NIC 2007 Annual Report

8/14/2019 NIC 2007 Annual Report

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governmentiseverywhereyouare

niCic.2007summ

yaulrepot


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governmentis:

eiCient

ProduCtivestreamlineduser-riendlyCollaborativegreen

everywhereeGovernment is NICs passion,and being everywhere is our goal.


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inanCial&oPeratinghighlights

Fiscal Year Ended December 31, 2006 High LowFirst Quarter $6.60 $5.57Second Quarter $7.52 $5.88Third Quarter $7.09 $4.96Fourth Quarter $5.76 $4.44

Fiscal Year Ended December 31, 2007 High Low

First Quarter $5.82 $4.96Second Quarter $6.94 $5.23Third Quarter $7.70 $6.23Fourth Quarter $8.90 $6.70

Market or the CompanysCommon Stock and RelatedShareholder Matters

Our stock trades on the NASDAQGlobal Select Market under the symbolEGOV. The ollowing table shows

the range o high and low sales pricesreported on the NASDAQ Global SelectMarket or the periods indicated.

Dividend Policy:On January 29, 2007, our Board oDirectors declared a special cash dividend o $0.75per share, payable to shareholders o record as oFebruary 12, 2007. The dividend, totaling approximately$46.7 million, was paid on February 20, 2007, out o theCompanys available cash and marketable securities.

On February 4, 2008, our Board o Directorsdeclared a special cash dividend o $0.25 per share,payable to shareholders o record as o February 18,

2008. The dividend, totaling approximately $15.7million, was paid on February 28, 2008, out o theCompanys available cash and marketable securities.

Any uture determination as to the payment odividends will be made at the discretion o our Boardo Directors and will depend on our operating results,nancial condition, capital requirements, generalbusiness conditions, and such other actors as theBoard o Directors deems relevant.

NOTE:The selected consolidated nancial data setorth on page 3 should be read in conjunction with theconsolidated nancial statements and related notes, andManagements Discussion and Analysis o FinancialCondition and Results o Operations, included in theCompanys Form 10-K or the year ended December 31,2007, led with the Securities and Exchange Commissionon March 17, 2008.

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Year Ended December 31,

Consolidated Statement o Income Data 2007 Change 2006 Change 2005

Portal revenues $82,451,763 18% $70,008,598 21% $57,875,067Sotware & services revenues $3,303,171 142% $1,367,248 0% $1,367,546Total revenues $85,754,934 20% $71,375,846 20% $59,242,613Operating income $16,126,966 0% $16,148,034 58% $10,191,257Net income $11,955,220 11% $10,739,001 69% $6,363,076Net income per sharebasic $0.19 $0.17 $0.11

Net income per sharediluted $0.19 $0.17 $0.10Weighted average shares outstandingbasic 61,836,530 61,408,552 60,078,841Weighted average shares outstandingdiluted 62,525,249 61,763,093 61,093,788

As o December 31,

Consolidated Balance Sheet Data 2007 Change 2006 Change 2005Cash and cash equivalents $38,235,605 4% $36,744,872 0% $36,901,409Marketable securities $17,600,000 (61%) $45,008,431 120% $20,500,000Working capital $49,796,763 (36%) $77,605,515 43% $51,243,917Current ratio 2.1 2.8 2.6Total assets $111,376,147 (21%) $140,134,447 19% $117,845,448Long-term debt Total shareholders equity $66,864,952 (33%) $99,254,185 17% $85,167,604

Debt to equity ratio Book value per share $1.08 (33%) $1.62 14% $1.42

Year Ended December 31,

Supplemental Disclosures 2007 Change 2006 Change 2005Same-state portal revenue growth 15% 10% 17%Recurring portal revenue percentage 93% 95% 96%Portal gross prot percentage 47% 47% 49%Operating income as a percentage o portal revenues 20% 23% 17%Selling & administrative costs as

a percentage o portal revenues 26% 22% 22%Return on shareholders equity 14% 12% 8%

Depreciation & amortizat ion $2,501,615 23% $2,040,398 27% $1,602,879Capital expenditures $4,876,242 89% $2,584,948 11% $2,327,360Net operating loss carryorward $25,109,731 (36%) $39,112,325 (29%) $55,221,642Eective tax rate 35% 42% 42%Portal state population served at end o year 68,064,404 13% 60,415,354 1% $59,727,778Portal revenue per capita $1.25 9% $1.15 7% $1.08Employee count 418 23% 339 11% 305

This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual Report on Form 10-K led with the Securities andExchange Commission on March 17, 2008.

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governmentisinthevermontsugarbush

Maple syrup production is a time-consuming passion or HaroldTorre. With more than 8,100 tapped maple trees on 400 acres, theVermont native divides his time between managing the sugar worksand running his own precision manuacturing business.

Beckys Farm on Sugar Plum Hill is also a amily aair, and manymembers o Harolds amily spend their ree time supporting the

arms expanding operations. Thanks to Vermont.govs growing arrayo eGovernment servicesincluding vehicle registration renewals orcars, ATVs, and watercratthe Torre amily can bypass standing inline at government oces in avor o spending more time creatingthe most delicious maple syrup youve ever tasted.

www.Vermont.gov

since

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


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w w aNIC is the nations leading provider o electronicservices or ederal, state, city, and countygovernments. We create value by putting government

services online that help citizens, businesses, andgovernment agencies communicate more eectively.Since 1992, NIC has used technology to streamlineand simpliy the process o interacting with everylevel o government.

w w dNIC is the ocial eGovernment provider or 21states and more than 2,800 government agenciesacross the United States. We oer nearly 3,900online applications that help governments deliver

valuable services and inormation to constituents24 hours a day and seven days a week.

niC b appcWe specialize in oering fexible businessmodels that help governments deliver in-demandeGovernment services to citizens and businesses.

NICs unique sel-unded business model allowsstate government to oer a broad array o onlineservices at no upront cost to taxpayers. We alsooer customized business models that incorporatexed cost, time & materials, and blended undingapproaches to meet the specic needs o ourgovernment partners.

NIC combines world-class technology andmarketing programs to make renewing a driverslicense, obtaining a building permit, or ling ocialdocuments as easy as checking e-mail.

niC c p pc c .

h w gNIC is committed to delivering sustainable and protable growth by: Winning new state contracts Increasing the usage of current eGovernment services by developing targeted marketing programs Introducing innovative new services in new and existing markets

ComPany

overview

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our

values

niC f cc p p, p, c . w :

Focusing on results

Maintaining scal responsibility

Providing secure solutions that saeguard sensitive inormationand protect the public trust

Welcoming diering ideas and opinions

Maintaining a balanced corporate culture that attracts andretains industry-leading talent

Encouraging innovative and entrepreneurial business practicesBehaving in an honest, air, and ethical manner

Respecting and preserving the environment

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governmentisonColoradoshighways

www.Colorado.gov

since

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Driving saely in Colorado can sometimes be a challenge, especially

when navigating the states high country roads. However, a keyaspect o sae driving in the Rocky Mountain Statekeepinguninsured drivers o the roadis now much easier. Last year,the state and NIC joined orces to build a service that tracks theinsurance status o Colorados nearly 6.3 million registered vehicles.

Colorados motorist insurance inormation database compiles

vehicle coverage inormation rom more than 280 insurancecompanies. This multiaceted service gives Colorado State Patrolocers the ability to veriy motorist insurance on a real-time basisand is also cross-reerenced when each vehicles annual registrationis renewed.


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astaCtsFounded: 1992Headquarters: Olathe, Kansas

Initial Public Oering: July 1999Ticker Symbol: EGOVExchange: NASDAQ Global Select MarketCore Business: Outsourced state government

Web sites and servicesExecutive Team: 36 years o eGovernment leadership

Harry Herington: Chie Executive OcerSteve Kovzan: Chie Financial Ocer

Brad Bradley: Chie Operating Ocer & General Counsel

Employees: 418


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letterto

shareholdersWhen eGovernment was in its inancy almost two

decades ago, a small group o visionaries in the

state o Kansas set out to transorm the relationship

between government and those it serves by nding

new ways to deliver inormation.

In those early days, the e in eGovernment stood

or electronic government, and NIC was ocused

on using technologyincluding dial-up telephoneconnections and text-only computer commandsto

deliver services to end users.

eGovernment expanded rapidly in the 1990s

with the introduction o the graphics-driven Mosaic

browser. As a result, the e in eGovernment changed

to ecient government, which refected the dramatic

increase in processing power that government

leaders could leverage to deliver services aster and

more cost-eectively than through traditional ofine

methods.

Today, NIC manages nearly 3,900 dierent

eGovernment services in 21 states. You may be

surprised to learn that the solutions you provide

touch many aspects o your lie. From the maple

syrup on your breakast table to the trucks youpass each day on the reeway, NICs online services

accelerate the process o acilitating the delivery o

goods, services, and inormation across the country.

We are now in the era o invisible government, in

which government services are oered 24/7/365 via

the Internet, mobile phones, voice-activated telephone

response systems, and point-o-purchase retail

locations. iGovernmentis the next step in the

evolution o online government and demonstrates

NICs ability to oer seamless services through non-

governmental delivery channels.

In past annual reports, we have showcased many

iGovernmentsolutions that integrate government

services into broader oerings. For example, Utahs

On the Spotservice allows merchants like JiyLube to renew vehicle registrations in real-time

and citizens can now drive away with a new license

plate tag as part o a vehicle inspection. While

this years annual report themeeGovernment is

Everywhereaccurately depicts the broad reach o

our solutions, it by no means implies that electronic

government is now ubiquitous. NICs organic growth

t :

h h | Chie Executive Oicer


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across our portal states is impressive, yet we are

still just scratching the surace o the eGovernment

opportunity and look orward to continuing to expand

across the country in 2008 and beyond.

2007 c hNICs leadership in the eGovernment space

continues to deliver consistent results. In 2007, NIC

earned $12.0 million, or 19 cents per share, on total

revenues o $85.8 milliona 20 percent increase

over 2006. Operating income was $16.1 million with

operating cash fow o $24.6 million.

At the heart o our companys success are the

portals we operate on behal o ederal, state, and

local government partners across the country.

Portal revenues or 2007 rose 18 percent over the

previous year to $82.5 million, which is yet another

growth record or a business that consistently

delivers strong results year ater year. Portal gross

margins were 47 percent, which were in line

with expectations and a refection o NICs long-

term commitment to striking a balance between

investing in the uture success o our operations and

delivering returns that our shareholders expect.

c gNIC is proud to have built the largest network o

eGovernment installations in the world. Our long-

term portal management relationships in 21 states

are routinely cited as best practices in successul

collaboration between government and the

private sector. It is an honor to help government

more eectively serve citizens and businesses by

leveraging current and emerging technologies.

At the end o 2006, NIC announced a plan to

urther enhance our ability to serve government

and generate higher levels o growth. The two

major components o this plan were to increase our

investment in sales and marketing to secure more

long-term contracts and to spend appropriately in

NICs existing operations to more eectively launch

high potential services across our partner base.

The rationale or reinvesting in our business was

straightorwardNIC has long been viewed as the

gold standard in the eGovernment space, yet we

had relatively lean sales, marketing, and operationsteams to help sell new business and guide the

uture growth o our portals. In response, we have

strategically added key personnel and invested in

specic marketing programs designed to attract

new business and increase usage or our existing

services. In 2007, our incremental investment was

approximately $3$4 million.

d y o

Im pleased to report that our growth investment

is delivering results. In 2007, NIC signed long-

term portal management contracts with two

statesArizona and West Virginia. These are exciting

engagements or several reasons. Arizona is run by

some o the nations most progressive leaders. Last

year, we displaced Arizonas previous outsourced

portal provider, which is one o the worlds largest IT

iGovernment x p niC c - c.


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companies. Our team in Phoenix has hit the ground

running and we are already working with Governor

Janet Napolitano and her team on an ambitious

eGovernment portal expansion plan.West Virginia is also a terric addition to the

NIC amily. We are ortunate to be working with an

energized team in Charleston that is led by Governor

Joe Manchin and his sta. Governor Manchin

sees eGovernment expansion as a vital economic

development resource or the state, and our portal

sta is moving aggressively to add new services and

eatures to the West Virginia state portal. We are

honored to be part o the team in both Arizona and

West Virginia and look orward to long and mutually

prosperous partnerships in both states.

On the operations side, we have seen great

success in deploying new services across our portal

base. Our new go-to-market approach leverages

NICs portal subject matter experts, success stories,

and national awards to help our partners better

understand the benets o our services that can be

customized instead o rebuilt rom the ground up.

As a result o these eorts, we launched a record

368 new revenue-generating services in 2007, a 35

percent increase over the previous year and equal tointroducing more than one new solution each day.

While we are pleased with 2007s results, I am

the rst to acknowledge that we have ambitious

targets to hit in just three years. At the end o 2007,

NIC served 69 million people across our portal

states and generated approximately $28 million in

non-driver record (non-DMV) revenue. By 2010, our

goals are to increase our population served to 120

million and nearly triple the revenue we receive rom

non-DMV services to $75 million as a result o our

growth investment program.

scc l-t PpNIC is a successul company because we oster

relationships with governments that are standing the

test o time. In an industry that is sometimes dened

by antagonistic government-vendor relationships, NIC

is seen as a trusted partner that delivers consistent

value to government agencies and those they serve.

I am proud to say that or each o our 16 years o

operation, NIC has never had a government partnerail to exercise a contract renewal. Our relationships

with governments are our lieblood, and we never

take our partners or granted. To that end, I want to

thank the states that extended their engagements

with us in 2007Alabama, Idaho, Kansas, Nebraska,

Oklahoma, and South Carolina.

Mandatory contract rebids ater a certain

period o time are part o the state procurement

landscape, which means some o NICs contracts will

automatically be put out to competitive bid each year.

We have won every rebid and compete aggressively

to keep each valued government partner in the NIC

amily. In 2007, we signed a new long-term contract

in Rhode Island ollowing a rebid and thank the

states leaders or continuing to put their trust in NIC.

niC p c c .


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i 2007, pc $4 c fc c

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x s e s

No other provider can match NICs enterprise portal

oering. We build and manage the largest portolio

o eGovernment solutions in the world, and theperormance metrics highlighted throughout this

report underscore our expertise. In 2007, NICs portals

supported more than 12.7 billion site accesses and

processed 145 million online transactions, up 18

percent over 2006. At the heart o our success is

the ability to securely manage nancial transactions.

To that end, we processed more than $4 billion in

government payments through our state-o-the-art

payment system.

Being an eGovernment specialist gives us a leg

up in an industry lled with companies that have

little or no experience in delivering customized

government services. While it is tempting or

competitors to dramatically simpliy our business into

a turnkey build it, launch it, and walk away solution,

government decision-makers understand that a

successul eGovernment program encompasses a

broad range o disciplines. Ongoing customer service,

security, marketing, payment processing, unding,

policy considerations, public relations, advocacy, and

technology are among the dimensions that must bemastered to deliver rst-rate eGovernment solutions.

NICs eGovernment specialization places us in a

unique and envied leadership position in the industry.

Funding technology improvements is a constant

challenge or any government ocial. What NIC

brings to the table is the ability to deliver a robust

platorm through a variety o customized nancing

approaches. Our sel-unded solution is the most

widespread and oers customizable and fexible

nancing or government leaders who want to pursue

an eGovernment strategy without spending limited

taxpayer dollars on building, managing, and enhancing

inrastructure or online services. This model has been

popular in every economic environment during the

past 16 years, and we are condent that our sel-

unded solution will continue to be requested by a

large percentage o the marketplace.

NIC also operates time & materials and blended

unding contracts with state and local governments

across the country. Providing a variety o fexible

unding solutions is a key component o ourcomprehensive eGovernment portal solution. Quite

simply, no other provider can match NICs enterprise

portal oering or has the experience to deliver the

range o fexible unding solutions that we do.

i e dTechnology is not a static medium, so NIC is always

looking or new ways to deliver solutions. We

approach innovation as a collaborative challenge.

Our employees work very closely with government

partners and the citizens and businesses that use

eGovernment services. We listen to their eedback.

We ask questions. We challenge each other with

questions that start with, What i? or Have we

ever tried?

Then we take what we have learned and use it to

create new solutions that improve and enhance how


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$40.2

2003

$48.5

2004

$57.9

2005

$70

2006

$82.5

2007

P r ( )

government delivers services. We take successul

solutions in one state and encourage our other

partners to customize these services to meet their

specic needs. Its a straightorward approach. Itworks. It is a source o pride or our employees across

the country. And it is helping NIC to better perorm in

our role as a trusted partner to government.

Innovation has driven the development o

hundreds o unique services, many o which have

been eatured in the pages o NICs past annual

reports. This year is no exception. For example,

Rhode Island recently replaced an onerous manual

process by launching an online service that allows

spirits manuacturers to register every package

and label they sell in the state. This rst-o-its-kind

solution has attracted national interest or good

reason. In Arkansas, a new online service allows

transportation companies to search a database o

positive drug and alcohol test results or commercial

drivers. This solution is helping to keep our roads

sae, which is a great source o pride or NIC.

g w 2.0

Nearly every media source is discussing the

explosive growth o Web 2.0 technologies such as

blogs, wikis, Web video, podcasting, Really SimpleSyndication (RSS) eeds, and emerging social

networking platorms like Facebook and MySpace.

The goal o Web 2.0 is to encourage creativity,

collaboration, and two-way communication between

Web sites and Internet users. We are excited about

the potential o Web 2.0 to take eGovernment in new

directions, and several o our government partners

are already testing some o these new technologies.

In Virginia, the Department o Emergency

Management is posting emergency preparedness

how-to videos on YouTube. Governors, elected

ocials, and agency leaders across the nation are

using blogs and wikis as another way to deliver

inormation to citizens. In addition, many o our state

portals use RSS eeds that allow users to customize

the types o inormation they want delivered directly

to their desktop.


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NIC has been delivering on the promise o Web

2.0 long beore it became a brand name. For years,

we have been supporting our partners by oering

live online chats with governors, streaming video ogovernment meetings, and other unique solutions.

The goal o eGovernment is to provide value by

enhancing communication between government

and citizens. I Web 2.0 technologies can continue

to be eectively implemented to support the

delivery o inormation, they are worth pursuing.

At the same time, we must resist the temptation

to be dazzled by the bright, shiny objects o Web

2.0. We do not pursue fashy solutions or the sake

o ollowing a trend, and we are working closely

with our government partners to careully analyze

and understand the ongoing impacts o these

technologies.

It is also important to underscore NICs

commitment to Web 1.0, which is the oundation o

well-designed Web sites and easy-to-use interactive

services that have allowed citizens and businesses

to interact more eciently with government or the

last 16 years. As I mentioned earlier, we are still at

the beginning o the eGovernment growth curve and

look orward to using Web 1.0, Web 2.0, and uturegenerations o Web technologies to deliver value-

added online services.

g g

Global climate change is another issue that is high

on the radar screen o government leaders across

the country. Protecting the environment is not an

issue that is owned by any political party or special

interest. What we hear each day rom partners,

prospects, and the people who use our services is

that global climate change is a growing concern.

The good news is that eGovernment has been

part o the solution or 16 years. We like to say that

we were on the Internet when the Internet wasnt

cooland the same can be said or being green.

eGovernment reduces vehicle trac because citizens

and business users are not driving to government

oces to conduct ocial business. Our services

have also reduced the paper fow in thousands o

government agencies. In Maine, or example, not

printing one tax orm eliminated more than 40,000sheets o paper each year rom the states process

fow. Thats equal to saving our trees annually as a

result o a single online service in just one state.

In 2008, we launched a new initiative to

more eectively track and measure the positive

environmental impacts o eGovernment across our

partner states. The data aggregated rom 21 states

and nearly 3,900 online services will show the true

scale o eGovernments environmental benets.

We are condent the results will showcase the

leadership o NIC and our government partners on

this high priority issue.

C niC scc P

As the ounder o a startup company many years

ago, Je Fraser took a courageous risk in believing

that eGovernment could become a viable and

niC , , p kc , p k .


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$18.6

2003

$23.7

2004

$28.4

2005

$32.8

2006

$38.8

2007

P g Pf ( )

successul business. Quite simply, NIC would not

exist i it were not or Jes vision, perseverance,

and commitment to nding a more eective way

or government to serve its citizens and businesses.Je announced his retirement as Chie Executive

Ocer this February, and I want to personally thank

Je or everything he has done to build NIC into

the industry-leading company it is today.

I have worked closely with Je and the NIC

Board o Directors or the last 13 years to shape

and evolve our eGovernment strategy. It is an honor

to serve as CEO and continue orward with our

outstanding management team as we execute

on our ambitious plan to accelerate NICs growth

trajectory.

I also want to thank our employees or their

ongoing commitment to excellence. NIC has the

most talented, intelligent, and passionate workorce

in the industry, and it is a pleasure to work with this

outstanding team.

Each year, we rearm our commitment to being

the best partner government has ever worked

with as well as the best place our employees have

ever worked. By doing so, we strive to be the best

investment our investors have ever made. NICstrives to meet these commitments every day by

building the worlds most ecient, eective, and

user-riendly eGovernment portals and services.

Thank you again or your support in 2007, and

we look orward to 2008.

Harry Herington

Chie Executive Ocer


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c K..


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governmentisinthedoCtorsoiCeHealth care proessionals are required to keep their credentials

current, and Kansas.gov oers a wide range o online licenserenewal services to simpliy the process. Since 2001, nearly75,000 nursing licenses have been renewed over the Internetthrough the ocial state portal.

Debbie Schwartz is a registered nurse who uses the onlineservice to renew her proessional license. It was very easy, very

straightorward, and took about ve minutes to complete. Theonline nursing license renewal service creates one less hassle orme to deal with. Reducing Debbies administrative workload allowsher to ocus more on patient care, including a regular checkup witha cheerul Miss Zoe.

www.Kansas.gov

since

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


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satisiedgovernmentusersareeverywhere

a p, I know how wonderul it is to haveemployees whom you know will perorm their jobs withnothing but perection. Congratulations to mt.gov orhaving such an outstanding customer service sta.

tk or building Kentucky.govs no pass/nodrive online service. I have been impressed by yourteams level o proessionalism, extremely strong workethic, and dedication to providing quality Web portal

solutions or governmental agencies.

t p . I regularly accessmany government and public service Web sites orinormation and eHawaii.gov was, by ar, the most user-riendly site I have ever experienced. Well done!

m k to OK.gov or its excellent work on theOklahoma Ethics Commissions campaign reportingsystem. The service has reduced the amount o workor the agency and we truly value the training theportal sta provided to our employees and volunteers.

v. is the best source or timely electionresults. I checked other sites out o habit and did notnd inormation about the race I wanted. I visited the

Virginia portal and the results were exactly whereI expected to locate them. Thanks or all you do toshare important and timely news.

i p p,x kc, c

p wp .

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v vehicle tag renewal service is amazing.It took less time to register online than it wouldve towrite and mail a check. Thank you or oering thispain-ree service on the Internet.

m k to the Nebraska.gov team or yourdiligent work in developing and bringing our agencysnew Web site online.

t health licensing renewal service isworthy o praise. Ive gone through the online renewalprocess in another state and it was a mess. Yourinstructions and links are clear and easy to use.Thanks or making this an easy process.

m PayTixx service is so very easy to use.Although I take no great pleasure in paying my sonsspeeding tickets, this is an excellent service just thesame.

r i beverage alcohol label renewalsystem excels in the areas o eCommerceadvancement, communications, transparency, andregulatory reorm. This service refects a blue

sky concept warranting a blue ribbon or itsaccomplishments. It takes a uturistic approach tomeeting decades-old requirements.

m Ptxxc . ai k p p

pck, xc c j .

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2007highlights

JanuarymarChaPril

may

22

Alabama Interactive is awarded a portal management contract extension by the state o Alabama. NIC declares a $0.75 per share special cash dividend or shareholders o record on February12, 2007.

Idaho Inormation Consortium is awarded a portal management contract extension by the state o Idaho.

Oklahoma Interactive is awarded a portal management contract extension by the state o Oklahoma.

Kansas Inormation Consortium is awarded a portal management contract extension by the state o Kansas.


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JulyaugustsePtember

novemberdeCember

23

Arizona selects NIC to build and manage its ocial government portal. South Carolina Interactive is awarded a portal management contract extension by the state o South Carolina.

Following a competitive rebid, Rhode Island signs a new long-term portal management contract with Rhode Island Interactive. NIC is named the best state & local government IT services provider in the Center or Digital Governments Best Fit Integrator awards.

Four NIC state partners place in the top 10 in Brown Universitys eighth annual survey o eGovernment perormance.

Nine NIC eGovernment partners are honored by the Center or Digital Governments Best o the Webawards or portal and Web site excellence, and eight o NICs state partners nish in the top 10.

West Virginia selects NIC to build and manage its ocial government portal.

Financial services executive Alexander M. Kemper is elected as an independentmember to the NIC Board o Directors.

Nebraska Interactive is awarded a portal management contract extension by the state o Nebraska.


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governmentisdeliveringreight

www.Arkansas.gov

since

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

For one o the largest transportation logistics companies in North

America, vehicle saety is a top priority. J.B. Hunt TransportationServices, Inc., employs approximately 12,000 drivers to deliverreight across the country. Drivers are the most important people atour company and we must ensure they are sae vehicle operators,said David Whiteside, J.B. Hunts Senior Director o Compliance.

J.B. Hunt lobbied the state o Arkansas to pass legislation that

set a high standard or commercial driver saety. The Arkansas.govcommercial driver alcohol and drug testing database allowstransportation companies to post and search online substanceabuse test results or its drivers, which increases saety or everyoneon the road.


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niCbythenumbers

2,863

45$4 b$1.25

21

36835%12.7 b

Number o ederal, state, and local government agenciesserved by NIC

Number o times NICs government partners were recognized in

competitions and independent surveys in 2007Value o nancial transactions processedthrough NICs secure payment system in 2007

Portal revenue per capita in 2007

Number o states that outsource their ocialeGovernment portals to NIC

Number o new revenue-generating services launched byNIC portals in 2007

Increase in the number o new revenue-generating serviceslaunched by NIC portals in 2007 vs. 2006

Number o site accesses at NIC-supportedgovernment Web sites in 2007


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27

145 m

18%79,97180%

1,2,3,5

18%3,896$0.75

Number o eGovernment transactions processed byNIC portals in 2007

Increase in the number o eGovernment transactions

processed by NIC portals in 2007 vs. 2006Number o high-volume subscribers to NICseGovernment services

Percentage o the ten 2007 Best o the Web state naliststhat are NIC partners

Respective rankings o Utah, Maine, Virginia, andKentucky in the 2007 Best o the Web competition

Year-over-year increase in NICs portal revenues

Number o interactive services built and managed by NIC

Some gures cited have been adjusted or rounding

and are the latest available as o March 2008. All

numbers are rom NIC internal sources.

Per share special cash dividend distributed to shareholdersin February 2007


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ri.

c --c p .


31/48


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30

ourgovernmentPartnershiPsa www.Alabama.gov

az www.AZ.gov

ak www.Arkansas.govC www.Colorado.gov

ec C www.FEC.gov

h www.eHawaii.gov

i www.Idaho.gov

i www.IN.gov

ip & m C, in www.IndyGov.biz

i www.Iowa.gov

i lc g www.IowaTaxandTags.gov

K www.Kansas.gov

Kck www.Kentucky.gov

m www.Maine.gov

mc sc s www.Michigan.gov/sos

m www.mt.govok www.OK.gov

nk www.Nebraska.gov

r i www.RI.gov

s C www.SC.gov

t www.Tennessee.gov

u www.Utah.gov

v www.Vermont.gov

v www.Virginia.gov

w v www.WV.gov


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31

s P & scDevelopment and management oocial state government Web sites

lc g P& scDevelopment and management oocial local government Web sites

vc g PDevelopment and management o ocialmulti-jurisdictional government Web sitesand services

g s & sc

Document management systems,electronic ling services, ethicscompliance portals, and eGovernmentapplication development

P--Pcg sDevelopment and management o ocialeGovernment services that are oered atthird party locations, including businessesand public terminals

maP Key


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32

inanCialinormationThe ollowing nancial statements have beencondensed to make them more readable. A

detailed nancial evaluation may require moreinormation than is included in this summaryannual report. More comprehensive nancialinormation is provided in NICs 2007 AnnualReport on Form 10-K, led with the Securitiesand Exchange Commission on March 17, 2008.Copies can also be requested by contactingNICs Investor Relations Department.(See Corporate inormation on page 40.)

32


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33

rp mThe management o NIC Inc., has prepared theaccompanying condensed consolidated nancialstatements as o December 31, 2007 and 2006,

and or the years ended December 31, 2007, 2006,and 2005, and is responsible or their integrityand objectivity. Management maintains a systemo internal control over nancial reporting that isdesigned to provide reasonable assurance that,among other things, transactions are properlyexecuted and nancial records and reports arereliable. Through its Audit Committee, the NICBoard o Directors reviews the Companys nancialand accounting policies, practices, and reports.Managements Report on Internal Control OverFinancial Reporting appears in NICs 2007 Annual

Report on Form 10-K.

Harry H. Herington Stephen M. KovzanChie Executive Ocer Chie Financial Ocer

rp ip rPc acc To the Board o Directors and Shareholders o NIC Inc.: We have audited, in accordance with the standards

o the Public Company Accounting Oversight Board(United States), the consolidated nancial statementso NIC Inc. and its subsidiaries as o December 31,2007 and 2006, and or each o the three yearsin the period ended December 31, 2007, and inour report dated March 17, 2008, we expressed anunqualied opinion with a consistency reerence onthose consolidated nancial statements relating to themanner in which the Company accounts or uncertaintax positions eective January 1, 2007 and share-based compensation eective January 1, 2006.

The consolidated nancial statements (not presentedherein) appear in Item 8 o N IC Inc.s Annual Report on

Form 10-K or the year ended December 31, 2007. In our opinion, the inormation set orth in theaccompanying condensed consolidated nancialstatements is airly stated, in all material respects, inrelation to the consolidated nancial statements romwhich it has been derived.

Kansas City, MissouriMarch 17, 2008

33


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34

CondensedConsolidated

statementsoinCome

Year Ended December 31, 2007 2006 2005

Revenues:

Portal revenues $82,451,763 $70,008,598 $57,875,067

Sotware & services revenues 3,303,171 1,367,248 1,367,546

Total revenues 85,754,934 71,375,846 59,242,613

Operating expenses:

Cost o portal revenues, exclusiveo depreciation & amortization 43,648,482 37,249,358 29,448,091

Cost o sotware & services revenues,

exclusive o depreciation & amortizat ion 1,883,478 596,279 5,348,438

Selling & administrative 21,594,393 15,341,777 12,651,948

Depreciation & amortizat ion 2,501,615 2,040,398 1,602,879

Total operating expenses 69,627,968 55,227,812 49,051,356

Operating income 16,126,966 16,148,034 10,191,257

Other income (expense):

Interest income 1,741,107 2,401,504 704,614Gain (loss) on aliate investments 508,209 (96,954)

Other expenses, net (16,010) (35,187) (2,971)

Total other income 2,233,306 2,269,363 701,643

Income beore income taxes 18,360,272 18,417,397 10,892,900

Income tax provision 6,405,052 7,678,396 4,529,824

Net income $11,955,220 $10,739,001 $6,363,076

Basic net income per share $0.19 $0.17 $0.11

Diluted net income per share $0.19 $0.17 $0.10

Weighted average shares outstanding

Basic 61,836,530 61,408,552 60,078,841

Diluted 62,525,249 61,763,093 61,093,788

This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual

Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.

34


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35

Condensed

ConsolidatedbalanCesheets

35

December 31, 2007 2006

Assets

Current assets:

Cash and cash equivalents $38,235,605 $36,744,872

Marketable securities 17,600,000 45,008,431

Trade accounts receivable 28,149,698 28,729,038

Unbilled revenues 720,131 1,068,940

Deerred income taxes 6,746,355 5,289,680Prepaid expenses & other current assets 2,142,673 1,644,816

Total current assets 93,594,462 118,485,777

Property and equipment, net 6,110,075 3,790,490

Deerred income taxes 10,808,941 17,434,583

Other assets 862,669 423,597

Total assets $111,376,147 $140,134,447

Liabilities and shareholders equity

Current liabilities:

Accounts payable $36,497,922 $34,201,937

Accrued expenses 6,847,523 5,911,197

Application development contracts 352,969 512,618Other current liabilities 99,285 254,510

Total current liabilities 43,797,699 40,880,262

Other long-term liabilities 713,496

Total liabilities 44,511,195 40,880,262

Commitments and contingencies

Shareholders equity:

Common stock, no par, 200,000,000 shares authorized

62,031,312 and 61,573,900 shares issued and outstanding

Additional paid-in capital 165,934,316 210,210,393

Accumulated decit (98,901,689) (110,788,533)67,032,627 99,421,860

Less treasury stock (167,675) (167,675)

Total shareholders equity 66,864,952 99,254,185

Total liabilities and shareholders equity $111,376,147 $140,134,447




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36

Condensed

ConsolidatedstatementsoCashlows


Cash ows rom operating activities:

Net income $11,955,220 $10,739,001 $6,363,076

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation & amortizat ion 2,501,615 2,040,398 1,602,879

Stock-based compensation expense 1,676,890 1,331,603

Accretion o discount on marketable securities (8,431)

Application development contracts (159,649) (748,013) 1,260,631

Deerred income taxes 6,220,176 7,179,104 4,150,803

Gain (loss) on aliate investments (508,209) 96,954

Impairment loss on property and equipment 164,075 Loss on disposal o property and equipment 16,258 35,187

Changes in operating assets and liabilities:

(Increase) decrease in trade accounts receivable 579,340 (6,486,896) (4,659,030)

Decrease in unbilled revenues 348,809 2,523,859 2,211,223

(Increase) decrease in prepaid expenses

& other current assets (497,857) 46,588 (320,014)

(Increase) decrease in other assets (10,089) 19,117 50,473

Increase in accounts payable 2,295,985 9,744,035 10,064,135

Increase (decrease) in accrued expenses 593,141 (731,384) 376,804

Increase (decrease) in other current liabilities (155,706) (62,220) 165,426

Increase in other long-term liabilities (405,608)

Net cash provided by operating activities 24,614,391 25,718,902 21,266,406



36


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37


Cash ows rom investing activities:

Purchases o property and equipment (4,876,242) (2,584,948) (2,327,360)

Proceeds rom sale o property and equipment 13,672

Capital ized internal use sotware development costs (567,946) (239,492) (68,994)

Purchases o marketable securities (18,000,000) (24,500,000) (35,500,000)

Sales and maturities o marketable securities 45,408,431 15,000,000

Cash and cash equivalentsrestricted 3,000,000

Proceeds rom sale o aliate 508,209

Net cash provided by (used in) investing activities 22,486,124 (27,324,440) (19,896,354)

Cash ows rom fnancing activities:Cash dividends on common stock (46,729,871)

Proceeds rom sale o treasury stock 64,965

Proceeds rom employee common stock purchases 239,746 157,398 121,761

Proceeds rom exercise o employee stock options 880,343 1,226,638 4,640,928

Net cash provided by (used in) nancing activities (45,609,782) 1,449,001 4,762,689

Net increase (decrease) in cash and cash equivalents 1,490,733 (156,537) 6,132,741

Cash and cash equivalents, beginning o year 36,744,872 36,901,409 30,768,668

Cash and cash equivalents, end o year $38,235,605 $36,744,872 $36,901,409

Other cash fow inormation:

Income taxes paid $776,717 $373,793 $450,745

37


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38

CondensedConsolidated

statementsoChangesinshareholdersequity

Balance, January 1, 2005 59,301,375 $

Net income

Retirement o treasury stock

Stock options exercised 1,742,099

Issuance o common stock under employee stock purchase plan 30,031

Tax deductions relating to stock options

Balance, December 31, 2005 61,073,505

Cumulative eect o SAB No. 108

Net income

Sale o treasury stock 11,154

Stock options exercised 448,898

Stock-based compensation


Balance, December 31, 2006 61,573,900

Cumulative eect o FIN 48

Net income

Cash dividends on common stock

Shares surrendered to pay exercise price o stock options (33,446)

Shares surrendered to upon exercise o

stock options and vesting o restricted

stock to satisy tax withholdings (50,204)

Stock options exercises and restricted stock vestings 488,440 Stock-based compensation


Balance, December 31, 2007 62,031,312 $

This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007

Annual Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.

Common Stock

Shares Amount

38


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39

Treasury Stock

Accumulated

Defcit Total

Additional

Paid-in Capital

$200,921,146 $(128,456,174) $(204,497) $72,260,475

6,363,076 6,363,076

(20,449) 20,449

4,640,928 4,640,928

121,761 121,761

1,781,364 1,781,364

207,444,750 (122,093,098) (184,048) 85,167,604

565,564 565,564

10,739,001 10,739,001

50,004 16,373 66,377

1,226,638 1,226,638

1,331,603 1,331,603

157,398 157,398

210,210,393 (110,788,533) (167,675) 99,254,185

(68,376) (68,376)

11,955,220 11,955,220

(46,729,871) (46,729,871)

(246,998) (246,998)

(343,185) (343,185)

1,127,341 1,127,3411,676,890 1,676,890

239,746 239,746

$165,934,316 $(98,901,689) $(167,675) $66,864,952

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40

CorPorateinormation

board o direCtors

J s. ChairmanMr. Fraser, 48, is Chairman o the NICBoard o Directors. He co-oundedNICs initial subsidiary 16 years agoand became an NIC Director in 1998.

a n. bc

Lead DirectorMr. Burtscher, 57, is Chairmano McCarthy Group Advisors, aninvestment advisory rm. He is alsoa Director o NovaStar Financial andGreat Western Bancorporation. Mr.Burtscher became an NIC Director in2004 and was named Lead Directorin 2008.

J l. bc, J.Mr. Bunce, 48, is Senior Advisor toprivate equity investment rm Hellman

& Friedman, LLC, and ManagingDirector o Greyhawk CapitalManagement, LCC. He is also a Directoro Arch Capital Group and severalprivately-held companies. Mr. Buncebecame an NIC Director in 1998.

d J. eGovernor Evans, 83, is Chairman oDaniel J. Evans Associates, a publicpolicy consulting rm, and previouslyserved as Governor and U.S. Senatoror the state o Washington. He isalso a Director o Costco WholesaleCorporation and ArchimedesTechnology Group. He became an NICDirector in 1998.

r C. hMr. Hartley, 60, is a co-ounder o NICand ormer President o The HartleyInsurance Group. He is also a Directoro the Empire District E lectric Company.He became an NIC Director in 1998.

h h. hMr. Herington, 48, is Chie ExecutiveOcer o NIC and previously servedas the Companys President, ChieOperating Ocer, and Executive Vice

President o Portal Operations. Hebecame an NIC Director in 2006.

ax C. KpMr. Kemper, 42, is Chairman o TheCollectors Fund, a private equityund, and ormer Chairman and ChieExecutive Ocer o Perect Commerceand UMB Financial Corporation.He is a Director o UMB FinancialCorporation and several privately-heldcompanies. He became an NIC Directorin 2007.

P wGovernor Wilson, 74, is a Principal atBingham Consulting Group, a businessconsulting rm. He previously servedas Governor and U.S. Senator or thestate o Caliornia and Mayor o SanDiego. He is also a Director o TheIrvine Company and U.S . TelepacicCorporation. He also serves on theboard o advisors or Thomas WeiselPartners. Governor Wilson became anNIC Director in 1999.

a CArt N. BurtscherChairJohn L. Bunce, Jr.Daniel J. EvansAlexander C. Kemper

Pete Wilson

Cp CArt. N. BurtscherChairJohn L. Bunce, Jr.Daniel J. EvansAlexander C. KemperPete Wilson

Cp gc &n CArt N. BurtscherChairJohn L. Bunce, Jr.Daniel J. Evans

Alexander C. KemperPete Wilson

Cc b dcSigned, condential, and anonymouscommunications to NICs Board oDirectors should be sent via e-mail [email protected] or in writing to:

Board o DirectorsNIC Inc.25501 West Valley ParkwaySuite 300Olathe, Kansas 66061

The Boards committee charters, theCompanys Code o Business Conducto Ethics, and governance guidelinesmay be ound on the Companys Website at www.nicusa.com/investorandmay be obtained in print by contactingthe Investor Relations Department [email protected] or (877) 234-EGOV.

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41

shareholderinormation

a mThe Annual Meeting o NIC Inc. willbe held on May 6, 2008, at 10:00a.m., CDT, at the Sheraton OverlandPark Hotel at the Convention Center,6100 College Boulevard, OverlandPark, Kansas.

A ormal notice, together with theproxy statement and proxy orm, willbe mailed in advance o the meetingto all shareholders o record entitledto vote. Shareholders are encouragedto attend the meeting, but thoseunable to do so are asked to signand return the proxy orm.

sck lNIC Inc.s common stock is tradedon the NASDAQ Global Select

Market under the symbol EGOV.As o March 10, 2008, there were63,232,755 shares outstanding.

r t aComputershare250 Royall StreetCanton, MA 02021(800) 884-4225www.computershare.com

i rSecurities analysts and investors areencouraged to contact the Companywith questions or requests orinormation. Copies o NICs AnnualReport on Form 10-K, QuarterlyReports on Form 10-Q, and otherpublications are available withoutcharge upon written request. Inquiresshould be directed to:

Nancy BeatonDirector o Communications &Investor Relations25501 West Valley ParkwaySuite 300Olathe, Kansas 66061(913) 754-7054(877) [email protected]

These documents can also be viewedonline at www.nicusa.com/investor.

oiCers

h h. hChie Executive OcerAge 48

sp m. KzChie Financial OcerAge 39

w . b, J.

Chie Operating Ocer and GeneralCounselAge 53

indePendentregistered PubliCaCCountants

PricewaterhouseCoopers LLP1055 Broadway, 10th FloorKansas City, Missouri 64105(816) 472-7921www.PwC.com

outside Counsel

Stinson Morrison Hecker LLP1201 Walnut Street, Suite 2900Kansas City, Missouri 64106-2150(816) 842-8600www.stinson.com

Credits

w pc:

Chris NeVice President o Marketing

d:modern8Salt Lake City, Utahwww.modern8.com

Pp:Amy MurowPark City, Utah

P:

Paragon PressSalt Lake City, Utahwww.paragonpress.com

trademarKs &registeredserviCe marKs

NIC Inc. is a registered service marko NIC Inc. The NIC logo and ThePeople Behind eGovernment areregistered trademarks o NIC Inc.Certain other names and logosprotected by trademark appear

in this report. Rather than list thenames and entities that own thesetrademarks or insert a trademarksymbol with each mention o thetrademark, NIC Inc. states that it isusing the names only or editorialpurposes and to the benet o thetrademark owner with no intention oinringing upon that trademark.

2008 NIC Inc. NIC is an equalopportunity employer. Printed in the

U.S.A.

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42

appc A service that allows a user

to interact electronically with government.

b A business model

that allows governments to pay or

eGovernment services with more than one

unding approach.

b A Web site that provides

commentary or news on a particular subject

and oten combines text, images, and links

to other blogs and Web sites. Many blogs

also eature an interactive ormat that allows

readers to leave comments.

C m s (Cms)

A system that allows users to build and

manage Web sites without requiring

technical knowledge or complex sotware

programs.

C Citizens, businesses, and

government employees who use NICs

online services.

C-b i Also

called one stop shops, these eGovernment

services allow constituents to interact

seamlessly with more than one government

entity. Example: Court records rom 185

county and circuit courts in Nebraska can

be accessed online through the states

integrated JUSTICE system.

dmv (dp m vc)r Revenues generated through

the purchase o driver histories by the

insurance industry.

g A platorm or delivering

government services via the Internet,

telephone, personal digital assistant, and

point-o-purchase locations.

g b A government-

appointed entity that provides oversight or

eGovernment portal operations. A typical

governing board has both public and private

sector representation and develops the

policies, establishes the ee structure, and

sets all priorities or the portal.

g g The practice o

using technology and business process

improvement to reduce governments

impact on the environment.

i acc The

development and categorization o Web site

content so it can be easily accessed by users.

n-dmv r Revenues

generated through all eGovernment services

other than driver histories.

o--C P When

government oces use card-swipe

technology to accept credit card payments

that are processed through NICs secure

payment management system.

P A ederal, state, county, or city

government that works in cooperation with

NIC to deliver services electronically.

P m s NICs

comprehensive payment processing,

reconciliation, and accounting solution.

P d a (Pda)

Web-accessible technologies, including

mobile phones, digital calendars, and

handheld organizers.

The ollowing terms are used regularly in the eGovernment industryand many are reerenced in this annual report.

governmentglossary


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43

Pc Custom digital audio programs

that are distributed over the Internet or

playback on portable music players and

personal computers.

P--Pc An online service

accessible rom a sales terminal that allows

retail employees to oer eGovernment

applications directly to in-store customers.

Example: Outdoor enthusiasts in six

states can obtain hunting and fshing

licenses directly rom retailers through

NICs point-o-purchase solution.

P A central Web site through which

a wide range o government services can be

accessed.

r P Cp A measurement

o the revenue generated per citizen across

the total state population NIC serves.

r sp sc (rss)

A amily o Web eed ormats used to

publish requently updated content

(including blog entries, news headlines, and

podcasts) to allow users to keep up with

Web sites in an automated manner.

s- This business model allows

governments to oer eGovernment services

without using upront taxpayer unds. NIC

collects a nominal transaction ee or a

limited number o high-volume applications

to cover the costs o building and managing

online services on behal o state and local

governments across the country.

sc nk Web sites in whichInternet users can create proles and build

personal networks to connect to other users.

scp A eature that allows high-

volume users o eGovernment services to

access value-added portal applications with

a secure login and password.

tc An end-to-end process

in which inormation is transerred

electronically between government and a

constituent.

tc A nominal ee applied

to certain eGovernment services to cover

the cost o building and maintaining online

services.

uCC (u Cc C)

Required registered debt lings that are

typically processed by a states secretary o

state oce.

u The combination o content,

technology unctionality, navigation, andinormation architecture that allows users to

quickly and easily accomplish what they are

trying to do on a Web site.

vc P (v) An

eGovernment portal through which users

can interact with multiple government

agencies through a single site.

Example: Maines Rapid Renewal portal

allows constituents in 128 municipalities

to both process vehicle registration

renewals and pay local excise taxes

through a single Web site.

w 2.0 An emerging trend in Web

development that encourages creativity,

collaboration, and two-way communication

between Internet users by eectively

implementing wikis, blogs, Web video,

podcasts, RSS eeds, and other social

networking technologies.

w v Digital video clips that can

be posted, downloaded, and linked to on the

Internet.

wk Collaborative Web sites that allow

users to create, edit, and link content

together to oer robust online inormation

sources.


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44

g c aZ..


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45

governmentisCreatinganewdayinariZona

www.AZ.gov

since

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

The state o Arizona is run by some o the nations most progressivegovernment leaders. eGovernment is an important delivery channelor the state to enhance customer service, eliminate waste, andreduce Arizonas impact on the environment by cutting unnecessaryvehicle travel and paper fow between citizens and government

oces.In 2007, the state displaced the incumbent private sector providerand awarded its government portal contract to NIC. We are alreadyexecuting a plan to urther enhance AZ.gov and look orward to along and mutually benecial partnership with the state o Arizona.


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25501 w v Pks 300o, K 66061

Phone: (877) 234-egovaX: (913) 498-3472web: .c.cnasdaq: egov

Documents

NIC 2007 Annual Report