CheckFree Announces Fiscal 2006 Third Quarter Results and Raises Full-Year Expectations

CheckFree Corporation today announced third quarter GAAP (Generally Accepted Accounting Principles) revenue of $226.9 million, and underlying revenue of $227.7 million. The Company’s GAAP net income for the quarter was $37.7 million, or $0.40 per share, and underlying net income was $40.1 million, or $0.43 per share. Free cash flow was $62.3 million for the quarter.

GAAP Results: Net income for the third quarter was $37.7 million, compared to net income of $15.6 million for the same quarter last year. Earnings per share were $0.40 for the third quarter of fiscal 2006, compared to earnings per share of $0.17 for the third quarter of last year. Net cash provided by operating activities was $72.5 million for the third quarter of fiscal 2006, compared to $61.6 million for the same period last year.

Underlying Results: Underlying net income for the third quarter was $40.1 million, compared to $36.0 million for the same quarter of last year. Underlying earnings per share were $0.43 for the third quarter of fiscal 2006, compared to $0.39 for the third quarter of last year. Underlying net income and earnings per share for the third quarter exclude the amortization of acquisition-related intangible assets; the SFAS 123® impact of options issued prior to July 1, 2004; the historical effect of discontinued operations on revenue and net income on all periods reported, resulting from a divestiture in the March 2006 quarter; and their related combined tax benefits. A reconciliation of CheckFree’s underlying results to its GAAP results is included in Attachments A and B.

“CheckFree executed well in each of our operating units during the third quarter,” said Pete Kight, Chairman and Chief Executive Officer of CheckFree. “Our Software unit completed one of its strongest contract sales quarters ever; in Electronic Commerce, transactions processed saw consistent growth month-over-month; and in CheckFree Investment Services, we had another solid quarter.”

Third Quarter Highlights

For the third quarter, the Company reported that its Software division delivered strong performance. It also reported that its Electronic Commerce division processed 293.3 million transactions, an 8 percent sequential increase over the second quarter of fiscal 2006, and delivered 46.7 million e-Bills, a sequential increase of 3 percent over the second quarter of fiscal 2006. CheckFree Investment Services reported almost 2.2 million portfolios under management, which compares to almost 1.8 million portfolios under management reported in the third quarter of fiscal 2005.

The Electronic Commerce division acquired PhoneCharge, Inc., for $99.8 million and the Investment Services division divested its M-Solutions business for $18.6 million, resulting in a gain on the sale of $12.8 million. The Company also repurchased over 150,000 shares of common stock for approximately $7.0 million.

Refer to Attachment B for details on the financial performance of CheckFree’s divisions in the third quarter of fiscal 2006, and Attachment C for electronic billing and payment metrics.

Financial Outlook for the Fourth Quarter and the Fiscal Year

“Based on strong year-to-date results, we have raised our expectations for the Company’s consolidated performance,” said CheckFree Chief Financial Officer David Mangum. “For the fourth quarter of fiscal 2006, we expect revenue in the range of $226 million to $231 million, GAAP earnings per share in the range of $0.30 to $0.33, and underlying earnings per share in the range of $0.39 to $0.41. For the full year, we now expect GAAP earnings per share in the range of $1.34 to $1.37, underlying earnings per share in the range of $1.72 to $1.74, and free cash flow to be about $175 million.”

The difference between GAAP and underlying earnings expectations for fiscal 2006 and the fourth quarter of fiscal 2006 is due to expected acquisition-related intangible amortization expense; the SFAS 123® impact of options issued prior to July 1, 2004; the historical effect of discontinued operations on revenue and net income through February 2006, resulting from a divestiture in the March 2006 quarter; and their related combined tax benefits.