Electronic Clearing House (ECHO) Announces First Quarter FY 2005 Results

Camarillo, CA ? Electronic Clearing House, Inc., a leading provider of electronic payment and transaction processing services, today reported financial and operating results for the three months ended December 31, 2004.

First Quarter Highlights:

• Total revenue increased 11.1% to $12.8 million
• Bankcard and transaction processing revenue increased 4.9% to $9.2 million
• Check-related revenue increased 31.0% to $3.6 million
• ACH transactions processed increased 19.7% to 8.8 million transactions
• Gross margins from processing and transaction revenue was 35.4% for Q1 2005 as compared to 38.5% for the same period last year
• Diluted EPS of $0.01 as compared to diluted EPS of $0.09 in Q1 2004

?While higher than expected legal and regulatory compliance costs constrained our earnings, we are encouraged by several aspects of our performance during the first fiscal quarter of 2005,? said Joel M. Barry, Chairman and CEO of Electronic Clearing House, Inc. ?Our check business continues to grow at a fast rate, and we have had another major national retail chain transition on to the Visa POS Check program successfully. While the growth of our bankcard business was subdued this quarter, we believe that it will return to its historical growth rates in the near future. As previously announced, operating margins for the Fiscal Year 2005 are expected to be constrained by a number of unusual legal and compliance expenses. However, once these costs start to abate and normalize, we anticipate being in a much better position to generate strong profitability across all of our business segments.?

?We are also excited about implementing several new, innovative marketing plans later in this year that have the potential to enhance our top-line performance going forward by marketing our total payments solution directly to targeted merchants. Our Visa POS Check program continued to gain recognition with both major merchants and banks, and we anticipate continued growth in this program as the marketing efforts of participating banks become more widely implemented,? continued Mr. Barry.

Revenue for the first quarter of fiscal 2005 was $12,760,000, an increase of 11.1%, as compared to $11,483,000 in the prior year quarter.

Bankcard processing and transaction revenue increased 4.9% from $8,752,000 for the prior year quarter to $9,182,000 in Q1 2005. This increase was primarily due to the organic growth in bankcard processing volume from ECHO?s existing and new merchants.

Check-related revenues increased 31.0% to $3,578,000, or 28.0% of total revenue, for the three months ended December 31, 2004, compared with $2,731,000, or 23.8% of total revenue, in the prior-year quarter. This increase was primarily due to the increase in ACH processing revenue, which grew as a result of the continued organic and external growth of our check-related products, as well as strong growth in both the Visa POS Check program and in check verification revenue.

Gross margin from processing and transaction revenue was 35.4% in Q1 2005, down from 36.8% in Q4 2004 and 38.5% in Q1 2004. This decrease was mainly due to higher commissions paid to the Company?s independent sales organizations.

Other operating costs such as personnel costs, telephone and depreciation expenses decreased slightly, from $1,340,000, or 11.7% of total revenues, in Q1 2004, to $1,333,000, or 10.4% of total revenues, for the current fiscal quarter.

Research and development expense increased 17.0% from $383,000, or 3.3% of revenues, in the prior year quarter to $448,000, or 3.5% of revenues, in Q1 2005, as the Company continued investing in several major software development projects. Several of these projects are in the final phase of development, and ECHO anticipates that this level of investment will continue throughout the remainder of this fiscal year.

Selling, general and administrative (SG&A) expenses jumped 57.5% to $2,721,000, or 21.3% of revenues, for the current fiscal quarter from $1,728,000, or 15.0% of revenues, in Q1 2004. This significant increase was primarily attributable to: 1) an additional $400,000 of litigation expense arising as a result of an arbitration award granted in January 2005 by the arbitration panel overseeing a dispute with an independent sales organization. ECHO previously accrued $300,000 of litigation expense related to this matter in the fourth fiscal quarter of 2004 based on its good faith estimate at that time; 2) approximately $270,000 in legal expenses primarily related to the dispute with the independent sales organization and the defense of a patent infringement lawsuit; 3) an increase in personnel costs due to cost of living adjustments and an increase in the costs of employee benefits, such as health and worker?s compensation insurance; 4) an increase in sales and marketing expenses to implement sales and marketing strategies; and 5) higher professional service expenses and salaries related to ECHO?s Sarbanes-Oxley Act Section 404 Compliance efforts.

Operating income decreased to $87,000, or 0.7% of revenue, in Q1 2005, from $656,000, or 5.2% of revenue in the prior quarter, and $1,013,000, or 8.8% of revenue in the same period last year. The decrease was attributable to the increase in selling, general and administrative expenses as previously described.

The Company reported net income of $52,000, or $0.01 per share on a fully diluted basis, in the first quarter of fiscal 2005, as compared to $403,000, or $0.06 per share, in the fourth quarter of fiscal 2004 and $589,000, or $0.09 per share in the first quarter of fiscal 2004.

Mr. Barry commented, ?ECHO?s balance sheet is very strong, with $7,274,000 in cash and cash equivalents, $7,405,000 in working capital, $583,000 in long-term debt, and $16,423,000 in stockholders? equity as of December 31, 2004.?

Business Outlook
?As we move into the second quarter of fiscal 2005, we believe the growth in our check services program and continued solid results in our bankcard and transaction processing services will drive double digit revenue growth,? Mr. Barry concluded.