BCE Emergis Reports Third Quarter Financial Results

Business Wire, Nov 2, 2004

- Q3 core revenue at $48.3 M, up 9% from Q2 2004 and 11% from Q3 2003
- Q3 EBITDA(1) at $4.3 M ($5.5 M excluding restructuring and other
  charges)
- Q3 net income from continuing operations at $1.3 M ($2.5 M
  excluding restructuring and other charges)
- Restructuring initiative planned for Q4

BCE Emergis Inc. (TSX:IFM) today announced its financial results for the three-month period ended September 30, 2004.

Revenue for the quarter was $48.3 million compared to $69.6 million ($43.6 million excluding non-core revenue) in the third quarter of 2003. Non-core operations, which consisted principally of the Bell legacy contract, ceased as of June 30, 2004. EBITDA, excluding restructuring and other charges, was $5.5 million compared to $4.3 million last year, and net income from continuing operations was $1.3 million (fully diluted EPS of $0.01) compared to a net loss of $(1.9) million (fully diluted LPS of $(0.02)) last year. Total net loss for the quarter was $(1.5) million (fully diluted LPS of $(0.01)) compared to net income of $6.2 million (fully diluted EPS of $0.06) in 2003.

"Our third quarter results demonstrate continued progress in this year of transition for the company," said John Valentini, Chief Financial Officer of Emergis. "Core revenue is up 9% from the second quarter and up 11% year-over-year. On a year-to-date basis, eHealth has shown particular strength, growing 22% from acquisitions completed earlier this year and from 15% growth in the volume of claims processed. The Company has strengthened its involvement with the provider side of the health care market through the recent acquisition of 300 additional pharmacy back-office customers. We now offer pharmacy back-office services to more than 1,900 pharmacies in Canada, an increase of approximately 16% since we expanded into this business sector in the second quarter of this year."

"We have also made progress in driving costs out of the business, reducing operating expenses by some $20 million on an annual basis compared to the cost base for our core operations last year at this time," Valentini added. "However, in response to an expected decline in revenue in certain areas of eFinance next year and in order to continue to align our cost structure with our revenue going forward, we are undertaking a new streamlining initiative to allow us to sustain during 2005 the third quarter 2004 run rate for EBITDA (before restructuring charges)," said Valentini. "Excluding the additional restructuring charge to be taken with this action in the fourth quarter, we remain on track to deliver our current 2004 financial targets."

The presentation of the Company's financial results, including both the current and historical periods, reflects the sale of the following operations: U.S. Health in March 2004, eSecurity practice in June 2004 and webdoxs electronic bill presentment operations in July 2004. As a result, these operations have been reported as discontinued operations and their total contribution to Emergis' consolidated results has been included as a single line item above net income, and both revenue and EBITDA exclude their contribution.

Revenue summary for the quarter Three-month periods ended September 30, 2004, June 30, 2004, and September 30, 2003 in millions of Canadian dollars:

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                              Q3 2004   Q2 2004   Q3 2003
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eFinance                         29.5      26.5      30.5
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eHealth                          18.8      17.7      13.1
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Total core revenue               48.3      44.2      43.6
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Non-core                            -      18.3      26.0
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Total revenue                    48.3      62.5      69.6
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- eFinance revenue decreased on a year-over-year basis mainly due to
  the expiry of certain contracts, including a point-of-sale contract
  and a reseller agreement, both with Bell Canada, and an eInvoicing
  agreement with another Canadian customer. These decreases were
  partly offset by transition service revenue associated with the
  sale of eSecurity and webdoxs operations and professional service
  fees from the Visa Commerce initiative. Compared to the second
  quarter of 2004, revenue increased mainly as result of the
  transition and professional services mentioned above.

- eHealth revenue increased 44% on a year-over-year basis and 6%
  sequentially mainly as a result of growth in the pharmacy back-
  office area.

- Recurring revenue represented 82% of core revenue compared to 79%
  in the third quarter of 2003 and 84% in the second quarter of 2004.

EBITDA summary for the quarter

Three-month periods ended September 30, 2004, June 30, 2004, and
September 30, 2003 in millions of Canadian dollars:


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                              Q3 2004   Q2 2004   Q3 2003
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eFinance                          3.0       9.8      (1.4)
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eHealth                           2.5       3.1       1.5
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Non-core                            -       7.0       4.2
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Restructuring and other          (1.2)     (2.4)        -
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Total EBITDA                      4.3      17.5       4.3
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- eFinance EBITDA contributed $3.0 million in the quarter compared to
  $9.8 million ($0.7 million before a one-time contract settlement of
  $9.1 million) in the second quarter of 2004 and to an EBITDA loss
  of $(1.4) million in the third quarter last year. The sequential
  quarterly and year-over-year improvements excluding the contract
  settlement reflect the Company's continued focus on improving the
  profitability of eFinance.

- eHealth EBITDA was $2.5 million (13% of eHealth revenue) compared
  to $3.0 million (18%) in the second quarter and $1.5 million (11%)
  in the third quarter of 2003. The decrease in contribution from the
  second quarter of 2004 was due to a higher allocation of overhead
  costs as a result of the sale of eSecurity and webdoxs.

- During the first quarter of 2004, $6.3 million of a provision taken
  in 2003 for restructuring and other charges were reversed due to
  the postponement of certain restructuring activities beyond the end
  of the first quarter. Of this amount, some $2.4 million of
  restructuring and other charges were taken in the second quarter of
  2004 and $1.2 million in the current quarter. Charges representing
  the remaining balance of the reversal will be taken in the last
  quarter of 2004.

Financial highlights for the nine months

Nine-month periods ended September 30, 2004 and 2003 in millions of
Canadian dollars:


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                                 Revenue              EBITDA
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                          9 months    9 months  9 months    9 months
                              2004        2003      2004        2003
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eFinance                      82.4        90.4       7.0        (9.5)
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eHealth                       50.9        41.8       7.2         4.5
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Total core                   133.3       132.2      14.2        (5.0)
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Non-core                      39.6        83.8      11.4        13.4
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Restructuring and other          -           -       2.7           -
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Total                        172.9       216.0      28.3         8.4
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- eFinance revenue decreased mainly for the same reasons mentioned in
  the quarterly revenue summary above. EBITDA has increased by $16.5
  million due to a contract settlement of $9.1 million received in
  the second quarter of 2004 and to the $7.4 million impact of
  continuing cost reductions.

- eHealth revenue has grown by 22% as a result of acquisitions and
  growth in claims processing, and the EBITDA margin has improved
  from 11% to 14%.

- Total revenue has decreased due to a lower contribution from non-
  core operations, which ceased as of June 30, 2004. EBITDA has
  increased due to the $20 million annualized impact of cost
  reductions, contract settlements of $13.8 million, and the net
  reversal of restructuring and other charges.

- Total net loss was $(38.8) million (fully diluted LPS of $(0.38))
  compared to net income of $16.9 million (fully diluted EPS of
  $0.17) last year.  The net loss in 2004 related principally to the
  write-down in the second quarter of $56.0 million in future tax
  assets.