Electronic Clearing House (ECHO) Announces Strong First Quarter FY 2004 Results

First Quarter Highlights: -- Revenue increased 22.1% to $11.4 million compared to Q1 FY 2003. -- Check-related revenue increased 53% to $2.7 million, or 24% of total revenue. -- ACH transactions processed jumped 613% to 7.3 million transactions. -- Gross margin from processing and transaction revenue improved to 38.9% from 31.8%. -- Operating income rose to $1.0 million up from $0.5 million. -- Diluted earnings per share increased to $0.09 from $0.04 before the cumulative effect of an accounting change in the year-ago quarter. Revenue for the first quarter of fiscal 2004 was a record $11,355,000, an increase of 22.1%, as compared to $9,301,000 in the prior-year quarter. Bankcard processing and transaction revenue increased 14.7% from $7,519,000 for the prior-year quarter to $8,624,000 in the first quarter of fiscal 2004. This increase was primarily due to our merchants strong organic growth in bankcard processing volume and the continued success of the Companys marketing strategy. Check-related revenues increased to $2,731,000, or 24.1% of total revenue, for the three months ended December 31, 2003, compared with $2,473,000, or 22.5%, in the prior quarter, and $1,782,000, or 19.2%, in the prior-year quarter. This increase was primarily due to strong growth in both the Visa POS Check Service and an increase in ACH and check conversion revenue. Gross profit from processing and transaction revenue rose to $4,394,000 from $4,067,000 in the prior quarter and $2,918,000 in the prior-year quarter. This translates to a gross margin of 38.9% in the first quarter of fiscal 2004, up from 37.3% in the fourth quarter of fiscal 2003 and 31.8% in the first quarter of fiscal 2003. Gross margins improved because the higher-margin check services business grew as a percentage of total revenue and a rate adjustment implemented in August 2003 favorably impacted our year-over-year comparisons. Other operating costs as a percentage of total revenue increased to 11.8%, from 10.3% in the first quarter of fiscal 2003. The Visa POS Check Service required a substantial increase in personnel costs to undertake training and program implementation of the various financial institutions that have chosen ECHO as their Third-Party Processor. In addition, the Company hired additional risk management and customer support staff to support the Visa POS Check Service. Selling, general and administrative expenses were 15.2% of revenue in the first quarter of fiscal 2004, compared with 12.7% in the first quarter of fiscal 2003. This increase was primarily attributable to the increase in sales and marketing expenses as we continue to follow our sales and marketing strategies, the increase in administrative salaries and the increase in rent expense as we moved into a new corporate location in October 2003. Operating income rose to $1,013,000, or 8.9% of revenues, in the first quarter, from $869,000, or 7.9% of revenues, in the prior quarter, and $527,000, or 5.7% of revenues, in the same period last year. The improvement can be primarily attributed to strong revenue growth and expansion in the gross profit margin. The Company reported net income of $589,000, or $0.09 per share on a fully diluted basis, in the first quarter of fiscal 2004, as compared to $518,000, or $0.08 per share, in the fourth quarter of fiscal 2003 and a loss of $4,473,000, or $0.77 per share, in the first quarter of fiscal 2003. During the year-ago quarter, the Company adopted SFAS 142 and accordingly wrote off $4,707,000 to eliminate goodwill. The Company generated $5,989,000 of cash from operating activities in the three months ended December 31, 2003, as compared to $1,112,000 of cash generated in the same period last year. A large portion of this increase was attributable to a $4,954,000 net increase in settl