Kooth (LSE:KOO) — Investor Update

0:01 Good morning, and welcome to the KOOTH PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company will review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Tim Barker, CEO. Good morning to you, sir.

0:28 Good morning. Hello, everyone. Thanks for joining on today's, IMC. We're gonna use today's session to give you an update on KOOTH and the recent, contract win, in California. We'll also give you an update of where we're going and where we're heading in helping tackle what is one of the world's largest challenges. Poor mental health is really a public health challenge of our times, and we'll talk more about what we're doing to help tackle that. On today's call, myself and and Sanjay Jara, our CFO. So let's start by just looking at the problem. Mental health is a defining public health crisis of our time. One in five of us every year will have a diagnosable need for support.

1:13 And over generations, seventy five percent of lifelong mental health issues are established by age 24. Demand continues to outstrip supply. In The UK alone, budgets for mental health have gone up 7% a year. Referrals have gone up 15%. The trajectory is the global cost of poor mental health will cost the economy $6,000,000,000,000 by the end of the decade. And in The UK, that's a $118,000,000,000 cost today. It's around four and a half to 5% of total GDP. And in order to address this growing challenge, health care systems need to move away from a treatment focused mindset to moving upstream to tackle issues before they escalate and to focus on youth so that you can tackle this over a generation.

2:06 That's really where we've been focused. And, really, by providing that upstream support, you can provide it proactively. You can take a person centric approach, not a conditioner accent centric approach to supporting people. You can be alongside people for life. We've all got smartphones in our pockets. We've got access to the Internet, so let's use that for good and support individuals at their moment of need. And in doing so, provide not just great outcomes for individuals, but as we talk more about a great health economics outcome to reduce the cost of care by reducing those that need more acute support. This is a mission that we started on over twenty years ago with really a north star focused on three key elements.

2:53 One is to grow access to mental health support, so removing barriers. Two is to provide that early intervention and responsive support, give people the tools to help them improve their lives and to build on their strengths. And thirdly, to then innovate in outcomes as we pioneer into new types of interventions. We wanna make sure that we're demonstrating not just the therapeutic impact, but the social and economic impact. And today in The UK, where nearly 17,000,000 people have got free access to our services primarily through NHS and local authorities, One in thirty six of the population used it last year, and in our time, we've supported over 1,000,000 people. What we do practically is provide rapid responsive access to personalized mental health care.

3:47 Users can sign up, get access to self help tools. They can engage with content in the community and hear from others that have been through similar issues that they have all in a safe way. No content is visible or published on our service until it is moderated by our safety team. And you can, with one click in KOOTH, get access to professional support. We hire, and train and develop all of our own practitioners, and it's really a unique proposition that we can give you support without waiting lists, without thresholds, and without limits.

4:26 The great outcome from this is that we can support individuals, in a variety of ways. Sixty percent of people get what they need through engaging with the content and the community. And of those that engage in professional support, only five percent end up needing what's traditionally known as the counseling offer, which is those six to 12 structured counseling sessions that we're gonna, where we'll be supporting an individual over a longer period of time. So we can really scale up our service by providing support for a variety of means. And in addition to supporting individuals, we create a great health economics outcome. So in The UK, a pound spent on KOOTH saves the system over £3. And in our assessment of The US market, a dollar spent on KOOTH saves the system around $12.

5:14 So great for individuals, great for the economy.

5:19 Recently, we announced a significant contract win in California. This is a contract with the Department of Health Care Services, DHCS. They contracted us over a four year period. We'll go into a bit more details on the specifics of the contract in a moment, but we're bringing our service to the entire state's population of 13 to 25,000,000 children and young people that have free access to KOOTH across the entire state. This was a

5:52 process that took around a year. We engaged with the HCS about a year ago today, And they evaluated and vetted over 450 vendors during the process in awarding it to KOOTH. This forms part of a even larger plan to invest nearly $5,000,000,000 in transforming access to youth mental health care. We are one of 15 work streams that's really gonna focus on transforming access and bending the curve, reducing really the high prevalence of need for mental health support in the state. What we'll be providing there is the platform. We'll be building the workforce in delivering service, and we'll be responsible and, providing marketing and promotion support across the entire state.

6:41 I'll talk in a moment about the additional development work that we're doing, but there is work to be done before we go live in January next year, primarily in product development and clearly building the workforce. Great. Thanks, Tim. So just diving into the California contract in a bit more detail. Clearly, it's transformative for the business. We're incredibly excited about it. As Tim indicated, the contract runs for four years to the end of June twenty twenty seven. Revenues are split across three areas, product development, promotion of the service, as well as the delivery of the service itself. The contract has a total minimum contract value of around a $188,000,000, but there is, however, potential upside in that contract value based on the usage of the service.

7:34 There are ratchets in place that's as as more the youth across California user service that that could deliver additional revenue upside to us. In 2023, we will be incurring some pretty significant upfront costs in relation to developing the platform for launch in January as well as, you know, hiring staff across The US to support the service. And we're expecting to hire over 200 in the next twelve months. That will be primarily practitioners who will be delivering the counseling services as well as marketing and promotion staff. These are the folks that are gonna be our feet on the streets, pretty much following the sort

8:16 of The UK playbook. Engagement staff will be visiting schools, talking at assemblies, encouraging kids to sign up to KOOTH as well as, you know, other areas where young people might be congregating, youth clubs, etcetera. And finally, we'll be hiring a number of we'll be enhancing the product and engineering teams, and timing is quite good in that respect. A number of our sort of, you know, a number of sort of West Coast firms, the likes of Google, etcetera, have been laying off staff, and so it's it's a good market in which to be hiring. In terms of this year's revenue forecast, we're expecting the number to be not less than £34,000,000.

9:00 Preannouncement of the contract market consensus for this year was around £24,000,000, and revenues in 2022 were 20 just over 20,000,000. And, you know, longer term, we're expecting from '24, our group EBITDA margins to be in the mid mid teens. But I'd be disappointed if towards the end of the contract, we're not in the low twenties. Excellent. So let's look a bit more at the work ongoing, primarily from a product and development perspective. The the the the process with California was a response to a request for information so that and an RFP. So they do have a set of capabilities they want us to bring to California that go up and above the current platform that we provide. And it really breaks into five key areas.

9:47 So these are areas where there's development underway, has been for some time, and we'll be going live in the new year with additional capabilities. So the first thing is is that we are also as a a a preclinical service in in California. We're gonna be providing coaching support, not counseling, something that we've done in our UK service for for years. Coaching is about goal setting and and and and making a change to your life to deliver by delivering on those goals.

10:17 Providing additional, like, we can provide coaching to our platform, the ability to choose a coach, for example. We're building a mobile app that complements what we do from our web app today. California, we're gonna be providing that in multiple languages. Ultimately, we'll need to provide it in 19 languages and, obviously, deliver culturally relevant content across the entire state.

10:41 We are also extending the way we provide professional support and adding that to both video and phone support. For individuals that do need additional care, whether that be crisis or additional treatment support, we will be providing what's called navigate in their care navigation, helping them identify what services are available in their region and eligible based on their insurance status and then getting them into those services.

11:12 And finally, AI, as it's has impacted many industries, has a huge potential in the work that we're doing at KOOTH, but in three primary areas. Firstly, around improving the user experience, personalizing the experience that individuals get based on their interactions. Secondly, to use AI to flag individuals that might be at risk and might need additional safeguarding support. And thirdly, to improve the productivity of our practitioners. For example, today,

11:42 posts that people make into our content, the journal posts, are also moderated by AI. And if they are deemed to be safe, published without any, practitioner being involved, around 60% of our journal posts are currently being moderated by AI. So that helps improve practitioner productivity so they can focus on individuals that need more support.

12:07 Stepping back out of California and looking at The US and the crisis that there is in mental health, the Center for Disease Control in The US has been publishing a longitudinal study into youth mental health for over a decade. You can see here the trajectory that that's taking. Everything in the entire report is going in the wrong direction, and it has been for years. The stats on the left are astonishing that twenty two percent of high school students would have seriously considered suicide in the past year, and ten percent did attempt suicide. So there is a growing challenge in The US as there is globally, and action needs to be taken. So in the last twelve months, we've seen both federal and state government, allocate over $7,000,000,000 in funding to tackle this crisis in youth mental health.

13:05 Going back to June last year where a bipartisan

13:08 safer communities act put a billion dollars over five years into improving youth mental health through to state funding that we've seen in California, in Pennsylvania, North Carolina, New York, to name a few. So there is a growing recognition that action needs to be taken rapidly to tackle this. And, really, KOOTH as a service, which is operated at population scale for over fifteen years, clearly brings a lot of expertise to this market in a model where the traditional service providers in The US do not have

13:44 an open access population wide service as KOOTH does. In The US, if you wanna get access to mental health support as a child, you can have to speak to your parents to go through your insurer to see what you're eligible for. KOOTH operates an open door on the Internet where people children and young people can come and get support on their own terms safely.

14:06 Great. Thanks, Tim. So so some of you will have seen that we had a very successful capital fundraise at the start of the month. We raised just under £10,000,000, and that was an oversubscribed offer. Whilst the California contract itself is fully funded, we we took the opportunity to raise capital to for two two reasons. First was to accelerate the platform development that is underway in California. The reasons for that are to develop a single platform for all of our US customers. And as as of from those, we have a significant contract in Pennsylvania that we will extend this platform to. It also enables us to build out a single infrastructure across The US.

14:52 The platform will enable us to roll out new capabilities in The UK. As Tim mentioned a little bit earlier on, our average usage in The UK is around one in 36 amongst the populations we cover. We we believe a new enhanced engaging platform will help us to get that average usage up to closer to, say, one in seven, which is what we see in some some regions. Finally, in terms of the platform development, being able to extend into other international markets. Since since IPO, our philosophy has been to be able to license our technology into other non English speaking markets. Developing the platform in California across 19 languages gives us a great platform with which to do that. And just under half the proceeds, we will use to focus directly on US growth, partnering with more US states.

15:45 We think there's a significant opportunity to pilot KOOTH with Medicaid providers. These these these are predominantly for low income families. And then finally, having the contracts that we have does give us a stepping stone into looking at the zero to 12 year old age group where care is more predominantly focused on parents and guardians rather than children themselves.

16:11 Great. So with that, that's a flash update on where we are with Kieth. We're gonna hand that back now and start to go through take any questions you've got. Tim, Sanjay, thank you very much for your presentation. What I'll do is I'll just bring your cameras up to full screen now. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. As you can see, we have received a number of questions throughout today's presentation. And, Tim, if I could ask you to read out those questions and get a response where it's appropriate to do so, what I'll do is I'll pick up from you at the end. Perfect. So let's start with the first one. Besides the business update, it will be good to get a better idea from management about the capital structure of the company. Currently, the shares are very thinly traded and lack liquidity, are owned by a single majority shareholder with a concentration in excess of 40%.

16:59 All this can lead to heightened volatility and sharp movements in the share price without news or events. Sanjay, I'm gonna hand this one over to you. Great. Thanks. Yep. Fair point. Look. We have a very solid register with a number of blue chip institutions, many of whom came in post IPO in 2020. Scale up capital with 35% of of the business. I've been a long term supportive backer of KOOTH and continue to be so. And I think that was very much sort of witnessed in their in in the investment they made at the time of the fundraiser three or four weeks back where where they were significant investors. We think that since IPO, we've just demonstrated significant progress in the business, our growth in the business.

17:50 I also believe that's been reflected in our share price, which, you know, is is is up around 70% since IPO. And, you know, we believe that if we continue to deliver, the market will continue to recognize this momentum. Great. Next question. I'll answer this one, which is how is KOOTH preparing for global scale up of its mental health support platforms? As Sanjay mentioned, one of the areas for use of proceeds in the fundraise is to take the platform innovations we're building in California and not just bring those to The UK, but also then bring those into international markets. And so this is early days for us in a new revenue area, but the opportunity as we see it is that health care operators globally are looking at how they can transform access to mental health care.

18:44 KOOTH cannot be in every market, and so the best way to support international growth outside The US and UK is to provide our technology and know how to health care operators that can run it in their region. And so for us, we feel that that would give us a way that we could scale up to global demand and also the markets where which where we will build direct workforces and staffing to really deliver the service directly. It's early days, but we think that from early signals that we've seen, there is a huge opportunity there for the long term. Next question, I'm gonna hand it over to you, Sanjay, which is to provide a five year forward forecast of revenues and supporting assumptions. Look. We we don't provide forecasts over that time frame, I'm afraid, but the the the the the business is well covered by analysts at Liberum, Stifel, and Canaccord.

19:40 I I I think if anyone was to Google some of the financial websites, you you'd find indications of what they believe consensus for for the businesses over the next three years. Right. I've got a question in asking what the main barriers to continued growth are. So maybe I can just touch on those. There's perhaps let's think of it as three areas. There's budget from the system, there's product market fit, and there's our ability to execute. So what we're seeing, as I spoke about in The US, is a growing recognition and a growing set of budgets to be allocated towards tackling this youth mental health crisis. So that's really a key dependency that we've got there is that there's recognition of the need to continue to invest. As investing in The UK has continued, its budgets for mental health care have gone up about 7% this year. In terms of product market fit, what we've been doing in the The UK for many years, can see now is transporting and working in The US. Clearly, we've got a number of innovations that we'll be adding through the work we're doing in California that we'll then wanna bring back and make sure that they fit and work in The UK and the international markets.

20:50 And the third one is probably the key area that we're focused on is execution. We've we we are all beneficiaries for the two decades of work that's gone into KOOTH to really help build and finesse and really lead in the category of youth mental health care. And so key thing that we wanna focus on is mitigating, minimizing execution risk, and making sure we don't overstretch ourselves given the opportunities that there are. You touched on this briefly earlier, Sanjay. I will ask you to talk a little bit about there needs to be investment in overheads to scale the business up rapidly. What would you expect the steady state EBITDA margins to be? Yeah. Yeah. We we we covered that earlier. I I would expect us to get to mid teens in in the near term. And as as I as I've indicated, I I personally would be disappointed if we didn't get into the low twenties towards the tail end of the contract as we start to see the benefits of the investment from the fundraise come through into the business. Great.

21:54 Next question is to what extent are the NHS reorganizations a risk to revenues, and what steps are you taking to mitigate any new risks to procurement decisions changing? Great question. The NHS is undergoing NHS England, I should say, is undergoing a significant reorganization. It's a workforce of over 1,000,000 people. Last June, they technically reorganized from a 135 clinical commissioning groups across England into 42 larger integrated care systems. And so in an area like Manchester where there were 10 I CCGs, there's now one ICS. That also means that where there were 10 commissioners, there's now one commissioner. And so what we're seeing really is that, and as we've spoken about in previous updates, is that is a headwind for everyone that sells into the NHS as it's going through a reorganization and resetting of its strategy to become the ICS model that they've been now they are destined to be. And so that means, really, focus ICS is really will be focusing on upstream support to keep populations healthy, not just focusing on treating illness, digitally transforming, and making much bigger use of data.

23:13 And with that becomes a requirement in because of population health really to support those seldom heard or perhaps, you know, underserved communities. So the rationale for organizing into ICS is is the right thing to do. Long term, opens up more opportunities for us to work in more areas more broadly. Short term, it's just disruptive to anyone selling to the NHS. Mitigations we're taking is internally one of the key priorities what we've got this year is to make sure we're working with every one of our commissioners to demonstrate the value and impact that we are having. And so that's something that our COO is leading on in The UK to make sure that we've got one of the executive board members focused on leading the charts there so that we're not distracted as we work, and progress in California as well.

24:04 Another question is in which month are we likely to hear news on Pennsylvania and any likely expansion from 10% of schools? So I would probably guide you towards what we pro we'll provide an update somewhere between q three and q four. This is all part and parcel of Pennsylvania's budgeting and your budgeting process, which is ongoing at the moment. And if you Google around, you'll have seen a couple of articles that would have been published on the progress that we've made to date. We feel that we've really done a great job in delivering on the first key requirement there, which is providing and expanding access to mental health support across the state's schools where we got commissioned.

24:49 But I probably would also provide guidance and to think about not just going from 10% of the population to a 100%. As we'd see in many other areas, we take more of a seed and grow type approach. And so that's sort of the default model that we tend to think of across all states that we're operating in. Next question I'm gonna ask let's have a look. One for you, Sanjay, is what stock op would stock options be a key part of compensation for staff you hire in California and the wider US? Part of the reason we IPO ed was to enable staff to share more widely in the success of KOOTH. All staff participate in stock options across The UK. And since we we started hiring staff in The US nearly two years ago, it's it's it's been the same position there. So yeah. Yeah. Absolutely.

25:47 Great. Next question is from a competitive landscape point of view. Who who else are you keeping a particular eye on? So, primarily, we're focused on our own work and not looking to copy other people's homework. But this market has expanded enormously in the last few years. Coming out of COVID, venture capitalists saw mental health as the next unicorn market, so invested around 4,000,000,000 a year into tackling mental health. The majority of those organizations as we see it, though, have two big challenges. One, they focus on adults and really selling into corporates in The US. That is where the large vendors really focuses the the price. And so there's a lot of competition for those segments, which is partly also one reason why we did not enter The US with our adult proposition.

26:44 Too too hot, too competitive for us. We need to focus on where we've got where we can play to win, not just play to play. Secondly, a lot of those organizations are burning humongous amounts of cash. And as of when the market's turned, what you're seeing is most of them laying off large numbers of headcount in a in a rapid focus on getting to profitability. And so for for that means that many of them are retracting and focusing on their core business to try and get that to be profitable. Youth mental health in relative terms is a white space market opportunity. However, as you saw, we compete with 450 organizations in in being selected for California. So we we have some advantage given the tenure that we have in serving this market.

27:33 We take nothing for granted. We earn our customers business every year. And the great thing is with California is it acts as a catalyst to continue to enable us to innovate and redeliver a product and an experience that meets the needs of youth today. And so from a competitive perspective, we view that we're in a strong position and and need to humbly continue to deliver on the needs that there are from our commissioners. Just sort of checking for any other questions. Given there is so much opportunity in The US and a growing core business in The UK, could you export IP to other regions like Europe and Asia where your tech and data can provide a new growth avenue for the business?

28:21 So yeah. So we touched on that in the presentation. We see that as when we IPO ed, we'd have that on our radar as a future potential because staffing up in every country, it may not be the economical way to grow. And so we are in the very early stages of starting to plan out an expansion and the ability to deliver our technology independent of our people so that we can enable us to license our tech to other health care operators in other countries. And in doing so, take our expertise and scale that globally. And also as a side benefit to that, it will be a SaaS license as opposed to a service licensing margin. So there'll be a high margin revenue line that we'd add to the business.

29:12 And just to add to that, Tim, the capability that we're going to be putting into California, the 19 languages, will enable us to work pretty well in non English speaking countries as well. Yeah. Yeah. Okay. There's a lot of questions, by the way. So we're gonna carry on and and get through all of those. I'm just going through which ones we're gonna look at next. So what is the biggest issue facing The UK business at the moment? I think the ICS reorganization is, as I mentioned, long term beneficial, short term headwind. And the key for us this year is to make sure that we are present, delivering out service, demonstrating our value, and executing on what we said we would do for our commissioners. Has the California contract expedited or other states or operators into action?

30:03 Look. I think it's put us onto quite a few radars. I can't make this a sales forecast call, so we can't go into the detail of that. But if they are the most popular state, they are it is the most progressive youth mental health transformation program on the planet right now. And, no, I think there's a lot of people looking at the sidelines to seeing that we can execute on this as well, which clearly is our intention. Let's have a look. In the longer term, would you look at other demographics, for example, workplace mental health issues and tailoring the KOOTH platform for companies to help their employees? We do offer we do have a service for employees. What we find is that service has got that market is quite well penetrated from either medical insurance or what organizations may have, which is a employee assistance program that would provide you with access to legal advice, financial well-being support, and mental health services.

31:08 What we're seeing is the market is recognizing that that's not enough, but I would say it's a long game. You know, getting organizations to recognize that they should move away from being responsive and reactive in how they support employ mental health to be proactive, creating a culture that normalizes mental health in the workplace is a long journey. But we've got a small team that are focused on on that. Right. I'm just having a look down if there's any other questions. Are counseling services free to use as a platform? Is this a limited service And you refer more serious cases to mental health professionals. So the service so our business model is a b two b two c business model.

31:56 It's always free for the end for the users. We offer it without any limitations either. So there are that means there's no threshold limits to see if you qualify for one to one support. There's no wait list, so you can want you can come on, click, and get support today. You might wait around fifteen minutes before you join a session, but put that in in context that if you're waiting on the cams waiting list for your child to get support, you might be waiting up to nine months. And there are no limitations, so we'll give you an appropriate amount of support as needed. We will, as we do today in The UK and we'll do in The US, if you would benefit from other support or other services that are available in the NHS or health care system, we will connect you and refer you into those. So we are not a digital island.

32:47 We're an integral part of the health care system, and we'll provide you we'll refer you over into other NHS services or potentially charities that might be able to provide additional support. That in The US is known as health navigation, and that's something we'll be doing more of as we scale up in The US especially. We've got a question from Vishal asking, can we discuss how our Pennsylvania engagement has progressed in terms of agreed KPIs? Secondly, how many more states do you expect to come to the fore with proposal requests for investing in digital health mental health? So in terms of KPIs, access alone is a is a big challenge in The US. People don't know that they've got access to mental health support.

33:33 So as part of that, our contract in The US, what's been published in the public domain is that we onboarded around 94,000 people to be able to get access to the service through their school district. We saw a great uptake of that in excess of what we've seen in The UK in terms of an uptake within a nine month nine months time period. And so we feel that we've really delivered on step one, which is really to then grow access, clearly growing usage as part of that. We'll be providing more details on Pennsylvania as as as time progresses. And in terms of other states, there there are, as I mentioned on the slide, are a large number of states that are either focusing on providing dedicated dough budgets to improve youth mental health support or changing laws to make it easier to claim off of Medicaid.

34:30 And so those are two areas we're focused on. And as Sanjay mentioned in our use of proceeds, we see Medicaid as another route, another channel where we can plug into existing budgets to scale up our service across The US. Youth behavioral health through Medicaid is a $30,000,000,000 a year spend. And so our ambition would be next year would be to pilot with managed care organizations that provide Medicaid support so it can augment or and and supplement the state budgets by tapping into Medicaid budgets to support more people. And, look, Medicaid is around 21 of The US population is eligible for Medicaid. So we feel that's a an interesting opportunity for us to pursue there to reach more people.

35:25 Fantastic. So I think that concludes the questions. Thanks for the long list of questions that you you sent through. I'm gonna hand that back now. Yeah. Perfect. Tim, Sanjay, thanks very much for that. I think you actually have addressed all those questions you can from investors. And, course, the company will review all the questions for today, and we'll publish those responses on the investor meet company platform. But just before we direct investors to provide you with their feedback, which is particularly important to you both, Tim, can I just ask you for a few closing comments? Well, look. Thank you for joining the the session today. KOOTH isn't just about investing in a great stock. It it's about transforming mental health care for the for the the next generation. So I think as you look to KOOTH, invest in things you believe in. We we are both my and myself and the leadership team are here because we believe in what we're doing, and we wanna bend the curve on this crisis that there is in youth mental health. So as investors, you've got a huge role to play there.

36:22 Your support for us in doing this is greatly appreciated and greatly valued. And we look forward to speaking to you, when we announce our interim results in September, telling you more about the journey we're on, the progress we're making, and the opportunities ahead of us. Perfect. Tim, Sanjay, thank you once again for updating investors today. Could I please ask investors not to close the session? As you know, we automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, which which I'm sure will be greatly valued by the company. On behalf of the management team of KOOTH PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thanks.