As of June 30, 2017,2018, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $1.2$1.0 billion based on the closing price as reported by the Nasdaq Stock Market.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). See the "Cautions About Forward LookingForward-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.

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 we file electronically with the SEC.

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 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.

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-termmulti-year contracts with state and local governments to design, build, and operate internet-based solutions on an enterprise-wide portalsbasis on theira government's behalf. These portals consist of websites and applications we have built thatdigital government solutions 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

avoiding costs 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.government. We are typically responsible for funding the up-front investments and ongoing operations and maintenance costs of the digital government portals.solutions.

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 processingdigital government services, other than outsourced portal services,on an enterprise-wide basis, to state and local governments as well as federal agencies.

Our Outsourced Portals segment is our only reportable segment and generally includes our subsidiaries that operate outsourcedprovide digital government services on an enterprise-wide basis for state and local government portals.governments. The Other Software & Services category primarily includes our subsidiaries that provide software development, and payment processing and other digital government services, other than outsourced portal services,on an enterprise-wide basis, to state and local governments as well as federal agencies. For additional information relating to our reportable and operating segments, refer to Note 11,13, Reportable Segments and Related Information, to the Consolidated Financial Statements.

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: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.

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.

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:

Governments also face some unique challenges that exacerbate the difficulty of advancing to digital services, including:

We believe many private sector service providers generally do not address the unique needsrequirements 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, typicallyfrequently take a time-and-materials, project-based pricing approach andor provide “off-the-shelf” solutions, often designed for other industries that may not adequately address the needs of government.

We provide digital government services designed to meet the needs of governments, businesses and citizens. The key elements of our service delivery are:

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 internetonline 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 offor all government agencies associated with each state’s government portalinternet-based solutions and make them useful, appealing and easy to use. In addition to developing and managing the government portal, weWe also 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.

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 digital government portals and applications,services, 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 applicationapplications, software-as-a-service (“SaaS”) solutions and outsourced portalother digital solutions to governments who cannot or do not wish to pursueuse a transaction-based portal solution.funding model.

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.

The following is a summary of the state contracts through which the Company currently generates meaningful revenue and has the abilitybeen contracted to provide enterprise-wide outsourced digital government services to multiple government agencies:

Our state master contracts typically authorize our subsidiaries to design, build and operate a wide range of digital and web-basedgovernment services that facilitate interactions between government agencies and businesses or citizens. These are typically long-termmulti-year 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 chargesfees 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 enterpriseenterprise-wide 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”)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 portalservices in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract. WeIn our portal business we also provide services to certain payment processing services on a SaaS basis to a few private sector entitiesstates (New Mexico and to state and local agencies in statesTexas) 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.contract. 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%45% of our total consolidated revenues for the year ended December 31, 2017.2018. 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.

Our subsidiary, NIC Federal, LLC (“NIC Federal”), within our software & services business, 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,February 2019, the FMCSA exercised the second of its two one-year renewal options, extendingextended the current contract through August 31, 2018.27, 2019, which includes three six-month renewal options.

We currently have nine10 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, 2017.2018. 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 portalservices 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%31% of our total consolidated revenues for the year ended December 31, 2017.2018. As described above, if a contract expires after a defined term, the government partner would be entitled to take over the portalservices in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

The contract under which our subsidiary, NICUSA Inc. (“NICUSA”), managesmanaged digital government services for the state of Tennessee’s official government portalTennessee expired on March 31, 2017. For the years ended December 31, 2017 2016 and 2015,2016, revenues from the Tennessee portal contract were approximately $1.8 million $7.5 million and $9.0$7.5 million, respectively.

The contract under which our subsidiary, Iowa Interactive, LLC (“II”), managed digital government services for the state of Iowa’s official government portalIowa expired on June 30, 2016. II provided transition services as required by the contract through November 30, 2016. For the yearsyear ended December 31, 2016, and 2015, revenues from the Iowa portal contract were approximately $1.6 million and $1.8 million, respectively.million.

Our subsidiaries’government partners enter into contracts with data resellers, including various contracts with LexisNexis Risk Solutions, which 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.

In addition to negotiatethese and other services, we also provide customer service and support. Our customer service representatives serve as a contract to provide the payment processing services set forth in the Texas RFO,liaison between our government partners and that Texas NICUSA has not been selected to negotiate a contract to provide the portal operations, maintenancebusinesses 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.citizens.

We have two primary sales and marketing goals:

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.

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.

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.

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

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.

Over the pastFor more than 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 configurable platforms and products andalong with 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 applicationtechnology 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

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 digital government portalssolutions and applicationsservices 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 customizationconfiguration 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.

Historically, we have not faced significant competition from companies vying to provide transaction-funded enterprise-wide outsourced portaldigital services to governments; however, we face intense competition from companies providing point solutions and platforms to individual government agencies. We believe that the principal factors upon which our businesses compete are:

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 enterprise and agency level are the following:

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.

As of December 31, 2017,2018, we had approximately 950920 full-time employees, of which approximately 270320 were working in corporate operations and approximately 680600 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.

Currently, we have 27 contracts through which we provideOur 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, weWe currently have 15 contracts under which we provide outsourced portal andenterprise-wide 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%45% of our total consolidated revenues for the year ended December 31, 2017.2018. 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.

WeIn addition, we currently have nine10 contracts under which we provide outsourced portal andenterprise-wide digital government services, as well as our contract with the FMCSA, that have expiration dates within the 12-month period following December 31, 2017.2018. 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 portalservices 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%31% of our total consolidated revenues for the year ended December 31, 2017.2018. If a contract expires after a defined term, the government partner would be entitled to take over the portalservices in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

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.

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, whetherbreach. These security breaches could take place 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.

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:

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.

After termination for cause or the natural expiration of our portal contracts, it is possible that governments and their contractors may operate the portalsservices 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)basis). 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.state.

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, and 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’sour 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 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 portalsservices 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%29% of our total consolidated revenues for the year ended December 31, 2017.2018. 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%15% of our consolidated accounts receivable were from LexusNexisLexisNexis Risk Solutions at December 31, 2017.2018. 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

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.

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 portalsgovernment services 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 to which we provide access and services on the digital portals we operate. Any such interruptions or delays in the future could cause users to stop visitingusing the digital portalsservices 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 portaltechnology 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 portaltechnology 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 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.

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.earnings and profit margins.

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.

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,

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

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 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.

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.

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.

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 tocan 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.

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:

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.

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.

We do not own or create the content filed or distributed through the digital government portalsservices 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 portalsservices 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 digital government portalsservices 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.

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:

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 future revenues and results of operations may vary significantly from quarter to quarter due to a number ofseveral factors, many of which are outside of our control, and any of which may harm our business. These factors include:

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

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 ofseveral 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 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 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 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

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, 2017,2018, the amount of cash covered by FDIC deposit insurance was $8.6$8.5 million, and $152.2$183.2 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 adequate 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.

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 digital government portalsservices we operate, our staff, software installation and maintenance teams, offices and operations, our business and results of operations may be adversely affected.

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.

Our principal administrative office occupies a total of approximately 42,00051,000 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.

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.

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.

As of February 8, 2018,11, 2019, there were approximately 205199 holders of record of shares of our common stock.

(1) In 2016,March 2018, we announced that our Board of Directors approvedhad authorized a dividend policy pursuantstock buyback program allowing the Company to which it plansrepurchase up to make, subject to subsequent declaration, regular quarterly cash dividends$25 million of $0.08 per share, beginning with the declaration and paymentour common stock. Share repurchases may be made 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 earnedopen market or in privately negotiated transactions as permitted by securities laws 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.

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, 2012,2013, and ending on December 31, 20172018 (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, 2012.2013. The stock price performance on the graph below is not necessarily indicative of our future stock price performance.

While not all of the 1514 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), and Stamps.com, Inc. (STMP), and. As a result of being taken private in 2018, XO Group, Inc. (XOXO). was removed from the Peer Group.

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.

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).

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 digital government services on an enterprise-wide portalsbasis 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 applicationsThe internet-based digital services 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 digital government portals.services. Our unique business model allows us to generate revenues by sharing in the fees collected from online transactions. Our government partners benefit because they reduce their financial and technological risks, increase their operational efficiencies, avoid costs and gain a centralized, customer-focused presence on the internet, while businesses and citizens gain a faster, more convenient, and more cost-effective means to interact with governments.

On behalf of our government partners, we enter into 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 portalservices 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:

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 outsourcedenterprise-wide portal services, to state and local governments as well as federal agencies. We currently earn revenues from three main sources: transaction-based fees, time

The highest volume, most commercially valuable service we offer in the portal business is digital access to driver history records. This service accounted for approximately 31%29%, 33%31% and 35%33% of our total consolidated revenues in 2018, 2017 2016 and 2015,2016, 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. In addition, in several of our states we offer interactive government services for online motor vehicle registration and licensing. This service accounted for approximately 14% of our total consolidated revenues in 2018, 2017 and 2016.

A primary source of revenue is derived from data resellers, such as LexisNexis Risk Solutions, which have entered into contracts with our government partners to request DHR records from the various states with which we have contracts. Under the terms of these contracts, the government partners have us provide data resellers with access to retrieve driver history records. For each state, the fee per record is the same for all entities that access DHR records. We generally earn a fixed fee based on the number of requests processed for the government partner. LexisNexis Risk Solutions, which resells these records to the auto insurance industry, accounted for approximately 19%, 22%19% and 23%22% of our total consolidated revenues in 2018, 2017 and 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.

We charge for digital access to recordsgovernment services based on a per-record basisusage 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 thatoutline the amounttotal fee to be paid by the end-user consumer, as well as our share of any fees we retain is set by governments to provide us with a reasonable return or profit.the fee. We have limited control over the level of fees we are permitted to retain. We recognize revenues from transactions (primarily information access fees and filing fees) on an accrual basis net of the transaction fee dueas we provide access to the government,applications and weprocess transactions initiated by end-user consumers. We bill certain end-user customers,consumers, including

Transaction-basedOur outsourced portal businesses also provide non-recurring application development services for our government partners on either a time and materials or fixed fee basis and generally recognize revenues fromover time as services are provided. Portal software development and services revenues represented approximately 4% of portal revenues in 2018. The remaining portal revenues consist of fixed fee portal management services for our outsourcedcurrent government partner in the state of Indiana which represented approximately 2% of 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.in 2018.

The majority of the costs incurred by us to obtain a contract, which primarily consist of salaries of business development employees working to obtain the contract, are fixed in nature, occur regardless of whether a contract is obtained and are expensed as incurred. We expense as incurred all employee costs to start up, operate, and maintain outsourced government portals as costs of performance under the contracts because, after the completion of a defined contract term, the government entity with which we contract typically receives a perpetual, royalty-free license to the applications we developed, except applications provided on a SaaS basis. Such costs are included in cost of portal revenues in the consolidated statements of

income. Other costs to fulfill a contract such as the procurement of property and equipment and certain software development costs are accounted for under other authoritative guidance.

NIC Federal currently earns a significant portionIn our software and services businesses, we provide digital government services, other than on an enterprise-wide basis, to state and local governments as well as federal agencies. A primary source of its revenues from itsrevenue is associated with our contract with the FMCSAFMSCA to develop and manage the PSP for motor carriers nationwide, using a transaction-based business model. NIC Federal recognizesWe recognize revenues from this contract (primarily transaction-based information access fees) whenas we provide access to the service and process transactions. Our software and services are provided at the time of the transactions. NIC Federalbusinesses also earns a portion of its revenuesearn revenue from fixed fee and time and materials application development and outsourced maintenance contracts with other government agencies and recognizesgenerally recognize revenues over time as services are provided.

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 resultbecause of the need to make estimates and assumptions about the effect of matters that are inherently uncertain. We have identified the policy below as critical to our business operations and the understanding of our results of operations. There are other items within our financial statements that require management to make estimates and assumptions, but are not deemed critical, that may affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. 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.

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 9,11, 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, 2017,2018, the financial impact would have been approximately $0.8$0.9 million, or 1.0%1.1%, of our pretax income for the year ended December 31, 2017.2018.

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.

We use same state revenue growth to measure the financial performance of our state portals that generate revenues for two full comparative periods. Due to the expiration of our contractscontract with the statesstate of Iowa and Delaware on November 30, 2016, and March 31, 2015, respectively, the operating results for these portals have beenthis state were removed from the same state category for the year ended December 31, 2016. In addition, our contract with the state of Tennessee portal contract expired on March 31, 2017 and has been removed from the same state category for the year ended December 31, 2017. Due2017; however, 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 beenthis state were removed from the same state category for the yearyears ended December 31, 2017 and December 31, 2016. Furthermore, theThe operating results for our new Louisiana portal, have beenwhich commenced on July 1, 2016, were excluded from the same state category for all periods presented2017 and 2016 because it had not generated revenues for two full comparable years.periods. Because our legacy Texas contract expired on August 30, 2018 and our new Texas payment processing contract commenced on September 1, 2018, operating results for this state were removed from the same state category for the year end December 31, 2018. Furthermore, our Illinois contract, which we entered into in

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 decreasechange from the prior year period.

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 newin Louisiana portal and a $2.4 million increase from our new Illinois contract.in revenues in Illinois. These increases were partially offset by a decrease in revenues from legacy Tennessee and Iowa portalscontracts (combined, approximately $7.3 million) due to contract expirations on March 31, 2017 and November 30, 2016, respectively.

The 6% increase in same state portal revenues in 2017 was mainly due to higher revenues from ourin Colorado, Texas and South Carolina, portals, among others.other states. 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.Colorado, among others. 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 ourin Utah, Colorado and Wisconsin, portals, among others.other states. Same state portal software development and services revenues decreased 29% in 2017 mainly due to lower project-based revenues from ourin Wisconsin and Indiana, portals, among others.other states. This decline was partially offset by a $2.4 million increase in revenues from our Illinois contract.Illinois.

Our portal gross profit percentage was 39% for 2018 compared to 38% for 2017 compared toand 39% for 2016 and 2015.2016. 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). We currently expect our portal gross profit percentage to decline modestly in 2019, due mainly to the transition to the new Texas payment processing contract, which has significantly lower revenues and profit margins than the legacy Texas portal contract.

In the analysis below, we have categorized our software & services revenues by business, (in thousands), with the corresponding percentage increasechange from the prior year period.

Software & services revenues in 2017 and 2016 increased 20% and 11%2018 decreased 3%, or approximately $4.2$0.8 million, and $2.0 million, respectively, over their corresponding prior year periods. The increase in 20172017. This decrease was primarily driven by a nonrecurring $2.8 million increasespike in 2017 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 expectService. Demand for the lifetime Senior Pass increased significantly in July and August of 2017 due to recura then pending legislative price increase that became effective August 28, 2017. This decrease was partially offset by a $1.3 million increase in future periods atrevenues from our contract with the same level.FMSCA because of increased adoption of the PSP. Software & services revenues in 2017 increased 20%, or approximately $4.2 million, over 2016, driven largely by revenues from YourPassNow as further described above. 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 resultbecause of increased adoption of the PSP.

Our software & services gross profit percentage was 63% in 2018 and 65% in 2017 and 72% in 2016 and 71% in 2015.2016. The lower gross profit percentage in 20172018 was mainly due to the profit margin from the Senior Park Pass program describedstart-up costs associated with subcontracting work for Booz Allen Hamilton on its Recreation.gov contract as further discussed above.

As a percentage of total consolidated revenues, selling & administrative expenses were 16% in 2018 compared to 15% in all years presented. Inboth 2017 and 2016,2016. In 2018 and 2017, selling & administrative expenses increased 8%12% and 9%8%, or approximately $3.7$5.9 million and $4.0$3.7 million, respectively, over their corresponding prior year periods. These increases were mainly due todriven by higher personnel software maintenance and other costs to support business development and enhance corporate-widecompany-wide information technology, centralized applications, security,including the continued development of the Company's citizen-centric Gov2Go® enterprise platform and portal operations.enterprise microservices platform, and by higher incentive-based compensation.

Our effective tax rate was approximately 23% in 2018 compared to 34% in 2017 compared toand 28% in 20162016. The lower tax rate in 2018 is primarily attributable to the passage of the Tax Act, as described above, partially offset by the repeal of the domestic production activities deduction.

Our effective tax rate in 2018 was higher than the statutory federal income tax rate due mainly to state income taxes, uncertain tax positions, and 38% in 2015. nondeductible expenses, partially offset by favorable benefits related to the federal research and development credit.

Our effective tax rate in 2017 was lower than the statutory federal income tax rate for 2017 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.vestings.

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, relatedFor additional information, see Note 11, Income Taxes, 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, includedConsolidated Financial Statements in our income tax provision for 2016,Item 8 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.

Net cash provided by operating activities was $69.8 million in 2018 compared to $64.8 million in 2017. The increase in 2018 was primarily driven by an increase in net income, partially offset by the timing of payments to our government partners.

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 used in investing activities in 2018, 2017 and 2016 and 2015 was approximately$17.5 million, $8.3 million $8.2 million and $5.4$8.2 million, respectively. Investing activities in 2018, 2017 2016 and 20152016 primarily consisted of approximately$5.4 million, $4.8 million $5.6 million and $4.5$5.6 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 environmentoperations to support and enhance corporate-wide information technology and security infrastructure, including Web servers, purchased software and office equipment.

Furthermore, in 2018, 2017 2016 and 2015,2016, we capitalized approximately$8.6 million, $3.6 million $2.6 million and $1.0$2.6 million, respectively, of internal-use software development costs primarily related to ongoing investments in enterprise platform solutions and in the enhancement of centralizedour centrally managed applications for customer management, billing and payment processing systems that support our business operations and accounting systems.

Net cash used in financing activities of approximately $22.7in 2018, 2017 and 2016 primarily reflects $21.5 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.

We recognize revenues primarily from providing outsourced digital 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 majoritymost 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 $197.2 million at December 31, 2018, from $158.5 million at December 31, 2017, from $125.0 million at December 31, 2016.2017. 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 3.2 at December 31, 2018 compared to 2.3 at both December 31, 2017 and December 31, 2016.2017.

As of December 31, 2017,2018, our unrestricted cash balance was $160.8$191.7 million compared to $127.0$160.8 million at December 31, 2016.2017. 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

At December 31, 2017,2018, 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$4.0 million to $7.0$5.0 million in fiscal year 2018,2019, 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 environmentoperations 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$7.0 million to $4.0$8.0 million. This estimate includes costs related to ongoing investments in enterprise platform solutions and the enhancement of centralizedcentrally managed applications for customer management, billing and payment processing systems that support our business operations and accounting systems.

We paid dividends of $0.32, $0.65$0.32 and $0.55$0.65 per common share in 2018, 2017 2016 and 2015,2016, respectively. The total cash paid for dividends in 2018, 2017 and 2016 and 2015 was $21.5 million, $21.4 million $43.3 million and $36.5$43.3 million, respectively.

On January 29, 2018,28, 2019, our Board of Directors declared a regular quarterly cash dividend of $0.08 per share, payable to stockholders of record as of March 6, 2018.5, 2019. 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:

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.

The following table sets forth our future contractual obligations and commercial commitments as of December 31, 20172018 (in thousands):

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 portalgovernment contracts.

We have income tax uncertainties of approximately $8.0$8.7 million at December 31, 2017.2018. 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 9,11, Income Taxes, in the Notes to the Consolidated Financial Statements.Statements in Item 8 of this Form 10-K.

Our results of operations are exposed to financial market risks due primarily to changes in interest rates in our interest- bearing accounts. We currently have no principal amounts of indebtedness outstanding under our line of credit.credit, the terms of which are discussed in Note 8 to Consolidated Financial Statements in Item 8 of this Form 10-K.

We do not use derivative financial instruments.

To the Stockholders and Board of Directors and Stockholders of NIC Inc.:

We have audited NIC Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2017,2018, based on criteria established in Internal Control- IntegratedControl-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, 2017,2018, based on the COSO criteria.

  

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.

  

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.

 

/s/ Ernst & Young LLP

Kansas City, Missouri

TheTo the Stockholders and Board of Directors and Stockholders of NIC Inc. and Subsidiaries

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2015

Kansas City, Missouri

February 22, 201821, 2019