SYSTEMS XCELLENCE ANNOUNCES FIRST QUARTER FISCAL 2003 RESULTS

MILTON, Ontario, July 16, 2002 -- Systems Xcellence Inc., ("SXC" or "the Company") (TSX: SXC) a leading provider of healthcare information technology solutions throughout the pharmacy benefit supply chain, today announced financial results for its first quarter of fiscal 2003, ended May 31, 2002.

Highlights of the quarter include:

• Revenue increase of 38% over the first quarter of fiscal 2002;

• Recurring revenue of 51%;

• EBITDA of $1.9 million versus EBITDA of negative $3.7 million in the first quarter of fiscal 2002;

• A return to profitability with net income of $327,923 or $0.01 per share;

• Repayment of the Company's outstanding bank debt;

• An amended agreement with its primary debt holder, GATX Capital (Canada), Inc.

"The entire team at SXC worked diligently in fiscal 2002 to integrate the acquisition of ComCoTec and we are very pleased to report that those efforts were the catalyst for the Company's return to net income profitability in the first quarter of fiscal 2003," said Gordon S. Glenn, President and CEO of SXC. "Our financial results for the first quarter were in-line with management's expectations and are consistent with the Company's strong performance in the second half of fiscal 2002. Based on the progress we made during the quarter advancing the opportunities in our sales pipeline, we believe we are on track to achieve our previously announced financial guidance for fiscal 2003."

Financial Results

Consolidated revenue increased $3.0 million or 37.8% in the first quarter of fiscal 2003 to $11.1 million from $8.0 million in the comparable period in fiscal 2002. This increase was largely a result of a $2.6 million increase in integration and consulting services revenue, a $0.6 million increase in maintenance revenue, and a $0.3 million increase in ASP/Switching revenue. This was offset by a $0.5 million decline in licensed software revenue. The increase in integration and consulting services revenue is largely a result of the ongoing work performed for two large customers in connection with software enhancements and implementation of requirements for the Health Insurance Portability and Accountability Act (HIPAA). The reduction in licensed software revenue is largely the result of the continued weakness in the current economic environment that has delayed new licensed purchases.

Product development costs for the first quarter of fiscal 2003 were $1.5 million, representing 13.8% of revenue. This compared to $3.2 million or 40.4% of revenue for the comparable prior period. The decrease in product development costs on both a total dollar and percentage of revenue basis is largely a result of the $1.6 million restructuring effort that the Company implemented in the prior period following the completion of the ComCoTec acquisition.

Selling, general and administrative costs for the first quarter of fiscal 2003 were $2.7 million, or 24.5% of revenue as compared to $3.0 million, or 38.0% of revenue for the comparable period of the prior year. This decrease in cost was due primarily to the restructuring initiative effected in the prior period, reduced travel expenses following the September 11, 2002 terrorist incident in the United States, and reduced telecommunication costs resulting from renegotiated service provider contracts.

The Company recorded earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.9 million during the first quarter, compared with EBITDA of negative $3.7 million during the same period of fiscal 2002. EBITDA in the first quarter of fiscal 2002 included a one-time restructuring charge of $1.6 million.

For the first quarter of fiscal 2003, the Company reported net income of $327,923, or $0.01 per share, compared to a net loss of $8.1 million, or $(0.39) per share, for the corresponding period in fiscal 2002. Net loss before goodwill amortization for the first quarter of fiscal 2002 was $(0.25) per share. During fiscal 2002, SXC amortized approximately 50% of the goodwill resulting from its March 2001 acquisition of ComCoTec, Inc. As a result, under the new CICA guidelines related to goodwill, SXC has not amortized any goodwill associated with the acquisition in the first quarter of fiscal 2003, and is instead subject to an annual impairment test.

The Company generated $1.4 million in cash from operations during the first quarter of fiscal 2003, compared to $0.4 million for the same period of fiscal 2002. This increase is primarily the result of cash collections from an increased revenue base and reduced operating expenses. The Company also had $1.4 million of additional accounts receivable at May 31, 2002, compared to February 28, 2002, the majority of which was received subsequent to the quarter end.

During the first quarter of fiscal 2003, the Company repaid the remaining $1.9 million balance of its bank debt. Of this amount, $1.1 million originated from working capital and the balance of $0.8 million from the initial proceeds of the insurance claim the Company filed in connection with its long-term receivable. Primarily as a result of the bank debt repayment, the Company's cash and cash equivalents declined $1.3 million. With its new arrangement with GATX and the repayment of all of its bank debt, SXC is poised to successfully execute on its business plan, and focus on improving its liquidity position through new lending arrangements.

At the end of the first quarter of fiscal 2003, the Company's contract order backlog remained steady at $61.5 million. Management anticipates that this contracted order backlog will be realized over a three-year period.

Subsequent Events

Subsequent to the end of the first-quarter, SXC announced the following contract awards:

· A $3.5 million, three-year ASP transactions processing contract with a U.S. based mid-sized pharmacy benefit manager;

· A $3.0 million licensed software and services contract with one of the largest U.S. based managed care organizations;

· A $1.8 million renewal of a three-year ASP contract with Sierra Health Services Inc.; and

· A $0.9 million renewal of a two-year ASP contract with Serve You Prescription Management Inc.

Fiscal 2003 Guidance

Originally released in conjunction with its fiscal 2002 year-end financial results, SXC's management maintains the following guidance for fiscal 2003 -- First, it is projecting revenue in a range of $44-47 million; second, EBITDA in a range of $7.2-8.2 million; and third, a return to net income profitability with an EPS target range of $0.03-$0.06.

Notice of Conference Call

SXC will be holding a conference call on July 16, 2002 at 10AM (ET) to discuss its first quarter fiscal 2003 financial results. Mr. Gordon S. Glenn, President and CEO, will host the call.

A live audio webcast of the call will be available at www.financialdisclosure.ca and www.sxc.com. Webcast attendees are welcome to listen to the conference in real-time or on-demand at your convenience. A taped replay of the call will be archived at those sites for 90 days. A replay of the call can also be heard by dialling 1-800-408-3053 or 416-695-5800 and entering the reference code 1224532. The taped call is available until July 23.

About Systems Xcellence Inc:

Systems Xcellence (SXC) is headquartered in Milton, Ontario with offices and processing centres in Lombard, Illinois, Scottsdale, Arizona and Victoria, British Columbia. SXC is a leading provider of healthcare information technology solutions and services to the healthcare benefits management industry. The company's product offerings and solutions combine a wide range of software applications, application service provider (ASP) processing services and professional services, designed for many of the largest organizations in the pharmaceutical supply chain, such as pharmacy benefit managers, managed care organizations, retail pharmacy chains and other healthcare intermediaries.

The company's products offer its customers comprehensive pharmacy benefits management, claims switching and processing, drug dispensing, data warehousing and analysis, and rebate contract management systems. SXC delivers these solutions to its customers as software products bundled with systems implementation and consulting services, or on an ASP basis from its data centres in Scottsdale, Arizona and Lombard, Illinois. The Company's shares are traded on the Toronto Stock Exchange under the symbol SXC. SXC can be found on the Internet at www.sxc.com.

This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about the Company's business are more fully discussed in the Management Discussion and Analysis published in the Company's annual report.

For a copy of the financial statements, please click on the link below:

http://www.newswire.ca/cgi-bin/view.cgi?OKEY=66166&TYPE=org