All I wanted to know from the CEO of
Superior Consultant Holdings
, which does information-technology consulting for the health-care industry, was whether his company would be affected by the Year 2000 debacle. Superior's stock took a 7% hit yesterday on the heels of a 29% decline in
, which develops software and also provides tech consulting to the health-care industry. Cerner disclosed that its fourth-quarter sales were hurt as its customers put existing plans on hold while they fix their Y2K problems.
So, would Superior be hurt as well? Apparently that's a harder question to answer than it would appear. CEO Richard Helppie first tried to give me background on his industry, explaining the difference between Cerner and Superior -- how Cerner derives most of its revs from software, and all of Superior's comes from services and consulting. "We're helping our clients plan, re-engineer, reorganize and implement new information systems," he said. "If they're not buying product, it's because they're working on something, and typically we're working on those things with them."
So does Superior do any Y2K work?
"No, we don't do any remediation."
Okay, then, will Superior's sales take a hit as the customers delay using its services?
Helppie: "Most of our clients are well through the remediation phase. What we would be helping with is contingency planning, data warehousing and getting them beyond Y2K. We would be helping with the implementation of new systems to replace non-Y2K compliant systems, with the very important proviso that when those implementations are complete, there will still be a vast body of things that need to be done beyond Y2K."
(I'm starting to feel here like
, when he interviews a guest who doesn't answer the question, and Haines says something like, "Sir, just answer me, 'yes or no.'" But, heck, this is a print interview. The guy didn't ask to be interviewed by me. I'm trying to be polite.)
Sounds, great, I say, but will Superior be affected by the Y2K issue?
Helppie: "There are different types of services we'll be delivering. The macroeconomic drivers of those services begin with the new model of health care ... beyond that there will be things that will be prioritized by Year 2000."
Is that a yes or no?
"We have the dual function of bringing into compliance Y2K and doing contingency planning, as well as bringing up new types of information systems for the Y2K model. We're working across the entire continuum. Therefore, we're less dependent on the sale of new product licenses."
Exasperated, I say something like: "In other words, it's not an easy question to answer. There are lots of variables, but you think you won't suffer very much because you don't sell software."
He wouldn't say yes or no but said that in simplistic terms that was a correct answer.
All of this came about because I was talking to someone who has a great record with this column and is very short Superior's stock. Superior doesn't have a history with short-sellers, but has plenty of fans among investors. At yesterday's close of 43 3/16, it was trading near its highs and at more than 50 times trailing earnings (robust by its industry standards). A multiple like that leaves little room for error, which is where this short-seller comes in.
He's most focused on the company's operating cash flow, which has been negative for several quarters. In contrast, its closest competitor,
, has positive operating cash flow. Several quarters of negative operating cash flows led this short to also bet against
, two recent health care-related blowups after unexpected earnings shortfalls. "They both had lots of excuses," he says.
Superior also suffers from an operating margin that last quarter slipped below expectations, growing days outstanding of receivables and a greater use of so-called percentage-of-completion accounting for its fixed-fee services. Under percentage of completion, revenue is generally booked up front and the money is collected as certain milestones are met. In general, critics of this accounting method say that companies can use it to help manage their earnings. Indeed, in a recent report
analyst Raymond Falci praised Superior for its "ability to delicately balance the challenges associated with posting consistent quarterly earnings growth."
Superior says the shift to percentage of completion is associated with its growing business of "outsourcing" its employees to manage a hospital's technology department.
Asked about the change, Helppie snapped, "You need to do more homework on the outsourcing business. Next question."
Yeah, how will Superior be affected by Y2K?
Tip o' the Hat...
...To the Jimster, who warned early in the day that a barrage of selling would be coming in the afternoon. "He must have saved a lot of subscribers mucho dough with his thoughts today," says
strategist Bill Meehan.
Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at
email@example.com. Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.