ECHO Press Releases

FOR IMMEDIATE RELEASE

ELECTRONIC CLEARING HOUSE, Inc. (ECHO) Announces Improved Second Quarter FY 2003 Results

• Revenue increases 16.5% to record $9.8 million

Agoura Hills, Calif., May 7, 2003 - Electronic Clearing House, Inc. (NASDAQ: ECHO), a leading provider of electronic payment services, today reported financial and operating results for the three and six months ended March 31, 2003.

Revenue for the second quarter of fiscal 2003 was a record $9,767,000, an increase of 16.5%, as compared to $8,386,000 in the prior year quarter. 

Operating income rose to $465,000, as compared to an operating loss of $3,129,000 in the same period last year. The year-over-year improvement can be primarily attributed to the absence of $2,669,000 of legal and settlement fees incurred in the second quarter of fiscal 2002, elimination of $128,000 in amortization of goodwill, and a reduction of $300,000 in valuation allowance for real estate and inventory recorded in the prior year quarter. Excluding these expense items, operating income increased by $497,000 over the same quarter last year.

The Company reported net income of $268,000, or $0.05 per share on a fully diluted basis, in the quarter, as compared to a net loss of $1.9 million, or $0.33 per share in the second quarter of fiscal 2002.

“We are pleased to report another quarter of strong organic growth and improving profitability,” said Joel M. Barry, Chairman and CEO of Electronic Clearing House, Inc. “ECHO’s complete and flexible end-to-end solution that encompasses all popular forms of payment and our commitment to high-quality customer service has translated into nine sequential quarters of revenue growth. As our payment processing services gain traction in our core small and mid-sized markets and we grow our customer base, we are able to realize the operating leverage inherent in our business. For the quarter, gross margin from processing and transaction revenue increased to 34.6%, from 30.5% in the second quarter of fiscal 2002 and from 32.4% in the first quarter of 2003.”

“ECHO continues to work to maximize the success of our risk management tools and ability to underwrite our merchants in order to mitigate any potential chargeback losses. The reduction of our chargeback losses accounted for approximately 1.1% out of the 4.1% of the gross margin improvement for this quarter over the same period last year. Additionally, the 30.5% increase of the check services revenue this quarter also contributed to the higher gross margin, since check services normally generates a higher gross margin than bankcard processing revenue,” Mr. Barry added.

“During the second quarter, ECHO continued to make excellent progress in providing value-added services with our payment processing solutions. The Company announced a strategic reseller agreement with Deposit Payment Protection Services, Inc., a wholly owned subsidiary of eFunds Corporation, for its SCAN OnLineSM risk scoring services. By offering real time access to two of the largest check verification services in the country, ECHO’s own National Check Network and SCAN OnLineSM, we will enable our customers to achieve significant cost savings through the reduction of check fraud and transaction losses.” ECHO plans to offer this value-added service to merchants in the coming months.

Total processing and transaction revenue for this fiscal quarter increased 17.3% to $9,708,000 million in the second quarter of fiscal 2003 from $8,278,000 million in the same period last year.

Bankcard processing and transaction revenue increased 13.4% to $7,796,000 for this fiscal quarter, from $6,876,000 in the second fiscal quarter 2002. This increase was mainly attributable to the organic growth from the Company’s existing merchants and other marketing initiatives, such as the Company’s MerchantAmerica and sales programs to smaller regional and community banks.

Check-related revenues increased 30.5% to $1,971,000 for the three months ended March 31, 2003, from $1,510,000 for the three months ended March 31, 2002. This increase was primarily due to strong growth in ACH and check conversion services. 

“We continue to receive excellent feedback from major retailers regarding the potential of the Visa POS Check Service to sharply reduce transaction costs, manage risk, and accommodate customer payment preferences,” said Mr. Barry. “As the market gains acceptance of the Visa POS Check Service, it will significantly increase the Company’s opportunities to market its check conversion services and verification services to its core merchant base and solidify its strategic relationships with the various financial institutions that have chosen the Company as its third-party processor under the Visa POS Check Service program.”

“The Company generated $1,889,000 of cash from operating activities in the six months ended March 31, 2003, as compared to $600,000 cash used in the same period last year,” continued Mr. Barry. “ECHO’s balance sheet continues to be strong, with $2,878,000 in cash and cash equivalents, $3,261,000 in working capital and $9,354,000 in stockholders’ equity as of March 31, 2003.”

“Looking to the third quarter, we are gaining momentum in both the interest in and the implementation of our payment processing solutions and we are optimistic that we will continue our strong double digit revenue growth,” Mr. Barry concluded.

Electronic Clearing House, Inc. (www.echo-inc.com) provides a complete solution to the payment processing needs of merchants, banks and collection agencies. ECHO's services include debit and credit card processing, check guarantee, check verification, check conversion, check re-presentment, check collection, and inventory tracking. 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts re forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, but are not limited to, such factors as fluctuations in demand for the Company’s products and services, the introduction of new products and services, the Company’s ability to maintain customer and strategic business relationships, technological advancements, impact of competitive products and services and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support its growth, and other information detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission.

                    ELECTRONIC CLEARING HOUSE, INC.
                     CONSOLIDATED BALANCE SHEETS
                             (Unaudited)

                                ASSETS
                                              March 31,    Sept. 30,
                                                2003         2002
                                             ------------ ------------
Current assets:
  Cash and cash equivalents                   $2,878,000   $2,409,000
  Restricted cash                              1,057,000      906,000
  Accounts receivable less allowance of
   $445,000 and $431,000                       1,889,000    1,744,000
  Inventory                                      242,000      234,000
  Prepaid expenses and other assets              216,000      169,000
  Deferred tax asset                              84,000      266,000
                                             ------------ ------------
     Total current assets                      6,366,000    5,728,000

Noncurrent assets:
  Property and equipment, net                  6,016,000    5,101,000
  Deferred tax asset                           1,793,000    2,018,000
  Other assets less accumulated amortization
   of $282,000 and $259,000                      534,000      637,000
  Goodwill, net                                      -0-    4,707,000
                                             ------------ ------------
           Total assets                      $14,709,000  $18,191,000
                                             ============ ============


                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Short-term borrowings and current portion
   of long-term debt                            $571,000     $515,000
  Accounts payable                                95,000      201,000
  Settlement payable to merchants              1,201,000      729,000
  Accrued expenses                             1,238,000      987,000
  Deferred income                                    -0-       62,000
                                             ------------ ------------
     Total current liabilities                 3,105,000    2,494,000

Long-term debt                                 2,250,000    2,159,000
                                             ------------ ------------
     Total liabilities                         5,355,000    4,653,000
                                             ------------ ------------

Commitments and contingencies
Stockholders' equity:
  Common stock, $.01 par value, 36,000,000
   authorized; 5,844,424 and 5,835,331 shares
   issued; 5,805,155 and 5,796,062 shares
   outstanding                                    58,000       58,000
  Additional paid-in capital                  21,456,000   21,435,000
  Accumulated deficit                        (11,691,000)  (7,486,000)
  Less treasury stock at cost, 39,269 common
   shares                                       (469,000)    (469,000)
                                             ------------ ------------
     Total stockholders' equity                9,354,000   13,538,000
                                             ------------ ------------
     Total liabilities and stockholders'
      equity                                 $14,709,000  $18,191,000
                                             ============ ============


                   ELECTRONIC CLEARING HOUSE, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Unaudited)

                            Three Months             Six Months
                           Ended March 31,        Ended March 31,
                       -----------------------------------------------
                          2003        2002        2003        2002
Revenues:
  Processing revenue   $5,139,000  $4,061,000  $9,886,000  $7,868,000
  Transaction revenue   4,569,000   4,217,000   8,984,000   8,256,000
  Terminal sales           27,000      54,000      59,000     129,000
  Other revenue            32,000      54,000     139,000      54,000
                       -----------------------------------------------
                        9,767,000   8,386,000  19,068,000  16,307,000
                       -----------------------------------------------
Costs and expenses:
  Processing and
   transaction expense  6,348,000   5,750,000  12,537,000  10,880,000
  Cost of terminals
   sold                    17,000     231,000      38,000     263,000
  Other operating costs   758,000     678,000   1,479,000   1,287,000
  Research and
   development expense    296,000     442,000     667,000     798,000
  Selling, general and
   administrative
   expenses             1,883,000   1,786,000   3,355,000   3,528,000
  Amortization expense
   - goodwill                 -0-     128,000         -0-     256,000
  Legal settlement            -0-   2,500,000         -0-   2,500,000
                       -----------------------------------------------
                        9,302,000  11,515,000  18,076,000  19,512,000
                       -----------------------------------------------
Income (loss) from
 operations               465,000  (3,129,000)    992,000  (3,205,000)

Interest income             7,000      14,000      15,000      36,000
Interest expense          (47,000)    (24,000)    (99,000)    (38,000)
                       -----------------------------------------------
Income (loss) before
 provision for income
 tax and cumulative
 effect of an
 accounting change        425,000  (3,139,000)    908,000  (3,207,000)

(Provision) benefit for
 income taxes            (157,000)  1,231,000    (406,000)  1,206,000
                       -----------------------------------------------
Income (loss) before
 cumulative effect of
 an accounting change     268,000  (1,908,000)    502,000  (2,001,000)

Cumulative effect of an
 accounting change to
 adopt SFAS 142               -0-         -0-  (4,707,000)        -0-
                       -----------------------------------------------

Net earnings (loss)      $268,000 $(1,908,000)$(4,205,000)$(2,001,000)
                       ===============================================
Basic net earnings
 (loss) per share
  Before cumulative
   effect of accounting
   change                   $0.05      $(0.33)      $0.09      $(0.35)
  Cumulative effect of
   accounting change          -0-         -0-       (0.81)        -0-
                       -----------------------------------------------
  Basic net earnings
   (loss) per share         $0.05      $(0.33)     $(0.72)     $(0.35)
                       ===============================================

Diluted net earnings
 (loss) per share
  Before cumulative
   effect of accounting
   change                   $0.05      $(0.33)      $0.09      $(0.35)
  Cumulative effect of
   accounting change          -0-         -0-       (0.81)        -0-
                       -----------------------------------------------
  Diluted net earnings
   (loss) per share         $0.05      $(0.33)     $(0.72)     $(0.35)
                       ===============================================

Weighted average shares
 outstanding
  Basic                 5,801,619   5,790,267   5,798,810   5,779,988
                       ===============================================
  Diluted               5,914,121   5,790,267   5,852,717   5,779,988
                       ===============================================


                   ELECTRONIC CLEARING HOUSE, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Unaudited)
                                                    Six Months
                                                  Ended March 31,
                                             -------------------------
                                                2003         2002
                                             ------------ ------------
Cash flows from operating activities:
   Net loss                                  $(4,205,000) $(2,001,000)
   Adjustments to reconcile net loss to net
    cash provided by (used in) operating
     activities:
   Depreciation                                  330,000      307,000
   Amortization of software                      425,000      233,000
   Amortization of goodwill                          -0-      251,000
   Provisions for losses on accounts and
    notes receivable                              26,000      203,000
   Provision for obsolete inventory                  -0-      200,000
   Write-down of real estate                         -0-      100,000
   Fair value of stock issued in connection
    with director's compensation                  21,000       45,000
   Deferred income taxes                         407,000   (1,211,000)
   Legal settlement                                  -0-    1,300,000
   Cumulative effect of an accounting change   4,707,000          -0-
Changes in assets and liabilities:
   Restricted cash                              (151,000)     523,000
   Accounts receivable                          (171,000)    (250,000)
   Inventory                                      (8,000)      25,000
   Accounts payable                             (106,000)      20,000
   Settlement payable to merchants               472,000      (98,000)
   Accrued expenses                              251,000     (176,000)
   Prepaid expenses                             (109,000)     (71,000)
                                             ------------ ------------
   Net cash provided by (used in) operating
    activities                                 1,889,000     (600,000)
                                             ------------ ------------
Cash flows from investing activities:
   Other assets                                   80,000      (22,000)
   Purchase of equipment and software         (1,470,000)    (958,000)
                                             ------------ ------------
 Net cash used in investing activities        (1,390,000)    (980,000)
                                             ------------ ------------
Cash flows from financing activities:
   Proceeds from issuance of notes payable       292,000          -0-
   Repayment of notes payable                    (88,000)     (65,000)
   Repayment of capitalized leases              (234,000)    (109,000)
   Proceeds from exercise of stock options           -0-       11,000
                                             ------------ ------------
   Net cash used in financing activities         (30,000)    (163,000)
                                             ------------ ------------

Net increase (decrease) in cash                  469,000   (1,743,000)
Cash and cash equivalents at beginning of
 period                                        2,409,000    4,147,000
                                             ------------ ------------
Cash and cash equivalents at end of period    $2,878,000   $2,404,000
                                             ============ ============

Investor Contacts:

Donna Rehman, Corporate Secretary 
Electronic Clearing House, Inc.
818-706-8999, ext. 3033 
Agoura Hills, Calif. 
E-MAIL: corp@ECHO-inc.com
URL: http://www.ECHO-inc.com

Crocker Coulson, Partner
Coffin Communications Group
818-789-0100
E-MAIL: crocker.coulson@coffincg.com

Press Releases are also available by calling (800) 233-0406 ext. 3033, or by email to corp@echo-inc.com

2003
2002
2001
2000

Electronic Clearing House, Inc. (ECHO)
28001 Dorothy Drive
Agoura Hills, CA 91301

Phone: (800) 233-0406
Fax: (818) 991-5973
E-Mail: echo@echo-inc.com
URL: http://www.echo-inc.com