Corporate News

2022 revenue up 21%, in line with expectations
Selected for significant US contract in California

Kooth (AIM: KOO), the UK's leading digital mental health platform, announces audited results for the twelve months ended 31 December 2022.  All figures relate to this period unless otherwise stated.

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Strategic Highlights

• Excellent progress with US expansion strategy

o  $3m pilot contract in the State of Pennsylvania

o  Selected for significant contract in California to support all 13-25 year olds (post period end)

• Strengthening of our market-leading position supporting children and young people in the UK

o  More than 60% of 10-25 year olds have free access to Kooth in the UK

o  New commissions in Scotland, expanding from four to nine contracts

• Momentum for adult strategy in the UK

o  Adult public sector: 76% Annual Recurring Revenue (ARR) growth to £3m, eight new regions added

o  Kooth Work (corporate): focus on frontline workers and charities that support them resulting in wins for Help for Heroes, MoD and multi-academy trusts

• Ongoing investment in Kooth platform and technology, including AI and personalised mobile app

Financial Highlights

• Revenues in line with expectations, up 21% to £20.1m (2021: £16.7m)
• Annual Recurring Revenue up 25% to £21.1m (2021: £16.9m)
• Resilient business model with 95% of revenues from contracts 12 months or longer
• Net Revenue Retention of 107% (2021: 109%)
• Gross margin stable at 68.9% (2021: 69.5%)
• Adjusted EBITDA of £1.6m (2021: £2.1m), with investment in the US and the end of COVID projects offsetting the benefits of the US ramp up
• Strong balance sheet with net cash of £8.5m at year end (2021: £7.1m) and no debt

Current Trading And Outlook

• US market presents significant long-term opportunity
• Expect to finalise terms of California contract in Q2, resulting in revenues ahead of 2023 market expectations
• Continuing to deliver on Pennsylvania pilot with a view to renewing and expanding our activities
• In the UK, focus on Integrated Care System (ICS) relationships and expansion to support their UK-wide mental health strategies

 Tim Barker, Chief Executive Of Kooth Said:

"2022 was a pivotal year for Kooth.  We have a clear mission, to digitally transform access to effective, personalised care.  I am proud of the progress we made towards this goal on a number of fronts.  Not only did we enjoy success expanding our service for children, young people and adults across the UK; we won our first US contract in the State of Pennsylvania.  This resulted in strong revenue growth, in line with expectations, and a net cash position that supports our growth ambitions, notably in the US.

"Kooth is uniquely positioned to respond to long-term demand for digital mental health services in the US and UK, with a proven track record and strong efficacy profile, strong recurring revenue and a net cash position.  This is shown by our significant contract win in California, in March 2023, as part of California Governor Gavin Newsom's $4.7bn investment in youth behavioural health.  As we enter 2023, our model, strategy, and market position in the UK and US, coupled with the talent and dedication of our employees, give us confidence of further progress this year."

The information contained within this announcement is considered to constitute inside information as stipulated under Article 7 of the Market Abuse Regulation (EU) no. 596/2014 as incorporated into UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").

Enquiries:

About Kooth plc:

Kooth's (AIM: KOO) mission is to make effective, personalised mental health care accessible to everyone.

Our integrated digital mental health platform creates a welcoming, stigma-free space for both children and adults.  Individuals have rapid access to support through self-help resources, peer-support communities, and 1:1 professional help, all without barriers or waiting lists.

We partner with governments, healthcare providers, insurers and employers to deliver population-wide services to tackle mental health issues before things deteriorate, reducing the demand for downstream expensive mental health treatments.

Established in 2001, Kooth has supported over one million individuals both in the UK and the US (where Kooth is expanding rapidly to address the youth mental health crisis).

For more information, please visit www.koothplc.com.

Chair's statement

This year's annual report illustrates the huge efforts that have been made by everyone at Kooth towards our vision of expanding access to digital mental healthcare at a population-wide scale. I want to thank all members of our team for their continued hard work and dedication in helping to make this vision a reality.

In 2022 we began our international expansion, with a focus on the US. Our progress so far has exceeded our expectations. In September we announced our first large-scale deployment in the State of Pennsylvania - a $3 million pilot contract. After the year-end, in March, we announced that we had been selected by the California Department of Health Care Services to provide our service to every 13-25 year old in the State. This contract, which is still in the process of being finalised, is part of California's $4.7 billion 5-year plan to transform access to youth mental healthcare.

Turning to the UK, in 2022/23 the NHS budgeted £15.6 billion for mental healthcare. We estimate that digital services represent less than 3% of this spending today, a reminder that the UK is still very much in the early stages of the digital transformation of mental healthcare and that significant opportunities remain in our home market.

Our offering for children and young people continues to grow. Kooth is now available to over 60% of 10 25 year olds across the UK, with new commissions demonstrating our potential to become a near nationwide service in the future.

Momentum for Kooth Adult continues, with the addition of eight new regions in 2022, including Greater Manchester, Norfolk, and Devon, growing ARR 76% to £3.0 million (2021: £1.7 million), and expanding free access to 8.8 million (2021: 3.8 million) adults nationwide.

I am pleased to report that our financial performance has been in line with market expectations, with revenue growing by 21% to £20.1 million (2021: £16.7 million). As previously highlighted, we are focused on growing our business to ensure that we can take full advantage of the global opportunities currently available to Kooth. This increased investment saw adjusted EBITDA decrease from £2.1 million to £1.6 million with a consequent reduction in adjusted EBITDA margin to 8.0% (2021: 12.5%).

Kooth's recurring revenue, which we define as contracts with a duration of 12 months or more, contributes over 95% of our revenue. As a subscription-based business, this not only gives us strong forward revenue visibility, but also allows our growth plans to be financed with confidence.

We enter 2023 with a solid financial position, significant growth opportunities in both the US and the UK, £8.5 million in cash, no debt, and a proven business model.

Peter Whiting
Non-Executive Chair
3 April 2023

Chief Executive Officer's statement

Delivering positive social impact, cost effectively and at scale

As a social impact business, our purpose is to help tackle the growing global mental health challenge. We do this by delivering a welcoming digital mental health platform, accessible to all. Our focus is on creating a service which provides rapid, responsive, and effective support to individuals to address problems earlier, reducing the need for, and cost of, acute treatment programs.

Kooth has a quantifiably positive impact on society whilst also saving healthcare systems money. In 2022, the York Health Economics Consortium published an independent health economics study showing that Kooth delivers £3.14 in cost savings for every £1 spent. Our own analysis of the US market shows a potential 12:1 saving, due to the higher healthcare costs seen in that market. In short, we can ensure that healthcare budgets around the world can achieve more with less.

Outstanding progress in the US market

Outstanding progress in the US market Our success in the US can be traced back to our heritage and the track record we have built in the UK. When I joined Kooth three years ago, I was attracted by the positive social impact, coupled with the expertise, passion and thoughtfulness across the team. This is vital to ensure we can pragmatically address the global challenge in mental healthcare. With Kooth's 20+ years of experience and data, no other organisation has our level of operating expertise and evidence in how to deliver population-wide digital mental healthcare.

It is encouraging to see our expertise, and the value it can bring, recognised internationally, with our rapid expansion into the US a particular personal highlight.

Kooth won its first US contract in October 2022, when the State of Pennsylvania awarded us a $3 million pilot to expand access to digital mental health support for up to 150,000 school students.

In March 2023, Kooth was awarded a contract by the California Department of Health Care Services (DHCS) to roll out its platform in January 2024 to over 6 million 13-25 year olds as part of the State's $4.7 billion 5-year plan to transform access to youth mental health care. This was a competitive process, where Kooth competed against 450 vendors and content providers.

The imperative to act on the youth mental health crisis is one that both Federal and State governments are increasingly acting on.

The need for action is laid bare in a recent report from the US CDC (Centers for Disease Control and Prevention). It highlights that 22% of high school students seriously considered attempting suicide during the past year, with 10% attempting suicide one or more times.

A study by Pew Research published in January 2023 found that youth mental health is now the top concern for parents with children under 18: Forty percent are either very or extremely worried. This is a crisis that Kooth can, and must, help address.

There is a clear need and opportunity for Kooth to focus on in the US. This will remain a key strategic priority for the business in 2023.

UK market expansion, and an increase in the levels of support people need

Reviewing Kooth's UK progress in 2022, it is clear that we took significant strides in expanding our service for children and young people across the UK. New commissions in Scotland were a key highlight, where we grew from four to nine contracts during the year.

Availability of our service for adults, Qwell, grew from 3.8 million at the start of the year to over 8 million adults.

Greater Manchester Integrated Care System (ICS) represents the largest Qwell rollout of the year. In this region we are now available to approximately 2 million people aged 10 to 99+ across all 10 localities. ARR for Kooth Adult grew over 75% to £3 million during the year.

In 2022 new users were accessing Kooth more often than before - the platform experienced a 15% increase in logins over the previous year. However, there was a slight reduction in uptake among the population, from 1-in-33 in 2021 to 1-in-36 in 2022. This is a result of expanding our reach of Kooth to 19 25 year olds, who initially engage less than the 10-18 cohort. By comparison usage pre-covid in 2019 was 1-in-40.

Furthermore, we continue to see a growing trend in the increased level of severity and safeguarding risk for individuals seeking support, with 80% of users presenting with a moderately severe or severe level of acuity.

In response to this shift, our clinical service strategy has evolved, with an even larger emphasis on the 'responsive', 'safe' and 'person-centred' elements of our clinical model, expanding our safeguarding, clinical, and training teams, and ensured that each practitioner has access to external supervision to support their professional development.

We are applying this expertise to help reduce the direct burden on overstretched NHS services. This includes being commissioned in late 2022 to ameliorate Accident & Emergency attendance by providing our service to adults in need of urgent mental health support.

Outlook

Kooth is extremely well-positioned to respond to the long-term demand for digital mental health services in the US and UK, with a proven track record and detailed efficacy profile, strong recurring revenue and a net cash position.

As we enter 2023, our model, strategy, and market position, coupled with the talent and dedication of our employees, give us confidence in achieving further progress this year.

In the US, our focus on State-wide contracts, coupled with the rapid progress we have made in Pennsylvania and California, has the potential to significantly change the growth trajectory of Kooth as more States take action to prioritise youth mental health.

In the UK, the NHS is not only grappling with the backlog aftermath of the pandemic, but is also dealing with the reorganisation of NHS England. In June 2022, its structure moved from 135 Clinical Commissioning Groups (CCGs) to 42 Integrated Care Systems (ICSs).

While this reorganisation offers great potential for Kooth in the medium- to long-term, we have seen near-term decision making slow down as a direct result of these newly formed organisations finding their feet, filling new roles, and starting to define their population health strategies. We are starting to see the 'end of the beginning' for this reorganisation, and I'm optimistic that it will provide greater opportunities for Kooth.

Tim Barker
Chief Executive Officer
3 April 2023

Chief Financial Officer's statement

Significant growth

The results reflect a successful year for the business as we continued to execute on our strategic plans and build solid foundations to support future growth in the UK and internationally.

Revenue

I am pleased to report Group total revenue grew during the year, in line with market expectations, by 21% (2021: 28%) to £20.1 million (2021: £16.7 million). This has been driven by US expansion, fee uplifts from existing clients and new business in Adult and Children and Young People. Adult increased to just under 15% of annual recurring revenue at the year end.

Recurring revenue comprises income invoiced for services that are repeatable, consumed and delivered on a monthly basis over the term of a customer contract. Annual Recurring Revenue (ARR) is the annualised revenue of customers engaged or closed at that date (31 December) 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 and remains strong at 95% of total revenues (2021: 94%).

Highlighting the depth and longevity of our customer relationships, net revenue retention was 107% (2021: 109%). This is measured by the total value of ongoing ARR at the year end from customers in place at the start of the year as a percentage of the opening ARR from those clients. The small decrease from 2021 was the result of churn with the ending of some COVID-19 related contracts and partly a slowdown in uplifts as NHS England consolidates from a Clinical Commissioning Group (CCG) to an Integrated Care System (ICS) structure.

Gross profit

Gross profit grew by 19.6% to £13.9 million (2021: £11.6 million) with gross margin slightly down at 68.9% (2021: 69.5%). Direct costs are the costs of the practitioners directly involved in the delivery of our services, a total of 267 at the year-end (2021: 233 heads).

Gross margin was marginally lower as a result of increased staff costs with the temporary increase during the year of the 1.25% Health and Social Care levy tax and the end of some COVID-19 related projects at the end of 2021. This was slightly offset by a positive mix impact as our new US contracts ramped up.

Statutory loss after tax

The Group net loss after tax for the year was £0.7 million (2021: loss of £0.3 million).

Administrative expenses

Excluding depreciation, amortisation and share based payments, administrative expenses grew by £2.7 million in the year, a 28.8% increase year on year, which whilst ahead of revenue growth remains in line with our strategic investment plan.

This was driven by staff and commission costs in the US as we strengthened the business development, clinical, HR and customer success teams. In addition, we started to incur the non- staff costs of doing business in the US including, legal, insurance and consulting expenses.

Excluding the US investment, administrative expenses in the UK grew by 13.3%. This was primarily new headcount in our engagement and marketing team, pay increases to existing staff and inflationary increases across certain suppliers.

Adjusted EBITDA

Taxation

There has been no corporation tax charge recognised in the year due to accumulated losses combined with the overall current year position (2021: £nil). The tax credit for the year ended 31 December 2022 and 2021 relate to Research and Development expenditure credits which in 2022 was partly offset by a deferred tax charge of £0.6million (2021: £0.2million credit) as the Research and Development claim for 2021 was received in cash at a lower effective tax rate rather than carrying forward as a loss to be used against future profits.

Cash

The Group has had impressive cash management in the year with net cash generated from operating activities of £4.4 million (2021: £1.9 million). Free cashflow, after taking account of capital expenditure was £1.3 million in 2022 compared to an outflow of £0.7 million in 2021. The net cash at year end was £8.5 million (2021: £7.1 million). Post year end in January 2023, an R&D tax receipt relating to the 2021 year of £0.6m was received.

The overall improvement is due to advance payments from clients (particularly in the US) and good working capital management as debtor days at 31 December 2022 fell to 20 days (2021: 33 days) and working capital management as debtor days at 31 December 2022 fell to 20 days (2021: 33 days) and trade receivables were reduced by 34% in the year to £1.1 million (2021: £1.6 million). The Group continues to be debt free and maintains a robust financial position.

Capitalised development costs

The Group continues to invest in product and platform development resulting in ongoing improvements in its delivery platform. Costs are a combination of internal and external spend.

Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position. During the year the Group capitalised £3.0 million in respect of software development (2021: £2.5 million) with an amortisation charge of £2.1 million (2021: £2.3 million).

Investment in product and development continues to be significant to the Group and we anticipate capitalising software costs at a higher rate over the next few years during a period of accelerated international product investment.

Capital expenditure

Software and product development costs aside, the Group's ongoing capital expenditure requirements remain modest at £0.1 million (2021: £0.1 million).

Capital and Reserves

The strength of the Group's balance sheet with net assets of £10.5 million (2021: £11.0 million), high levels of recurring revenue and strong cash generation from operating activities provide the Group with financial strength with which to execute on its investment strategy which continues to focus on US expansion and platform investment.

Dividend policy

As outlined at the time of the IPO 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 a dividend in respect of the year ended 31 December 2022 (2021: Nil) and does not anticipate recommending a dividend within the next year but may do so in future years.

Sanjay Jawa
Chief Financial Officer
3 April 2023

Consolidated statement of profit and loss and other comprehensive loss

For the year ended 31 December 2022

Consolidated statement of financial position

As at 31 December 2022

The financial statements of Kooth plc (Company registration number 12526594) were approved by the Board of Directors and authorised for issue on 3 April 2023. They were signed on its behalf by:

Sanjay Jawa
Chief Financial Officer
3 April 2023

The accompanying notes form part of the financial statements.

Consolidated statement of changes in equity

For the six months ended 30 June 2023

Consolidated Statement of Cash Flows

For the year ended 31 December 2022