Toronto Stock Exchange Symbol: SXC

Systems Xcellence Announces Third-quarter fiscal 2002 revenue increases 59%

- EBITDA posts strong growth of 239% - 

MILTON, Ontario, January 24, 2002 -- Systems Xcellence Inc. (TSE: SXC), a leading provider of healthcare information technology solutions throughout the pharmaceutical supply chain, today announced financial results for its third-quarter of fiscal 2002, ended November 30, 2001. 

Highlights of the quarter include: 

• Revenue increase of 59% over the third-quarter of fiscal 2001;

• EBITDA increase of 239% over the third-quarter of fiscal 2001;

• Income before goodwill amortization of $403,618, or $0.01 per share;

• Near break-even cash flow, with positive cash flow from operations of $1.5 million;

• New licensed software contracts and ASP renewals totaling US$2.75 million; and

• Revenue backlog of $58 million at the end of the third-quarter of fiscal 2002.

"SXC continues to deliver on our promises, realizing positive results from ongoing efforts to successfully integrate ComCoTec and improve our financial position," said Gordon S. Glenn, President & CEO of SXC. "SXC today is nearing its cash flow positive milestone, is profitable on an EBITDA basis, and is benefiting from substantially higher recurring revenues, which for the second consecutive quarter remain in excess of 50%. As per our strategy, a large recurring revenue stream can provide stability and visibility going forward. SXC appears ready to meet our year-end revenue goal as we prepare for solid growth initiatives in fiscal 2003."

SXC is a key player in the U.S. pharmaceutical benefit IT market, which is valued at approximately US$2.1 billion annually. Factors driving growth in this industry include: a rising percentage of Americans who take prescription drugs on a daily basis; the rise in direct-to-consumer advertising; the Bush Administration's pledge to provide drug benefits to senior citizens; and the fact that U.S. healthcare providers and payers must generally be HIPAA-compliant by October 2002. These forces combined are fuelling demand from healthcare payers in particular, as they look to control the escalating costs of delivering healthcare benefits.

 Financial Results

Revenue for the three-month period ended November 30, 2001 increased 59.0% to $10.6 million from $6.7 million as of November 30, 2000. This growth is largely the result of increased ASP/switching and maintenance revenue. During the third-quarter recurring revenue accounted for 52.5% of consolidated revenue versus 16.4% for the corresponding period in fiscal 2001. This percentage increase is primarily the result of the acquisition of ComCoTec, Inc. in the first-quarter of fiscal 2002.

Revenue for the nine-month period ended November 30, 2001 rose by 39.8% to $27.7 million from $19.8 million as of November 30, 2000, also driven by substantially higher ASP/switching and maintenance revenue. Recurring revenue accounted for 55.0% of consolidated revenue for the first nine-months of fiscal 2002, compared to 15.2% for the corresponding period in fiscal 2001. General economic uncertainty, and a preference amongst mid-size payers of healthcare benefits for outsourced ASP solutions, resulted in offsetting declines in licensed software revenue during the current quarter and the year-to-date period.

The Company recorded earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.8 million during the third quarter, an increase of 239% over $544,764 for the same period of fiscal 2001. This also represents a 174% increase in EBITDA compared to the second quarter of fiscal 2002, marking the second consecutive quarter of positive EBITDA as SXC continues its drive toward improved financial stability. For the nine-month period ended November 30, 2001, the Company reported negative EBITDA of $1.2 million - less than half the EBITDA loss reported for the six months ended August 31, 2001. 

For the third-quarter of fiscal 2002, the Company reported a net loss of $2.4 million, or ($0.06) per share, compared to a net profit of $95,721, or $0.01 per share, for the corresponding period in fiscal 2001. On a sequential quarter-over-quarter basis, in the third quarter of fiscal 2002, the Company earned $403,618, or $0.01 per share, before goodwill amortization, compared with a loss of $952,277, or $0.03 per share, before goodwill amortization in the second quarter of fiscal 2002. 

For the first nine-months of fiscal 2002, the Company reported a net loss of $14.2 million or, ($0.43) per share, compared to a net profit of $737,176, or $0.04 per share, for the corresponding period in fiscal 2001. This change is largely attributable to a decline in licensed software revenue and goodwill amortization charges in connection with the ComCoTec acquisition. 

The Company is continuing discussions with its bank and primary debt-holder to obtain more favorable financing terms for its existing debt. During the quarter, the Company and its bank entered into a forbearance agreement with respect to the breach of certain financial covenants that occurred prior to and during the quarter. One of the conditions of this forbearance was the repayment of the Company's revolving line of credit. Management expects bank scrutiny to continue for the near future, however, with the Company's improved operating results, management believes that it will be able to secure an alternative banking relationship to enhance its borrowing capacity. 

Subsequent to the quarter-end, the Company also entered into a temporary forbearance agreement with its primary debt-holder in connection with certain missed financial covenants that occurred prior to and during the quarter.  The purpose of this agreement is to facilitate discussions for a more extensive agreement that addresses the Company's long-term financial objectives.  Discussions relating to the more extensive agreement have been ongoing and management expects a mutually satisfactory outcome. 

At the end of the third quarter of fiscal 2002, the Company's contract order backlog remained steady at $58 million. Management anticipates that this contracted order backlog will be realized over a three-year period.  

Notice of Conference Call

SXC will be holding a conference call on January 24, 2002 at 10AM (ET) to discuss its third quarter fiscal 2002 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 1044001. The taped call is available until January 31. 

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. 

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