Toronto Stock Exchange Symbol: SXC

MILTON, Ontario, August 5, 2004, Systems Xcellence Inc., ("SXC") (TSX: SXC) today reported its second quarter financial results for the three-month period ended June 30, 2004 ("Q2 CY'04"). As a result of the change in the company's year-end to December 31 from February 29 (effective December 31, 2003) and in accordance with Canadian GAAP (Generally Accepted Accounting Principles), Q2 CY'04 will be compared to the first quarter of the prior fiscal year which represented the three-month period ended May 31, 2003. All figures are in U.S. dollars.

Revenue for the three-month period ended June 30, 2004, was $8.5 million compared to $7.9 million for the three-month period ended May 31, 2003. Revenue of a recurring nature was $5.0 million in Q2 CY'04, or 59% of total revenue, versus $4.0 million, or 51% of total revenue, for the three months ended May 31, 2003. Net income for Q2 CY'04 was $491,684, or $0.01 per share, compared to $758,805, or $0.02 per share, for the three-month period ended May 31, 2003.

"Calendar 2004 is a transition year for SXC as we move toward a revenue model that is focused on deriving a majority of revenue on a per transaction basis as opposed to one-time software license sales. This strategy is ideally suited to meet the needs of our expanding target market and year-to-date, has resulted in an increase in revenue from recurring sources to 61% of total revenue compared to 47% at this time last year," said Gordon S. Glenn, President and CEO of SXC. "We continue to build the volume of activity in our transaction processing business segment, and with a promising pipeline of new opportunities and a growing customer base, we believe we are on track to meet our financial target for the year."

Highlights for Q2 CY'04 included:

• Transaction processing and switching revenue increased 75%, from $1.9 million to $3.3 million, compared to the comparable prior quarter.

• Revenue backlog remained steady at $49.1 million, of which over 90% was from recurring revenue sources.

• The signing of a three-year, $1.5 million transaction processing contract with a regionally-based mid-sized pharmacy benefit management (PBM) company located in the U.S.

• Renewal of a three-year, $2.0 million, transaction processing contract with Horizon NJ Health of West Trenton, New Jersey, a subsidiary of Horizon Blue Cross Blue Shield.

• A RxEXPRESS® pharmacy management system license to Prime Therapeutics, LLC of St. Paul, Minnesota, to manage its mail-order needs.

• The signing of a Medicare drug discount care partnership with Liberty Healthcare Group.

• The addition of Mr. Michael Meyer, a 20-year veteran executive of the PBM industry, as Senior Vice President, Sales and Marketing for the Company.

Financial Review

Revenue from recurring sources was $5.0 million in Q2 CY'04 compared to $4.0 million in the comparable period, a 25% growth rate. Transactions processing and switching revenue was $3.3 million in Q2 CY'04 compared to $1.9 million in the comparable period, a 75% increase. Maintenance revenue was $1.7 million compared to $2.1 million in the comparable period, a 20% decrease.

Revenue from non-recurring sources was $3.5 million in Q2 CY'04 compared to $3.9 million in the comparable period, a 9% decline. Software license revenue was $2.0 million in Q2 CY'04, compared to $2.1 million in the comparable period, a 4% decline. Integration and consulting revenue was $1.5 million compared to $1.8 million in the comparable period, a 15% decline. "The decline in revenue from non-recurring sources is consistent with our strategy of transitioning our business to one built on revenue from recurring sources, predominately transactions processing," said Irwin Studen, Senior Vice President Finance & CFO at SXC.

Gross margin increased in Q2 CY'04 to 60% compared to 56% in the three-month period ended May 31, 2003, primarily due to increased revenue from transaction processing and decreased revenue from integration and consulting sources.

Product development expenses were $2.0 million or 23% of revenue, compared to $1.3 million in the prior period, or 16.5% of revenue, primarily due to the allocation of greater resources to the development of RxEXPRESS for Windows and the redeployment of resources from a large RxCLAIM® integration and consulting project in the prior period. Selling, general and administration costs increased slightly to $1.8 million in the current period from $1.6 million in the prior period.

Earnings before interest taxes depreciation and amortization (EBITDA) for Q2 CY'04 were $1.3 million, or 15% of revenue compared to $1.5 million, or 19% of revenue for the three-month period ended May 31, 2003. This decline is primarily attributed to the increased funding of product development initiatives to support the Company's future growth. EBITDA is calculated by adding-back interest, taxes depreciation and amortization and stock compensation expense to net income. EBITDA does not have any standardized meaning prescribed by generally accepted accounting principles and therefore may not be comparable to similar measures presented by other public issuers.

SXC continues to operate with a strong balance sheet from which to pursue its growth initiatives. At June 30, 2004, the company had a working capital position of $14.5 million, with cash and cash-equivalents of $12.2 million, compared with $14.2 million of working capital and $13.5 million of cash and cash-equivalents at December 31, 2003.

At June 30, 2004, the company's contract order backlog was $49.1 million, of which over 90% was from recurring revenue sources, compared with $49.4 million at December 31, 2003. Management anticipates the majority of this contracted order backlog to be realized over a three-year period.

Revenue for the six-month period ended June 30, 2004, was $16.3 million compared to $16.8 million for the six-month period ended May 31, 2003. Year-to-date revenue of a recurring nature was $9.9 million, or 61% of total revenue, versus $7.9 million, or 47% of total revenue, for the six months ended May 31, 2003.

Net income for the six-month period ended June 30, 2004 was $765,946, or $0.02 per share, compared to $1.8 million, or $0.04 per share (fully-diluted), for the six-month period ended May 31, 2003.

Financial Guidance

The company has previously established the following financial goals for calendar 2004: consolidated revenue to be in a range of $32-35 million, and earnings per share (basic) to be in a range of $0.04-0.07. Included in this net earnings guidance is approximately $0.02 of stock option compensation expense for the year.

The company also outlined that it expected its core transaction processing revenue to grow by more than 30% in Calendar 2004, while license revenue and service revenue would decline in the aggregate by approximately this same percentage. Based on results year-to-date, management now expects that its core transaction processing revenue will grow by more than 40% in Calendar 2004.

Notice of Conference Call

SXC will host a conference call on August 5, 2004 at 8:30AM (ET) to discuss its Q2 CY'04 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 3081577. The taped call is available until August 12, 2004.

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 Company's Annual Information Form.

LINK TO SECOND QUARTER STATEMENTS - PDF FORMAT

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