Corporate News

2023 revenues up 66% to £33.3 million
Significant US growth and investment in in-market capabilities to expand into additional States

Kooth (AIM: KOO), a global leader in youth digital mental well-being, announces audited results for the 12 months ended 31 December 2023.  All figures relate to this period unless otherwise stated.

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Strategic and post-period end highlights

• Successful launch of contract with California Department of Health Care Services (DHCS) to deliver behavioural health care to the State’s population of 13-25 year olds, representing an expected $188 million, four-year opportunity with possible revenue upside based on usage levels and product development
• Development and launch of Soluna, Kooth’s next-generation platform to help build mental health skills-for-life, access peer-support and professional help
• First US Medicaid strategic partnership with Aetna Better Health Illinois to support youth in low-income families
• Strong uptake in Pennsylvania pilot, with 1-in-10 high school students accessing Kooth
• Accelerated investment in US Government sales to expand into additional States
• UK CYP services stable despite NHS headwinds with short-term funding pressures

Financial Highlights

• 2023 revenues of £33.3 million, increasing 66% year-on-year, driven by US growth and continuing adoption of digital-first healthcare
• £64.6 million year end Annual Recurring Revenue, representing growth of 206% compared to prior year
• 98% of revenue derived from contracts of 12+ months
• 98% UK Net Revenue Retention (2022: 107%)
• 8.7 percentage point gross margin increase, driven by increased US revenue mix and contribution to product development
• £11.0 million net cash compared to £8.6 million prior year
  Strong, debt-free balance sheet with net cash generated from operations of £1.9 million, bolstered by net proceeds of £9.4 million from Kooth’s successful equity fundraise in July 2023

Current trading and outlook

• Opportunity for Kooth in the US remains unchanged, driven by the continued need from both US State governments and Medicaid payers to invest further in youth mental health
• UK headwinds remain, given NHS short-term financial pressures to address the 2023/24 budget deficit. Kooth’s focus remains on continuing to demonstrate the impact and savings that it generates when commissioned in a region
• Robust balance sheet enabling Kooth to invest to meet long-term, increasing demand for its services
• Kooth’s proven track record, strong recurring revenue and net cash position give it an excellent platform for profitable growth as it enters 2024 with the expectation of gross margins of >70%, an EBITDA margin in the mid-teens and rising thereafter
• The strength of Kooth’s model, strategy and market position – allied to long-term demand for digital mental health services in the UK and US – support the Company’s confidence of further progress in the year ahead
• Revenue and EBITDA expected to be in line with 2024 market expectations 

Tim Barker, Chief Executive of Kooth, commented:

“In 2023 Kooth significantly expanded its services and capabilities. We won the most significant contract in our history in California to deliver behavioural health care to the State’s population of 13-25 year olds, representing a $188 million, four-year opportunity. To support this contract, we developed Soluna, our next-generation platform to help build mental health skills-for-life, access peer-support and professional help.

“We have delivered record financials in 2023, with revenue increasing by 66% year on year to £33.3 million, and adjusted EBIDTA growing to £2.3 million, an increase of 40%. To support this growth, we have grown our headcount to end 2023 with 585 employees, of which over 200 are based in the US. This means we are well placed to support and expand our services, reflecting the continued need from both US State governments and Medicaid payers to invest further in youth mental health. This need was highlighted when, post-period end, we agreed a partnership with Aetna Better, representing Kooth’s first private-sector contract in the US. In Pennsylvania, we were delighted that within a year of launching Kooth over 1-in-10 high school students were accessing Kooth, demonstrating strong uptake during the pilot phase of this contract. Our UK offering remains stable in the face of ongoing headwinds following the shift to the ICS structure and short-term funding pressures, which we anticipate lasting until after 2024’s anticipated general election. Kooth remains well placed in the UK, and the experience and data we will generate in the US from our significant new contracts will allow us insights which will differentiate us further from our competition, coupled with the launch of Soluna in the UK which we anticipate will occur within the next 12 months.

“This growth, coupled with our strong balance sheet, ensures we are very well placed to take the available opportunities to continue growing our business. I look forward to working alongside our team to build on our successes in 2023 into 2024 and beyond as we seek to help ever more people in the face of this growing, global crisis.”

About Kooth plc:

Kooth (AIM:KOO) is a global leader in youth digital mental well-being. Our mission is to provide accessible and safe spaces for everyone to achieve better mental health. Our platform is clinically robust and accredited to provide a range of therapeutic support and interventions. All our services are predicated on easy access to make early intervention and prevention a reality.

Kooth is a fully safeguarded and pre-moderated community with a library of peer and professional created content, alongside access to experienced online counsellors. There are no thresholds for support and no waiting lists.

Kooth is the longest standing digital mental health provider to hold a UK-wide accreditation from the British Association of Counselling and Psychotherapy (BACP) and according to NHS England data for 2022/23 is now the largest single access provider for mental health support for under 18s.

In 2021, Kooth began executing on its international expansion strategy, with an initial focus on the US market. This focus is due to the growing recognition of the importance of improving youth mental health in this key global healthcare market, with 1-in-6 people aged 6-17 experiencing a mental health disorder each year.

Chair’s Statement

Without doubt, 2023 has been a transformational year for Kooth, with significant growth and progress towards our vision to build mentally healthier populations by providing everyone with access to effective digital support from their first moment of need. I want to thank all members of the team in both the UK and US for their incredible hard work in delivering on the opportunities that have presented themselves to us. In addition, I want to record my appreciation to our customers who entrust us as custodians for the mental health of their populations.

Reflecting on the progress we have made in the US since late 2021 - first in Pennsylvania, and then in California - we are grateful for the endorsement of our innovation, clinical efficacy, and scale. The rapid progress we are making in the US would not be possible without the proof points we have developed over decades in the UK.

As a result of our $188m expected value, four-year contract win in California, we upgraded our growth outlook, and I am pleased to report 2023 Group revenues of £33.3 million, a 66% increase over 2022 revenues of £20.1 million, and over 40% increase in EBITDA to £2.3 million.

Given our rapid progress in California in particular, we successfully raised £10m of equity in July, primarily to invest in accelerating our US growth. I'm pleased to report that this has enabled us to expand our Sales and Research efforts, with discussions underway in a number of States, and a partnership with Aetna to pilot Kooth in Illinois to support youth in low-income families that qualify for Medicaid. The latter represents a potentially significant expansion of our modes of funding, and in turn a reinforcement of our market position.

Turning to the UK, 2023 has been a challenging year given the short-term financial and political pressures to reduce spending to pre-pandemic levels, whilst tackling the elective care waiting lists. Given the estimated £7 billion budget deficit at the start of 2023, NHS commissioners have been faced with difficult decisions to scale back services to balance budgets. As a result, churn in the UK has increased to £2.3m, up from £2.0m in 2022, with Kooth Adult pilot contracts being disproportionately impacted.

However, given the unsustainable, continued double-digit increase in demand for mental healthcare, and the political imperative to transform services for the benefit of society, NHS productivity, and the economy, we anticipate an improvement in the UK following the general election as NHS priorities and funding solidify.

Despite these short-term headwinds, Kooth's recurring revenue business model, with 98% of Kooth's contracts having a duration of 12 months or more, gives us strong forward revenue visibility, ending 2023 with £64.6m Annual Recurring Revenue (ARR), up from £21.1m a year ago.

We enter 2024 with significant growth opportunities, a solid financial position - £11.0m in cash, no debt, and an undrawn $9.5m working capital credit facility - a proven business model, and a strong social purpose.

Peter Whiting
Non-Executive Chair
25 March 2024

Chief Executive Officer's statement

Delivering positive social impact, cost effectively and at scale

What drew me to Kooth in 2020, in addition to its strong social purpose, was the thoughtfulness with which the team approached tackling the ever-growing demand for mental healthcare. In many ways, it was contrary to the thinking at the time:

• Building a tech-enabled service supported by professionals, when everyone was trying to build apps that can scale without human involvement.
• Growing awareness and usage of the service by embedding engagement leads within local communities, where others focused solely on digital promotion.
• Developing a service that could support a whole population, with the goal of reducing demand for acute mental health care, where others were building networks of therapists solely to service the demand for acute care.

A key reason why Kooth chose this path was because the company is ultimately focused on what is going to turn the tide on the growing crisis in mental health: we need to build a mentally healthier population, leaving no-one behind.

Over the four years that I have been at Kooth, from the pandemic to today, every year has seen its own opportunities and challenges. 2023 brought significant opportunities in the US - and challenges in the UK given the political and financial backdrop in the NHS. However, there are clear moments in one's career that can be seen as pivotal to the transformation of a business and its prospects. Based on strategic progress in 2023, I believe this was such a year.

Executing on Kooth's strategy to expand in US States

As is well documented in this year's Annual Report, Kooth is significantly ahead of schedule on its US expansion strategy. Firstly with Pennsylvania, and then with California, it's clear that there was a growing imperative and investment case for addressing youth mental health. Kooth's transformational contract and partnership with California put the company in the spotlight to execute and demonstrate its impact. In discussions with many investors, execution risk was often cited as the key area of concern given the size and scale of the contract. Seeing the hard work that so many people did to launch Soluna (the name of the platform and app in the US) initially in September 2023 and fully on 1st January 2024, I couldn't have wished to work with a more engaged, passionate and expert team. As CEO, given the opportunity that California has entrusted to Kooth, this will remain mine and the team's number one priority throughout 2024 to ensure the company is building a strong foundation for the future. In addition, the £10m fundraise in July 2023 enabled Kooth to engage with a growing pipeline of States to bring its services to their population, and invest in research studies with US academic partners to demonstrate Kooth's impact. I'm optimistic that Kooth will expand into further States in 2024.

Executing on Kooth's strategy to support youth through Medicaid managed care providers

More than 29 million under 18s — almost 40% of the US youth population – are covered by Medicaid, the Federal and State funded insurance programme for low-income families; Annual Medicaid spending on youth behavioural health care exceeds $30.2 billion. A key challenge for Medicaid programmes is providing access to mental health support given the shortage and cost of therapists. Through an innovative partnership and pilot programme with Aetna Better Health of Illinois, agreed post-period end, Kooth aims to demonstrate the impact the company can make in building mentally healthier populations. This is a key pillar to Kooth's US strategy.

Continuing to innovate in technology to transform mental health care, Kooth's partnership and contract with California significantly accelerated the development of the company's product roadmap. It enabled us to build this next-generation platform, incorporating everything Kooth has learnt over time – co-produced with input from over 200 young people to help build 'their dream mental health app'. Soluna will be the platform and brand the company expands into other States, with minimal capital expenditure required to do so. In addition, Kooth will bring its enhanced platform to the UK in the next 12 months to deliver a platform specifically designed for youth that is both engaging and clinically effective.

Focusing on UK renewals and retention given NHS headwinds

2023 was a more challenging year in the UK for Kooth and the many organisations that serve the NHS. With the reorganisation of NHS England from 135 Clinical Commissioning Groups to 42 Integrated Care Systems finalised, their challenge now is to balance the budgets to pre-pandemic levels and address the forecast £7 billion budget deficit. While Kooth's team worked continually to demonstrate its value in each region it serves, the company at times saw highly successful services decommissioned in response to these financial pressures. In a small number of cases, a cheaper substitute – providing an informational portal or peer-support only option – replaced Kooth. The UK is Kooth’s home market, and the company will continue to prioritise and focus on its current customers. Post-election, Kooth anticipates priorities and funding to become clearer.

Our people

When I joined Kooth in early 2020, the company had around 130 employees. Kooth ended 2023 with 585 employees across the US and UK, with staff in 26 States and all corners of the UK. 2023 was a year where everyone at Kooth had to step-up; to deliver on US opportunities, tackle UK headwinds and to provide mental health support to people where the company continued to see a long term increase in acuity, suicidal ideation and self-harm. I couldn't be prouder of the attitude and achievements of the team during these rapidly-changing times.

Outlook

Our proven track record, excellent recurring revenue and net cash position give us a great platform as we enter 2024. The strength of our model, strategy and market position – allied to long-term demand for digital mental health services in the UK and US – support our confidence of further progress in the year ahead.

Tim Barker
Chief Executive Officer
25 March 2024

Chief Financial Officer’s statement

Significant growth

The results reflect a transformational year for the business as we executed on our strategic plans, delivering significant growth in the US, and built solid foundations to support future growth in the UK and internationally.

Revenue

I am pleased to report Group revenue grew strongly during the year by a record 66% (2022: 21%) to £33.3 million (2022: £20.1 million). As previously reported, this has been driven primarily by our US growth, predominantly our contracts during the year in California and Pennsylvania, which delivered £14.2 million (2022: £1.5 million) with UK revenue up 3% despite headwinds (2022: 12%)

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) of £64.6 million 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 has increased to 98% of total revenues (2022: 95%).

While we have seen an increase in contracts that expand upon renewal to 41% (2022: 38%), gains were offset by £2.3 million of churn, a combination of funding unavailable to continue pilot contracts, reductions as contracts consolidated and a small number of competitive losses. In addition we have excluded £2.6 million from ARR as we continue to negotiate an extension to our contract in Pennsylvania.

Net revenue retention, which is a measure of the depth and longevity of our client relationships, although still strong, fell to 98% in the UK (2022: 107%). 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. 

Gross profit

Gross profit grew by 86.6% to £25.9 million (2022: £13.9 million) with gross margin up to 77.6% (2022: 68.9%). Direct costs are the costs of the practitioners directly involved in the delivery of our services, a total of 304 at the year-end (2022: 267 heads). Gross margin benefitted from the contribution within US revenues to product development where costs are either capitalised or included in overheads. This was offset by a small fall in UK gross margin as direct costs continued to see the impact of salary and cost inflation.

Foreign currency impact

Whilst foreign currency markets were not as volatile as the previous year our increasing presence in the US impacted the Group which had around 43% of revenues in US Dollars, and 26% of Group expenses. The Group’s focus on management of foreign currency risk resulted in a small foreign currency loss of £0.2 million (2022: loss £0.1 million).

Operating loss

The Group’s operating loss for the year was £2.3 million (2022: loss of £0.9 million). This was driven by the scaling up of activities in the US as mentioned in the section below.

Administrative expenses

Excluding depreciation, amortisation, share based payments and exceptional costs, administrative expenses grew by £11.4 million in the year, an 92.8% increase year on year, which whilst well ahead of revenue growth, remains in line with our strategic investment plans. The real (i.e. non inflationary) increase in costs was almost entirely focused on the US where, in addition to increased commissions and bonuses, we strengthened the business development, clinical and customer engagement teams as well as seeing increases in non-staff costs, including legal and consulting expenses.

Adjusted EBITDA

Adjusted EBITDA grew by 40% to £2.3 million (2022: £1.6 million) in the year, with increases in revenue and gross profit offset by our investment in the US and higher administrative expenses as outlined above.

Adjusted results are prepared to provide a more comparable indication of the Group’s core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately.

Adjusted results exclude items as set out in the consolidated statement of profit and loss and below, with further details given in Notes 2, 3, 4, 5, 6, 11, 12 & 13 to the financial statements. In addition, the Group also measures and presents performance in relation to various other non GAAP measures, such as annual recurring revenue and revenue growth.

Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group’s performance, consistent with how the Board monitors results.

Share-based payments are adjusted to reflect the underlying performance of the group as the fair value is impacted by market volatility that does not correlate directly to trading performance. The total charge for share based payments in the year was £0.7 million (2022: £0.3 million). The increase reflects the annual issue of three year grants to staff and a credit in 2022 following a reassessment of those grants subject to performance criteria.

Taxation

There has been a corporation tax charge of £0.3 million (2022: £nil) recognised in the year due to taxable profits accumulated in the US. There continues to be no corporation tax charge in the UK due to accumulated losses combined with the overall current year position (2022: £nil).

The tax credit for the year ended 31 December 2023 and 2022 relates to Research and Development expenditure credits. This has been enhanced in 2023 as the Research and Development claim for 2022 was subsequently carried forward at a higher effective tax rate rather than taking this as a cash credit resulting in a prior year adjustment.

Cash

The Group has had good cash management in the year with net cash generated from operating activities of £1.9 million (2022: £4.4 million). Free cash flow, after taking account of capital expenditure was a net outflow of £6.8 million in 2023 compared to an inflow of £1.3 million in 2022 as we invested significantly in the Soluna platform.

Overall the Group has net cash inflow due to the net proceeds from financing activities following a successful placing, which resulted in the raise of a net £9.4m. The net cash at year end was £11.0 million (2022: £8.5 million). In addition we recently entered into a working capital credit facility with Citibank of $9.5 million that remains undrawn at this time. The Group continues to be debt free.  

Capitalised development costs

The Group significantly increased investment in product and platform development in 2023 to support the launch of our service in California and this is expected to be ongoing in 2024. 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 £8.7 million in respect of software development (2022: £3.0 million) with an amortisation charge of £3.6 million (2022: £2.1 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 year as we continue to invest in the Soluna platform.

Capital expenditure

Software and product development costs aside, the Group’s ongoing capital expenditure requirements remain modest at £0.3 million (2022: £0.1 million).

Capital and reserves

The strength of the Group's balance sheet with net assets of £20.8 million (2022: £10.5 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 and previous reports, 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 2023 (2022: Nil) but may do so in future years.

Sanjay Jawa
Chief Financial Officer
25 March 2024

Consolidated statement of profit and loss and other comprehensive loss

For the year ended 31 December 2023

Consolidated statement of financial position

As at 31 December 2023

The financial statements of Kooth plc (Company registration number 12526594) were approved by the Board of Directors and authorised for issue on 26 March 2024. They were signed on its behalf by:

Sanjay Jawa
Chief Financial Officer
25 March 2024

Consolidated statement of changes in equity

For the year ended 31 December 2023

The accompanying notes form part of the financial statements.

Consolidated cash flow statement

For the year ended 31 December 2023