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Toronto Stock Exchange Symbol: SXC

Systems Xcellence Announces First Quarter FY2002 Financial Results

First quarter revenue rises 25% year-over-year as Company sees considerable growth in its recurring revenue base 

MILTON, Ontario (July 19, 2001) -- Systems Xcellence Inc., (TSE: SXC) today announced financial results for the first quarter of fiscal 2002, ended May 31, 2001.

Highlights of the quarter include:

 The acquisition of the business of ComCoTec, Inc. from The Potomac Group, Inc. which effectively doubled the size of the Company;

• A near quadrupling of the Company's contract order backlog to over $51 million as a result of the acquisition;

• An increase to over 50% of the combined Company's revenue to be recurring in nature;

• A restructuring initiative which is expected to result in annualized savings of over $7.0 million;

• The appointment of The Equicom Group, Inc. as the Company's Investor Relations firm;

• A contract extension with First Health Services Corporation (FHS);

• The addition of three new clients, to whom Systems Xcellence will provide claims processing services under its RxCLAIM® Application Solutions Provider (ASP) offering; and

• The appointment of Shaun Kobrin, Investment Manager of Covington Capital Corporation, to the Company's Board of Directors.

"We are pleased with the strategic achievements made during our first quarter of fiscal 2001," remarked Gordon S. Glenn, President and CEO of Systems Xcellence. "Our acquisition of ComCoTec has created the largest company in the North American pharmacy information processing solutions business and is expected to be accretive to both EBITDA and cash flow. To ensure that we maintain an optimal cost structure, we have initiated a restructuring program that is designed to rapidly integrate product and customer support functions. Based on the growth of our reputation as a leading software provider to the healthcare benefit management industry, we are confident that our unique suite of services will continue to be well received."

Subsequent to the end of the quarter, the Company signed a contract with Dean Health Plan of Madison, Wisconsin to provide application-processing services for its comprehensive pharmacy benefit management and information analysis needs. With this initial three-year contract in place, Systems Xcellence adds a major Managed Care Organization (MCO) to its growing ASP offering. The new relationship between Systems Xcellence and Dean Health Plan will commence with the initiation of transaction processing in the middle of September.

Financial Results

First quarter revenues increased 25% to $8.0 million from $6.4 million in the first quarter 2002, with about 60% arising from ComCoTec related revenue. With the acquisition of ComCoTec, Systems Xcellence has expedited its transformation to a company with a more solid foundation of recurring revenue, including its industry leading Application Solutions Provider (ASP) offering. For the first quarter 2002, over 50% of the Company's revenue was earned from recurring revenue sources. This figure is up from less than 13% during the same period in fiscal 2001. The continued transformation to a more balanced recurring revenue model should provide Systems Xcellence with a much more stable revenue stream.

As a result of its ComCoTec acquisition, the Company has nearly quadrupled its contract order backlog to $51 million at the end of the first quarter of fiscal 2002, compared to $13 million at the end of the comparable quarter in fiscal 2001. Management anticipates that this contracted order backlog would be realized over a three-year period.

For the first quarter of fiscal 2002, Systems Xcellence reported a net loss of $8.1 million or ($0.39) per share, compared to a net profit of $331,065 or $0.02 per share for the corresponding period in fiscal 2001. Giving effect to the exercise of the Special Warrant issuance by the Company on or about March 8, 2001, the net loss for the first quarter was ($0.21) per share.

Compared to the first quarter of fiscal 2001, this loss was largely attributable to a decline in license software revenue of $2.6 million, a goodwill amortization charge of $2.8 million in connection with the ComCoTec acquisition and an increase in operating and project expenses of $4.5 million for the combined company. Also contributing to this loss was a restructuring charge of $1.6 million and an increase in interest and depreciation expense totaling $1.1 million. Offsetting this loss, was an increase in maintenance, integration and consulting services and transaction-based revenue (ASP/Switching) of $4.2 million.

On an earnings before interest, taxes, depreciation and amortization (EBITDA) basis, the Company recorded $3.8 million of negative EBITDA in the first quarter of fiscal 2002, including the $1.6 million restructuring charge, compared to a positive EBITDA of $0.7 million in the comparable period of the prior year. Other factors contributing to the remaining $2.9 million EBITDA decline include the $4.5 million increase in operating and project expenses for the combined company, offset by the $1.6 million increase in revenue.

The $1.6 million restructuring charge was largely the result of staff reductions at its Milton, Ontario and Scottsdale, Arizona operations in the product development area to reflect the Company's transition from selling exclusively licensed software to a more balanced licensed software and ASP service model. Other related reductions were in the sales and marketing and general and administrative areas. The Company expects this restructuring to result in over $7.0 million of annualized savings that will begin to be realized in the Company's fiscal 2002 second quarter. Management anticipates that moving forward the Company may experience an additional restructuring initiative as it streamlines its physical operations with ComCoTec. It remains the Company's goal to have positive EBITDA by the fourth quarter of fiscal 2002 with over 50% of revenues generated on a recurring basis.

Subsequent to acquiring ComCoTec, the Company has been managing some short-term financial liquidity pressures. However, Management believes that based on the pursuit of a number of initiatives that sufficient capital would be maintained in advance of realizing the benefits from its recent restructuring.

ComCoTec Integration

During and subsequent to the quarter, Systems Xcellence achieved key milestones in the integration of the ComCoTec acquisition. The combined Company has reduced headcount by about 25% and has completed integration of substantially all of the operations, R&D, business development, client services and infrastructure groups. As a result, Jeff Jensen, the former ComCoTec President, has assumed the role of Senior Vice-President of Business Development for the combined company, effectively replacing Walt Ellenberger who recently left the Company.

With these milestones achieved and restructuring initiatives completed, Systems Xcellence expects that cost savings and top-line growth associated with the acquisition to be realized over the next several quarters and beyond.

Outlook

The Company's growth strategy is based upon four key objectives. First, Systems Xcellence aims to grow its core business in the U.S. as a provider of transaction management software at all points along the pharmaceutical supply chain. Secondly, the Company intends to establish itself as the premiere ASP supplier for clients to outsource their healthcare benefit processing functions. With the acquisition of ComCoTec, Systems Xcellence is now the leading ASP within the pharmaceutical benefits supply chain. Thirdly, Systems Xcellence is focused on providing value-added data analysis services and intelligence to customers, allowing them to more effectively control their rapidly increasing drug benefit costs. The final aspect of the Company's strategy in an industry that is rapidly expanding and consolidating is to be open to possible business combinations that would enhance shareholder value.

Notice of Conference Call

Systems Xcellence will be holding a conference call Thursday, July 19th, 2001 at 10:00 a.m., EST to discuss their First Quarter financial results. Mr. Gordon Glenn, President and CEO will be hosting the call.

A live audio webcast of the call will be available at www.investorlook.com. Webcast attendees are welcome to listen to the conference in real-time or on-demand at your convenience.

About Systems Xcellence Inc.

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