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ECHO
Press Releases 2004
FOR IMMEDIATE RELEASE
Electronic Clearing House,
Inc. (ECHO)
Announces Fourth Quarter FY 2004 Results
Annual revenue increases
17% to $47.6 million
Annual operating income rises 43% to $3.5 million
Camarillo, Calif., December 21, 2004 -
Electronic Clearing House, Inc. (Nasdaq: ECHO), a
leading provider of electronic payment and transaction processing
services, today reported financial and
operating results for the three months and fiscal year ended September 30,
2004.
Fiscal Year 2004 Highlights:
- Total revenue increased 17.1% to
$47.6 million
- Check-related revenue advanced by
39.4% to $11.4 million
- Bankcard and transaction
processing revenue rose 11.5% to $36.2 million
- ACH transactions processed jumped
128.4% to 25.8 million transactions
- Gross margin from processing and
transaction revenue improved to 37.4% from 33.9%
- Operating income grew to $3.5
million, up 42.6% from $2.4 million in FY 2003
- Diluted earnings per share before
cumulative effect of accounting change increased to $0.41 from
$0.22 per share
"We are pleased to end the year
with robust revenue growth and enhanced profitability, which
continue to be energized by sustained organic growth in our bankcard
processing business and the increasing contribution of our higher
margin check services to our overall results," said Joel Barry,
Chairman and CEO of ECHO.
"To support sustained expansion
in these segments, we are implementing an aggressive marketing
campaign in San Diego, California, that will actively promote our
MerchantAmerica service to local merchants via direct mail, radio
and television advertisements. We have also set up a free, on-line
directory for San Diego merchants (http://sandiego.merchantamerica.com/directory),
which will give us an unprecedented, direct relationship with
merchants that is truly unique to our industry.
"In the fourth quarter, we saw
further traction in our Visa POS Check program. We are currently
working with over 90% of the Visa member banks that have signed up
to participate in this Visa program. One of the Visa acquiring
banks, using us as its third-party processor, rolled out this
program to a national clothing retailer in June 2003, and following
the bank's negotiations with this retailer, the bank has advised us
that this relationship has been extended through 2005. We believe
that the Visa program will continue to enlist national merchants
that will utilize our check services and provide us with numerous
opportunities to develop strategic relationships with the banks who
have chosen us to be their third-party processor and acquirer
processor under the Visa program," said Mr. Barry.
Total revenue for the fourth quarter
of fiscal 2004 reached a record $12,311,000, an increase of 12.0%,
as compared to $10,990,000 in the prior year quarter. The increase
is primarily attributable to 7.0% growth in the bankcard and
transaction processing revenue and 29.4% growth in check services
revenues. This growth occurred organically from our existing
merchants and from the implementation of new marketing initiatives
during the quarter, as well as from our continued participation in
the Visa POS Check program.
Operating income was $656,000 in the
fourth quarter of 2004, as compared to $869,000 in the year-ago
quarter. This decrease is primarily attributable to a $300,000
litigation accrual during the fourth quarter.
The Company reported net income of
$403,000, or $0.06 per share on a fully diluted basis, in the fourth
quarter of fiscal 2004, versus $518,000, or $0.08 per share in the
fourth quarter of fiscal 2003, before any adjustment for the
cumulative effect of an accounting change.
For the fiscal year ended September
30, 2004, the Company earned $0.41 per fully diluted share on
revenue of $47,584,000. This compares to a loss of $0.56 per fully
diluted share on revenue of $40,636,000 for the fiscal year ended
September 30, 2003. Excluding the cumulative effect of an accounting
change, the Company earned $0.22 per share in fiscal 2003.
Bankcard processing and transaction
revenue increased 7.0% to $9,112,000 in the fourth quarter of fiscal
2004 from $8,517,000 in the prior year quarter. This increase was
primarily attributable to the Company's continuous organic growth in
bankcard processing volume from existing merchants and new merchants
generated as a result of other marketing programs.
Check-related revenues increased
29.4% to $3,199,000 for the three months ended September 30, 2004,
compared with $2,473,000 in the prior year quarter. This was
primarily due to ongoing growth in ACH processing revenue, which
increased as a result of a 17.2% increase in total ACH transactions
processed and an increase of check conversion revenue as a result of
growing acceptance of ECHO's Visa POS Check Service program.
Gross margin from processing and
transaction services remained constant at 37.3% in the fourth
quarter of 2004 from 37.2% in the year-ago quarter. However, gross
margin for the full fiscal year improved from 33.9% in fiscal 2003
to 37.4% in fiscal 2004. This improvement in gross margin was
primarily due to: 1) higher-margin check-related revenue which made
up 24.0% of the total revenue in fiscal 2004, as compared to 20.2%
of the total revenue in fiscal 2003; 2) a rate adjustment which was
applied to a broad base of bankcard merchants during fiscal 2004 to
offset increases in direct bankcard processing expenses; and 3)
continuing low chargeback losses.
Other operating costs increased
18.5%, from $4,373,000 in fiscal 2003 to $5,182,000 in fiscal 2004,
primarily due to increases in the volume of transactions processed.
For the three months ended September 30, 2004, other operating costs
decreased 3.4% from $1,324,000 in prior year quarter to $1,279,000
in the current year quarter. Research and development expenses
remained relatively constant, from $1,464,000 in fiscal 2003 to
$1,465,000 in fiscal 2004. Almost all of our major development
projects were in the coding and testing phases in fiscal 2004.
Several major development projects should be completed during fiscal
year 2005. However, given the rapid changes in technology occurring
in this industry, we plan to continue to invest in product
developments in both the bankcard processing business segment and
the check-related products segment in order to remain competitive in
these financial services markets.
Selling, general and administrative (SG&A)
expenses increased 37.3% from $5,714,000 in fiscal 2003 to
$7,846,000 in fiscal 2004. This increase was primarily attributable
to: 1) greater personnel costs due to cost of living adjustments and
greater employee benefits costs, such as health insurance and
worker's compensation insurance; 2) growth in sales and marketing
expenses to implement our sales and marketing strategies; 3)
increased legal and professional expenses to defend several
lawsuits; 4) an increase in rent expense due to our new corporate
relocation in October 2003; and 5) the Company recorded a $300,000
litigation accrual related to an ordinary course contract dispute
with one of its independent sales organizations. The dispute is
subject to binding arbitration, the award from which is expected
between the end of calendar 2004 and the beginning of calendar 2005.
The accrual represents management's good faith evaluation after
consultation with its legal counsel. As a percentage of total
revenue, SG&A expenses increased from 14.1% in fiscal 2003 to
16.5% in fiscal 2004.
During fiscal 2004, the Company sold
a building, which formerly held the Company's corporate offices. The
gain on the sale of the building was $1,319,000 on a pre-tax basis.
The Company generated $5,325,000 of
cash from operating activities for the fiscal year ended September
30, 2004, as compared to $4,549,000 in the same period last year.
The upsurge in cash flow from operations is primarily attributable
to a significant increase in net income for fiscal year 2004, as
compared to the prior year.
Mr. Barry emphasized that, "ECHO's
balance sheet remains strong, with $7,576,000 in cash and cash
equivalents, $8,004,000 in working capital, only $704,000 in
long-term debt, and $16,240,000 in stockholders' equity as of
September 30, 2004. The balance of the merchant settlement deposits
was increased to $18,282,000 at September 30, 2004, as compared to
$2,733,000 at September 30, 2003, as a result of the increase in our
ACH activities during this fiscal year. We have classified this
balance as a separate line item on the balance sheet instead of
combining it with cash and cash equivalents as we have done in the
prior periods. Our current financial position provides us with the
resources for continued organic growth in our core bankcard
processing business, and the ability to implement key marketing
initiatives in our check services business to support continued
growth in fiscal year 2005."
Business Outlook
"Looking ahead to fiscal 2005,
we anticipate continued growth in our check services program and
bankcard and transaction processing services. We are also optimistic
that we will have double-digit revenue growth and stronger gross
margin performance," stated Mr. Barry.
Conference Call
The Company will host a conference
call at 1:30 p.m. PST (4:30 p.m. EST) today to discuss fourth
quarter and year-end results. To participate in the conference call,
please dial the following number five to ten minutes prior to the
scheduled conference call time: 800-399-7496. International callers
should dial 706-634-6508. There is no pass code required for this
call. This conference call will be broadcast live over the Internet
and can be accessed by all interested parties on the Investor
Relations section of ECHO's website at www.echo-inc.com.
About Electronic Clearing House, Inc.
(ECHO)
ECHO (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, and check
collection.
Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995: Any statements set
forth above that are not historical facts are 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
September 30,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $7,576,000 $2,908,000
Restricted cash 1,024,000 977,000
Settlement deposits 18,282,000 2,733,000
Settlement receivables less allowance of
$22,000 and $21,000 451,000 696,000
Accounts receivable less allowance of
$111,000 and $71,000 1,943,000 1,939,000
Prepaid expenses and other assets 368,000 307,000
Deferred tax asset 279,000 86,000
Total current assets 29,923,000 9,646,000
Noncurrent assets:
Property and equipment, net 2,293,000 2,928,000
Software, net 6,844,000 4,445,000
Deferred tax asset -0- 1,256,000
Other assets less accumulated amortization
of $284,000 and $305,000 368,000 500,000
Total assets $39,428,000 $18,775,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion
of long-term debt $878,000 $901,000
Accounts payable 305,000 779,000
Settlement payable 18,733,000 3,429,000
Accrued expenses 2,003,000 1,336,000
Total current liabilities 21,919,000 6,445,000
Noncurrent liabilities:
Long-term debt 704,000 1,961,000
Deferred tax liability 565,000 -0-
Total liabilities 23,188,000 8,406,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 36,000,000
shares authorized; 6,451,331 and
5,920,174 shares issued; 6,413,062 and
5,881,905 shares outstanding 64,000 59,000
Additional paid-in capital 24,658,000 21,641,000
Accumulated deficit (8,016,000) (10,865,000)
Less treasury stock at cost, 38,269 and
38,269 common shares (466,000) (466,000)
Total stockholders' equity 16,240,000 10,369,000
Total liabilities and stockholders'
equity $39,428,000 $ 18,775,000
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Twelve Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
REVENUES: $12,311,000 $10,990,000 $47,584,000 $40,636,000
COSTS AND EXPENSES:
Processing and
transaction
expense 7,689,000 6,851,000 29,634,000 26,660,000
Other operating
costs 1,279,000 1,324,000 5,182,000 4,373,000
Research and
development
expense 375,000 363,000 1,465,000 1,464,000
Selling, general
and
administrative
expenses 2,312,000 1,583,000 7,846,000 5,714,000
11,655,000 10,121,000 44,127,000 38,211,000
Income from
operations 656,000 869,000 3,457,000 2,425,000
Interest income 22,000 7,000 71,000 28,000
Interest expense (29,000) (50,000) (175,000) (200,000)
Gain on sale of
assets -0- -0- 1,319,000 -0-
Income before
provision for
income tax and
cumulative effect
of an accounting
change 649,000 826,000 4,672,000 2,253,000
Provision for
income taxes (246,000) (308,000) (1,823,000) (925,000)
Income before
cumulative effect
of an accounting
change 403,000 518,000 2,849,000 1,328,000
Cumulative effect
of an accounting
change to adopt
SFAS 142 -0- -0- -0- (4,707,000)
Net earnings (loss) $403,000 $518,000 $2,849,000 $(3,379,000)
Basic net earnings
(loss) per share
Before
cumulative
effect of
accounting
change $0.06 $0.09 $0.45 $0.23
Cumulative
effect of
accounting
change -0- -0- -0- (0.81)
Basic net
earnings (loss)
per share $0.06 $0.09 $0.45 $(0.58)
Diluted net
earnings (loss)
per share
Before
cumulative
effect of
accounting
change $0.06 $0.08 $0.41 $0.22
Cumulative
effect of
accounting
change -0- -0- -0- (0.78)
Diluted net
earnings (loss)
per share $0.06 $0.08 $0.41 $(0.56)
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
2004 2003 2002
Cash flows from operating
activities:
Net income (loss) $2,849,000 $(3,379,000) $(2,376,000)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Gain (loss) on sale of assets (1,319,000) 16,000 -0-
Cumulative effect of an
accounting change -0- 4,707,000 -0-
Depreciation 634,000 512,000 480,000
Amortization of software 1,350,000 1,081,000 697,000
Amortization of goodwill -0- -0- 489,000
Provisions for losses on
accounts and notes
receivable 92,000 67,000 302,000
Provision for obsolete
inventory 46,000 110,000 300,000
Write-down of real estate -0- 55,000 100,000
Fair value of stock issued
in connection with
director's compensation -0- 21,000 45,000
Deferred income taxes 1,628,000 942,000 (1,375,000)
Stock option compensation 33,000 28,000 -0-
Tax benefit from stock
exercise 75,000 -0- -0-
Legal settlement -0- -0- 1,300,000
Changes in assets and
liabilities:
Restricted cash (47,000) (71,000) 504,000
Settlement deposits (15,549,000) (2,133,000) (21,000)
Accounts receivable (95,000) (389,000) (162,000)
Settlement receivable 244,000 (569,000) (106,000)
Accounts payable (474,000) 578,000 66,000
Settlement payable 15,304,000 2,700,000 111,000
Accrued expenses 661,000 349,000 (376,000)
Prepaid expenses (107,000) (76,000) 63,000
Net cash provided by
operating activities 5,325,000 4,549,000 41,000
Cash flows from investing
activities:
Other assets 141,000 (51,000) (81,000)
Purchase of equipment (744,000) (664,000) (253,000)
Purchased and capitalized
software (3,534,000) (2,627,000) (1,501,000)
Proceeds from sale of asset 2,233,000 71,000 -0-
Net cash used in investing
activities (1,904,000) (3,271,000) (1,835,000)
Cash flows from financing
activities:
Proceeds from issuance of
notes payable 811,000 292,000 -0-
Repayment of notes payable (1,916,000) (177,000) (151,000)
Repayment of capitalized
leases (562,000) (452,000) (215,000)
Proceeds from sales and
leaseback of equipment -0- -0- 390,000
Proceeds from private
placement 2,693,000 -0- -0-
Proceeds from exercise of
stock options 221,000 158,000 11,000
Net cash provided by (used
in) financing activities 1,247,000 (179,000) 35,000
Net increase (decrease) in cash 4,668,000 1,099,000 (1,759,000)
Cash and cash equivalents at
beginning of period 2,908,000 1,809,000 3,568,000
Cash and cash equivalents at
end of period $7,576,000 $2,908,000 $1,809,000
Contact:
Electronic Clearing House, Inc.
Donna Rehman, 805-419-8533
corp@ECHO-inc.com
http://www.echo-inc.com
or
Coffin Communications Group
Crocker Coulson, 818-789-0100
crocker.coulson@coffincg.com
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