EMERGIS INC.
TSX : EME

April 26, 2007 23:00 ET

Emergis Delivers Strong Performance in First Quarter 2007

MONTREAL, QUEBEC--(CCNMatthews - April 26, 2007) - Emergis Inc. (TSX:EME)

- Revenue at $45.7 M, up 13% from Q1 06

- Health revenue up 39%

- EBITDA(1) at $9.5 M, up 23%

- Net income at $5.4 M ($0.06 per share), up 46%

Emergis Inc. (TSX:EME) today announced its unaudited financial results for the three months ended March 31, 2007. All dollar figures in this release are expressed in Canadian dollars, unless otherwise indicated.

"We are very pleased with the momentum building in the business and in our financial results. We continue to increase our profitability, while investing significantly in new technology and expanding our sales funnel to accelerate our growth going forward," said Francois Cote, President and Chief Executive Officer of Emergis. "This strong start to the year is in line with the annual financial targets we announced in February."

Cote added, "On the Health side, revenue is up 39%, reflecting both organic growth and the impact of recent acquisitions. Our operations in claims processing, in the public health sector and in pharmacy management systems are all performing well and continue to offer significant future potential. On the Finance side, we expect to see growth in the business and improved profitability next year, driven mainly by our mortgage document processing and our tax filing and payment solutions."

Net income in the first quarter was $5.4 million or $0.06 per share compared to $3.7 million or $0.04 per share in the prior year. The 46% growth in earnings resulted from a significantly higher contribution from the Health sector and lower depreciation and amortization expenses, partly offset by a lower contribution from the Finance sector and higher income tax expenses.

Note: The descriptions of the Company's financial performance compared to historical periods in this news release summarize those described in its First Quarter 2007 Management's Discussion and Analysis, which has been posted on Emergis' corporate web site, along with this release and other financial information.

Revenue summary for the quarter

Three-month periods ended March 31, 2007, December 31, 2006, and March 31, 2006, in millions of Canadian dollars:



-----------------------------------------------------
Q1 2007 Q4 2006 Q1 2006
-----------------------------------------------------
-----------------------------------------------------
Health 34.5 34.1 24.9
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Finance 11.2 12.1 15.4
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Total revenue 45.7 46.2 40.3
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- Revenue for the quarter was $45.7 million compared to $40.3 million in the first quarter of 2006 and compared to $46.2 million in the fourth quarter of 2006. In the year-over-year and sequential quarterly comparisons, growth in Health operations was offset by lower Finance revenue.

- Recurring revenue represented 79% of total revenue in the quarter compared to 91% in the first quarter last year and to 82% in the fourth quarter of 2006. The change from the historical quarters is mainly due to activities in the public health sector, a portion of whose revenue is derived from consulting services which the Company classifies as "deployment and consulting" revenue rather than recurring revenue. Recurring revenue in the future will continue to represent a level more consistent with that of recent quarters.

- Health revenue increased 39% on a year-over-year basis due mainly to the acquisitions of Dinmar and FrontLine in 2006, to higher drug information systems license and consulting revenue and to organic growth in claims processing.

- On a sequential quarterly basis, the increase in Health revenue was due mainly to higher drug information systems license and consulting revenue, partly offset by a lower contribution from pharmacy management systems and lower professional services revenue related to workers' compensation board activities.

- Compared to the first quarter of 2006, Finance revenue decreased due mainly to the expiry of a transition services contract related to the webdoxs consumer bill presentment service, to the sale of the Company's lien registration solution, lower revenue from its electronic document exchange solution and lower professional service revenue related to Visa Commerce activities.

- Finance revenue decreased from the fourth quarter of 2006 mainly due to the sale of the Company's lien registration solution and to lower license revenue from its patented electronic invoicing technology. These decreases were partly offset by higher deployment revenue from cash management solutions.

EBITDA summary for the quarter

Three-month periods ended March 31, 2007, December 31, 2006, and March 31, 2006, in millions of Canadian dollars:



-------------------------------------------------------
Q1 2007 Q4 2006 Q1 2006
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Health 8.2 9.7 4.3
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Finance 1.0 1.1 3.2
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-------------------------------------------------------
Core 9.2 10.8 7.5
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Non-core 0.3 0.2 0.2
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-------------------------------------------------------
EBITDA before: 9.5 11.0 7.7
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-------------------------------------------------------
Contract settlements - - -
-------------------------------------------------------
Restructuring & other - (0.3) -
-------------------------------------------------------
-------------------------------------------------------
Total EBITDA 9.5 10.7 7.7
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-------------------------------------------------------


- EBITDA was $9.5 million (21% of revenue), up 23% from $7.7 million (19%) generated in the first quarter of 2006, reflecting a significantly higher contribution from Health and a lower contribution from Finance operations. Compared to the fourth quarter of 2006, EBITDA decreased from $10.7 million, mainly due to a decrease in the contribution from Health operations.

- Health EBITDA was $8.2 million (24% of Health revenue) compared to $4.3 million (17%) in the first quarter of 2006 and $9.7 million (28%) in the fourth quarter of 2006. In the year-over-year comparison, the increase was due mainly to acquisitions and to organic growth in claims processing and license revenue associated with drug information systems.

- In the sequential quarterly comparison, Health EBITDA decreased due to higher employee-related expenses associated with the resumption of certain payroll remittances at the beginning of the year, lower development activities in the workers' compensation board area and a higher proportion of overhead allocations relative to the Finance sector. These factors were partly offset by higher license and change management revenue associated with drug information systems.

- Finance contributed $1.0 million to EBITDA in the quarter (9% of Finance revenue) compared to $3.2 million (21%) in the first quarter of 2006 and to $1.1 million before one-time items (9%) in the fourth quarter of 2006. In the year-over-year comparison, the decrease was due to the expiry of a transition services contract related to the webdoxs consumer bill presentment service, higher development expenses in the cash management area, a decrease in contribution from the Company's electronic document exchange solution, and the sale of its lien registration solution.

- In the sequential quarterly comparison, Finance EBITDA decreased mainly due to the sale of the Company's lien registration solution and higher employee-related expenses as mentioned above, partly offset by a lower proportion of overhead expenses allocated to the Finance sector.

- Non-core operations ceased as of June 30, 2004. However, since the beginning of 2005, the Company has reversed certain tax provisions that were related to non-core activities.

Financial position at March 31

Cash on hand at quarter-end, including temporary investments, was $94.6 million, a reduction from $99.7 million at December 31, 2006. The decrease reflected mainly cash outflows related to a reduction in accounts payable for the payout of annual performance bonuses and to debt repayments.

Working capital at quarter end was $87.2 million compared to $90.9 million at the end of 2006. Long-term debt decreased to $2.8 million from $3.1 million at the end of 2006.

Operating highlights

Health

Progress in the Health sector

Progress in the Company's Health operations in the quarter compared to the first quarter last year was evident in a number of areas:

- Relationships with existing insurance carriers were renewed and expanded (see below).

- The number of health claims adjudicated grew by 10% to 17.6 million.

- The number of group insurance plan members holding Emergis pay-direct drug cards and the members' covered dependants increased by 5% to 8.0 million.

- Work on the Company's Assure Claims Dental adjudication engine is nearing completion.

- In the workers' compensation area, the number of health care providers connected to the Emergis platform grew by 12% to approximately 4,000.

Standard Life contract renewal and extension

In March, Emergis renewed and extended its service agreement with The Standard Life Assurance Company of Canada. Under this new five-year contract, which includes a five-year renewal option, Standard Life will continue to use Emergis' Assure Claims solution for the adjudication of its drug claims and will implement Emergis' new dental and extended health claims processing system in 2007 and 2008, respectively.

Equitable Life contract renewal

During the quarter, the Company also renewed its contract with The Equitable Life Insurance Company of Canada for the processing of prescription drug claims for members of Equitable Life's group health benefit plans. Under this new three-year contract, which includes a two-year renewal option, Equitable Life will continue to use Emergis' Assure Claims solution.

EHR contract for Montreal region hospitals

Earlier this month, the Company announced an acceleration in the timetable of the multi-million dollar contract it signed with l'Agence de la sante et des services sociaux de Montreal (l'Agence) in late December 2006 for the deployment of its Oacis electronic health record (EHR) solution. In a second phase of deployment, Oacis has been purchased for six additional health authorities in the Montreal region including five Centres de sante et des services sociaux (CSSS) and Santa Cabrini Hospital. The CSSSs each include a hospital, as well as clinics and residential and long-term care facilities. Oacis will allow health care professionals at these hospitals and related facilities to rapidly and securely access a complete record of a patient's health history online and in real-time.

In a first phase, l'Agence authorized the deployment of Oacis at six major Montreal-area hospitals.

Oacis win in Eastern Ontario

Hawkesbury General Hospital, a 69-bed community hospital in the Champlain Local Health Integration Network (LHIN) of Ontario, has purchased the Company's Oacis solution. Hawkesbury General is the second hospital to purchase the Oacis solution in the Champlain LHIN after the Ottawa Hospital, and the fourth in Ontario. With this new contract, Emergis strengthens its presence in the Champlain region and Ontario's health IT sector. It also demonstrates the utility of the Oacis solution in a range of health care facilities, including community hospitals.

Finance

Progress in the Finance sector

Growth in the Company's Finance operations in the quarter compared to the first quarter last year was seen in the following areas:

- Assyst Real Estate transactions increased 40% to 51,000 mainly due to strong growth in the number of registrations. The solution is being rolled out across Canada with the commercial launch of service in British Columbia in the second quarter and in Ontario in the third quarter.

- Credit and debit card authorization transactions (Assure Pay Credit Debit) increased 8% to 46.4 million.

- Assure Pay Tax transactions increased 21% to 544,000.

Integration agreement with Pro-Suite

In April, the Company signed an agreement with Pro-Suite Software Ltd. of Vancouver whereby Emergis' Assyst Real Estate solution for completing mortgage transactions will be integrated with Pro-Suite's electronic conveyancing software application. The three-year agreement will make Emergis' mortgage document processing and registration solution available to all notaries using Pro-Suite by the fall of 2007. The Pro-Suite software is owned and maintained by The Society of Notaries Public of B.C. The agreement with Pro-Suite supports Emergis' strategy of developing partnerships with software vendors and legal associations to accelerate the adoption of Assyst Real Estate in each province as the solution is rolled out across Canada.

Launch of PCI services

Emergis has launched a suite of Payment Card Industry (PCI) security services as part of its Assure Security solutions portfolio. These services are designed to help merchants who process credit card transactions comply with standards set out by the PCI Security Standards Council. Emergis has been certified as a PCI Qualified Security Assessor and Approved Scanning Vendor, allowing the Company to offer on-site security audit and network security scanning services. Emergis is the first Canadian company to be certified by PCI to provide compliance services.

Corporate highlights

Normal course issuer bid

Under a normal course issuer bid initiated in March 2006, the Company repurchased 0.1 million shares just prior to year-end, which were settled and cancelled in early January 2007. No shares were repurchased under a new bid initiated in March 2007. Purchases made pursuant to the March 2007 bid will not exceed 5.56 million common shares, representing approximately 10% of the public float of its common shares in February 2007.

Conference call, webcast and supplemental financial information

The Company will hold a conference call and live webcast tomorrow at 8:30 a.m. ET to discuss its financial results for the first quarter 2007. To participate, interested parties can dial toll-free 1 866 898-9626, and in Toronto 416 340-2216. The first quarter 2007 financial results news release, unaudited first quarter financial statements, management's discussion and analysis and supplemental information package are posted on www.emergis.com
(http://www.emergis.com/newsroom/news/2007/april26.aspx)

An instant replay of the conference call will be available for two weeks starting at 10:30 a.m. tomorrow. To listen, interested participants should dial toll-free 1 800 408-3053, and from Toronto 416 695-5800. The access code is 3207812#. An archive version of the webcast will also be available starting at 10:30 a.m. tomorrow on www.emergis.com (http://www.emergis.com/newsroom/events/april27.aspx).

About Emergis

Emergis is an IT leader in Canada that focuses on the health and financial services sectors. It develops and manages solutions that automate transactions and the secure exchange of information to increase the process efficiency and quality of service of its customers. Emergis has expertise in electronic health-related claims processing, health record systems, pharmacy management solutions, cash management and loan document processing and registration. In Canada, Emergis delivers solutions to the main insurance companies, top financial institutions, government agencies, hospitals, large corporations, real estate lawyers and notaries and 2,800 pharmacies. Its electronic health record solutions are also delivered in the U.S. and Australia. The Company's shares (TSX: EME) are included in the S&P/TSX Composite Index.

Certain information in this news release, in various filings with Canadian regulators, in reports to shareholders and in other communications, is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, among others, information with respect to the Company's objectives and the strategies to achieve those objectives, as well as information with respect to the Company's beliefs, plans, expectations, anticipations, estimates and intentions. The words "may", "could", "should", "would", "suspect", "outlook", "believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and similar words and expressions are used to identify forward-looking information. The forward-looking information in this news release describes the Company's expectations as of April 26, 2007.

The results or events predicted in such forward-looking information may differ materially from actual results or events. Material factors which could cause actual results or events to differ materially from a conclusion, forecast or projection in such forward-looking information include, among others: general economic factors, adverse industry events, the adoption rate of the Company's solutions by customers and by related electronic trading communities, its ability to deliver development and implementation projects in a timely manner, the non-renewal of major contracts which expire in the near term, complexities and timing of signing large customer contracts, customers developing internally the capability to perform the services which the Company performs on their behalf, its response to its industry's rapid pace of change, the limited time to capitalize on market opportunities, competition, pricing pressures, fluctuations in its operating results, its ability to make and integrate acquisitions, failures or material changes in its strategic relationships, exposure under contract indemnities, defects in software or failures in the processing of transactions, security and privacy breaches, its ability to attract and retain key personnel, its ability to protect its intellectual property, intellectual property infringement claims, and industry and government regulation.

When relying on the Company's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. In making the forward-looking information contained in this news release, the Company does not assume any significant acquisitions, dispositions or one-time items. It does assume, however, the renewal of certain customer contracts. Every year, Emergis has major customer contracts that it needs to renew. One of these represents slightly more than 10% of its annual revenue. In addition, the Company also assumes the signature of contracts in new markets in the public health sector. In this regard, Emergis is pursuing large opportunities that present a very long and complex sales cycle, which substantially affect the Company's forecasting abilities. The Company has made certain assumptions regarding the timing of the realization of these opportunities which it thinks is reasonable but which may not be achieved. Furthermore, the pursuit of these larger opportunities does not ensure a linear progression of the Company's revenue and earnings, since they may involve significant up-front fees followed by reduced ongoing payments. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not result in such forward-looking information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. For additional information with respect to certain of these and other factors, refer to the risks and uncertainties section of the Company's 2006 MD&A and to its 2006 Annual Information Form (risks and uncertainties) filed with Canadian regulators.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF EMERGIS AS OF APRIL 26, 2007 AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, EMERGIS EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

(1) EBITDA used in this news release does not have a meaning under Canadian Generally Accepted Accounting Principles and therefore may not be comparable to similar measures presented by other publicly traded companies. It is defined as net income from continuing operations before depreciation, amortization of intangible assets, interest, gains or losses on sale of assets, loss on foreign exchange, and income taxes. No reconciliation is provided in the interim consolidated statement of earnings. EBITDA is presented on a basis that is consistent from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under-noted items" on the consolidated statements of earnings.



Consolidated Statements of Earnings

---------------------------------------------------------------------
For the three For the three
month period month period
ended ended
In millions of Canadian dollars, March 31, March 31,
except per share data 2007 2006
---------------------------------------------------------------------
(unaudited) (unaudited)

Revenue 45.7 40.3
Direct costs 5.9 6.4
---------------------------------------------------------------------
Gross margin 39.8 33.9
---------------------------------------------------------------------

Expenses
Operations 10.8 10.8
Sales and marketing 5.7 4.5
Research and development, net 7.9 6.8
General and administrative 5.9 4.1
---------------------------------------------------------------------
30.3 26.2
---------------------------------------------------------------------

Earnings before under-noted items 9.5 7.7

Depreciation 1.8 2.1
Amortization of intangible assets 2.2 2.4
Interest income (1.0) (1.0)
Interest on long-term debt 0.2 0.2
Loss on sale of assets - 0.1
---------------------------------------------------------------------

Income before income taxes 6.3 3.9

Income taxes
Current 0.7 0.2
Future 0.2 -
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0.9 0.2

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Net income 5.4 3.7
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Basic and diluted net income per share 0.06 0.04

Weighted-average number of shares outstanding
used in computing basic net income
per share (in millions) 90.2 93.4

Weighted-average number of shares outstanding
used in computing diluted net income per
share (in millions) 91.1 93.5

The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Statements of Comprehensive Income

---------------------------------------------------------------------
For the three For the three
month period month period
ended ended
March 31, March 31,
In millions of Canadian dollar 2007 2006
---------------------------------------------------------------------
(unaudited) (unaudited)

Net income 5.4 3.7
Other comprehensive income:
Net change in unrealized losses on
translation of financial statements
of self-sustaining foreign operations (0.4) 0.1
---------------------------------------------------------------------
Comprehensive income 5.0 3.8
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---------------------------------------------------------------------



Consolidated Statements of Deficit

---------------------------------------------------------------------
For the three For the three
month period month period
ended ended
March 31, March 31,
In millions of Canadian dollars 2007 2006
---------------------------------------------------------------------
(unaudited) (unaudited)

Deficit, beginning of period (1,194.3) (1,223.1)
Net income 5.4 3.7
---------------------------------------------------------------------
Deficit, end of period (1,188.9) (1,219.4)
---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Balance Sheets

---------------------------------------------------------------------
As at As at
March 31, December 31,
In millions of Canadian dollars 2007 2006
---------------------------------------------------------------------
(unaudited) (audited)
Assets
Current
Cash and cash equivalents 59.7 30.2
Temporary investments 34.9 69.5
Accounts receivable 23.1 23.6
Future income taxes 1.4 1.4
Other current assets 10.0 10.7
---------------------------------------------------------------------
129.1 135.4

Fixed assets 17.9 18.8
Intangible assets 19.6 21.8
Goodwill 88.6 88.9
Future income taxes 3.7 3.9
Other long-term assets (Note 2) 12.9 11.2
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271.8 280.0
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Liabilities
Current
Accounts payable and accrued liabilities 35.3 37.2
Deferred revenue 2.1 2.7
Deferred credits 0.4 0.4
Current portion of long-term debt 4.1 4.2
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41.9 44.5

Deferred credits and other 4.8 13.6
Long-term debt 2.8 3.1
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49.5 61.2
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Shareholders' equity
Capital stock (Note 5) 6.1 6.1
Contributed surplus (Note 5) 1,408.2 1,408.4
Deferred stock-based compensation (Note 3) (2.3) (1.0)

Deficit (1,188.9) (1,194.3)
Accumulated other comprehensive loss
(Note 6) (0.8) (0.4)
---------------------------------------------------------------------
(1,189.7) (1,194.7)
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222.3 218.8
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271.8 280.0
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The accompanying notes are an integral part of the interim
consolidated financial statements.



Consolidated Statements of Cash Flows

---------------------------------------------------------------------
For the three For the three
month period month period
ended ended
March 31, March 31,
In millions of Canadian dollars 2007 2006
---------------------------------------------------------------------
(unaudited) (unaudited)

Operating activities
Net income 5.4 3.7
Depreciation and amortization 4.0 4.5
Loss on sale of assets - 0.1
Future income taxes 0.2 -
Non-cash stock-based compensation (Note 3) 0.7 0.3
Deferred stock-based compensation (Note 3) (1.7) (1.5)
Other (2.5) 0.4
Changes in working capital (9.1) (12.8)
---------------------------------------------------------------------
Cash flows used in operating activities (3.0) (5.3)
---------------------------------------------------------------------

Investing activities
Additions to fixed and intangible assets (0.3) (1.6)
Temporary investments 34.6 39.9
Acquisitions (0.2) -
Disposal costs related to the sale of businesses - (0.4)
---------------------------------------------------------------------
Cash flows from investing activities 34.1 37.9
---------------------------------------------------------------------

Financing activities
Repayment of long-term debt (1.1) (1.3)
Repurchase and issuance of common shares (Note 5)(0.5) (0.3)
---------------------------------------------------------------------
Cash flows used in financing activities (1.6) (1.6)
---------------------------------------------------------------------

Cash and cash equivalents
Increase 29.5 31.0
Balance, beginning of period 30.2 77.1
---------------------------------------------------------------------
Balance, end of period 59.7 108.1
---------------------------------------------------------------------

Supplemental disclosure of cash flow information
Interest paid 0.2 0.2
Income taxes paid 0.5 0.9

Non-cash investing and financing activities
Additions to fixed and intangible assets
financed 0.7 -

The accompanying notes are an integral part of the interim
consolidated financial statements.


EMERGIS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three-month period ended March 31, 2007
In millions of Canadian dollars, except per share data (unaudited)


These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, using the same accounting policies as were used for the consolidated financial statements for the year ended December 31, 2006, except for the new accounting standards described in Note 1. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006 and the notes thereto in the 2006 Annual Report.

1. Summary of significant accounting policies

Basis of presentation

The interim consolidated financial statements of Emergis Inc. ("Emergis") have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of all its subsidiaries.

New accounting standards

Financial Instruments

On January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of Chartered Accountants (CICA) Handbook, Financial Instruments - Recognition and Measurement. It establishes standards for recognition and measurement of financial assets, financial liabilities and non-financial derivatives. The standard specifies when and at which amount a financial instrument is to be recorded on the balance sheet. Financial instruments are to be recorded at fair value in some cases, and at cost in others. The section also provides guidance for disclosure of gains and losses on financial instruments. Upon the adoption of this section, cash equivalents and temporary investments have been classified as held-for-trading and are measured at fair value. Gains and losses related to periodical revaluations will be recorded in net income. As at December 31, 2006, the cash equivalents and temporary investments had a carrying value equal to their fair value, therefore no adjustment to the opening retained earnings balance was required. All other financial instruments have been accounted for at amortized cost.

Comprehensive Income

On January 1, 2007, the Company adopted Section 1530 of the CICA Handbook, Comprehensive Income. It establishes standards for reporting and display of comprehensive income. Comprehensive income includes net income, as well as all changes in equity during a period from transactions and events from non-owner sources. Comprehensive income and its components should be presented in a financial statement with the same prominence as other financial statements. Upon adoption of this section, the consolidated financial statements now include a statement of comprehensive income. The comparative statements have been adjusted to reflect application of this section for changes in the balances of foreign currency translation of self-sustaining foreign operations.

Equity

On January 1, 2007, the Company adopted Section 3251 of the CICA Handbook, Equity, replacing Section 3250, Surplus. It describes standards for the presentation of equity and changes in equity as a result of the application of Section 1530, Comprehensive Income.

Hedges

On January 1, 2007, the Company adopted Section 3865 of the CICA Handbook, Hedges. It includes and replaces the guidance on hedging relationships that was previously contained in AcG-13, mostly those relating to the designation of hedging relationships and its documentation. The new standard specifies how to apply hedge accounting and which information has to be disclosed by the entity. The adoption of this section had no impact on the Company's consolidated financial statements.

2. Other long-term assets

As at March 31, 2007, included in other long-term assets of $12.9 million was a deferral of development costs of $3.6 million relating to the Company's dental adjudication engine. The costs will be expensed over a five-year period beginning when development work is complete, which is expected to be in the second quarter of 2007.

3. Stock-based compensation plans

Emergis stock options

The Company has granted options to its employees to purchase Emergis common shares under the Emergis Share Option Plan. The exercise price of the options is set at the closing price of the underlying shares on the last trading day prior to the effective date of the grant. Options granted before November 2005 vest generally over a four-year period starting in the second year after the grant and expire six years after the grant date. Options granted after October 2005 have various vesting schedules.

In November 2006, the Board awarded a grant of 565,000 performance-based stock options to certain key employees. Options under this grant may be exercised at any time on or after March 1, 2010, with the participant being able to purchase up to 100% of the total number of optioned shares only if the following two conditions are met: a) the compound annual growth rate for either the Company's total revenue or the Health segment's revenue achieves a certain threshold by December 2009 compared to the 2006 actual results and b) at the time of exercise, the closing price of Emergis shares on The Toronto Stock Exchange has met or exceeded a target price threshold of $9.50 for at least 21 consecutive trading days during the 12-month period preceding the date of exercise. The options expire on December 31, 2011.

In November 2006, the Board also awarded a grant of 635,000 stock options which vest equally over a three-year period starting at the first anniversary date of the effective date of the grant and which expire five years after the grant date.

The Company employs the fair value-based method for measuring the compensation cost of employee stock options granted in 2003 and after. To value the stock options, the Company uses the binomial model for the performance-based stock options and the Black-Scholes option-pricing model for all other stock options. In the first quarter of 2007, 8,000 options were granted. The Company recorded an expense of $0.3 million for the three-month period ended March 31, 2007 ($0.1 million for the three-month period ended March 31, 2006) for the outstanding options granted after December 31, 2002.



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Stock option plan Options
---------------------------------------------------------------------
Stock option plan for common shares at prices
ranging from $3.13 to $44.13 per share and expiry
dates of up to 2012 2,551,550
---------------------------------------------------------------------

The following pro-forma disclosure outlines the impact on the
compensation cost for the Company's stock-based employee compensation
plan had the Company used the fair-value based method of accounting
for awards granted in 2002.


---------------------------------------------------------------------
For the three-month period ended March 31
---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Basic and Basic and
diluted diluted
Net income Net income
income per share income per share
---------------------------------------------------------------------
Net income, as reported 5.4 0.06 3.7 0.04
Adjustment to net income - - (0.1) -
---------------------------------------------------------------------
Pro forma net income 5.4 0.06 3.6 0.04
---------------------------------------------------------------------


Restricted stock plan

In September 2004, the Board of Directors adopted a restricted stock plan for employees (Share Rights Plan). Under the terms of the Share Rights Plan, the Company, on certain specific dates, funds the purchase of Emergis shares which are held in trust to be released to employees upon fulfilment of a vesting condition. In February 2007, the Company transferred $1.7 million ($1.5 million in the first quarter of 2006) to the plan trustee for the purchase of Emergis shares. Compensation expense related to this plan amounted to $0.4 million for the three-month ended March 31, 2007 ($0.2 million for the three-month period ended March 31, 2006). Included in shareholders' equity is the related deferred stock-based compensation balance of $2.3 million as at March 31, 2007.

4. Discontinued operations

There were no activities related to discontinued operations in the first quarter of 2007.

MultiPlan complaint

In March 2004, the Company completed the sale of its preferred provider organization (PPO) and care management businesses, together representing its U.S. Health operations.

At the time of sale, the Company provided an indemnity to the purchaser of the PPO business, Multiplan Inc., in the sales agreement regarding its PPO business. The indemnity covers principally any breach of representations and warranties, and any covenants in excess of US$2.0 million to a maximum of US$53.3 million, except for tax liabilities and certain other representations, for which there is no deductible and no maximum amount. The Company's representations and warranties remained in force until the end of April 2005, except for claims made before such time and tax and certain other representations, which remain in force until the expiry of the applicable statute of limitations.

In April 2005, Multiplan Inc. filed in federal court in New York a complaint seeking, among other relief, compensation in excess of US$64 million for damages allegedly incurred in connection with the purchase. The complaint alleges a variety of claims relating to the sales agreement. Part of the complaint related to an indemnification for alleged claims by hospitals amounting to US$14 million. Multiplan Inc. advised the Company in 2005 that it had settled these hospital claims for an amount of US$750,000. In July 2005, the Company filed a motion to dismiss certain claims in the complaint. Under U.S. law, this motion, which is made early in the process, is based solely on legal grounds, assuming all factual allegations in the complaint to be true, and was made prior to any discovery. The motion does not challenge the factual claims but addresses the plaintiff's failure to allege sufficient facts to support a legal claim. A decision granting the motion will narrow the scope of the case but will not eliminate the complaint. Should the motion be denied, the Company will retain all factual and other defences to the complaint. No decision has been rendered as of yet.

The Company remains of the view that the allegations are without merit and is taking all appropriate actions to vigorously defend its position. Fees related to the defence of this claim and any other adjustment related to U.S. Health are recorded in the period incurred and are included in income from discontinued operations.

5. Equity components

The stated capital stock and contributed surplus as at March 31, 2007 are detailed as follows:



---------------------------------------------------------------------
Number of Issued and Not issued and
Capital stock shares fully paid not fully paid Total
---------------------------------------------------------------------
Balance, as at
January 1, 2007 90,280,939 $3.0 $3.1 $6.1
Issue of common
shares (a) 375 - - -
Repurchase of common
shares (b) (100,500) - - -
---------------------------------------------------------------------
Balance, as at
March 31, 2007 90,180,814 3.0 3.1 6.1
---------------------------------------------------------------------

---------------------------------------------------------------------
Contributed surplus
---------------------------------------------------------------------
Balance, as at January 1, 2007 1,408.4
Repurchase of common shares (b) (0.5)
Amount related to stock-based compensation (c) 0.3
---------------------------------------------------------------------
Balance, as at March 31, 2007 1,408.2
---------------------------------------------------------------------

(a) 375 stock options were exercised to purchase 375 common shares
for cash consideration of $1 thousand.
(b) Under the terms of a normal course issuer bid initiated in March
2006, the Company repurchased 100,500 shares for total
consideration of $0.5 million, including related expenses. This
amount reduced contributed surplus and capital stock.
(c) During the three-month period ended March 31, 2007, the Company
expensed $0.3 million relating to stock options. This amount was
attributed to contributed surplus.

Normal course issuer bids

Following the expiry of the second normal course issuer bid on March
1, 2007, the Company initiated a third normal course issuer bid on
March 2, 2007 through the facilities of The Toronto Stock Exchange.
Purchases made pursuant to the bid will not exceed 5,560,000 common
shares, representing approximately 10% of the public float as at
February 21, 2007. The common shares acquired pursuant to the bid
will be cancelled. Purchases under the bid may continue until
February 29, 2008, unless terminated earlier. During the three-month
period ended March 31, 2007, the Company repurchased 100,500 shares
under the second bid for total consideration of $0.5 million,
including related expenses. These shares were all settled, paid and
cancelled as at March 31, 2007. No purchases were made during the
first quarter under the third bid.

6. Accumulated other comprehensive loss

The accumulated other comprehensive loss as at March 31, 2007 and
March 31, 2006, and the net change in unrealized losses on
translation of financial statements of self-sustaining foreign
operations for the three-month period ended March 31 are detailed as
follows:

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Balance, as at January 1 - -
Unrealized losses on translation of financial
statements of self-sustaining foreign
operations (0.4) (0.6)
---------------------------------------------------------------------
Adjusted balance, as at January 1 (0.4) (0.6)
Net change incurred during the three-month
period (0.4) 0.1
---------------------------------------------------------------------
Balance, as at March 31 (0.8) (0.5)
---------------------------------------------------------------------

7. Acquisition

Dinmar Consulting Inc.

In July 2006, the Company acquired all the issued and outstanding
shares of Dinmar Consulting Inc. (Dinmar). The acquisition price of
Dinmar including transaction costs was $40.1 million, of which $25.9
million was paid in cash, $6.2 million was in Emergis treasury
shares, and $8.0 million is to be paid on January 1, 2008. Half of
this $8.0 million may be paid in Emergis shares, at Emergis' option.
The Company finalized the purchase price allocation in the first
quarter of 2007 and no change was made to the allocation as disclosed
in the notes to the 2006 consolidated financial statements.

8. Net income per share

The reconciliation of diluted net income per share for the three-
month period ended March 31 is presented below:

---------------------------------------------------------------------
For the three-month period
ended March 31, 2007
---------------------------------------------------------------------
Number
Net income of shares Per share
(numerator) (denominator) amount
---------------------------------------------------------------------
Net income attributable to
common shareholders $5.4 90,205,658 $0.06
Dilutive shares 628,931
Dilutive options 280,691
---------------------------------------------------------------------
Diluted net income attributable to
common shareholders 5.4 91,115,280 0.06
---------------------------------------------------------------------


---------------------------------------------------------------------
For the three-month period
ended March 31, 2006
---------------------------------------------------------------------
Number
Net income of shares Per share
(numerator) (denominator) amount
---------------------------------------------------------------------
Net income attributable to
common shareholders $3.7 93,392,646 $0.04
Dilutive shares -
Dilutive options 151,230
---------------------------------------------------------------------
Diluted net income attributable to
common shareholders 3.7 93,543,876 0.04
---------------------------------------------------------------------

A total of 645,137 non-dilutive options were excluded from the
calculation of diluted net income per share for the three-month
period ended March 31, 2007 (1,238,372 for the three-month period
ended March 31, 2006) because the average market value of the
underlying shares was less than the exercise price of the
securities.

9. Operating segment information

The Company currently operates under two reporting segments - Health
and Finance.

Health: The Company's main business activities in the health segment
included the adjudication and transport of drug, dental and extended
health claims primarily on behalf of private and public insurers,
the provision of electronic health record technology solutions and
related consulting services, and pharmacy management systems.

Finance: This segment offers finance-related electronic business
solutions to financial institutions, large corporations, and the
real estate legal community. These solutions relate primarily to
cash management, the electronic processing and registration of loan
documents, debit and credit card transaction authorizations and
managed security services.

Non-core: Non-core operations ceased as of June 30, 2004. However,
since 2005, the Company has reversed certain tax provisions related
to these operations.

The table below shows the results and goodwill of each of the
segments:

---------------------------------------------------------------------
For the three-month period ended March 31
---------------------------------------------------------------------
Health Finance Non-core Total
2007 2006 2007 2006 2007 2006 2007 2006
---------------------------------------------------------------------
Revenue 34.5 24.9 11.2 15.4 - - 45.7 40.3
---------------------------------------------------------------------
Direct costs 5.3 4.7 0.7 1.8 (0.1) (0.1) 5.9 6.4
---------------------------------------------------------------------
Gross margin 29.2 20.2 10.5 13.6 0.1 0.1 39.8 33.9
---------------------------------------------------------------------
EBITDA(1) 8.2 4.3 1.0 3.2 0.3 0.2 9.5 7.7
---------------------------------------------------------------------
Goodwill, as
at March 31 77.4 43.9 11.2 11.3 - - 88.6 55.2
---------------------------------------------------------------------

(1) The term EBITDA (earnings before interest, taxes, depreciation
and amortization) does not have any standardized meaning prescribed
by Canadian GAAP and therefore may not be comparable to similar
measures presented by other companies. The Company defines it as net
income before depreciation, amortization of intangible assets,
interest, losses on sale of assets and income taxes. EBITDA is
presented on a basis that is consistent from period to period and
agrees, on a consolidated basis, with the amount disclosed as
earnings before under-noted items in the consolidated statement of
earnings.

There are no inter-segment transactions or significant differences
between segment and corporate accounting policies. Both segments
share in the use of its capital asset infrastructure. As a result,
the Company does not disclose a measure of total assets by segment.
In addition, asset allocation is not used by the Company in its
management reporting for decision-making purposes.

Geographic information

The table below sets out certain geographic information relative to
the Company's revenue:

---------------------------------------------------------------------
For the three-month period ended March 31
---------------------------------------------------------------------
Revenue 2007 2006
---------------------------------------------------------------------
Canada 42.3 92% 37.7 94%
United States 3.0 7% 2.6 6%
Other countries 0.4 1% - -%
---------------------------------------------------------------------
Total 45.7 100% 40.3 100%
---------------------------------------------------------------------


10. Guarantees

In the normal course of business, the Company enters into agreements that may contain features that meet the Accounting Guideline AcG-14 Disclosure of Guarantees definition of a guarantee. These guarantees or indemnities are entered into when the Company disposes of a business, sells or licenses its software or services and other transactions.

Business dispositions and sale of assets

In the context of business dispositions or the sale of assets, the Company usually provides certain indemnifications to the purchaser for costs and losses incurred as a result of various events, including breaches of representations and warranties, resolution of contingent liabilities of the disposed business or assets, or the reassessment of prior tax filings relating to the business or assets sold.

The amount of such indemnities will generally be limited by the agreement. As at March 31, 2007, the maximum potential exposure under these guarantees represented a cumulative amount of approximately $76.6 million, except for liabilities relating to tax and certain other matters for which the agreements do not specify a maximum amount. Claims for breach of representations and warranties under these agreements must be made before various dates, the last of which is July 1, 2008, except for representations relating to tax and certain other matters which are in force until the expiry of the applicable statute of limitations or otherwise as set forth in the agreement. An amount of $0.7 million has been accrued on the consolidated balance sheet as at March 31, 2007 relating to this type of indemnification or guarantee. Historically, the Company has not made any significant payments under these indemnities or guarantees.

Other indemnification agreements

In addition, the Company provides indemnities to other parties in transactions such as the sale of services and licenses. These indemnification agreements require the Company to compensate the other parties for costs incurred as a result of litigation claims or statutory sanctions or damages that may be suffered by the other parties to the agreement. The Company is unable to make a reasonable estimate of the maximum potential amount it could be required to pay other parties. While some of the agreements specify a maximum potential exposure based on fees paid by other parties, some do not specify maximum amounts or limited periods. The amount also depends on the outcome of future events and conditions, which cannot be predicted. No amount has been accrued on the consolidated balance sheet relating to this type of indemnification or guarantee for the three-month period ended March 31, 2007. Historically, the Company has not made any significant payments under such indemnification agreements.

Contact Information

  • Emergis Inc.
    John Gutpell
    450-928-6856