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 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.Download the document now 39.9 kb (Adobe Acrobat Document)