Digital Insight Reports Second Quarter Results

Under Generally Accepted Accounting Principles (GAAP), net income in the second quarter increased 28% to $4.5 million, or $0.13 per diluted share, from $3.6 million, or $0.11 per diluted share, in the second quarter of 2003. By comparison, GAAP net income before income taxes increased 90% to $7.3 million from $3.9 million in the second quarter a year ago. The significantly higher growth rate in GAAP pretax income relative to GAAP net income reflects an increase in the Companys effective tax rate to 38% in 2004 from 8% in 2003. On a non-GAAP basis, excluding amortization of intangible assets from acquisitions, pro forma net income in the second quarter increased 17% to $5.8 million, or $0.16 per diluted share, from pro forma net income of $5.0 million, or $0.15 per share, in the second quarter of 2003. The Companys increasing profitability reflects sequential and year-over-year expansion of its gross margins and operating margins, which have benefited from continued growth in clients and Internet banking end users. A reconciliation of non-GAAP pro forma results to GAAP results is provided as part of this press release. Cash flow from operations in the second quarter grew to a record $14.1 million, up 44% from $9.8 million in the second quarter of 2003. Revenue growth within Internet banking remained solid at 19%, driven by a 46% increase in online bill payers and 22% growth in online banking end users compared to the prior year. Within Cash Management, revenue growth in the Companys outsourcing business remained strong for financial institutions of all sizes. Cash Management revenues from professional services and software license sales to large financial institutions came in lower than previously expected, however, due to longer-than-expected sales cycles with existing clients and potential new customers. Lending revenue increased sequentially from the first quarter, but remained 14% below a year ago due to slightly lower applications in the 2004 quarter and a continuing shift in business mix from the call center channel to the Internet channel. Balance Sheet Highlights At June 30, 2004, cash and investments increased to $95.8 million from $81.8 million at March 31, 2004, reflecting strong cash flow from operations. The Company remains debt-free. Management Change Announced Separately, the Company announced the promotion of Cecelia Morken, Vice President of National Accounts, to Senior Vice President of Sales. Morken replaces Vinnie Brennan, who intends to fulfill a long-standing ambition to become CEO of a technology organization. Morken is an accomplished sales executive with extensive industry experience, including tenure with the following organizations: John Harland, where she rose to Senior Vice President, National Account Sales; Assurant (a division of Fortis), where she was Senior Vice President, Retail Banking; and WebTone, where she was Senior Vice President, Sales. Morken has played an integral role in securing several of Digital Insights most significant contract wins since joining the Company in 2002. 2004 Financial Guidance The Company now expects the acquired Magnet operations to contribute approximately $15 million in revenue during 2004, a $5 million decrease from prior guidance. The Company has also reduced its expectations for Lending revenues within its new guidance. Revenue expectations for Internet banking remain essentially unchanged from previous guidance. In terms of profitability, despite the reduced revenue outlook, the Company continues to expect its profitability to remain strong for the balance of the year due to high levels of operating leverage in its business model.