Cbay versus Spheris

The continuing decline of Spheris in MT industry makes one perplexed as to why the MT giant lost the battle to its Indian counterpart Cbay Systems which is continuing to grow at a pace that is now compared to even Infosys and Wipro. Just a couple years ago, you asked anyone in India, which is the biggest medical transcription company in India and pat came the reply, Healthscribe (Now Spheris or Cbay don't know for sure!!!), but things are different now. The continuing losses at Spheris have been accumulating for years. The Spheris management has blamed a combination of factors, from delays in implementing technology to lost business as customers defect in an industry splintering under pricing pressures. According to Spheris Inc. CEO Dan Kohl, not a happy man these days, “I am not satisfied with where we are at this point. I want to see a clear sign that customers are happy with us and that we’ve begun to really turn the corner in a positive way, which will mean signing some new business, feeling good about that and stopping the losses.”

The eternal question everyone has on their mind is can Spheris right the ship and retain its No. 2 market position in US and now in India is a question that is perhaps most worrisome to its strong workforce both in US as well as India as well as about 500 health systems, hospitals, and group practices throughout the United States that have for so long depended on the excellent services rendered to them by Spheris.

But the financial status is really very sad. The net revenue, which reached $52.3 million in the first quarter of fiscal year 2007, has fallen every consecutive quarter since, to $40 million in the second quarter of 2009. After that the company terminated its voluntary registration with the U.S. Securities and Exchange Commission and after three weeks the CEO Kohl resigned after just 13 months into the job, and Spheris announced that they have hired a new high-powered turnaround consulting firm to sail the company through the troubled water by debt restructuring.

Thus started speculations and the rumor mills about Spheris's future. By closing the curtains on its finances, Spheris has opened the door to speculation regarding its future. The Nashville Business Journals apparently referring to my earlier blog post "Cbay, Spheris, Medquist or they are alll one now" said, "Whispers range from a sale to a bankruptcy, with the former gaining steam in the past week after a blogger in India reported competitor Cbay Systems Ltd. had struck a deal to buy Spheris’ operations in that country."

Both Spheris and Cbay have declined to address the potential sale, though no one has denied the deal. Though Spheris is trying to its best to sound most optimistic and in fact according to Spheris spokeswoman Lisa DeMoss, “Customers are a central focus in this process, and we are confident that we are taking the right steps to meet the needs of Spheris’ customers and position the company for a successful future. We are pleased with our progress to date and will continue to focus on both our operational and financial initiatives.” The fact is that there is suspicion over Spheris's ownership as well.  According to reports, private equity firms Warburg Pincus and TowerBrook Capital Partners as the majority shareholders in the company sharing about 83 percent stakes between them, 55 percent of Warburg Pincus and 28 percent TowerBrook Capital Partners. However, the interesting fact is that Warburg Pincus does not include Spheris its list of portfolio companies on its Web site, though TowerBrook’s portfolio list does include Spheris.

The new consulting firm Spheris is now under the direction of is Capstone Advisory Group, which hopefully will be able to sail Spheris through these difficult financial times. Bob Butler from Capstone is the new CEO of Spheris who has to carve out a debt restructuring plan to come out of the financial mess, which is like the company owed $75.2 million under its senior secured credit facility and another $125 million in senior subordinated notes as of June 2009.

With stiff competition from Medquist and Cbay (or are they both one) as well as other major players and independent contractors working from home for an estimated $15 billion industry, the uncertain future is looming large on Spheris and so the worries keep growing for their strong workforce both in US and India. While things are looking very grim for Spheris, Cbay continues to grow at an amazing pace, so if they both became one (or are they already are in India???), it will bring a lot of respite to at least Spheris' strong workforce in India.  Lets keep our fingers crossed...



© 2010 Ranjan Kumar