Toronto Stock Exchange Symbol: SXC

Systems Xcellence ANNOUNCES 2004 FOURTH QUARTER AND YEAR-END FINANCIAL RESULTS

MILTON, ON, March 3 /CNW/ - Systems Xcellence Inc., ("SXC" or the "Company") (TSX: SXC) today reported its fourth quarter and year-end financial results for the three- and twelve-month periods ended December 31, 2004. As a result of the change in the company's year-end to December 31 from February 28 (effective December 31, 2003) and in accordance with regulatory requirements, the twelve-month period ended December 31, 2004 will be compared to the ten-month period ended December 31, 2003. All figures are in U.S. dollars.

Highlights of 2004:

• Acquired Health Business Systems, Inc. ("HBS"), a provider of retail pharmacy systems with annual revenue of approximately
  $14 million

• Increased revenue from recurring sources from 51% to 62% for the year, and to 68% in the fourth quarter

• Won ten new ASP/InformedRx contracts valued at more than $8.0 million

• Processed more than 110 million pharmacy transactions through its data center

• Increased three-year contract order backlog at year-end to $79 million

• Certified by the U.S. Centers for Medicare & Medicaid Services (CMS) as one of 35 Medicare Discount Drug Card sponsors

• Hired six veteran pharmacy benefit manager (PBM) employees in the executive, sales, clinical and member services areas of expertise.

"2004 was a year of transition for SXC in which we made important progress on our primary objective to increase the recurring revenue and
associated margins generated in both our provider and payer markets," said Gordon S. Glenn, President and CEO of SXC. "With InformedRx, we emerged as a key vendor of choice for payer organizations looking for greater pricing transparency and flexibility in their prescription drug benefit programs. This helped us to organically grow our annual transaction processing revenue by more than 49% compared to calendar 2003." "In the provider market, we completed the acquisition of HBS in the fourth quarter, which will diversify our revenue base and give us the products, infrastructure and brand awareness to address the growing opportunity in the retail pharmacy market," continued Mr. Glenn. "With successes in both the payer and provider market, we believe we are now strongly positioned throughout the pharmaceutical supply chain to provide healthcare organizations with the necessary products and services to reduce the cost and enhance the efficiency associated with processing prescription drug claims."

Annual Financial Review

Revenue for the twelve-month period ended December 31, 2004 was $33.0 million compared to $28.7 million in the comparable ten month period. Revenue of a recurring nature was $20.4 million, or 62% of total revenue, versus $14.5 million, or 51% of total revenue, in the prior period. Transaction processing and switching revenue was $13.5 million, or 41% of total revenue, in 2004 compared to $7.9 million, or 28% of total revenue, in the comparable period. This increase was driven by the addition of new transaction processing customers and growth from existing customers during this period. Maintenance revenue increased slightly to $6.9 million, or 21% of total revenue, compared to $6.6 million, or 23% of total revenue, in the comparable period.

Revenue from non-recurring sources was $12.6 million, or 38% of total revenue, in 2004 compared to $14.1 million, or 49% of total revenue, in the comparable period. Software license revenue was $7.0 million, or 21% of total
revenue, in 2004, compared to $8.5 million, or 30% of total revenue, in the comparable period. The decline in license revenue is related to the completion of the license, maintenance and services agreement in the first half of 2004, but was partially offset by the recognition of certain tiered-license arrangements during the year. Integration and consulting revenue was $5.6 million, or 17% of total revenue, in 2004, compared to $5.7 million, or 20% of total revenue, in the comparable period.

"The evolution of our revenue mix is consistent with our objective to increase the volume of activity in our transaction processing business and grow our recurring revenue," said Irwin Studen, Senior Vice President Finance & CFO at SXC. "The acquisition of HBS will further increase our recurring revenue and we now have greater visibility into our revenue stream with approximately 70% of 2005 revenue expected to come from recurring sources."

Gross margin remained unchanged at 59% in 2004 compared to the prior fiscal year. Total expenses - comprised of product development costs ("R&D"), selling, general and administrative costs ("SG&A"), amortization and stock compensation expense - in 2004 were $16.4 million, or 50% of revenue, compared to $13.3 million, or 46% of revenue, in the comparable prior period. The increase in R&D and SG&A expenses is primarily a result of comparing a ten-month period to a twelve-month period.

Net income for the twelve months ended December 31, 2004 was $2.3 million, or $0.05 per share, compared to $2.9 million, or $0.07 per share, in the comparable prior period. Lower net income resulted primarily from increased R&D and SG&A costs, and $0.6 million of stock compensation expense, compared to $0.2 million in the comparable prior period.

SXC continues to operate with a strong balance sheet from which to pursue its growth initiatives. At December 31, 2004, the company had a working capital position of $14.8 million, compared with $14.2 million of working capital at December 31, 2003.

In addition to generating $2.7 million in cash from operations during the fiscal year, in December, SXC raised approximately $6.0 million in debt and $12.0 million in equity to complete the acquisition of HBS by assuming a notes payable in the amount of $18.0 million on the December 17, 2004 closing date. The debt was raised from the Company's existing lender and brings SXC's total debt to approximately $13.6 million. In connection with this debt issue, and reflecting the overall strength in the Company's operations, interest rates on the $13.6 million have been reduced to levels approximately 200 basis points below interest rates under the prior agreement. The equity private placement was also a success as the Company raised approximately $12.0 million in an oversubscribed offering. Subsequent to year end, the Company repaid the$18.0 million notes payable.

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 and operates in the U.S. under its wholly-owned subsidiary, SXC Health Solutions, Inc. 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. 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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