FY24 Trading Update & Notice of Results

Eckoh plc

(“Eckoh”, the “Group”, or the “Company”)

FY24 Trading Update & Notice of Results

- Profit and cash in line with market expectations
- Record new contracted business in North America, up 44% year-on-year
- Record year of total contracted business at £52.6m driven by high renewals and strong H2 new business
- Client transition to cloud-based solutions continues at pace, driving ARR and margin enhancement

Eckoh plc (AIM: ECK), the global provider of Customer Engagement Data Security Solutions, today announces a trading update for the year ended 31 March 2024 (the “Year”).

Trading Performance

The Board expects to report revenues of approximately £37.2m for the Year (FY23 £38.8m) which, although slightly behind market expectations¹ is a result of the ongoing transition of client deployments to the cloud, the first contract renewals of several large on-premise US clients (where there are no ongoing associated hardware revenues and set up charges), and the elongated sales cycles that delayed the closing of contracts in H1.

In contrast, Eckoh expects to report adjusted operating profit of approximately £8.3m (FY23 £7.7m), marginally ahead of market expectations¹, which represents a 17% increase on FY23 pre-forex². The higher proportion of cloud-based SaaS revenues and ongoing cost efficiency meant the Group saw operating margin improvement as well as strong cash generation, with an improved net cash position of £8.3m at the end of the Year (FY23 £5.7m), also marginally ahead of market expectations.

Record Contracted Business

In H1 Eckoh won a record level of total contracted business³ (defined as the combination of contract renewal value and new business value from either new clients or existing clients) and this trend continued in H2. This resulted in £52.6m of total contracted business in the Year, over 50% higher than FY23 and a record for the Company. As anticipated, the level of new contracted business⁴ increased substantially in H2, more than double that of H1, leading to £18.7m of new contracted business won in the Year (FY23 £14.4m).

In North America, our single biggest growth market, the Company won a record level of both renewals and new contracted business in the Year, with $33.7m of total contracted business and $16.3m of new contracted business (for Security Solutions), 87% and 44% higher than FY23 respectively. Progress in North America has been driven by successfully closing deals delayed from H1, winning an unusually high number of large multi-year renewals, successful cross-selling and up-selling our new solutions and the ongoing transition to cloud-based deployments by our clients.

As previously announced, the closing of several sizable enterprise deals where Eckoh was the chosen supplier slipped into H2 - most of which have now closed - the remaining ones are still in progress and contribute to a record North American sales pipeline. The Company continues to experience elongated sales cycles with new enterprise clients, especially in the final contracting phase, however the cross-selling strategy for existing accounts should help moderate these delays as the sales cycle for these opportunities is shorter.

Recurring Revenue Improvement

While our successful drive to transition clients to cloud-based solutions is tempering revenue growth in the short term, it is having a positive impact on the visibility of revenues, which has increased. Recurring revenue in North America grew by 11% year-on-year, and for the first time, all new client contract wins in the Year were for cloud-based delivery and we expect this trend to continue.

Eckoh expects to report good progress in North America with Security Solutions exit Annual Recurring Revenue⁵ (‘ARR’) up organically by 6% to $16.8m (FY23 $15.9m), which represents a CAGR of 29% since FY21. The delay in signing new business in H1 has temporarily slowed the ARR growth in this region, however when taking into account the contracts signed in H2 that are expected to commence billing in the first half of FY25, that growth rises a further 14% and will lead to a meaningful positive impact on the revenue in the second half of FY25. The Group’s ARR now represents 83% of Group revenue, a 5% increase on the prior year (FY23 78%).

Nik Philpot, Chief Executive Officer, said: "At our interim results in November we said that the first half had been all about excellent contract renewals and that the second half would be all about new business wins, so it’s gratifying to see the record levels of new business coming through. We have built a strong pipeline of exciting new business opportunities and we are already seeing tangible signs of the impact the new version of the PCI standard is having, with an increased number of formal tender processes as companies look to outsource this challenging requirement to a specialist like Eckoh.

Our unusually high level of multi-year renewals (including many that were not scheduled until this year), alongside our newly won clients, gives us excellent revenue visibility and improves our ability to further increase our strong cross-sell and upsell pipeline. We expect total renewal value to be lower this year because of the size and timing of those clients whose contracts are due to expire, but we expect levels of new business coming from our existing client base to grow significantly and our operating margin to improve further as we leverage our cloud platform and new product set.

The fact that all new client wins this year were for cloud delivery illustrates the pace of cloud transition, and whilst this reduces our headline revenue growth it improves revenue visibility and margin. We are confident that Eckoh is well placed to consolidate our market-leading position by assisting enterprises with the significant challenges that they are facing globally to keep their customers' data and engagements secure."

Notification of Interim Results announcement

Eckoh expects to announce its results for the year ended 31 March 2024 on Tuesday 11 June 2024.

1. Eckoh believes that consensus market expectations for the year ended 31 March 2024 are for revenue of £38.9m, adjusted operating profit of £8.2m and net cash of £8.2m.
2. In FY23, the Company’s operating performance benefitted from a £0.5m currency tailwind versus a £0.1m headwind in FY24.
3. Total contracted business includes new business from new and existing clients, as well as renewals with existing clients.
4. New contracted business includes new business from new clients and new business from existing clients.
5. ARR is the annual recurring revenue of all contracts billing at the end of the period.