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Eckoh taking advantage of US opportunities

Last updated: 09:07 22 Mar 2017 EDT, First published: 08:07 17 Oct 2017 EDT

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'House’ broker N+1 Singer pointed out: “The positive US momentum it reported on at the time of the interims has continued with 9 wins in the year to March 2017"

US opportunities are coming good for secure payments group Eckoh PLC (LON:ECK), which recently revealed it has signed its largest-ever contract from across the Atlantic.

The US$3.7mln secure payment contract with a large US telecoms provider, which will last for five years, takes Eckoh’s running total for new business this financial year to US$8mln.

Eckoh’s software will be used in the client’s contact centres to prevent fraud and to help it comply more easily with Payment Card Industry Data Security Standards.

WATCH: CEO Philpot on why bagging their biggest deal yet is a 'validation of the last three years' ...

READ: Eckoh inks biggest-ever US contract …

Nik Philpot, chief executive of the AIM-listed technology group, said: “With a limited number of competitors and a product portfolio with a breadth and flexibility that they cannot match, we are convinced that Eckoh can become the natural choice for contact centre security.”

“The strong progress we have made in the US this year is clear, both in terms of the value of the contracts and the quality of those future earnings, and underscores our ability to capture the scale of the opportunity and to deliver significant growth over the coming years."

Results for the six months to 30 September, released at the end of November, showed revenues from Eckoh’s US operation climbed to £4mln, from almost nothing a year earlier, as its overall revenues jumped by 57% to £13.5mln.

In October, the company revealed that seven contract wins worth US$5.1mln secured during the half year, up from three wins worth US$2.7mln the year before.

Watch: US growth 'transforming the business' ...

In a research note, analysts at house broker N+1 Singer noted: “The US is a very important market, being 6-7x the size that of the UK and we believe that Eckoh is well-placed, having one of the leading Secure Payments proposition in the market.”

The number of payments contracts won in the US since Eckoh entered the market in 2014 is now 30. The company has made good progress in converting its contracts pipeline, having already secured the same volume of operating expense (Opex)-based contracts as were won during the full 12-month period ending 31 March 2017.

Opex-based contracts are preferred by the company to capital expenditure (capex)-based contracts, as these see recurring revenue levels increase as the years roll by. Capex contracts typically involve the outright purchase of hardware by the customer, with 15-20% a year ongoing maintenance and support charge, while opex contracts usually entail a small set-up fee of 10-20% of the contract value, with the remainder of the contract value rolling in on a regular basis.

Deals galore …

The big US deal came after Eckoh revealed in January that it had picked up a four-year contract to provide call centre technology in partnership with outsourcer Capita (LON:CPI) for a mobile telephony group.

The two firms are working together for the unnamed customer using EckohROUTE, a cloud-based call distribution and management dashboard.

Eckoh and Capita’s customer management arm have worked together since 2013, a partnership that has generated £15mln of revenue for Eckoh.

The company, which also boasts a contact centre software arm, also picked up three contracts last year worth over US$2.5mln in the US over the next three years.

The first was a two-year deal for the group's secure payments solution with one of the largest manufacturers and suppliers of nutritional supplements in the US, while the second was a three-year deal with a Fortune 500 corporation in financial services.

The third was a three-year agreement with one of the largest US telecoms groups, where Eckoh will provides its browser-based agent desktop 'Coral' to more than 3,000 contact centre agents in a new facility opening at the end of 2016.

The Fortune 500 group was a long-standing customer of Product Support Solutions (PSS), a contact centre services provider, which Eckoh acquired for U$7.6mln in November last year, and which has a number of blue chip clients on the books.

SAAS switch …

To increase recurring revenues in the US and bring it in-line with the model in the group's UK business, Eckoh last year moved its secure payments customers to a software as a service (SaaS) pricing model and away from upfront client payments.

The costs of switching to a SaaS - pay as you use rather than a licence – model hit the bottom line in its first-half results, with underlying profits flat at £2mln and a £170,000 pre-tax loss versus a £74,000 profit a year earlier.

Eckoh, however, traditionally makes more money in the second half due to seasonal factors with higher second half volumes in travel, retail and logistics, so investors will be hoping for full-year results to provide a boost.

N+1 noted: “The shares are on Mar’18 EV/EBITDA of 13.0x – we believe there are opportunities both for a re-rating and estimate upgrades with continued execution.”

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