Strategic momentum and revenue growth of 29%
Full year revenue guidance of at least £34m

Kooth (AIM: KOO), a global leader in youth digital mental well-being, announces unaudited half year results for the six months ended 30 June 2023.  All figures relate to this period unless otherwise stated.

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Strategic and post period end highlights

  • Transformational US contract win in California, $188m minimum value
  • On track for California go-live in January 2024, notably with the Kooth mobile app and hires
  • Number one provider of mental health access for children and young people to NHS England
  • Significant uptake of Kooth in Pennsylvania pilot, providing access to c.100,000 school students
  • Ongoing investment in business development, platform investment and US expansion

Financial Highlights

  • Revenues up 29% to £11.7m (2022: £9.0m)
  • Annual Recurring Revenue (ARR) up 16% to £21.4m (2022: £18.5m)
  • Gross margin of 66.8% (2022: 68.4%)
  • Adjusted EBITDA of £0.01m (2022: £0.5m) reflecting investment in US setup and business development
  • Recurring Revenue from contracts 12 months or longer 94% (2022: 95%)
  • Robust balance sheet; net cash of £5.9m plus successful gross fundraise of £10m post half-year end supports investment for long-term growth

Outlook

  • Significant opportunity for Kooth in the US driven by the continued need from both US State governments and Medicaid payers to invest further in youth mental health
  • For the UK, we expect the headwinds to remain, reflecting a focus on NHS cost saving and acute care backlog. Our focus remains on continuing to demonstrate the impact and savings that Kooth generates when commissioned in a region
  • The Group remains confident of delivering revenue for the full year in line with our revised market guidance of no less than £34 million
  • Our robust balance sheet enables us to invest to meet long-term, increasing demand for Kooth's services

 

Tim Barker, Chief Executive Officer of Kooth, said:

The first six months of 2023 have been a period of significant, and positive, change for Kooth. In March we announced our largest contract to date with the State of California which was finalised, post-period end, as a four year, $188m minimum value agreement. This marked Kooth's second major engagement in the US, alongside Pennsylvania, which was agreed in October 2022. During the period, and over the last 12 months, we have developed a significant operation in the United States as we look to capture the opportunity this major healthcare market brings. We look forward to leveraging our platform to increase the size of our business further and, more importantly, help improve mental health provision to as many young people as possible.

In the UK, we are not immune to the broader healthcare and economic environment, which sees commissioning across the NHS structure under stress as Integrated Care Systems prioritise a reduction in costs and tackling an acute mental healthcare backlog. In response, we have taken proactive steps to position ourselves to best respond to this environment, including developing new services to help tackle waiting lists.

I would like to thank our team for their work which has delivered transformational gains during the period and beyond as we look to leverage our position as a pioneer and innovator in digital mental healthcare to deliver the care needed to help tackle the growing crisis in global mental health.

 

 Financial headlines


Six months ended
30 June 2023


Six months ended
30 June 2022


Change


£'000


£'000



Revenue






Total revenue

11,660


9,022


+29.2%

Annual Recurring Revenue

21,376


18,483


+15.7%







Gross profit

7,788


6,170


+26.2%

Gross margin

66.8%


68.4%


-2.3ppt







Adjusted EBITDA

9


539


-98.3%







Profit/(Loss) after tax for the period

(525)


(342)


-53.5%







Cash generation

(2,642)


1,231


-314.6%

Cash position

5,850


8,310


-29.6%







Earnings per share (£)

(0.02)


(0.01)


-58.8%

 

Page last updated: 21 September 2023

Chief Executive's Review 

Transformational strategic progress

With the award of a $188m four-year state-wide contract with California, the last six months demonstrate the significant opportunity for Kooth in the US as federal and state governments invest to transform youth mental health care.

As one of the work streams within the State of California's $4.7 billion youth masterplan, this investment arguably represents the world's most progressive initiative to improve youth mental health. This was evident at the September UN Congress General Assembly meeting, to which Kooth was invited. The key question is "how" rather than "if" this problem should be addressed. We remain deeply humbled to be entrusted with the opportunity to be at the forefront of supporting a landmark programme in the most populous state in the US, in what we believe will be a template for future governments and health care systems on how to safeguard the mental health of the next generation.

I have been very proud to see how our whole team has stepped up to the opportunity in California, with both the work undertaken to win the contract in March and then subsequently the shift into the delivery phase. This is hard but purposeful work across 30 workstreams spanning the development of our next-generation platform, marketing and promotion strategy, as well as building our workforce and organisational infrastructure.

We are on track for the launch of our contract in California in January 2024, with all major milestones and deliverables to date met:

  • All our US VP-level hires are in place to support go-live, with talent joining the existing team from organisations including Headspace, Crisis Text Line and Oracle Cerner. Hiring for other roles is broadly on track, with Kooth's fiscal rigour, transparency and growth as a public company adding appeal to candidates, in a market where many VC backed organisations are shedding staff to reduce cash burn. 
  • A beta version of Kooth's new mobile app is live in two counties in California as part of a 'soft launch' test. Over the next few months we will be adding, iterating, and gathering feedback from young people to help optimise the app and experience ahead of go-live in January.

Beyond California, our pilot project in Pennsylvania reached a significant milestone with almost 100,000 students having access to Kooth in the school year, with 1 in 10 high school students having used the platform, an uptake which surpassed our expectations based on our UK experience.

In the UK, following on from the reorganisation of NHS England from 135 Care Commissioning Groups into 42 Integrated Care Systems ("ICSs"), the headwinds in commissioning remain challenging, as ICSs adapt to a new funding environment. In 2023/24, ICSs must deliver 6% in real term efficiency savings, at a time when there is a 16% annual increase in demand for mental health support.

While Kooth is an advocate for digital transformation to address this challenge, we have seen Commissioners faced with tough short-term decisions to divert funds into acute care and reduce investments elsewhere. This is a challenge being experienced across the industry and is not unique to Kooth. While we have seen an increase in contracts that expand upon renewal to 52% (2022: 32%), gains were offset by £2.4m of churn, a combination of funding unavailable to continue pilot contracts, reductions as contracts consolidated and increased competition. Overall net revenue retention was 100% (2022: 107%).

In response to the current commissioning environment, we have used our market leading position to take action and better position ourselves for the future:

  • We have restructured our commercial team with a focus on adding seniority and stakeholder management to engage NHS commissioners and Integrated Care Boards ("ICBs").
  • We have grown and invested further in both our commissioner-marketing and user-marketing teams. 
  • We have launched an Integrated Digital Pathway ("IDP") service to help reduce pressure on CAMHS and IAPT services by providing support to individuals while on a waiting list, with the goal of discharging individuals if appropriate, or preventing further deterioration while awaiting treatment.  We are currently piloting this unique service in two regions.

Management believes that these actions will help Kooth respond to the long-term opportunity that remains in helping ICSs to deliver on their vision to transform healthcare services, focus on prevention, and support the population health of their regions.

Kooth Adult (UK)

As a result of the pressures described above, our Kooth Adult services have been impacted more so than our service for children and young people, with ARR standing at £2.6m (FY2022: £3.0m). This is primarily due to newer contracts not being continued after a first year of piloting, as local commissioners seek to make budget available for acute service delivery.

Kooth Children and Young People (UK)

In contrast to the challenging commissioning environment in England, Kooth continues to expand in Scotland with new commissions in East Ayrshire, Inverclyde and North Lanarkshire.

From a product/service perspective, we anticipate strong interest from both children and young people, and commissioners in learning how our enhanced platform could better serve their needs. When California is live we intend to use this showcase to better demonstrate the step change that is possible through digital transformation in delivering a population-wide mental health strategy.

Current trading and outlook

Kooth will continue to invest significantly in its technology platform, systems and talent to deliver on our next generation platform for California. We will then bring these innovations to all US and UK customers to deliver enhanced support for all.

We continue to see both US State governments and Medicaid payers recognise the need to invest further in youth mental health and are optimistic about the significant opportunity that Kooth has in the US. For the UK, we expect the current situation to remain for some time, with our focus being on continuing to demonstrate the impact and savings that result when Kooth is commissioned in a region.

The Group remains confident of delivering revenue for the full year in line with our revised market guidance of no less than £34 million.

Our robust balance sheet enables us to invest to meet long-term, increasing demand for Kooth's services. We will continue this investment in our talent and technology to enable us to scale up to tackle what is one of the world's biggest challenges.

 

Tim Barker
Chief Executive

Chief Financial Officer's review

Kooth delivered a strong performance in the period supported by an increase across revenue and annual recurring revenue, a good gross margin as well as continuing to invest in our platform and the business for the half year ended 30 June 2023 as compared to the six months ended 30 June 2022.

Key Performance Indicators

Total Revenue

£11.7m

£9.0m

£8.0m

£5.9m





H1 2023

H1 2022

H1 2021

H1 2020


As we continue to invest in and grow our business, revenue growth demonstrates the progress we are making.

Annual Recurring Revenue

£21.4m

£18.5m

£16.6m

£13.1m





H1 2023

H1 2022

H1 2021

H1 2020

 

Annual Recurring Revenue ("ARR") is the annualised revenue of customers engaged or closed as at the period end and is an indication of the upcoming annual value of the recurring revenue. This is used by management to monitor the long term revenue growth of the business.

Gross Margin

66.8%

68.4%

69.4%

69.6%





H1 2023

H1 2022

H1 2021

H1 2020

 

Gross Profit as a percentage of revenue. Direct costs are the costs of our practitioners directly involved in the delivery of our services.

Adjusted EBITDA

£0.0m

£0.5m

£1.1m

£0.5m





H1 2023

H1 2022

H1 2021

H1 2020

 

Earnings before interest, tax, depreciation and amortisation in the period, adjusted for share based payments and exceptional costs. This metric provides a more comparable indication of the Group's core business performance by removing the impact of non-trading items that are reported separately.

Number of customers

149

141

142

104





H1 2023

H1 2022

H1 2021

H1 2020

 

The total number of live contracts with customers. As the NHS finalised the consolidation from 135 Clinical Commissioning Groups to 42 Integrated Care Systems in the last year, we are seeing a shift to fewer, larger contracts spanning the whole population within an ICS region.

Service user logins

1.4m

1.4m

1.2m

1.0m





H1 2023

H1 2022

H1 2021

H1 2020

 

 The number of logins to Kooth from users, demonstrating uptake of our service.

Revenue

Revenue increased by 29% to £11.7m (2022 H1: £9.0m), Annual Recurring Revenue grew by 16% to £21.4m (2022 H1: £18.5m), with ten new contracts won in the first half of 2023. The revenue increase is predominantly attributable to US revenue of £1.8m in H1 2023 (2022 H1: £Nil) where we now have three contracts and included non-recurring revenue from the state of California for one-off research and pilot study work. This led to a slight decrease in recurring revenue (which comprises income invoiced for services that are repeatable, consumed and delivered on a monthly basis over the term of a customer contract) as a percentage of overall revenue from 95% to 94%.

Churn was 13% giving net revenue retention (measured by the total value of on-going ARR at the period-end from clients in place 12 months earlier as a percentage of the opening ARR from those clients) for the period to 30 June 2023 of 100%. This has decreased from 107% recorded in H1 2022 which is a result of an increase in churn within our English contracts where we are seeing the impact of funding being redirected to more acute care, a resizing of pilot adult contracts and a slowdown in uplifts as well as budgetary pressures as the NHS transitioned from a CCG to ICS structure.

Gross Profit

Gross Profit increased 26% from £6.2m to £7.8m with gross margin slightly down at 66.8% (2022 H1: 68.4%). Direct costs are the costs of the practitioners directly involved in the delivery of our services, a total of 251 at the period-end (2022 H1: 213 heads). Gross margin dropped in the UK as salary increases at the start of 2023 reflected inflationary pressures and we took a decision to enhance contract performance for the protection of longer-term growth. These were partially offset by the end of the 1.25% Health and Social Care Levy and a positive mix impact as our new US contracts ramped up.

Adjusted EBITDA

Adjusted EBITDA in the period decreased from £0.5m to £0.01m with an increased gross profit offset by a 38% increase in administrative expenses (excluding amortisation, depreciation and share based payments). Whilst UK costs increased in line with salary inflation and revenue growth requiring increased promotion spend, the majority of the increase related to the build out of the US teams supporting our Pennsylvania and California contracts.

The total charge for share based payments in the period was £0.4m (2022 H1: £0.02m). The increase reflects the annual issue of three year grants to all staff and a credit in 2022 following a reassessment of those grants subject to performance criteria. Depreciation and amortisation increased to £1.5m (2022 H1 £1.1m) as capital expenditure commenced on the US platform build.

Taxation

The overall tax credit for the six months ended 30 June 2023 (£1.2m) and 2022 (£0.2m) relate to Research and Development expenditure credits in addition to the movement in the deferred tax asset with the increase reflecting greater R&D spend and an increase in the effective tax rate on losses.

Loss after tax

The Group loss after tax for the period was £0.5m (2022 H1: £0.3m).

Balance Sheet

The strength of the Group's balance sheet with net assets of £10.6m (30 June 2022: £10.6m), plus a successful gross fundraise of £10m post half year end, and high levels of recurring revenue provide the Group with financial strength to execute on its investment strategy which continues to focus on US business development and platform investment.

Cash flow and financing

Cash outflow during the six months was £2.6m (2022 H1: £1.2m inflow). The focus on US platform investment gave rise to capital expenditure of £3.5m (2022 H1: £1.3m), offset by cash inflows from operating activities of £0.8m including receipt of an R&D government tax credit of £0.6m giving a net cash position at 30 June 2023 of £5.9m (2022 H1: £8.3m).

The Group remains debt free.

Forward-looking statements

Certain statements in this half year report are forward looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

Dividends

The Group's intention in the short to medium term is to invest in order to deliver capital growth for shareholders. The Board has not recommended an interim dividend payment in respect of the six months ended 30 June 2023 (2022: £nil) and does not anticipate recommending a dividend within the next year but may do so in future years.

 

Sanjay Jawa
Chief Financial Officer

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2023


Note

Six months ended
30 June 2023
Unaudited

Six months ended
30 June 2022
Unaudited

Year ended
31 December 2022
Audited



£'000

£'000

£'000






Revenue

8

11,660

9,022

20,120

Cost of sales


(3,872)

(2,852)

(6,265)






Gross profit


7,788

6,170

13,855






Administrative expenses


(9,606)

(6,758)

(14,767)






Operating loss


(1,818)

(588)

(912)






Analysed as:





Adjusted EBITDA


9

539

1,612

Depreciation & amortisation

11

(1,451)

(1,109)

(2,232)

Share based payment expense


(376)

(18)

(292)






Operating loss


(1,818)

(588)

(912)






Interest income


91

17

81






Loss before tax


(1,727)

(571)

(831)






Tax

9

1,202

229

115






Total comprehensive loss for the period


(525)

(342)

(716)






Loss per share - basic (£)

10

(0.02)

(0.01)

(0.02)






Loss per share - diluted (£)

10

(0.02)

(0.01)

(0.02)


Condensed Consolidated Balance Sheet

As at 30 June 2023


Note

30 June 2023
Unaudited

30 June 2022
Unaudited

31 December 2022
Audited



£'000

£'000

£'000

Assets





Non-current assets





Goodwill


511

511

511

Development costs

11

5,794

3,075

3,681

Right of use asset


53

-

68

Property, plant and equipment


150

96

122

Deferred tax asset


1,626

420

-






Total non-current assets


8,134

4,102

4,382






Current assets





Trade and other receivables

12

2,355

2,632

2,618

Contract assets


180

426

649

Cash and cash equivalents


5,850

8,310

8,492






Total current assets


8,385

11,368

11,759






Total assets


16,519

15,470

16,141






Liabilities





Current liabilities





Trade payables


(1,047)

(331)

(680)

Contract liabilities


(3,096)

(2,797)

(2,583)

Lease liability


(54)

-

(68)

Accruals and other creditors


(913)

(737)

(977)

Deferred tax liabilities


-

-

(348)

Tax liabilities


(769)

(956)

(967)






Total current liabilities


(5,879)

(4,821)

(5,623)






Net current assets


2,506

6,547

6,136






Net assets


10,640

10,649

10,518






Equity





Share capital


1,653

1,653

1,653

Share premium account


14,229

14,229

14,229

Retained earnings


(3,120)

(2,221)

(2,595)

Share-based payment reserve


1,867

977

1,221

Capital redemption reserve


115

115

115

Merger reserve


(4,104)

(4,104)

(4,104)






Total equity


10,640

10,649

10,518

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2023



Six months ended
30 June 2023
Unaudited

Six months ended
30 June 2022
Unaudited

Year ended
31 December 2022
Audited



£'000

£'000

£'000

Cash flows from operating activities










Loss for the period


(525)

(342)

(716)

Adjusted for:





Depreciation & amortisation


1,451

1,109

2,232

Income tax received


569

330

330

Share based payment expense


376

18

292

Tax income recognised


(1,202)

(229)

(115)

Interest income


(91)

-

(81)






Movements in working capital:





(Increase) / decrease in trade and other receivables


651

(369)

78

Increase / (decrease) in trade and other payables


(384)

2,009

2,364

Net cashflow from operating activities


845

2,527

4,384











Cash flows from investing activities





Purchase of property, plant and equipment


(70)

(28)

(100)

Additions to intangible assets


(3,508)

(1,268)

(2,952)

Net cash used in investing activities


(3,578)

(1,296)

(3,052)






Cash flows from financing activities





Interest income


91

-

81

Net cash from financing activities


91

-

81






Net increase / (decrease) in cash and cash equivalents


(2,642)

1,231

1,413

Cash and cash equivalents at the beginning of the period


8,492

7,079

7,079

Cash and cash equivalents at the end of the period


5,850

8,310

8,492

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2023



Share
Capital


Share
Premium

Share Based
Payment
Reserve


Retained
Eearnings

Capital
Redemption
Reserve


Merger
reserve


Total
Equity









Balance at 1 January 2022

1,653

14,229

959

(1,879)

115

(4,104)

10,973









Share based payments

-

-

18

-

-

-

18

Total comprehensive income for the period

-

-

-

(342)

-

-

(342)

As at 30 June 2022

1,653

14,229

977

(2,221)

115

(4,104)

10,649

















Balance at 1 July 2022

1,653

14,229

977

(2,221)

115

(4,104)

10,649









Share based payments

-

-

244

-

-

-

244

Total comprehensive income for the period

-

-

-

(374)

-

-

(374)

As at 31 December 2022

1,653

14,229

1,221

(2,595)

115

(4,104)

10,519









Balance at 1 January 2023

1,653

14,229

1,221

(2,595)

115

(4,104)

10,519









Share based payments

-

-

646

-

-

-

646

Total comprehensive income for the period

-

-

-

(525)

-

-

(525)

As at 30 June 2023

1,653

14,229

1,867

(3,120)

115

(4,104)

10,640

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