8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):   May 10, 2006

 ELECTRONIC CLEARING HOUSE, INC.

(Exact name of registrant as specified in its charter)

Nevada	0-15245	93-0946274
(State or other jurisdictionof incorporation)	(Commission File Number)	(IRS Employer Identification No.)

730 Paseo Camarillo, Camarillo, California	93010
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (800) 233-0406

(Former name or former address, if changes since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On May 10, 2006, Electronic Clearing House, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2006. A copy of the press release is being furnished as Exhibit 99.1 to this report and is incorporated herein by reference.

The information in this report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

99.1 Press Release dated May 10, 2006, announcing financial results for the quarter ended March 31, 2006.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ELECTRONIC CLEARING HOUSE, INC.

(Registrant)

By:	\s\ Alice Cheung
Alice L. Cheung, Treasurer and
Chief Financial Officer

Dated: May 10, 2006

EXHIBIT INDEX

Exhibit Number	Description of Document
99.1	Press Release dated May 10, 2006, announcing financial results for the quarter ended March 31, 2006

EX-99.1

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Electronic Clearing House (ECHO) Announces

Second Quarter Fiscal 2006 Results

44% Quarterly Revenue Growth Fueled by Continued Strong Performance

in Both Bankcard and Check Businesses

Camarillo, Calif., May 10, 2006 - Electronic Clearing House, Inc. (NASDAQ: ECHO), a leading provider of electronic payment and transaction processing services, today reported financial and operating results for the three months ended March 31, 2006.

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 M. 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 lower margin contribution from its 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.

Conference Call

The Company will host a conference call at 1:30 p.m. PDT (4:30 p.m. EDT) today to discuss second quarter fiscal 2006 results. To participate in the conference call, please dial the following number at least five minutes prior to the scheduled conference call time: (800) 366-7449. International callers should dial (303) 262-2125. There is no pass code required for this call. This conference call will also be broadcast live over the Internet and can be accessed by all interested parties on the Investor Relations section of ECHO’s website at www.echo-inc.com.

About Electronic Clearing House, Inc. (ECHO)

ECHO(www.echo-inc.com) provides a complete solution for the payment processing needs of merchants, banks and collection agencies. ECHO's services include debit and credit card processing, check guarantee, check verification, check conversion, check re-presentment and check collection.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Examples of forward-looking statements included in this press release include statements relating to ECHO’s future financial performance. Potential risks and uncertainties that may cause actual results to differ materially include, but are not limited to, such factors as unanticipated events causing litigation expenses to exceed estimates, additional time and resources required to comply with compliance efforts, fluctuations in demand for the Company’s products and services, the introduction of new products and services, the Company’s ability to maintain customer and strategic business relationships, technological advancements, the effect of competitive products and services and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support its growth, and other information detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission.

- Financial Tables Follow -

ELECTRONIC CLEARING HOUSE, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS
	March 31,			September 30,
	2006			2005
Current assets:
Cash and cash equivalents	$	7,970,000		$	6,732,000
Restricted cash		2,211,000			1,448,000
Settlement deposits		19,993,000			17,094,000
Settlement receivables, less allowance of $25,000 and $25,000		1,256,000			981,000
Accounts receivable, less allowance of $419,000 and $92,000		3,163,000			2,421,000
Prepaid expenses and other assets		515,000			385,000
Deferred tax asset		52,000			249,000
Total current assets		35,160,000			29,310,000
Noncurrent assets:
Property and equipment, net		2,275,000			2,337,000
Software, net		9,365,000			8,876,000
Other assets, net		273,000			294,000
Total assets	$	47,073,000		$	40,817,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	327,000		$	426,000
Accounts payable		287,000			305,000
Settlement payable		21,250,000			18,075,000
Accrued expenses		3,304,000			2,467,000
Total current liabilities		25,168,000			21,273,000
Noncurrent liabilities:
Long-term debt, net of current portion		594,000			705,000
Deferred tax liability		1,694,000			1,067,000
Total liabilities		27,456,000			23,045,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 36,000,000 shares authorized; 6,741,274 and 6,620,531 shares issued; 6,703,005 and 6,582,262 shares outstanding, respectively		67,000			66,000
Additional paid-in capital		25,983,000			25,574,000
Accumulated deficit		(5,967,000	)		(6,983,000	)
Less treasury stock at cost, 38,269 and 38,269 common shares		(466,000	)		(466,000	)
Less unearned stock compensation		-0-			(419,000	)
Total stockholders' equity		19,617,000			17,772,000
Total liabilities and stockholders' equity	$	47,073,000		$	40,817,000

ELECTRONIC CLEARING HOUSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months						Six Months
	Ended March 31,						Ended March 31,
	2006			2005			2006			2005
REVENUES:	$	19,228,000		$	13,321,000		$	36,154,000		$	26,081,000
COSTS AND EXPENSES:
Processing and transaction expense		12,916,000			8,561,000			24,058,000			16,732,000
Other operating costs		1,487,000			1,410,000			2,828,000			2,743,000
Research and development expense		394,000			469,000			873,000			917,000
Selling, general and administrative expenses		3,650,000			2,643,000			6,553,000			5,364,000
		18,447,000			13,083,000			34,312,000			25,756,000
Income from operations		781,000			238,000			1,842,000			325,000
Interest income		53,000			30,000			100,000			58,000
Interest expense		(22,000	)		(30,000	)		(47,000	)		(58,000	)
Income before provision for income taxes		812,000			238,000			1,895,000			325,000
Provision for income taxes		(388,000	)		(94,000	)		(879,000	)		(129,000	)
Net income	$	424,000		$	144,000		$	1,016,000		$	196,000
Basic net earnings per share	$	0.06		$	0.02		$	0.15		$	0.03
Diluted net earnings per share	$	0.06		$	0.02		$	0.14		$	0.03
Weighted average shares outstanding
Basic		6,698,577			6,469,645			6,662,534			6,448,242
Diluted		7,088,143			6,946,036			7,022,427			6,931,745

ELECTRONIC CLEARING HOUSE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months
	Ended March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	1,016,000		$	196,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		341,000			352,000
Amortization of software		1,276,000			808,000
Provisions for losses on accounts and notes receivable		327,000			13,000
Deferred income taxes		824,000			65,000
Stock option compensation		434,000			8,000
Tax benefit from exercise of stock option		3,000			61,000
Changes in assets and liabilities:
Restricted cash		(763,000	)		(97,000	)
Settlement deposits		(2,899,000	)		(1,139,000	)
Accounts receivable		(1,069,000	)		(144,000	)
Settlement receivable		(275,000	)		(456,000	)
Accounts payable		(18,000	)		(8,000	)
Settlement payable		3,175,000			1,592,000
Accrued expenses		862,000			(47,000	)
Prepaid expenses		(130,000	)		(14,000	)
Net cash provided by operating activities		3,104,000			1,190,000
Cash flows from investing activities:
Other assets		2,000			3,000
Purchase of equipment		(277,000	)		(470,000	)
Purchased and capitalized software		(1,746,000	)		(1,921,000	)
Net cash used in investing activities		(2,021,000	)		(2,388,000	)
Cash flows from financing activities:
Proceeds from issuance of notes payable		-0-			400,000
Repayment of notes payable		(137,000	)		(223,000	)
Repayment of capitalized leases		(75,000	)		(269,000	)
Proceeds from exercise of stock options		318,000			294,000
Tax benefit from exercise of stock option		49,000			-0-
Net cash provided by financing activities		155,000			202,000
Net increase (decrease) in cash		1,238,000			(996,000	)
Cash and cash equivalents at beginning of period		6,732,000			7,576,000
Cash and cash equivalents at end of period	$	7,970,000		$	6,580,000

Contact:
Electronic Clearing House	Financial Relations Board
Donna Rehman, Corporate Secretary	Erin Cox
(800) 262-3246, ext. 8533	(310) 854-8319
E-MAIL: corp@echo-inc.com	E-MAIL: ecox@financialrelationsboard.com
www.echo-inc.com

#  #  #