Clayton Holdings Reports 116% Increase in Net Income and Record Revenue of $61.8 Million in Second Quarter 2006

Business Wire, August 8, 2006

SHELTON, Conn. -- Clayton Holdings, Inc. (NASDAQ:CLAY), a provider of information-based analytics, consulting and outsourced services for capital markets firms, lending institutions, fixed income investors and loan servicers, today announced its results for the quarter ended June 30, 2006. Clayton's second quarter 2006 results include:

--Revenue of $61.8 million, an increase of $12.5 million, or 25.4%, as compared to the second quarter of 2005, which represents the highest reported quarterly revenue in Clayton's history.

--Gross profit of $20.7 million, an increase of $3.1 million, or 17.6%, as compared to the second quarter of 2005;

--Income from operations of $5.5 million, an increase of $1.7 million, or 44.0%, as compared to the second quarter of 2005;

--Net income increased by $1.3 million, or 116.1%, to $2.4 million, or $.11 per fully diluted share, as compared to net income of $1.1 million, or $.09 per fully diluted share in the second quarter of 2005;

--Adjusted net income (non-GAAP) increased by $1.3 million, or 48.2%, to $3.9 million, or $.18 per fully diluted share, as compared to adjusted net income of $2.6 million, or $.21 per fully diluted share in the second quarter of 2005. Adjusted net income excludes acquisition-related amortization. For a reconciliation of net income to adjusted net income, please refer to the tables on the following pages.

"Our record revenues in the second quarter reflect that the demand for our core products and services remains strong, despite a somewhat weaker mortgage origination environment," said Frank Filipps, Chairman and Chief Executive Officer of Clayton. "In addition, these results clearly demonstrate that the productivity initiatives implemented during the quarter have been effective in improving our margins and operating results."

Other Second Quarter Highlights

-Revenue from due diligence and conduit services were 8.2% higher than last year. Services were performed on approximately 238,000 loans in the second quarter of 2006, roughly the same level as the second quarter of 2005.

-As of June 30, 2006, Clayton Fixed Income Services, our credit risk management and surveillance business was monitoring $354 billion in assets primarily for investment banks and for institutional investors in mortgage-related securities. This represents an increase of $120 billion, or 51.6%, since June 30, 2005.

-Gross margin improved to 33.6%, as compared to 29.5% in the prior quarter, as a result of successful implementation of productivity initiatives during the quarter.

-Cashflow from operations for the quarter was approximately $5.5 million.

Management will hold a conference call today at 9:00 a.m. EDT. A live webcast of the conference call will be available online at http://www.clayton.com. Web participants are encouraged to go to Clayton's website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. Listening to the webcast requires speakers and RealPlayer(TM) software, downloadable without charge at http://www.real.com. Those without Web access can access the call by phone and should plan to dial in approximately 10 minutes prior to the call. The dial-in numbers are (800) 659-2056 for domestic callers and (617) 614-2714 for international callers. The participant passcode for both is 89181786.

After the live webcast, the call will remain available on Clayton's website through September 8, 2006. In addition, a telephonic replay of the call will be available until September 8, 2006. The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. The participant passcode for both is 72653646.

About Clayton Holdings, Inc.

Clayton Holdings, Inc., headquartered in Shelton, Connecticut, is an information and analytics company serving leading capital markets firms, lending institutions, fixed income investors and loan servicers with a full suite of information-based analytics, specialty consulting and outsourced services. Clayton's services include due diligence analytics, conduit support services, professional staffing, compliance products and services, credit risk management and surveillance and specialized loan servicing services. Additional information is available at www.clayton.com.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Clayton can give no assurance that expectations will be attained. Factors that could cause actual results to differ materially from Clayton's expectations include, but are not limited to, adverse changes in the mortgage-backed securities market, the mortgage lending industry or the housing market; the level of competition for its services; the loss of one or more of its largest clients; Clayton's ability to maintain its professional reputation; management's ability to execute Clayton's business strategy; Clayton's ability to recruit and retain additional qualified independent loan review specialists; and other risks detailed in Clayton's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 15, 2006, and other reports filed with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release. Clayton expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Clayton's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.