T H E N E X T 2 5 Y E AR S
O F D I G I T A L G O V E RN ME N T
2017 AN N U AL R EP ORT
AN D F OR M 10-K, N I C I N C.
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A M E S SAG E
TO STOCK H OLD E R S
In 2017, NIC Inc. celebrated its 25th anniversary. We founded this Company on the premise that there is
a better way to interact with government, and that technology is the driving force to improve those interac-
tions. Back in the early 1990s, bankers, attorneys, and business owners were experiencing delays because
of the time spent retrieving paper-based information from state capital offices. It was the power of modem-
to-modem connections that provided a solution more than two decades ago. Our business has been
evolving ever since. In fact, major waves of change seem to occur in our business every four to five years.
While 25 years is an important milestone, we spend very little time looking in the rearview mirror. This may
be the most exciting time in digital government. Even when compared to the industry’s beginning in the
early 1990s, the pace at which technology is changing and being adopted by citizens is unprecedented.
It has always been our mission to serve as the R&D shop for government, helping harness the latest
technology to bring efficiencies to government interactions. That focus is more important than ever, and
continues to serve as a key point of distinction for our Company.
This past year, we continued to invest in the changing dynamics of delivering government services to citizens, as we expanded and
enhanced the nation’s first personal assistant for government, the cloud-based Gov2Go® platform. In October, we launched national
services on Gov2Go, allowing people across the United States to receive detailed information about Amber Alerts and election
information, as well as providing digital passes to select National Parks and U.S. Forest Service sites via the NIC YourPassNow
solution. In addition to this suite of national services, seven states have deployed custom services on the platform with many more
states set to join in 2018. We continue to believe in the disruptive power of Gov2Go, providing citizens a single platform for
government interactions with all levels of government.
We also focused on the future, helping our government partners navigate artificial intelligence, machine learning, and chatbots. Our
team in Mississippi introduced “Missi,” the first chatbot on a state government portal. Missi assists with customer service questions
on the state’s official government portal, MS.gov. In addition to speaking with a customer service rep via instant messaging chats,
Missi answers questions around the clock. Today, she uses a series of pre-determined scripts, based on popular customer service
questions, to provide answers via links to help people find the information they need. Over time, Missi will apply machine learning
to gradually learn semantics and the context of words in a sentence in order to deliver a more exact response.
As technology evolves, so does the way in which digital government applications are built. This is evident in our flexible approach
in working with Illinois. As we welcomed Illinois into the NIC family this first year of our partnership, we focused on building the first
phase of a cloud-based enterprise licensing and permitting platform, and we look forward to a variety of state agencies using this
microservices platform. Our partnership with Illinois also demonstrates our vision and flexibility in pursuing new business beyond
our core, enterprise self-funded contracts. Our partnership with Illinois represents a hybrid of fixed fees to build and maintain the
platform, while configuring services for specific agencies that will be transaction-based. It is an approach we will continue to take
as future opportunities arise.
And, while we were successful in launching new digital government innovation and beginning new partnerships, we also parted
ways with partners that had been part of the NIC family. We view all of our partnerships as long-term commitments to provide
the very best in digital government services that evolve with technology and the needs of their state. Like any business, at times,
some customers go in a different direction. While we can appreciate a customer occasionally trying another approach to how
digital government solutions can be delivered, without a doubt, we believe our method is the best.
Make no mistake, our business continues to grow. We launched hundreds of new services in 2017 from an enterprise-wide, entirely
mobile brand inspection platform in Nebraska that will process millions of cattle inspections annually, to a new comprehensive camp-
ground reservation system in New Jersey. By the close of 2017, NIC generated total revenues of $336.5 million, a 6 percent increase
over 2016, and operating income of $78.3 million. Also, in 2017, NIC began paying a regular, quarterly cash dividend, which totaled
$0.32 per share for the year resulting in more than $16.2 million returned to stockholders. We will continue to focus on the right
allocation of capital to best return value to stockholders.
As the business evolves, we remain laser focused on the future. Looking ahead is the only way NIC will succeed for decades to
come. What do the next 25 years hold for digital government? What I can predict with confidence is that NIC will continue to
innovate and provide value to all levels of government. And, we will continue to chart new territory in the ways digital government
is funded, as well as the ways in which people interact with government.
Thank you to our employees, board of directors, government partners, and you – our stockholders – for your support.
Together, let’s continue to look ahead and build upon our success for another quarter-century.
Sincerely,
HARRY H. HERINGTON
Chief Executive Officer & Chairman of the Board
NIC Inc.
1
20 17
H I G H LI G HT S
Y O U R P A S S N O W
8 National Park Service and
2 U.S. Forest Service locations
now offer digital passes
using YourPassNow.
NATIONAL PARK SERVICE
Acadia National Park
(Maine)
Colorado National
Monument
Everglades National Park
(Florida)
Theodore Roosevelt
National Park
(North Dakota)
Sequoia & Kings Canyon
National Park
(California)
Castillo de San Marcos
National Monument
(Florida)
Whiskeytown National
Recreation Area
(California)
Yellowstone National Park
(Wyoming/Montana/Idaho)
U.S. FOREST SERVICE
Wayne National Forest
(Ohio)
Columbia River Gorge
(Oregon)
635,000
America the Beautiful
Lifetime Senior Passes
sold on YourPassNow,
July 27-August 28, 2017
90,000
passes were sold in a single day
2
®
NATIONAL SERVICES LAUNCHED IN 2017: AMBER ALERTS AND VOTING
I N F O R M AT I O N . YO U R PA S S N OW A L S O A D D E D TO T H E P L AT F O R M .
STATES WITH CUSTOM SERVICES ON THE PLATFORM
Arkansas, Colorado, Kansas, Nebraska, Utah, West Virginia, Wisconsin
MORE THAN
500,000 PEOPLE
received alerts and notifications from Gov2Go in 2017
G O V E R N M E N T E X P E R I E N C E A W A R D S
2017 marked the first year of the Center for Digital Government’s Government
Experience Awards. NIC partners secured 4 out of the Top 5 awards in the
Overall State Government Experience Category:
#1
#2
#3
#5
UTA H
I N D IANA
AR KAN S AS
M I S S I S S I P PI
2017 CONTRACT REBIDS AND RENEWALS
Thank you to all of our government partners who continue to place their trust in NIC.
R E B I D S
Alabama – new contract to provide services through March 2022
Indiana – new contract to provide services through October 2025
R E N E WA L S Connecticut, Idaho, LiensNC, Mississippi, Montana, New Mexico, Oklahoma,
Pennsylvania, U.S. DOT/Pre-Employment Screening Program, Rhode Island
320
MILLION
secure online transactions
$21
BILLION
securely processed by NIC on
behalf of government partners
$336.5
MILLION
total revenues
up 6% over 2016
$78.3
MILLION
in operating income
$0.32 PER
SHARE
total regular, quarterly cash
dividends paid in 2017
#
TOTAL REVENUES
IN MILLIONS
EARNINGS
P E R S HAR E
350
300
250
200
150
100
50
0
1
.80
.60
.40
.20
0
$336.5
$317.6
$272.1
$292.4
$249.3
$210.2
$161.5
$180.9
$132.9
$100.6
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$0.84
$0.77
$0.59
$0.63
$0.49
$0.35
$0.40
$0.28
$0.19
$0.22
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
3
COR P ORATE
I N F OR MATI ON
B OAR D OF D I R E CTOR S
HAR RY H. H E R I N GTON
Chairman of the Board and
Chief Executive Officer
Mr. Herington is the Chief Executive
Officer of NIC and previously served
as the Company’s President, Chief
Operating Officer, and Executive Vice
President of Portal Operations. He
became an NIC Director in 2006.
ART N. B U RTS CH E R
Lead Independent Director
Mr. Burtscher is President-Western
Region of Westwood Trust. He serves
on the boards of American National Bank,
Jet Linx, LLC, the Silverstone Group and
Westwood Trust. He became an NIC
Director in 2004 and was named
Lead Independent Director in 2008.
KAR E N S. EVAN S
ALE XAN D E R C. K E M PE R
Ms. Evans is an independent consultant
and the National Director of U.S. Cyber
Challenge, a nationwide talent search
and skills development program focused
on the cyber workforce. She previously
served as the de facto Chief Information
Officer under President George W. Bush.
She became an NIC Director in 2011.
Mr. Kemper is Chairman of The
Collectors Fund, a private equity fund,
and Chairman and Chief Executive
Officer of C2FO, a trade settlement
company. He is a Director of UMB
Financial Corp., Axa Art, USA, and
several privately held companies. He
became an NIC Director in 2007.
R OS S C. HARTLEY
WI LLIAM M. LYON S
Mr. Hartley is a co-founder of NIC
and former President of The Hartley
Insurance Group. 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.
Mr. Lyons, is the former President
and CEO of American Century
Companies, Inc., a Kansas City-
based investment manager.
Mr. Lyons is also a Director of
Morningstar, Inc. and The Nasdaq
Stock Market LLC. He became
an NIC Director in 2009.
VE N MAL (RAJ I) ARAS U
C. B RAD H E N RY
PETE WI LS ON
Ms. Arasu is the Senior Vice President
CTO-DEV, of Intuit Inc. (Nasdaq: INTU),
a software company that develops
financial organization and income tax
preparation software for small businesses,
accountants and individuals. Prior to join-
ing Intuit, Ms. Arasu served as the Chief
Technology Officer for StubHub, Inc., the
online and mobile ticketing marketplace
subsidiary of eBay Inc. (Nasdaq: EBAY).
She became an NIC Director in 2015.
Governor Henry is of counsel to
the law firm of Spencer Fane 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.
COM M ITTE E M E M B E R S H I PS
Governor Wilson is a Principal at Wilson
Walsh 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 Company and U.S. Telepacific
Corporation. He became an NIC
Director in 1999.
AU D IT COM M ITTE E
Art N. Burtscher – Chair
Karen S. Evans
Alexander C. Kemper
William M. Lyons
COM PE N SATI ON COM M ITTE E
Alexander C. Kemper – Chair
Venmal (Raji) Arasu
Art N. Burtscher
C. Brad Henry
Pete Wilson
COR P ORATE G OVE R NAN CE &
N OM I NATI N G COM M ITTE E
CONTACTI N G TH E
B OAR D OF D I R E CTOR S
William M. Lyons – Chair
Venmal (Raji) Arasu
Karen S. Evans
C. Brad Henry
Pete Wilson
Communications to NIC’s Board of
Directors should be sent via e-mail
to board@egov.com or in writing to:
Board of Directors
NIC 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 Governance Principles may be found on the
Company’s website at www.egov.com/investor-relations/governance-principles and may be obtained in print by contacting the Investor Relations
Department at nic@egov.com or (913) 498-EGOV.
4
E X E CUTIVE LEAD E R S H I P TEAM*
HAR RY H. H E R I N GTON
Chairman of the Board and
Chief Executive Officer
R OB E RT W. K NAPP
Chief Operating Officer
S E N I OR MANAG E M E NT
STE E R I N G COM M ITTE E
JAYN E FR I E D LAN D H OLLAN D
Chief Security Officer
STE PH E N M. KOVZAN
Chief Financial Officer
Members of NIC’s Executive Leadership and Senior Management Steering Committee teams, pictured left
to right are (front row) Harry Herington, CEO and Chairman of the Board; Jayne Friedland Holland, Chief
Security Officer; (back row) Steve Kovzan, Chief Financial Officer; Robert Knapp, Chief Operating Officer;
Bill Van Asselt, General Counsel; and Doug Rogers, Senior Vice President, Business Development.
STOCK H OLD E R I N F OR MATI ON
D OU G R OG E R S
Senior Vice President
Business Development
B I LL VAN AS S E LT
General Counsel
*
Members of the Executive Leadership
Team are also members of the Senior
Management Steering Committee.
I N D E PE N D E NT R E G I STE R E D
PU B LI C ACCOU NTANTS
Ernst & Young
1200 Main Street
Suite 2500
Kansas City, Missouri 64105
(816) 472-5200
www.ey.com
OUTS I D E COU N S E L
Stinson Leonard Street LLP
1201 Walnut Street
Suite 2900
Kansas City, Missouri 64106
(816) 842-8600
www.stinson.com
AN N UAL M E ETI N G
I NVE STOR R E LATI ON S
The Annual Meeting of NIC Inc. stockholders will be held on
May 1, 2018 at the Embassy Suites by Hilton Kansas City
Olathe, 10401 S. Ridgeview Rd., Olathe, Kansas 66061.
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:
A formal notice 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.
STOCK LI STI N G
NIC Inc.’s common stock is traded on The Nasdaq Stock
Market under the symbol “EGOV.”
R E G I STE R AN D TRAN S FE R AG E NT
Computershare
250 Royall Street
Canton, MA 02021
(781) 575-2000
www.computershare.com
Angela Davied
Vice President, Corporate Communications
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 attached to this annual report.
TRAD E MAR K S & S E RVI CE MAR K S
Certain names and logos protected by trademark or service
mark appear in this report. NIC Inc. is using the names only for
informational purposes and to the benefit of the mark owner
with no intention of infringing upon that mark.
©2018 NIC Inc. NIC is an equal opportunity employer.
5
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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, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 000-26621
NIC INC. (Exact name of registrant as specified in its charter)
Delaware
(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, smaller
reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
company)
(Do not check if a smaller reporting
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of June 30, 2017, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $1.2
billion based on the closing price as reported by the Nasdaq Stock Market.
On February 8, 2018, the registrant had 66,278,743 shares of common stock 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 2018 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
NIC INC.
FORM 10-K ANNUAL REPORT
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 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.
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
Page
1
13
24
24
25
25
26
29
30
41
42
70
70
70
71
71
71
72
73
73
73
74
75
73
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CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. See the "Cautions About Forward Looking Statements" section in Part II, Item
7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this report for more
information regarding these statements.
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/investor-relations) 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
100 F 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 “portal” to refer to digital government services outsourced to NIC, as
well as our subsidiary operations. We use the term “enterprise-wide” to refer to our portals that provide state-wide services
to multiple government agencies. We also use the term “partner” to refer to our government clients, with whom we have
contractual relationships to provide digital government 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 digital government services that help governments use technology to provide a higher level of
service to businesses and citizens and increase efficiencies. 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 via a variety of connected devices 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 transaction-based business model where we absorb the costs to build
the portal’s technical infrastructure and develop digital government services. After a service has launched, we and our
government partners share a portion of the fees generated from the online transactions, which are paid by the end users of
1
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. See the "Cautions About Forward Looking Statements" section in Part II, Item
7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this report for more
information regarding these statements.
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/investor-relations) 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
100 F 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 “portal” to refer to digital government services outsourced to NIC, as
well as our subsidiary operations. We use the term “enterprise-wide” to refer to our portals that provide state-wide services
to multiple government agencies. We also use the term “partner” to refer to our government clients, with whom we have
contractual relationships to provide digital government 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 digital government services that help governments use technology to provide a higher level of
service to businesses and citizens and increase efficiencies. 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 via a variety of connected devices 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 transaction-based business model where we absorb the costs to build
the portal’s technical infrastructure and develop digital government services. After a service has launched, we and our
government partners share a portion of the fees generated from the online transactions, which are paid by the end users of
the service. Our government partners benefit by reducing their financial and technological 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 the up-front investments 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 contracts with new government partners.
Our software & services businesses primarily include our subsidiaries that provide software development and payment
processing services, other than 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. The Other Software & Services category primarily includes our subsidiaries
that provide software development and payment processing services, other than 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, Reportable Segments and Related Information, to the Consolidated Financial Statements.
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
security procedures 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 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 secure methods of
online 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 payments rather than payments from monthly billing.
Businesses and citizens encounter further inconvenience and delay because they can usually work with government agencies
only during normal business hours. Even when online alternatives are available, they often require a cumbersome process
of multiple contacts with different government agencies or offer a limited number of payment methods. Increases in the
level of economic activity and in the population have exacerbated these problems and increased the demand for new services.
The state of internet connectivity, mobile, and digital government services
The internet is a global medium that enables billions of people worldwide to share information, communicate and conduct
business digitally. It represents the primary means by which people access the digital government services built and managed
by NIC. We closely monitor the trends in internet use and the evolving connectivity of people and things. The Pew Research
1
2
Center, a nonprofit, nonpartisan group providing information on issues shaping America, conducts research on the social
impact of the internet through the Pew Internet & American Life Project (the “Project”).
According to a January 2017 Internet/Broadband Fact Sheet presentation by the Project, 88% of American adults use the
internet. In fact, the report notes some age groups’ connectivity is nearing a saturation point, with 96% of American adults
ages 30-49 and 99% of American adults ages 18-29 using the internet.
NIC leads the industry in developing mobile-enabled digital government services in the United States. We build our digital
government services and native mobile applications in a manner that is accessible via a variety of connected devices.
According to the Project’s January 2017 Mobile Fact Sheet, 77% of American adults have a smartphone, up from 35% in
2011. Furthermore, the study reported that 12% of Americans are “smartphone-dependent,” meaning they access the internet
primarily via their smartphone, but do not have access via broadband at home or another online alternative.
The Pew Research Center data supports our view that the internet is and continues to be a viable way for American adults
to interact with government of all levels, and that Americans access the internet using a variety of devices.
Challenges to the implementation of digital government services
Despite the potential benefits of digital government services, barriers to creating successful internet-based services may
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 secure infrastructure in a budget-constrained environment;
the need to quickly assess the requirements of potential customers and cost-effectively design and implement digital
government 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 digital services, including:
•
•
•
•
•
•
lengthy and potentially politically charged appropriations processes that make it difficult for governments to acquire
resources and to develop digital services quickly;
a diverse and substantially autonomous group of government agencies that have adopted varying and fragmented
approaches to providing information and transactions online;
a lack of marketing expertise to design services that 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
compliance requirements associated with accepting credit/debit card and electronic check payments.
We believe many private sector service providers generally do not address the unique needs of enterprise-wide digital
government services. Most service providers do not fully understand and are not well-equipped to deal with the unique
political, regulatory and security environments of governments. These providers, including large systems integrators,
typically take a time-and-materials, project-based pricing approach and provide “off-the-shelf” solutions, often designed
for other industries that may not adequately address the needs of government.
3
What We Provide to Governments
We provide digital government services designed to meet the needs of governments, businesses and citizens. The key
elements of our service delivery are:
Customer-focused, one-stop government
Using our marketing and technical expertise and our government experience, we generally design, build, and operate digital
government services for our government 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 digital government services.
Compelling and flexible financial models for governments
With our business model, we allow governments to implement digital government 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 typically manage transaction
flows, data exchange and payment processing, and we fund ongoing costs from the fees received from end 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 digital government services, with 90% preferring to
conduct business with state government online and 96% saying that digital government services save their business time.
In addition, the majority of the businesses surveyed said they believe fees associated with digital government services are
reasonable and that digital government 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 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 digital government services from fiscal years 2007 through 2011. A similar study conducted in 2017 by the
University of Southern Maine reflected similar cost avoidance by the state of Maine. That study found the state of Maine
avoided approximately $33-46 million in costs related to the operations of its official web portal and the development of
digital government services from fiscal years 2011 through 2016. 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 transaction-based 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 demonstrate to
government agencies and constituents that we are focused on their needs. Moreover, we have pioneered and encourage our
partners to adopt a model for digital government 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 enlist their
participation in the development of digital government 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.
4
Outsourced Government Contracts
State enterprise contracts
The following is a summary of the state contracts through which the Company currently generates meaningful revenue and
has the ability to provide enterprise-wide outsourced digital government services to multiple government agencies:
Portal Website
(State)
Illinois
Year Services
Commenced
2017
Contract Expiration Date
(Renewal Options Through)
6/29/2023
(6/29/2027)
NIC Portal Entity
NICUSA, IL Division
Louisiana Interactive, LLC
Connecticut Interactive, LLC
Louisiana
Connecticut
Wisconsin Interactive Network, LLC
Wisconsin
Pennsylvania Interactive, LLC
Pennsylvania
NICUSA, OR Division
NICUSA, MD Division
Mississippi Interactive, LLC
New Jersey Interactive, LLC
Texas NICUSA, LLC
Oregon
Maryland
Mississippi
New Jersey
Texas
West Virginia Interactive, LLC
West Virginia
Vermont Information Consortium, LLC Vermont
Colorado Interactive, LLC
Colorado
South Carolina Interactive, LLC
South Carolina
Kentucky Interactive, LLC
Alabama Interactive, LLC
Kentucky
Alabama
Rhode Island Interactive, LLC
Rhode Island
Oklahoma Interactive, LLC
Montana Interactive, LLC
Oklahoma
Montana
Hawaii Information Consortium, LLC
Hawaii
Idaho Information Consortium, LLC
Utah Interactive, LLC
Maine Information Network, LLC
Idaho
Utah
Maine
Arkansas Information Consortium, LLC Arkansas
Indiana Interactive, LLC
Nebraska Interactive, LLC
Indiana
Nebraska
Kansas Information Consortium, LLC
Kansas
2015
2014
2013
2012
2011
2011
2011
2009
2009
2007
2006
2005
2005
2003
2002
2001
2001
2001
2000
2000
1999
1999
1997
1995
1995
1992
1/28/2020
1/9/2020
5/13/2018
(5/13/2023)
11/30/2019
(11/30/2022)
11/22/2021
8/11/2019
12/31/2019
(12/31/2021)
5/1/2020
(5/1/2022)
8/31/2018
6/30/2021
(6/30/2024)
6/8/2019
4/30/2019
(4/30/2023)
7/15/2019
(7/15/2021)
8/31/2018
3/19/2020
(3/19/2022)
7/1/2018
(7/1/2019)
3/31/2018
(3/31/2020)
12/31/2019
(12/31/2020)
1/3/2019
(3-year renewal options)
6/30/2018
6/5/2019
7/1/2018
6/30/2018
10/24/2021
(10/24/2025)
4/1/2019
(4/1/2021)
12/31/2022
(annual renewal options)
5
Our state master contracts typically authorize our subsidiaries to design, build and operate a wide range of digital and web-
based services that facilitate interactions between government agencies and businesses or citizens. These are typically long-
term contracts that permit any state agency to engage our local subsidiary to develop and provide digital services by executing
a statement of work, subject to the approval and oversight of our master contract partner or an oversight authority established
by the master contract or applicable law. In many cases, our subsidiaries are also able to use these contracts to provide
services for county and city governments within the state. Under the transaction-funded business model most commonly
contemplated in these master contracts, our subsidiaries earn revenue through transaction charges paid by users in exchange
for access to the services that we provide. These charges support the operation and maintenance of the services, as well
as compensate our subsidiaries for the up-front investment and ongoing costs incurred in developing and maintaining the
services, all costs that would otherwise be incurred by the state. Our subsidiaries also utilize a portion of the revenue from
some of these fees to develop additional digital government services that cannot be supported through transaction-based
funding, either because the service would not have sufficient use or the type of service is not compatible with charging a
fee.
We typically own all the intellectual property in connection with the applications we develop under our state enterprise
contracts. After completion of a defined contract term, our government partner typically receives a perpetual, royalty-free
license to use the applications and digital government services we built only in its own state. However, certain proprietary
customer management, billing, and payment processing software applications that we have developed and standardized
centrally and that are utilized by our portal businesses, are provided to the vast majority of our government partners on a
software-as-a-service (“SaaS”) basis, and thus would not be included in any royalty-free license. If our contract expires
after a defined term or if our contract is terminated by our government partner for cause, the government partner would be
entitled to take over the portal in place, and NIC would have no future revenue from, or obligation to, such former government
partner, except as otherwise provided in the contract. We also provide certain payment processing services on a SaaS basis
to a few private sector entities and to state and local agencies in states where we do not maintain an enterprise-wide outsourced
digital government services contract, and may continue to market these services to other entities in the future. Historically,
revenues from these services have not been significant, but have grown in recent years. In some cases, we enter into contracts
to provide application development and portal management services to governments in exchange for an agreed-upon fee.
We also enter into statements of work with various agencies and divisions of our government partners for digital access to
data and to conduct other citizen-to-government and business-to-government transactions. These statements of work
preliminarily establish the pricing of the online 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. We 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 portal and digital government services, as well as our contract with the
Federal Motor Carrier Safety Administration ("FMCSA"), can be terminated by the other party without cause on a specified
period of notice. Collectively, revenues generated from these contracts represented approximately 61% of our total
consolidated revenues for the year ended December 31, 2017. In the event any of these contracts are terminated without
cause, the terms of the respective contract may require the government to pay us a fee in order to continue to use our
applications in its portal.
Outsourced federal contract
Our subsidiary, NIC Federal, LLC (“NIC Federal”) has a contract with the FMCSA to develop and manage the FMCSA’s
Pre-Employment Screening Program (“PSP”) for motor carriers nationwide, using the Company’s transaction-based business
model. In 2017, the FMCSA exercised the second of its two one-year renewal options, extending the current contract through
August 31, 2018.
6
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 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.
Expiring contracts
We currently have nine contracts under which we provide enterprise-wide outsourced portal and digital government services,
as well as our contract with the FMCSA, that have expiration dates within the 12-month period following December 31,
2017. Although certain of these contracts have renewal provisions, any renewal is at the option of our government partners,
who may choose to not renew the contract, to re-open bidding for the services, to take over the portal in place and provide
services internally, or to allow individual government agencies to retain the services of their own providers. Collectively,
revenues generated from these contracts represented approximately 43% of our total consolidated revenues for the year
ended December 31, 2017. As described above, if a contract expires after a defined term, the government partner would be
entitled to take over the portal in place, and NIC would have no future revenue from, or obligation to, such former government
partner, except as otherwise provided in the contract.
As previously disclosed, NIC has been informed by representatives of the state of Texas that our subsidiary, Texas NICUSA,
LLC (“Texas NICUSA”), has been selected to negotiate a contract to provide the payment processing services set forth in
the Texas.gov 3.0 Procurement RFO (the “Texas RFO”), and that Texas NICUSA has not been selected to negotiate a contract
to provide the portal operations, maintenance and development services set forth in the Texas RFO. Because the procurement
process has not been completed, the ultimate outcome of the process is subject to many risks and uncertainties, including
the outcome of negotiations between the state of Texas, NIC and other participants and the final determinations made by
the state of Texas. The current agreement between the state of Texas and Texas NICUSA expires on August 31, 2018. The
Texas portal accounted for approximately 20% of our total consolidated revenues for the year ended December 31, 2017.
The contract under which our subsidiary, NICUSA Inc. (“NICUSA”), manages the state of Tennessee’s official government
portal expired on March 31, 2017. For the years ended December 31, 2017, 2016 and 2015, revenues from the Tennessee
portal contract were approximately $1.8 million, $7.5 million and $9.0 million, respectively.
The contract under which our subsidiary, Iowa Interactive, LLC (“II”), managed the state of Iowa’s official government
portal expired on June 30, 2016. II provided transition services as required by the contract through November 30, 2016.
For the years ended December 31, 2016 and 2015, revenues from the Iowa portal contract were approximately $1.6 million
and $1.8 million, respectively.
As previously disclosed, the contract under which our subsidiary, Delaware Interactive, LLC (“DI”), managed the state of
Delaware’s official government portal expired on March 31, 2015. For the year ended December 31, 2015, revenues from
the Delaware portal contract were approximately $0.6 million.
The expiration of our contracts with the states of Tennessee, Iowa and Delaware did not have a material impact on our
consolidated results of operations, cash flows or financial condition.
Our Portal Service Offerings
We work with our state and local government partners to develop, manage, and enhance comprehensive, enterprise-wide,
digital government services for 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
7
with governments. We also provide industry-compliant payment processing systems that accommodate credit/debit cards
and electronic checks, as applicable.
Some of the fee-based 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
Data resellers, insurance companies
Vehicle Title, Lien & Registration
Provides controlled interactive title,
registration, and lien database access.
Permits citizens to renew their vehicle
registrations online.
Insurance companies, lenders,
citizens
Motor Vehicle Inspections
Allows licensed state inspection stations
to file certified motor vehicle and
emissions testing inspections online.
Businesses
Temporary Vehicle Tags
Records temporary vehicle tag
registration of a newly purchased car in
real time with the state and issues a
customized temporary plate for display
on the vehicle.
Automobile dealerships, citizens,
law 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
licenses online using a credit/debit card.
Attorneys, doctors, nurses,
architects, and 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
corporations, partnerships, and other
entities, including charter documents.
Attorneys, lenders
8
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
Limited Criminal History Searches
For those legally authorized, provides
users with the ability to obtain a limited
criminal history report on a specified
individual.
Schools, governments, human
resource professionals, nonprofits
working with children or
handicapped adults
Court Services
Vital Records
Allows authorized users to search court
record databases, make payments for
court fines, and in some cases digitally
file court documents.
Legal professionals, citizens
Provides authorized access to birth,
death, marriage, domestic partnership
and civil union certificates.
Citizens
Income and Property Tax Payments Allows users to file and pay for a variety
Businesses and citizens
Payment Processing
of state and local income and property
taxes.
Permits use of the internet for secure
industry-compliant credit/debit card and
electronic check payment processing
both online and at the point of sale for
government agency transactions.
Businesses and citizens
In addition to these and other 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: (i) interactive
government services (“IGS”) and driver history records (“DHR”) which consist mainly of transaction-based fees, (ii) time
and materials-based fees for application development and (iii) 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:
IGS and DHR
Time and materials-based fees for application development
Fixed fees for portal management
2017
2016
2015
95%
3%
2%
94%
4%
2%
94%
4%
2%
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:
Motor Vehicle Driver History Record Retrieval
31%
33%
35%
(This is the highest volume, most commercially valuable service the
Type of Service
Company offers)
Motor Vehicle Registrations
Customer
LexisNexis Risk Solutions
Portal Partner
Texas
(Resells motor vehicle driver history records to the insurance industry)
Percentage of Total Consolidated
2017
2015
Revenues
2016
14%
19%
14%
22%
13%
23%
20%
20%
21%
Our subsidiaries’ contracts with data resellers, including various contracts with 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 30-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.
As previously disclosed, NIC has been informed by representatives of the state of Texas that Texas NICUSA has been
selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that Texas
NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and development
services set forth in the Texas RFO. The current agreement between the state of Texas and Texas NICUSA expires on
August 31, 2018.
Sales and Marketing
We have two primary sales and marketing goals:
•
•
to develop new sources of revenues through new government relationships; and
to retain and grow our revenue streams from existing government relationships.
We have well-established sales and marketing processes for achieving these goals, which are managed by our national sales
division and a dedicated marketing function within most of our subsidiaries.
Developing new sources of revenue
We focus our new government sales and marketing efforts on increasing the number of federal, state and local government
agencies that desire to make government more accessible and efficient for all by delivering information and/or completing
transactions in new and innovative ways. We meet regularly with information technology, business and policy officials at
all levels of government to educate them on the services we offer to drive digital government innovation and transformation
for their jurisdictions.
We have a dedicated and experienced sales team focused on our top sales priorities at the federal and state level, including
enterprise, digital government opportunities using our proven transaction-based funding model, as well as alternative funding
models, and agency-level digital government services under a variety of flexible funding models.
9
10
2015
2017
Percentage of Total Consolidated
Revenues
2016
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:
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
Limited Criminal History Searches
For those legally authorized, provides
users with the ability to obtain a limited
criminal history report on a specified
individual.
Schools, governments, human
resource professionals, nonprofits
working with children or
handicapped adults
Court Services
Legal professionals, citizens
Allows authorized users to search court
record databases, make payments for
court fines, and in some cases digitally
file court documents.
Vital Records
Provides authorized access to birth,
death, marriage, domestic partnership
and civil union certificates.
Citizens
Income and Property Tax Payments Allows users to file and pay for a variety
Businesses and citizens
Payment Processing
Businesses and citizens
of state and local income and property
taxes.
Permits use of the internet for secure
industry-compliant credit/debit card and
electronic check payment processing
both online and at the point of sale for
government agency transactions.
In addition to these and other 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: (i) interactive
government services (“IGS”) and driver history records (“DHR”) which consist mainly of transaction-based fees, (ii) time
and materials-based fees for application development and (iii) 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:
IGS and DHR
Time and materials-based fees for application development
Fixed fees for portal management
2017
2016
2015
95%
3%
2%
94%
4%
2%
94%
4%
2%
Type of Service
Motor Vehicle Driver History Record Retrieval
(This is the highest volume, most commercially valuable service the
Company offers)
Motor Vehicle Registrations
Customer
LexisNexis Risk Solutions
(Resells motor vehicle driver history records to the insurance industry)
Portal Partner
Texas
31%
33%
35%
14%
19%
14%
22%
13%
23%
20%
20%
21%
Our subsidiaries’ contracts with data resellers, including various contracts with 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 30-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.
As previously disclosed, NIC has been informed by representatives of the state of Texas that Texas NICUSA has been
selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that Texas
NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and development
services set forth in the Texas RFO. The current agreement between the state of Texas and Texas NICUSA expires on
August 31, 2018.
Sales and Marketing
We have two primary sales and marketing goals:
•
•
to develop new sources of revenues through new government relationships; and
to retain and grow our revenue streams from existing government relationships.
We have well-established sales and marketing processes for achieving these goals, which are managed by our national sales
division and a dedicated marketing function within most of our subsidiaries.
Developing new sources of revenue
We focus our new government sales and marketing efforts on increasing the number of federal, state and local government
agencies that desire to make government more accessible and efficient for all by delivering information and/or completing
transactions in new and innovative ways. We meet regularly with information technology, business and policy officials at
all levels of government to educate them on the services we offer to drive digital government innovation and transformation
for their jurisdictions.
We have a dedicated and experienced sales team focused on our top sales priorities at the federal and state level, including
enterprise, digital government opportunities using our proven transaction-based funding model, as well as alternative funding
models, and agency-level digital government services under a variety of flexible funding models.
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We are regular speakers at conferences all over the country devoted to using innovation to facilitate the relationship between
governments and the citizens and businesses they serve. In addition to cultivating relationships with federal, state, and local
government officials, we also develop supportive and educational relationships with professional and business organizations
that may benefit from digital government improvements and new digital services we can deploy. Finally, we focus our
corporate marketing efforts on key government decision makers using advertising, white paper development, media relations
and social media.
Once a government decides to implement digital services, it typically starts a selection process that operates under special
procurement 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 service provider selection process. We respond to requests for bids with a proposal that details our philosophy,
experience, and specific plans for implementing our services and business models. Once our proposal is selected, we enter
into negotiations for a contract.
Growing existing markets
In our existing federal, state and local government relationships, our marketing efforts focus on:
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expanding the number of government agencies and localities that provide digital government services;
identifying new government services that can be usefully and cost-effectively delivered digitally; and
increasing the number of users who conduct business digitally with governments.
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 subsidiaries
have a dedicated director of marketing and additional marketing staff who meet regularly with government, business and
consumer representatives to discuss potential new services and promote existing services. We also promote the use of our
extensive library of unique digital government 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 digital 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 25 years, we have made substantial investments in the development of internet-based and mobile applications
and operations specifically designed to allow businesses and citizens to transact with and receive information from
governments online. 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 digital
government services that keep our partners on the forefront of technology.
Each of our government partners has unique priorities and needs in the development of its digital government 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, 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
digital government services we have developed throughout our organization.
The majority of our portal infrastructure and applications are hosted at a central data facility operated by a third-party, with
backup at a similar facility in another location. Some of our portal infrastructure and applications are physically hosted in
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each jurisdiction in which we operate on servers that we own or lease, or in a third-party cloud environment. We also provide
links to sites that are maintained by government agencies or organizations that we do not manage. Our objective is to 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 to help 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 digital government services we offer.
Competition
Historically, we have not faced significant competition from companies vying to provide enterprise-wide outsourced portal
services to governments; however, we face intense competition from companies providing solutions to individual
government agencies. We believe that the principal factors upon which our businesses compete are:
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our unique understanding of government needs;
the quality and fit of our digital government services;
speed and responsiveness to the needs of businesses and citizens;
a proven transaction-based business model that is cost-effective; and
our enterprise-wide approach.
We believe we compete favorably with respect to the above-listed factors. In most cases, the principal alternative for our
enterprise-wide services is a government-designed and managed service that integrates multiple vendors’ technologies,
products and services. Companies that have expertise in marketing and providing technology services to government entities
compete with us by further developing their services and increasing their focus on agency-specific segments 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 agency-level 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 at the agency level are the following:
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traditional large systems integrators, including CGI and Unisys;
traditional large software applications developers, including Microsoft and Oracle;
traditional consulting firms, including IBM Corp., Deloitte and Accenture, Ltd.;
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digital transaction payment processors, including ACI Worldwide, Inc. and Link2Gov Corp;
software application developers, including Accela, FAST Enterprises and GCR Inc.; and
other niche providers, such as Active Network, Sovereign Sportsman Solutions and Brandt Information
Services.
Seasonality
The use of some of our digital government 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 periods.
Employees
As of December 31, 2017, we had approximately 950 full-time employees, of which approximately 270 were working in
corporate operations and approximately 680 were in our outsourced portal and 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 numerous risks and uncertainties, including those described below. If any of these risks 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.
Because we have a limited number of government contracts, the termination or non-renewal of certain of these contracts
may harm our business.
Currently, we have 27 contracts 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. In addition, we have a limited number of other contracts with government agencies through which we provide
outsourced portal services, software development and digital government services.
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 outsourced portal and digital government services, as
well as our contract with the FMCSA, that can be terminated by the other party without cause upon a specified period of
notice. Collectively, revenues generated from these contracts represented approximately 61% of our total consolidated
revenues for the year ended December 31, 2017. If any of these contracts are terminated without cause, the terms of the
respective contract may require the government to pay us a fee in order to continue to use our applications in its portal.
We currently have nine contracts under which we provide outsourced portal and digital government services, as well as our
contract with the FMCSA, that have expiration dates within the 12-month period following December 31, 2017. Although
certain of these contracts have renewal provisions, any renewal is at the option of our government partners, who may choose
to not renew the contract, to re-open bidding for the services, to take over the portal in place and provide services internally,
or to allow individual government agencies to retain the services of their own providers. Collectively, revenues generated
from these contracts represented approximately 43% of our total consolidated revenues for the year ended December 31,
2017. If a contract expires after a defined term, the government partner would be entitled to take over the portal in place,
and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided
in the contract.
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The loss of a contract with one or more government partners, 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. As previously
disclosed, NIC has been informed by representatives of the state of Texas that our subsidiary, Texas NICUSA, has been
selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that Texas
NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and development
services set forth in the Texas RFO. Because the procurement process has not been completed, the ultimate outcome of the
process is subject to many risks and uncertainties, including the outcome of negotiations between the state of Texas, NIC
and other participants and the final determinations made by the state of Texas. The current agreement between the state of
Texas and Texas NICUSA expires on August 31, 2018. The Texas portal accounted for approximately 20% of our total
consolidated revenues for the year ended December 31, 2017.
Security breaches or unauthorized access to payment information, including credit/debit card data, and/or personal
information that we or our service providers store, process, use or transmit for our business may harm our reputation,
cause service disruptions and adversely affect our business and results of operations.
A significant challenge to electronic commerce is the secure transmission of payment information 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 payment
information and personal information by our businesses are regulated at state and federal levels, and cybersecurity legislation,
executive orders and reporting requirements continue to evolve and become more complex. Because we either directly or
indirectly through service providers (i) provide the electronic transmission of sensitive and personal information released
from and filed with various government entities and (ii) perform online payment and electronic check processing services,
we face the risk of a security breach, whether through system attacks, hacking events, acts of vandalism or theft, malware,
viruses, human errors, catastrophes or other unforeseen events that could lead to significant disruptions or compromises of
information technology networks and systems or the unauthorized release or use of payment information or personal
information. Additionally, vulnerabilities in the security of our own internal systems or those of our service providers could
compromise the confidentiality of, or result in unauthorized access to, personal information of our employees.
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/debit 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 payment and personal information from unauthorized
disclosure and to comply with applicable laws and regulations, our information technology networks and systems and those
of our third-party vendors and service providers cannot be made completely secure against security incidents. Even the
most well protected information, networks, systems, and facilities remain vulnerable to security breaches or disruptions,
because (i) 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 (ii) 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 impossible for us to entirely mitigate
this risk. A party, whether internal or external, who is able to circumvent our security measures, or those of our service
providers, could misappropriate information, including, but not limited to payment information and personal information,
or cause interruptions or direct damage to our partners 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 subject to fines. We could also be liable to partners for costs of investigation,
notification, remediation and credit monitoring and for any damages to users under applicable laws or our partner contracts.
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In addition, any noncompliance with privacy laws or a security breach involving the misappropriation, loss or other
unauthorized access, use or disclosure of payment information or personal information, or other significant disruption
involving our information technology networks and systems, or those of our service providers (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, subject us to private litigation and government investigations and enforcement actions and 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 affecting our own, our service providers’ or our
government partners’ environment 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. Although we
maintain insurance coverage that, subject to policy terms and conditions and subject to a retention, is designed to address
certain aspects of security and privacy liability, such insurance coverage may be insufficient to cover or protect against the
costs, liabilities, and other adverse effects arising from a security breach or system disruption. If we fail to reasonably
maintain the security of confidential information, we may also suffer significant reputational and financial losses and our
results of operations, cash flows, financial condition, and liquidity may be adversely affected.
If we are unable to meet the unique challenges involved in contracting with governments and government agencies, our
business may be harmed.
Our revenues are generated principally from contracts with state governments and government agencies within a state, and
to a lesser extent with federal government agencies, to provide digital government services on behalf of those government
entities to complete transactions and distribute public information digitally. We face many risks uniquely associated with
government contracting, including:
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regulations that govern the fees we collect for many of our services, limiting our control over the level of transaction-
based fees we are permitted to retain;
the potential need for governments to draft and adopt specific legislation before they can circulate a request for
proposal (“RFP”) to which we can respond or before they can otherwise award a contract or provide a new digital
service, and the risk that enabling legislation previously adopted to set up our portal or otherwise to our benefit
could be challenged, reinterpreted, repealed or modified;
unexpected changes in legislation that increase our costs or result in a temporary or permanent suspension of our
services;
the potential need for changes to legislation authorizing government’s contracting with third parties to receive or
distribute public information;
long and complex sales cycles that vary significantly according to each government entity’s policies and procedures;
political resistance to 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;
changes in government administrations that could impact existing RFPs, rebids, renewals or extensions; and
government budget deficits and appropriation approval processes and periods, either of which could cause
governments to curtail spending on services, including time and materials-based fees for application development
or fixed fees for portal management, which constituted approximately 3% and 2% of portal revenues, respectively,
for the year ended December 31, 2017.
Each of these risks is outside of our control and could result in harm to our business, results of operations, cash flows, and
financial condition.
Because many of our contracts grant our government partners fully paid, perpetual licenses to use and modify certain
applications and digital government services we develop, upon a termination by them for cause or the natural expiration
of our portal contracts, many of our government partners could elect to take over the operation and maintenance of our
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applications themselves, or hire a competitor to operate and maintain such applications. 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 applications and digital government
services we have developed for them in the operation of their portals on a perpetual, royalty-free basis (excluding certain
proprietary applications that we provide on a SaaS basis including certain customer management, billing and payment
processing applications that we have developed and standardized centrally). This perpetual use license could make it easier
and more cost effective for our government partners 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 applications and digital government services may inadvertently allow our intellectual property or other information to
fall into the hands of third parties, including our competitors. If 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 applications in its portal.
Our ability to grow revenues may be limited by the number of governments and government agencies that choose to
provide digital government solutions using our business model and by the finite number of governments with which we
may contract for our digital government solutions.
Our revenues are generated principally from contracts with state governments and government agencies within a state to
provide digital government solutions on behalf of those government entities to complete transactions and distribute public
information digitally. The growth in our revenues largely depends on government entities adopting our business model. We
cannot ensure that government entities will choose to provide digital government services or continue to provide digital
government services at current levels, or that they will provide such services with private assistance or by adopting our
model. Generally, under our enterprise-wide transaction-based business model, we initially generate a high proportion of
our revenues from the transaction-based services we provide on behalf of a limited number of government agencies within
a state, while other agencies consider participating in the portal. If any of our partner agencies within a state are dissatisfied
with even one of the many services we provide, it may negatively affect our ability to convince additional agencies to partner
with us or retain our enterprise agreement. 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, because 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 also to broaden our service offerings to diversify our revenue
streams across our lines of business. We cannot ensure that we will succeed in expanding into new markets or broadening
our service offerings, or that our services will be adaptable to those new markets.
We earn a significant percentage of our revenues and related accounts receivable from a limited number of services and
customers. Any reduction in demand for those services or negative trends in the businesses of those customers could
adversely affect our results of operations and financial condition.
We earn a high proportion of our revenues and related accounts receivable from a limited number of services and customers.
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 in various states accounted for approximately 31% of our total consolidated revenues for the year ended December 31,
2017. One of these data resellers, LexisNexis Risk Solutions, accounted for approximately 19% of our total consolidated
revenues during this period, or approximately three-quarters of our revenues from motor vehicle driver history records. In
addition, approximately 16% of our consolidated accounts receivable were from LexusNexis Risk Solutions at December 31,
2017. While fees charged for access to motor vehicle driver history records are currently expected to continue to account
for a significant portion of our consolidated revenues for the foreseeable future, 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 30-day notice and may be terminated
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immediately at the option of any party in certain circumstances. Furthermore, our credit risk may increase in the event any
data resellers experience liquidity or solvency issues. We generally do not require collateral to secure accounts receivable.
In addition, our Texas portal accounted for approximately 20% of our total consolidated revenues during this period. As
previously disclosed, NIC has been informed by representatives of the state of Texas that our subsidiary, Texas NICUSA,
has been selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that
Texas NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and
development services set forth in the Texas RFO. Because the procurement process has not been completed, the ultimate
outcome of the process is subject to many risks and uncertainties, including the outcome of negotiations between the
state of Texas, NIC and other participants and the final determinations made by the state of Texas. The current agreement
between the state of Texas and Texas NICUSA expires on August 31, 2018.
A reduction in revenues from currently popular services or an inability to collect a major portion of our accounts receivable
would harm our business, results of operations, cash flows, and financial condition, and our liquidity may be adversely
affected.
We could suffer significant losses and liability if our or our service providers’ operations, systems or platforms are
disrupted or fail to perform properly or effectively.
The continued efficiency and proper functionality of our or our service providers’ technical systems, platforms, and
operational infrastructure is integral to our performance. As we grow, we continue to purchase equipment and upgrade our
technology and network infrastructure to handle increased traffic on the digital portals we operate. We may experience
occasional system interruptions and delays that make digital government services unavailable or slow to respond and prevent
businesses and citizens from accessing information and services on the digital portals we operate. Any such interruptions
or delays in the future could cause users to stop visiting the digital portals we operate and could cause our government
partners to penalize us financially or terminate agreements with us. Our operations, systems and platforms, or those of our
service providers, may also be disrupted or fail due to catastrophic events such as natural disasters, telecommunications
failures, power outages, cyber-attacks, terrorist attacks, acts of war or other catastrophic events. If any of these circumstances
occurred, our business could be harmed.
The majority of our portal infrastructure and applications are hosted at leased data centers operated by a third-party on
servers we own, with a near real-time backup at a similar facility in a different geographic region of the country. Some of
our portal infrastructure and applications are physically hosted in each jurisdiction in which we operate on servers that we
own or lease, or in a third-party provided cloud environment. Data center 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 data centers could affect that government partner’s services. An outage at both of our leased data centers, or at one data
center 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 business will be adversely affected if we are unable to hire, integrate, train, or retain the qualified personnel needed
to operate our business.
Our future success will depend, in part, on the efforts of our executive officers and other key employees, most of whom
have extensive experience with us and in our industry. The loss of any of our executives or key employees, even with an
adequate succession plan, could harm our business. In addition, we may need to hire 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, particularly in the
competitive market for information technology professionals, or succeed in 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.
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Increases in credit/debit card association and automated clearing house fees may result in lower transaction volumes
and/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 citizens and businesses, but this
might result in the loss of those customers or lower transaction volumes. If we elect not to pass along such increased fees
to citizens and businesses 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 depend on third parties, including subcontractors and prime contractors with whom we engage or collaborate for
certain projects, deliverables, and/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.
To satisfy our obligations under contracts, we often engage third parties, including subcontractors, to fulfill certain
requirements. We also use third parties to ensure 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 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 third parties to meet their obligations in a timely manner, as well as on our effective
oversight of their performance. If any third-party fails to perform on a timely basis the agreed-upon services, our ability to
fulfill our obligations may be jeopardized. Third-party 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.
In addition, we may act as subcontractor to a third-party prime contractor to secure new projects. Subcontracting arrangements
where we are not the prime contractor pose unique risks to us because we may not have control over the customer relationship,
and our ability to generate revenue under such subcontracts may depend on the prime contractor, its performance and
relationship with the customer, and its relationship with us. We could suffer losses in the event a prime contract under which
we serve as a subcontractor is terminated, whether for non-performance by the prime contractor or otherwise. Upon a
termination of the prime contract, our subcontract would similarly terminate, and the resulting contract loss could 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.
Potential future acquisitions involve inherent risks that may materially adversely affect our business and results of
operations.
To expand our operations and grow our market and client base, we may seek and complete strategic acquisitions and other
business combinations in the future. Acquisitions have inherent risks which may have a material adverse effect on our
business and results of operations. In particular,
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The pursuit of acquisitions and execution of integration plans may divert the attention of our management from
other key responsibilities;
We may fail to successfully integrate the business and financial operations, business culture, services, intellectual
property, solutions or personnel of an acquired business;
We may assume unanticipated liabilities and contingencies;
We may substantially reduce our cash position, become significantly leveraged as a result of incurring debt or issue
additional equity to finance one or more acquisitions; and
Our earnings per share may be diluted as a result of acquisitions.
If we fail to identify suitable potential acquisition candidates, fail to successfully integrate acquired businesses or to fail to
implement our business strategies with respect to these acquisitions, we may not be able to achieve projected results or
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support the amount of consideration paid for such acquired businesses, and our business and results of operations may be
materially adversely affected.
We may become subject to liability under rules and standards for processing electronic direct debit payments from bank
accounts and credit card payments.
We are required to comply with the Payment Card Industry’s Data Security Standards (“PCI DSS”) and the rules and
standards promulgated by the National Automated Clearing House Association (“NACHA”) because we provide online
payment and electronic check processing services. We may become potentially liable if we fail to handle transactions in
accordance with these 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 federal, state, 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, in certain jurisdictions we are or 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. If we were unable to accept payment cards or process checks
electronically, our business would be negatively impacted. 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 most 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 requesters.
Each state has procedures for complying with the DPPA, and such procedures may vary from state to state. We closely
follow each 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.
We may become liable for violations of certain federal laws applicable to our federal PSP service or other services.
Our PSP service for the FMCSA requires that PSP record data be disclosed in compliance with the Fair Credit Reporting
Act (“FCRA”) and the Safe, Accountable, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU”). We
may also have other online services that are or become subject to the FCRA and/or SAFETEA-LU. 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, 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 and SAFETEA-LU permit statutory damages to be
awarded to the subjects of such records, even without proof of actual damage, for certain infringements or violations. In
addition, any failure to comply with the FCRA, SAFETEA-LU or other federal laws 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.
19
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 Telephone Consumer Protection Act, the Sarbanes-Oxley Act of 2002, the Tax Cuts and Jobs Act, new SEC regulations
and the Nasdaq Stock Market rules create uncertainty for public companies such as ours. These 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, because 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 online services to
government entities compete with us by further developing their services and increasing their focus on this area of their
businesses. To the extent we are able to continue to expand our services in existing states and our contracts become more
profitable, the competition in our markets may increase. 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 offer lower prices
or take other measures 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, our business,
results of operations, cash flows, and financial condition may be adversely affected.
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 services 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 ensure 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 intellectual property rights are valuable and any inability to protect them could harm our company.
20
We regard our intellectual property as important to our success. We rely on a combination of nondisclosure and other
contractual arrangements and policies with governments, our employees, prime contractors, subcontractors, vendors 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 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, if we utilize
open source software in a manner that places proprietary source code in the public domain, 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.
Because we have certain outsourced portal contracts that contain indemnification provisions, we may suffer monetary
liability and damages if claims arise under such contracts. In addition, any failure to meet our obligations under a
contract, whether or not there is a claim for which we are liable, may result in reputational damage.
Performance deficiencies by us or our third-party vendors, including subcontractors, could result in a default under one or
more of our contracts, 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 partners against claims arising from our
performance or the performance of our third-party vendors, including subcontractors. If we fail to meet our contractual
obligations, if our performance or our third-party vendors’ 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. Additionally, in many of our contracts, our government partners do
not indemnify us from losses related to their performance or non-performance.
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 the government portals we operate. 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 ensure 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 the portals
we operate. 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 digitally distribute private and sensitive public information, we may face potential liability for
defamation, libel, negligence, invasion of privacy, and other claims based on the nature and content of the material that is
published on or distributed through the government portals we operate. 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 ensure that our insurance will
be adequate to reimburse 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.
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.
Although we believe that our current financial resources and future cash generated from operations will be sufficient to
meet our present working capital and capital expenditure requirements and potential dividend payments for at least the next
12 months, we may need to raise additional capital before this period ends to further:
21
•
•
•
•
•
•
fund operations, if unforeseen costs or revenue shortfalls arise;
support our expansion into other states and federal government agencies beyond what is contemplated if unforeseen
opportunities arise;
expand our product and service offerings beyond what is contemplated if unforeseen opportunities arise;
fund acquisitions;
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. If we need to obtain new debt or equity financing in the future, the terms
and availability of such financing may be impacted by economic and financial market conditions, as well as our financial
condition and results of operations at the time we seek additional financing. 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 digital government 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.
Our quarterly results of operations may be volatile and difficult to predict. If our quarterly results of operations, future
growth, profitability or dividends 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 quarter;
the introduction of new services by us or our competitors;
technical difficulties or system downtime affecting the operation of our services;
the amount and timing of operating costs and capital expenditures relating to the expansion of our business
operations and infrastructure;
unexpected changes in federal, state and local legislation that increase our costs and/or result in a temporary or
permanent decrease in our revenues;
the seasonal use of some of our services, particularly the accessing of motor vehicle driver history records;
changes in economic conditions;
the result of negative cash flows due to capital investments; and
significant charges related to acquisitions.
Due to the factors noted above and the other factors described in these Risk Factors, our financial performance in a 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
22
public market analysts and investors. If this occurs, the price of our common stock may decline. In addition, if we fail to
meet expectations related to future growth, profitability, dividends or other market expectations, the price of our common
stock may decline.
Our payment of dividends in the future is subject to a number of risks and uncertainties, and any failure to pay dividends
in the future or any reduction in the amount of future dividend payments may adversely affect our stockholders.
Although our Board of Directors has approved a dividend policy pursuant to which it plans to make, subject to subsequent
declaration, regular quarterly cash dividends, the payment of future dividends is subject to a number of risks and uncertainties,
and we may not pay quarterly dividends in the same amounts or at all in the future. Our Board monitors and evaluates our
dividend practice quarterly and may elect to increase, decrease or not pay a dividend at any time. Our ability to pay dividends
could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and debt
covenants associated with our line of credit. 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. Any future decisions to reduce
or discontinue paying cash dividends to our stockholders could cause the trading price for our common stock to decline and
could adversely affect our stockholders.
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 continue 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 ensure 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 partners against claims that our services infringe upon the intellectual property rights of others.
We could incur substantial costs in defending ourselves and our partners against infringement claims.
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 to continue the 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.
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 digital government 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
23
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, 2017, the amount of cash covered by FDIC deposit insurance was $8.6 million, and $152.2 million of cash
was above the FDIC deposit insurance limits. These balances and our liquidity could be affected 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 cash; however, we can provide no assurance
that access to our liquidity 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.
If our rate of growth accelerates, we may not effectively manage our growth, which could adversely affect our business
and our results of operations.
Our growth rate 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 government contracts that were recently awarded or may
be awarded in the future in a timely and cost-effective manner or effectively manage the growth of the government portals
we operate, our staff, software installation and maintenance teams, offices and operations, our business and results of
operations may be adversely affected.
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 may have 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. The
expansion of our operations into new markets and services may further expose us to requirements and potential liabilities
under additional statutes and rules that have previously not been relevant to our business. We cannot ensure 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, any consequent negative publicity could harm our reputation among other governments with
which we would like to contract. These factors could harm our business, results of operations, cash flows, and financial
condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal administrative office occupies a total of approximately 42,000 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.
24
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
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 Stock Market under the symbol “EGOV.” The following table shows the range of
highest and lowest sales prices for our common stock reported on the Nasdaq Stock Market during each quarter of the two
most recent years.
Twelve Months Ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Twelve Months Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
$
$
$
$
25.70
22.40
19.73
18.90
High
20.02
21.98
23.82
25.90
$
$
$
$
$
$
$
$
19.50
18.60
15.45
15.50
Low
14.48
17.06
21.76
21.65
As of February 8, 2018, there were approximately 205 holders of record of shares of our common stock.
Dividend Policy
In 2016, our Board of Directors approved a dividend policy pursuant to which it plans to make, subject to subsequent
declaration, regular quarterly cash dividends of $0.08 per share, beginning with the declaration and payment in the first
quarter of 2017. For each dividend paid, a dividend equivalent is paid simultaneously on unvested shares of service-based
restricted stock. In addition, holders of performance-based restricted stock accrue dividend equivalents, for each dividend
declared, that could be earned and become payable in the form of additional shares of common stock at the end of the
respective performance period to the extent that the underlying shares of performance-based restricted stock were earned.
While our Board of Directors currently intends to authorize the payment of regular quarterly cash dividends on our common
stock, the Board monitors and evaluates our dividend practice quarterly and may elect to increase, decrease or not pay a
dividend at any time. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs,
alternative investment opportunities and debt covenants associated with our line of credit.
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.
Dividends
On January 29, 2018, our Board of Directors declared a regular quarterly cash dividend of $0.08 per share, payable to
stockholders of record as of March 6, 2018. The dividend, which is expected to total approximately $5.4 million, will be
paid on March 20, 2018.
26
In 2017, our Board of Directors declared the following dividends (payment in thousands):
Declaration Date
Dividend per Share
Record Date
Payment Date
Payment
January 30, 2017
May 2, 2017
July 31, 2017
October 30, 2017
$0.08
$0.08
$0.08
$0.08
March 7, 2017
March 21, 2017
June 6, 2017
June 20, 2017
September 6, 2017
September 20, 2017
December 5, 2017
December 19, 2017
$5,342
$5,350
$5,351
$5,350
On November 1, 2016, our Board of Directors declared a special cash dividend of $0.65 per share, payable to stockholders
of record as of November 16, 2016. The dividend, totaling approximately $43.3 million, was paid on December 9, 2016.
27
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, 2012, and ending on December 31, 2017 (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 described below assuming a $100 investment on December 31, 2012. The stock price performance
on the graph below is not necessarily indicative of our future stock price performance.
Comparison of Cumulative Total Return Among
NIC, Inc., Nasdaq Composite (U.S.) Index and a Peer Group
`
Total Return Analysis
12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
NIC Inc.
Nasdaq Composite
Peer Group
$
$
$
100.00 $
157.62 $
119.07 $
130.25 $
167.00 $
100.00 $
138.32 $
156.85 $
165.84 $
178.28 $
100.00 $
157.70 $
157.53 $
207.08 $
207.22 $
118.05
228.63
276.90
While not all of the 15 companies in the Peer Group provide services exclusively to governments, each company has a
business focus, customer focus or business model generally similar to that of NIC. The Peer Group is comprised of: ACI
Worldwide, Inc. (ACIW), j2 Global, Inc. (JCOM), CoStar Group, Inc. (CSGP), Blackbaud, Inc. (BLKB), Liquidity Services,
Inc. (LQDT), Tyler Technologies, Inc. (TYL), Perficient, Inc. (PRFT), Bottomline Technologies, Inc. (EPAY), DHI Group,
Inc. (DHX), LogMeIn, Inc. (LOGM), Ebix, Inc. (EBIX), LivePerson, Inc. (LPSN), VASCO Data Security International,
Inc. (VDSI), Stamps.com, Inc. (STMP), and XO Group, Inc. (XOXO).
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.
28
Share Repurchases
During the fourth quarter of 2017, we acquired and cancelled shares of common stock surrendered by employees to pay
income taxes due upon the vesting of restricted stock as follows:
Period
October 9, 2017
October 12, 2017
October 13, 2017
October 28, 2017
Total
Total Number
of Shares
Purchased
Average
Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under
the Plans or Programs
176
346
199
724
1,445
$
$
$
$
$
17.40
17.45
17.50
17.00
17.23
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
ITEM 6. SELECTED FINANCIAL DATA
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 before income taxes
Net income
Net income per share - basic
Net income per share - diluted
Dividends declared per share
Year Ended December 31,
2017
2016
2015
2014
2013
$ 336,508
$ 317,915
$ 292,376
$ 272,097
$ 249,279
78,337
51,614
0.77
0.77
0.32
77,858
55,833
0.84
0.84
0.65
67,295
41,979
0.63
0.63
0.55
63,014
39,058
0.59
0.59
0.50
52,559
32,038
0.49
0.49
0.35
December 31,
2017
2016
2015
2014
2013
Consolidated Balance Sheet Data:
Total assets
Long-term debt (includes current portion of notes
payable/capital lease obligations)
Total stockholders' equity
$ 295,731
$ 240,862
$ 241,237
$ 172,039
$ 179,974
—
—
—
—
—
168,242
133,903
115,806
104,137
91,936
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautions about Forward-Looking Statements
Statements in this Annual Report on Form 10-K regarding NIC Inc. and its subsidiaries (referred to herein as “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 regarding the planned
implementation of new portal contracts and new projects under existing portal contracts, statements of assumptions
underlying such statements, statements relating to possible future dividends and statements of our 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 2017 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, our success in renewing existing contracts and in signing
contracts with new states and with federal and state government agencies; our ability to successfully increase the adoption
and use of digital government services; the possibility of security breaches or disruptions through cyber attacks or other
events and any resulting liability; our ability to implement new contracts and any related technology enhancements in a
timely and cost-effective manner; the possibility of reductions in fees or revenues as a result of budget deficits, government
shutdowns, or changes in government policy; continued favorable government legislation; acceptance of digital government
services by businesses and citizens; competition; 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
2017 Annual Report on Form 10-K. Investors should read all of these discussions of risks carefully.
All forward-looking statements made in this Annual Report on Form 10-K speak only as of the date of this report. Except
as may be required by law, we will not update the information in this 2017 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 digital government services that help governments use technology to provide a higher level
of service to businesses and citizens and increase efficiencies. 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. These transactions include 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 the up-front investments and ongoing operations and
maintenance costs of the government portals. Our unique business model allows us to generate revenues by sharing in the
fees collected from online transactions. Our partners benefit because they reduce their financial and technological 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.
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On behalf of our government partners, we enter into statements of work with various agencies and divisions of the government
to provide specific services and to conduct specific transactions. These statements of work preliminarily establish the pricing
of the online transactions and data access services we provide and the division of revenues between us 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. 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
applications and digital government services we built only in its own state. However, certain enterprise applications that
we have developed and standardized centrally and that are utilized by our portal businesses, are provided to most of our
government partners on a software-as-a-service (“SaaS”) basis, and thus would not be included in any royalty-free license.
If our contract expires after a defined term or if our contract is terminated by our government partner for cause, the government
agency would be entitled to take over the portal in place, and NIC would have no future revenue from, or obligation to,
such former government partner, except as otherwise provided in the contract. We also provide certain payment processing
services on a SaaS basis to a few private sector entities 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, revenues from these services have not been significant, but have grown in recent years. 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 digital government services. Key strategies to achieve
this objective include:
•
•
Renew all current outsourced government contracts – First and foremost, we will strive to renew all currently
profitable outsourced government contracts. We currently have nine contracts under which we provide enterprise-
wide outsourced portal and digital government services, as well as our contract with the Federal Motor Carrier
Safety Administration ("FMCSA"), that have expiration dates within the 12-month period following December 31,
2017. As previously disclosed, NIC has been informed by representatives of the state of Texas that Texas NICUSA
has been selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO,
and that Texas NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance
and development services set forth in the Texas RFO. The current agreement between the state of Texas and Texas
NICUSA expires on August 31, 2018.
Win new government contracts – A key objective of ours is to win new contracts with federal, state and local
government agencies. We continue to invest in business development and marketing efforts, including a
combination of strategic advertising and public relations initiatives. We have responded to several active
procurement opportunities and realized significant benefits from our investments, including contracts with new
government partners in recent 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 digital government solutions. We intend to continue marketing
our services to new governments in federal, state and local 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 increase 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
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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 interactions through initiatives
such as informational brochures 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 comparable revenues for two full periods.
Our long-term goal is to grow same state revenues at our historical average of approximately 8-10% per year. Same
state portal revenues grew 6% in 2017 compared to 8% in 2016. Revenues from interactive government services,
or IGS, primarily consist of transaction fees generated by means other than from providing electronic access to
motor vehicle driver history records, or DHR. As IGS revenues continue to become a larger component of overall
portal revenues, our growth in same state IGS revenues becomes more important to our overall growth as a company.
Same state IGS revenues grew 11% in 2017 compared to 12% in 2016.
Growth in DHR revenues is also an important factor in our goal for overall same state revenue growth. Historically,
DHR price increases have been relatively infrequent, and our ability to grow same state DHR revenues has been
limited, as such revenues have been driven by broader economic factors outside of our control. Absent DHR price
increases, same state DHR revenue growth has historically ranged from flat to 4% per year. Same state DHR
revenues increased by 1% in 2017 compared to 2% in 2016.
•
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 potential 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 38% for 2017 and
39% for both 2016 and 2015. 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 businesses (which we believe also benefits our stockholders).
We also view selling & administrative expenses, 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 and financial leverage
of our overall business. Selling & administrative expenses as a percentage of total consolidated revenues were
15% for 2017, 2016 and 2015.
Finally, our consolidated operating income margin (operating income before income taxes divided by total
consolidated revenues) is an important measure of our overall profitability. This metric was 23% in 2017, 24% in
2016 and 23% in 2015.
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 digital government services, other than 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
32
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 outsourced portal businesses according to the underlying source of revenue. A brief description of each
category follows:
•
Transaction-based: which consists of transaction-based fees from:
IGS: mainly consists of transaction fees from interactive government services, referred to as IGS, from
sources other than digital access to motor vehicle driver history records, for transactions conducted by
business users and consumer users through our portals and which are generally recurring. For a
representative listing of the IGS applications we currently offer through our portals, refer to Part I, Item
1 in this Form 10-K.
DHR: mainly consists of transaction fees from driver history records, referred to as DHR, for providing
digital access to motor vehicle driver history records from our state portals to data resellers, insurance
companies, and other pre-authorized customers on behalf of our state partners, and which are generally
recurring.
•
•
Portal software development and services: 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 and
are not generally recurring. As a result, these revenues are excluded from our recurring portal revenue percentage.
Portal management: these are revenues from the performance of fixed fee portal management services for our
current government partner in the state of Indiana which are generally recurring.
In our outsourced portal businesses, IGS revenues represented approximately 62% of portal revenues, DHR revenues
represented approximately 33%, portal software development and services revenues represented approximately 3% and
portal management revenues represented approximately 2% in 2017. The highest volume, most commercially valuable
service we offer is digital access to driver history records. This service accounted for approximately 31%, 33% and 35%
of our total consolidated revenues in 2017, 2016 and 2015, respectively. We currently 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 19%, 22% and 23% of our total consolidated revenues in 2017, 2016 and
2015, respectively. In addition, we offer a service in several of our states for online motor vehicle registration and licensing.
This service accounted for approximately 14%, 14% and 13% of our total consolidated revenues in 2017, 2016 and 2015,
respectively.
Data resellers, such as LexisNexis Risk Solutions, and companies who access DHR 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
per record requested. The fees charged to all entities that access DHR 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 30-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 digital 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 information access fees and filing
fees) on an accrual basis net of the transaction fee due to the government, and we bill certain end-user customers, including
33
high-volume DHR data resellers to the auto insurance industry, on a monthly basis. We typically receive a majority of
payments within 25 days of billing and remit payment to governments within 30 to 45 days of the transaction. The fees that
we collect on behalf of government agencies for data access are accrued as accounts receivable and accounts payable at the
time revenue from the access of public information is recognized. We typically must remit a certain amount or percentage
of these fees to government agencies regardless of whether we ultimately collect the fees. The pricing of transactions varies
by the type of transaction and by state.
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 digital government. Transaction-based revenues consisted of approximately 70% business-to-government
transactions and 30% citizen-to-government transactions.
We expense as incurred all 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 Federal 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 transaction-based business model. NIC Federal recognizes revenues from
this contract (primarily transaction-based information access fees) when the services are provided at the time of the
transactions. NIC Federal 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 and Estimates
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 and material 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 and recent accounting pronouncements not yet adopted are described in Note 2, Summary
of Significant Accounting Policies, to the Consolidated Financial Statements. 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 Note 9, Income
Taxes, to the Consolidated Financial Statements for additional detail on our uncertain tax positions and related accounting
policies. Had our uncertain tax positions changed by 10% from our estimated liability at December 31, 2017, the financial
impact would have been approximately $0.8 million, or 1.0%, of our pretax income for the year ended December 31, 2017.
34
Stock-based compensation
We measure stock-based compensation cost for service-based restricted stock awards at the grant date based on the 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
ratably over the performance period based upon the probable number of shares expected to vest. Measuring stock-based
compensation of performance-based 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, Stock-Based Compensation and Employee Benefit
Plans, to the Consolidated Financial Statements for additional detail on our stock-based compensation and related accounting
policies.
Financial Analysis of Years Ended December 31, 2017, 2016 and 2015
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 our contracts with the states of Iowa and Delaware on November 30, 2016 and March 31, 2015,
respectively, the operating results for these portals have been removed from the same state category for the year ended
December 31, 2016. In addition, our Tennessee portal contract expired on March 31, 2017 and has been removed from the
same state category for the year ended December 31, 2017. Due to the ongoing transition of services back to the state
throughout the fourth quarter of 2016, the operating results for our Tennessee portal have also been removed from the same
state category for the year ended December 31, 2016. Furthermore, the operating results for our new Louisiana portal have
been excluded from the same state category for all periods presented because it had not generated revenues for two full
comparable years.
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)
2017
2016
2015
5%
6%
97%
38%
20%
65%
15%
23%
9%
8%
96%
39%
11%
72%
15%
24%
7%
8%
96%
39%
15%
71%
15%
23%
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 Revenues Analysis
IGS
DHR
Total
Portal software development and services
Portal management
2017
%
Change
2016
%
Change
2015
$ 192,200
10 % $ 174,470
12 % $ 155,164
103,899
10,180
5,072
(1)% 105,463
4 % 101,506
(15)%
(1)%
11,965
5,100
7 %
(10)%
11,187
5,645
$ 311,351
5 % $ 296,998
9 % $ 273,502
Portal revenues in 2017 increased 5%, or approximately $14.4 million, over 2016, mainly driven by several IGS services,
including vehicle registrations and corporate business filings, among others, (i) a 6% increase in same state portal revenues
(portals in operation and generating revenues for two full comparable periods); and (ii) a $3.4 million increase in revenues
from our new Louisiana portal and a $2.4 million increase from our new Illinois contract. These increases were partially
offset by a decrease in revenues from legacy Tennessee and Iowa portals (combined, approximately $7.3 million) due to
contract expirations on March 31, 2017 and November 30, 2016, respectively.
The increase in same state portal revenues in 2017 was mainly due to higher revenues from our Colorado, Texas and South
Carolina portals, among others. Same state IGS revenues increased 11% in 2017 compared to 12% in 2016. The increase
in same state IGS revenues in 2017 was due to higher revenues from the deployment and increased adoption of several key
services, including vehicle inspections in Texas and motor vehicle registrations in Colorado. Same state DHR revenues
grew 1% in 2017 compared to 2% in 2016. The increase in same state DHR revenue in 2017 was mainly due to higher
transaction volumes from our Utah, Colorado and Wisconsin portals, among others. Same state portal software development
and services revenues decreased 29% in 2017 mainly due to lower project-based revenues from our Wisconsin and Indiana
portals, among others. This decline was partially offset by a $2.4 million increase in revenues from our Illinois contract.
Portal revenues in 2016 increased 9%, or approximately $23.5 million, over 2015, mainly due to (i) a 8%, or $22.5 million,
increase in same state portal revenues (portals in operation and generating revenues for two full comparable periods); and
(ii) a 1%, or approximately $3.2 million, increase in revenues from our new Louisiana portal (including revenues from the
pilot program). In second quarter 2016, the Louisiana portal successfully completed the pilot program and began generating
DHR revenues in July 2016. These increases were partially offset by a 1%, or approximately $1.5 million, decrease in
revenues from our legacy Tennessee portal due to the ongoing transition of services back to the state in anticipation of the
March 31, 2017 contract expiration date. Furthermore, revenues from our legacy Delaware and Iowa portals decreased $0.6
million and $0.1 million, respectively, due to contract expirations on March 31, 2015 and November 30, 2016, respectively.
The increase in same state portal revenues in 2016 was mainly due to higher revenues from our Maryland, Wisconsin and
Kentucky portals, among others. Same state IGS revenues increased 12% in 2016 compared to 11% in 2015. The increase
in same state IGS revenues in 2016 was due to higher revenues from the deployment and increased adoption of several key
services, including motor vehicle registrations in Colorado and Maryland, hunting and fishing licensing in Wisconsin,
business registration and tax filings in Maryland and payment processing in Kentucky. Same state DHR revenues grew 2%
in 2016 compared to 5% in 2015. The lower growth in same state DHR revenues was mainly due to lower transaction
volumes in certain state portals and to the anniversary of a DHR monitoring service in one state portal which launched in
the second quarter of 2015. Same state portal software development and services revenues increased 19% in 2016 mainly
due to higher project-based revenues from our Indiana and Wisconsin portals, among others.
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 from the prior year period. Fixed costs include
costs such as employee compensation and benefits (including stock-based compensation), subcontractor labor costs,
telecommunications, provision for losses on accounts receivable, 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 interchange 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.
35
36
Portal Revenues Analysis
IGS
DHR
Portal software development and services
Portal management
Total
2017
%
Change
2016
%
Change
2015
$ 192,200
10 % $ 174,470
12 % $ 155,164
103,899
10,180
5,072
(1)% 105,463
4 % 101,506
(15)%
(1)%
11,965
5,100
7 %
(10)%
11,187
5,645
$ 311,351
5 % $ 296,998
9 % $ 273,502
Portal revenues in 2017 increased 5%, or approximately $14.4 million, over 2016, mainly driven by several IGS services,
including vehicle registrations and corporate business filings, among others, (i) a 6% increase in same state portal revenues
(portals in operation and generating revenues for two full comparable periods); and (ii) a $3.4 million increase in revenues
from our new Louisiana portal and a $2.4 million increase from our new Illinois contract. These increases were partially
offset by a decrease in revenues from legacy Tennessee and Iowa portals (combined, approximately $7.3 million) due to
contract expirations on March 31, 2017 and November 30, 2016, respectively.
The increase in same state portal revenues in 2017 was mainly due to higher revenues from our Colorado, Texas and South
Carolina portals, among others. Same state IGS revenues increased 11% in 2017 compared to 12% in 2016. The increase
in same state IGS revenues in 2017 was due to higher revenues from the deployment and increased adoption of several key
services, including vehicle inspections in Texas and motor vehicle registrations in Colorado. Same state DHR revenues
grew 1% in 2017 compared to 2% in 2016. The increase in same state DHR revenue in 2017 was mainly due to higher
transaction volumes from our Utah, Colorado and Wisconsin portals, among others. Same state portal software development
and services revenues decreased 29% in 2017 mainly due to lower project-based revenues from our Wisconsin and Indiana
portals, among others. This decline was partially offset by a $2.4 million increase in revenues from our Illinois contract.
Portal revenues in 2016 increased 9%, or approximately $23.5 million, over 2015, mainly due to (i) a 8%, or $22.5 million,
increase in same state portal revenues (portals in operation and generating revenues for two full comparable periods); and
(ii) a 1%, or approximately $3.2 million, increase in revenues from our new Louisiana portal (including revenues from the
pilot program). In second quarter 2016, the Louisiana portal successfully completed the pilot program and began generating
DHR revenues in July 2016. These increases were partially offset by a 1%, or approximately $1.5 million, decrease in
revenues from our legacy Tennessee portal due to the ongoing transition of services back to the state in anticipation of the
March 31, 2017 contract expiration date. Furthermore, revenues from our legacy Delaware and Iowa portals decreased $0.6
million and $0.1 million, respectively, due to contract expirations on March 31, 2015 and November 30, 2016, respectively.
The increase in same state portal revenues in 2016 was mainly due to higher revenues from our Maryland, Wisconsin and
Kentucky portals, among others. Same state IGS revenues increased 12% in 2016 compared to 11% in 2015. The increase
in same state IGS revenues in 2016 was due to higher revenues from the deployment and increased adoption of several key
services, including motor vehicle registrations in Colorado and Maryland, hunting and fishing licensing in Wisconsin,
business registration and tax filings in Maryland and payment processing in Kentucky. Same state DHR revenues grew 2%
in 2016 compared to 5% in 2015. The lower growth in same state DHR revenues was mainly due to lower transaction
volumes in certain state portals and to the anniversary of a DHR monitoring service in one state portal which launched in
the second quarter of 2015. Same state portal software development and services revenues increased 19% in 2016 mainly
due to higher project-based revenues from our Indiana and Wisconsin portals, among others.
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 from the prior year period. Fixed costs include
costs such as employee compensation and benefits (including stock-based compensation), subcontractor labor costs,
telecommunications, provision for losses on accounts receivable, 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 interchange 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.
36
Cost of Portal Revenues Analysis
Fixed costs
Variable costs
Total
2017
$ 112,040
79,532
$ 191,572
%
Change
2016
%
Change
2015
2% $ 109,670
3% $ 106,722
13%
70,617
15%
61,444
6% $ 180,287
7% $ 168,166
Cost of portal revenues in 2017 increased 6%, or approximately $11.3 million, over 2016 due mainly to a 7%, or approximately
$12.2 million, increase in same state costs. Cost of portal revenues in 2017 from our new Louisiana and Illinois contracts
increased a combined $3.0 million over 2016. These increases were offset by a decrease in costs from our legacy Tennessee
and Iowa portals totaling $4.5 million.
The increase in same state cost of portal revenues in 2017 was primarily attributable to an increase in variable fees to process
credit/debit card transactions, due mainly to higher IGS transaction volumes, as further discussed above, and, to a lesser
extent, higher employee compensation and benefit costs.
Cost of portal revenues in 2016 increased 7%, or approximately $12.1 million, over 2015 due mainly to a 7%, or approximately
$12.3 million, increase in same state costs. Cost of portal revenues in 2016 from our new Louisiana portal (including costs
incurred during the pilot program) increased $0.7 million over 2015. These increases were partially offset by a decrease of
approximately $0.3 million in costs from our legacy Tennessee portal due to the ongoing transition of services back to the
state in anticipation of the March 31, 2017 contract expiration date. Furthermore, cost of portal revenues from our legacy
Delaware and Iowa portals decreased $0.4 million and $0.2 million, respectively, due to contract expirations, as further
discussed above.
The increase in same state cost of portal revenues in 2016 was primarily attributable to an increase in variable fees to process
credit/debit card transactions, due mainly to higher IGS transaction volumes, as further discussed above, and, to a lesser
extent, higher employee compensation and benefit costs.
A significant percentage of our IGS revenues are generated from online applications whereby users pay for information or
transactions via credit/debit cards. We typically earn a portion 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 incremental
gross profit percentage on these transactions as compared to our DHR and other IGS transactions. However, we plan to
continue to implement these services as they contribute favorably to our operating income growth.
Our portal gross profit percentage was 38% for 2017 compared to 39% for 2016 and 2015. 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 ongoing investment 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 from the prior year period.
Software & Services Revenues Analysis
2017
%
Change
2016
%
Change
2015
NIC Federal
Other
Total
$ 18,425
30 % $ 14,156
6,732
— %
6,761
$ 25,157
20 % $ 20,917
9% $ 12,938
14%
5,936
11% $ 18,874
Software & services revenues in 2017 and 2016 increased 20% and 11%, or approximately $4.2 million and $2.0 million,
respectively, over their corresponding prior year periods. The increase in 2017 was primarily driven by a $2.8 million
increase in revenues from our YourPassNow electronic park pass service for the Senior Park Pass program with the United
States National Park Service, which we do not expect to recur in future periods at the same level. We also experienced
higher revenues from our contract with the FMCSA in both 2017 ($0.8 million increase) and 2016 ($1.1 million increase)
as a result of increased adoption of the PSP.
37
COST OF SOFTWARE & SERVICES REVENUES. Cost of software & services revenues in 2017 and 2016 increased
49% and 10%, or approximately $2.9 million and $0.5 million, respectively, over their corresponding prior year periods.
The increase in 2017 was primarily driven by a $1.2 million increase in costs to support the non-recurring spike in
YourPassNow volumes from the Senior Park Pass program, as described above. In addition, the increases in both 2017 and
2016 were driven by higher interchange fees incurred as a result of higher revenues in our payment processing businesses,
and to higher employee compensation and benefit costs.
Our software & services gross profit percentage was 65% in 2017 and 72% in 2016 and 71% in 2015. The lower gross profit
percentage in 2017 was mainly due to the profit margin from the Senior Park Pass program described above.
SELLING & ADMINISTRATIVE. As a percentage of total consolidated revenues, selling & administrative expenses were
15% in all years presented. In 2017 and 2016, selling & administrative expenses increased 8% and 9%, or approximately
$3.7 million and $4.0 million, respectively, over their corresponding prior year periods. These increases were mainly due
to higher personnel, software maintenance and other costs to support and enhance corporate-wide information technology,
centralized applications, security, and portal operations.
INCOME TAXES. Our effective tax rate was approximately 34% in 2017 compared to 28% in 2016 and 38% in 2015. Our
effective tax rate in 2017 was lower than the statutory federal income tax rate due mainly to favorable benefits related to
the domestic production activities deduction, the federal research and development credit, and excess tax benefits from
restricted stock vestings, partially offset by the one-time charge as a result of the new tax law described below.
Our lower effective tax rate in 2016 was due mainly to favorable benefits related to the domestic production activities
deduction, the federal research and development credit and an adjustment to certain deferred tax liabilities related to a
previous acquisition of a business.
In 2016, we completed our study of qualifying activities for the domestic production activities deduction and began
recognizing tax benefits for the deduction upon the filing of our fiscal 2015 federal income tax return. We recognized tax
benefits, included in our income tax provision for 2016, of approximately $1.5 million for the 2016 tax year and approximately
$1.4 million for the 2015 tax year, related to the domestic production activities deduction. Also during 2016, we amended
our federal income tax returns for the 2014 and 2013 tax years and recognized tax benefits, included in our income tax
provision for 2016, of approximately $1.2 million for the 2014 tax year and $1.0 million for the 2013 tax year, related to
the domestic production activities deduction.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, among other changes,
reduces the statutory federal corporate income tax rate from 35% to 21%. In the fourth quarter of 2017, we recognized a
one-time charge totaling approximately $0.3 million to reduce our net deferred tax assets as of December 31, 2017 based
on the anticipated reduction in our prospective effective tax rate resulting from the Tax Act. We will receive the benefit of
the reduced statutory federal corporate income tax rate starting January 1, 2018, which will be partially offset by changes
in certain deductions (most notably the elimination of the domestic production activity deductions). Based on currently
available information, we estimate our combined federal and state effective tax rate for future periods will drop to an
approximate range of 24% to 25% before any discrete items. These tax-related estimates may differ from actual results,
due to changes in interpretations of the Tax Act and assumptions made by us, as well as guidance and regulations that may
be issued and actions we may take as a result of the Tax Act.
Liquidity and Capital Resources
Operating activities
Net cash provided by operating activities was $64.8 million in 2017 compared to $81.2 million in 2016. The decrease in
net cash provided by operating activities in 2017 was mainly the result of the timing of collections for accounts receivable,
partially offset by the timing of payments to our government partners.
Net cash provided by operating activities was approximately $81.2 million in 2016 compared to $53.0 million in 2015. The
increase in net cash provided by operating activities in 2016 was mainly the result of (i) an increase in net income, excluding
38
non-cash charges for depreciation & amortization, deferred income taxes and stock-based compensation, and (ii) the timing
of collections for accounts receivable primarily at our Texas portal, including the vehicle inspection service, and at our
Montana and Colorado portals, among others, partially offset by the timing of payments to our government partners primarily
in Colorado, Montana and Alabama, among others. Furthermore, the timing of accounts receivable collections and payments
to our government partners in Louisiana, our newest portal, also contributed to the increase in net cash provided by operating
activities in 2016.
Investing activities
Net cash used in investing activities in 2017, 2016 and 2015 was approximately $8.3 million, $8.2 million and $5.4 million,
respectively. Investing activities in 2017, 2016 and 2015 primarily consisted of approximately $4.8 million, $5.6 million
and $4.5 million, respectively, of capital expenditures, which were for fixed asset additions in our outsourced portal
businesses including additional capital expenditures in our newer 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.
Furthermore, in 2017, 2016 and 2015, we capitalized approximately $3.6 million, $2.6 million and $1.0 million, respectively,
of internal-use software development costs primarily related to the enhancement of centralized customer management,
billing and payment processing systems that support our business operations and accounting systems.
Financing activities
Net cash used in financing activities of approximately $22.7 million in 2017 reflects the payment of approximately $21.4
million for the quarterly dividends we paid during the year and approximately $2.7 million for tax withholdings related to
stock-based compensation awards, partially offset by approximately $1.3 million in proceeds from our employee stock
purchase program.
Net cash used in financing activities of approximately $44.3 million in 2016 reflects the payment of approximately $43.3
million for the special cash dividend we paid in December 2016 and approximately $2.1 million for tax withholdings related
to stock-based compensation awards, partially offset by approximately $1.1 million in proceeds from our employee stock
purchase program.
Net cash used in financing activities of approximately $37.2 million in 2015 reflects the classification of approximately
$36.5 million of our available cash as restricted to pay the special cash dividend we declared in November 2015 and paid
in January 2016. Financing activities in 2015 also reflect $1.8 million for tax withholdings related to stock-based
compensation awards, partially offset by approximately $1.1 million in proceeds from our employee stock purchase program.
Liquidity
We recognize revenues primarily from providing outsourced government 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
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. We typically collect a
majority of our accounts receivable prior to remitting amounts payable to our government partners.
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 $158.5 million at December 31, 2017, from $125.0 million at
December 31, 2016. The increase in our working capital was primarily due to cash generated from operating activities and
the timing of payments to our government partners. Our current ratio, defined as current assets divided by current liabilities,
was 2.3 at both December 31, 2017 and December 31, 2016.
As of December 31, 2017, our unrestricted cash balance was $160.8 million compared to $127.0 million at December 31,
2016. We believe that our currently available liquid resources and cash generated from operations in the future will be
sufficient to meet our operating requirements, capital expenditure requirements and dividend payments (if any) for at least
the next 12 months without the need for additional capital. We have a $10 million unsecured revolving credit facility (the
39
“Credit Agreement”) with a bank that is available to finance working capital, issue letters of credit and finance general
corporate purposes. The Credit Agreement also includes an accordion feature that will allow us to increase the available
capacity under the Credit Agreement to $50 million, subject to securing additional commitments from the bank. We can
obtain letters of credit in an aggregate amount of $5 million, which reduces the maximum amount available for borrowing
under the Credit Agreement. In total, we had $4.1 million in available capacity to issue additional letters of credit and $9.1
million of unused borrowing capacity at December 31, 2017 under the Credit Agreement. We were in compliance with all
of the financial covenants under the Credit Agreement at December 31, 2017.
We issue letters of credit as collateral for an office lease, and to a much lesser extent, as collateral for performance on one
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 expiration date of the Credit Agreement. We had unused
outstanding letters of credit totaling approximately $0.9 million at December 31, 2017. We are not currently required to
cash collateralize these letters of credit.
At December 31, 2017, we were bound by performance bond commitments totaling approximately $5.8 million on certain
outsourced government portal contracts. We have never had any defaults resulting in draws on performance bonds.
We currently expect our capital expenditures to range from $6.0 million to $7.0 million in fiscal year 2018, 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 including equipment upgrades and enhancements, 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. We currently expect our capitalized internal-
use software development costs to range from $3.0 million to $4.0 million. This estimate includes costs related to the
enhancement of centralized customer management, billing and payment processing systems that support our business
operations and accounting systems.
We paid dividends of $0.32, $0.65 and $0.55 per common share in 2017, 2016 and 2015, respectively. The total cash paid
for dividends in 2017, 2016 and 2015 was $21.4 million, $43.3 million and $36.5 million, respectively.
On January 29, 2018, our Board of Directors declared a regular quarterly cash dividend of $0.08 per share, payable to
stockholders of record as of March 6, 2018. Our ability to pay dividends could be affected by future business performance,
liquidity, capital needs, alternative investment opportunities and debt covenants associated with our line of credit. We do
not believe any of our previously paid or declared dividends will have a significant effect on our future liquidity needs.
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 federal, state and local government agencies beyond what is contemplated if
unforeseen opportunities arise;
expand our product and service offerings beyond what is contemplated if unforeseen opportunities arise;
fund acquisitions;
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. If we need to obtain new debt or equity financing in the future, the terms and
availability of such financing may be impacted by economic and financial market conditions, as well as our financial
condition and results of operations at the time we seek additional financing. 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.
40
Off-balance sheet arrangements and contractual obligations
To the Board of Directors and Stockholders of NIC Inc.:
We had unused outstanding letters of credit totaling approximately $0.9 million at December 31, 2017.
The following table sets forth our future contractual obligations and commercial commitments as of December 31, 2017
(in thousands):
Contractual Obligations
Operating lease obligations
Income tax uncertainties
Total contractual cash obligations
Payments Due by Period
Total
$ 16,031
8,020
$ 24,051
Less than 1
Year
1-3 Years
3-5 Years
More than
5 Years
$
$
4,921
$
—
6,110
8,020
4,921
$ 14,130
$
$
4,033
—
4,033
$
$
967
—
967
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 $8.0 million at December 31, 2017. These obligations are classified as
noncurrent 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. For additional information see Note 9, Income Taxes, to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Our cash is held entirely in domestic non-interest bearing transaction bank accounts.
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
In our opinion, the consolidated statements of income, changes in stockholders’ equity and cash flows for the year ended
December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of NIC, Inc. for the year
ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes 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. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
February 23, 2016
41
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To the Board of Directors and Stockholders of NIC Inc.:
Report of Independent Registered Public Accounting Firm
In our opinion, the consolidated statements of income, changes in stockholders’ equity and cash flows for the year ended
December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of NIC, Inc. for the year
ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes 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. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
February 23, 2016
42
The Board of Directors and Stockholders of NIC Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
We have audited NIC Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, NIC Inc. and Subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on
the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of NIC Inc. and Subsidiaries as of December 31, 2017 and 2016, and the related
consolidated statements of income, changes in stockholders’ equity and cash flows for each of the two years in the period
ended December 31, 2017, and related notes, of the Company and our report dated February 22, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible 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 Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) 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 (3) 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/ Ernst & Young LLP
Kansas City, Missouri
February 22, 2018
43
The Board of Directors and Stockholders of NIC Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NIC Inc. and Subsidiaries (the Company) as of December
31, 2017 and 2016, and the related consolidated statements of income, changes in stockholders' equity and cash flows for
each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015
Kansas City, Missouri
February 22, 2018
44
NIC INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amount)
ASSETS
Current assets:
Cash
Trade accounts receivable, net
Prepaid expenses & other current assets
December 31,
2017
2016
$
160,777
$
127,009
103,938
12,843
277,558
10,306
5,214
667
1,986
82,722
15,033
224,764
9,726
3,588
2,307
477
$
295,731
$
240,862
Total current assets
Property and equipment, net
Intangible assets, net
Deferred income taxes, net
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued expenses
Other current liabilities
Total current liabilities
Other long-term liabilities
Total liabilities
LIABILITIES AND STOCKHOLDERS' EQUITY
$
88,920
$
26,501
3,673
119,094
8,395
127,489
73,252
23,395
3,150
99,797
7,162
106,959
Commitments and contingencies (Notes 2, 3, 6, 7 and 9)
—
—
Stockholders' equity:
Common stock, $0.0001 par, 200,000 shares authorized, 66,271 and 65,982
shares issued and outstanding
Additional paid-in capital
Retained earnings
Total stockholders' equity
7
111,275
56,960
168,242
Total liabilities and stockholders' equity
$
295,731
$
7
106,669
27,227
133,903
240,862
The accompanying notes are an integral part of these consolidated financial statements.
45
NIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amount)
Revenues:
Portal revenues
Software & services revenues
Total revenues
Operating expenses:
Cost of portal revenues, exclusive of depreciation &
amortization
Cost of software & services revenues, exclusive of
depreciation & amortization
Selling & administrative
Depreciation & amortization
Total operating expenses
Operating income before income taxes
Income tax provision
Net income
Basic net income per share
Diluted net income per share
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2016
2015
2017
$
311,351
$
296,998
$
25,157
336,508
20,917
317,915
273,502
18,874
292,376
191,572
180,287
168,166
8,890
50,780
6,929
258,171
78,337
26,723
51,614
0.77
0.77
$
$
$
5,958
47,063
6,749
240,057
77,858
22,025
55,833
0.84
0.84
$
$
$
5,432
43,098
8,385
225,081
67,295
25,316
41,979
0.63
0.63
$
$
$
66,209
66,266
65,913
65,966
65,555
65,640
The accompanying notes are an integral part of these consolidated financial statements.
46
NIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Balance, January 1, 2014
Net income
Dividends declared
Dividend equivalents on unvested 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
Excess tax deductions relating to stock-based
compensation
Shares issuable in lieu of dividend payments on
performance-based restricted stock awards
Issuance of common stock under employee
stock purchase plan
Common Stock
Shares
Amount
65,303
$
—
—
—
—
365
(106)
—
—
—
75
Balance, December 31, 2015
65,637
Net income
Dividends declared
Dividend equivalents on unvested 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
Excess tax deductions relating to stock-based
compensation
Shares issuable in lieu of dividend payments on
performance-based restricted stock awards
Issuance of common stock under employee
stock purchase plan
—
—
—
—
390
(120)
—
—
—
75
Balance, December 31, 2016
65,982
Cumulative effect of adoption of accounting
standard (Note 2)
Net income
Dividends declared
Dividend equivalents on unvested 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
Shares issuable in lieu of dividend payments on
performance-based restricted stock awards
Issuance of common stock under employee
stock purchase plan
—
—
—
—
—
319
(122)
—
5
87
Balance, December 31, 2017
66,271
$
7
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
—
7
Additional
Paid-in
Capital
Retained
Earnings
Total
$
94,690
$
9,441
$
104,138
—
—
—
17
73
(1,838)
6,441
413
2
1,131
100,929
—
—
—
—
136
(2,137)
5,997
590
40
1,114
106,669
409
—
—
110
(31)
—
(2,676)
5,464
—
1,330
41,979
(36,456)
41,979
(36,456)
(159)
(159)
65
—
—
—
—
—
—
14,870
55,833
(43,301)
82
73
(1,838)
6,441
413
2
1,131
115,806
55,833
(43,301)
(202)
(202)
27
—
—
—
—
—
—
27,227
(409)
51,614
(21,393)
(110)
31
—
—
—
—
—
27
136
(2,137)
5,997
590
40
1,114
133,903
—
51,614
(21,393)
—
—
—
(2,676)
5,464
—
1,330
$
111,275
$
56,960
$
168,242
The accompanying notes are an integral part of these consolidated financial statements.
47
NIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2017
Year Ended December 31,
2016
(as adjusted)
2015
(as adjusted)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization
Stock-based compensation expense
Deferred income taxes
Provision for losses on accounts receivable
Loss on disposal of property and equipment
Excess tax benefits related to stock-based compensation
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable, net
Decrease (increase) in prepaid expenses & other current assets
(Increase) decrease in other assets
Increase in accounts payable
Increase in accrued expenses
Increase (decrease) in other current liabilities
Increase 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 withholdings related to stock-based compensation awards
Net cash used in financing activities
Net increase in cash
Cash, beginning of period
Cash, end of period
$
51,614
$
55,833
$
41,979
6,929
5,464
1,640
552
49
—
(21,769)
2,191
(1,509)
15,669
2,251
522
1,233
64,836
(4,771)
7
(3,565)
(8,329)
(21,393)
—
1,330
(2,676)
(22,739)
33,768
127,009
6,749
5,997
(886)
142
24
590
(2,501)
(2,449)
(51)
12,119
2,136
553
2,903
81,159
(5,646)
8
(2,576)
(8,214)
(43,301)
—
1,114
(2,137)
(44,324)
28,621
98,388
$
160,777
$
127,009
$
8,385
6,441
(1,918)
290
98
413
(23,184)
(1,082)
20
19,730
1,234
(305)
909
53,010
(4,454)
4
(992)
(5,442)
—
(36,456)
1,131
(1,838)
(37,163)
10,405
87,983
98,388
Supplemental cash flow information:
Non-cash investing activities:
Capital expenditures accrued but not yet paid
Cash payments:
Income taxes paid, net of refunds
Cash dividends on common stock previously restricted for
payment of dividend
$
$
$
855
21,303
$
$
273
19,847
— $
36,456
$
$
$
—
27,222
—
The accompanying notes are an integral part of these consolidated financial statements.
48
NIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
NIC Inc. (the “Company” or “NIC”) is a leading provider of digital government services that help governments use technology
to provide a higher level of service to businesses and citizens and increase efficiencies. The Company 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, 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 business model allows the Company to generate revenues
by sharing in the fees the Company collects from online transactions. The Company is typically responsible for funding the
up-front investments 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 outsourced portal services, to state and local governments as well as federal agencies.
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 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 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 and benefits (including stock-based compensation), fees required to process credit/debit
card and automated clearinghouse transactions, subcontractor labor costs, telecommunications, provision for losses on
accounts receivable, and all other costs associated with the provision of dedicated client service such as dedicated facilities.
Cost of software & services revenues consists of all direct project costs to provide software development and services such
as employee compensation and benefits (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
expenses consist primarily of corporate-level expenses relating to human resource management, administration, information
technology, security, legal, finance and accounting, internal audit and all non-customer service related costs from the
Company’s software & services businesses, including compensation and benefits, information systems and office rent.
Selling & administrative expenses also consist of management incentive compensation, including stock-based compensation,
and corporate-level expenses for market development and public relations.
Certain amounts in the consolidated statements of cash flows for the years ended December 31, 2016 and 2015 were
reclassified to conform to the current year presentation. The reclassifications had no effect on total cash flows, net income
or the balance sheet as of and for the years ended December 31, 2016 and 2015.
Basis of consolidation
The consolidated financial statements include all the Company's direct and indirect wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated.
49
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. The Outsourced Portals segment
is the Company’s only reportable segment and generally includes the Company’s subsidiaries operating outsourced state
and local government portals. Authoritative guidance for segment disclosures also requires disclosures about products and
services and major customers. See Note 11, Reportable Segments and Related Information, for additional information
regarding our segment reporting.
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.
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.
The Company’s allowance for doubtful accounts at December 31, 2017 and 2016 was approximately $0.6 million and $0.4
million, respectively.
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 indicate the carrying value may not be fully recoverable. The carrying value of property and equipment is
considered impaired when the anticipated undiscounted cash flow from the asset group 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 flow 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 Software-as-a-Service (“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 software, the estimated economic life is
50
typically 36 months from the date the software is placed in production. At December 31, 2017 and 2016, 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 material 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 payment processing
fees, employee compensation and benefits (including incentive compensation, bonuses, vacation, health insurance and
employer 401(k) contributions), third-party professional service fees, and miscellaneous other accruals.
Revenue recognition
Portal revenues
The Company recognizes revenue from providing outsourced digital government services (primarily transaction-based
information access fees and filing fees) net of the transaction fees due to the government when the services are provided at
the time of the transactions. The fees that the Company must remit to state agencies for data access and other statutory fees
are accrued as accounts payable when the services are provided at the time of the transactions. 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 are 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
determines 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, 2017 and 2016 were approximately $1.4 million and $1.1 million, respectively.
Software & services revenues
The Company’s software & services revenues primarily include revenues from subsidiaries that provide software
development and services, other than outsourced portal services, to state and local governments as well as federal agencies.
The Company’s subsidiary, NIC Federal, LLC (“NIC Federal”) currently earns a significant portion of its revenues from
its 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 a transaction-based business model. NIC
Federal recognizes revenue from its contract with the FMCSA (primarily transaction-based information access fees) when
the services are provided at the time of the transactions. NIC Federal 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.
51
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 on a straight-line basis over the employee’s requisite
service period for the entire award (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 ratably over the performance period
based upon the probable number of shares expected to vest. See Note 10, Stock-based Compensation and Employee Benefit
Plans, 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 more likely than not probable,
determined by cumulative probability, of being realized upon settlement with the taxing authority. 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 components of other comprehensive income or loss and, accordingly, the Company’s comprehensive
income is 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 participating securities and are included in the computation of earnings per share pursuant to the two-
class method for all periods presented. The two-class method is an earnings allocation formula that treats a participating
security as having rights to undistributed earnings that would otherwise have been available to common stockholders. The
Company’s service-based restricted stock awards contain non-forfeitable rights to dividends and are participating securities.
Accordingly, service-based restricted stock awards were included in the calculation of earnings per share using the two-
class method for all periods presented. Unvested service-based restricted shares totaled approximately 0.6 million at
December 31, 2017, 2016 and 2015. 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.
52
The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands except per
share amounts):
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
2017
December 31,
2016
2015
51,614
(479)
51,135
$
$
55,833
(492)
55,341
$
$
66,209
57
66,266
65,913
53
65,966
41,979
(385)
41,594
65,555
85
65,640
0.77
$
0.84
$
0.63
0.77
$
0.84
$
0.63
$
$
$
$
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts
receivable. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure
accounts receivable. At December 31, 2017 and 2016, LexisNexis Risk Solutions accounted for approximately 16% and
21%, respectively, of the Company’s total accounts receivable.
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.
Recently issued accounting pronouncements
Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,
Financial Instruments-Credit Losses (Topic 326), to replace the incurred loss impairment methodology in current U.S.
GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable
and supportable information to inform credit loss estimates. For trade and other receivables, the Company will be required
to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects
losses that are probable. The ASU will be effective for the Company beginning January 1, 2020, with early adoption permitted
beginning January 1, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings
as of the effective date. The Company is currently evaluating the new standard and the estimated impact it will have on the
Company’s financial statements.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which simplifies several aspects of accounting for employee share-based payment
53
transactions, including accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as
classification in the statement of cash flows. As part of the adoption of this standard on January 1, 2017, the Company was
required to recognize a cumulative-effect adjustment associated with the Company’s policy election to account for forfeitures
of awards as they occur, on a modified retrospective basis which resulted in a decrease in retained earnings of approximately
$0.4 million and a corresponding increase in additional paid-in capital. Previously, the Company estimated and excluded
compensation cost related to awards not expected to vest based on estimated forfeitures. Furthermore, the Company applied
the retrospective method for the presentation of excess tax deductions and cash paid by the Company when directly
withholding shares for tax withholdings. As a result, both cash provided by operating activities and cash used in financing
activities increased by $2.7 million and $2.3 million in the consolidated statements of cash flows for the years ended
December 31, 2016 and 2015, respectively.
Upon adoption of the standard, excess tax benefits or deductions from share-based award activity are reflected in the
consolidated statement of income prospectively as a component of the provision for income taxes, whereas previously such
benefits or deductions were recognized in additional paid-in capital in the consolidated balance sheet. Excess tax benefits
resulted in a reduction of the Company’s provision for income taxes of approximately $0.5 million for the year ended
December 31, 2017.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will update the existing guidance on accounting
for leases and require new qualitative and quantitative disclosures about the Company’s leasing activities. The new standard
requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among
the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases
classified as operating leases under current U.S. GAAP. The ASU is effective for the annual reporting period beginning
January 1, 2019, including interim periods within that reporting period. The Company will be required to recognize and
measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early application
is permitted. The Company is currently evaluating the effects that the standard will have on its consolidated financial
statements, which the Company anticipates could be significant, due mainly to its non-cancellable operating leases for office
space. As further described in Note 7, Commitments and Contingencies, as of December 31, 2017, the Company had
minimum lease commitments under non-cancellable operating leases totaling $16.0 million.
Revenue from Contracts with Customers
In May 2014, the FASB issued a new standard related to revenue recognition (“ASC 606”). Under the new standard, revenue
is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration
which the entity expects to receive in exchange for those goods or services. In addition, the standard requires expanded
disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual
property and identifying performance obligations.
ASC 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective
method), or retrospectively with the cumulative effect of initially applying the guidance recognized in retained earnings on
the Company’s balance sheet at the date of initial application (the modified retrospective approach). The Company adopted
the standard using the modified retrospective approach on January 1, 2018.
The Company established an implementation team that has completed an impact assessment of ASC 606. Based upon its
assessment, the Company identified three primary revenue sources:
• Transaction-based: this source primarily consists of transaction-based fees from interactive government services
(“IGS”), driver history records (“DHR”) and other revenues streams. Transaction-based fees accounted for
approximately 95% of the Company’s total revenues for the year ended December 31, 2017.
Portal software development and services: this source primarily consists of the performance of project-based,
application development and other time & materials services for the Company’s government partners. These
services accounted for approximately 3% of the Company’s total revenues for the year ended December 31, 2017.
•
54
•
Portal management and other fixed fee services: this source primarily consists of recurring fixed fee portal
management services for the Company’s government partner in Indiana. These services accounted for
approximately 2% of the Company’s total revenues for the year ended December 31, 2017.
The Company completed contract reviews for each of its three primary revenue sources and concluded that its revenue
recognition policies for transaction-based fees and portal management and other fixed fees will remain substantially
unchanged under ASC 606. Based on the varying terms of the Company’s portal software development and services
contracts, revenue may be recognized under the new standard either over time using an input or output method as services
are provided or upon completion of a project, depending upon the terms of the specific contract. Recognizing such revenue
over time (as opposed to at a point in time) will represent a change under ASC 606. However, because the Company’s
portal software development and services projects are typically short-term in nature and represent a relatively small portion
of its total consolidated revenues, the Company does not currently expect any changes to its revenue recognition policy to
have a material impact on the Company's consolidated financial statements in any annual or quarterly period. The Company
did not have any significant software development and services contracts not substantially complete as of December 31,
2017 and, therefore, there is not a significant cumulative adjustment to retained earnings on the Company’s balance sheet
upon adoption of ASC 606 as of January 1, 2018.
3. OUTSOURCED GOVERNMENT CONTRACTS
State enterprise contracts
The Company’s outsourced state master contracts generally have an initial multi-year term with provisions for renewals for
various periods at the option of the government. The Company’s primary business obligation under these contracts is
generally to design, build, and operate digital government services on an enterprise wide basis on behalf of 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 statements of work with various agencies and divisions of the government
to provide specific services and to conduct specific transactions. These statements of work preliminarily establish the pricing
of the online transactions and data access services the Company provides and the division of revenues between the Company
and the government agency. The government oversight authority must approve prices and revenue sharing agreements. The
Company has limited control over the level of fees it is permitted to retain.
The Company is typically responsible for funding the up-front investments and ongoing operations and maintenance costs
of digital government services, 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 applications and digital government services built by the Company only in its own
state. However, certain proprietary customer management, billing, payment processing and other software applications that
the Company has developed and standardized centrally and that are utilized by the Company’s portal businesses, are being
provided to a number of government partners on a software-as-a-service (“SaaS”) basis, and thus would not be included in
any royalty-free license. If the Company’s contract expires after a defined term or if its contract is terminated by a government
partner for cause, the government agency would be entitled to take over the portal in place, and NIC would have no future
revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.
Any renewal of these contracts beyond the initial term by the government is optional and a government may terminate its
contract prior to the expiration date if the Company breaches a material contractual obligation and fails to cure such breach
within a specified period or upon the occurrence of other events or circumstances specified in the contract. In addition, 15
contracts under which the Company provides enterprise-wide outsourced portal and digital government services, as well
as the Company’s contract with the FMCSA can be terminated by the other party without cause on a specified period of
notice. Collectively, revenues generated from these contracts represented approximately 61% of the Company’s total
consolidated revenues for the year ended December 31, 2017. If any of these contracts is terminated without cause, the
terms of the respective contract may require the government to pay the Company a fee in order to continue to use the
Company’s applications in its portal.
55
Under a typical state master 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. At December 31, 2017, the Company
was bound by performance bond commitments totaling approximately $5.8 million on certain state enterprise contracts
(See Note 6).
The following is a summary of the state contracts through which the Company currently generates meaningful revenue and
has the ability to provide enterprise-wide outsourced digital government services to multiple government agencies:
NIC Portal Entity
NICUSA, IL Division
Louisiana Interactive, LLC
Connecticut Interactive, LLC
Portal Website
(State)
Illinois
Louisiana
Connecticut
Wisconsin Interactive Network, LLC
Wisconsin
Pennsylvania Interactive, LLC
Pennsylvania
NICUSA, OR Division
NICUSA, MD Division
Mississippi Interactive, LLC
New Jersey Interactive, LLC
Texas NICUSA, LLC
Oregon
Maryland
Mississippi
New Jersey
Texas
West Virginia Interactive, LLC
West Virginia
Vermont Information Consortium, LLC
Vermont
Colorado Interactive, LLC
Colorado
South Carolina Interactive, LLC
South Carolina
Kentucky Interactive, LLC
Alabama Interactive, LLC
Kentucky
Alabama
Rhode Island Interactive, LLC
Rhode Island
Oklahoma Interactive, LLC
Montana Interactive, LLC
Oklahoma
Montana
Hawaii Information Consortium, LLC
Hawaii
Idaho Information Consortium, LLC
Utah Interactive, LLC
Maine Information Network, LLC
Idaho
Utah
Maine
Arkansas Information Consortium, LLC
Arkansas
Indiana Interactive, LLC
Nebraska Interactive, LLC
Indiana
Nebraska
Kansas Information Consortium, LLC
Kansas
Outsourced federal contract
Year
Services
Commenced
2017
Contract Expiration Date
(Renewal Options Through)
6/29/2023
(6/29/2027)
2015
2014
2013
2012
2011
2011
2011
2009
2009
2007
2006
2005
2005
2003
2002
2001
2001
2001
2000
2000
1999
1999
1997
1995
1995
1992
1/28/2020
1/9/2020
5/13/2018
(5/13/2023)
11/30/2019
(11/30/2022)
11/22/2021
8/11/2019
12/31/2019
(12/31/2021)
5/1/2020
(5/1/2022)
8/31/2018
6/30/2021
(6/30/2024)
6/8/2019
4/30/2019
(4/30/2023)
7/15/2019
(7/15/2021)
8/31/2018
3/19/2020
(3/19/2022)
7/1/2018
(7/1/2019)
3/31/2018
(3/31/2020)
12/31/2019
(12/31/2020)
1/3/2019
(3-year renewal options)
6/30/2018
6/5/2019
7/1/2018
6/30/2018
10/24/2021
(10/24/2025)
4/1/2019
(4/1/2021)
12/31/2022
(annual renewal options)
The Company’s subsidiary NIC Federal has a contract with the FMCSA to develop and manage the FMCSA’s PSP for motor
carriers nationwide, using the Company’s transaction-based business model. During the third quarter of 2017, the FMCSA
exercised the second of its two one-year renewal options, extending the current contract through August 31, 2018. The
contract can be terminated by the FMCSA without cause on a specified period of notice.
56
Expiring contracts
There are currently nine contracts under which the Company provides enterprise-wide outsourced portal and digital
government services, as well as the Company’s contract with the FMCSA, that have expiration dates within the 12-month
period following December 31, 2017. Collectively, revenues generated from these contracts represented approximately 43%
of the Company’s total consolidated revenues for the year ended December 31, 2017. Although certain of these contracts
have renewal provisions, any renewal is at the option of the Company’s government partner. 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, and NIC
would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the
contract.
As previously disclosed, NIC has been informed by representatives of the state of Texas that Texas NICUSA has been
selected to negotiate a contract to provide the payment processing services set forth in the Texas RFO, and that Texas
NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenance and development
services set forth in the Texas RFO. The current agreement between the state of Texas and Texas NICUSA expires on
August 31, 2018. The Texas portal accounted for approximately 20% of our total consolidated revenues for the year
ended December 31, 2017.
The contract under which the Company’s subsidiary, NICUSA Inc. (“NICUSA”), managed the state of Tennessee’s official
government portal expired on March 31, 2017. For the years ended December 31, 2017, 2016 and 2015, revenues from the
Tennessee portal contract were approximately $1.8 million, $7.5 million and $9.0 million, respectively.
The contract under which the Company’s subsidiary, Iowa Interactive, LLC, managed the state of Iowa’s official government
portal expired on June 30, 2016. For the years ended December 31, 2016 and 2015, revenues from the Iowa portal contract
were approximately $1.6 million and $1.8 million, respectively.
The contract under which the Company’s subsidiary, Delaware Interactive, LLC, managed the state of Delaware’s official
government portal expired on March 31, 2015. For the years ended December 31, 2015, revenues from the Delaware portal
contract were approximately $0.6 million.
4. INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
Internal use capitalized software
$
13,610
Gross
Carrying
Value
Accumulated
Amortization
$
(8,396) $
Net Book
Value
Gross
Carrying
Value
5,214
$
10,045
Accumulated
Amortization
$
(6,457) $
Net Book
Value
3,588
December 31, 2017
December 31, 2016
Amortization expense for internal use capitalized software totaling approximately $1.9 million, $1.3 million and $1.1 million
for the years ended December 31, 2017, 2016 and 2015, respectively, is included in depreciation & amortization in the
consolidated statements of income. The total estimated intangible asset amortization expense in future years is as follows
(in thousands):
2,415
1,958
841
5,214
Fiscal Year
2018
2019
2020
$
$
57
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at December 31 (in thousands):
Equipment
Purchased software
Furniture and fixtures
Leasehold improvements
Less accumulated depreciation
Property and equipment, net
2017
2016
$
30,411
$
10,028
5,669
2,249
48,357
(38,051)
10,306
$
$
31,426
11,781
5,468
2,073
50,748
(41,022)
9,726
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was approximately $5.0 million, $5.5 million
and $7.3 million, respectively.
6. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS
On April 28, 2017, the Company entered into Amendment No. 3 to Amended and Restated Credit Agreement (the
“Amendment’), which amends the Amended and Restated Credit Agreement, dated as of August 6, 2014, by and between
the Company and Bank of America, N.A. (the “Credit Agreement”). The Amendment extended the maturity date to May
1, 2019.
The Credit Agreement provides that the interest rate on any amounts borrowed by the Company will be at an annual rate
benchmarked to LIBOR with a term equivalent to such borrowing or at an annual rate adjusted daily and benchmarked to
LIBOR for a one-month term, in each event plus a margin of 1.15% or 1.25% depending on the Company’s consolidated
leverage ratio. The margin is either 1.15% (if the Company’s consolidated leverage ratio is less than 1.50:1) or 1.25% (if
the Company’s consolidated leverage ratio is greater than or equal to 1.50:1).
The other material terms of the Credit Agreement remain unchanged, including customary representations and warranties,
affirmative and negative covenants and events of default. The Credit Agreement also continues to require the Company to
maintain compliance with the following financial covenants (in each case, as defined in the Credit Agreement):
•
•
Consolidated tangible net worth of at least $36 million (plus the amount of net proceeds from equity issued, or
debt converted to equity, in each case after the date of the Credit Agreement); and
Consolidated maximum leverage ratio of 1.50:1 (the ratio of total funded debt to EBITDA).
The Company was in compliance with each of these covenants at December 31, 2017. The Company issues letters of credit
mainly as collateral for an office lease, and to a much lesser extent, as collateral for performance on one 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 $0.9 million at December 31, 2017. The
Company was not required to cash collateralize these letters of credit at December 31, 2017. The Company had $4.1 million
in available capacity to issue additional letters of credit and $9.1 million of unused borrowing capacity at December 31,
2017 under the Credit Agreement. Letters of credit may have an expiration date of up to one year beyond the expiration
date of the Credit Agreement. The Credit Agreement also includes an accordion feature that allows the Company to increase
the available capacity under the Credit Agreement to $50 million, subject to securing additional commitments from the
bank.
The Company has a $1.0 million line of credit with a bank in conjunction with a corporate credit card agreement.
At December 31, 2017, the Company was bound by performance bond commitments totaling approximately $5.8 million
on certain outsourced government portal contracts.
58
7. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company and its subsidiaries lease office space and certain equipment under noncancelable operating leases. Future
minimum lease payments under all noncancelable operating leases at December 31, 2017 are as follows (in thousands):
Fiscal Year
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
$
4,921
3,501
2,609
2,244
1,789
967
$
16,031
Rent expense for operating leases for the years ended December 31, 2017, 2016 and 2015 was approximately $5.1 million,
$4.9 million and $4.5 million, respectively.
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
Dividend policy
In 2016, the Company’s Board of Directors approved a dividend policy pursuant to which it plans to make, subject to
subsequent declaration, regular quarterly cash dividends of $0.08 per share, beginning with the declaration and payment of
a cash dividend in the first quarter of 2017. For each dividend paid, a dividend equivalent is paid simultaneously on unvested
shares of service-based restricted stock. In addition, holders of performance-based restricted stock accrue dividend
equivalents, for each of the dividend declared, that could be earned and become payable in the form of additional shares of
common stock at the end of the respective performance period to the extent that the underlying shares of performance-based
restricted stock were earned. All dividends were paid out of the Company's available cash.
Dividends
On January 29, 2018, the Company's Board of Directors declared a regular quarterly cash dividend of $0.08 per share,
payable to stockholders of record as of March 6, 2018. The dividend, which is expected to total approximately $5.4 million,
will be paid on March 20, 2018.
In 2017, the Company's Board of Directors declared the following dividends (payment in thousands):
Declaration Date
Dividend per Share
Record Date
Payment Date
Payment
January 30, 2017
May 2, 2017
July 31, 2017
October 30, 2017
$0.08
$0.08
$0.08
$0.08
March 7, 2017
March 21, 2017
June 6, 2017
June 20, 2017
September 6, 2017
September 20, 2017
December 5, 2017
December 19, 2017
$5,342
$5,350
$5,351
$5,350
59
On November 1, 2016, the Company’s Board of Directors declared a special cash dividend of $0.65 per share, payable to
stockholders of record as of November 16, 2016. The dividend, totaling approximately $43.3 million, was paid on
December 9, 2016.
On November 2, 2015, the Company’s Board of Directors declared a special cash dividend of $0.55 per share, payable to
stockholders of record as of November 13, 2015. The dividend, totaling approximately $36.5 million, was paid on January 4,
2016.
9. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Year Ended December 31,
2016
2015
2017
Current income taxes:
Federal
State
Total
Deferred income taxes:
Federal
State
Total
$
22,533
$
20,433
$
2,550
25,083
1,576
64
1,640
2,478
22,911
(857)
(29)
(886)
22,025
$
23,876
3,358
27,234
(1,754)
(164)
(1,918)
25,316
Total income tax provision
$
26,723
$
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 (in thousands):
Deferred tax assets:
Stock-based compensation
Federal benefit of state uncertain tax positions
Accrued vacation
Deferred rent
State net operating loss carryforwards
Allowance for doubtful accounts
Other
Less: Valuation allowance
Total
Deferred tax liabilities:
$
2017
2016
$
997
919
660
119
266
135
316
3,412
(257)
3,155
1,899
1,392
1,035
275
222
160
299
5,282
(189)
5,093
Property and equipment & capitalized internal use software development costs
Net deferred tax asset
(2,488)
667
$
(2,786)
2,307
$
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,
60
the Company recorded a deferred tax asset valuation allowance totaling approximately $0.3 million and $0.2 million,
respectively, at December 31, 2017 and 2016.
The following table reconciles the statutory federal income tax rate and the effective income tax rate indicated by the
consolidated statements of income:
Year Ended December 31,
2016
2015
2017
Statutory federal income tax rate
Domestic production activities deductions
Federal and state tax credits
Excess tax benefits from restricted stock vestings
State income taxes
Uncertain tax positions
Nondeductible expenses
Other
Effective federal and state income tax rate
35.0 %
(2.6)%
(2.0)%
(0.7)%
1.8 %
1.6 %
0.7 %
0.3 %
34.1 %
35.0 %
(8.7)%
(2.0)%
— %
1.4 %
3.3 %
0.6 %
(1.3)%
28.3 %
35.0 %
— %
(1.2)%
— %
2.1 %
0.9 %
1.0 %
(0.2)%
37.6 %
The Company’s effective tax rate in 2017 was lower than the statutory federal income tax rate due mainly to favorable
benefits related to the domestic production activities deduction, the federal research and development credit, and excess
tax benefits from restricted stock vestings, partially offset by the one-time charge as a result of the new tax law described
below.
The Company's lower effective tax rate in 2016 was due mainly to favorable benefits related to the domestic production
activities deduction, the federal research and development credit, an adjustment to certain deferred tax liabilities related to
a previous acquisition of a business and the filing of the Company’s 2014 and 2013 amended federal income tax returns
during the fourth quarter of 2016.
During the third quarter of 2016, the Company completed its study of qualifying activities for the domestic production
activities deduction and began recognizing tax benefits for the deduction upon the filing of its fiscal 2015 federal income
tax return. The Company recognized tax benefits, included in its income tax provision for 2016, of approximately $1.5
million for the 2016 tax year and approximately $1.4 million for the 2015 tax year, related to the domestic production
activities deduction.
During the fourth quarter of 2016, the Company amended its federal income tax returns for the 2014 and 2013 tax years
and recognized tax benefits, included in its income tax provision for 2016, of approximately $1.2 million for the 2014 tax
year and $1.0 million for the 2013 tax year, related to the domestic production activities deduction.
Excess tax benefits in the amount of $0.5 million were recognized as a component of income tax expense during 2017,
resulting from restricted stock vestings. Prior to the adoption of ASU 2016-09, excess tax benefits of $0.6 million and $0.4
million were recognized as additional paid-in capital during 2016 and 2015, respectively.
61
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, 2017, 2016 and 2015 (in thousands):
Balance at January 1
Additions for tax positions of prior years
Additions for tax positions of current years
Expiration of the statute of limitations
Reductions for tax positions of prior years
Balance at December 31
2017
2016
2015
$
6,599
$
3,721
$
576
1,646
(788)
(13)
8,020
$
1,754
1,589
(439)
(26)
6,599
$
$
2,798
338
1,094
(366)
(143)
3,721
The increase in the amount of the consolidated liability for unrecognized income tax benefits in 2017 was mainly due to
the domestic production activities deduction that the Company began recognizing in 2016.
At December 31, 2017, 2016 and 2015, there were approximately $7.1 million, $5.2 million and $2.6 million, respectively,
of unrecognized tax benefits that if recognized would affect the Company’s annual effective tax rate. 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, 2013. 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. Accrued interest and penalty amounts were not significant at December 31, 2017,
2016 and 2015.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, among other changes,
reduces the statutory federal corporate income tax rate from 35% to 21%. In the fourth quarter of 2017, Company recognized
a one-time charge totaling approximately $0.3 million to reduce net deferred tax assets as of December 31, 2017, based on
the anticipated reduction in the Company's prospective effect tax rate resulting from the Tax Act. The Company will receive
the benefit of the reduced statutory federal corporate income tax rate starting January 1, 2018, which will be partially offset
by changes in certain deductions (most notably the elimination of the domestic production activity deductions). Due to the
complexities of the new tax legislation, the SEC has issued Staff Accounting Bulletin ("SAB") 118 which allows for the
recognition of provisional amounts during a measurement period similar to the measurement period used when accounting
for business combinations. The Company has recorded a provisional re-measurement of its deferred tax assets and liabilities,
resulting in a minimal impact on its 2017 income tax provision. The Company will continue to assess the impact of the
new tax legislation, as well as any related future regulations and rules, and will record any additional impacts as identified
during the measurement period, if necessary.
62
10. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS
The following table presents stock-based compensation expense included in the Company’s consolidated statements of
income (in thousands):
Year Ended December 31,
2016
2015
2017
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
$
$
1,276
$
1,390
$
1,404
86
4,102
62
4,545
5,464
$
5,997
$
83
4,954
6,441
Stock option and restricted stock plans
The Company has a stock compensation plan (the “NIC plan”) to provide for the granting of restricted stock awards, incentive
stock options or non-qualified stock options 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. The
Company did not grant any stock options in 2017, 2016, or 2015. Instead, the Company currently expects to continue to
grant only restricted stock awards.
As approved by the Company’s Board of Directors and stockholders, the number of shares the Company is authorized to
grant under the NIC plan is 15,825,223 common shares. The Company made non-material changes to the NIC plan in 2016
to increase grantee tax withholding rights under new accounting rules that became effective for the Company in 2017 (see
Note 2). At December 31, 2017, a total of 3,938,916 shares were available for future grants under the NIC plan.
Restricted stock
During 2017, the Compensation Committee of the Board of Directors of the Company (the “Committee”) granted to certain
management-level employees and executive officers, service-based restricted stock awards totaling 250,039 shares with a
grant-date fair value totaling approximately $5.4 million. Such restricted stock awards vest beginning one year from the
date of grant in annual installments of 25%. In addition, non-employee directors of the Company were granted service-
based restricted stock awards totaling 37,464 shares with a grant-date fair value totaling approximately $0.8 million. Such
restricted stock awards vest one year from the date of grant.
During the first quarter of 2017, the Committee also granted to certain executive officers performance-based restricted stock
awards pursuant to the terms of the Company’s executive compensation program totaling 110,678 shares with a grant-date
fair value totaling approximately $2.4 million, which represents the maximum number of shares the executive officers can
earn at the end of a three-year performance period ending December 31, 2019.
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
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 dividends declared during the performance period, payable
in the form of additional 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
63
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, 2017, the three-year performance period related to the performance-based restricted stock awards granted
to certain executive officers on February 23, 2015 ended. Based on the Company’s actual financial results from 2015 through
2017, no shares or dividend equivalent shares were earned. The 91,820 shares subject to the awards will be forfeited in the
first quarter of 2018.
At December 31, 2016, the three-year performance period related to the performance-based restricted stock awards granted
to certain executive officers on February 24, 2014 ended. Based on the Company’s actual financial results from 2014 through
2016, 59,437 of the shares subject to the awards and 4,945 dividend shares were earned. The remaining 21,503 shares
subject to the awards were forfeited.
At December 31, 2015, the three-year performance period related to the performance-based restricted stock awards granted
to certain executive officers on February 5, 2013 ended. Based on the Company’s actual financial results from 2013 through
2015, 96,732 of the shares subject to the awards and 6,990 dividend shares were earned. The remaining 18,964 shares
subject to the awards were forfeited.
A summary of service-based restricted stock activity for the year ended December 31, 2017 is presented below:
Outstanding at January 1, 2016
Granted
Vested
Canceled
Outstanding at December 31, 2017
Expected to vest at December 31, 2017
Service-
based
Restricted
Shares
Weighted
Average
Grant Date
Fair Value
633,451
$
292,448
$
(268,352) $
(47,661) $
$
609,886
609,886
$
17.89
21.46
17.67
19.20
19.59
19.59
The fair value of service-based restricted stock vested during the years ended December 31, 2017, 2016 and 2015 was
approximately $4.7 million, $4.6 million and $4.7 million, respectively. The weighted average grant date fair value per
share of service-based restricted stock granted during the years ended December 31, 2017, 2016 and 2015 was $21.46,
$17.67 and $16.69, respectively.
A summary of performance-based restricted stock activity for the year ended December 31, 2017 is presented below:
Outstanding at January 1, 2016
Granted
Vested
Canceled
Outstanding at December 31, 2017
Expected to vest at December 31, 2017
64
Performance-
based
Restricted
Shares
Weighted
Average
Grant Date
Fair Value
310,951
$
$
110,678
(59,437) $
(21,503) $
$
340,689
53,841
$
17.94
22.00
19.41
19.41
18.91
22.15
The fair value of performance-based restricted stock vested during the years ended December 31, 2017, 2016 and 2015 was
approximately $1.2 million, $1.6 million and $0.8 million, respectively. The weighted average grant date fair value per
share of performance-based restricted stock granted during the years ended December 31, 2017, 2016 and 2015 was $22.00,
$17.62 and $17.11, respectively.
At December 31, 2017, the total intrinsic value of nonvested restricted stock awards expected to vest was approximately
$11.2 million. At December 31, 2017, the Company had approximately $8.2 million of total unrecognized compensation
cost related to nonvested restricted stock awards. The Company expects to recognize this cost over a weighted average
period of approximately two years from December 31, 2017.
Income taxes
During the year ended December 31, 2017, excess tax benefits of $0.5 million were recognized within income tax expense
upon restricted stock vestings. Prior to the adoption of ASU 2016-09, excess tax benefits of $0.6 million and $0.4 million,
respectively, were recognized as additional paid-in capital upon restricted stock vestings during December 31, 2016 and
2015.
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, 2016 and ending on March 31, 2017, 86,998 shares were purchased at a price
of $15.29 per share, resulting in total cash proceeds to the Company of approximately $1.3 million. In the offering period
commencing on April 1, 2015 and ending on March 31, 2016, 74,976 shares were purchased at a price of $14.86 per share,
resulting in total cash proceeds to the Company of approximately $1.1 million. In the offering period commencing on
April 1, 2014 and ending on March 31, 2015, 75,328 shares were purchased at a price of $15.02 per share, resulting in total
cash proceeds to the Company of approximately $1.1 million. The current offering period under this plan commenced on
April 1, 2017. The closing fair market value of NIC common stock on the first day of the current offering period was $20.20
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,
2018
Offering
March 31,
2017
Offering
March 31,
2016
Offering
1.02%
2.69%
1.0 year
23.07%
0.62%
3.04%
1.0 year
28.54%
0.27%
3.07%
1.0 year
37.86%
$
4.58
$
4.40
$
4.88
The Black-Scholes option-pricing model was not developed for use in valuing employee ESPP rights, but was developed
for use in estimating the fair value of traded stock 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
65
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 ESPP rights.
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 $2.7 million, $2.5 million and $2.2 million for
the years ended December 31, 2017, 2016 and 2015, 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 outsourced state and local government portals. The Other Software & Services category primarily
includes the Company’s subsidiaries that provide software development and digital government services, other than
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 have 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. There have been no significant intersegment transactions for the periods reported. The summary of significant
accounting policies applies to all operating segments.
The Company’s Chief Executive Officer has been identified as the chief operating decision maker ("CODM"). The measure
of profitability by which management, including the CODM, evaluates the performance of its segments and allocates
resources to them is operating income (loss) before income taxes. Segment assets or other segment balance sheet information
is not presented to the Company’s CODM. Accordingly, the Company has not presented information relating to segment
assets.
The table below reflects summarized financial information for the Company’s reportable and operating segments for the
years ended December 31 (in thousands):
2017
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss) before income taxes
2016
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss) before income taxes
2015
Revenues
Costs & expenses
Depreciation & amortization
Operating income (loss) before income taxes
Outsourced
Portals
Other
Software
& Services
Other
Reconciling
Items
Consolidated
Total
$
$
$
$
$
$
311,351
$
25,157
$
— $
191,572
2,698
117,081
296,998
180,287
3,230
113,481
273,502
168,166
4,649
$
$
$
$
8,890
97
16,170
20,917
5,958
77
14,882
18,874
5,432
47
$
$
$
$
100,687
$
13,395
$
50,780
4,134
(54,914) $
— $
47,063
3,442
(50,505) $
— $
43,098
3,689
(46,787) $
336,508
251,242
6,929
78,337
317,915
233,308
6,749
77,858
292,376
216,696
8,385
67,295
66
The following table identifies each type of service, customer and portal partner that accounted for 10% or more of the
Company’s total consolidated revenues for the years ended December 31:
Percentage of Total Consolidated
Revenues
2016
2015
2017
Type of Service
Motor Vehicle Driver History Record Retrieval
Motor Vehicle Registrations
Customer
LexisNexis Risk Solutions
(Resells motor vehicle driver history records to the insurance industry)
Portal Partner
Texas
31%
14%
19%
33%
14%
22%
35%
13%
23%
20%
20%
21%
67
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 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.
(in thousands, except per share amount)
Revenues:
Portal revenues
Software & services revenues
Total revenues
Operating expenses:
Cost of portal revenues, exclusive of depreciation &
amortization
Cost of software & services revenues, exclusive of
depreciation & amortization
Selling & administrative
Depreciation & amortization
Total operating expenses
Operating income before income taxes
Income tax provision
Net income
Basic net income per share
Diluted net income per share
Weighted average shares outstanding:
Basic
Diluted
For the Year Ended December 31, 2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
77,198
$
79,374
$
76,434
$
5,979
83,177
5,952
85,326
8,099
84,533
78,345
5,127
83,472
47,032
49,009
47,377
48,154
1,763
11,660
1,613
62,068
21,109
7,124
13,985
0.21
0.21
$
$
$
1,779
13,131
1,688
65,607
19,719
6,950
12,769
0.19
0.19
$
$
$
3,169
12,091
1,810
64,447
20,086
6,066
14,020
0.21
0.21
$
$
$
2,179
13,898
1,818
66,049
17,423
6,583
10,840
0.16
0.16
$
$
$
66,046
66,046
66,248
66,248
66,267
66,267
66,270
66,334
68
(in thousands, except per share amount)
Revenues:
Portal revenues
Software & services revenues
Total revenues
Operating expenses:
Cost of portal revenues, exclusive of depreciation &
amortization
Cost of software & services revenues, exclusive of
depreciation & amortization
Selling & administrative
Depreciation & amortization
Total operating expenses
Operating income before income taxes
Income tax provision (1) (2)
Net income
Basic net income per share
Diluted net income per share
Weighted average shares outstanding:
Basic
Diluted
For the Year Ended December 31, 2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
73,197
$
75,513
$
74,997
$
5,193
78,390
5,297
80,810
5,376
80,373
73,291
5,051
78,342
43,615
46,123
45,140
45,409
1,413
11,342
1,664
58,034
20,356
7,462
12,894
0.19
0.19
$
$
$
1,445
11,165
1,736
60,469
20,341
7,280
13,061
0.20
0.20
$
$
$
1,495
11,676
1,674
59,985
20,388
4,153
16,235
0.24
0.24
$
$
$
1,605
12,880
1,675
61,569
16,773
3,130
13,643
0.20
0.20
$
$
$
65,739
65,739
65,953
65,967
65,978
66,005
65,981
66,041
(1) The Company’s lower effective tax rate in the third quarter of 2016 (20%) was primarily attributable to favorable
benefits related to the domestic production activities deduction and federal research and development credit,
which increased basic and diluted earnings per share by approximately $0.05 during the quarter. (See Note 9)
(2) The Company’s lower effective tax rate in the fourth quarter of 2016 (19%) was primarily attributable to the
Company amending its 2014 and 2013 federal income tax returns to recognize favorable benefits related to the
domestic production activities deduction, which increased basic and diluted earnings per share by approximately
$0.03 during the quarter. (See Note 9)
69
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 2013 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, 2017.
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.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company's consolidated financial
statements and has issued an attestation report on the effectiveness of the Company's internal control over financial reporting,
which is included in Item 8.
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 2017, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
70
PART III
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting
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
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
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 2018 annual meeting of
Certain Legal Proceedings” set forth in the Company’s definitive proxy statement related to its 2018 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
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.
fiscal year pursuant to Regulation 14A, is incorporated herein by reference.
The Company has adopted a Code of Business Conduct and Ethics, which applies to all employees, directors and officers,
The Company has adopted a Code of Business Conduct and Ethics, which applies to all employees, directors and officers,
including the Chief Executive Officer and the Chief Financial Officer. The Code of Business Conduct and Ethics is available
including the Chief Executive Officer and the Chief Financial Officer. The Code of Business Conduct and Ethics is available
on the Company’s website at http://www.egov.com/investor-relations/code-of-business-conduct-and-ethics. The Company
on the Company’s website at http://www.egov.com/investor-relations/code-of-business-conduct-and-ethics. The Company
intends to disclose any changes in or waivers from its Code of Business Conduct and Ethics by posting such information
intends to disclose any changes in or waivers from its Code of Business Conduct and Ethics by posting such information
on its website or by filing a Form 8-K with the SEC, as required.
on its website or by filing a Form 8-K with the SEC, as required.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information under “Executive Compensation,” “Report of the Compensation Committee,” “Compensation Discussion
The information under “Executive Compensation,” “Report of the Compensation Committee,” “Compensation Discussion
and Analysis,” “Compensation Tables,” “Compensation Committee Interlocks and Insider Participation,” “Employment
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”
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
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.
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
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
RELATED STOCKHOLDER MATTERS
The information under “Security Ownership of Certain Beneficial Owners and Management” set forth in the Proxy Statement,
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,
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.
is incorporated herein by reference.
Equity Compensation Plan Information
Equity Compensation Plan Information
The following table provides information regarding securities to be issued upon the exercise of outstanding options, warrants
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, 2017:
and rights and securities available for issuance under the Company’s equity compensation plans as of December 31, 2017:
Plan Category
Plan Category
Equity compensation plans approved by
Equity compensation plans approved by
stockholders:
stockholders:
Restricted stock awards
Restricted stock awards
Employee stock purchase plan
Employee stock purchase plan
Equity compensation plans not approved by
Equity compensation plans not approved by
stockholders
stockholders
Total
Total
A
A
Number of
Number of
securities to
securities to
be issued upon
be issued upon
exercise
exercise
of outstanding
of outstanding
options,
options,
warrants and
warrants and
rights
rights
outstanding as of
outstanding as of
December 31, 2017
December 31, 2017
B
B
C
C
Weighted average
Weighted average
exercise price of
exercise price of
outstanding
outstanding
options, warrants
options, warrants
and rights shown
and rights shown
in
in
Column A
Column A
Number of
Number of
securities
securities
available for
available for
future issuance as
future issuance as
of December 31,
of December 31,
2017
2017
—
—
— (2)
— (2)
3,938,916
3,938,916
(1)
(1)
1,140,733
1,140,733
—
—
—
—
—
—
5,079,649
5,079,649
$
$
$
$
—
—
— (2)
— (2)
—
—
—
—
71
71
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 2018 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.
The Company has adopted a Code of Business Conduct and Ethics, which applies to all employees, directors and officers,
including the Chief Executive Officer and the Chief Financial Officer. The Code of Business Conduct and Ethics is available
on the Company’s website at http://www.egov.com/investor-relations/code-of-business-conduct-and-ethics. The Company
intends to disclose any changes in or waivers from its Code of Business Conduct and Ethics by posting such information
on its website or by filing a Form 8-K with the SEC, as required.
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.
(1) The amount shown excludes 950,575 shares subject to outstanding unvested restricted stock awards.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
(2) March 31, 2017 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, 2017, was $15.29 per share, and the total number
of shares purchased was 86,998.
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, 2017:
Plan Category
Equity compensation plans approved by
stockholders:
Restricted stock awards
Employee stock purchase plan
Equity compensation plans not approved by
stockholders
Total
A
Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants and
rights
outstanding as of
December 31, 2017
B
C
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,
2017
—
— (2)
—
—
$
$
—
— (2)
3,938,916
(1)
1,140,733
—
—
—
5,079,649
(1) The amount shown excludes 950,575 shares subject to outstanding unvested restricted stock awards.
71
(2) March 31, 2017 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, 2017, was $15.29 per share, and the total number
of shares purchased was 86,998.
72
72
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
INDEPENDENCE
The information under “Certain Relationships and Related Transactions”, “Election of Directors,” and “Structure and
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
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.
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
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under “Ratification of Appointment of Independent Registered Public Accounting Firm” set forth in the
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
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.
to Regulation 14A, is incorporated herein by reference.
PART IV
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(a)
(1)
(1)
The following documents are filed as part of this report:
The following documents are filed as part of this report:
Financial Statements.
Financial Statements.
The Consolidated Financial Statements and related Notes, together with the reports of Ernst & Young LLP and
The Consolidated Financial Statements and related Notes, together with the reports of Ernst & Young LLP and
PricewaterhouseCoopers LLP, appear in Part II, Item 8, Consolidated Financial Statements and Supplementary Data of this
PricewaterhouseCoopers LLP, appear in Part II, Item 8, Consolidated Financial Statements and Supplementary Data of this
Form 10-K.
Form 10-K.
(2)
(2)
(3)
(3)
Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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 Company or its business or operations on the date hereof.
Exhibit
Exhibit
Number Description
Number Description
Exhibit Index
Exhibit Index
3.1
3.1
3.2
3.2
4.1
4.1
Certificate of Incorporation of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.2
Certificate of Incorporation of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.2
to the Form 8-K (File No. 000-26621) filed with the SEC on May 11, 2009)
to the Form 8-K (File No. 000-26621) filed with the SEC on May 11, 2009)
Bylaws of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.3 to the Form 8-K
Bylaws of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.3 to the Form 8-K
(File No. 000-26621) filed with the SEC on May 11, 2009)
(File No. 000-26621) filed with the SEC on May 11, 2009)
Reference is made to Exhibits 3.1 and 3.2
Reference is made to Exhibits 3.1 and 3.2
73
73
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
The following documents are filed as part of this report:
(a)
(1)
Financial Statements.
The Consolidated Financial Statements and related Notes, together with the reports of Ernst & Young LLP and
PricewaterhouseCoopers LLP, appear in Part II, Item 8, Consolidated Financial Statements and Supplementary Data of this
Form 10-K.
(2)
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.
(3)
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.
Exhibit Index
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Ex hibit
Number Descrip tion
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
The following documents are filed as part of this report:
(a)
(1)
Financial Statements.
The Consolidated Financial Statements and related Notes, together with the reports of Ernst & Young LLP and
PricewaterhouseCoopers LLP, appear in Part II, Item 8, Consolidated Financial Statements and Supplementary Data of this
Form 10-K.
(2)
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.
(3)
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.
Exh ibit
Number Descrip tion
Exh ibit Index
3.1
3.2
4.1
Certificate of Incorporation of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.2
to the Form 8-K (File No. 000-26621) filed with the SEC on May 11, 2009)
Bylaws of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.3 to the Form 8-K
(File No. 000-26621) filed with the SEC on May 11, 2009)
Reference is made to Exhibits 3.1 and 3.2
73
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Certificate of Incorporation of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.2
to the Form 8-K (File No. 000-26621) filed with the SEC on May 11, 2009)
Bylaws of NIC Inc., a Delaware corporation (incorporated by reference from Exhibit 3.3 to the Form 8-K
(File No. 000-26621) filed with the SEC on May 11, 2009)
Reference is made to Exhibits 3.1 and 3.2
Specimen Stock Certificate of the Registrant (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)
Registrant’s Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.1 to the Form 10-K (File No. 000-26621) filed with the SEC on February 22, 2017) *
Employment agreement between the Registrant and H arry H erington, dated February 5, 2013 (incorporated
by reference to Exhibit 10.3 to Form 10-K (File No. 000-26621) filed with the SEC on February 28, 2013)
73
Employment agreement between the Registrant and Stephen M. Kovzan, dated February 5, 2013
(incorporated by reference to Exhibit 10.5 to Form 10-K (File No. 000-26621) filed with the SEC on
February 28, 2013) *
Employment agreement between the Registrant and Robert W. Knapp, dated February 5, 2013 (incorporated
by reference to Exhibit 10.6 to Form 10-K (File No. 000-26621) filed with the SEC on February 28, 2013)
Employment agreement between the Registrant and Jayne Friedland H olland, dated May 5, 2015
(incorporated by reference to Exhibit 10.7 to Form 10-K (File No. 000-26621) filed with the SEC on
February 23, 2016) *
Form of NIC Inc. First Amendment to Key Employee Agreement, dated July 27, 2015 (incorporated by
reference to Exhibit 10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on July 28, 2015) *
NIC Inc. 2014 Amended and Restated Stock Compensation Plan (incorporated by reference to Exhibit 10.1
to Form 10-Q (File No. 000-26621) filed with the SEC on November 3, 2016) *
Form of Restricted Stock Agreement for NIC Inc. 2014 Amended and Restated Stock Compensation Plan
(incorporated by reference to Exhibit 10.2 to Form 10-Q (File No. 000-26621) filed with the SEC on
November 3, 2016) *
Form of Stock Option Agreement for NIC Inc. 2014 Amended and Restated Stock Compensation Plan
(incorporated by reference to Exhibit 10.4 to Form 10-Q (File No. 000-26621) filed with the SEC on
November 3, 2016) *
NIC Inc. Compensation Program For Certain Executive Officers (incorporated by reference to the Form 8-K
(File No. 000-26621) filed with the SEC on March 6, 2008) *
NIC Inc. Management Annual Incentive Plan for Senior Executives (incorporated by reference to Exhibit
10.5 to Form 10-Q (File No. 000-26621) filed with the SEC on November 3, 2016) *
Form of Performance-Based Restricted Stock Agreement under the NIC Inc. 2014 Amended and Restated
Stock Compensation Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q (File No. 000-26621)
filed with the SEC on November 3, 2016) *
Form of Indemnification Agreement between the registrant and each of its executive officers and directors
(incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on May
11, 2009) *
NIC Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No.
000-26621) filed with the SEC on May 2, 2012) *
NIC Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No.
000-26621) filed with the SEC on May 4, 2017) *
Amended and Restated Credit Agreement Dated as of August 6, 2014 between NIC Inc., as Borrower, and
Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.2 to the Form 10-
Q (File No. 000-26621) filed with the SEC on August 7, 2014)
Amendment No. 1 to Amended and Restated Credit Agreement, dated July 9, 2015 between NIC Inc., as
Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.1
to the Form 8-K (File No. 000-26621) filed with the SEC on July 9, 2015)
Amendment No. 2 to Amended and Restated Credit Agreement, dated December 14, 2015 between NIC Inc.,
as Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit
10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on December 15, 2015)
Amendment No. 3 to Amended and Restated Credit Agreement, dated April 28, 2017 between NIC Inc., as
Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.1
to the Form 10-Q (File No. 000-26621) filed with the SEC on May 2, 2017)
NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan, as amended (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) *
Form of Restricted Stock Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive
Plan (incorporated by reference to Exhibit 10.1 to the Form 10-Q (File No. 000-26621) filed with the SEC on
November 7, 2007) *
74
10.22
Form of Stock Option Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Form 10-Q (File No. 000-26621) filed with the SEC on
November 7, 2007) *
10.23
Form of Performance-Based Restricted Stock Agreement under the NIC Inc. 2006 Amended and Restated
Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.17 to the Form 10-K (File No.
000-26621) filed with the SEC on February 28, 2013) *
21.1
Subsidiaries of the Registrant
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4.2
Specimen Stock Certificate of the Registrant (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)
10.1
Registrant’s Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.1 to the Form 10-K (File No. 000-26621) filed with the SEC on February 22, 2017) *
Employment agreement between the Registrant and H arry H erington, dated February 5, 2013 (incorporated
by reference to Exhibit 10.3 to Form 10-K (File No. 000-26621) filed with the SEC on February 28, 2013)
Employment agreement between the Registrant and Stephen M. Kovzan, dated February 5, 2013
(incorporated by reference to Exhibit 10.5 to Form 10-K (File No. 000-26621) filed with the SEC on
February 28, 2013) *
Employment agreement between the Registrant and Robert W. Knapp, dated February 5, 2013 (incorporated
by reference to Exhibit 10.6 to Form 10-K (File No. 000-26621) filed with the SEC on February 28, 2013)
Employment agreement between the Registrant and Jayne Friedland H olland, dated May 5, 2015
(incorporated by reference to Exhibit 10.7 to Form 10-K (File No. 000-26621) filed with the SEC on
February 23, 2016) *
Form of NIC Inc. First Amendment to Key Employee Agreement, dated July 27, 2015 (incorporated by
reference to Exhibit 10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on July 28, 2015) *
10.7
NIC Inc. 2014 Amended and Restated Stock Compensation Plan (incorporated by reference to Exhibit 10.1
to Form 10-Q (File No. 000-26621) filed with the SEC on November 3, 2016) *
Form of Restricted Stock Agreement for NIC Inc. 2014 Amended and Restated Stock Compensation Plan
(incorporated by reference to Exhibit 10.2 to Form 10-Q (File No. 000-26621) filed with the SEC on
November 3, 2016) *
November 3, 2016) *
Form of Stock Option Agreement for NIC Inc. 2014 Amended and Restated Stock Compensation Plan
(incorporated by reference to Exhibit 10.4 to Form 10-Q (File No. 000-26621) filed with the SEC on
10.10
NIC Inc. Compensation Program For Certain Executive Officers (incorporated by reference to the Form 8-K
(File No. 000-26621) filed with the SEC on March 6, 2008) *
10.11
NIC Inc. Management Annual Incentive Plan for Senior Executives (incorporated by reference to Exhibit
10.5 to Form 10-Q (File No. 000-26621) filed with the SEC on November 3, 2016) *
10.12
10.13
Form of Performance-Based Restricted Stock Agreement under the NIC Inc. 2014 Amended and Restated
Stock Compensation Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q (File No. 000-26621)
filed with the SEC on November 3, 2016) *
Form of Indemnification Agreement between the registrant and each of its executive officers and directors
(incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on May
11, 2009) *
10.14
NIC Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No.
000-26621) filed with the SEC on May 2, 2012) *
10.15
NIC Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No.
000-26621) filed with the SEC on May 4, 2017) *
10.16
Amended and Restated Credit Agreement Dated as of August 6, 2014 between NIC Inc., as Borrower, and
Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.2 to the Form 10-
Q (File No. 000-26621) filed with the SEC on August 7, 2014)
10.17
Amendment No. 1 to Amended and Restated Credit Agreement, dated July 9, 2015 between NIC Inc., as
10.2
10.3
10.4
10.5
10.6
10.8
10.9
10.18
10.19
10.20
10.21
10.22
10.23
21.1
23.1
23.2
24.1
31.1
31.2
32.1
101
Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.1
to the Form 8-K (File No. 000-26621) filed with the SEC on July 9, 2015)
Amendment No. 2 to Amended and Restated Credit Agreement, dated December 14, 2015 between NIC Inc.,
as Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit
10.1 to the Form 8-K (File No. 000-26621) filed with the SEC on December 15, 2015)
Amendment No. 3 to Amended and Restated Credit Agreement, dated April 28, 2017 between NIC Inc., as
Borrower, and Bank of America, N.A., as Lender and L/ C Issuer (incorporated by reference to Exhibit 10.1
to the Form 10-Q (File No. 000-26621) filed with the SEC on May 2, 2017)
NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan, as amended (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) *
Form of Restricted Stock Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive
Plan (incorporated by reference to Exhibit 10.1 to the Form 10-Q (File No. 000-26621) filed with the SEC on
November 7, 2007) *
Form of Stock Option Agreement for NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Form 10-Q (File No. 000-26621) filed with the SEC on
November 7, 2007) *
Form of Performance-Based Restricted Stock Agreement under the NIC Inc. 2006 Amended and Restated
Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.17 to the Form 10-K (File No.
000-26621) filed with the SEC on February 28, 2013) *
Subsidiaries of the Registrant
Young LLP, Independent Registered Public Accounting Firm
Consent of Ernst &
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
The following financial information from NIC Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2017, formatted in X BRL (Extensible Business Reporting Language) includes (i)
Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, (ii) Consolidated Statements of
Income for the years ended December 31, 2017, 2016, and 2015 (iii) Consolidated Statements of Changes in
Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2014 (iv) Consolidated Statements
of Cash Flows for the years ended December 31, 2017, 2016, and 2015, and (v) the Notes to Consolidated
Financial Statements (submitted electronically herewith).
** Management contracts and compensatory plans and arrangements required to be filed as Exhibits pursuant to
Item 15(b) of this report.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
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.
Date: February 22, 2018
NIC INC.
By:
/ s/ H arry H erington
H arry H erington, 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/ H arry H erington
H arry H erington
/ s/ Stephen M. Kovzan
Stephen M. Kovzan
Art N. Burtscher*
V enmal (Raji) Arasu*
Karen S. Evans*
Ross C. H artley*
C. Brad H enry*
Alexander C. Kemper*
William M. Lyons*
Pete Wilson*
*By
(cid:3)
/(cid:3)s/ H(cid:3) arry H
(cid:3)
erington
HHarry Herington
Attorney-in-fact
February 22, 2018
Chairman of the Board and Chief Executive Officer
February 22, 2018
(Principal Executive Officer)
Chief Financial Officer
February 22, 2018
(Principal Financial Officer and Principal
Accounting Officer)
Lead Independent Director
Director
Director
Director
Director
Director
Director
Director
76
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BR62914B-0218-AR