Systems Xcellence announces record financial results for 2006



    
       - Strong organic growth leads to revenue and adjusted EBITDA(1)
                   increases of 50% and 84%, respectively -
             - Transaction volumes increase 120% to 310 million -
    

    LISLE, IL, March 8 /CNW/ - Systems Xcellence, Inc. ("SXC" or the
"Company") (NASDAQ:   SXCI, TSX: SXC), announces its financial results for the
three- and twelve-month periods ended December 31, 2006. Financial references
are in U.S. dollars unless otherwise indicated.

    Fiscal 2006 Highlights:

    
    -   Total revenue increased organically 50% to $80.9 million from
        $54.1 million in 2005
    -   Revenue from recurring sources increased 54% to $53.7 million from
        $34.8 million
    -   Transaction processing revenue, which is the primary driver of
        recurring revenue, increased 81% to $38.8 million from $21.4 million
    -   Adjusted earnings before interest, taxes, depreciation, amortization
        and certain one-time charges (adjusted EBITDA(1)) increased 84% to
        $22.1 million, or 27% of revenue, from $12.0 million, or 22% of
        revenue in 2005
    -   Net income was $13.5 million, or $0.69 per fully-diluted share, up
        from $7.7 million, or $0.50 per fully-diluted share, in 2005
    -   Book of Business(1) increased to $201 million at December 31, 2006,
        up from $175 million at September 30, 2006, and up from $108 million
        at December 31, 2005
    -   Completed NASDAQ IPO, raising $38.7 million before share issuance
        costs
    -   Appointed Mark Thierer as President and Chief Operating Officer
    -   Announced public sector contracts in Georgia and Vermont and in the
        province of Newfoundland, and
    -   Added two large, blue-chip transaction processing customers -
        Omnicare and Kroger Foods.
    

    "2006 was a landmark year for SXC, resulting in record revenue,
profitability and cash flow," said Gordon S. Glenn, Chairman and CEO of SXC.
"We expanded the reach of our innovative suite of pharmacy benefit services
into the government sector and extended our presence in the commercial sector
with major Fortune 500 customer wins. We assembled a leadership team with
deep-industry experience to navigate the comprehensive shift occurring today
in the pharmacy benefit marketplace and we completed a $38.7 million NASDAQ
initial public offering, which has significantly increased our visibility in
the US and our cash available for growth initiatives. With the right team,
tools and technology in place, we believe that our momentum will continue and
that our opportunities for growth are stronger than ever."

    Fourth Quarter 2006 Financial Review

    Total revenue for the fourth quarter of 2006 was $22.0 million, an
increase of $5.4 million, or 33%, from $16.6 million for the fourth quarter of
2005.
    Recurring revenue was $14.5 million for the fourth quarter of 2006, up
54% compared to $9.4 million for the same period last year. Recurring revenue
consisted of transaction processing revenue of $10.6 million and maintenance
revenue of $3.9 million. Overall, recurring revenue accounted for 66% of total
revenue in 2006, compared to 57% in 2005.
    Non-recurring revenue was $7.5 million for the fourth quarter of 2006, an
increase of $0.3 million, compared to the same period last year. Non-recurring
revenue consisted of system sales revenue (which includes both software and
hardware license revenue) of $2.8 million and professional service revenue of
$4.7 million.
    Gross profit margin for the fourth quarter of 2006 was 57% compared 63%
for the same period last year. The decrease was primarily due to an increase
in professional services during the period, as well as other expenses
associated with the implementation of the Georgia and Kroger contracts.
    Selling, general and administrative (SG&A) expenses were $4.6 million, or
21% of revenue, compared with $3.7 million, or 22% of revenue, for the fourth
quarter of 2005. On an absolute dollar basis, SG&A expenses rose primarily due
to higher recruiting, selling and infrastructure expenses required to support
the Company's growth.
    Adjusted EBITDA(1) for the fourth quarter of 2006 was $5.7 million, or
26% of revenue, compared to $4.5 million, or 27% of revenue, for the same
period of 2005. Higher adjusted EBITDA primarily reflects the significant
increase in revenue and in particular, transaction processing revenue,
partially offset by an increase in SG&A expenses.
    SXC reported net income of $3.3 million, or $0.15 per share
(fully-diluted), for the fourth quarter of 2006 compared to net income of
$4.0 million, or $0.24 per share (fully-diluted), for the same period last
year.

    Fiscal 2006 Financial Review

    2006 total revenue was $80.9 million, an increase of $26.8 million, or
50%, from $54.1 million in 2005.
    Revenue from recurring sources was $53.7 million in 2006, up 54% compared
to $34.8 million in 2005. Recurring revenue includes transaction processing
revenue of $38.8 million for 2006, an increase of $17.3 million, or 81%,
compared to $21.4 million in 2005. Overall, recurring revenue accounted for
66% of total revenue in 2006, compared to 64% in 2005.
    Revenue from non-recurring sources was $27.2 million in 2006, an increase
of $7.9 million, or 41%, compared to last year. Systems sales revenue was
$10.3 million in 2006, compared to $8.2 million in 2005, a 25% increase.
Professional service revenue was $16.9 million compared to $11.1 million in
2005, a 52% increase.
    Gross profit margin for 2006 was 60%, compared to 62% in 2005. Gross
profit margin was consistent with management's target of approximately 60%,
and declined year-over-year due primarily to required increased expenditures
to build-out the Company's PBM services offering as well as other expenses
associated with the implementation of the Georgia and Kroger contracts.
    Product development expenses were $8.7 million, or 11% of revenue,
compared to $9.0 million, or 17% of revenue, in 2005. Product development
expenses decreased as a percentage of revenue due primarily to the curtailment
of research and development in the first quarter of 2006 associated with
Medicare Part D enhancements.
    SG&A expenses were $17.4 million, or 21% of revenue, compared with
$12.4 million, or 23% of revenue, in 2005. On an absolute dollar basis, SG&A
expenses rose primarily due to higher recruiting, sales, marketing and
infrastructure expenses required to support the Company's growth. SG&A
declined as a percentage of revenue due to ongoing cost control and improved
operational efficiencies.
    Adjusted EBITDA(1) for 2006 was $22.1 million, or 27% of revenue,
compared to $12.0 million, or 22% of revenue, in 2005. Higher adjusted EBITDA
primarily reflects the significant increase in revenue and in particular,
transaction processing revenue, partially offset by an increase in SG&A
expenses.
    SXC reported net income of $13.5 million, or $0.69 per share
(fully-diluted), in 2006 compared to net income of $7.7 million, or $0.50 per
share (fully-diluted), in 2005.

    Liquidity and Resources

    SXC has a strong balance sheet from which to pursue its growth
initiatives. At December 31, 2006, the company had cash and cash-equivalents
of $70.9 million, compared with $36.0 million of cash and cash-equivalents at
December 31, 2005. The $35.0 million improvement in the Company's cash
position was primarily the result of $38.7 million of cash generated from the
public offering in June 2006 as well as cash from operations of $18.0 million
compared to $11.8 million generated in 2005. Both of these increases were
partially offset by cash used to pay off long-term liabilities.

    2007 Financial Guidance

    SXC has established the following financial goals for fiscal 2007:

    
    -   Consolidated revenue of $96 to $101 million
    -   Adjusted EBITDA of $27 to $29 million
    -   Pre-tax income of $22 to $24 million
    -   For 2007, the Company expects to be taxable at a rate between 30-33%,
        compared to 17% in 2006, resulting in forecasted earnings per share
        (fully-diluted) of $0.69 to $0.73.
    

    In addition, in 2007, the Company expects to process 420 to 440 million
transactions, representing a 35-40% increase over 2006 levels.

    (1)Non-GAAP Financial Measures

    SXC reports its financial results in accordance with generally accepted
accounting principles ("GAAP"). SXC's management also evaluates and makes
operating decisions using various other measures. Two such measures are book
of business and adjusted EBITDA, which are non-GAAP financial measures. SXC's
management believes that these measures provide useful supplemental
information regarding the performance of SXC's business operations.
    Book of business is management's estimate of the total revenue expected
to be recognized over future periods generally not exceeding three years based
on the existing portfolio of in-place contracts at a point in time. It is
composed of two components: (1) revenue expected to be recognized over such
period from in-place renewable contracts related to transaction processing,
and maintenance contracts described as recurring revenues in the above
discussion; and (2) revenue expected to be recognized from in-place
professional services and systems sales contracts, described as non-recurring
revenues in the above discussion. SXC's book of business at any time does not
indicate demand for the Company's products and services and may not reflect
actual revenue for any period in the future.
    Adjusted EBITDA is a non-GAAP measure that management believes is a
useful supplemental measure of operating performance prior to net interest
income (expense), income tax, depreciation, amortization, stock-based
compensation, debt service, and certain other one-time charges. Management
believes it is useful to exclude depreciation, amortization and net interest
income (expense) as these are essentially fixed amounts that cannot be
influenced by management in the short term. In addition, management believes
it is useful to exclude stock-based compensation as this is not a cash
expense. Lastly, debt service and certain other one-time charges are excluded
as these are not recurring items. Investors are cautioned that adjusted EBITDA
should not be construed as an alternative to net income, determined in
accordance with GAAP, as an indicator of the Company's performance or to cash
flows from operations as a measure of liquidity and cash flows. Adjusted
EBITDA does not have a standardized meaning prescribed by GAAP. The Company's
method of calculating adjusted EBITDA may differ from the methods used by
other companies and, accordingly, it may not be comparable to similarly titled
measures used by other companies. Reconciliation of adjusted EBITDA to net
income is shown below:

    
                      For the three months ended     For the 12 months ended
                      --------------------------     -----------------------
                         31-Dec-06     31-Dec-05     31-Dec-06     31-Dec-05
                         ---------     ---------     ---------     ---------
                        (unaudited)   (unaudited)

    Adjusted EBITDA   $  5,700,313  $  4,531,388  $ 22,106,570  $ 12,035,006

    Amortization          (964,870)     (699,158)   (4,103,164)   (3,306,167)

    Stock-based
     compensation         (572,933)     (248,985)   (1,957,776)     (843,979)
    Gain on sale of
     asset                       -             -             -       626,342
    Lease termination            -             -      (757,815)            -

    Other income
     (expense)               3,187             -       (17,990)            -

    Interest income
     (expense), net        967,619      (283,111)    1,073,431    (1,347,049)

    Income tax recovery
     (expense)          (1,841,392)      650,000    (2,816,638)      557,983
                      ------------- ------------- ------------- -------------

    Net Income        $  3,291,924  $  3,950,134  $ 13,526,618  $  7,722,136
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    

    Notice of Conference Call

    SXC will host a conference call on March 8, 2007 at 8:30AM (ET) to
discuss its 2006 financial results. Mr. Gordon S. Glenn, Chairman and CEO,
will host the call. To participate on the call, please dial 416-644-3428 or
1-800-519-7539. A replay of the call can be heard by dialling 416-640-1917 or
1-877-289-8525 and entering the reference code 21220557. The taped call will
be available until March 15, 2007.
    A live audio webcast of the call will be available at www.sxc.com and
www.newswire.ca. Webcast attendees are welcome to listen to the conference in
real-time or on-demand at your convenience.

    About Systems Xcellence Inc.

    SXC Health Solutions, Inc. (SXC) is the U.S. subsidiary of Systems
Xcellence Inc. and is a leading provider of pharmacy benefits management (PBM)
services and healthcare IT solutions 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 Federal, provincial,
and, state and local governments, pharmacy benefit managers, managed care
organizations, retail pharmacy chains and other healthcare intermediaries. SXC
is based in Lisle, Illinois with other facilities in Scottsdale, Arizona;
Warminster, Pennsylvania; Atlanta, Georgia; Milton, Ontario and Victoria,
British Columbia. For more information please visit www.sxc.com.

    Forward-Looking Statements

    Certain statements included herein, including those that express
management's expectations or estimates of our future performance, constitute
"forward-looking statements" within the meaning of applicable securities laws.
Forward-looking statements are necessarily based upon a number of estimates
and assumptions that, while considered reasonable by management at this time,
are inherently subject to significant business, economic and competitive
uncertainties and contingencies. We caution that such forward-looking
statements involve known and unknown risks, uncertainties and other risks that
may cause our actual financial results, performance, or achievements to be
materially different from our estimated future results, performance or
achievements expressed or implied by those forward-looking statements.
Numerous factors could cause actual results to differ materially from those in
the forward-looking statements, including without limitation, our ability to
achieve increased market acceptance for our product offerings and penetrate
new markets; consolidation in the healthcare industry; the existence of
undetected errors or similar problems in our software products; our ability to
identify and complete acquisitions, manage our growth and integrate
acquisitions; our ability to compete successfully; potential liability for the
use of incorrect or incomplete data; the length of the sales cycle for our
healthcare software solutions; interruption of our operations due to outside
sources; our dependence on key customers; maintaining our intellectual
property rights and litigation involving intellectual property rights; our
ability to obtain, use or successfully integrate third-party licensed
technology; compliance with existing laws, regulations and industry
initiatives and future change in laws or regulations in the healthcare
industry; breach of our security by third parties; our dependence on the
expertise of our key personnel; our access to sufficient capital to fund our
future requirements; and potential write-offs of goodwill or other intangible
assets. This list is not exhaustive of the factors that may affect any of our
forward-looking statements. Investors are cautioned not to put undue reliance
on forward-looking statements. All subsequent written and oral forward-looking
statements attributable to SXC or persons acting on our behalf are expressly
qualified in their entirety by this notice. We disclaim any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise. Risks and uncertainties
about our business are more fully discussed in our Annual Information Form.
    Certain of the assumptions made in preparing forward-looking information
and management's expectations include: maintenance of our existing customers
and contracts, our ability to market our products successfully to anticipated
customers, the impact of increasing competition, the growth of prescription
drug utilization rates at predicted levels, the retention of our key
personnel, our customers continuing to process transactions at historical
levels, that our systems will not be interrupted for any significant period of
time, that our products will perform free of major errors, our ability to
obtain financing on acceptable terms and that there will be no significant
changes in the regulation of our business.


    
                            SYSTEMS XCELLENCE INC.
                         Consolidated Balance Sheets
                                 (Unaudited)

                                                          December 31,
                                                       2006          2005
                                                  ------------- -------------
    ASSETS

    Current assets
      Cash and cash equivalents                   $ 70,943,380  $ 35,951,932
      Accounts receivable, net of allowance for
       doubtful accounts of $214,276
       (2005 - $319,566)                            14,311,573     8,649,801
      Unbilled revenue                               1,975,765     1,001,971
      Prepaid expenses                               2,026,248     1,191,444
      Inventory                                        260,234       437,674
      Future tax asset                               2,359,903       320,000
                                                  ------------- -------------
        Total current assets                        91,877,103    47,552,822

    Capital assets                                  10,113,858     3,777,954

    Deferred charges                                         -       787,686

    Goodwill and other intangible assets            27,241,147    26,825,147

    Future tax asset                                 1,992,039       360,000

    Other assets                                             -     2,000,000

                                                  ------------- -------------
    Total Assets                                  $131,224,147  $ 81,303,609
                                                  ------------- -------------
                                                  ------------- -------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable and accrued liabilities    $ 13,025,794  $  5,598,912
      Deferred revenue                               3,241,924     3,131,031
      Current portion of long-term debt                      -     1,530,000
                                                  ------------- -------------
        Total current liabilities                   16,267,718    10,259,943

    Long-term debt                                           -    11,572,858
    Deferred lease inducement, net                   3,168,757             -
    Deferred rent                                      297,608             -
                                                  ------------- -------------
        Total liabilities                           19,734,083    21,832,801

    Shareholders' equity
      Capital stock                                 99,839,769    63,714,859
      Contributed surplus                            4,418,461     2,050,733
      Retained earnings (deficit)                    7,231,834    (6,294,784)
                                                  ------------- -------------
        Total shareholders' equity                 111,490,064    59,470,808

                                                  ------------- -------------
    Total Liabilities and Shareholders' Equity    $131,224,147  $ 81,303,609
                                                  ------------- -------------
                                                  ------------- -------------



                           SYSTEMS XCELLENCE INC.
                    Consolidated Statements of Operations

                           Three months ended             Years ended
                              December 31,                December 31,
                           2006          2005          2006          2005
                      ------------- ------------- ------------- -------------
                       (unaudited)   (unaudited)

    Revenue           $ 22,011,871  $ 16,610,953  $ 80,922,995  $ 54,123,036
    Cost of Sales        9,445,782     6,227,230    32,764,553    20,774,797
                      ------------- ------------- ------------- -------------
      Gross Profit      12,566,089    10,383,723    48,158,442    33,348,239

    Expenses:
      Product
       development
       costs             2,225,046     2,180,413     8,672,371     8,956,169
      Selling, general
       and
       administration    4,640,730     3,671,923    17,379,501    12,357,064
      Depreciation and
       amortization        964,870       699,158     4,103,164     3,306,167
      Lease termination          -             -       757,815             -
      Stock-based
       compensation        572,933       248,985     1,957,776       843,979
                      ------------- ------------- ------------- -------------
                         8,403,579      6,800,47    32,870,627    25,463,379

    Income before the
     undernoted          4,162,510     3,583,245    15,287,815     7,884,860

    Interest income       (997,212)     (285,581)   (2,940,504)     (548,885)
    Interest expense        29,593       568,692     1,867,073     1,895,934
                      ------------- ------------- ------------- -------------
      Net interest
       (income) expense   (967,619)      283,111    (1,073,431)    1,347,049

    Other expense
     (income)               (3,187)            -        17,990      (626,342)

    Income before
     income taxes        5,133,316     3,300,134    16,343,256     7,164,153

    Income tax expense
     (recovery):
      Current            3,753,393        30,000     6,488,580       122,017
      Future            (1,912,001)     (680,000)   (3,671,942)     (680,000)
                      ------------- ------------- ------------- -------------
                         1,841,392      (650,000)    2,816,638      (557,983)

    Net income        $  3,291,924  $  3,950,134  $ 13,526,618  $  7,722,136
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Earnings per
     share:
      Basic           $       0.16  $       0.26  $       0.72  $       0.52
      Diluted         $       0.15  $       0.24  $       0.69  $       0.50

    Weighted average
     number of shares
     used in computing
     earnings per share:
      Basic             20,405,064    15,440,178    18,710,370    14,805,857
      Diluted           21,614,594    16,339,775    19,700,139    15,437,138

    -------------------------------------------------------------------------

           Consolidated Statements of Retained Earnings (Deficit)

                          Three months ended              Years ended
                              December 31,                December 31,
                           2006          2005          2006          2005
                      ------------- ------------- ------------- -------------
                       (unaudited)   (unaudited)

    Retained earnings
     (deficit),
     beginning of
     period           $  3,939,910  $(10,244,918) $ (6,294,784) $(14,016,920)
      Net income         3,291,924     3,950,134    13,526,618     7,722,136
                      ------------- ------------- ------------- -------------
    Retained earnings
     (deficit),
     end of period    $  7,231,834  $ (6,294,784) $  7,231,834  $ (6,294,784)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------



                           SYSTEMS XCELLENCE INC.
                    Consolidated Statements of Cash Flows

                          Three months ended              Years ended
                              December 31,                December 31,
                           2006          2005          2006          2005
                      ------------- ------------- ------------- -------------
                       (unaudited)   (unaudited)
    Cash flow from
     operations:
      Net income      $  3,291,924  $  3,950,134  $ 13,526,618  $  7,722,136
      Items not
       involving cash,
       net of effects
       from acquisition:
        Gain on sale
         of asset                -             -             -      (626,342)
        Depreciation
         of capital
         assets            568,870       443,847     2,519,164     1,740,167
        Amortization
         of intangible
         assets            396,000      3 96,000     1,584,000     1,566,000
        Deferred charges
         - long-term debt        -        47,011       787,735       187,700
        Stock-based
         compensation      572,933       248,985     1,957,776       843,979
        Future tax
         asset          (1,912,001)     (680,000)   (3,671,942)     (680,000)
      Cash received
       for lease
       inducement                -             -       757,815             -
      Changes in
       working capital   6,723,879    (1,681,630)      542,452     1,066,378
                      ------------- ------------- ------------- -------------
        Net cash
         provided by
         operations      9,641,605     2,724,347    18,003,618    11,820,018

    Cash flow from
     financing
     activities:
      Proceeds from
       exercise of
       share-purchase
       options             213,332       371,279       421,299       421,343
      Tax benefit due
       to option
       exercises         1,433,939             -     1,433,939             -
      Proceeds from
       public offering,
       net of
       underwriting fees         -    19,230,769    36,064,000    19,230,769
      Costs paid
       related to
       public offering     (53,681)   (1,300,325)   (1,384,423)   (1,300,325)
      Financing costs
       related to
       long-term
       liabilities               -             -             -        50,000
      Repayment of
       long term debt            -      (326,905)  (13,102,858)   (1,080,861)
                      ------------- ------------- ------------- -------------
        Net cash
         provided
         by financing
         activities      1,593,590    17,974,818    23,431,957    17,320,926

    Cash flow from
     investing activities:
      Acquisitions               -       (93,752)            -   (22,610,794)
      Purchase of
       capital assets,
       gross            (4,176,560)     (940,846)   (8,886,490)   (2,557,556)
      Non-cash lease
       inducements
       received          2,442,363             -     2,442,363             -
      Proceeds from
       disposal of
       capital assets            -             -             -     2,342,695
                      ------------- ------------- ------------- -------------
        Net cash used
         in investing
         activities     (1,734,197)   (1,034,598)   (6,444,127)  (22,825,655)

    Increase in cash
     and cash
     equivalents         9,500,999    19,664,567    34,991,448     6,315,289

    Cash and cash
     equivalents,
     beginning of
     period             61,442,382    16,287,365    35,951,932    29,636,643
                      ------------- ------------- ------------- -------------

    Cash and cash
     equivalents,
     end of period    $ 70,943,380  $ 35,951,932  $ 70,943,380  $ 35,951,932
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    
    %SEDAR: 00001439E




For further information:

For further information: Jeff Park, Chief Financial Officer, Systems
Xcellence Inc., Tel: (630) 577-3206, investors@sxc.com; Dave Mason, Investor
Relations, The Equicom Group Inc., (416) 815-0700 ext. 237,
dmason@equicomgroup.com; Susan Noonan, Investor Relations - U.S., The SAN
Group, LLC, (212) 966-3650, susan@sanoonan.com; Judith Sylk-Siegel, Media
Contact, Rx Communications Group, (917) 322-2164, jsylksiegel@rxir.com

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