Kooth (LSE:KOO) — Interim Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the KOOTH PLC Interim Results Investor Presentation. Situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so, and these will be available via your investor meet company dashboard.

0:32 Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from KOOTH PLC. Tim, good afternoon, sir. Good afternoon. Thanks for the introduction, and welcome to our interims update. What we'll do is we'll provide you with a brief recap on KOOTH, who we are, what problem we're solving. We'll go through the five key updates from our h one and of outlook for the rest of the year and beyond. So just to start at the beginning, what is the problem that we're tackling? Well, poor mental health has become a public health crisis of our time. Every year, one in five individuals in the population has a diagnosable need for help. Across a lifetime, seventy five percent of lifelong mental health issues are established by age 24.

1:23 And as well as having an incredible detrimental impact on the individuals, their families, and the community has a huge impact on the economy. On the current trajectory, it's estimated by the end of the decade, the poor the impact of poor mental health over $6,000,000,000,000 global cost. Now there are not enough therapists in the world to deal with the level of demand, and it's widely recognized that the solution to this growing challenge is to move upstream to provide support to individuals much earlier than treatment based approaches do. And this focus on upstream support versus downstream treatment is where KOOTH is focused. We provide proactive early help. We take do it in a person centric way so individuals are not just reduced down to the set of conditions that they may be living with. And by doing so, we can have a great impact, not just to those individuals, but to the economy as well.

2:20 We estimate somewhere between three to one in The UK and 12 to one in The US health economics cost savings. And so KOOTH was founded over twenty years ago to tackle this problem, and our North Star has three elements to it. Firstly, to grow access to remove barriers to get support, then to provide that early and responsive help in a person centric way. And because we are not simply taking a psychotherapist couch and trying to move it online, We're delivering entirely new types of therapeutic support. So we then innovate in outcomes that demonstrate the impact. In our time, we've supported over a million done a million hours of professional support, had 50 peer reviewed research papers studied, have a healthy economics outcome I mentioned a moment ago with a team of just shy of 500 individuals.

3:13 And, of course, starting in The UK, we're now making rapid expansion into The US. For our users, they can access self help programs, content and community support, and with one click of the button, get access to professional support. We hire, train, and audit all of our own practitioners so we can provide a safe and effective service at scale. And the scale that we operate at is really as a population health service. In fact, KOOTH is a population health response to a public health crisis. Ninety five percent of people get the support they want to need without that one to one traditional offer of ongoing counseling and therapy. So 60% get the support through the community or through the content. And the majority of people that want one to one support get it in, responsibly at the moment of need or infrequently.

4:08 Maybe they just need some advice, and we might be seeing them occasionally. So these are the foundations on which KOOTH's been built, to really help deliver on our our purpose to provide effective, personalized mental health care accessible to everyone. In the first half of the year, there were five key notable things that we'll talk about on today's session. Of course, we've already announced we were really grateful to be selected by the California Department of Health Care Services to run and contract and build a platform that can scale up to provide support to the entire population of California's thirty to twenty five year olds over a minimum four year term. We've got some news that we'll provide you with more detail on what we are on track for that launch in California.

4:59 And while we don't have much more detail in the presentation, obviously, we're coming up to the one year anniversary of our pilot in Pennsylvania, which we went live with last October. We've seen a really strong uptake of that with one in ten high school students having access to it, making use of it. We expect to have more news for you in q four to wrap up that project and look to budgeting, which is still ongoing in the state of Pennsylvania to look to hopefully expand that and take that further. Of course, underpinning all of this is our investment in technology, business development, and our US expansion. And, look, in The UK, where KOOTH got started and where I'm based, it's a tough market right now. The NHS is going through a tough time, and any provider that is delivering service to them is feeling that as well. So we'll we'll talk a bit more about that and the the outlook in The UK.

5:56 Great. Thanks, Tim. So just diving into the financial highlights. Look. We were really pleased with the first half of the year. Revenue grew by 29% compared to the same period last year. That was predominantly driven by The US. 1,800,000 of the revenue booked in the first half came from The US, principally the Pennsylvania contract, which we won in September of last year, but also some research and pilot projects for California. If we were to strip out the impact of The US, The UK grew by about 9%. For us, ARR growth is a good measure of upcoming revenues. And, again, that would the growth there, 16% was really driven by the Pennsylvania contract. That was a $3,000,000 contract. And another thing that we're quite focused on is the quality of our revenues. 94% of our revenues come from contracts that are twelve months or longer.

6:48 We typically contract initially with a new health care system or a corporate on a twelve month pilot contract. Average contract value might be around a 130, £140,000. And when that pilot comes to an end, we would then look to try and or agree a longer contract, maybe three years in some cases. Gross margin was down by 1.6 percentage points in the half year, really reflecting the inflationary environment in The UK. We've all our direct staff, our practitioners, and counselors, we always aim to have pay increases just ahead of the NHS pay scales. So those increases were around 6% from the first of January of this year.

7:35 We weren't able to pass all of that onto our customers and clients. The NHS are typically pushing through inflationary increases of around 2% for for suppliers. So that's impacted gross margin in the period. That was offset a little bit by

7:53 The US revenues. In The US, we think that we'll probably settle at a gross margin of around three or four percentage points higher than The UK. And as the contract ramps up, we we we see slightly better gross margins in those contracts at the beginning of the contract. So that so that offset some of the decrease in The UK. EBITDA was flat for the half year, really reflecting the investment we've been making in The US. We were we announced the the win in California in March, April even though we didn't finalize the contract until July, but that meant that we actually started our investment work in The US from around March time. If I was to strip out The US costs, again, The UK has broadly grown. Its cost base has broadly grown in line with inflation.

8:45 Also reflecting the California contract from March, we started capital expenditure on the California platform. That added 2,300,000 to our CapEx for the first half year to a total of 3,600,000. We amortized the platform over three years, and we are expecting to see quite a significant increase in capital expenditure in the second half of this year and the first half of next year as as we finalize the platform in California. Cash at the half year end was 5,900,000. We have no debt on the balance sheet. And as most of you know, we then did a fundraise in July, raising a further £10,000,000 on a gross basis. The California contract itself is self funding, but those the the those funds have been raised to really focus on now, you know, the the opportunity that we are now seeing in The US, so developing our business development teams there, as well as accelerating use of the plat the development of the platform so that we can roll it out across the whole of The US, bring it back to The UK, and look to expand internationally.

9:55 All of that underpins an expected group revenue for the full year of just of more than £34,000,000, which is a 70% increase on 2022. Awesome. Thanks, Sanjay. So perhaps just to sort of look around each area of the organization. Let's start with The UK. So you'll remember that the National Health Service in England has been reorganized over the last couple of years from a model where they had a 135 clinical commissioning groups into 42 kind of super regions called integrated care systems. And as part of that, their mandate now is to really focus on not just supporting illness, but wellness, moving upstream, supporting population health and prevention. A really welcome change and expansion of the NHS mandate.

10:43 However, the reality of it today is quite different to that. Today's environment is one of incredible financial pressure and dealing with waiting lists that have grown not just through the pandemic, but in mental health through the financial challenges that there are. And so what we're seeing is a backdrop where ICS is must make a 6% real term cost saving in an area of in high inflation that is challenging. And in addition to that, the most recent data shows a 16% annual increase in demand for mental health support. So these two things come together are putting mental health services under incredible pressure. We from our side, what we've seen is we've been able to increase contracts either through expansion or through adding on inflationary increases.

11:33 More than 52% of our contracts grew in the first half of the year that were up for renewal. But those gains were offset by an increase in churn, either as organizations look to move budget into, acute, care or in some areas where a year ago, we announced and kicked off a number of pilot projects for KOOTH adults to then establish KOOTH in those regions. Commission's unable to find budget to support those, and, again, moving that budget into acute acute care. So in response, because being relevant to an NHS in crisis is is is key for all of us, we've launched a new service called the integrated digital pathway that plugs into either CAMS or talking therapy waiting list to provide support to individuals to either keep them waiting well so that things don't get worse before they get support, or ideally, to provide them with sufficient support that they come off that waiting list.

12:33 We're live in two regions. It's a bit early to give any first indications of feedback on how that's going, but no doubt we'll have more, news on that at the end of the year. We've also recognized in the bigger role that ICS has played in commissioning, reorganized our commercial sales organization, and expanded and invested in our marketing organization to engage commissioners as well as to engage with users.

12:59 For the longer term, we view that the only way to square the circle on this, where you've got to deliver a vision for preventative population health in a backdrop of making efficiency savings year on year while demand grows double digit. The only way to get yourself out of that catch 22 or that vicious cycle, if you like, is to provide digital transformation. A KOOTH is a bridge to the future. We can provide support that demonstrates that we reduce the number of people that go into need acute care. Independent health economic studies show that a pound spent on KOOTH saves the system £3. And we can see from our own data that our service is welcoming to more diverse groups that may otherwise may not engage with traditional NHS services so we can tackle health inequality.

13:49 And by doing this, we can provide ICSs with new new insights and data to demonstrate the impact they're having. And, of course, by working with KOOTH, you're not just working with one organization. You're not working with a network of organizations that are all focused on solving these challenges, whether that be a network of ICSs or health care systems, including California. In addition, next year is gonna be a big year for us. Obviously, this year is a big year as we go live in California, which we'll talk more about. But next year, we'll be bringing all these innovations from The US back to The UK to deliver more engaging, more effective, and a and a service that we believe will have an even higher health economics impact over the medium term. So let's shift gears and look at at the booking in California.

14:38 So, obviously, we have a March to go live on January 1. That's our go live day go live date in California. We're really delighted across our whole team. I'm really we're really proud of them. They've really stepped up and across 30 work streams, whether it's platform, marketing, workforce, legal, recruiting, every element of the organization has done an incredible job and continues to do so. So it's as a CEO, I'm really proud to lead this team. We made an incredible milestone last month where our service is now live in two counties in California. That's so that we can test it, get feedback on it from young people, optimize it, add features to it, and then get ready to go live on January.

15:26 So that's a huge milestone to pass through. And, of course, as well as that, we need to grow our team. And so we've now hired all of our senior hires, all of our VPs across different functions, and are now building out the workforce and the team to support that. So the short answer is we're on track. We're making really good progress, and we're excited about January ready to support the entire population of California's youth. Just to look at this in perspective on why youth mental health is such an important thing to to tackle. You know, there is a golden window of opportunity during an individual's formative years to help establish and support good mental health for life.

16:11 You can see on the chart here the age of onset of different mental disorders and the age prevalence for it in their distribution. And so the more that we can support those early years, the more that we can help establish good mental health for life. Today, across health care systems in The US and The UK, more than 90% of spend on mental health is in supporting adults. And we're not gonna break out this cycle unless we can support those early years. And that's what we're really excited about working with California, and, obviously, it really underpins our purpose as an organization. KOOTH got started supporting young people to over twenty years ago. And while we've expanded our service to support adults as well, this really is the only way to then tackle this generational challenge around creating a healthy economy, healthy society, and healthy individuals.

17:05 So perhaps just to give you a glimpse into the some of the things that we are building for launch in January, our service has really been coproduced and codesigned with input from the voices of young people. Over 700 individuals of different geographies, diversity, have participated in research with us. And so, for example, what they told us loud and clear is they do not wanna be prescribed support. They want to have autonomy to explore an area. So we have a constellation approach where there's a universe of of of content around a given topic. And, of course, then we can make recommendations to individuals on what may be helpful to them as well so they can explore and be guided to content and activities that may be beneficial to them.

17:53 It's also important to have something that is highly relatable. You know, in many ways, we need to demedicalize mental health support. So it needs to be as engaging as TikTok but safe and effective as well. And so there is lots of lived experience voices in the app, so you can find people that are relatable to you. You can engage in peer support forums, but also live events that you can vote for. And with topical prompts, polls, and ways for you to engage to take you on a journey through to improve your mental well-being and your personal development. And finally, in terms of giving people professional one to one support so they can help them develop and deal with challenges.

18:39 The model that we're rolling out in California is a coaching based model. If any of you have done professional coaching, it may seem familiar to you. So in our case, you could get drop in, or you could search for a coach that could match your needs, perhaps gender or net ethnicity or their background or their lived experience might be beneficial to you. We'll be expanding the one to one support that we provide today over text into voice and video, and we'll be adding group based support as well so we can have one practitioner with multiple individuals. And if any of you have done professional coaching, you might be familiar with a model called value goals actions. That allows you to evolve to focus on your personal development, what the future you version of you you want to help create, and the actions and goals you take to get there.

19:27 So through this, this is not just a collection of features and functions that we're building together. We're doing this with purpose to provide that rapid responsive support and helping the personal development of individuals to help build their build their resilience or, in clinical terms, you call it psychological flexibility. That gives you perhaps a sneak preview into what we're building in California, what we'll then be bringing to The UK. I'll perhaps just pass it back to Sanjay to look at the outlook, and then we'll open it up for q and a. Great. Thanks, Tim. So, look, we're really excited about the coming year. We're fully on track in California for our January 1 launch. Soft launch has gone well. Hiring is on track. We've hit our milestones and deliverables, and have been billing California for those.

20:18 And that's really underpinning, our group forecast revenue for the year of, not less than £34,000,000. And our expectation from next year is that our EBITDA margin will hit the mid teens across the contract term. And, you know, we're hoping to get up towards 20% towards the end of the contract term. The fundraiser that we did in we completed in July, 10,000,000. We've started investing that in the US commercial team, research, and other business development efforts there. But don't don't don't expect to see any any significant announcements before next year because the focus of that team really is on getting California executed and started on the January 1. It's it's absolutely our number one priority.

21:07 And back in The UK, we are prioritizing, you know, holding on to our existing clients as well as expanding them, less so perhaps in new business and also looking to continue to demonstrate cost efficiency and value. And we think we'll see a step change in The UK in the second half of next year when we bring the California platform back to The UK. It's a very engaging it's a beautiful new platform, as well as rolling it out across the rest of The US. So we have one platform in The US. And one thing we haven't mentioned here, which I'm quite excited about, is one of the criteria in California is that we're eventually available in all 19 state languages. And that gives us a terrific platform to then go and sell into the non English speaking world. Maybe not a full code service, more of a licensing of technology type service, but early days around that.

22:02 Great. So that's the update. I'll pass it back to you, Jake, and then we'll do some q and a. Tim, Sanjay, absolutely. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Tim, Sanjay, as you can see there in the q and a tab, we have received a number of questions throughout your presentation this afternoon. Thank you to all those on the call for taking the time to submit their questions. But, guys, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

22:49 Perfect. So, absolutely, first question we've got from John. Picking up on Pennsylvania where we saw one in ten students using the service, which is higher than we'd expected in that first year. What does that mean in terms of the scope to increase to your income? So perhaps the the best answer to this is we always look at year one of a contract as one where we will be demonstrating impact and and hopefully driving uptake in usage, which we definitely saw in Pennsylvania. That gives us a good set of evidence of the impact that enables us to go in for a longer term contract discussion. And that's really the place that we are now are with Pennsylvania. So we're really happy with the progress that we've made. It exceeded our expectations.

23:35 It's now a question of what we where we can scale to in Pennsylvania over what time. So I think probably it's perhaps a little bit premature to give any more detail other than that, other than in terms of delivering on the mission that we set out to, we're really delighted with the progress that we saw there, the evidence that we gathered as part of that, and and really the reception that we saw on our service from children and young people.

24:00 Second question comes from Andrew. So great progress in The US. Will these significant contracts now in place Do you plan to invest further resources in The US to drive sales? How big of an opportunity do you see this being, and what investment is needed? So, Sanjay, I might ask you to answer that one. Yep. Good question, Andrew. Thanks. So as we just indicated in the outlook, California is our number one priority, but we didn't we did raise capital in July to further invest in The US. And just to reiterate that California is a self funding contract. The funds we raised are ready for additional investments. So probably two or three things worth thinking about as well as, of course, business development staff.

24:46 We have been making good use of lobbyists. They're very instrumental in some of the key states in terms of helping pass bills, unlocking, you know, some doors to be talking to the right people and continuing to promote KOOTH as a mental health provider. Alongside that, we have a number of research studies in The UK that we have performed over the last fifteen years or so. I think it's more than 50 peer reviewed research studies. And we're looking to take a number of those and effectively recalibrate them in The US for The US market. So using US academics to demonstrate the clinical efficacy of the work we're doing as well as the outcomes. And, you know, that that will some of those funds have been earmarked for that.

25:33 The opportunity is, you know, I think, Tim, is it 30 states have currently indicated that they're now looking to increase investment in mental health support over the coming years? Correct. This is I mean, we talk about $2,000,000,000 tab at total addressable markets, very big numbers, and so the opportunity is is immense. Great. So just having a look at the next next question is US rollout in 2024. Which new states are you targeting? How many states are you targeting for 2024? Following on why isn't Pennsylvania why is it a pilot and not formalized? So let me answer the second part of that first. So Pennsylvania state contract state budget is still being formalized.

26:20 It's a bit behind their own plans. So until their entire state budget is signed off, nothing's finalized. So we we will come back to the market with news later on this quarter once that is all settled and signed. In terms of the pilot sorry, the other states, there is a we we've already seen that more than $7,000,000,000 of budget across The US has been allocated to tackle mental health. Two weeks ago, I was really delighted to be invited to the United Nations in New York where they had a science summit focused on the topic of brain capital. And the morning of that was really focused on youth mental health, how we're gonna basically get out of this decline over the last decade in mental health globally

27:13 for young people. And there was a good number of states there that had keen interest in in the work that California is doing. And in many ways, California is probably eighteen months ahead of other states in terms of their thinking about this, just on digital, but across all aspects of improving the provision of mental health support for young people. So I think well, I can't get into a forecast call here, but, obviously, we see a huge opportunity in The US to tackle the youth mental health crisis. There is budget going into that. And the experience that we've gained through both working at a state level and working with health care systems in California is really beneficial experience and a platform for us to build on.

28:01 But that platform also does start with making California successful because that's really, as the most popular state, the most important calling card into any other state. But that's the direction of travel we're going in. We see there is an opportunity not just to work at a state level, but also to start to work with Medicaid payers who represent an annual budget of about $30,000,000,000 in youth mental health. So it's a key thing that we are keenly focused on and investing in.

28:34 Couple of finance questions. I'll take those, Tim. Do you have any plans to pay dividends? No. We don't in the short term. We're very focused on investing in the platform and our people, but we do expect to start generating cash from the end of next year. So that may impact that. What are our revenue expectations for 2024? As Tim said, this isn't the forecast call. What I can say is that of the analysts that follow us, I think consensus for next year is between 65 and 70,000,000 sterling. That is it's on the finance side. Great. A couple more questions have come in.

29:21 So you're seeing interest from US institutional investors. KOOTH is slowly becoming a US company in terms of business importance. Is this a natural progression in your medium term planning?

29:32 Look. We we work with brokers like Stifel who have a great footprint in The US as well as The UK. We're always keen to make sure that our story reaches US investors. But in the scale of The US market, we are pretty small in terms of market cap and liquidity. So I think the answer to us in all of these solutions is we focus on growing the business, becoming a larger organization will give us more liquidity. And at some point, maybe US investors would will will join us, but we have no plans to move off of AIM. And so hopefully that answers your question there. And final one that we've got this coming was around the size of the licensing opportunity. So perhaps just to add a bit more color on that. So I I will say this is an early area for us, so I can't give you total addressable market sizes on it or revenue expectation over time.

30:28 Next year for us from a platform perspective is squarely focused on bringing these California innovations to The UK and US. But because of the multilingual nature of what we're building for California, it gives us a really good foundation to take that platform into other markets. But as Sanjay mentioned, it's a challenge it will be a challenge to scale up in every geography. So our thinking there is that we will license our technology to incumbent health care operators that want to move move into the upstream world and provide a preventative the access service. And, of course, between our work at The UK and The US, we can demonstrate that we work we we can work in the universal health care system, or we can work in an insurer basis.

31:16 That for us is sort of a little bit on the further horizon. But, of course, in that case, you're looking at every health care system internationally. And, you know, so there is a large opportunity there, which means also that as well licensing our technology as a higher margin as well. Tim, Sanjay, if I may just jump back in there, thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we will, of course, make these available to you afterwards just for you to review and then add any additional responses, of course, where it's appropriate to do so. But, Tim, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great.

32:05 Certainly. Look. Thanks for joining today's call. I think you hopefully, you the reason you're interested in KOOTH is because of the purpose of what we're doing. Of course, we're a rare blend of a commercial organization with a social purpose, And that really is what fires myself and Sanjay and the rest of the team up. That we have the through working with the public market to give us the the the the opportunity to invest in scaling up our organization to tackle what

32:35 is one of the world's biggest challenges right now. And we're especially proud to be a UK company innovating and obviously exporting as part of that. And with more than 500 individuals in the organization to be building a a substantial organization for the long term. So look. We'll be back with more news, no doubt, when we see you next for our new results. As you would have seen as you would have heard, message number one is make sure we deliver on California. In The UK, make sure we focus on our current customers. And so they're with these two foundations, we're really optimistic for the long term, and thank you for joining us on the journey. Tim, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations?

33:31 This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of KOOTH PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thank you. Thank you.