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ECHO
Press Releases 2007
FOR IMMEDIATE RELEASE
Electronic Clearing House (ECHO)
Announces Third Quarter
Fiscal 2007 Results
Camarillo, Calif., Aug 09,
2007 -
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 June 30, 2007.
Third Quarter Fiscal 2007 Highlights:
Financial highlights for the third
quarter of fiscal 2007 as compared to the same period last year are
as follows:
- Total revenue decreased 4.2% to
$19.0 million
- Gross margins from processing
and transaction revenue was 27.5% for the current quarter as
compared to 33.1% for the prior year period
- Operating loss was $1.7 million
compared with operating income of $1.8 million for the prior
year period
- Net loss per diluted share was
$0.10 as compared to net income per diluted share of $0.14 for
the prior year period
- Bankcard and transaction
processing revenue increased 4.8% to $15.8 million
- Bankcard processing volume
increased 5.1% to $496.0 million
- Check-related products revenue
decreased 32.9% to $3.2 million; non-GAAP check-related products
revenue increased 15.9% year-over-year
- ACH transactions processed
volume decreased 33.7% to 6.2 million transactions
"Our third quarter results reflect
the ongoing transition period we anticipated," said Chuck Harris,
Chief Executive Officer of Electronic Clearing House, Inc. "We're
focused on moving beyond the setbacks of the past few quarters and
we have begun to regain momentum in our sales pipeline. We won
several new card-not-present accounts during the fiscal third
quarter and we believe there are plenty of opportunities to generate
business from high volume merchants, particularly as we work to
leverage our channel and technology partners and add functionality
to our IT platform. We remain confident in our long-term prospects
for growth and business expansion."
Third Quarter Fiscal 2007 Financial
Results
Revenue
Total revenue for the third quarter
of fiscal 2007 was $19.0 million compared with $19.9 million for the
same period last year. Bankcard and transaction processing revenue
increased 4.8% to $15.8 million from $15.1 million for the third
quarter of fiscal 2006 due to organic growth from existing merchants
and the results of new marketing initiatives. This increase was
offset by a decrease in check-related products revenue of 32.9%, to
$3.2 million for the third quarter of fiscal 2007 from $4.8 million
for the third quarter of fiscal 2006, which primarily reflects the
wind-down of the Company's Internet wallet business, and the
discontinuation of services to several merchant categories that
management determined were carrying unacceptable levels of business
or financial risk. On a non-GAAP basis, check-related products
revenue for the third quarter of fiscal 2007, excluding terminated
check and Internet wallet merchants, increased 15.9% to $2.9 million
from $2.5 million for the third quarter of fiscal 2006. A
reconciliation of non-GAAP financial measures to related GAAP
financial measures are included in the accompanying "Summary of
Check Revenue Excluding Terminated Merchants" provided herein.
Gross Margin
Gross margin decreased to 27.5% for
the third quarter of fiscal 2007 from 33.1% for the same period last
year, due primarily to several high volume merchants that
contributed slightly lower margin and the 32.9% decrease in
check-related revenue due to the wind-down of the higher margin
Internet wallet business.
Expenses
Total operating expenses increased
14.4% to $20.7 million for the third quarter of fiscal 2007 as
compared with $18.1 million for the third quarter of fiscal 2006.
Included in total operating expenses are approximately $1.4 million
of one-time expenses for the third quarter ended June 30, 2007, such
as severance costs for the Company's former CEO and legal settlement
expense related to the resolution of a government non-prosecution
agreement entered into in connection with our Internet wallet
business.
Processing and Transaction Expense:
Processing and transaction expense increased 3.8% to $13.8 million
for the third quarter of fiscal 2007 as compared with $13.3 million
for the third quarter of fiscal 2006, primarily due to increased
bankcard processing revenue.
Selling, General and Administrative
Expense: Selling, general and administrative expense increased 6.1%
to $3.2 million for the third quarter of fiscal 2007 from $3.0
million for the third quarter of fiscal 2006. The increase was
primarily attributable to $143,000 in write-offs of previously
capitalized projects.
Other Operating Costs: Other
operating costs increased 14.5% to $1.6 million for the third
quarter of fiscal 2007 from $1.4 million for the third quarter of
fiscal 2006 due to an increase in personnel costs.
Research and Development (R&D)
Expense: R&D expense increased to $605,000 in the current year
quarter from $316,000 for the quarter ended June 30, 2006 as we
continue to develop our product offerings.
Legal Settlements and Fees: The
Company incurred $238,000 in additional expenses during the third
quarter of fiscal 2007 related to the resolution of a government
non-prosecution agreement entered into in connection with its
Internet wallet business.
Merger Related Costs: The Company
incurred $28,000 in non-recurring legal, professional and other fees
and expenses related to its proposed merger with Intuit which was
mutually terminated on March 26, 2007.
Severance Costs: The Company accrued
$1.2 million as a result of its negotiation of a retirement and
separation arrangement for former Chairman and Chief Executive
Officer Joel M. ("Jody") Barry. During and since the three months
ended June 30, 2007, the Company has been negotiating a retirement
and separation package for Mr. Barry. Given the status of the
negotiations, management determined that it was appropriate to
reserve for the aggregate costs being negotiated as of June 30,
2007. Such costs will include cash compensation, accelerated vesting
of certain equity-based awards and other non-monetary benefits.
Former President and Chief Operating Officer, Charles J. ("Chuck")
Harris succeeded Mr. Barry in the position of Chief Executive
Officer effective July 2, 2007.
Operating Loss
Operating loss for the third quarter
of fiscal 2007 was $1.7 million as compared with operating income of
$1.8 million for the same period last year.
Income Tax Benefit
The effective tax rate for the
quarter ended June 30, 2007 was a benefit of 56.7% as compared to a
provision of 45.0% for the corresponding prior year period. The
difference in the tax rate was primarily due to the Company having a
loss before income taxes for the three months ended June 30, 2007 as
compared to income before taxes for the corresponding prior year
period. The Company also, based upon a study conducted during the
three months ended June 30, 2007, recorded certain research and
development tax credits for fiscal years ended September 30, 2003
and 2006 and for the nine months ended June 30, 2007 in the third
quarter of 2007. These tax credits resulted in an income tax benefit
of $576,000.
Net Loss
Net loss was $682,000 or $0.10 per
diluted share for the third quarter of 2007 as compared with net
income of $1.0 million or $0.14 per diluted share for the same
period last year.
Balance Sheet Summary
ECHO 's balance sheet remained strong
as of June 30, 2007, with $9.8 million in cash and cash equivalents,
$1.1 million in restricted cash, $9.6 million in working capital,
only $228,000 in long-term debt, and $21.5 million in stockholders'
equity.
Outlook
"For the balance of fiscal year 2007,
we expect modest revenue declines as we continue to wind down
merchants with unacceptable risk profiles," Mr. Harris continued.
"Despite this ongoing risk evaluation, we believe we will be able to
generate solid returns at lower revenue levels while reducing risk
from our business. Through the upcoming IT initiatives, we also
expect to realize better operating leverage as we build scale with a
greater proportion of all-in-one solutions and card-not-present
business.
"Continued investment in research and
development and IT initiatives will be critical to improving our
competitive position and strengthening our infrastructure to support
growth," Mr. Harris explained. "Over the next 24 months, we plan to
substantially increase our IT investments in order to move forward
key initiatives that will help us drive new business growth and
better serve our existing customers."
ECHO currently expects that total
revenue for fiscal year 2008 will increase by approximately 10%
compared with fiscal year 2007 total revenue. The Company expects to
have implemented the major elements of its product and marketing
strategy by mid-fiscal 2009 and anticipates revenue growth to
increase beyond fiscal 2008 levels in fiscal 2009.
Conference Call and Webcast
ECHO will host a conference call
today at 1:30 p.m. PDT (4:30 p.m. EDT) to discuss its third quarter
fiscal 2007 financial results. Joining Chuck Harris, Chief Executive
Officer, will be Alice Cheung, Chief Financial Officer.
To participate in the conference
call, please dial 800-257-2101 (or 303-262-2138 for international
callers) at least five to ten minutes prior to the scheduled
conference call time. There is no passcode required for this call.
If you are unable to participate in
the live conference call, a replay will be available through August
23, 2007. To access the replay dial 800-405-2236 (or 303-590-3000
for international callers) and enter the passcode number #11094749.
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.
For those unable to participate during the live broadcast, a replay
will be available on ECHO's website for 90 days.
About Electronic Clearing House, Inc.
(ECHO)
A merchant account with ECHO (www.echo-inc.com)
provides a fully integrated payment processing suite, including
credit card processing, electronic check conversion (ECC), eChecks
(ACH), check guarantee, check verification, check collection, and
debit cards. Merchants nationwide benefit from ECHO's wide ranging
payment services available through the Company's dedicated sales
force or through channels that include technology partnerships,
banks, collection agencies and other acquiring entities.
Non-GAAP Presentation
To supplement the consolidated
financial information presented on a GAAP basis, management included
non-GAAP check-related products revenue information for the third
quarter of each of fiscal 2007 and 2006 that excludes Internet
wallet and other terminated check merchant revenue. The Company
believes that this non-GAAP financial measure provides investors
with insight into what is used by management to conduct a more
meaningful and consistent comparison of the Company's ongoing
operating results and trends, compared with historical results. This
presentation is also consistent with management's internal use of
the measure, which it uses to measure the performance of ongoing
operating results against prior periods. The non-GAAP measure of
financial performance used by the Company is not a measure of
performance under accounting principles generally accepted in the
United States and should not be considered an alternative to revenue
or other GAAP figures as an indicator of the Company's financial
performance or liquidity.
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 regarding ECHO's
expectations related to its business growth and expansion, the
realization of better operating leverage, the anticipated
continued investments in IT initiatives and its forward-looking
"outlook" statements in general. Forward-looking statements
should not be read as a guarantee of future performance or
results, and will not necessarily be accurate indications of the
times at, or by, which that performance or those results will be
achieved. Forward-looking statements are based on information
available at the time they are made and/or management's good
faith belief as of that time with respect to future events, and
are subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed
in or suggested by the forward-looking statements. Specifically,
the Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth
elsewhere herein, in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2006, and in other
reports filed by the Company from time to time with the
Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
----------------------------------------------------------------------
ASSETS
------------------------------------------
June 30, September 30,
2007 2006
------------ -------------
Current assets:
Cash and cash equivalents $ 9,770,000 $ 11,604,000
Restricted cash 1,141,000 1,594,000
Settlement deposits and funds held in
trust 4,930,000 23,282,000
Settlement receivables, less allowance
of $70,000 and $16,000 336,000 1,499,000
Accounts receivable, less allowance of
$618,000 and $392,000 3,577,000 2,914,000
Prepaid expenses and other assets 904,000 494,000
Deferred tax asset 454,000 506,000
------------ -------------
Total current assets 21,112,000 41,893,000
Noncurrent assets:
Property and equipment, net 2,404,000 2,521,000
Software, net 10,644,000 10,340,000
Other assets, net 225,000 253,000
------------ -------------
Total assets $34,385,000 $ 55,007,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 293,000 $ 291,000
Accounts payable 391,000 352,000
Settlement payable and trust payable 5,266,000 24,781,000
Accrued expenses 2,850,000 2,257,000
Accrued compensation expenses 2,739,000 1,670,000
------------ -------------
Total current liabilities 11,539,000 29,351,000
Noncurrent liabilities:
Long-term debt, net of current portion 228,000 448,000
Deferred tax liability 1,092,000 2,922,000
------------ -------------
Total liabilities 12,859,000 32,721,000
------------ -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 500,000
shares authorized, none outstanding at
June 30, 2007 and September 30, 2006 0 0
Common stock, $.01 par value, 36,000,000
shares authorized; 6,937,660 and
6,839,333 shares issued; 6,899,391 and
6,801,064 shares outstanding,
respectively 69,000 68,000
Additional paid-in capital 28,857,000 27,350,000
Accumulated deficit (6,934,000) (4,666,000)
Less treasury stock at cost, 38,269 and
38,269 common shares (466,000) (466,000)
------------ -------------
Total stockholders' equity 21,526,000 22,286,000
------------ -------------
Total liabilities and stockholders'
equity $34,385,000 $ 55,007,000
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ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
REVENUES: $19,029,000 $19,869,000 $58,401,000 $56,023,000
COSTS AND
EXPENSES:
Processing and
transaction
expense 13,803,000 13,299,000 40,701,000 37,357,000
Other operating
costs 1,646,000 1,438,000 4,831,000 4,266,000
Research and
development
expense 605,000 316,000 1,614,000 1,189,000
Selling,
general and
administrative
expenses 3,192,000 3,009,000 10,277,000 8,323,000
Legal
settlements
and fees 238,000 22,000 3,136,000 1,261,000
Merger related
costs 28,000 0 934,000 0
Severance costs 1,185,000 0 1,185,000 0
------------ ------------ ------------ ------------
20,697,000 18,084,000 62,678,000 52,396,000
------------ ------------ ------------ ------------
(Loss) income from
operations (1,668,000) 1,785,000 (4,277,000) 3,627,000
Interest income 105,000 73,000 370,000 173,000
Interest expense (13,000) (21,000) (43,000) (68,000)
------------ ------------ ------------ ------------
(Loss) income
before income tax
benefits/
provision (1,576,000) 1,837,000 (3,950,000) 3,732,000
Benefit
(provision) for
income taxes 894,000 (827,000) 1,682,000 (1,706,000)
------------ ------------ ------------ ------------
Net (loss) income $ (682,000) $ 1,010,000 $(2,268,000) $ 2,026,000
============ ============ ============ ============
Basic net (loss)
earnings per
share $ (0.10) $ 0.15 $ (0.34) $ 0.31
============ ============ ============ ============
Diluted net (loss)
earnings per
share $ (0.10) $ 0.14 $ (0.34) $ 0.29
============ ============ ============ ============
Weighted average
shares
outstanding
Basic 6,760,456 6,630,055 6,732,704 6,596,737
============ ============ ============ ============
Diluted 6,760,456 7,156,204 6,732,704 7,016,342
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ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended June 30,
--------------------------
2007 2006
------------- ------------
Cash flows from operating activities:
Net (loss) income $ (2,268,000) $ 2,026,000
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation 716,000 581,000
Amortization of software and other
intangible assets 2,543,000 1,939,000
Loss on disposal of fixed assets and
capitalized software 160,000 0
Provisions for losses on accounts and
notes receivable 288,000 443,000
Provision for deferred income taxes (1,778,000) 1,367,000
Stock-based compensation 905,000 698,000
Restricted stock issued to director 13,000 38,000
Excess tax benefit from stock-based
compensation (147,000) (236,000)
Changes in assets and liabilities:
Restricted cash 453,000 (317,000)
Settlement deposits and funds held in
trust 18,352,000 (513,000)
Accounts receivable (897,000) (1,158,000)
Settlement receivable 1,109,000 (498,000)
Accounts payable 39,000 358,000
Settlement payable and trust payable (19,515,000) 1,288,000
Accrued expenses 740,000 655,000
Accrued compensation expenses 1,039,000 247,000
Prepaid expenses (410,000) (141,000)
------------- ------------
Net cash provided by operating activities 1,342,000 6,777,000
------------- ------------
Cash flows from investing activities:
Other assets 0 3,000
Purchase of equipment (614,000) (662,000)
Purchased and capitalized software (2,964,000) (3,011,000)
------------- ------------
Net cash used in investing activities (3,578,000) (3,670,000)
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Cash flows from financing activities:
Repayment of notes payable (218,000) (209,000)
Repayment of capitalized leases 0 (98,000)
Proceeds from exercise of stock options 473,000 482,000
Excess tax benefit from stock-based
compensation 147,000 236,000
------------- ------------
Net cash provided by financing activities 402,000 411,000
------------- ------------
Net (decrease) increase in cash and cash
equivalents (1,834,000) 3,518,000
Cash and cash equivalents at beginning of
period 11,604,000 6,732,000
------------- ------------
Cash and cash equivalents at end of period $ 9,770,000 $10,250,000
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ELECTRONIC CLEARING HOUSE, INC.
NON-GAAP RECONCILIATION
SUMMARY OF CHECK REVENUE EXCLUDING TERMINATED MERCHANTS
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
Total Check
Revenue As
Reported $3,186,000 $ 4,751,000 $ 11,304,000 $ 13,653,000
Terminated
Check And
Internet
Wallet
Merchants (239,000) (2,208,000) (2,565,000) (5,966,000)
------------ ------------- ------------- -------------
Total Check
Revenue
Excluding
Terminated
Merchants
(Pro-Forma) $2,947,000 $ 2,543,000 $ 8,739,000 $ 7,687,000
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Contact:
Electronic Clearing House, Inc.
Donna Rehman, 805-419-8533
E-mail: drehman@echo-inc.com
or
The Abernathy MacGregor Group, Inc.
Moira Conlon, 213-630-6550
E-mail: MHC@abmac.com
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