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ECHO Press Releases 2007

FOR IMMEDIATE RELEASE

Electronic Clearing House, Inc.
Announces Fourth Quarter
and Fiscal Year 2007 Results

Camarillo, Calif., Dec 14, 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 and fiscal year ended September 30, 2007.

Fiscal 2007 Highlights:

Financial highlights for fiscal 2007 as compared to fiscal 2006 are as follows:

  • Total revenue increased 2.1% to $76.9 million
  • Gross margin from processing and transaction revenue decreased to 29.6% from 33.5%
  • Operating loss was $5.1 million compared with operating income of $4.2 million, due mainly to $5.1 million of one-time expenses
  • Net loss of $2.4 million or $0.35 per diluted share; non-GAAP pro forma income (excluding legal settlements and fees, merger related costs and severance costs totaling $5.1 million) of approximately $0.7 million
  • Strengthened merchant portfolio
  • Added 4 new technology partnerships
  • Increased total number of bank relationships participating in agent bank program by 12

“In spite of the many challenges we faced throughout 2007, we moved forward a number of our key strategic initiatives,” said Chuck Harris, Chief Executive Officer of Electronic Clearing House, Inc. “We closed the year with a stronger merchant portfolio, four new technology partnerships, twelve new agent bank partnerships and a solid new business pipeline.”

Fourth Quarter Fiscal 2007 Highlights:

Financial highlights for the fourth quarter of fiscal 2007 as compared to the same period last year are as follows:

  • Total revenue decreased 4.2% to $18.5 million
  • Gross margin from processing and transaction revenue was 27.2% for the current quarter as compared to 34.1% for the prior year period
  • Operating loss was $835,000 compared with operating income of $527,000 for the prior year period
  • Net loss per diluted share was $0.02 as compared to net income per diluted share of $0.04 for the prior year period
  • Bankcard and transaction processing revenue increased 6.0% to $15.5 million
  • Bankcard processing volume increased 7.3% to $484.5 million
  • Check-related products revenue decreased 35.8% to $3.0 million
  • ACH transactions decreased 42.5% to 5.7 million transactions

Fiscal Year 2007 Financial Results

Revenue

Total revenue for fiscal year 2007 increased 2.1% to $76.9 million compared with $75.3 million for fiscal year 2006. Bankcard and transaction processing revenue increased 9.8% to $62.6 million from $57.0 million for fiscal 2006 due primarily to additional credit card processing volume related 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 22.0%, to $14.3 million for fiscal 2007 from $18.3 million for fiscal 2006, which primarily reflects the elimination of Internet wallet merchants and the discontinuation of services to several merchant categories that management determined were carrying unacceptable levels of business or financial risk.

Gross Margin

Gross margin decreased to 29.6% for fiscal 2007 from 33.5% for fiscal 2006, due primarily to several high volume merchants that contributed slightly lower margin and the decrease in check-related revenue and the decline in Internet wallet transactions.

Expenses

Total operating expenses increased 15.2% to $82.0 million for fiscal 2007 as compared with $71.2 million for fiscal 2006. Included in total operating expenses for fiscal 2007 are approximately $5.1 million of expenses for legal settlements and fees, merger related costs and severance costs.

Operating Loss

Operating loss for fiscal 2007 was $5.1 million as compared with operating income of $4.2 million for fiscal 2006.

Income Tax Benefit

Our effective tax rate was a benefit of 49.2% for fiscal 2007, as compared to a provision of 46.7% for fiscal 2006. The difference was primarily due to the Company having a loss before income taxes for the year ended September 30, 2007 as compared to income before taxes for the corresponding prior year period. The Company also, based upon a study conducted during the year ended September 30, 2007, recorded certain research and development tax credits for fiscal years ended September 30, 2003 through 2007. These tax credits resulted in an income tax benefit of $0.8 million for the year ended September 30, 2007.

Net Loss

Net loss was $2.4 million or $0.35 per diluted share for fiscal 2007 as compared with net income of $2.3 million or $0.33 per diluted share for fiscal 2006. Net of legal settlements and fees, merger related costs and severance costs totaling $5.1 million, ECHO reported non-GAAP pro forma income of approximately $0.7 million for fiscal 2007, as compared with non-GAAP pro forma income of $3.3 million for fiscal 2006. The reconciliation from the Company’s reported net loss to its non-GAAP pro forma income (excluding specified expenses) is as follows:

    Year Ended
    September 30,
      2007       2006  
 
GAAP net income   $ (2,381,000 )   $ 2,317,000  
 
Reconciling items:        
Severance costs     1,031,000       -0-  
Legal settlement costs     3,180,000       1,261,000  
Merger costs     934,000       348,000  
 
Total non-GAAP adjustments     5,145,000       1,609,000  
 

 

       

Income tax effect of 39.6% on reconciling items:

    (2,037,000 )     (637,000 )
 
Non-GAAP pro forma income   $ 727,000     $ 3,289,000  

Fourth Quarter Fiscal 2007 Financial Results

Revenue

Total revenue for the fourth quarter of fiscal 2007 was $18.5 million compared with $19.3 million for the same period last year. Bankcard and transaction processing revenue increased 6.0% to $15.5 million from $14.6 million for the fourth quarter of fiscal 2006 due primarily to additional credit card processing volume related 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 35.8%, to $3.0 million for the fourth quarter of fiscal 2007 from $4.7 million for the fourth quarter of fiscal 2006, which primarily reflects the elimination of Internet wallet merchants and the discontinuation of services to several merchant categories that management determined were carrying unacceptable levels of business or financial risk.

Gross Margin

Gross margin decreased to 27.2% for the fourth quarter of fiscal 2007 from 34.1% for the same period last year, due primarily to several high volume merchants that contributed slightly lower margin and the 35.8% decrease in check-related revenue due mainly to the wind-down of the higher margin Internet wallet business.

Expenses

Total operating expenses increased 3.0% to $19.3 million for the fourth quarter of fiscal 2007 as compared with $18.8 million for the fourth quarter of fiscal 2006, and include $44,000 in legal settlement fees.

Operating Loss

Operating loss for the fourth quarter of fiscal 2007 was $835,000 as compared with operating income of $527,000 for the same period last year.

Income Tax Benefit

The effective tax rate for the fourth quarter ended September 30, 2007 was a benefit of 84.7% as compared to a provision of 53.0% for the corresponding prior year period. The difference was primarily due to the Company having a loss before income taxes for the quarter ended September 30, 2007 as compared to income before taxes for the corresponding prior year period. The Company also, based upon a study conducted during the year ended September 30, 2007, recorded certain research and development tax credits during the fourth quarter for the fiscal years ended September 30, 2003 through 2007. These tax credits resulted in an income tax benefit of $0.3 million for the quarter ended September 30, 2007.

Net Loss

Net loss was $113,000 or $0.02 per diluted share for the fourth quarter of fiscal 2007 as compared with net income of $291,000 or $0.04 per diluted share for the same period last year.

Balance Sheet Summary

ECHO's balance sheet remained strong as of September 30, 2007, with $10.8 million in cash and cash equivalents, $1.2 million in restricted cash, $10.1 million in working capital, $834,000 in long-term debt, and $22.5 million in stockholders' equity.

Outlook

ECHO currently expects total revenue for fiscal year 2008 will increase by 10% from total revenue of $76.9 million for fiscal year 2007. The Company currently plans to increase spending by approximately $1.6 million for product and IT enhancements during fiscal 2008.

Conference Call and Webcast

ECHO will host a conference call today at 1:30 p.m. PST (4:30 p.m. EST) to discuss its 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 800-218-0713 (or 303-262-2140 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 December 28, 2007. To access the replay dial 800-405-2236 (or 303-590-3000 for international callers) and enter the conference ID number 11104347.

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 has provided non-GAAP pro forma income that excludes specified expenses. The Company believes that this non-GAAP financial information 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. The non-GAAP presentation 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 GAAP net income (loss) 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 the Company’s strategy, financial performance, revenue sources and anticipated expenditures. 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, in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007, 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)

 

 

  September 30,
      2007       2006  
 

ASSETS

       
Current assets:        
Cash and cash equivalents   $ 10,752,000     $ 11,604,000  
Restricted cash     1,168,000       1,594,000  
Settlement deposits and funds held in trust     4,588,000       23,282,000  
Settlement receivables less allowance of $58,000 and $16,000     1,163,000       1,499,000  
Accounts receivable less allowance of $321,000 and $392,000     3,322,000       2,914,000  
Prepaid expenses and other assets     522,000       494,000  
Deferred tax asset     425,000       506,000  
Total current assets     21,940,000       41,893,000  
 
Noncurrent assets:        
Property and equipment, net     2,444,000       2,521,000  
Software, net     10,535,000       10,340,000  
Other assets, net     215,000       253,000  
 
Total assets   $ 35,134,000     $ 55,007,000  
 

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 
Current liabilities:        

Short-term borrowings and current portion of long-term debt

  $ 493,000     $ 291,000  
Accounts payable     657,000       352,000  
Accrued expenses     1,989,000       1,643,000  
Accrued professional fees     902,000       614,000  
Settlement payable and trust payable     5,751,000       24,781,000  
Accrued compensation expenses     2,028,000       1,670,000  
Total current liabilities     11,820,000       29,351,000  
 
Noncurrent liabilities:        
Long-term debt, net of current portion     834,000       448,000  
Deferred tax liability     -0-       2,922,000  
Total liabilities     12,654,000       32,721,000  
 
Commitments and contingencies        
Stockholders' equity:        

Preferred stock, $.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2007 and September 30, 2006

    -0-       -0-  

Common stock, $.01 par value, 36,000,000 shares authorized; 7,056,848 and 6,839,333 shares issued, 7,018,579 and 6,801,064 shares outstanding, respectively

    70,000       68,000  
Additional paid-in capital     29,923,000       27,350,000  
Accumulated deficit     (7,047,000 )     (4,666,000 )
Less treasury stock at cost, 38,269 and 38,269 common shares     (466,000 )     (466,000 )
 
Total stockholders' equity     22,480,000       22,286,000  
Total liabilities and stockholders' equity   $ 35,134,000     $ 55,007,000  

 

ELECTRONIC CLEARING HOUSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
    Three Months   Twelve Months
   

Ended September 30,

  Ended September 30,
      2007       2006       2007       2006  
 
REVENUES:   $ 18,483,000     $ 19,288,000     $ 76,884,000     $ 75,311,000  
 
COSTS AND EXPENSES:                
Processing and transaction expense     13,457,000       12,715,000       54,158,000       50,072,000  
Other operating costs     1,692,000       1,509,000       6,523,000       5,775,000  
Research and development expense     520,000       350,000       2,134,000       1,539,000  
Selling, general and administrative expenses     3,759,000       3,839,000       14,036,000       12,162,000  
Legal settlements and fees     44,000       -0-       3,180,000       1,261,000  
Merger related costs     -0-       348,000       934,000       348,000  
Severance costs     (154,000 )     -0-       1,031,000       -0-  
 
      19,318,000       18,761,000       81,996,000       71,157,000  
 
(Loss) income from operations     (835,000 )     527,000       (5,112,000 )     4,154,000  
 
Interest income     118,000       116,000       488,000       289,000  
Interest expense     (23,000 )     (24,000 )     (66,000 )     (92,000 )
 
 
(Loss) income before tax benefit (provision)     (740,000 )     619,000       (4,690,000 )     4,351,000  
 
Benefit (provision) for income taxes     627,000       (328,000 )     2,309,000       (2,034,000 )
 
Net (loss) income   $ (113,000 )   $ 291,000     $ (2,381,000 )   $ 2,317,000  
 
 
Basic net (loss) earnings per share   $ (0.02 )   $ 0.04     $ (0.35 )   $ 0.35  
 
Diluted net (loss) earnings per share   $ (0.02 )   $ 0.04     $ (0.35 )   $ 0.33  
 
Weighted average shares outstanding                
Basic     6,789,788       6,663,404       6,747,092       6,613,541  
Diluted     6,789,788       7,213,438       6,747,092       7,004,557  

 

ELECTRONIC CLEARING HOUSE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  Year ended September 30,
    2007       2006  
Cash flows from operating activities:      
Net (loss) income $ (2,381,000 )   $ 2,317,000  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Loss on sale of assets   324,000       84,000  
Depreciation   978,000       891,000  
Amortization of software and other intangibles   3,524,000       2,617,000  
Provisions for losses on accounts and notes receivable   311,000       380,000  
Provision for obsolete inventory   -0-       -0-  
Deferred income taxes   (2,841,000 )     1,598,000  
Stock-based compensation   1,627,000       1,383,000  
Tax benefit from exercise of stock option   -0-       -0-  
Excess tax benefit from stock-based compensation   (139,000 )     (234,000 )
Changes in assets and liabilities:      
Restricted cash   426,000       (146,000 )
Settlement deposits and funds held in trust   18,694,000       (6,188,000 )
Accounts receivable   (668,000 )     (882,000 )
Settlement receivables   285,000       (612,000 )
Settlement payable and trust payable   (19,030,000 )     6,809,000  
Accrued compensation expenses   329,000       789,000  
Accounts payable   305,000       47,000  
Accrued professional fees   288,000       117,000  
Accrued expenses   485,000       788,000  
Prepaid expenses   (28,000 )     (109,000 )
Net cash provided by operating activities   2,489,000       9,649,000  
Cash flows from investing activities:      
Other assets   -0-       3,000  
Purchase of equipment   (948,000 )     (1,084,000 )
Purchased and capitalized software   (3,958,000 )     (4,116,000 )
Net cash used in investing activities   (4,906,000 )     (5,197,000 )
Cash flows from financing activities:      
Proceeds from issuance of notes payable   932,000       -0-  
Repayment of notes payable   (344,000 )     (282,000 )
Repayment of capitalized leases   -0-       (112,000 )
Proceeds from exercise of stock options   838,000       580,000  
Excess tax benefit from stock-based compensation   139,000       234,000  
 
Net cash provided by financing activities   1,565,000       420,000  
 
Net (decrease) increase in cash   (852,000