OUTSOURCED GOVERNMENT CONTRACTS

The Company’s outsourced government portal contracts generally have an initial multi-year term with provisions for renewals for various periods at the option of the government. The Company’s primary business obligation under these contracts is generally to design, build, and operate internet-based portals on an enterprise-wide basis on behalf of governments desiring to provide access to government information and to complete government-based transactions online. NIC typically markets the services and solicits users to complete government-based transactions and to enter into subscriber contracts permitting the user to access the portal and the government information contained therein in exchange for transactional and/or subscription user fees. The Company enters into statements of work with various agencies and divisions of the government to provide specific services and to conduct specific transactions. These statements of work preliminarily establish the pricing of the online transactions and data access services the Company provides and the division of revenues between the Company and the government agency. The government oversight authority must approve prices and revenue sharing agreements. The Company has limited control over the level of fees it is permitted to retain.

The Company is typically responsible for funding the up-front investments and ongoing operations and maintenance costs of the government portals, and generally owns all of the intellectual property in connection with the applications developed under these contracts. After completion of a defined contract term, the government partner typically receives a perpetual, royalty-free license to use the applications and digital government services built by the Company only in its own state. However, certain proprietary customer management, billing, payment processing and other software applications that the Company has developed and standardized centrally and that are utilized by the Company’s portal businesses, are being provided to a number of government partners on a software-as-a-service (“SaaS”) basis, and thus would not be included in any royalty-free license. If the Company’s contract expires after a defined term or if its contract is terminated by a government partner for cause, the government agency would be entitled to take over the portal in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

Any renewal of these contracts beyond the initial term by the government is optional and a government may terminate its contract prior to the expiration date if the Company breaches a material contractual obligation and fails to cure such breach within a specified period or upon the occurrence of other events or circumstances specified in the contract. In addition, 14 contracts under which the Company provides enterprise-wide outsourced portal and digital government services, as well as the Company’s 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 60% of the Company’s total consolidated revenues for each of the three- and nine-month periods ended September 30, 2017. In the event that any of these contracts is terminated without cause, the terms of the respective contract may require the government to pay the Company a fee in order to continue to use the Company’s applications in its portal.

Under a typical portal contract, the Company is required to fully indemnify its government clients against claims that the Company’s services infringe upon the intellectual property rights of others and against claims arising from the Company’s performance or the performance of the Company’s subcontractors under the contract. At September 30, 2017, the Company was bound by performance bond commitments totaling approximately $5.8 million on certain outsourced portal contracts.

The following is a list of the contracts in each state through which the Company has the ability to provide enterprise-wide outsourced digital government services to multiple government agencies:



NIC Enterprise Contract	State	Year Services Commenced	Contract Expiration Date (Renewal Options Through)
NICUSA, IL Division	Illinois	2017	6/29/2023 (6/29/2027)
Louisiana Interactive, LLC	Louisiana	2015	1/28/2020
Connecticut Interactive, LLC	Connecticut	2014	1/9/2020
Wisconsin Interactive Network, LLC	Wisconsin	2013	5/13/2018 (5/13/2023)
Pennsylvania Interactive, LLC	Pennsylvania	2012	11/30/2019 (11/30/2022)
NICUSA, OR Division	Oregon	2011	11/22/2021
NICUSA, MD Division	Maryland	2011	8/10/2018 (8/10/2019)
Mississippi Interactive, LLC	Mississippi	2011	12/31/2017 (12/31/2021)
New Jersey Interactive, LLC	New Jersey	2009	5/1/2020 (5/1/2022)
Texas NICUSA, LLC	Texas	2009	8/31/2018
West Virginia Interactive, LLC	West Virginia	2007	6/30/2021 (6/30/2024)
Vermont Information Consortium, LLC	Vermont	2006	6/8/2019
Colorado Interactive, LLC	Colorado	2005	4/30/2019 (4/30/2023)
South Carolina Interactive, LLC	South Carolina	2005	7/15/2019 (7/15/2021)
Kentucky Interactive, LLC	Kentucky	2003	8/31/2018
Alabama Interactive, LLC	Alabama	2002	3/19/2020 (3/19/2022)
Rhode Island Interactive, LLC	Rhode Island	2001	7/1/2018 (7/1/2019)
Oklahoma Interactive, LLC	Oklahoma	2001	3/31/2018 (3/31/2020)
Montana Interactive, LLC	Montana	2001	12/31/2019 (12/31/2020)
Hawaii Information Consortium, LLC	Hawaii	2000	1/3/2019 (3-yr renewal options)
Idaho Information Consortium, LLC	Idaho	2000	6/30/2018
Utah Interactive, LLC	Utah	1999	6/5/2019
Maine Information Network, LLC	Maine	1999	7/1/2018
Arkansas Information Consortium, LLC	Arkansas	1997	6/30/2018
Indiana Interactive, LLC	Indiana	1995	10/24/2021 (10/24/2025)
Nebraska Interactive, LLC	Nebraska	1995	4/1/2019 (4/1/2021)
Kansas Information Consortium, LLC	Kansas	1992	12/31/2022 (annual 1-yr renewal options)

Outsourced federal contract

The Company’s subsidiary NIC Federal, LLC has a contract with the FMCSA to develop and manage the FMCSA’s Pre-Employment Screening Program (“PSP”) for motor carriers nationwide, using a transaction-based business model. During the third quarter of 2017, the FMCSA exercised the second of its two one-year renewal options, extending the current contract through August 31, 2018. The contract can be terminated by the FMCSA without cause on a specified period of notice.

Expiring contracts

There are currently 12 contracts under which the Company provides enterprise-wide outsourced portal and digital government services that have expiration dates within the 12-month period following September 30, 2017. Collectively, revenues generated from these contracts represented approximately 49% of the Company’s total consolidated revenues for each of the three- and nine-month periods ended September 30, 2017. Although certain of these contracts have renewal provisions, any renewal is at the option of the Company’s government partner. As described above, if a contract is not renewed after a defined term, the government partner would be entitled to take over the portal in place, and NIC would have no future revenue from, or obligation to, such former government partner, except as otherwise provided in the contract.

The contract under which the Company’s subsidiary, NICUSA Inc. (“NICUSA”), managed digital government services for the state of Tennessee expired on March 31, 2017. For the nine-month period ended September 30, 2017 revenues from the Tennessee portal contract were approximately $1.8 million, compared to $1.7 million and $5.9 million in the three- and nine-month periods ended September 30, 2016, respectively.

The contract under which the Company’s subsidiary, Iowa Interactive, LLC managed digital government services for the state of Iowa expired on November 30, 2016. For the three- and nine-month periods ended September 30, 2016, revenues from the Iowa portal contract were approximately $0.5 million and $1.4 million, respectively.