Nov is pretty rapidly shutting down operations
throughout the country so expect a bit more than single digit revenue losses there. Also understand the risk exposure with Nov. is far less than with third party clients and due to the fact that much of NCES's revenue is generated from workmans comp, the added risk is substantial (one claim can wipe out a quarters earnings).
The margins have increased because NCES developed a model based on 'profit per employee', a fixed amount per annum. This caused large amounts of good, long term clients (pre nces days) to cancel their contracts due to the price increases, and I know S$#T Happens, but this is material to this industry not just from a revenue and customer service aspect but also from a managed, compliant risk angle. The higher prices and loss of customer base is initially offset by acquisitions in other parts of the country but the minute they stop acquiring revenues will drop dramatically. Also again the higher admin. fees beg for higher risk clients. So profit margins are fixed now at an intrinsic but material cost, however, its a one shot deal, the margins are stagnant after the initial contract renogiations. Margins will not continue to increase. The only region that met their sales goals for the last quarter was the northeast, this is important because sales do not grow accordingly throughout a calendar year. Some 75-80 percent of new sales start Jan 1, than it is downhill till the end of the year.
All in all, the idea with this industry is to acquire as rapidly as possible, its one big consolidation effort - thats the only real way for sustainable growth and revenues. As long as NCES keeps buying companies good things will happen, just would rather see more organized, diligent folks running the show. They are pretty green in this field to be growing so fast. |
