Toronto Stock Exchange Symbol: SXC
Systems Xcellence to acquire health business systemsTransaction expected to add approximately US$14 million per year in revenue and be immediately accretive to earnings at US$0.02 per diluted share in 2005 - Conference call to be held today at 5:00pm EST - THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT INTENDED FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES MILTON, Ontario November 22, 2004, Systems Xcellence Inc., (“SXC” or the “Company”) (TSX: SXC) a leading provider of healthcare information technology solutions throughout the pharmaceutical supply chain, announces that it has entered into an agreement (the “Agreement”) through its wholly-owned U.S. subsidiary, SXC Health Solutions, Inc., to acquire Health Business Systems, Inc. (“HBS”), a leading provider of retail pharmacy management systems and workflow technology. The transaction is expected to substantially increase SXC’s revenue earned from the pharmacy market, significantly enhance the functionality of the Company’s pharmacy offerings, solidify the Company’s strategic position in the fast growing pharmacy market and be immediately accretive to earnings per share at US$0.02 per share in fiscal 2005. All figures are in U.S. dollars, unless otherwise noted. Under terms of the Agreement, SXC will pay up to $24.0 million for HBS, with the final purchase price subject to working capital adjustments at closing and HBS achieving certain calendar 2004 financial (“Earn-out”) targets. The acquisition is subject to and conditional upon SXC obtaining satisfactory financing and other customary closing conditions (including regulatory approval for any equity financing). The transaction is expected to be financed through a combination of working capital, debt and cash raised via an equity offering. Under the Agreement, SXC has until January 31, 2005 to complete the transaction; however, the Company expects to close by the end of calendar 2004. “We believe that this transaction presents tremendous opportunities to expand our business as well as enhance shareholder value. HBS targets its products to the provider market – retail chain, independent and institutional pharmacies – a market which currently accounts for only 12% of SXC’s sales. With an extensive and diversified customer base combined with a robust suite of products and services, we expect HBS will be a key catalyst to accelerate and expand our presence in this market as providers continue to seek pharmacy management and workflow solutions to help them manage the rising volume of prescription drug transactions,” said Gordon S. Glenn, President and CEO of SXC. “Furthermore, HBS’ strength in supporting independent and chain pharmacies complements our strength in the mail-order segment of the provider market.” With approximately 70 employees based in the Philadelphia area, HBS currently serves more than 1,200 customers throughout the United States and generated calendar 2003 audited revenue of $13.5 million and adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3.5 million. HBS’ forecasted financial results for 2004 and beyond are, subject to closing, expected to result in immediate accretion to SXC’s earnings per share. Moreover, in keeping with SXC’s strategy to increase its recurring revenue, more than 65% of HBS’ revenue is currently derived from recurring services including software maintenance, third-party claims switching and other clinical and data services. The Company has also entered into employment agreements with HBS’ key employee shareholders, which include long-term performance-based incentives. “We are committed to investing in and supporting HBS’ existing product and service lines and to ensuring that their customers continue to receive a superior level of technology and customer service. We look forward to drawing upon the collective talent at HBS and SXC to ensure that HBS’ current technology continues to deliver and more rapidly expands its broad functionality and technical architecture. Going forward we believe that by combining our people and the best of our products we will be able to achieve strong synergies and deliver the most compelling suite of solutions targeting the pharmacy market,” added Mr. Glenn. “We are excited about combining with SXC as we jointly address the significant pharmacy management systems and services market opportunity in the years ahead,” said Louis Greenberg, President and CEO of HBS. “In combination with SXC’s significant payer-oriented pharmacy benefit solutions, industry-leading RxEXPRESS mail-order pharmacy products and domain expertise, we believe the combination with HBS yields a compelling suite of software solutions and services to meet the complex business management needs of the full-range of pharmacy organizations from independents to the largest chains,” added Mr. Greenberg. Financing the Transaction To finance the acquisition of HBS, SXC will use a combination of existing cash, debt and cash raised via a new equity offering. For the approximately $22.0 million necessary to close the acquisition (including fees), up to $10.4 million can be sourced from a currently committed debt financing, approximately $8.0 - $12.0 million will be raised through an equity private placement and any balance will come from working capital. The Company will also use its available working capital resources to pay the $4.0 million Earn-Out, which is expected to be paid in calendars 2005 and 2006. In connection with the debt financing, SXC has received a commitment to increase its senior credit facility by $10.4 million from its current level of $7.6 million to up to $18.0 million to facilitate completion of the acquisition. “This facility has favorable interest rates and flexible repayment terms,” added Irwin Studen, Senior Vice President and CFO of SXC. “HBS’ and SXC’s combined high recurring revenue base in combination with these improved financial terms more than support this increased debt capacity,” added Mr. Studen. To finance the equity portion of this transaction, SXC has entered into an agreement with Paradigm Capital Inc. (“Paradigm”) under which Paradigm will act as lead agent on a “best efforts” private placement of common shares (the “Offering”). Paradigm will form a syndicate of other agents with a mandate to raise $8.0 million with a company option to raise up to an additional $4.0 million for a total of up to approximately $12.0 million. The Offering is expected to be completed on or about December 15, 2004. “We believe the acquisition of HBS by SXC is a continuation of the strategy that SXC’s board of directors and management has set forth for the Company to become a leading provider of products and services in the pharmacy transaction processing value chain. We have watched this strategy unfold since our initial financing transaction in December 2002 and are pleased to support SXC’s continued and measured growth,” added Peter Malekian, Managing Director of MCG Capital Corporation, SXC’s senior lender. Terms of the Agreement SXC and HBS have entered into an Agreement which contains terms and conditions typical for transactions of this nature. In certain circumstances, SXC may terminate the Agreement and withdraw its offer to acquire HBS. Similarly, in certain circumstances, HBS may terminate the Agreement and withdraw its offer to be acquired by SXC. In such an event and in certain other circumstances where the Agreement is not completed, SXC or HBS would be required to pay a termination fee of up to $600,000. Fiscal 2005 Financial Guidance Assuming the acquisition closes on or near schedule, the company has established the following financial guidance for its fiscal 2005, the twelve month period ending December 31, 2005: Revenue in the range of $49.0 to $52.0 million and GAAP fully-diluted earnings per share of $0.09 to $0.11. The latter includes $0.02 per share from the HBS acquisition. Conference Call SXC will hold a conference call to present an overview of this transaction on November 22, at 5:00 p.m. Eastern Standard Time. The conference call will be webcast live at www.sxc.com and will be available for replay purposes. The conference call may also be accessed by dialing 416-405-9328 or 1-800-387-6216. A replay of the call can also be heard by dialling 1-800-408-3053 or 416-695-5800 and entering the reference code 3116545. The taped call is available until November 29, 2004. About Health Business Systems, Inc. Based in Warminster, Pennsylvania, Health Business Systems, Inc. (HBS) has been a leading provider of retail pharmacy management systems and solutions since the early 1970's. During the late 1990’s, HBS began a successful acquisition path that consisted of acquiring three software vendors and converting and retaining hundreds of customers over to the HBS platform. This combination of acquisitive and organic growth resulted in an account base that today numbers more than 1,200 deployed systems, including regional chain pharmacy customers. Research and development efforts have focused on Institutional Pharmacy, Remote Distribution Pharmacy (Mail Order), and Common Profile (Multi-Store Chain) Pharmacy Systems. HBS’ latest innovation, Chain-Host™, ties a widely dispersed group of pharmacy locations to a central system enabling efficient management or support of these locations. This product is now installed at both commonly owned chains as well as entities operating as franchise organizations and co-ops. 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. SXC can be found on the
Internet at www.sxc.com. For more information, please contact:
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