Eckoh : Earnings Document

Annual Report 2022

15 June 2022

Eckoh plc

("Eckoh" or the "Group")

Full year results

• • Group and US ARR growing strongly
• Transformational Syntec acquisition progressing well
• • Expectation of material growth in FY23

Eckoh plc (AIM: ECK), the global provider of Customer Engagement Security Solutions, is pleased to announce results for the twelve months to 31 March 2022.

£m (IFRS unless otherwise stated)	FY22	FY21	Change
Revenue	31.8	30.5	+4%
Gross profit	25.4	24.2	+5%
US Secure Payments ARR ($m) 1	11.9	6.5	+82%
Total ARR1	25.2	17.0	+48%
Adjusted EBITDA2	6.8	6.4	+7%
Adjusted operating profit3	5.2	4.7	+10%
Profit before taxation	2.3	3.5	(34%)
Adjusted earnings pence per share4	1.57	1.49	+5%
Adjusted diluted earnings pence per share4	1.34	1.45	(8%)

Strategic highlights

• Strong ARR1 growth, especially in the US market, driven primarily by our clients' need to protect data and comply with increasing regulation without compromising customer experience
• UK business returned to growth with strong second half revenues as most client activity recovered
• Transformational Syntec acquisition performing in line with our expectations with integration on track

• 1. Unification and enhancement of product offering on track for go-to-market launch in 2022
• As part of our long-term strategic direction, multi-platformcloud-enablement of our offering is driving:
• 1. Market leadership and competitive advantage

• 1. Scalability into larger client opportunities on an international basis, characterised by recent contracts o Significant cross-sell opportunities and faster deployments will drive increased client value
• Realignment of sales capability and go-to-market proposition to drive top-line growth, and restructuring of cost base to create greater operational efficiency

Current trading and Outlook

• Current order levels already substantially exceed FY22's first quarter outcome
• Significant strengthening of Eckoh's new business pipeline in the first quarter, including major opportunities for large blue-chip organisations

1. Progress reflects success with our strategy to pursue larger, higher quality opportunities through management action to improve sales function

1. • 1. Renewals post-period end includes our largest contract scheduled for FY23, worth £2.1m
   • First client deployed and live on our new Azure cloud platform signed new 3-year contract worth $1.4m for voice security and a further contract worth $0.6m to secure live chat agents with digital payments
2. 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.
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, restructuring costs and transactional costs.
4. Adjusted operating profit is the profit before tax adjusted for amortisation of acquired intangible assets, expenses relating to share option schemes, restructuring and transactional costs
5. Adjusted earnings pence per share - the Group issued 36.2m new ordinary shares during the year in connection with the acquisition of Syntec which results in an increase in the weighted average shares in issue across the period.

• As previously stated, the Board expects FY23 revenue and profit to be significantly higher than FY22, driven by strong organic ARR growth, operational efficiencies and synergistic benefits of the Syntec integration
• The Board is confident of further progress in the year ahead, supported by an encouraging pipeline, a model with high recurring revenues and a robust balance sheet.

Financial highlights

• Strong performance, as previously announced in Trading Update on 17 May 2022
• Group ARR1 up 48%, reflecting market opportunity and ongoing shift to cloud
• Adjusted operating profit3 up 10% with successful pivot to higher quality earnings following the completed exit from US and UK Support, which contributed £2m to FY21 adjusted operating profit
• US Secure Payments performed strongly:

1. Revenue up 8%, underlying growth stronger

• 1. US ARR1 up 38% on an organic basis and 82% including Syntec
• UK revenues returned to growth with transactional volumes largely returned to pre-pandemic levels
• 1. Revenue up 9%, excluding third-party support or 3% total

• 1. UK ARR1 of £16.5m, up 8% on an organic basis and up 36% including Syntec
• Profit before taxation includes £1.0m of transactional costs (in connection with the acquisition of Syntec) and £0.9m of one-off restructuring costs
• Balance sheet remains strong following the Syntec acquisition with net cash of £2.8m (FY21: £11.7m)
• Increased final proposed Dividend at 0.67p per share (FY21: 0.61p), demonstrating increasing confidence in the ongoing growth opportunity

Nik Philpot, Chief Executive Officer, said:

"Eckoh has made significant progress in the last 12 months. We have shown the resilience of our business model, with growth in revenue and operating profit and improved quality of earnings with the completed exit from our Support activity. Our momentum is underpinned by fast-growing recurring revenues, with an excellent performance in our US business and a return to growth in the UK.

We successfully completed the transformational acquisition of Syntec, which enhanced our position as the largest provider in our industry. The integration is progressing well and our unified product suite will extend our market-leading position in Customer Engagement Security Solutions. Our new multi-platform, cloud delivery has created differentiation within our industry by offering greater customer choice, enabling us to deliver our services efficiently and at scale, and address significantly larger and global mandates.

We have started the year strongly, and looking ahead the Board expects FY23 revenue and profits to be significantly higher than FY22, reflecting our ongoing organic growth, continued momentum in the US market, a sustained recovery in UK trading, and the integration of Syntec. In addition, we expect our progress to be supported by long-term structural growth drivers and increasing cloud adoption, coupled with the benefits of new products and operational gearing."

For more information, please contact:
Eckoh plc	Tel: [phone]
Nik Philpot, Chief Executive Officer
Chrissie Herbert, Chief Financial Officer
www.eckoh.com
FTI Consulting LLP	Tel: [phone]
Ed Bridges / Jamie Ricketts / Tom Blundell
[e-mail]
Singer Capital Markets (Nomad & Joint Broker)	Tel: [phone]
Shaun Dobson / Tom Salvesen / Alex Bond / Kailey Aliyar
www.singercm.com

Canaccord Genuity Limited (Joint Broker)	Tel: [phone]
Simon Bridges / Andrew Potts
www.canaccordgenuity.com

About Eckoh plc

Eckoh is a global provider of Customer Engagement Security Solutions, supporting an international client base from its offices in the UK and US.

Our Customer Engagement Security Solutions enable enquiries and transactions to be performed on whatever device the customer chooses, allowing organisations to increase efficiency, lower operational costs and provide a true omnichannel experience.

We help our clients to take payments and transact securely with their customers through all customer engagement channels. The solutions, which are protected by multiple patents, remove sensitive personal and payment data from contact centres and IT environments and are delivered globally through our multiple cloud platforms or can be deployed on the client's site. They offer merchants a simple and effective way to reduce the risk of fraud, secure sensitive data and become compliant with the Payment Card Industry Data Security Standards ("PCI DSS") and wider data security regulations. Eckoh has been a PCI DSS Level One Accredited Service Provider since 2010, securing over £5 billion in payments annually.

Our large portfolio of clients come from a broad range of vertical markets and includes government departments, telecoms providers, retailers, utility providers and financial services organisations.

For more information go to www.eckoh.com or email [e-mail].

Introduction

Eckoh has had a successful year consolidating our position as leaders in the growing Customer Engagement Security market. Our new metric of Group ARR shows extremely strong progress and we delivered a robust level of adjusted operating profit, £5.2 million, an increase of 10% year on year (FY21: £4.7 million) and ahead of consensus market expectations. We acquired Syntec Holdings Limited in December 2021 and are pleased with the current performance. The acquisition, alongside our organic business growth, will further strengthen our market-leading position. In our trading and product update in April, we announced the significant enhancements to our customer engagement security portfolio, the majority of which are available globally.

Our performance shows the resilience of our model and the merit of our long-term strategy, given the remaining challenges presented by the pandemic, the uncertain macro-economic climate and the planned and completed exit from US and UK Support, which had contributed £2 million to the previous year's profit. As a result, the Board has increased the proposed dividend by 10% to 0.67 pence per share (FY21: 0.61 pence per share).

Our strong performance reflects ongoing progress in our US Secure Payments operation, which now accounts for nearly 90% of total US revenues (FY21: 80% of total US revenues) and with the enhanced global product offerings provides the platform for continued growth and additional cross-selling into our existing clients, a significant part of our strategy. During the year the UK division has continued to recover and the momentum we saw at the end of the first half has continued into the second half, with revenue up 9% year on year in the second half, demonstrating the resilience of our business model.

A year ago, we said we would introduce an ARR1 metric, which we did for the US Secure Payments business in our interim results in November. At that time, we also committed to include an ARR metric for the entire Group with our full year results, and we are pleased to have been able to fulfil that commitment. Given the transactional nature of some UK revenues, we have slightly updated our definition of ARR since our trading update in May. Group ARR1 was £25.1 million as at 31st March 2022, a 48% increase year-year (FY21: £17.0 million), a very strong outcome demonstrating the high level of visibility we have in our business model.

Total revenue for the year was £31.8 million, an increase year on year of 4% (FY21: £30.5 million) or 6% adjusting for constant exchange rates. Excluding the third-party Support business in FY22 and FY21, revenue was £31.2 million, an increase of 11%. Included within these results are three months of revenue from Syntec, which is performing in line with our expectations at acquisition.

Gross profit was £25.4 million, an increase year on year of 5% (FY21 £24.2 million), with gross profit margin 80%, (FY21:

79%). US gross profit was £8.5 million (FY21: £8.9 million), with gross profit margin increasing as expected to 74% (FY21:

71%). The growth in gross profit margin in the US, is aligned with our expectations as US clients successfully renew their contracts, most new client deployments are on the cloud platform and there is continued growth in the Secure Payments activity. UK gross profit was £15.6 million (FY21: £15.3 million), an increase of 2% with gross profit margin decreasing by 1% to 84%. Syntec gross profit was £1.4 million, with an 80% gross profit margin, in line with the Group's gross profit margin.

The prudent cost control we achieved in FY21 has continued into FY22. We made structural changes to the US Sales team in the second half of the year and increased our focus on 'vertical selling' (targeting sectors such as healthcare, which are well suited to our model). We have introduced a global Network Operations Centre (NOC) and also streamlined the US operational team, following the planned and completed exit from the third-party Support business.

Adjusted operating profit2 was £5.2 million (FY21: £4.7 million), an increase of 10% year on year. After adjusting for the planned exit from third-party Support, FY22 adjusted operating profit was £4.8 million, a year-on-year improvement of 81% (FY21: adjusted operating profit excluding third party Support £2.7 million).

Total contracted business3 for the financial year at the Group level was £22.5 million (FY21: £30.7 million), with 77% of all new business from Secure Payment solutions. The first half of the year was challenging for new business and particularly large enterprise contracts with the ongoing impact of the pandemic at the time. We started to see improvements as the second half started, but the usually strong final quarter of the year was then impacted unexpectedly by the global macro-economic challenges arising from the ongoing conflict in Ukraine. New business won in the year was £10.8 million (FY21: £15.7 million), an unsatisfactory outcome, but with the continued pandemic challenges in the first half and the macro-economic challenges in the last quarter, it was an understandable result. We are, however, very encouraged by trading in the first quarter of the new year, with order levels already significantly higher than last year, and with a much stronger pipeline.