State of the Cooperative - January 2019 Introduction 2018 was a year of success and milestones for our cooperative. It was also a year of celebration as we recognized our 50th Anniversary. Preparations for this event included an extensive effort to digitize and catalog photos, videos and other items accumulated over the past half century. It’s important that this critical material, which documents the legacy of our organization, is preserved for future generations. Throughout the year we experienced strong, calculated growth in our Membership and employee base. Exceptional and accelerated demand for NISC solutions and services resulted in challenges and efforts to increase our capacity to meet this demand. Record investment in research and development continued to advance the NISC enterprise solution. The accelerated deployment of broadband by both the telecommunications and utility industries has allowed NISC to leverage our 50 years of telecommunication expertise for the benefit of our utility Members and their efforts to deploy broadband connectivity to underserved areas of the country. We believe that measuring our progress is the very best way to ensure accountability. As we monitor metrics for Member satisfaction, employee engagement and financial performance, we are encouraged by the progress we are making and determined to advance the journey of continuous improvement in all areas of our organization. Member/Owners The primary focus of our organization is to meet and exceed the expectations and requirements of our Membership. Rapid advances in emerging technologies and increased competition have required both the telecommunication and utility industries to adapt to an unparalleled pace of change. With much of this transformation being driven by technology, our Members are counting on NISC to leverage these emerging technologies to improve efficiencies and enhance their ability to be competitive and relevant in a rapidly-changing market. In 2018, we made significant progress as we continued enhancing our economies of scale. This year marked the eighth consecutive year in which we were able to “hold the line” on the core rates we charge our Membership. We consider this to be a significant feat considering the increased competition for technical talent which is placing pressure on NISC’s cost of operations, due mainly to increased pressures on technical wages. Tariffs have also increased our cost of doing business as many of the technical components we purchase – as we work to improve and strengthen our infrastructure and Cooperative Cloud environments – have seen considerable price increases. In 2018, we were fortunate to add 14 telecommunications and 17 utility Members to our Membership base. Our combined Membership base presently reached an all-time high of 828. The addition of these new Members and the resulting revenue stream have enabled NISC to meet our growing operational costs without the need to increase prices to our existing Membership base. At a time when our Members are experiencing increased pressures on their bottom line, NISC’s ability to continue to deliver our products without increasing rates is a key factor in making certain we are not only a good technical partner but also a responsible fiscal partner. While growing our Membership and improving our economies of scale is an important responsibility, making sure that we are maintaining a strong and transparent relationship with our existing Members is also a strategic initiative. Over the years we have built an amazing group of regional business managers (RBMs) whose charge it is to make personal, face-to-face visits to our Member’s sites. We affectionately refer to these visits as blocking and tackling (BT) visits, referring to the fact that these visits are important components of building the basics of the vital business and personal relationships we feel are critical to the way we do business. We have also implemented processes to document these visits, distribute this information to the appropriate NISC staff and coordinate any required follow-up on issues identified during the BT visit. During 2018, we completed 425 of these on-site visits with our Members. As NISC’s enterprise solution continues to become more robust, we are focused on leveraging technology to improve the efficiencies of our Members’ operations. We have seen an increasing number of case studies within our Membership where savings delivered by the NISC enterprise is exceeding the actual fees paid to NISC. As we move into our 51st year of operations, we understand that never before in our history has a strong, collaborative relationship between our Members and NISC been so critical to fulfill the vision of delivering reliable and low-cost electricity and broadband connectivity to the 85% of the geographical United States that is served by our collective Membership. It is clear, the work we do in partnership with our Members is a key component to strengthening our economy and improving the quality of life of the 13.5 million consumers we serve at the end of the line. Employees As an intellectual property company, NISC’s most significant risk is our ability to attract and retain the technology talent we require. As the economy continues to improve, we can feel the labor market tighten and pressure on wages increase. In 2018, we saw our attrition rate increase slightly to 7.9% which is a concern, but given the market pressures, somewhat expected. We have expanded our NISC recruiting staff to handle the increased velocity at which we are expanding our employee base. Our efforts to enhance the professional development of our current and future leaders continues to be a major strategic initiative for our organization. Additional coaching tools, educational resources and training sessions have been put in place to strengthen this important undertaking. As our organization continues to grow, we have kept a watchful eye on the span of control for our supervisors. Currently, we are working to address several areas in our organization where we need additional team leads and managers to more adequately provide the supervision, guidance and coaching that is required for our employees. Continued efforts to improve and strengthen our succession planning efforts have been top-of-mind for our Board and vice president group. At NISC, each team lead, manager and vice president, as well as the CEO, has a specific succession plan and potential successors identified. Financials 2018 once again was a year of strong financial performance for NISC. We ended the year with a margin of $9,048,664 and an increase in top-line revenues of 7.2%. New records were set with an ending cash balance of $35,054,136 and an equity level of $60,946,749 (58%). Appropriately managing our strong balance sheet for the collective benefit of our Membership and the stability of our organization has been a major topic of discussion at our Board meetings and strategic planning sessions. In addition to holding the line on our existing rates, the Board has taken additional action to reduce our automated mailroom charges assessed to the Members and increase the retirement of allocated capital credits from 21% of current year’s margins to 30% for our Members. We are also working on a proposal that would provide for the retirement of prior-year capital, that to this point was allocated but not retired. NISC’s strong financial position has also allowed us to accelerate our investment in research and development to a record $43 million this year, as well as increase the size and scope of our employee base to close the year at 1,280 employees strong. Products In 2018, our singular strategic initiative was the design, development and deployment of iVUE Connect. Currently, we have 159 Members who have implemented the initial phases of iVUE Connect. By the end of the first quarter of 2019, we will deploy iVUE Connect: Service to a telecommunication Member. This will be a critical milestone for our organization, and a positive step in enhancing our multiservice capabilities as well as unifying our telecommunication Subscriber Information System (SIS) and our utility Consumer Information System (CIS) into a single, customer care and billing platform. This strategic move represents a significant evolution for our organization and will distinguish NISC in the marketplace as a multiservice provider. Product, usability and development resources were also allocated to the personas of billing coordinator, marketing, operations, payroll HR, dispatcher and capital credits. Our research and development efforts to move the NISC enterprise to a web-based technology stack hosted in the Cooperative Cloud will continue through 2021. 2018 also saw an increase in resources assigned to design, development and deployment of our engineering and operations solutions. Major enhancements and advancements in MapWise2.0, Unified Work Management, iVUE AppSuite, Outage Management and Operations Analytics are part of our three-year E&O development pipeline. NISC SwitchTalk2 and NISC’s newly-released business intelligence tool, iVUE Mosaic, have also received significant attention to ensure that these important initiatives will continue moving forward. Professional Services (Implementations/Project Management) In January 2018, we completed a realignment of our organization. The main objective of this initiative was to combine all NISC product implementation responsibilities into a single division, with the goal of standardizing our implementation practices and processes for all NISC solutions and services. While this was not an easy task, we are seeing significant progress and improved efficiency in moving our organization toward a consistent, enterprise approach of delivering products to our Members. Support NISC’s 2018 realignment also included the consolidation of all NISC’s service centers into a single div
