in exchange for an agreed-upon fee.

Our objective is to strengthen our position as the leading provider of Internet-based eGovernment services. Key strategies

to achieve this objective include:

●

Renew all current outsourced government portal contracts – First and foremost, we will strive to obtain renewal of all
currently profitable outsourced government portal contracts. As of December 31, 2013, there were 15 contracts under
which we provide enterprise-wide outsourced portal services or software development and services (which excludes our
Arizona portal contract under which we are currently providing transition services to the state of Arizona that will end on
March 26, 2014) that have expiration dates within the 12-month period following December 31, 2013.

Win new portal contracts – A key objective of ours is to win new portal contracts with state and federal government
agencies. We continue to invest in business development and marketing efforts through a combination of strategic
advertising and public relations initiatives. We have responded to several active portal procurement opportunities and
realized significant benefits from our investment, including contracts with new government partners in recent years. During
the fourth quarter of 2012, we entered into a five-year contract with the Commonwealth of Pennsylvania, which includes an
option for the state to extend the contract up to an additional five years. During the second quarter of 2013, we were
awarded a five-year contract by the state of Wisconsin, which includes an option for the government to extend the contract
up to an additional five years. During the first quarter of 2014, we were awarded a three-year contract by the state of
Connecticut, which includes an option for the government to extend the contract up to an additional three years.

Our goal is to continue expanding our number of government partners by leveraging our strong relationships with current
government partners and our reputation for providing proven eGovernment services. We intend to continue marketing our
services to new governments in state, local, and federal jurisdictions. Our expansion efforts include developing
relationships and sponsors throughout an individual government entity, pursuing strategic technology alliances, making
presentations at conferences of government executives with responsibility for information technology policy, and
developing contacts with organizations that act as forums for discussions between these executives.

Increase transactional revenues from our existing government portals – Part of our strategy is to increase transactional
revenues from our existing government portals by building new applications and services, taking successful applications
and services and implementing them in our other government portal states, and increasing the adoption of existing portal
applications and services within each state where we operate. We intend to accomplish this with new service offerings,
increased operational focus, and expanded marketing initiatives. In addition, we will work closely with the governance
authority for each of our partner portals to evaluate the pricing of new and existing services to encourage higher usage and
increased revenue streams. We plan to continue our development of new secure online transactional services that enable
government agencies to interact more effectively and efficiently with businesses, citizens, and other government agencies
through multiple online channels, including mobile. We will continue to work with government agencies, professional
associations, and other organizations to better understand the current and future needs of our customers. We will continue
to work with our government partners to create awareness of the online alternatives to traditional government interaction
through initiatives such as informational brochures, government voicemail recordings, and inclusion of website
information on government communication materials. In addition, we will continue to update our portals to highlight new
government service information provided on the portals. We plan to work with professional associations to directly and
indirectly communicate to their members the potential convenience, ease of use, and other benefits of the services our
portals offer.

In addition to overall portal revenue growth, which includes both organic revenue growth and growth from new portal
contracts, an important financial metric that we use to gauge our success in increasing transactional revenues in our existing
portal businesses is same state revenue growth. We define same state revenues as those from states in operation and
generating revenues for two full periods.

Our long-term goal has been to grow same state revenues at least 10% per year. Same state portal revenues grew 14% in
2013 and 10% in 2012. Our same state revenue growth in 2013 was higher than our growth in 2012 primarily due to
increased same state non-DMV, transaction-based revenues. Non-DMV, transaction-based revenues consist of transaction
fees generated by means other than from providing electronic access to motor vehicle driver history, or DMV, records. As
non-DMV, transaction-based revenues continue to become a larger component of overall portal revenues, our growth in
same state non-DMV, transaction-based revenues becomes more important to our overall growth as a company. Same state
non-DMV, transaction-based revenues grew 27% in 2013 compared to 19% in 2012. As further discussed below, the
increase in the same state non-DMV, transaction-based revenue growth rate in 2013 was primarily due to the deployment
and increased adoption of key revenue generating services in certain portals, including a motor vehicle inspection service
with the Texas Department of Public Safety (“DPS”), which was in operation for a full year in 2013 compared to four
months in the prior year following its launch in September 2012.

Growth in DMV transaction-based revenues is also an important factor in our goals for overall same state revenue growth.
Historically, DMV price increases have been relatively infrequent, and our ability to grow same state DMV revenues has
been limited, as such revenues have been driven by broader economic factors outside of our control. Absent DMV price
increases, same state DMV revenue growth has historically ranged from flat to 1% per year. Same state DMV revenues
increased by 5% in 2013 and decreased by 1% in 2012. As further discussed below, the increase in the same state DMV
transaction-based revenue growth rate in 2013 was mainly due to an increase in transaction volumes at our Texas portal,
among several others.

●

Continue to grow profitability – In addition to driving same state revenue growth, part of our strategy is to increase
profitability by driving cost containment efforts throughout the Company and maintaining a lean organizational structure
that fosters entrepreneurial decision-making and innovation, and accentuates the financial leverage of our business model.

An important financial metric that we use to gauge our portal profitability is portal gross profit percentage, or gross profit
rate, which is calculated by dividing portal gross profit (portal revenues minus cost of portal revenues, excluding
depreciation and amortization) by portal revenues. Our portal gross profit rate was 39% in 2013 and 38% in both 2012 and
2011. We carefully monitor our portal gross profit percentage to strike the balance between generating a solid return for our
stockholders and delivering value to our government partners through reinvestment in our portal operations (which we
believe also benefits our stockholders). As further discussed below, the increase in the portal gross profit rate in 2013 was
mainly due to higher same state revenue growth and higher revenues from our newer portals in Oregon and Maryland, and
was partially offset by start-up dilution from our new Pennsylvania and Wisconsin portals.

We also view selling & administrative costs, expressed as a percentage of total consolidated revenues, to be an important
indicator of the relative year-over-year growth in our corporate level expenses. Selling & administrative costs as a
percentage of total consolidated revenues were 16% in all periods presented.

Finally, our consolidated operating income margin (operating income divided by total consolidated revenues) is an
important measure of our overall profitability. This metric was 21% in 2013, 20% in 2012, and 21% in 2011. The increase
in our 2013 consolidated operating income margin was primarily attributable to an increase in portal gross profits, which
was primarily driven by same state revenue growth, and an increase in software & services gross profits, due mainly to
strong results from our contract with the FMCSA to operate the PSP and a new construction lien service in North Carolina,
which commenced in April 2013. The decrease in our 2012 consolidated operating income margin was primarily
attributable to start-up costs from our Oregon portal.

Overview of Business Models and Revenue Recognition

We classify our revenues and cost of revenues into two categories: (1) portal and (2) software & services. The portal

category includes revenues and cost of revenues primarily from our subsidiaries operating state and local government portals on an
outsourced basis. The software & services category primarily includes revenues and cost of revenues from our subsidiaries that
provide software development and services, other than enterprise-wide outsourced portal services, to state and local governments as
well as federal agencies. We currently earn revenues from three main sources: transaction-based fees, time and materials-based fees
for application development, and fixed fees for portal management services. Each of these revenue types and the corresponding
business models are further described below.

Our outsourced portal businesses

We categorize our portal revenues according to the underlying source of revenue. A brief description of each category

follows:

●

DMV transaction-based: these are transaction fees for providing electronic access to motor vehicle driver history records,
referred to as DMV records, from our state portals to data resellers, insurance companies, and other pre-authorized
customers on behalf of our state partners, and are generally recurring.

Non-DMV transaction-based: these are transaction fees from sources other than providing electronic access to DMV
records, for transactions conducted by business users and consumer users through our portals, and are generally recurring.
For a representative listing of non-DMV services we currently offer through our portals, refer to Part I, Item 1 in this Form
10-K.

Portal management: these are revenues from the performance of fixed fee portal management services for our government
partners in the states of Arizona, Indiana, and Delaware and are generally recurring.

Portal software development: these are revenues from the performance of application 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 portal management revenues. As a result, these revenues are excluded
from our recurring portal revenue percentage.

The highest volume, most commercially valuable service we offer is electronic access to DMV records. This service

accounted for approximately 34%, 34%, and 36% of our total consolidated revenues in 2013, 2012, and 2011, respectively. We
believe that while this service will continue to be an important source of revenue, its contribution as a percentage of total
consolidated revenues on an individual portal basis will decline modestly as other sources grow. LexisNexis Risk Solutions, which
resells these records to the auto insurance industry, accounted for approximately 22%, 23%, and 28%, of total consolidated revenues
in 2013, 2012, 2011, respectively. In addition, we offer a service in several of our states for online motor vehicle registration and
licensing. This service accounted for approximately 13% and 10%, respectively, of our total consolidated revenues in 2013 and
2012, and it accounted for less than 10% of our total consolidated revenues in 2011.

In our outsourced portal businesses for 2013, DMV transaction-based revenues represented approximately 36% of portal
revenues, non-DMV transaction-based revenues represented approximately 54%, portal software development revenues represented
approximately 6%, and portal management revenues represented approximately 4%. Approximately 75% of our transaction-based
revenues related to business-to-government transactions, with 25% related to citizen-to-government transactions.

Transaction-based revenues from our outsourced state portal business units are highly correlated to state population, but are

also affected by pricing policies established by government entities for public records, the number and growth of commercial
enterprises, and the government entity’s development of policy and information technology infrastructure supporting electronic
government.

LexisNexis Risk Solutions and other data resellers and companies who access DMV records have entered into contracts
with the portals our subsidiaries operate to request these records from the various states with which we have contracts. Under the
terms of these contracts, we provide data resellers with driver’s license and traffic records that vary by contract, for fees that
currently range from $2.00 to $27.50 per record requested. The fees charged to all entities that access DMV records are the same for
records of a particular state. We typically collect the entire fee, of which a certain portion is remitted to the state by statute. These
contracts are generally self-renewing until canceled by one side or the other, and generally may be terminated at any time after a
60-day notice. These contracts may be terminated immediately at the option of any party upon a material breach of the contract by
the other party. Furthermore, these contracts are immediately terminable if the state statute allowing for the public release of these
records is repealed.

We charge for electronic access to records on a per-record basis 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 provide that the amount of any fees we retain is
set by governments to provide us with a reasonable return or profit. We have limited control over the level of fees we are permitted
to retain. We recognize revenues from transactions (primarily transaction-based information access fees and filing fees) on an
accrual basis net of the transaction fee due to the government, and we bill end-user customers primarily on a monthly basis. We
typically receive a majority of payments via electronic funds transfer and credit/debit card within 25 days of billing and remit
payment to governments within 30 to 45 days of the transaction. The costs that we pay state 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 expense as incurred all employee costs to start up, operate, and maintain outsourced government portals as costs of
performance under the contracts because, after the completion of a defined contract term, the government entity with which we
contract typically receives a perpetual, royalty-free license to the applications we developed, except applications provided on a SaaS
basis. Such costs are included in cost of portal revenues in the consolidated statements of income.

Our software & services businesses

NIC Technologies currently earns a significant portion of its revenues from its contract with the FMCSA to develop and

manage the PSP for motor carriers nationwide, using a self-funded, transaction-based business model. NIC Technologies recognizes
revenues from this contract (primarily transaction-based information access fees) when the services are provided. NIC Technologies
also earns a portion of its revenues from fixed fee and time and materials application development and outsourced maintenance
contracts with other government agencies and recognizes revenues as services are provided.

Critical Accounting Policies

Many estimates and assumptions involved in the application of generally accepted accounting principles have a material
impact on our reported financial condition and operating performance and on the comparability of such reported information over
different reporting periods. A critical accounting policy is one which is both important to the portrayal of our financial condition and
results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to
make estimates and assumptions about the effect of matters that are inherently uncertain. Our significant accounting policies are
described in Note 2 in the Notes to Consolidated Financial Statements included in this Form 10-K. We have identified the policies
below as critical to our business operations and the understanding of our results of operations. Note that the preparation of our
consolidated financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. There can be
no assurance that actual results will not differ from those estimates.

Uncertain Tax Positions

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often

ambiguous. We are also subject to periodic audits by government tax authorities of our income tax returns. We are required to make
many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding
income tax laws and regulations change over time. Changes in our subjective assumptions and judgments can materially affect
amounts recognized in the consolidated balance sheets and statements of income. See Notes 2 and 9 in the Notes to Consolidated
Financial Statements included in this Form 10-K for additional detail on our uncertain tax positions.

Deferred Income Taxes

We recognize deferred income taxes for the tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year-end based on enacted laws and statutory rates applicable in each tax
jurisdiction to the periods in which the differences are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be realized. We are required to make many subjective
assumptions and judgments in determining deferred income tax assets and liabilities. Changes in our assumptions and judgments can
materially affect amounts recognized in the consolidated balance sheets and statements of income. For additional discussion of
deferred income taxes, see Notes 2 and 9 in the Notes to Consolidated Financial Statements included in this Form 10-K.

Stock-based Compensation

We measure stock-based compensation cost for service-based restricted stock awards at the grant date based on the

calculated fair value of the award, and recognize an expense over the employee’s requisite service period (generally the vesting
period of the grant). We measure stock-based compensation cost for performance-based restricted stock awards at the date of grant,
based on the fair value of shares expected to be earned at the end of the performance period, and recognize an expense over the
performance period based upon the probable number of shares expected to vest. We also estimate and exclude compensation cost
related to awards not expected to vest based upon estimated forfeitures. Measuring stock-based compensation cost of restricted stock
awards requires judgment, including estimating the probable number of shares expected to vest. In addition, estimating the number
of performance-based restricted stock awards expected to be earned is dependent on our expectations of future operating results over
a specified performance period in relation to specified performance criteria. Changes in our subjective assumptions and judgments
can materially affect amounts recognized in the consolidated balance sheets and statements of income. See Note 10 in the Notes to
Consolidated Financial Statements included in this Form 10-K for additional detail on our stock-based compensation.

Financial Analysis of Years Ended December 31, 2013, 2012, and 2011

In this section, we are providing more detailed information about our operating results and changes in financial position

over the past three years. This section should be read in conjunction with the Consolidated Financial Statements and related Notes
included in this Form 10-K.

Due to the expiration of Virginia Interactive’s contract with the Commonwealth of Virginia on August 31, 2013, the

operating results for our legacy Virginia portal have been removed from the same state category for the year ended December 31,
2013 as the portal no longer meets the definition of a same state portal (portals in operation and generating revenues for two full
periods).

Results of Operations

Key Financial Metrics
Revenue growth - outsourced portals
Same state revenue growth - outsourced portals
Recurring portal revenue as a % of total portal revenues
Gross profit % - outsourced portals
Revenue growth - software & services
Gross profit % - software & services
Selling & administrative expenses as a % of total revenues
Operating income margin % (operating income as a % of total revenues)

2013

2012

2011

19%
14%
94%
39%
20%
69%
16%
21%

17%
10%
92%
38%
11%
66%
16%
20%

10%
8%
91%
38%
67%
62%
16%
21%

PORTAL REVENUES. In the analysis below, we have categorized our portal revenues according to the underlying source

of revenue (in thousands), with the corresponding percentage increase or decrease from the prior year period.

Portal Revenue Analysis
DMV transaction-based
Non-DMV transaction-based
Portal software development
Portal management
Total

2013

% Change

2012

% Change

2011

83,671
127,898
13,309
10,305
235,183

18%
26%
(20%)
7%
19%

70,896
101,216
16,660
9,643
198,415

9%
24%
7%
14%
17%

64,985
81,313
15,515
8,463
170,276

Portal revenues for 2013 increased 19%, or approximately $36.8 million, over 2012. Of this increase, (i) 14%, or

approximately $27.0 million, was attributable to an increase in same state portal revenues (portals in operation and generating
revenues for two full periods); and (ii) 5%, or approximately $9.8 million, was attributable to increases of $11.8 million from our
newer portals, including Pennsylvania, which began generating revenues under the self-funded model in October 2013, as further
discussed below; Wisconsin, which began generating revenues in September 2013; Oregon, which began generating revenues in
June 2012; and Maryland, which began generating revenues in May 2012; partially offset by a $2.0 million decrease in portal
revenues from our legacy Virginia portal due to the contract expiration on August 31, 2013, as further discussed above. As further
discussed in Note 2 in the Notes to Consolidated Financial Statements in this Form 10-K, we elected not to pursue collection of
approximately $5.1 million of outstanding accounts receivable from the Commonwealth of Pennsylvania for eGovernment services
provided from January 1, 2013 to June 30, 2013, and recorded a non-cash pre-tax charge in cost of portal revenues of approximately
$5.1 million (approximately $0.05 per share on an after-tax basis) in the third quarter of 2013 to write-off amounts due from the
Commonwealth through June 30, 2013. We did not recognize revenue under the contract subsequent to June 30, 2013, until the
contract became self-funded in October 2013.

Same state portal revenues in 2013 increased 14%, or approximately $27.0 million, over 2012 due to increased revenues
from our Texas, New Jersey and Colorado portals, among others. Our same state revenue growth in 2013 was higher than the 10%
revenue growth we achieved in 2012 due mainly to higher same state non-DMV transaction-based revenue growth of 27% and, to a
lesser extent, higher same state DMV transaction-based revenue growth of 5%, offset partially by a 20% decrease in same state
portal software development revenues. The increase in non-DMV transaction-based revenues in 2013 was attributable to strong
performance from several key applications, including tax filings and motor vehicle registrations in New Jersey and Texas, court
record searches in Colorado and Texas, and the motor vehicle inspection service for the Texas DPS as part of the DPS Direct suite of
services that we are implementing for the DPS. Our same state non-DMV transaction-based revenue growth was 19% in 2012. The
increase in same state DMV transaction-based revenues in 2013 was mainly due to an increase in transaction volumes at our Texas
portal, among others, and to a lesser extent, a DMV price increase at a medium sized portal that became effective in the third quarter
of 2013. Same state DMV transaction-based revenue decreased 1% in 2012. Absent DMV price increases, same state DMV revenue
growth has historically ranged from flat to 1% per year. We believe our DMV revenues in 2012 were negatively affected by weak
broader macroeconomic conditions. Our same state portal software development revenue decreased 20% in 2013 as compared to a
5% increase in 2012, primarily due to the expiration of certain Master Work Order projects in Texas on August 31, 2012, as
previously disclosed.

Portal revenues for 2012 increased 17%, or approximately $28.1 million, over 2011. Of this increase, (i) 10%, or

approximately $15.8 million, was attributable to an increase in same state portal revenues (portals in operation and generating
revenues for two full periods); and (ii) 7%, or approximately $12.3 million, was attributable to increases from newer portals,
including Maryland, which began generating revenues in May 2012; Oregon, which began generating revenues in June 2012;
Delaware, which began generating revenues in October 2011; Mississippi, which began generating revenues in May 2011; and New
Jersey, which began generating revenues in April 2011.

Same state portal revenues in 2012 increased 10%, or approximately $15.8 million, over 2011 due to increased revenues

from our Texas, Montana, Indiana, Hawaii and Colorado portals, among others. Our same state revenue growth in 2012 was driven
mainly by same state non-DMV transaction-based revenue growth of 19% and same state portal software development revenue
growth of 5%, which was partially offset by a 1% decrease in same state DMV transaction-based revenues. The increase in
non-DMV transaction-based revenues in 2012 was attributable to strong performance from several key applications, including a
motor vehicle inspection service with the Texas DPS as part of the DPS Direct suite of services launched in September 2012,
payment processing, motor vehicle registrations, and tax filings.

COST OF PORTAL REVENUES. In the analysis below, we have categorized our cost of portal revenues between fixed
and variable costs (in thousands), with the corresponding percentage increase or decrease from the prior year period. Fixed costs
include costs such as employee compensation (including stock-based compensation), provision for losses on accounts receivable,
subcontractor labor costs, telecommunication, and all other costs associated with the provision of dedicated client service such as
dedicated facilities. Variable costs consist of costs that vary with our level of portal revenues and primarily include bank fees
required to process credit/debit card and automated clearinghouse transactions and, to a lesser extent, costs associated with revenue
share arrangements with our state partners.

Cost of Portal Revenue Analysis
Fixed costs
Variable costs
Total

2013

% Change

2012

% Change

2011

94,615
48,439
143,054

18%
11%
16%

80,046
43,523
123,569

21%
13%
18%

66,172
38,558
104,730

Cost of portal revenues in 2013 increased 16%, or approximately $19.5 million, over 2012. Of this increase, (i) 9%, or

approximately $10.7 million, was attributable to an increase in same state cost of portal revenues; and (ii) 7%, or approximately $8.8
million, was attributable to increases of $9.8 million in our newer portals in Wisconsin, Oregon, Maryland and Pennsylvania,
including a $5.1 million accounts receivable write-off for amounts we elected not to pursue from the Commonwealth of
Pennsylvania, as further discussed above and in Note 2 in the Notes to Consolidated Financial Statements; partially offset by a $1.0
million decrease in cost of portal revenues at our legacy Virginia portal due to the contract expiration on August 31, 2013, as further
discussed above.

The increase in same state cost of portal revenues in 2013 was partially attributable to higher employee compensation and

benefit costs across various portals and certain costs related to the motor vehicle inspection service as part of the Texas DPS, as
further discussed above. In addition, the increase in 2013 was partially attributable to an increase in variable costs to process
credit/debit card transactions, due mainly to higher transaction volumes from our portals in Texas, New Jersey and Colorado, among
others. A significant percentage of our non-DMV transaction-based revenues are generated from online applications whereby users
pay for information or transactions via credit/debit cards. We typically earn a percentage of the credit/debit card transaction amount,
but also must pay an associated interchange fee to the bank that processes the credit/debit card transaction. We earn a lower gross
profit percentage on these transactions as compared to our other non-DMV applications. However, we plan to continue to implement
these services as they contribute favorably to our operating income growth.

Cost of portal revenues in 2012 increased 18%, or approximately $18.8 million, over 2011. Of this increase, (i) 8%, or
approximately $8.8 million, was attributable to an increase in same state cost of portal revenues; and (ii) 10%, or approximately
$10.0 million, was attributable to our newer portals in Maryland, Oregon, Delaware, Mississippi and New Jersey.

The increase in same state cost of portal revenues in 2012 was partially attributable to higher employee compensation and
benefit costs across various portals and certain nonrecurring costs in Texas associated with the implementation of the motor vehicle
inspection service for the Texas DPS. In addition, the increase in 2012 was partially attributable to an increase in variable fees to
process credit/debit card transactions, particularly from our portals in Texas, Indiana, Montana and Colorado, among others.

Our portal gross profit percentage was 39% in 2013, up from 38% in both 2012 and 2011, due mainly to higher same state
revenue growth and higher revenues from our newer portals in Oregon and Maryland, partially offset by start-up dilution from our
Pennsylvania and Wisconsin portals (collectively, $3.4 million), as further discussed above. We carefully monitor our portal gross
profit percentage to strike the balance between generating a solid return for our stockholders and delivering value to our government
partners through reinvestment in our portal operations (which we believe also benefits our stockholders).

SOFTWARE & SERVICES REVENUES. In the analysis below, we have categorized our software & services revenues by

business (in thousands), with the corresponding percentage increase or decrease from the prior year period.

Software & Services Revenue Analysis
NIC Technologies
Other
Total

2013

% Change

2012

% Change

2011

10,611
3,485
14,096

5%
105%
20%

10,061
1,697
11,758

10%
17%
11%

9,174
1,449
10,623

Software & services revenues increased 20% and 11%, or approximately $2.3 million and $1.1 million, in 2013 and 2012,

respectively, due mainly to (i) higher revenues of $1.1 million and $1.5 million in 2013 and 2012, respectively, from our contract
with the FMCSA as a result of increased adoption of the PSP compared to prior periods; and (ii) a new construction lien service in
North Carolina which commenced in April 2013 and generated approximately $1.2 million of revenues in 2013.

COST OF SOFTWARE & SERVICES REVENUES. Cost of software & services revenues increased 8%, or
approximately $0.3 million, in 2013 due mainly to the launch of the new construction lien service in North Carolina, as further
discussed above. Cost of software & services revenues were flat in 2012. Our software & services gross profit percentage was 69%,
66% and 62% in 2013, 2012 and 2011, respectively. Our software and services gross profit percentage increased in 2013 due mainly

to higher revenues from the PSP and our new construction lien service in North Carolina, as described above. Our software and
services gross profit percentage increased in 2012 due primarily to higher revenues from the PSP, as described above.

SELLING & ADMINISTRATIVE. Selling & administrative expenses in 2013 increased 25%, or approximately $8.1

million, over 2012. The increase was due mainly to (i) higher net costs related to the previously disclosed SEC matter, as further
described below; (ii) higher management incentive compensation as a result of our strong operating results in 2013; and (iii) higher
personnel and software and maintenance costs to support and enhance our corporate-wide information technology and security
infrastructure as a result of our growth.

As discussed in Note 7 in the Notes to Consolidated Financial Statements included in this Form 10-K, throughout 2013 we

continued to incur obligations to advance legal fees and other expenses to our Chief Financial Officer in connection with the
previously disclosed civil action by the SEC against him. We were not a party to the civil action, but were obligated to provide
indemnification in certain circumstances (including advancing certain defense costs) to our Chief Financial Officer in accordance
with our certificate of incorporation and bylaws and our indemnification agreement with him. Our directors’ and officers’ liability
insurance carrier agreed to reimburse us for certain reasonable costs of defense advanced by us to our Chief Financial Officer in the
SEC civil action, subject to the policy limits of the applicable insurance policy. During the fourth quarter of 2013, the policy limits of
our directors’ and officers’ liability insurance were reached for claims related to the SEC matter and, therefore, we will not be
entitled to any further reimbursements from our insurance carrier in excess of the limits. We do not currently expect to incur any
additional costs related to the SEC matter in 2014.

On December 2, 2013, a federal jury of seven persons in Kansas City, Kansas, cleared our Chief Financial Officer of any
liability in connection with all alleged violations of certain provisions of the federal securities laws in the civil action brought by the
SEC against him. The SEC’s right to appeal the outcome of the trial has expired and the civil action against our Chief Financial
Officer is concluded.

Selling & administrative expenses in 2013 included approximately $12.8 million of legal fees and other third-party costs
related to the previously disclosed SEC matter. These expenses were reduced by approximately $8.8 million of reimbursement from
our directors’ and officers’ liability insurance carrier, resulting in a net expense of approximately $4.0 million related to the SEC
matter for 2013. In 2012, we incurred approximately $4.5 million of legal fees and other third-party costs related to the SEC matter.
These expenses were reduced by approximately $4.0 million of insurance reimbursement resulting in a net expense of
approximately $0.5 million for 2012. In 2011, we incurred approximately $4.2 million of legal fees and other third-party costs
related to the SEC matter and the related derivative action. These expenses were reduced by approximately $4.5 million of insurance
reimbursement and approximately $0.2 million of reimbursement from Jeffery S. Fraser, our former Chairman of the Board and
Chief Executive Officer, related to the settlement of a derivative action, resulting in a net decrease in expense of approximately $0.5
million for 2011.

In 2013, legal fees and other third-party costs related to the SEC matter, net of insurance and other reimbursements,

increased approximately $3.5 million from 2012 as described above, while other selling & administrative expenses increased by
approximately $4.6 million, due mainly to higher management incentive compensation as a result of our strong operating results in
2013 and higher personnel and software and maintenance costs to support and enhance our corporate-wide information technology
and security infrastructure as a result of our growth. In 2012, legal fees and other third-party costs related to the SEC matter and
derivative action, net of insurance and other reimbursements, increased approximately $1.0 million from 2011 as described above,
while other selling & administrative expenses increased by approximately $3.1 million, due mainly to higher personnel and software
and maintenance costs to support and enhance corporate-wide information technology, security and portal operations.

As a percentage of total consolidated revenues, selling & administrative expenses were 16% in all periods presented.

DEPRECIATION & AMORTIZATION. Depreciation & amortization expense in 2013 increased 32%, or approximately

$2.0 million, over 2012. This increase was primarily attributable to (i) capital expenditures to implement the motor vehicle
inspection service for the Texas DPS as part of the DPS Direct suite of services, which launched in September 2012; and (ii) capital
expenditures for our centralized hosting environment to support and enhance corporate-wide information technology and security
infrastructure. Depreciation & amortization expense in 2012 increased 38%, or approximately $1.7 million, over 2011. This increase
was primarily attributable to (i) capital expenditures to implement the motor vehicle inspection service for the Texas DPS as part of
the DPS Direct suite of services; (ii) capital expenditures for our centralized hosting environment to support and enhance
corporate-wide information technology and security infrastructure; and (iii) capital expenditures for new state portal contracts.

As a percentage of total consolidated revenues, depreciation & amortization was 3% in all periods presented. We will
continue to make key information technology infrastructure and security investments to support the long-term expansion of our
portal business.

INCOME TAXES. Our effective tax rate was approximately 39% in 2013 and 2012, and 40% in 2011. On January 2, 2013,
the American Taxpayer Relief Act of 2012 (the “Act”) was signed into law. The Act retroactively extended the federal research and
development credit under Internal Revenue Code Section 41, which previously expired at the end of 2011, through the end of 2013.
In accordance with authoritative accounting guidance, we recognized the impact of this legislation for the 2012 tax year in 2013,
when the Act was signed into law. For the 2013 tax year, we recognized a favorable benefit related to the federal research and

development tax credit totaling approximately $0.5 million for the year ended December 31, 2012, which was recognized in 2013,
and approximately $0.3 million for the year ended December 31, 2013.

Our effective tax rate for 2012 was lower than the rate in 2011 due to several factors, including the favorable outcome of an
Internal Revenue Service examination and the related decrease in the liability for uncertain tax positions, along with changes in state
taxes primarily due to a change in apportionment methodology for certain states.

Liquidity and Capital Resources

Operating Activities

NIC INC.
CONSOLIDATED STATEMENTS OF INCOME

Revenues:
Portal revenues
Software & services revenues

Total revenues

Year Ended December 31,
2012

2013

2011

235,183,005
14,095,660

198,414,662
11,757,514

170,276,434
10,622,737

249,278,665

210,172,176

180,899,171

Operating expenses:
Cost of portal revenues, exclusive of depreciation &

amortization (Note 2)

143,054,274

123,568,705

104,729,936

Cost of software & services revenues, exclusive of

depreciation & amortization

Selling & administrative
Depreciation & amortization

4,356,608
40,924,642
8,333,089

4,041,223
32,851,946
6,518,532

4,030,917
28,731,758
4,898,488

Total operating expenses

196,668,613

166,980,406

142,391,099

Operating income
Other expense, net

Income before income taxes
Income tax provision

Net income

52,610,052
(51,301)

52,558,751
20,520,660

43,191,770
(16,211)

43,175,559
16,836,811

38,508,072
(34,820)

38,473,252
15,530,770

32,038,091

26,338,748

22,942,482

Basic net income per share (Note 2)

0.49

0.40

0.35

Diluted net income per share (Note 2)

0.49

0.40

0.35

Weighted average shares outstanding:

Basic

Diluted

64,888,978

64,954,366

64,500,244

64,564,664

64,017,813

64,156,669

The accompanying notes are an integral part of these consolidated financial statements.

Net cash provided by operating activities was $40.9 million in 2013 compared to $28.4 million in 2012. The increase in

cash flow from operations in 2013 was primarily the result of (i) a year-over-year increase in operating income, excluding non-cash
charges for depreciation & amortization, the provision for losses on accounts receivable, including the write-off of the $5.1 million
Pennsylvania receivable, and stock-based compensation; and (ii) a year-over-year increase in other long-term liabilities related to
unrecognized tax benefits associated with changes in our state taxes primarily due to a change in apportionment methodology for
certain states.

Net cash provided by operating activities was $28.4 million in 2012 compared to $30.6 million in 2011. The decrease in

cash flow from operations was primarily the result of (i) a year-over-year increase in prepaid expenses and other current assets, due
mainly to the timing of estimated income tax payments and amounts receivable from our directors’ and officers’ liability insurance
carrier; and (ii) a reduction of accounts payable in 2012 (as opposed to an increase in accounts payable in 2011) due to the timing of
payments to certain government partners. These reductions to cash flow from operations were partially offset by a year-over-year
increase in operating income, excluding non-cash charges for depreciation & amortization and stock-based compensation, and a
smaller increase in accounts receivable in 2012 due to the timing of collections related to tax filing applications in 2011.

Investing Activities

Net cash used in investing activities of $8.2 million in 2013 primarily consisted of $6.7 million of capital expenditures,

which were for normal fixed asset additions in our outsourced portal businesses including additional capital expenditures in our new
state portals and in our centralized hosting environment to support and enhance corporate-wide information technology and security
infrastructure, including Web servers, purchased software, and office equipment.

Net cash used in investing activities of $13.5 million in 2012 primarily consisted of $12.8 million of capital expenditures,

which were for (i) fixed asset additions and capital expenditures to implement the motor vehicle inspection service for the Texas
DPS; and (ii) normal fixed asset additions in our outsourced portal businesses including additional capital expenditures in our new
state portals and in our centralized hosting environment to support and enhance our corporate-wide information technology and
security infrastructure, including Web servers, purchased software, and office equipment.

Net cash used in investing activities of $6.6 million in 2011 primarily consisted of $6.1 million of capital expenditures,

which were for normal fixed asset additions in our outsourced portal businesses including additional capital expenditures in our new
state portals and in our centralized hosting environment to support and enhance corporate-wide information technology security,
including Web servers, purchased software, and office equipment.

In addition, in 2013, 2012 and 2011, we capitalized approximately $1.5 million, $0.7 million and $0.5 million, respectively,
of internal-use software development costs relating to the standardization of customer management, billing and payment processing
systems that support our portal operations and accounting systems. The increase in 2013 reflects software development costs for
certain centrally developed and standardized customer management, billing, and payment processing software applications that we
are providing to an increasing number of our government partners on a SaaS basis.

Financing Activities

Net cash used in financing activities of $20.8 million in 2013 reflects the classification of $23.0 million of our available

cash as restricted to pay the $0.35 per share special cash dividend we declared on October 28, 2013, which was paid on January 2,
2014. Financing activities in 2013 also reflect the receipt of $0.9 million from our employee stock purchase program and tax
deductions of approximately $1.3 million related to stock-based compensation (see Note 10 in the Notes to the Consolidated
Financial Statements included in this Form 10-K).

Net cash used in financing activities of $14.2 million in 2012 reflects the payment of a $16.3 million special cash dividend,

partially offset by $0.8 million in proceeds from our employee stock purchase program and tax deductions of approximately $1.4
million related to stock-based compensation.

Net cash used in financing activities of $14.1 million in 2011 reflects the classification of $16.2 million of our available

cash as restricted to pay the $0.25 per share special cash dividend we declared on October 24, 2011, which was paid on January 3,
2012. Financing activities in 2011 also reflect tax deductions of approximately $1.5 million related to stock-based compensation and
the receipt of $0.7 million from our employee stock purchase program.

Liquidity

We recognize revenue primarily from providing outsourced government portal services net of the transaction fees due to

the government when the services are provided. We recognize accounts receivable at the time these services are provided, and also
accrue the related fees that we must remit to the government as accounts payable at such time. As a result, trade accounts receivable
and accounts payable reflect the gross amounts outstanding at the balance sheet dates. Gross billings for the three-months ended
December 31, 2013 and 2012 were approximately $833.4 million and $1.1 billion, respectively. We calculate days sales outstanding
by dividing trade accounts receivable at the balance sheet date by gross billings for the period and multiplying the resulting quotient
by the number of days in that period. Days sales outstanding for the three-month periods ended December 31, 2013 and 2012 was six
and five days, respectively.

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, increased to $79.4 million at December 31, 2013, from $65.0 million at December
31, 2012. The increase in our working capital is primarily due to operating income generated from our operations, excluding
non-cash charges, as further described above. Our current ratio, defined as current assets divided by current liabilities, was 2.0 at
both December 31, 2013 and December 31, 2012. Excluding cash restricted for the payment of dividend and the related dividend
payable at December 31, 2013, our current ratio would have been 2.3 at December 31, 2013.

At December 31, 2013, our unrestricted cash balance was $74.2 million compared to $62.4 million at December 31, 2012.
We believe that our currently available liquid resources and cash generated from operations will be sufficient to fund our operating
requirements, capital expenditure requirements, current growth initiatives, and dividend payments, if any, for at least the next 12
months without the need of additional capital. We have a $10.0 million unsecured revolving credit facility with a bank that is
available to finance working capital, issue letters of credit and finance general corporate purposes. We can obtain letters of credit in
an aggregate amount of $5.0 million, which reduces the maximum amount available for borrowing under the facility. In total, we had
$3.4 million in available capacity to issue additional letters of credit and $8.4 million of unused borrowing capacity at December 31,
2013 under the facility. We were in compliance with all of the financial covenants under the revolving credit facility at December
31, 2013.

We issue letters of credit as collateral for certain office leases, and to a lesser extent, as collateral for performance on certain
of our outsourced government portal contracts. These irrevocable letters of credit are generally in force for one year. Letters of credit
may have an expiration date of up to one year beyond the May 1, 2015 expiration date of the credit agreement. We had unused
outstanding letters of credit totaling approximately $1.6 million at December 31, 2013. We are not currently required to cash
collateralize these letters of credit.

At December 31, 2013, we were bound by performance bond commitments totaling approximately $6.1 million on certain

outsourced government portal contracts. We have never had any defaults resulting in draws on performance bonds. Had we been
required to post 100% cash collateral at December 31, 2013 for the face value of all performance bonds, letters of credit, and our line
of credit in conjunction with a corporate credit card agreement, unrestricted cash would have decreased by approximately $8.7
million and would have been classified as restricted cash.

We currently expect our capital expenditures to be approximately $6.5 million to $7.0 million in fiscal 2014, 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 outsourced portal businesses and in our centralized hosting environment to support and enhance
corporate-wide information technology security, including Web servers, purchased software, and office equipment.

On October 28, 2013, we declared a $0.35 per share special cash dividend totaling approximately $23.0 million that was
paid out of our available cash on January 2, 2014. We do not believe that this dividend will have a significant effect on our future
liquidity.

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

fund operations if unforeseen costs arise;

support our expansion into other states and government agencies beyond what is contemplated if unforeseen opportunities
arise;

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

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. 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 do not have off-balance sheet arrangements that are not recorded or disclosed in our financial statements. The following

table sets forth our future contractual obligations and commercial commitments as of December 31, 2013 (in thousands):

Contractual Obligations
Operating lease obligations
Income tax uncertainties
Long-term debt obligations
Capital lease obligations
Purchase obligations
Other long-term liabilities

Total

13,230
1,760
-
-
-
-

Less than 1

Year
$

4,078
-
-
-
-
-

Payments Due by Period

1-3 Years

3-5 Years

5,817
1,760
-
-
-
-

3,031
-
-
-
-
-

More than

5 Years
304
$
-
-
-
-
-

Total contractual cash obligations

14,990

4,078

7,577

3,031

304

While we have significant operating lease commitments for office space, except for our headquarters those commitments

are generally tied to the period of performance under related portal contracts.

We have income tax uncertainties of approximately $1.8 million at December 31, 2013. 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 as reflected in the table above. However, the ultimate timing of resolution is uncertain. See
Notes 2 and 9 in the Notes to Consolidated Financial Statements included in this Form 10-K for further discussion on income taxes.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. Our cash is held entirely in domestic non-interest bearing transaction accounts.

Borrowings under our line of credit bear interest at a floating rate. Interest on amounts borrowed is payable at a Eurodollar
rate or a base rate equal to the higher of the Federal Funds Rate plus 0.5% or the bank’s prime rate. We currently have no principal
amounts of indebtedness outstanding under our line of credit.

We do not use derivative financial instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of NIC Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in
stockholders’ equity and cash flows present fairly, in all material respects, the financial position of NIC Inc. and its subsidiaries at
December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on criteria established in Internal Control – Integrated Framework (1992) by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
February 27, 2014

NIC INC.
CONSOLIDATED BALANCE SHEETS

December 31,

2013

2012

ASSETS

Current assets:

Cash
Cash restricted for payment of dividend
Trade accounts receivable, net (Note 2)
Deferred income taxes, net
Prepaid expenses & other current assets

Total current assets
Property and equipment, net
Intangible assets, net
Other assets

Total assets

74,245,467
22,982,447
52,818,352
1,037,888
11,568,395

62,358,266
-
55,261,023
886,969
9,340,344

162,652,549
15,167,051
1,864,297
289,968
179,973,865

127,846,602
16,024,724
1,015,846
252,765
145,139,937

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable
Accrued expenses
Dividend payable
Other current liabilities

Total current liabilities

Deferred income taxes, net
Other long-term liabilities

Total liabilities

39,111,916
20,822,443
22,982,447
347,743
83,264,549

43,663,847
18,948,077
-
207,577
62,819,501

2,431,568
2,341,461

88,037,578

2,050,230
1,345,836

66,215,567

Commitments and contingencies (Notes 2, 3, 6, 7 and 9)

Stockholders' equity:

Common stock, $0.0001 par, 200,000,000 shares authorized,
64,992,587 and 64,628,105 shares issued and outstanding
Additional paid-in capital
Retained earnings (accumulated deficit)

Total stockholders' equity
Total liabilities and stockholders' equity

6,500
88,396,700
3,533,087
91,936,287
179,973,865

6,463
84,308,249
(5,390,342)
78,924,370
145,139,937

The accompanying notes are an integral part of these consolidated financial statements.

NIC INC.
CONSOLIDATED STATEMENTS OF INCOME

Revenues:
Portal revenues
Software & services revenues

Total revenues

Year Ended December 31,
2012

2013

2011

235,183,005
14,095,660

198,414,662
11,757,514

170,276,434
10,622,737

249,278,665

210,172,176

180,899,171

Operating expenses:
Cost of portal revenues, exclusive of depreciation &

amortization (Note 2)

143,054,274

123,568,705

104,729,936

Cost of software & services revenues, exclusive of

depreciation & amortization

Selling & administrative
Depreciation & amortization

4,356,608
40,924,642
8,333,089

4,041,223
32,851,946
6,518,532

4,030,917
28,731,758
4,898,488

Total operating expenses

196,668,613

166,980,406

142,391,099

Operating income
Other expense, net

Income before income taxes
Income tax provision

Net income

52,610,052
(51,301)

52,558,751
20,520,660

43,191,770
(16,211)

43,175,559
16,836,811

38,508,072
(34,820)

38,473,252
15,530,770

32,038,091

26,338,748

22,942,482

Basic net income per share (Note 2)

0.49

0.40

0.35

Diluted net income per share (Note 2)

0.49

0.40

0.35

Weighted average shares outstanding:

Basic

Diluted

64,888,978

64,954,366

64,500,244

64,564,664

64,017,813

64,156,669

The accompanying notes are an integral part of these consolidated financial statements.

NIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Common Stock
Shares
63,705,851

Amount
6,371
$
-
-

Balance, January 1, 2011
Net income
Dividends declared
Dividend equivalents on performance-based restricted
stock awards
Restricted stock vestings
Shares surrendered and cancelled upon vesting of
restricted stock to satisfy tax withholdings
Stock-based compensation
Tax deductions relating to stock-based compensation
Shares issuable in lieu of dividend payments on unvested
performance-based restricted stock awards
Issuance of common stock under employee stock purchase plan
Balance, December 31, 2011
Net income
Dividends declared
Dividend equivalents on performance-based restricted
stock awards
Restricted stock vestings
Shares surrendered and cancelled upon vesting of
restricted stock to satisfy tax withholdings
Stock-based compensation
Tax deductions relating to stock-based compensation
Shares issuable in lieu of dividend payments on unvested
performance-based restricted stock awards
Issuance of common stock under employee stock purchase plan
Balance, December 31, 2012
Net income
Dividends declared
Dividend equivalents on performance-based restricted
stock awards
Dividend equivalents cancelled upon forfeiture of
performance-based restricted stock awards
Restricted stock vestings
Shares surrendered and cancelled upon vesting of
restricted stock to satisfy tax withholdings
Stock-based compensation
Tax deductions relating to stock-based compensation
Shares issuable in lieu of dividend payments on unvested
performance-based restricted stock awards
Issuance of common stock under employee stock purchase plan
Balance, December 31, 2013

-
-

-
532,870

(164,213)
-
-

-
103,593
64,178,101

-
-

-
539,936

(167,977)
-
-

-
78,045
64,628,105

-
-

-
401,794

(124,890)
-
-

Additional
Paid-in
Capital
107,934,910

(16,230,966)

(109,610)
119,904

(1,921,564)
4,509,727
1,509,039

336,404
651,590
96,799,434

(16,337,681)

(97,070)
203,605

(2,113,139)
3,802,572
1,351,115

(106,589)
806,002
84,308,249

-
-

49,909
82,580

(2,276,151)
4,025,960
1,302,005

-
53

(16)
-
-

10
6,418
-
-

-
54

(17)
-
-

8
6,463
-
-

-
40

(12)
-
-

Retained Earnings
(Accumulated Deficit)
(54,671,572)
$
22,942,482

-
-

-
-
-

-
-

(31,729,090)
26,338,748

-
-

-
-
-

-
-

(5,390,342)
32,038,091
(22,982,447)

Total
53,269,709
22,942,482
(16,230,966)

(109,610)
119,957

(1,921,580)
4,509,727
1,509,039

336,404
651,600
65,076,762
26,338,748
(16,337,681)

(97,070)
203,659

(2,113,156)
3,802,572
1,351,115

(106,589)
806,010
78,924,370
32,038,091
(22,982,447)

(132,215)

-
-

-
-
-

-
-

3,533,087

49,909
82,620

(2,276,163)
4,025,960
1,302,005

(314)
904,471
91,936,287

-
87,578
64,992,587

9
6,500

(314)
904,462
88,396,700

The accompanying notes are an integral part of these consolidated financial statements.

NIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
2012

2013

2011

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation & amortization
Provision for losses on accounts receivable (Note 2)
Stock-based compensation expense
Deferred income taxes
Loss on disposal of property and equipment

Changes in operating assets and liabilities:

(Increase) in trade accounts receivable, net
(Increase) decrease in prepaid expenses & other current assets
(Increase) in other assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in other current liabilities
Increase (decrease) in other long-term liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment
Proceeds from sale of property and equipment
Capitalized internal use software development costs
Net cash used in investing activities

Cash flows from financing activities:

Cash dividends on common stock
Cash restricted for payment of dividend
Proceeds from employee common stock purchases
Tax deductions related to stock-based compensation
Net cash used in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Other cash flow information:

Non-cash investing activities:

32,038,091

26,338,748

22,942,482

8,333,089
5,229,277
4,025,960
(1,069,988)
51,301

(2,786,606)
(927,644)
(37,203)
(4,502,022)
(586,798)
222,786
863,096
40,853,339

6,518,532
259,630
3,802,572
734,208
16,219

(6,214,772)
(1,918,230)
(8,992)
(1,374,212)
397,072
101,795
(262,995)
28,389,575

4,898,488
313,378
4,509,727
788,258
37,857

(7,560,160)
1,308,384
(358)
3,439,367
(92,038)
(265,026)
282,254
30,602,613

(6,717,034)
16,153
(1,489,286)
(8,190,167)

(12,776,316)
-
(713,501)
(13,489,817)

(6,136,666)
7,711
(450,770)
(6,579,725)

-
(22,982,447)
904,471
1,302,005
(20,775,971)

(16,337,681)
-
806,010
1,351,115
(14,180,556)

-
(16,230,966)
651,600
1,509,039
(14,070,327)

11,887,201
62,358,266

719,202
61,639,064

9,952,561
51,686,503

74,245,467

62,358,266

61,639,064

Capital expenditures accrued but not yet paid

185,001

144,559

$
-

Cash payments:

Income taxes paid
Cash dividends on common stock previously restricted for payment of dividend

15,939,214

$
$
-

$
$

14,107,555
16,230,966

11,726,661

$
$
-

The accompanying notes are an integral part of these consolidated financial statements.

NIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

NIC Inc. (the “Company” or “NIC”) is a leading provider of eGovernment services that helps governments use the Internet

to reduce internal costs, increase efficiencies and provide a higher level of service to businesses and citizens. The Company
accomplishes this currently through two channels: its primary outsourced portal businesses and its software & services businesses.

In its primary outsourced portal businesses, the Company generally designs, builds, and operates Internet-based portals 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 online channels, including mobile devices. These portals consist
of websites and applications the Company has built that allow businesses and citizens to access government information online and
complete transactions, such as applying for a permit, retrieving government records, or filing a government-mandated form or
report. Operating under multiple-year contracts (see Note 3), NIC markets the services and solicits users to complete
government-based transactions and to enter into subscriber contracts permitting users to access the portal and the government
information contained therein in exchange for transactional and/or subscription user fees. The Company typically manages
operations for each contractual relationship through separate local subsidiaries that operate as decentralized businesses with a high
degree of autonomy. NIC’s self-funded business model allows the Company to generate revenues by sharing in the fees the
Company collects from eGovernment transactions. The Company’s government partners benefit through reducing their financial
and technology risks, increasing their operational efficiencies, and gaining a centralized, customer-focused presence on the Internet,
while businesses and citizens receive a faster, more convenient, and more cost-effective means to interact with governments. The
Company is typically responsible for funding up-front investment and ongoing operations and maintenance costs of the outsourced
government portals.

The Company’s software & services businesses primarily include its subsidiaries that provide software development and

services, other than enterprise-wide outsourced portal services, to state and local governments as well as federal agencies (see Note
3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The Company classifies its revenues and cost of revenues into two categories: (1) portal and (2) software & services. The

portal category generally includes revenues and cost of revenues from the Company’s subsidiaries operating enterprise-wide
outsourced portals on behalf of state and local governments. The software & services category primarily includes revenues and cost
of revenues from the Company’s subsidiaries that provide software development and services, other than enterprise-wide
outsourced portal services, to state and local governments as well as federal agencies. The primary categories of operating expenses
include: cost of portal revenues, cost of software & services revenues, selling & administrative, and depreciation & amortization.
Cost of portal revenues consists of all direct costs associated with operating government portals on an outsourced basis including
employee compensation (including stock-based compensation), provision for losses on accounts receivable, subcontractor labor
costs, telecommunications, fees required to process credit/debit card and automated clearinghouse transactions, and all other costs
associated with the provision of dedicated client service such as dedicated facilities. For the year ended December 31, 2013, cost of
portal revenues also includes a non-cash pre-tax charge of approximately $5.1 million (approximately $0.05 per share on an after-tax
basis) to write-off accounts receivable due from the Commonwealth of Pennsylvania for eGovernment services provided from
January 1, 2013 through June 30, 2013, as further discussed below. Cost of software & services revenues consists of all direct project
costs to provide software development and services such as employee compensation (including stock-based compensation),
subcontractor labor costs, and all other direct project costs including hardware, software, materials, travel and other out-of-pocket
expenses. Selling & administrative costs consist primarily of corporate-level expenses relating to human resource management,
administration, information technology, security, legal, finance and accounting, internal audit and all costs of non-customer service
personnel from the Company’s software & services businesses, including information systems and office rent. Selling &
administrative costs also consist of stock-based compensation and corporate-level expenses for market development and public
relations. In addition, selling & administrative costs include legal fees and other third-party costs, net of directors’ and officers’
liability insurance reimbursements received, incurred in connection with the previously disclosed SEC matter, which concluded in
December 2013 (see Note 7).

Certain income statement amounts for the year ended December 31, 2012 have been reclassified, resulting in a reduction in

both portal revenues and cost of portal revenues by approximately $1.0 million. The reclassification had no effect on prior year
operating income, net income or earnings per share. Certain other prior year amounts have been reclassified to conform to the 2013
presentation.

Basis of consolidation

The accompanying consolidated financial statements consolidate the Company together with all of its direct and indirect

wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Cash and cash equivalents

Cash and cash equivalents primarily include cash on hand in the form of bank deposits. For purposes of the consolidated

balance sheets and consolidated statements of cash flows, the Company considers all non-restricted highly liquid instruments
purchased with an original maturity of one month or less to be cash equivalents.

Cash restricted for payment of dividend

Restricted cash represents cash which is restricted for use by NIC. On October 28, 2013, the Company’s Board of Directors

declared a special cash dividend of $0.35 per share, payable to stockholders of record as of November 8, 2013. The dividend,
totaling approximately $23.0 million, was paid on January 2, 2014. Cash used to pay the special dividend was classified as restricted
at December 31, 2013.

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, the level of past-due
accounts, and its relationship with, and the economic status of, its customers. Trade accounts receivable are written off when deemed
uncollectible. Recoveries of receivables previously written off are recorded when received.

As previously disclosed in prior filings with the Securities and Exchange Commission (“SEC”), the Company had not

collected amounts due from the Commonwealth of Pennsylvania (the “Commonwealth”) totaling approximately $5.1 million for
eGovernment services provided by the Company’s subsidiary, Pennsylvania Interactive, LLC, from January 1, 2013 to June 30,
2013. At June 30, 2013, the Company believed these amounts were fully collectible based upon legal review and preliminary
discussions with Commonwealth administration officials. Due to the preliminary nature of those discussions, the Company was
unable to estimate the amount or range of amounts, if any, that it would not be able to collect from the Commonwealth, as of June 30,
2013. On September 9, 2013, the Company filed a Form 8-K with the SEC disclosing that, due to certain developments, including
further discussions with Commonwealth officials, on September 6, 2013, the Company elected not to pursue collection of
outstanding accounts receivable from the Commonwealth and recorded a non-cash pre-tax charge of approximately $5.1 million
(approximately $0.05 per share on an after-tax basis) in the third quarter of 2013 to write-off amounts due from the Commonwealth
through June 30, 2013. The charge is included in cost of portal revenues of the Company’s consolidated statements of income for the
year ended December 31, 2013. The Company continued to provide eGovernment services under the contract with the
Commonwealth, but did not recognize revenues under the contract subsequent to June 30, 2013 until the contract became
self-funded in October 2013.

The Company’s allowance for doubtful accounts at both December 31, 2013 and 2012 was $0.6 million.

Property and equipment

Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line
method over estimated useful lives of 8 years for furniture and fixtures, 3-10 years for equipment, 3-5 years for purchased software,
and the lesser of the term of the lease or 5 years for leasehold improvements. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of
operations for the period. The cost of maintenance and repairs is charged to expense as incurred. Significant betterments are
capitalized.

The Company periodically evaluates the carrying value of property and equipment to be held and used when events and
circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated
undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in
a similar manner, except that fair values are reduced for the cost to dispose. The Company did not record any material impairment
losses on property and equipment during the periods presented.

Software development costs and intangible assets

The Company expenses as incurred all employee costs to start up, operate, and maintain government portals on an

outsourced basis as costs of performance under the contracts because, after the completion of a defined contract term, the
government entity with which the Company contracts typically receives a perpetual, royalty-free license to the applications the
Company developed, excluding applications provided on a SaaS basis. Such costs are included in cost of portal revenues in the
consolidated statements of income.

The Company accounts for the costs of developing internal use computer software in accordance with authoritative

accounting guidance for internal use computer software, whereby certain costs of developing internal use computer software are
capitalized and amortized over their estimated useful life. For internal use computer software, the estimated economic life is
typically 36 months from the date the software is placed in production. At December 31, 2013 and 2012, such costs are included in
intangible assets in the consolidated balance sheets.

The Company carries intangible assets at cost less accumulated amortization. Intangible assets are generally amortized on a
straight-line basis over estimated economic lives of the respective assets. At each balance sheet date, or whenever events or changes
in circumstances warrant, the Company assesses the carrying value of intangible assets for possible impairment based primarily on
the ability to recover the balances from expected future cash flows on an undiscounted basis. If the sum of the expected future cash
flows on an undiscounted basis were to be less than the carrying amount of the intangible asset, an impairment loss would be
recognized for the amount by which the carrying value of the intangible asset exceeds its estimated fair value. Fair value is
determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The Company has
not recorded any impairment losses on intangible assets during the periods presented.

Accrued expenses

As of each balance sheet date, the Company estimates expenses which have been incurred but not yet paid or for which

invoices have not yet been received. Significant components of accrued expenses consist primarily of employee compensation and
benefits (including bonuses, vacation, health insurance and employer 401(k) contributions), third-party professional service fees,
payment processing fees, and miscellaneous other accruals.

Revenue recognition

Portal revenues

The Company recognizes revenue from providing enterprise-wide outsourced government portal services (primarily

transaction-based information access fees and filing fees) net of the transaction fees due to the government when the services are
provided. The fees that the Company must remit to state agencies for data access and other statutory fees are accrued as accounts
payable at the time services are provided. The Company must remit a certain amount or percentage of these fees to government
agencies regardless of whether the Company ultimately collects the fees. As a result, trade accounts receivable and accounts payable
reflect the gross amounts outstanding at the balance sheet dates.

Revenue from service contracts to provide portal consulting, application development, and management services to

governments is recognized as the services are provided at rates provided for in the contract.

Amounts received prior to providing services are recorded as unearned revenue. At each balance sheet date, the Company

makes a determination as to the portion of unearned revenue that will be earned within one year and records that amount in other
current liabilities in the consolidated balance sheets. The remainder, if any, is recorded in other long-term liabilities. Unearned
revenues at December 31, 2013 and 2012 were approximately $0.3 million and $0.2 million, respectively, and were recorded in
other current liabilities in the consolidated balance sheets.

Software & services revenues

The Company’s software & services revenues primarily include revenues from subsidiaries that provide software
development and services, other than enterprise-wide outsourced portal services, to state and local governments as well as federal
agencies. NIC Technologies currently earns a significant portion of its revenues from its contract with the U.S. Department of
Transportation, Federal Motor Carrier Safety Administration (“FMCSA”) to develop and manage the FMCSA’s Pre-Employment
Screening Program (“PSP”) for motor carriers nationwide, using a self-funded, transaction-based business model. NIC
Technologies recognizes revenue from its contract with the FMCSA (primarily transaction-based information access fees) when the
services are provided. NIC Technologies also earns a portion of its revenues from fixed fee and time and materials application
development and outsourced maintenance contracts with other government agencies and recognizes revenues as the services are
provided. Its contract with the state of Michigan contains a general fiscal funding clause. The Company recognizes revenue under
this contract if the probability of cancellation is determined to be a remote contingency.

Stock-based compensation

The Company measures stock-based compensation cost for service-based restricted stock awards at the grant date based on
the calculated fair value of the award, and recognizes an expense over the employee’s requisite service period (generally the vesting
period of the grant). The Company measures stock-based compensation cost for performance-based restricted stock awards at the
date of grant, based on the fair value of shares expected to be earned at the end of the performance period, and recognizes an expense
over the performance period based upon the probable number of shares expected to vest. The Company estimates and excludes
compensation cost related to awards not expected to vest based upon estimated forfeitures. See Note 10 for additional information.

Income taxes

The Company, along with its wholly owned subsidiaries, files a consolidated federal income tax return. Deferred income
taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end based on enacted laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amounts expected to be realized.

The Company does not recognize a tax benefit for uncertain tax positions unless management’s assessment concludes that

it is “more likely than not” that the position is sustainable, based on its technical merits. If the recognition threshold is met, the
Company recognizes a tax benefit based upon the largest amount of the tax benefit that is greater than 50% likely to be realized. The
Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidated
statements of income.

Fair value of financial instruments

The carrying values of the Company’s accounts receivable and accounts payable approximate fair value.

Comprehensive income

The Company has no material components of other comprehensive income or loss and, accordingly, the Company’s

comprehensive income is approximately the same as its net income for all periods presented.

Earnings per share

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether

paid or unpaid) are considered 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 considered 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 approximately 0.7 million at December
31, 2013, 2012, and 2011. 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.

The following table sets forth the computation of basic and diluted earnings per share:

2013

December 31,
2012

2011

Numerator:

Net income
Less: Income allocated to participating securities
Net income available to common stockholders

Denominator:

Weighted average shares - basic
Performance-based restricted stock awards
Weighted average shares - diluted

Basic net income per share:

Net income

Diluted net income per share:

Net income

Concentration of credit risk

32,038,091
(325,182)
31,712,909

26,338,748
(299,518)
26,039,230

22,942,482
(294,022)
22,648,460

64,888,978
65,388
64,954,366

64,500,244
64,420
64,564,664

64,017,813
138,856
64,156,669

0.49

0.40

0.35

0.49

0.40

0.35

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of
cash and accounts receivable. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial
institutions. The Federal Deposit Insurance Corporation (“FDIC”) provides deposit insurance coverage up to $250,000 per depositor
for deposit accounts at each FDIC-insured depository institution. At December 31, 2013, the amount of cash covered by FDIC
deposit insurance was approximately $10.1 million, and approximately $64.1 million of cash was above the FDIC deposit insurance
limit. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts
receivable.

Segment reporting

The Company reports segment information in accordance with authoritative accounting guidance for segment disclosures

based upon the “management” approach, which designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company’s segments. Authoritative guidance for segment
disclosures also requires disclosures about products and services and major customers. See Note 11.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding the financial statement

presentation of an unrecognized tax benefit (“UTB”) when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax
credit carryforward exists. The new guidance requires that an entity must present a UTB, or a portion of a UTB, in the financial
statements as a reduction to a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when
certain conditions exist. The new guidance is effective for the Company beginning January 1, 2014. The guidance must be applied to
all UTBs that exist as of the effective date and may be applied retrospectively to prior reporting periods presented. The Company has
evaluated the requirements of this new guidance and does not believe there will be a material impact on its consolidated financial
statements.

3. OUTSOURCED GOVERNMENT CONTRACTS

Outsourced Portal Contracts

The Company’s outsourced government portal 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 Internet-based portals on an enterprise-wide basis on behalf of governments desiring to
provide access to government information and to complete government-based transactions online. NIC typically markets the
services and solicits users to complete government-based transactions and to enter into subscriber contracts permitting the user to
access the portal and the government information contained therein in exchange for transactional and/or subscription user fees. The
Company enters into separate agreements with various agencies and divisions of the government to provide specific services and to
conduct specific transactions. These agreements preliminarily establish the pricing of the electronic 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. Any changes made to the amount or percentage of fees retained by NIC, or to the amounts charged for the
services offered, could materially affect the profitability of the respective contract to NIC.

The Company is typically responsible for funding the up-front investment and ongoing operations and maintenance costs
of the government portals, and generally owns all of the intellectual property in connection with the applications developed under
these contracts. After completion of a defined contract term, the government partner typically receives a perpetual, royalty-free
license to use the software only in its own portal. However, certain customer management, billing and payment processing software
applications that the Company has developed and standardized centrally and that are utilized by the Company’s portal businesses,
are being provided to an increasing number of government partners on a software-as-a-service, or “SaaS,” basis, and thus would not
be included in any royalty-free license. If the Company’s contract were not to be renewed after a defined term or if our contract was
terminated by our government partner for cause, the government agency would be entitled to take over the portal in place with no
future obligation of the Company, except as otherwise provided in the contract and except for services provided by the Company on
a SaaS basis, which would be available to the partners on a fee-for-service basis.

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 we breach a material contractual obligation and fail to cure such breach within a specified
period or upon the occurrence of other events or circumstances specified in our contract. In addition, 15 contracts under which the
Company provides enterprise-wide outsourced state portal services can be terminated by the other party without cause on a specified
period of notice. Collectively, revenues generated from these contracts represented 57% of the Company’s total consolidated
revenues for the year ended December 31, 2013. In the event that any of these contracts is terminated without cause, the terms of the
respective contract may require the government to pay a fee to the Company in order to continue to use the Company’s software in
its portal. In addition, the loss of one or more of the Company’s larger state portal partners, such as Alabama, Arkansas, Colorado,
Indiana, Montana, New Jersey, Pennsylvania, Tennessee, Texas, or Utah, as a result of the expiration, termination or failure to renew
the respective contract, if such partner is not replaced, could significantly reduce the Company’s revenues and profitability. See the
discussion below under “Expiring Contracts” regarding the expiration of the Company’s contracts with the Commonwealth of
Virginia and the state of Arizona.

At December 31, 2013, the Company was bound by performance bond commitments totaling approximately $6.1 million
on certain outsourced portal contracts. Under a typical portal contract, the Company is required to fully indemnify its government
clients 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. The Company has never
had any defaults resulting in draws on performance bonds. See also Note 6.

The following is a summary of the portals in each state through which the Company provides enterprise-wide outsourced

portal services to multiple government agencies as of December 31, 2013:

www.Idaho.gov (Idaho)
www.Utah.gov (Utah)
www.Maine.gov (Maine)

www.Iowa.gov (Iowa)
www.IN.gov (Indiana)
www.Nebraska.gov (Nebraska)
www.Kansas.gov (Kansas)

Year Services
Commenced
2013
2012
2011
2011
2011
2011
2009
2009
2007
2007

2006
2005
2005
2003
2002
2001
2001
2001
2000
2000

2000
1999
1999
1997
1997
1995
1995
1992

*See Note 2 for discussion of the Pennsylvania contract.

During the first quarter of 2013, the Company received a one-year contract extension from the state of Kansas, a two-year

contract extension from the state of Nebraska and a four-month contract extension from the state of Vermont. Additionally, the
Company received a five-month contract extension from the state of Rhode Island.

During the second quarter of 2013, the Company was awarded a five-year contract by the state of Wisconsin to manage its
government portal, which includes an option for the government to extend the contract up to an additional five years. In addition, the
Company was awarded a new three-year contract from the state of Vermont, which includes an option for the government to extend
the contract for one additional three-year period. The Company also received a two-year contract extension from the state of Idaho,
one-year contract extensions from the Commonwealth of Kentucky and the state of New Jersey, and six-month contract extensions
from the state of Iowa and the state of Arizona with respect to the expiring Arizona portal contract.

During the third quarter of 2013, the Company received a two-year contract extension from the state of Maine. In addition,
the Company received a six-month contract extension from the state of West Virginia and a three-month contract extension from the
state of Iowa.

During the fourth quarter of 2013, the Company received a one-year contract extension from the state of Oklahoma, a

six-month contract extension from the state of West Virginia and a three-month contract extension from the state of Arizona with
respect to the expiring Arizona portal contract.

During the first quarter of 2014, the Company was awarded a three-year contract with the state of Connecticut to manage its

Other Outsourced State Contracts

The Company’s subsidiary, New Mexico Interactive, LLC, has a contract to manage eGovernment services for the New
Mexico Motor Vehicle Division (“MVD”) and its parent, the New Mexico Taxation and Revenue Department. During the second
quarter of 2013, the Company received a one-year contract extension from the MVD to manage the state’s driver history database
through June 30, 2014.

During the second quarter of 2013, the Company’s subsidiary, Virginia Interactive, signed an agreement with the
Department of Game and Inland Fisheries to provide eGovernment services from September 1, 2013 through February 28, 2015,
which includes an option for the agency to extend the contract for one additional six-month period through August 31, 2015. During
the third quarter of 2013, VI signed an agreement with the Office of the Executive Secretary of the Supreme Court of Virginia to
provide eGovernment services from September 1, 2013 through August 31, 2014, which includes an option for the agency to extend
the contract for one additional 12-month period through August 31, 2015.

Outsourced Federal Contracts

NIC Technologies has a contract with the FMCSA to develop and manage the FMCSA’s PSP for motor carriers

nationwide, using the self-funded, transaction-based business model. During the first quarter of 2014, the FMCSA exercised a
one-year renewal option for the PSP contract, extending its term through February 16, 2015. As previously disclosed, the
Company’s contract with the Federal Election Commission (“FEC”) to design and develop online federal campaign expenditure and
ethics compliance systems expired on June 30, 2013. For the year ended December 31, 2013, revenues from the FEC contract
accounted for less than 1% of the Company’s total consolidated revenues.

Any renewal of the contract with the FMCSA beyond the initial term is at the option of the FMCSA and the contract can be

terminated by the FMCSA without cause on a specified period of notice. The loss of the contract as a result of the expiration,
termination or failure to renew the contract, if not replaced, could significantly reduce the Company’s revenues and profitability. In
addition, the Company has limited control over the level of fees it is permitted to retain under the contract with the FMCSA. Any
changes made to the amount or percentage of fees retained by the Company, or to the amounts charged for the services offered,
could materially affect the profitability of this contract.

Expiring Contracts

As of December 31, 2013, there were 15 contracts under which the Company provides enterprise-wide outsourced portal
services or software development and services that have expiration dates within the 12-month period following December 31, 2013.
Collectively, revenues generated from these contracts represented 38% of the Company’s total consolidated revenues for the year
ended December 31, 2013. As described above, if a contract is not renewed after a defined term, the government partner would be
entitled to take over the portal in place with no future obligation of the Company, except as otherwise provided in the contract and
except for the services the Company provides on a SaaS basis, which would be available to the government agency on a
fee-for-service basis.

The contract under which the Company’s subsidiary, Virginia Interactive, provided outsourced portal services to agencies
of the Commonwealth of Virginia expired on August 31, 2012. As more fully disclosed in a Form 8-K filed by the Company with the
SEC on April 18, 2012, VI chose not to agree to terms mandated by the Commonwealth of Virginia for a new contract. VI provided
transition services as required by the contract through August 31, 2013. The costs incurred in transitioning out of VI’s contract with
the Commonwealth of Virginia, including employee retention bonuses, operating lease termination costs, and fixed asset
impairment, did not have a material impact on the Company’s consolidated results of operations, cash flows, or financial condition.
For the year ended December 31, 2013, revenues from the legacy Virginia portal contract accounted for approximately 2% of the
Company’s total consolidated revenues. The Company continues to provide eGovernment services to two agencies of the
Commonwealth of Virginia, as further discussed above under Other Outsourced State Contracts.

During the first quarter of 2013, the Company’s subsidiary, NICUSA, Inc. (“NICUSA”), chose not to respond to a request

for proposal issued by the state of Arizona for a new contract. The contract under which NICUSA provided outsourced portal
services to agencies of the state of Arizona expired on June 26, 2013. However, during the second quarter of 2013, the Company
received a six-month contract extension from the state of Arizona to provide transition services through December 26, 2013, which
included options for the government to extend the contract for two additional three-month periods. During the fourth quarter of
2013, the state of Arizona exercised a three-month renewal option, extending its contract term through March 26, 2014.The
Company has evaluated the costs which may be incurred in transitioning out of NICUSA’s contract with the state of Arizona,
including employee retention bonuses, operating lease termination costs, and fixed asset impairment, which are not expected to have
a material impact on the Company’s consolidated results of operations, cash flows, or financial condition. For the year ended
December 31, 2013, revenues from the Arizona portal contract accounted for approximately 1% of the Company’s total
consolidated revenues.

4. INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following at December 31:

December 31, 2013

December 31, 2012

Gross
Carrying
Value

Accumulated
Amortization

Net Book
Value

Gross
Carrying
Value

Accumulated
Amortization

Net Book
Value

Internal use capitalized

software

5,187,674

(3,323,377)

1,864,297

3,698,387

(2,682,541)

1,015,846

Amortization expense for internal use capitalized software totaling approximately $0.6 million for each of the years ended
December 31, 2013, 2012, and 2011 is included in depreciation & amortization in the consolidated statements of income. The total
estimated intangible asset amortization expense in future years related to assets that have been released into production is as follows:

Fiscal Year
2014
2015
2016

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following at December 31:

Equipment
Purchased software
Furniture and fixtures
Leasehold improvements

Less accumulated depreciation

Property and equipment, net

764,378
582,831
266,053
1,613,262

2013
26,917,914
9,782,079
4,410,355
1,170,354
42,280,702
(27,113,651)

2012
23,745,101
8,706,287
3,916,476
1,096,717
37,464,581
(21,439,857)

15,167,051

16,024,724

Depreciation expense for the years ended December 31, 2013, 2012, and 2011 was $7.7 million, $5.7 million, and $4.0

million, respectively.

6. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS

On June 28, 2013, the Company entered into an amendment to extend its $10.0 million unsecured revolving credit

agreement with a bank to May 1, 2015. This revolving credit facility is available to finance working capital, issue letters of credit,
and finance general corporate purposes. The Company can obtain letters of credit in an aggregate amount of $5.0 million, which
reduces the maximum amount available for borrowing under the facility. Interest on amounts borrowed is payable at a base rate or a
Eurodollar rate, in each case as defined in the agreement. The base rate is equal to the higher of the Federal Funds Rate plus 0.50%
or the bank’s prime rate. Fees on outstanding letters of credit are either 1.50% (if the Company’s consolidated leverage ratio is less
than or equal to 1.25:1) or 1.75% (if the Company’s consolidated leverage ratio is greater than 1.25:1) of face value per annum.

The terms of the agreement provide for customary representations and warranties, affirmative and negative covenants and

events of default. The amendment also continues to require the Company to maintain compliance with the following financial
covenants (in each case, as defined in the agreement):

●
●
●

Consolidated minimum annual EBITDA of at least $12.0 million, computed quarterly on a rolling 12-month basis;
Consolidated tangible net worth of at least $36.0 million; and
Consolidated maximum leverage ratio of 1.5:1.

The Company was in compliance with each of the covenants listed above at December 31, 2013. The Company issues

letters of credit as collateral for certain office leases, and to a lesser extent, as collateral for performance on certain of its outsourced
government portal contracts. These irrevocable letters of credit are generally in force for one year. In total, the Company and its
subsidiaries had unused outstanding letters of credit of approximately $1.6 million at December 31, 2013. The Company is not
currently required to cash collateralize these letters of credit. The Company had $3.4 million in available capacity to issue additional
letters of credit and $8.4 million of unused borrowing capacity at December 31, 2013 under the facility. Letters of credit may have an
expiration date of up to one year beyond the expiration date of the credit agreement.

The Company has a $1.0 million line of credit with a bank in conjunction with a corporate credit card agreement.

At December 31, 2013, the Company was bound by performance bond commitments totaling approximately $6.1 million

on certain outsourced government portal contracts. The Company has never had any defaults resulting in draws on performance
bonds. Had the Company been required to post 100% cash collateral at December 31, 2013 for the face value of all performance
bonds, letters of credit and its line of credit in conjunction with a corporate credit card agreement, unrestricted cash would have
decreased by approximately $8.7 million and would have been classified as restricted cash.

7. COMMITMENTS AND CONTINGENCIES

Operating leases

The Company and its subsidiaries lease office space and certain equipment under noncancellable operating leases. Future

minimum lease payments under all noncancellable operating leases at December 31, 2013 are as follows:

Fiscal Year
2014
2015
2016
2017
2018
Thereafter

4,078,149
3,529,052
2,288,001
1,617,494
1,413,079
304,354

Rent expense for operating leases for the years ended December 31, 2013, 2012, and 2011 was approximately $4.2 million,

$3.8 million, and $3.4 million, respectively.

SEC Matter

On January 12, 2011, the Company and its Chairman of the Board and Chief Executive Officer, Harry Herington, reached
a settlement with the SEC resolving the previously disclosed SEC matter relating to the reimbursement and disclosure of expenses to
Jeffery S. Fraser, the Company’s former Chairman of the Board and Chief Executive Officer. NIC and Mr. Herington agreed to the
settlement without admitting or denying the allegations in the SEC complaint. The settlements were approved by the U.S. District
Court for the District of Kansas.

Stephen M. Kovzan, NIC’s Chief Financial Officer, informed the Company that he was unable to reach a settlement with
the SEC on terms that he felt were acceptable. The SEC filed a civil complaint against him in the U.S. District Court for the District
of Kansas on January 12, 2011, alleging violations of certain provisions of the federal securities laws detailed in that complaint
relating to the reporting and disclosure of expenses by Mr. Fraser. On December 2, 2013, a federal jury of seven persons in Kansas
City, Kansas, cleared Mr. Kovzan of any liability in connection with all alleged violations brought by the SEC against him. The
SEC’s right to appeal the outcome of the trial has expired and the civil action against Mr. Kovzan is concluded.

During 2013, the Company continued to incur obligations to advance legal fees and other expenses to Mr. Kovzan in
connection with the civil action by the SEC against him. The Company was not a party to the civil action, but was obligated to
provide indemnification in certain circumstances (including advancing certain defense costs) to Mr. Kovzan in accordance with the
Company’s certificate of incorporation and bylaws and its indemnification agreement with him. The Company’s directors’ and
officers’ liability insurance carrier agreed to reimburse the Company for certain reasonable costs of defense advanced by the
Company to Mr. Kovzan in the SEC civil action, subject to the policy limits of the applicable insurance policy. During the fourth
quarter of 2013, the policy limits of the Company’s directors’ and officers’ liability insurance were reached for claims related to the
SEC matter and, therefore, the Company will not be entitled to any further reimbursements from its insurance carrier in excess of the
limits. The Company does not currently expect to incur any additional costs related to the SEC matter in 2014.

Selling & administrative expenses for the year ended December 31, 2013 include approximately $12.8 million of legal fees
and other third-party costs related to the SEC matter. These expenses were reduced by approximately $8.8 million of reimbursement
from the Company’s directors’ and officers’ liability insurance carrier, a portion of which is expected to be collected subsequent to
December 31, 2013, resulting in a net expense of approximately $4.0 million related to the SEC matter in 2013. Selling &
administrative expenses for the year ended December 31, 2012 include approximately $4.5 million of legal fees and other third-party
costs related to the SEC matter. These expenses were reduced by approximately $4.0 million of reimbursement from the Company’s
directors’ and officers’ liability insurance carrier, resulting in a net expense of approximately $0.5 million related to the SEC matter
in 2012. Selling & administrative expenses for the year ended December 31, 2011 include approximately $4.2 million of legal fees
and other third-party costs related to the SEC matter and derivative action discussed below. These expenses were reduced by
approximately $4.5 million of reimbursement from the Company’s directors’ and officers’ liability insurance carrier and
approximately $0.2 million of reimbursement from Mr. Fraser as part of the derivative action settlement, resulting in a net decrease
in expense of approximately $0.5 million in 2011.

Derivative Action

As previously disclosed, the parties to the derivative lawsuit (Gene Sidore, derivatively on behalf of NIC Inc. vs. William

F. Bradley, Jr., John L. Bunce, Jr., Art N. Burtscher, Daniel J. Evans, Jeffery S. Fraser, Ross C. Hartley, Harry H. Herington,
Alexander C. Kemper, Stephen M. Kovzan, William M. Lyons, Pete Wilson, and NIC Inc. (as nominal defendant), case No.
2:10-cv-02466 (U.S. District Court for the District of Kansas)) agreed to a settlement. On October 11, 2011, the court granted final
approval of the settlement, which can no longer be appealed. Under the settlement, the Company agreed to (i) implement or maintain
certain agreed governance procedures relating to, among other things, enhanced Audit Committee responsibilities, Director
nomination procedures, Director stock ownership guidelines, executive compensation and expense review and oversight, and the
process for certain public disclosures, and (ii) pay plaintiff $5,000 as a case contribution and award, and the plaintiff’s counsel
$495,000 in attorney’s fees and costs. Both amounts were reimbursed by the Company’s directors’ and officers’ liability insurance
carrier. The Company also agreed not to oppose any efforts by plaintiff and his counsel to recover for the benefit of the stockholders
the sums paid to the SEC in connection with the enforcement action SEC v. NIC Inc., et al., No 2:11-cv-02016 (D. Kan.). In
exchange, plaintiff and the Company generally released all individual defendants from any and all claims made against them, or that
could have been made against them, in the derivative lawsuit. In conjunction with the settlement negotiations in the derivative
lawsuit, the Company and the derivative plaintiff Mr. Sidore reached a comprehensive settlement with its former CEO and
Chairman, Jeffery S. Fraser, for expenses paid by the Company to Mr. Fraser from 1999 through 2003. The parties, including
derivative plaintiff Mr. Sidore, agreed to resolve the matter through payment from Mr. Fraser to the Company in the amount of
$225,000, as well as a comprehensive mutual release of claims as between the Company and Mr. Fraser, including a release by Mr.
Fraser of any further claims for indemnification, under the Company’s bylaws or otherwise, for future matters arising out of or
related to the facts alleged in the derivative lawsuit or the SEC matter, which was settled by the Company and Mr. Herington as
described above. In October 2011, the Company received the $225,000 reimbursement from Mr. Fraser and the Audit Committee
review of expenses paid by the Company to Mr. Fraser was concluded.

NIC Technologies, LLC Complaint

As previously disclosed, the Company’s subsidiary, NIC Technologies, LLC was a defendant in a lawsuit filed in the U.S.
District Court for the District of Maryland by Micro Focus (US), Inc. and Micro Focus (IP) Limited (collectively, “Micro Focus”),
alleging: (i) breach of contract regarding the software license for software used to compile code running on two NIC Technologies’
internal servers to deliver FEC services; and (ii) copyright infringement of the software covered by the licenses. The complaint in
the lawsuit sought damages of at least $3,487,500 and a declaratory judgment. On July 29, 2011, the parties finalized a settlement of
$195,000, which was paid by NIC Technologies, LLC to Micro Focus, in exchange for an appropriate release of all liability, no
admissions of liability by either party, and dismissal with prejudice.

Litigation

The Company is involved from time to time in legal proceedings and litigation arising in the ordinary course of business.

However, the Company is not currently a party to any material legal proceedings.

8. STOCKHOLDERS’ EQUITY

On October 28, 2013, the Company’s Board of Directors declared a special cash dividend of $0.35 per share, payable to

stockholders of record as of November 8, 2013. The dividend, totaling approximately $23.0 million, was paid on January 2, 2014 on
64,987,854 outstanding shares of common stock. A dividend equivalent of $0.35 per share was also paid simultaneously on 676,281
unvested shares of service-based restricted stock granted under the Company’s 2006 Amended and Restated Stock Option and
Incentive Plan. The dividend was paid out of the Company’s available cash.

On November 5, 2012, the Company’s Board of Directors declared a special cash dividend of $0.25 per share, payable to
stockholders of record as of November 23, 2012. The dividend, totaling approximately $16.3 million, was paid on December 5, 2012
on 64,623,372 outstanding shares of common stock. A dividend equivalent of $0.25 per share was also paid simultaneously on
727,354 unvested shares of service-based restricted stock granted under the Company’s 2006 Amended and Restated Stock Option
and Incentive Plan. The dividend was paid out of the Company’s available cash.

On October 24, 2011, the Company’s Board of Directors declared a special cash dividend of $0.25 per share, payable to

stockholders of record as of December 19, 2011. The dividend, totaling approximately $16.2 million, was paid on January 3, 2012
on 64,173,368 outstanding shares of common stock. A dividend equivalent of $0.25 per share was also paid simultaneously on
750,497 unvested shares of service-based restricted stock granted under the Company’s 2006 Amended and Restated Stock Option
and Incentive Plan. The dividend was paid out of the Company’s available cash.

In addition, holders of performance-based restricted stock granted under the Company’s 2006 Amended and Restated

Stock Option and Incentive Plan accrued dividend equivalents, for each of the dividends declared noted above, that could be earned
and become payable in the form of shares of common stock at the end of the respective performance period to the extent that the
underlying shares of restricted stock were earned.

9. INCOME TAXES

The provision for income taxes consists of the following:

Current income taxes:

Federal
State

Total

Deferred income taxes:

Federal
State

Total
Total income tax provision

2013

Year Ended December 31,
2012

2011

18,436,209
3,154,439
21,590,648

14,891,245
1,211,358
16,102,603

12,655,924
2,086,588
14,742,512

(1,111,536)
41,548
(1,069,988)
20,520,660

691,961
42,247
734,208
16,836,811

449,566
338,692
788,258
15,530,770

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities

recognized for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and liabilities
were as follows at December 31:

Deferred tax assets:

Amortization of internal use software development costs
Stock-based compensation
Accrued vacation
Amortization of software intangibles
Federal benefit of state uncertain tax positions
State net operating loss carryforwards
Deferred rent
Allowance for doubtful accounts
Other

Less: Valuation allowance

Total

Deferred tax liabilities:

Depreciation & capitalized internal use software and development costs
Nonrecurring gain on acquisition of business

Total

Net deferred tax liability

2013

2012

1,461,246
1,289,584
762,293
638,894
431,387
326,586
233,923
226,359
59,912
5,430,184
(310,369)
5,119,815

1,231,729
1,270,998
576,187
1,493,102

-
401,591
274,857
236,494
194,556
5,679,514
(291,249)
5,388,265

(5,382,498)
(1,130,997)
(6,513,495)
(1,393,680)

(5,410,640)
(1,140,886)
(6,551,526)
(1,163,261)

The Company has identified certain estimated state net operating loss (“NOL”) carryforwards that it might be unable to
use. Based on a review of applicable state tax statutes, the Company concluded that there is substantial doubt it would be able to
realize the full amount of certain estimated NOL carryforwards in states where the Company cannot file a consolidated income tax
return or where future taxable income will not be sufficient to utilize the state NOL before it expires. As a result, the Company
recorded a deferred tax asset valuation allowance totaling $0.3 million at both December 31, 2013 and 2012.

The Company’s net deferred tax liability at December 31, 2013 is primarily attributable to differences between book and
tax depreciation on property and equipment purchased during 2013 and 2012. The portion of the Company’s deferred tax liability
related to the nonrecurring gain on acquisition of business for certain assets acquired through the Company’s wholly-owned
subsidiary Texas NICUSA, LLC in 2009 was approximately $1.1 million at both December 31, 2013 and 2012.

See Note 10 for discussion of the accounting for income tax deductions relating to the vesting of restricted stock.

The following table reconciles the statutory federal income tax rate and the effective income tax rate indicated by the

consolidated statements of income:

Statutory federal income tax rate
State income taxes
Nondeductible expenses
Uncertain tax positions
Federal and state tax credits
Other
Effective federal and state income tax rate

2013

Year Ended December 31,
2012

2011

35.0%
3.2
1.4
1.2
(2.0)
0.2
39.0%

35.0%
1.0
2.5
0.3
-
0.2
39.0%

35.0%
4.4
2.0
0.4
(1.7)
0.3
40.4%

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Act”) was signed into law. The Act retroactively

extended the federal research and development credit under Internal Revenue Code Section 41 (which previously expired at the end
of 2011) through the end of 2013. In accordance with authoritative accounting guidance, the Company recognized the impact of this
legislation for the 2012 tax year in 2013, when the Act was signed into law. For the 2013 tax year, the Company recognized a
favorable benefit related to the federal research and development tax credit totaling approximately $0.5 million for the year ended
December 31, 2012, which was recognized in 2013, and approximately $0.3 million for the year ended December 31, 2013.

The Company’s effective tax rate for 2012 was lower than the rate in 2011 due to several factors, including the favorable

outcome of an Internal Revenue Service (“IRS”) examination and the related decrease in the liability for uncertain tax positions,
along with changes in state taxes primarily due to a change in apportionment methodology for certain states.

The following table provides a reconciliation of the beginning and ending amount of the consolidated liability for

unrecognized income tax benefits (included in other long-term liabilities in the consolidated balance sheets) for the years ended
December 31, 2013, 2012 and 2011:

2013

2012

2011

Balance at January 1
Additions for tax positions of prior years
Reductions for tax positions of prior years
Additions for tax positions of current years
Settlements
Expiration of the statute of limitations
Balance at December 31

688,575
439,550
-
632,309
-
-

1,760,434

586,606
262,865
(347,492)
186,596
-
-
688,575

397,825
247,429
-
-
(48,218)
(10,430)
586,606

It is reasonably possible that events will occur during the next 12 months that would cause the total amount of unrecognized
tax benefits to increase or decrease. However, the Company does not expect such increases or decreases to be material to its financial
condition or results of operations.

The Company, along with its wholly owned subsidiaries, files a consolidated U.S. federal income tax return and separate
income tax returns in many states throughout the U.S. The Company remains subject to U.S. federal examination for the tax years
ended on or after December 31, 2010. Additionally, any net operating losses that were generated in prior years and utilized through
2010 may also be subject to examination by the IRS. State income tax returns are generally subject to examination for a period of
three to five years after filing of the respective return.

The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax

expense in the consolidated statements of income. At December 31, 2013, 2012 and 2011, accrued interest and penalty amounts
were not material.

10. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

The Company accounts for equity instruments exchanged for employee services pursuant to authoritative accounting

guidance for share-based payments, whereby stock-based compensation cost for service-based restricted stock awards is measured
at the grant date based on the calculated fair value of the award, and is recognized as expense over the employee’s requisite service
period (generally the vesting period of the grant). 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 upon the probable number of shares expected to vest. The Company
estimates and excludes compensation cost related to awards not expected to vest based upon estimated forfeitures.

The following table presents stock-based compensation expense included in the Company’s consolidated statements of

income:

Cost of portal revenues, exclusive of

depreciation & amortization

Cost of software & services revenues,

exclusive of depreciation & amortization

Selling & administrative
Stock-based compensation expense

before income taxes

Income tax benefit
Net stock-based compensation expense

Stock option and restricted stock plans

2013

Year Ended December 31,
2012

2011

1,100,396

997,340

907,684

48,128
2,877,436

61,845
2,743,387

63,099
3,538,944

4,025,960
(1,571,867)
2,454,093

3,802,572
(1,482,857)
2,319,715

4,509,727
(1,820,473)
2,689,254

The Company has a formal stock-option and incentive plan (the “NIC plan”) to provide for the granting of incentive stock
options, non-qualified stock options, or restricted stock awards to encourage certain employees of the Company and its subsidiaries,
and directors of the Company to participate in the ownership of the Company and to provide additional incentive for such employees
and directors to promote the success of its business through sharing in the future growth of such business.

At December 31, 2013, a total of 3,746,926 shares were available for future grants under the NIC plan. There have been no
option repricings under the NIC plan, and all then-outstanding stock options were exercised or expired in 2010. The Company did
not grant any stock options in 2013, 2012, or 2011, and does not currently anticipate granting stock options in the future. Instead, the
Company currently expects to grant only restricted stock awards.

Restricted stock

Grants of service-based restricted stock generally vest beginning one year from the date of grant in cumulative annual

installments of 25%. During 2013, the Board of Directors of the Company granted certain management-level employees, executive
officers, and non-employee directors service-based restricted stock awards totaling 289,333 shares with a grant-date fair value
totaling approximately $4.8 million.

During 2013, the Board of Directors of the Company also granted to certain executive officers performance-based

restricted stock awards pursuant to the terms of the Company’s executive compensation program totaling 115,696 shares, with a
grant date fair value of $16.24 per share, totaling approximately $1.9 million, which represents the maximum number of shares able
to be earned by the executive officers at the end of a three-year performance period ending December 31, 2015. 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);
Total consolidated revenue growth (three-year compound annual growth rate); and
Cash flow return on invested capital (three-year average).

At the end of the three-year period, the executive officers are eligible to receive up to a specified number of shares based

upon 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 dividend declared during the performance period, payable in the form of
shares of Company common stock, based upon 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 of 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 upon the actual number of underlying shares earned during the performance period.

At December 31, 2013, the three-year performance period related to the performance-based restricted stock awards granted

to certain executive officers on March 7, 2011 ended. Based on the Company’s actual financial results from 2011 through 2013,
85,365 of the shares subject to the awards and 4,350 dividend shares were earned and will vest on March 7, 2014.

At December 31, 2012, the three-year performance period related to the performance-based restricted stock awards granted
to certain executive officers on February 1, 2010 ended. Based on the Company’s actual financial results from 2010 through 2012,
78,747 of the shares subject to the awards and 8,013 dividend shares were earned and vested on February 1, 2013.

At December 31, 2011, the three-year performance period related to the performance-based restricted stock awards granted
to certain executive officers on February 3, 2009 ended. Based on the Company’s actual financial results from 2009 through 2011,
172,751 of the shares subject to the awards and 25,008 dividend shares were earned and vested on February 3, 2012.

A summary of restricted stock activity for the year ended December 31, 2013 is presented below:

Outstanding at January 1, 2013

Granted
Vested
Canceled

Outstanding at December 31, 2013

Weighted
Average
Grant Date
Fair Value
10.41
$
16.54
8.80
10.22
13.42

Restricted
Shares

1,113,868
405,029
(401,794)
(73,287)
1,043,816

The fair value of restricted stock vested during the years ended December 31, 2013, 2012, and 2011 was approximately
$3.5 million, $3.6 million, and $3.6 million, respectively. The weighted average grant date fair value per share of restricted stock
granted during the years ended December 31, 2013, 2012, and 2011 was $16.54, $11.83, and $10.61, respectively. At December 31,
2013, the Company had approximately $6.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to
nonvested restricted stock awards. The Company expects to recognize this cost over the next 2.5 years from December 31, 2013.

Income taxes

The Company is permitted to recognize a credit to additional paid-in capital for federal income tax deductions, or windfall
tax benefits, resulting from the vesting of restricted stock if such windfall tax benefits reduce income taxes payable. Following the
with-and-without approach for utilization of tax attributes, the Company increased additional paid-in capital for windfall tax benefits
totaling approximately $1.3 million, $1.4 million, and $1.5 million, respectively, during the years ended December 31, 2013, 2012,
and 2011.

Earnings per share

In calculating diluted earnings per share, the assumed proceeds in the treasury stock calculation are adjusted for any stock
option windfall tax benefits or shortfalls that would be credited or debited, respectively, to additional paid-in capital. Upon adoption
of authoritative accounting guidance for share-based payments, the Company elected to exclude the impact of pro forma deferred
tax assets (i.e., the windfall or shortfall that would be recognized in the financial statements upon exercise of an award) when
calculating diluted earnings per share.

Employee Stock Purchase Plan

In 1999, the Company’s Board of Directors approved an employee stock purchase plan (“ESPP”) intended to qualify as an
“employee stock purchase plan” under Section 423 of the Internal Revenue Code. A total of 2,321,688 shares of NIC common stock
have been reserved for issuance under this plan. Terms of the plan permit eligible employees to purchase NIC common stock
through payroll deductions up to the lesser of 15% of each employee’s compensation or $25,000. Amounts deducted and
accumulated by the participant are used to purchase shares of NIC’s common stock at 85% of the lower of the fair value of the
common stock at the beginning or the end of the offering period, as defined in the plan.

In the offering period commencing on April 1, 2012 and ending on March 31, 2013, 87,578 shares were purchased at a

price of $10.33 per share, resulting in total cash proceeds to the Company of approximately $904,000. In the offering period
commencing on April 1, 2011 and ending on March 31, 2012, 78,045 shares were purchased at a price of $10.33 per share, resulting
in total cash proceeds to the Company of approximately $806,000. In the offering period commencing on April 1, 2010 and ending
on March 31, 2011, 103,593 shares were purchased at a price of $6.29 per share, resulting in total cash proceeds to the Company of
approximately $652,000. The next offering period under this plan commenced on April 1, 2013. The closing fair market value of
NIC common stock on the first day of the current offering period was $19.12 per share.

The fair values of the offerings were estimated on the dates of grant using the Black-Scholes model using the assumptions

in the following table.

Risk-free interest rate
Expected dividend yield
Expected life
Expected stock price volatility
Weighted average fair value of ESPP rights

March 31, 2014
Offering

March 31, 2013
Offering

March 31, 2012
Offering

0.14%
3.73%
1.0 year
28.84%
4.59

0.19%
4.34%
1.0 year
37.30%
3.27

0.27%
5.29%
1.0 year
31.26%
3.00

The Black-Scholes option-pricing model was not developed for use in valuing employee stock options, but was developed
for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, it requires
the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only
used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price
appreciation, or should not be used to predict the value ultimately realized by employees who receive equity awards. Because
changes in the subjective assumptions can materially affect the fair value estimate and because employee stock options have
characteristics significantly different from those of traded options, the use of the Black-Scholes option-pricing model may not
provide a reliable estimate of the fair value of employee stock options.

Defined Contribution 401(k) Profit Sharing Plan

The Company and its subsidiaries sponsor a defined contribution 401(k) profit sharing plan. In accordance with the plan, all
full-time employees are eligible immediately upon employment and non-full time employees are eligible upon reaching 1,000 hours
of service in the relevant period. A discretionary match by the Company of an employee’s contribution of up to 5% of base salary
and a discretionary contribution may be made to the plan as determined by the Board of Directors. Expense related to Company
matching contributions totaled approximately $1.8 million, $1.7 million, and $1.5 million for the years ended December 31, 2013,
2012, and 2011, respectively.

11. REPORTABLE SEGMENTS AND RELATED INFORMATION

The Outsourced Portals segment is the Company’s only reportable segment and generally includes the Company’s

subsidiaries operating enterprise-wide outsourced state and local government portals and the corporate divisions that directly
support portal operations. The Other Software & Services category primarily includes the Company’s subsidiaries that provide
software development and services, other than enterprise-wide outsourced portal services, to state and local governments as well as
federal agencies. Each of the Company’s businesses within the Other Software & Services category is an operating segment and has
been grouped together to form the Other Software & Services category, as none of the operating segments meets the quantitative
threshold of a separately reportable segment. Unallocated corporate-level expenses are reported in the reconciliation of the segment
totals to the related consolidated totals as “Other Reconciling Items.” There have been no significant intersegment transactions for
the periods reported. The summary of significant accounting policies applies to all reportable and operating segments.

The measure of profitability by which management, including the Company’s chief operating decision maker, evaluates the

performance of its 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 chief operating decision maker. Accordingly, the Company has not presented
information relating to segment assets.

The table below reflects summarized financial information for the Company’s reportable and operating segments for the

years ended December 31:

2013
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss)
2012
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss)
2011
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss)

Outsourced
Portals

Other Software &
Services

235,183,005
153,204,265
8,001,597
73,977,143

198,414,662
131,559,290
6,225,114
60,630,258

170,276,434
110,994,019
4,571,950
54,710,465

14,095,660
4,665,185
53,475
9,377,000

11,757,514
4,397,608
60,557
7,299,349

10,622,737
4,362,317
58,108
6,202,312

Other
Reconciling
Items

$
-

30,466,074
278,017
(30,744,091)

$
-

24,504,976
232,861
(24,737,837)

$
-

22,136,275
268,430
(22,404,705)

Consolidated
Total

249,278,665
188,335,524
8,333,089
52,610,052

210,172,176
160,461,874
6,518,532
43,191,770

180,899,171
137,492,611
4,898,488
38,508,072

The following is a reconciliation of total segment operating income to total consolidated income before income taxes for

the years ended December 31:

Total segment operating income
Other reconciling items
Other expense, net
Consolidated income before income taxes

2013
83,354,143
(30,744,091)
(51,301)
52,558,751

2012
67,929,607
(24,737,837)
(16,211)
43,175,559

2011
60,912,777
(22,404,705)
(34,820)
38,473,252

The highest volume, most commercially valuable service the Company offers is access to motor vehicle driver history

records through the Company’s outsourced government portals, referred to as DMV records. This service accounted for
approximately 34%, 34%, and 36% of the Company’s total consolidated revenues in 2013, 2012, and 2011, respectively. In addition,
the Company offers a service in several states for online motor vehicle registration and licensing. This service accounted for
approximately 13% and 10% of the Company’s total consolidated revenues in 2013 and 2012, respectively. No other services
accounted for 10% or more of the Company’s total consolidated revenues for the years ended December 31, 2013, 2012, or 2011.

A primary source of revenue is derived from data resellers, who use the Company’s government portals to access DMV

records for sale to the auto insurance industry. For the years ended December 31, 2013, 2012, and 2011, one of these data resellers
accounted for approximately 22%, 23%, and 28% of the Company’s total consolidated revenues, respectively. At December 31,
2013 and 2012, this one data reseller accounted for approximately 23% and 21%, respectively, of the Company’s accounts
receivable.

For the years ended December 31, 2013, 2012, and 2011, the Company’s Texas portal accounted for approximately 23%,
21%, and 21% of the Company’s total consolidated revenues, respectively. No other state portal contract accounted for more than
10% of the Company’s total consolidated revenues for the years ended December 31, 2013, 2012, or 2011.

12. UNAUDITED QUARTERLY OPERATING RESULTS

The unaudited quarterly information below is subject to seasonal fluctuations resulting in lower portal revenues in the

fourth quarter of each calendar year (on an individual portal basis, and excluding revenues from new outsourced government portal
contracts awarded or acquired during the year), due to the lower number of business days in the quarter and a lower volume of
business-to-government and citizen-to-government transactions during the holiday periods.

2013

Three Months Ended

Revenues:

Portal revenues
Software & services revenues

Total revenues
Operating expenses:

Cost of portal revenues, exclusive of

March 31, 2013

June 30, 2013

September 30, 2013 December 31, 2013

58,042,459
3,182,291
61,224,750

62,093,296
3,844,035
65,937,331

57,721,350
3,608,409
61,329,759

(1)
57,325,900
3,460,925
60,786,825

Year Ended
December 31,
2013

235,183,005
14,095,660
249,278,665

depreciation & amortization

32,761,919

34,899,128

39,755,133

35,638,094

143,054,274

Cost of software & services revenues,

exclusive of depreciation &
amortization

Selling & administrative
Depreciation & amortization
Total operating expenses

Operating income
Other income (expense), net
Income before income taxes
Income tax provision
Net income

1,103,195
9,609,051
2,026,623
45,500,788
15,723,962
(19,233)
15,704,729
5,747,849
9,956,880

1,188,765
10,057,707
2,049,189
48,194,789
17,742,542
(1,649)
17,740,893
6,933,086
10,807,807

928,301
10,387,621
2,144,842
53,215,897
8,113,862
4,362
8,118,224
3,025,500
5,092,724

1,136,347
10,870,263
2,112,435
49,757,139
11,029,686
(34,781)
10,994,905
4,814,225
6,180,680

4,356,608
40,924,642
8,333,089
196,668,613
52,610,052
(51,301)
52,558,751
20,520,660
32,038,091

Basic net income per share
Diluted net income per share

$
$

0.15
0.15

$
$

0.16
0.16

$
$

0.08
0.08

$
$

0.09
0.09

$
$

0.49
0.49

Weighted average shares outstanding:
Basic
Diluted

64,709,515
64,709,515

64,889,767
64,889,767

64,961,138
64,968,858

64,991,597
65,060,718

64,888,978
64,954,366

(1) The Company’s higher effective tax rate in the fourth quarter of 2013 (44%) was driven primarily by changes in state taxes,
including true-ups upon the filing of state returns in the fourth quarter of 2013, which lowered earnings per share by
approximately $0.01.

2012

Three Months Ended

Revenues:

Portal revenues
Software & services revenues

Total revenues
Operating expenses:

Cost of portal revenues, exclusive of

March 31, 2012

June 30, 2012

September 30, 2012 December 31, 2012

45,711,804
3,031,317
48,743,121

49,042,468
2,939,332
51,981,800

50,197,700
3,008,474
53,206,174

(1)
53,462,690
2,778,391
56,241,081

Year Ended
December 31,
2012

198,414,662
11,757,514
210,172,176

depreciation & amortization

28,750,896

30,549,948

31,794,232

32,473,629

123,568,705

Cost of software & services revenues,

exclusive of depreciation &
amortization

Selling & administrative
Depreciation & amortization
Total operating expenses

Operating income
Other expense, net
Income before income taxes
Income tax provision
Net income

957,423
7,935,303
1,391,337
39,034,959
9,708,162
(890)
9,707,272
4,079,721
5,627,551

1,008,078
8,382,643
1,400,470
41,341,139
10,640,661

1,079,460
8,218,715
1,657,607
42,750,014
10,456,160

10,640,661
4,546,917
6,093,744

10,456,160
4,461,320
5,994,840

996,262
8,315,285
2,069,118
43,854,294
12,386,787
(15,321)
12,371,466
3,748,853
8,622,613

4,041,223
32,851,946
6,518,532
166,980,406
43,191,770
(16,211)
43,175,559
16,836,811
26,338,748

Basic net income per share
Diluted net income per share

$
$

0.09
0.09

$
$

0.09
0.09

$
$

0.09
0.09

$
$

0.13
0.13

$
$

0.40
0.40

Weighted average shares outstanding:
Basic
Diluted

64,296,996
64,296,996

64,488,837
64,488,837

64,585,659
64,603,817

64,627,150
64,696,246

64,500,244
64,564,664

(1) The Company’s lower effective tax rate (30%) in the fourth quarter of 2012 was due to several factors, including the

favorable outcome of an IRS examination and the related decrease in the liability for uncertain tax positions, along with
changes in state taxes, which increased earnings per share between $0.01 and $0.02.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness 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 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 Annual Report on Form 10-K. 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.

Management’s Report on Internal Control Over Financial Reporting – Our management is responsible for

establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). 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 internal control over financial reporting based on
the framework in Internal Control – Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our
management concluded that our internal control over financial reporting was effective as of December 31, 2013.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by

PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control over Financial Reporting – As of the end of the period covered by this report, our
management, including our principal executive officer and principal financial officer, concluded that there have been no changes in
our internal control over financial reporting that occurred during our fourth fiscal quarter of 2013, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information under “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting

Compliance” and “Structure and Practices of the Board of Directors – Corporate Governance Principles and Best Practices and Code
of Business Conduct and Ethics, – Committees of the Board, – Nomination of Directors and – Involvement in Certain Legal
Proceedings” set forth in the Company’s definitive proxy statement related to its 2014 annual meeting of stockholders (the “Proxy
Statement”), which will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year pursuant to
Regulation 14A, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under “Executive Compensation,” “Report of the Compensation Committee,” “Compensation Discussion

and Analysis,” “Compensation Tables,” “Compensation Committee Interlocks and Insider Participation,” “Employment
Agreements and Severance Payments,” and “Structure and Practices of the Board of Directors – Committees of the Board” and
“Director Compensation” set forth in the Proxy Statement, which will be filed with the SEC not later than 120 days after the end of
the Company’s fiscal year pursuant to Regulation 14A, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

The information under “Security Ownership of Certain Beneficial Owners and Management” set forth in the Proxy

Statement, which will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year pursuant to
Regulation 14A, is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information regarding securities to be issued upon the exercise of outstanding options,

warrants and rights and securities available for issuance under the Company’s equity compensation plans as of December 31, 2013:

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
outstanding as of
December 31, 2013

Weighted average
exercise price of
outstanding options,
warrants and rights
shown in Column A

Number of
securities available
for future issuance
as of December 31,
2013

$
-

See Note (2)

$
-

See Note (1)

3,746,926
1,446,136

5,193,062

Plan Category
Equity compensation plans

approved by stockholders:
Restricted stock awards
Employee stock purchase plan

Equity compensation plans

not approved by stockholders

Total

(1) The amount shown excludes 1,043,816 shares subject to outstanding unvested restricted stock awards.

(2) March 31, 2013 was the purchase date of common stock for the most recently completed offering period under the
Company’s employee stock purchase plan. Therefore, as of such date, no purchase rights were outstanding. The
purchase price for the offering period ended March 31, 2013, was $10.33 per share, and the total number of shares
purchased was 87,578.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information under “Certain Relationships and Related Transactions”, “Election of Directors,” and “Structure and

Practices of the Board of Directors – Independence” set forth in the Proxy Statement, which will be filed with the SEC not later than
120 days after the end of the Company’s fiscal year pursuant to Regulation 14A, is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information under “Ratification of Appointment of Independent Registered Public Accounting Firm” set forth in the
Proxy Statement, which will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year pursuant to
Regulation 14A, is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)

(1)

The following documents are filed as part of this report:

Financial Statements.

The consolidated financial statements and related notes, together with the report of PricewaterhouseCoopers LLP,

appear in Part II, Item 8, Consolidated Financial Statements and Supplementary Data of this Form 10-K.

Index To Consolidated Financial Statements:
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Page
36
37
38
39
40
41

(2)

(3)

Financial Statement Schedules. All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

Exhibits. Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or
incorporated by reference the documents referenced below as exhibits to this Annual Report on Form 10-K. The
documents include agreements to which the Company is a party or has a beneficial interest. The agreements have
been filed to provide investors with information regarding their respective terms. The agreements are not intended
to provide any other factual information about the Company or its business or operations. In particular, the
assertions embodied in any representations, warranties and covenants contained in the agreements may be subject
to qualifications with respect to knowledge and materiality different from those applicable to investors and may be
qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure
schedules may contain information that modifies, qualifies and creates exceptions to the representations,
warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants
in the agreements may have been used for the purpose of allocating risk between the parties, rather than
establishing matters as facts. In addition, information concerning the subject matter of the representations,
warranties and covenants may have changed after the date of the respective agreement, which subsequent
information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should
not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state
of facts about the Company or its business or operations on the date hereof.

The exhibits that are required to be filed or incorporated by reference herein are listed in the Exhibit Index below
(following the signatures page of this report).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: February 27, 2014

NIC INC.
By:

/s/ Harry Herington
Harry Herington, Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Harry Herington
Harry Herington

/s/ Stephen M. Kovzan
Stephen M. Kovzan

/s/ Aimi Daughtery
Aimi Daughtery

/s/ Art N. Burtscher
Art N. Burtscher

/s/ Daniel J. Evans
Daniel J. Evans

/s/ Karen S. Evans
Karen S. Evans

/s/ Ross C. Hartley
Ross C. Hartley

/s/ C. Brad Henry
C. Brad Henry

/s/ Alexander C. Kemper
Alexander C. Kemper

/s/ William M. Lyons
William M. Lyons

/s/ Pete Wilson
Pete Wilson

Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)

February 27, 2014

Chief Financial Officer
(Principal Financial Officer)

Chief Accounting Officer
(Principal Accounting Officer)

February 27, 2014

Lead Independent Director

February 27, 2014

Director

Exhibit Index

Exhibit
Number

Description

3.1 Certificate of Incorporation of NIC Inc., a Delaware corporation (1)
3.2 Bylaws of NIC Inc., a Delaware corporation (2)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate of the registrant (3)

10.1 Form of Indemnification Agreement between the registrant and each of its executive officers and directors (4)**
10.2 Registrant’s 1999 Employee Stock Purchase Plan (4) **
10.3 Employment agreement between the Registrant and Harry Herington, dated February 5, 2013 (5) **
10.4 Employment agreement between the Registrant and William F. Bradley, dated February 5, 2013 (6) **
10.5 Employment agreement between the Registrant and Stephen M. Kovzan, dated February 5, 2013 (7) **
10.6 Employment agreement between the Registrant and Robert W. Knapp, dated February 5, 2013 (8) **
10.7 Employment agreement between the Registrant and Ron E. Thornburgh, dated February 5, 2013 (9) **
10.8 Registrant’s 2006 Amended and Restated Stock Option and Incentive Plan (10) **
10.9 Form of Restricted Stock Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan (11) **

10.10 Form of Stock Option Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan (12) **
10.11 NIC Inc. Compensation Program For Certain Executive Officers (13) **
10.12 NIC Inc. Management Annual Incentive Plan, dated February 25, 2013 (14) **
10.13 Form of Performance-Based Restricted Stock Agreement under the NIC Inc. 2006 Amended and Restated Stock Option

and Incentive Plan, as amended February 5, 2013 (15) **

10.14 Credit Agreement Dated as of May 2, 2007 between NIC Inc., as Borrower, and Bank of America, N.A., as Lender and

L/C Issuer (16)

10.15 Amendment No. 1 to Credit Agreement Dated as of May 1, 2009 between NIC Inc., as Borrower, and Bank of America,

N.A., as Lender and L/C Issuer (17)
10.16 Form of Indemnification Agreement (18)
10.17 NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan, as amended (19) **
10.18 Amendment to Registrant’s 1999 Employee Stock Purchase Plan (20) **
10.19 Amendment No. 2 to Credit Agreement Dated as of May 1, 2011 between NIC Inc., as Borrower, and Bank of America,

N.A., as Lender and L/C Issuer (21)

10.20 NIC Sales Commission Bonus Plan, Senior Vice President of Business Development, as amended February 5, 2013 (22)

10.21 NIC Profit Sharing and Incentive Program, Senior Vice President of Business Development, as amended February 5,

2013 (23) **

10.22 NIC Inc. Executive Incentive Plan (24) **
10.23 Amendment No. 3 to Credit Agreement Dated as of June 28, 2013 between NIC Inc., as Borrower, and Bank of America,

N.A., as Lender and L/C Issuer (25)

21.1 Subsidiaries of the registrant
23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
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 Inc.’s Annual Report on Form 10-K for the year ended December 31,
2013, formatted in XBRL (Extensible Business Reporting Language) includes (i) Consolidated Balance Sheets at
December 31, 2013 and December 31, 2012, (ii) Consolidated Statements of Income for the years ended December 31,
2013, 2012, and 2011 (iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2013, 2012, and 2011 (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and
2011, and (v) the Notes to Consolidated Financial Statements (submitted electronically herewith).

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Incorporated by reference from Exhibit 3.2 to the Form 8-K filed with the SEC on May 11, 2009 and incorporated herein by
reference.
Incorporated by reference from Exhibit 3.3 to the Form 8-K filed with the SEC on May 11, 2009 and incorporated herein by
reference.
Incorporated by reference from Exhibit 4.3 to Amendment No. 1 to the Registration Statement on Form S-1, File
No. 333-77939, filed with the SEC on June 18, 1999.
Filed as an exhibit with a corresponding exhibit number to the Registration Statement on Form S-1, File No. 333-77939, filed
with the SEC on May 6, 1999, and incorporated herein by reference.
Incorporated by reference to Exhibit 10.3 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.4 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.5 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.6 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.7 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8, File No. 333-136016, filed with the SEC
on July 25, 2006.

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Incorporated by reference to Exhibit 10.1 to the Form 10-Q filed with the SEC on November 11, 2007, File No. 000-26621.
Incorporated by reference to Exhibit 10.2 to the Form 10-Q filed with the SEC on November 11, 2007, File No. 000-26621.
Incorporated by reference to the Form 8-K filed with the SEC on March 6, 2008, File No. 000-26621.
Incorporated by reference to Exhibit 10.15 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.17 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.52 to the Form 10-Q filed with the SEC on May 5, 2007, File No. 000-26621.
Incorporated by reference to Exhibit 10.1 to the Form 10-Q filed with the SEC on May 5, 2009.
Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on May 11, 2009.
Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on May 11, 2009.
Incorporated by reference to Exhibit 10.1 to the Form 10-Q filed with the SEC on May 7, 2010.
Incorporated by reference to Exhibit 10.1 to the Form 10-Q filed with the SEC on May 4, 2011.
Incorporated by reference to Exhibit 10.24 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.26 to the Form 10-K filed with the SEC on February 28, 2013.
Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on May 2, 2012.
Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on July 1, 2013.

** Management contracts and compensatory plans and arrangements required to be filed as Exhibits pursuant to Item 15(b) of this
report.

We have not included in this Form 10-K the exhibits filed with our Form 10-K as filed electronically with the U.S.
Securities and Exchange Commission (“SEC”). We will provide copies of such exhibits to the Form 10-K upon the written request
of any stockholder made to the following department: Investor Relations, 25501West Valley Parkway, Suite 300, Olathe, Kansas
66061. Alternatively, the exhibits can be obtained from the Form 10-K on our website, www.egov.com/Investors, or directly from
the SEC’s website at www.sec.gov.

nIC InC.

25501 West Valley Parkway, Suite 300

Olathe, Kansas 66061

(913) 498 3472 | (877) 234-EGOV

egov.com