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.

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