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ECHO
Press Releases 2006
FOR IMMEDIATE RELEASE
Electronic
Clearing House, Inc. (ECHO)
Announces Second Quarter Fiscal 2006 Results
44%
Quarterly Revenue Growth Fueled by Continued Strong Performance in
Both Bankcard and Check Businesses
Camarillo, Calif., May 10,
2006 -
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 March 31, 2006.
Second Quarter Highlights:
- Total revenue increased 44.3% to
$19.2 million.
- Bankcard and transaction
processing revenue grew 48.7% to $14.7 million.
- Check-related revenue advanced
31.8% to $4.6 million.
- Gross margins from processing and
transaction revenue were 32.8%, compared to 35.7% for the same
period last year.
- Bankcard processing volume
increased 65.5% to $463.7 million.
- ACH transactions processed
increased 18.6% to 9.1 million transactions.
- Stock compensation expense
increased to $217,000 from $0 as a result of the Company's
adoption of SFAS 123R this fiscal year.
- Diluted EPS were $0.06, compared
to diluted EPS of $0.02 for the same period last year.
"Our solid second quarter
revenue performance, driven by record organic growth in both
bankcard and check processing, is a clear indication that our
customers understand our unique value proposition that combines an
end-to-end payment processing solution with a high level of customer
service," said Joel M. Barry, Chairman and Chief Executive
Officer of Electronic Clearing House, Inc. "While our second
quarter results were driven primarily by existing customer
expansion, we are also building a solid pipeline of potential new
bankcard business driven by the implementation of our new
go-to-market strategy and marketing efforts. The market's validation
of our offering gives us confidence in our ability to extend strong
organic growth into new customer momentum."
Fiscal 2006 Second Quarter Financial
Highlights
Total revenue for the second quarter
of fiscal 2006 was $19.2 million, an increase of 44.3%, versus $13.3
million in the prior year quarter and an increase of 13.6%, as
compared to $16.9 million in the first quarter of fiscal 2006. The
increase in total revenue was primarily attributed to a 48.7%
increase in bankcard processing revenue and a 31.8% increase in
check services revenue as compared to the same period last year.
Revenue from bankcard processing and
transactions grew 48.7% from $9.9 million in the second quarter of
fiscal 2005 to $14.7 million in the second quarter of fiscal 2006,
as compared to $12.6 million in the first quarter of fiscal 2006.
The increase in the Company's bankcard processing and transaction
revenue resulted from strong organic growth from existing merchants
and from marketing initiatives. Bankcard processing and transaction
revenues accounted for 76.3% of total Company revenues in the second
quarter of fiscal 2006.
Check-related revenues increased
31.8% to $4.6 million for the three months ended March 31, 2006,
versus $3.5 million in the prior-year quarter. The increase in the
Company's check-related revenue resulted from a 22.6% increase in
Automated Clearing House (ACH) and check verification revenue, and
an 87.6% increase in check collection revenue. The Company processed
9.1 million ACH transactions in the second quarter of fiscal 2006.
Check-related revenues accounted for 23.7% of the Company's total
revenues in the second quarter of fiscal 2006.
Gross margin declined to 32.8% in the
second quarter of fiscal 2006, compared to 35.7% in the same quarter
last year. The year-over-year decrease in gross margin was primarily
related to the presence of several high-volume merchants in the
Company's revenue mix which receive better pricing in exchange for ECHO's
support of a higher volume of transactions.
Processing and transaction expense
increased 50.9% in the second quarter of fiscal 2006 to $12.9
million, up from $8.6 million in the comparable 2005 quarter.
Research and development expenses
decreased from $469,000 for the quarter ended March 31, 2005 to
$394,000 in the current year quarter. Continued investment in
research and development and IT initiatives is critical to our
ability to maintain our competitive position and strengthen our
infrastructure to support growth. Several of our major IT projects
are in the final phase of development and should be completed in the
coming months. However, we anticipate making continued investments
in our IT initiatives and expect research and development expenses
to remain at current levels for the remainder of the 2006 fiscal
year and well into fiscal 2007.
Selling, general and administrative (SG&A)
expenses increased 38.1% from $2.6 million, or 19.8% of total
revenues, in the second quarter of fiscal 2005, to $3.7 million, or
19.0% of total revenues, for the second quarter of fiscal 2006. The
increase in SG&A expenses on an absolute dollar basis was
primarily attributable to an increase in stock-based compensation
expense and an increase in legal settlement and expenses related to
a patent lawsuit which settled on April 3, 2006.
As a result of the adoption of SFAS
No. 123R effective October 1, 2005, ECHO reported stock
compensation expense of $217,000 in the second quarter of fiscal
2006. The Company's stock compensation expense was $0 in the second
quarter of fiscal 2005.
Operating income increased 228.2% to
$781,000 for the second quarter of fiscal 2006, versus $238,000 in
the same period last year. The Company reported net income of
$424,000, or $0.06 per share on a fully diluted basis, in the second
quarter of fiscal 2006, versus net income of $144,000, or $0.02 per
share on a fully diluted basis, in the second quarter of fiscal
2005.
Balance Sheet Summary
ECHO's balance sheet remains
healthy, with approximately $8.0 million in cash and cash
equivalents, $2.2 million in restricted cash, $10.0 million in
working capital, $594,000 in long-term debt and capital leases, and
$19.6 million in stockholders' equity at March 31, 2006.
Business Outlook
Based on its results for the first
six months of fiscal 2006, the Company anticipates exceeding its
prior revenue guidance of 17% to 24% growth over fiscal 2005
revenue. The Company anticipates that net income will remain in the
previously disclosed range of $1.5 million to $2.5 million. The
Company reiterated that fiscal 2006 margins will likely be impacted
by the revenue contribution from its higher margin card-not-present
transactions, offset by the contribution from its lower margin high
volume merchants and third party reseller strategy. The Company
anticipates net income will be affected by anticipated stock option
expense of approximately $900,000 as a result of the Company's
adoption of SFAS No. 123R and pre-tax legal and settlement expenses
related to its prior patent litigation of approximately $1,240,000.
Conference Call
The Company will host a conference
call at 1:30 p.m. PDT (4:30 p.m. EDT) today to discuss second
quarter fiscal 2006 results. To participate in the conference call,
please dial the following number at least five minutes prior to the
scheduled conference call time: (800) 366-7449. International
callers should dial (303) 262-2125. There is no pass code required
for this call. This conference call will also 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.
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, September 30,
2006 2005
Current assets:
Cash and cash equivalents $ 7,970,000 $ 6,732,000
Restricted cash 2,211,000 1,448,000
Settlement deposits 19,993,000 17,094,000
Settlement receivables, less allowance
of $25,000 and $25,000 1,256,000 981,000
Accounts receivable, less allowance of
$419,000 and $92,000 3,163,000 2,421,000
Prepaid expenses and other assets 515,000 385,000
Deferred tax asset 52,000 249,000
Total current assets 35,160,000 29,310,000
Noncurrent assets:
Property and equipment, net 2,275,000 2,337,000
Software, net 9,365,000 8,876,000
Other assets, net 273,000 294,000
Total assets $47,073,000 $40,817,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 327,000 $ 426,000
Accounts payable 287,000 305,000
Settlement payable 21,250,000 18,075,000
Accrued expenses 3,304,000 2,467,000
Total current liabilities 25,168,000 21,273,000
Noncurrent liabilities:
Long-term debt, net of current portion 594,000 705,000
Deferred tax liability 1,694,000 1,067,000
Total liabilities 27,456,000 23,045,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 36,000,000
shares authorized; 6,741,274 and
6,620,531 shares issued; 6,703,005 and
6,582,262 shares outstanding,
respectively 67,000 66,000
Additional paid-in capital 25,983,000 25,574,000
Accumulated deficit (5,967,000) (6,983,000)
Less treasury stock at cost, 38,269
and 38,269 common shares (466,000) (466,000)
Less unearned stock compensation -0- (419,000)
Total stockholders' equity 19,617,000 17,772,000
Total liabilities and
stockholders' equity $ 47,073,000 $ 40,817,000
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2006 2005 2006 2005
REVENUES: $19,228,000 $13,321,000 $ 36,154,000 $26,081,000
COSTS AND EXPENSES:
Processing and
transaction
expense 12,916,000 8,561,000 24,058,000 16,732,000
Other operating
costs 1,487,000 1,410,000 2,828,000 2,743,000
Research and
development
expense 394,000 469,000 873,000 917,000
Selling, general
and
administrative
expenses 3,650,000 2,643,000 6,553,000 5,364,000
18,447,000 13,083,000 34,312,000 25,756,000
Income from
operations 781,000 238,000 1,842,000 325,000
Interest income 53,000 30,000 100,000 58,000
Interest expense (22,000) (30,000) (47,000) (58,000)
Income before
provision for
income taxes 812,000 238,000 1,895,000 325,000
Provision for
income taxes (388,000) (94,000) (879,000) (129,000)
Net income $ 424,000 $ 144,000 $ 1,016,000 $ 196,000
Basic net earnings
per share $ 0.06 $ 0.02 $ 0.15 $ 0.03
Diluted net
earnings per
share $ 0.06 $ 0.02 $ 0.14 $ 0.03
Weighted average
shares
outstanding
Basic 6,698,577 6,469,645 6,662,534 6,448,242
Diluted 7,088,143 6,946,036 7,022,427 6,931,745
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended March 31,
2006 2005
Cash flows from operating activities:
Net income $ 1,016,000 $ 196,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 341,000 352,000
Amortization of software 1,276,000 808,000
Provisions for losses on accounts and
notes receivable 327,000 13,000
Deferred income taxes 824,000 65,000
Stock option compensation 434,000 8,000
Tax benefit from exercise of stock
option 3,000 61,000
Changes in assets and liabilities:
Restricted cash (763,000) (97,000)
Settlement deposits (2,899,000)(1,139,000)
Accounts receivable (1,069,000) (144,000)
Settlement receivable (275,000) (456,000)
Accounts payable (18,000) (8,000)
Settlement payable 3,175,000 1,592,000
Accrued expenses 862,000 (47,000)
Prepaid expenses (130,000) (14,000)
Net cash provided by operating
activities 3,104,000 1,190,000
Cash flows from investing activities:
Other assets 2,000 3,000
Purchase of equipment (277,000) (470,000)
Purchased and capitalized software (1,746,000)(1,921,000)
Net cash used in investing activities (2,021,000)(2,388,000)
Cash flows from financing activities:
Proceeds from issuance of notes payable -0- 400,000
Repayment of notes payable (137,000) (223,000)
Repayment of capitalized leases (75,000) (269,000)
Proceeds from exercise of stock options 318,000 294,000
Tax benefit from exercise of stock
option 49,000 -0-
Net cash provided by financing
activities 155,000 202,000
Net increase (decrease) in cash 1,238,000 (996,000)
Cash and cash equivalents at beginning of
period 6,732,000 7,576,000
Cash and cash equivalents at end of
period $ 7,970,000 $6,580,000
Contact:
Electronic Clearing House, Inc.
Donna Rehman, 805-419-8533
corp@ECHO-inc.com
http://www.echo-inc.com
or
Financial Relations Board
Erin Cox, 310-854-8319
ecox@financialrelationsboard.com
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