Unaudited interim results for the six months ended 30 September 2023

Eckoh plc

(“Eckoh” or the “Group”)

Unaudited interim results for the six months ended 30 September 2023

- Cloud transition driving higher margins and quality of earnings
- North America pipeline at record levels and North America ARR up 22%
- Record level of contracted business with positive traction across our new solution set

Eckoh plc (AIM: ECK) the global provider of Customer Engagement Data Security Solutions, is pleased to announce unaudited results for the six months to 30 September 2023.

Strategic highlights

• Record levels of contracted business with a high proportion of multi-year renewals
• Our successful drive to transition clients to cloud-based SaaS solutions is tempering short term revenue growth but delivering improvements in recurring revenue, operating margins and quality of earnings
• New global commercial strategy progressing well, with focus on the large North America addressable market
• Positive reception from existing clients to our new and expanded Secure Engagement Suite
• Record North America pipeline includes several contracts where Eckoh is selected vendor, but longer than expected sales and contracting cycles are delaying completion and therefore revenue
• Cost and efficiency benefits from the transition to a SaaS business model will deliver over £1m of savings in FY25
• New updated PCI DSS v4.0 standard effective from April 2024 will increase complexity and cost of compliance for merchants, which is likely to drive higher levels of sales engagement for Eckoh’s solutions

Financial highlights

• Trading for the period in line with Board expectations, as announced in the Trading Update on 1 November 2023
• Group ARR¹ £30.6 million, up 7% year-on-year or 9% at constant currency
• North America performing strongly with Security Solutions ARR¹ up $3m or 22% to $16.8m (H1 FY23: $13.8m)
• Record level of total contracted business⁶ at £24.6m, up 40% (H1 FY23 £17.6m), driven by strong multi-year renewals and successful cross-selling and up-selling of new products
• Group revenue £18.8m, (H1 FY23: £19.6m), reflecting the already announced loss of a large (non-security) UK client in FY23 and the on-going transition to cloud delivery which removes hardware fees and reduces set up costs
• Recurring revenue² increased to 83% (H1 FY23: 79%), reflecting strong renewals and the continued shift to the cloud
• Gross profit margin 83% (H1 FY23: 79%), an increase of 330bp
• Adjusted operating profit⁴ £4.0m (H1 FY23: £4.2m), includes a £0.1m FX versus a FX gain of £0.7m in H1 FY23
• Adjusted operating profit margin flat at 21.4% (H1 FY23: 21.4%), masks an underlying improvement of 410bp (excluding FX loss in H1 FY24 21.8% and FX gain in H1 FY23: 17.7%)
• Strong cash generation with net cash of £7.3m at period end, up £1.6m from £5.7m at year end (H1 2023: £4.4m)
• Eckoh’s balance sheet remains robust, with no debt or drawdown on credit facilities

Current trading and Outlook

• The Board is encouraged by the record level of business contracted, the successful implementation of the new commercial strategy and the sales pipeline with large deals which are in a progressed position
• Whilst longer than expected sales cycles have delayed revenue progression in the year to date, the Board is confident that the Company is on track to meet expectations for the full year⁷
• Optimally positioned as market leader for an increased outsourcing trend driven by regulatory change (PCI DSS v4.0), increasing complexity and security challenges for businesses
• It is expected that the strong positive trend of growth in contract value and ARR will continue in the second half and with the ongoing transition to cloud and SaaS, this underpins the expected growth in FY25

Nik Philpot, Chief Executive Officer, said: “We have made excellent progress with our strategic goals in the first half of the year with continued improvement in the proportion of revenue coming from cloud, increased levels of cross-selling and upselling from our client base and higher operating margins.

Our cloud and SaaS transition journey, which is progressing well, will continue to increase revenue visibility, improve margin and quality of earnings, as well as giving clients easy access to our full Secure Engagement Suite of products. While the shift to cloud inevitably tempers revenue growth in the short-term, it brings longer-term benefits, which we can already see with recurring revenues up 360 basis points to 83% and underlying operating profit margin up 410 basis points to 21.8%. It has also been a driver behind the increase in ARR of 7% to £30.6m.

North America is our most significant target market, and with such large enterprises creating significant new opportunities that also brings longer sales cycles, which have been especially noticeable in this period. However, North American ARR is still up 22%, validating our strategic decision to have one global commercial team focused on this growth opportunity, and our pipeline is at a record level here with Eckoh selected as the preferred supplier on several deals that are expected to close in H2.

As market leader, we are well placed to benefit from increased outsourcing in the contact centre environment as complying with data regulation is becoming ever more costly and challenging to achieve, especially with a hybrid workforce. As consumers demand greater choice across digital payment channels and artificial intelligence enters contact centres, Eckoh’s solutions will continue to make personal data arising from customer engagement more secure. With compelling growth drivers, a robust strategy and a strong balance sheet, we are on track to deliver full year expectations⁷ and our growing ARR and improved total contracted business provides further revenue visibility into FY25 and beyond.”

1. _{ARR is the annual recurring revenue of all contracts billing at the end of the period. Included within Group ARR is all revenue that is contractually committed and an element of UK revenue that has proven to be repeatable, but not contractually committed. H1 FY23 has been restated to include NA Coral revenue.}
2. _{Recurring revenue is defined as on-going revenue, rather than revenue derived from the set-up and delivery of a new service or hardware.}
3. _{Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is the profit before tax adjusted for depreciation of owned and leased assets, amortisation of intangible assets, expenses relating to share option schemes and exceptional costs.}
4. _{Adjusted operating profit and adjusted profit before tax are adjusted for amortisation of acquired intangible assets, expenses relating to share option schemes and exceptional costs.}
5. _{Adjusted earnings pence per share – calculated using an effective tax rate of 25% in both years.}
6. _{Total contracted business includes new business from new clients and from existing clients as well as renewals with existing clients.}
7. _{Consensus market expectations for the full year is revenue of £39m and Adjusted Operating Profit of £8.2m}