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ECHO
Press Releases 2005
FOR IMMEDIATE RELEASE
Electronic
Clearing House Inc. ECHO
Announces First Quarter FY 2005 Results
Camarillo, Calif., February 10, 2005 -
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 ended December 31, 2004.
First Quarter Highlights:
- Total revenue increased 11.1% to
$12.8 million
- Bankcard and transaction
processing revenue increased 4.9% to $9.2 million
- Check-related revenue increased
31.0% to $3.6 million
- ACH transactions processed
increased 19.7% to 8.8 million transactions
- Gross margins from processing and
transaction revenue was 35.4% for Q1 2005 as compared to 38.5%
for the same period last year
- Diluted EPS of $0.01 as compared
to diluted EPS of $0.09 in Q1 2004
"While higher than expected
legal and regulatory compliance costs constrained our earnings, we
are encouraged by several aspects of our performance during the
first fiscal quarter of 2005," said Joel M. Barry, Chairman and
CEO of Electronic Clearing House, Inc. "Our check business
continues to grow at a fast rate, and we have had another major
national retail chain transition on to the Visa POS Check program
successfully. While the growth of our bankcard business was subdued
this quarter, we believe that it will return to its historical
growth rates in the near future. As previously announced, operating
margins for the Fiscal Year 2005 are expected to be constrained by a
number of unusual legal and compliance expenses. However, once these
costs start to abate and normalize, we anticipate being in a much
better position to generate strong profitability across all of our
business segments.
"We are also excited about
implementing several new, innovative marketing plans later in this
year that have the potential to enhance our top-line performance
going forward by marketing our total payments solution directly to
targeted merchants. Our Visa POS Check program continued to gain
recognition with both major merchants and banks, and we anticipate
continued growth in this program as the marketing efforts of
participating banks become more widely implemented," continued
Mr. Barry.
Revenue for the first quarter of
fiscal 2005 was $12,760,000, an increase of 11.1%, as compared to
$11,483,000 in the prior year quarter.
Bankcard processing and transaction
revenue increased 4.9% from $8,752,000 for the prior year quarter to
$9,182,000 in Q1 2005. This increase was primarily due to the
organic growth in bankcard processing volume from ECHO's
existing and new merchants.
Check-related revenues increased
31.0% to $3,578,000, or 28.0% of total revenue, for the three months
ended December 31, 2004, compared with $2,731,000, or 23.8% of total
revenue, in the prior-year quarter. This increase was primarily due
to the increase in ACH processing revenue, which grew as a result of
the continued organic and external growth of our check-related
products, as well as strong growth in both the Visa POS Check
program and in check verification revenue.
Gross margin from processing and
transaction revenue was 35.4% in Q1 2005, down from 36.8% in Q4 2004
and 38.5% in Q1 2004. This decrease was mainly due to higher
commissions paid to the Company's independent sales organizations.
Other operating costs such as
personnel costs, telephone and depreciation expenses decreased
slightly, from $1,340,000, or 11.7% of total revenues, in Q1 2004,
to $1,333,000, or 10.4% of total revenues, for the current fiscal
quarter.
Research and development expense
increased 17.0% from $383,000, or 3.3% of revenues, in the prior
year quarter to $448,000, or 3.5% of revenues, in Q1 2005, as the
Company continued investing in several major software development
projects. Several of these projects are in the final phase of
development, and ECHO anticipates that this level of
investment will continue throughout the remainder of this fiscal
year.
Selling, general and administrative (SG&A)
expenses jumped 57.5% to $2,721,000, or 21.3% of revenues, for the
current fiscal quarter from $1,728,000, or 15.0% of revenues, in Q1
2004. This significant increase was primarily attributable to: 1) an
additional $400,000 of litigation expense arising as a result of an
arbitration award granted in January 2005 by the arbitration panel
overseeing a dispute with an independent sales organization. ECHO
previously accrued $300,000 of litigation expense related to this
matter in the fourth fiscal quarter of 2004 based on its good faith
estimate at that time; 2) approximately $270,000 in legal expenses
primarily related to the dispute with the independent sales
organization and the defense of a patent infringement lawsuit; 3) an
increase in personnel costs due to cost of living adjustments and an
increase in the costs of employee benefits, such as health and
worker's compensation insurance; 4) an increase in sales and
marketing expenses to implement sales and marketing strategies; and
5) higher professional service expenses and salaries related to ECHO's
Sarbanes-Oxley Act Section 404 Compliance efforts.
Operating income decreased to
$87,000, or 0.7% of revenue, in Q1 2005, from $656,000, or 5.2% of
revenue in the prior quarter, and $1,013,000, or 8.8% of revenue in
the same period last year. The decrease was attributable to the
increase in selling, general and administrative expenses as
previously described.
The Company reported net income of
$52,000, or $0.01 per share on a fully diluted basis, in the first
quarter of fiscal 2005, as compared to $403,000, or $0.06 per share,
in the fourth quarter of fiscal 2004 and $589,000, or $0.09 per
share in the first quarter of fiscal 2004.
Mr. Barry commented, "ECHO's
balance sheet is very strong, with $7,274,000 in cash and cash
equivalents, $7,405,000 in working capital, $583,000 in long-term
debt, and $16,423,000 in stockholders' equity as of December 31,
2004."
Business Outlook
"As we move into the second
quarter of fiscal 2005, we believe the growth in our check services
program and continued solid results in our bankcard and transaction
processing services will drive double digit revenue growth,"
Mr. Barry concluded.
Conference Call
The company will host a conference
call at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) today to
discuss first-quarter 2005 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. Examples of forward-looking statements
included in this press release include statements relating to the
growth in ECHO's check services program, continued solid
results in ECHO's bankcard and transaction processing
services, double digit revenue growth, and improvements in gross
margins from last year. Potential risks and uncertainties that may
cause actual results to differ materially include, but are not
limited to, such factors as unanticipated events causing litigation
expenses to exceed estimates, additional time and resources required
to comply with compliance efforts, 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
December 31, September 30,
2004 2004
Current assets:
Cash and cash equivalents $7,274,000 $7,576,000
Restricted cash 1,260,000 1,024,000
Settlement deposits 15,082,000 18,282,000
Settlement receivable less allowance
of $25,000 and $22,000 841,000 451,000
Accounts receivable less allowance of
$158,000 and $111,000 2,063,000 1,943,000
Prepaid expenses and other assets 542,000 368,000
Deferred tax asset 70,000 279,000
Total current assets 27,132,000 29,923,000
Noncurrent assets:
Property and equipment, net 2,250,000 2,293,000
Software, net 7,385,000 6,844,000
Other assets, net 356,000 368,000
Total assets $37,123,000 $39,428,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt and
capital leases $ 752,000 $ 878,000
Accounts payable 384,000 305,000
Settlement payable 15,923,000 18,733,000
Accrued expenses 2,668,000 2,003,000
Total current liabilities 19,727,000 21,919,000
Noncurrent liabilities:
Long-term debt and capital leases 583,000 704,000
Deferred tax liability 390,000 565,000
Total liabilities 20,700,000 23,188,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 36,000,000
authorized; 6,488,281 and 6,451,331
shares issued; 6,450,012 and 6,413,062
shares outstanding, respectively 65,000 64,000
Additional paid-in capital 24,788,000 24,658,000
Accumulated deficit (7,964,000) (8,016,000)
Less treasury stock at cost,
38,269 common shares (466,000) (466,000)
Total stockholders' equity 16,423,000 16,240,000
Total liabilities and
stockholders' equity $37,123,000 $39,428,000
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended December 31,
2004 2003
REVENUES $12,760,000 $11,483,000
COSTS AND EXPENSES:
Processing and transaction expense 8,171,000 7,019,000
Other operating costs 1,333,000 1,340,000
Research and development expense 448,000 383,000
Selling, general and administrative
expenses 2,721,000 1,728,000
12,673,000 10,470,000
Income from operations 87,000 1,013,000
Interest income 28,000 13,000
Interest expense (28,000) (56,000)
Income before provision for income taxes 87,000 970,000
Provision for income taxes (35,000) (381,000)
Net income $ 52,000 $ 589,000
Basic net earnings per share $ 0.01 $ 0.10
Diluted net earnings per share $ 0.01 $ 0.09
Weighted average shares outstanding
Basic 6,427,305 6,182,767
Diluted 6,882,761 6,678,880
NOTE: Certain reclassifications have been made to the prior year
amounts to conform with the current year presentation.
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended December 31,
2004 2003
Cash flows from operating activities:
Net income $ 52,000 $ 589,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 183,000 176,000
Amortization of software 407,000 330,000
Provisions for losses on accounts and notes
receivable 50,000 28,000
Deferred income taxes 34,000 381,000
Stock option compensation 8,000 9,000
Changes in assets and liabilities:
Restricted cash (236,000) (152,000)
Settlement deposits 3,200,000 (4,954,000)
Accounts receivable (167,000) (131,000)
Settlement receivable (393,000) (361,000)
Accounts payable 79,000 (329,000)
Settlement payable (2,810,000) 5,315,000
Deferred income -0- 100,000
Accrued expenses 665,000 69,000
Prepaid expenses (174,000) (35,000)
Net cash provided by operating activities 898,000 1,035,000
Cash flows from investing activities:
Other assets 3,000 1,000
Purchase of equipment (140,000) (305,000)
Purchased and capitalized software (939,000) (664,000)
Net cash used in investing activities (1,076,000) (968,000)
Cash flows from financing activities:
Proceeds from issuance of notes payable -0- 211,000
Repayment of notes payable (111,000) (112,000)
Repayment of capitalized leases (136,000) (129,000)
Proceeds from private placement of common
stock -0- 2,761,000
Proceeds from exercise of stock options 123,000 47,000
Net cash (used in) provided by financing
activities (124,000) 2,778,000
Net (decrease) increase in cash (302,000) 2,845,000
Cash and cash equivalents at beginning of
period 7,576,000 2,908,000
Cash and cash equivalents at end of period $ 7,274,000 $ 5,753,000
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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