NIC overcomes missteps

NIC Inc.

www.nicusa.com

Business: E-government services and solutions for state and local government

Headquarters: Overland Park, Kan.

Chairman, president & CEO: Jeffrey Fraser

Employees: 279

2002 revenue: $47.5 million

2002 net loss: $7.6 million

Ticker: EGOV on NASDAQ

"We never want our employees to feel that our company's value or perceived worth is based on the stock price. It comes back to how we are performing." ? Harry Herington, NIC

Profits flow after leadership shakeup

A visitor walking through any one of NIC Inc.'s 28 offices around the country won't see the company's stock price displayed on anyone's computer screen. The company has a rule, created when NIC went public four years ago, that any employee caught monitoring the stock price will be sent home for the day, said Harry Herington, NIC's chief operating officer.

In short, NIC's leaders don't want their employees judging the company's performance on its stock price. Instead, they want employees to judge the company -- and themselves -- on customer satisfaction and adoption rate among users of the 18 state portals that NIC manages and operates.

"We never want our employees to feel that our company's value or perceived worth is based on the stock price," Herington said. "It comes back to how we are performing."

For an e-government services company that has had its share of ups and downs since it went public, NIC Inc. of Overland Park, Kan., (formerly National Information Consortium Inc.) has done well the past year. Following a shakeup in top management and a major reorganization last May, the company has reported profits for the past three quarters, Herington said.

The company May 1 reported first quarter 2003 net income of nearly $1 million on $12 million in revenue, compared to a net loss of $414,000 on $12 million in revenue in first quarter 2002.

NIC stock closed at $2.45 May 15, with a 52-week high of $4.23 and a low of $1.24. This is quite a fall from the $78 per share the company's stock brought at the height of the dot-com craze.

The company board of directors fired Chief Executive Officer Jim Dodd last May and rehired Jeff Fraser, a co-founder of the company who had served as NIC's CEO from 1992 to 1999. The company also disbanded its e-procurement unit, NIC Commerce Inc.

"The board [of directors] wanted to go back to the basics," Herington said.

Rishi Sood, principal analyst with the market research firm Gartner Dataquest of Stamford, Conn., said NIC was one of the earliest champions of e-government and has been an influential voice over the past several years in the development of state portals and the focus on transaction-oriented services.

But the firm has struggled because of poor strategic decisions and executive turnover, he said. In many ways it's still struggling, because of changes in the evolution of e-government away from state portals and toward large-scale agency modernization projects and the ongoing challenge of implementing revenue-generating services, Sood said.

Herington doesn't deny NIC has made some bad decisions along the way. The company squandered $100 million on acquisitions, such as NIC Commerce, NIC Conquest and NIC Technologies, which didn't make good business sense, he said. He maintained, however, that providing e-government services to state and local governments remains a lucrative enterprise for the company.

The company, which posted revenue of $47.5 million in 2002, has contracts with 18 state governments and nine local governments. Most the state portals are self-funded, said Chris Neff, NIC's spokesman.

The company derives about 90 percent of its revenue from transaction fees from self-funded projects and the remaining 10 percent from a combination of software contracts and time and materials work, he said. NIC has $15 million in cash and marketable securities, Neff said.

NIC will continue to grow at a rate of 10 percent to 15 percent into the second quarter, Herington said. He would not project growth beyond that point, however.

In first quarter of 2003, the company had several multimillion-dollar wins, including a 10-year portal services contract with Kentucky, a three-year contract extension with Iowa and a four-year contract extension with Utah. The company is meeting with every state where it doesn't have a contract, Herington said.

NIC's partnership-based model has contributed greatly to the company's success and has a lot to do with its winning contract renewals and extending its footprint in the state and local market, Sood said. The subsidiaries created with each individual portal provide a solid platform to implement governance, showcase services and obtain support from key stakeholders, he said.

Herington said NIC has won new portal contracts against first-tier integrators. For example, the company defeated BearingPoint Inc. of McLean, Va., and IBM Corp. of Armonk, N.Y. to clinch the Kentucky deal, he said.

This streak of good fortune may not last very long, however, according to Sood. As the e-government market evolves, the company will have to make adjustments to survive, he said.

E-government is moving away from portals toward large agency modernization projects that encompass online applications related to a specific agency domain. This gives first-tier integrators with agency expertise in areas such as taxes, human services and justice an edge when competing for new contracts that involve online services, he said.

"Consequently, NIC has a tough road a-head to sustain recent profitability, grow new revenue sources and expand beyond its current focus in the marketplace," Sood said. *

Staff writer William Welsh can be reached at wwelsh@postnewsweektech.com.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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