Electronic Clearing House Announces Fourth Quarter and Full-Year Fiscal 2005

Electronic Clearing House, Inc., a leading provider of electronic payment and transaction processing services, today reported financial and operating results for the three months and full-year ended September 30, 2005.

Fourth Quarter Highlights:

• Total revenue increased 21.5% to $15.2 million.
• Bankcard and transaction processing revenue advanced 23.3% to $11.5 million.
• Check-related revenue grew 16.3% to $3.7 million.
• Gross margin from processing and transaction revenue was 33.5% for the current quarter, versus 36.8% for the same period last year.
• ACH transactions processed increased 12.3% to 7.8 million transactions.
• Diluted EPS was $0.06 compared to diluted EPS of $0.06 in fourth quarter of fiscal 2004.

“We are very pleased with our ability to consistently post meaningful revenue gains, as solid year-over-year performance in both of our business segments contributed to ECHO’s strongest quarterly growth this fiscal year,” said Joel M. Barry, Chairman and Chief Executive Officer of Electronic Clearing House, Inc. “Our bankcard and transaction services business grew 23.3% year-over-year and 8.4% over the prior quarter, while our check services business grew 16.3% year-over-year and remained consistent with the prior quarter. As we move into fiscal 2006, we’ll be focused on solidifying our position as one of the only full-service point-of-sale management providers while identifying and addressing several under served markets that would benefit greatly from our suite of payment processing solutions.

“Although legal and regulatory compliance costs declined slightly from the prior quarter, they continued to affect our bottom line. As we work to reduce operating costs through a variety of IT initiatives aimed at improving our overall efficiency, we’ll be well positioned to leverage our top line growth into sustainable and long-term profitability.”

Fourth Quarter Financial Highlights
Total revenue for the fourth quarter of fiscal 2005 was $15.2 million, an increase of 21.5% versus $12.5 million in the prior year quarter. The increase was primarily attributed to growth in the Company’s bankcard processing revenue and check services revenue as compared to the same period last year.

Revenue from bankcard processing and transactions grew 23.3% from $9.3 million in the fourth quarter of fiscal 2004 to $11.5 million in the fourth quarter of fiscal 2005, as the result of growth within the Company’s current customer base as well as from new merchants acquired through enhanced marketing programs. Bankcard processing and transaction revenues accounted for 75.5% of total Company revenues in the fourth quarter of fiscal 2005.

Check-related revenues increased 16.3% to $3.7 million for the three months ended September 30, 2005, compared with $3.2 million in the prior-year quarter, as the result of an increase in Automated Clearing House (ACH) processing during the quarter. Fourth quarter fiscal 2005 ACH processing grew 12.3% to 7.8 million transactions in the quarter ended September 30, 2005, compared to 7.0 million transactions in the prior-year quarter. Check-related revenues accounted for 24.5% of the total revenues in the fourth quarter of fiscal 2005.

Gross margin from processing and transaction services declined to 33.5% in the fourth quarter of fiscal 2005 compared to 36.8% in the same quarter last year. The decrease was primarily related to higher commission expense, higher depreciation and amortization expense, and lower margins from one high volume merchant who started processing during the fourth quarter of 2005.

Other operating costs increased 10.8%, from $1.3 million, or approximately 10% of total revenues, in the fourth quarter of fiscal 2004 to $1.4 million, or approximately 9% of total revenues, in the same quarter of fiscal 2005. The increase in other expenses on an absolute dollar basis was the result of an increase in personnel costs to support the Company’s business growth.

Research and development expenses decreased slightly to $338,000 for the quarter ended September 30, 2005 compared to $375,000 for same period last year. It is anticipated that this level of investment will continue throughout fiscal 2006.

Selling, general and administrative (SG&A) expenses increased 16.7% from $2.3 million, or approximately 18% of total revenues, in the fourth quarter of fiscal 2004 to $2.7 million, or approximately 18% of total revenues, for the fourth quarter of fiscal 2005. The increase in SG&A expenses on an absolute dollar basis was primarily attributable to $426,000 in legal expense in the fourth quarter of fiscal 2005 related to a patent litigation claim. It is expected that litigation expenses will remain consistent throughout the first half of fiscal 2006. The Company’s patent litigation lawsuit is scheduled to go to trial in April 2006.

Operating income for the quarter ended September 30, 2005 was $651,000 compared to $656,000 in the same period last year. The Company reported net income of $404,000, or $0.06 per share on a fully diluted basis, in the fourth quarter of fiscal 2005, compared to $403,000, or $0.06 per share on a fully diluted basis, in the fourth quarter of fiscal 2004 and $433,000, or $0.06 per fully diluted share, in the third quarter of fiscal 2005. Operating income was negatively affected by the $426,000 of legal expenses referred to above.

ECHO’s balance sheet remains strong, with $6.7 million in unrestricted cash and cash equivalents, $8.0 million in working capital, $705,000 in long-term debt and capital leases, and $17.8 million in stockholders’ equity at September 30, 2005.

Fiscal 2005 Full-Year Financial Highlights
ECHO reported revenue of $55.6 million for fiscal 2005, an approximate 15% increase from revenue of $48.3 in fiscal 2004. Fiscal 2005 net income was $1.0 million, or $0.15 per share on a fully diluted basis, compared to $2.8 million, or $0.41 per share on a fully diluted basis, in fiscal 2004. Increased legal expenses related to the Company’s outstanding patent litigation negatively affected fiscal 2005 net income. Excluding litigation expense totaling $1.3 million for the full fiscal year, net income in fiscal 2005 would have been $1.8 million, or $0.26 per share on a fully diluted basis.

Full-year operating highlights include:

• An 11.4% increase in bankcard and transaction processing revenue to $41.1 million.
• Bankcard and transaction processing revenue accounted for approximately 74% of total Company revenues in fiscal 2005.
• A 26.6% increase in check-related revenue. Check related revenue accounted for approximately 26% of total Company revenues in fiscal 2005.
• A 24.6% increase in ACH transactions processed to 32.1 million transactions.

Business Outlook
With the addition of Charles Harris as President and Chief Operating Officer, the Company has significantly strengthened its executive management team and will benefit from his extensive experience in the payment processing industry. ECHO recently reorganized its principal operating units to report to Mr. Harris, allowing him to restructure the Company’s sale force and coordinate several operating and IT initiatives, thus permitting the Company’s Chairman and Chief Executive Officer, Joel M. Barry, to focus on high level customer contacts, external strategic initiatives and enhanced investor relations efforts. Altogether, these initiatives will allow the Company to more effectively implement its strategic plan for double-digit revenue growth for both its bankcard and check processing segments in fiscal 2006 and beyond.

The Company anticipates holding a conference call in January 2006 to introduce Mr. Harris to the investment community and to provide an overview of its business outlook for 2006.