Kooth plc ($KOO)

Good morning, ladies and gentlemen, and welcome to the Kooth plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Kooth plc, Kate, good morning.

Good morning, and good morning, everybody. Hello. I'm Kate Newhouse. I'm CEO of Kooth, and I'm joined by our CFO, Sanjay Jawa.

Hi.

Today, we'll walk you through our 2025 results, which demonstrate how we have delivered what we set out to do and that we are a proven, trusted, effective, embedded scalable global platform, with a high-margin, recurring revenue base and with the secure foundations in place for the next phase of significant growth. At Kooth, we believe we are the necessary infrastructure to meet the demand of the global mental health crisis. Just last week, research was released stating that U.K. workers have already taken 5 million mental health-related sick days this year. We currently have 900,000 U.K. young people out of work or education due to mental ill health. And in the U.S., 40% of high schoolers feel persistently hopeless. And again, in the U.S., data shows a 60% increase in suicide rates for young people aged 10 to 24 since 2011. Traditional models of mental health care cannot meet this demand and need, but Kooth can. And why can we? Because we intervene early, we can deliver affordable support that works at scale. Following an exceptional year of growth in 2024, in which revenue doubled, 2025 has been a year of consolidation. I'm very pleased with our achievements delivering against each strategic priority that we set out to do as I took the helm as CEO. We are focused on delivering impact at scale and laying the foundations for our next growth phase. What does this meant? This has meant disciplined execution in California, and our delivery in California has been exceptional. We have worked hard and succeeded in becoming part of the furniture of health care delivery across the state. We didn't just meet targets, we exceeded them and reached 1 in 41 young people in the state. And as we have flagged previously, and I certainly highlighted a number of times because this is a particular focus of mine is around the importance of system integration. I am proud to say that we are now a core part of the California state mental health support ecosystem. Across the rest of the U.S., we secured a new state, Michigan, and renewed New Jersey, and we have laid the groundwork and proactively sowing the seeds for what we term the state alliance model. This is where we focus on building a network continuum of care, where state government funding unlocks the population-wide access to our core Soluna provision and then other partners can fund more targeted support for the populations that they serve. In the U.K., we diversified funding beyond just the NHS into local authorities, public health and in particular, the DWP, the Department of Work and Pensions, where we have secured 3 contracts focusing on supporting the mental health of those out-of-work, education or training. In 2025, we developed an AI strategy and product roadmap that serve as core underpinnings for that growth to secure better outcomes in the service, significant operational efficiencies, the capability to deliver that state alliance model and bringing Soluna back to the U.K., which all culminate in our ability to secure and serve a more diversified funding base. Over to Sanjay now for a summary on the financials.

Thanks, Kate. So look, as Kate indicated, 2025 was very much a year of consolidation following some very strong growth in the previous years and revenue, as we know, doubled in 2024. And against that backdrop, we were pleased with the financial performance in 2025. Taking a look at Slides 3 and 4 -- 4 and 5 together, perhaps some of the highlights that we'd like to draw out is we did see a sort of modest decline in revenue from GBP 66.7 million in '24 to GBP 63.3 million in 2025. That was split probably around half of that would have been kind of FX impact. So as sterling appreciated against the dollar and the remainder was an expected reduction in product development revenues that we received from our clients in California. And just by way of reminder, California is around 70% of our revenues. Around 75% of our revenues are dollar-denominated, around 50% of our expenses are dollar-denominated, giving a little bit of a natural hedge on some of those foreign currency movements. Annual recurring revenue, which for us is very much a measure of the upcoming 12 months of contracted revenue, also felt predominantly driven by FX movements. But also, again, as I mentioned, lower product development revenues on the California client. That was offset to some extent by our new contract with New Jersey. And we saw some churn in the U.K., but that has dropped somewhat from the previous year. And those revenue numbers led to strong gross margins, 73% for the year. That's dropped back from 2024 as we started to invest further in direct media and marketing spend in California to drive registrations to the Soluna platform. We flagged this at the first half results, and it was very much focused on the first half of last year. And as we'll see later in the presentation, that's driven some very strong registration activity in California. And we expect to see more of that continue in 2025. My feeling is that gross margins will settle in the region of around 75% moving forward. And EBITDA, again, ahead of market expectations at GBP 11.3 million, that's adjusted EBITDA. We add back nontrading items, a little bit lower than the exceptional results we saw in 2024, but at an EBITDA margin of around 17.5% to 18%, that's where we kind of would like to be longer term, and we think that was again a strong performance given the year that we had. And I'm pleased to say that we continue to be profitable before and after tax. Diving a little bit more into some of the detail within the income statement on Slide 5. So revenue is virtually 100% recurring revenue. That means it's contracted for 12 months or longer. And again, as I indicated on the ARR, that gives us a strong indication of what's coming up in the next year within the business. And perhaps the only other thing to highlight at this stage is we saw some reduction in administrative expenses, again, partly driven by FX, whereas we saw a reduction in revenue because of the FX translation dollars into sterling. We also saw benefit as costs are lower when they're denominated in sterling. But predominantly, the reduction in admin expenses was driven by this shift in California, where we focused more last year on direct marketing of the Soluna platform to our user base and we reduced some of the expenses on the more traditional, what we call feet on street marketing of our services. And in the U.K., for example, our engagement teams visit schools, they talk to school assemblies. They encourage kids to sign up to the Kooth platform or to sort of take a look around it. And we did a little bit less of that activity in California last year, given the size of the state and the population that we're covering. And so finally, our earnings per share last year was 7p per share, fell back from the previous year a little bit, but again, something that we think is sustainable moving forward.

Thanks, Sanjay. So to illustrate the market opportunity and demonstrate that we are that proven solution, let's -- I just want to just start with the problem that needs solving. So traditional health care systems are built for crisis and not prevention. So in the U.K. alone, this design failure costs GBP 118 billion per year. But we know that 75% of lifetime mental health conditions emerge before the age of 25. So this early intervention window, though, is consistently missed because the system is geared towards diagnosis and medicalization rather than early intervention. The current predominant model of support is too expensive, inaccessible and unscalable. And the result of this is stark. As I've already mentioned, 900,000 U.K. youth are out-of-work or education due to mental ill health. 40% of U.S. high schoolers feel persistent hopelessness. The failure of the current system to meet the need is now clear to politicians, economists, commissioners, policymakers and system and sector leaders in both the U.K. and the U.S. And there are very few credible and trusted solutions to this systemic problem. We at Kooth, however, have both the experience, the evidence and the proven impact that demonstrates we can be that system solution to the problem outlined. We have 25 years of unparalleled experience and expertise in rolling out whole population scale programs. We're currently accessible to 20 million people globally, and we know how to integrate into the existing systems. We not only have the data moat, but also the credibility and trust that allows us to develop our service and platform using ethical AI to deliver better outcomes at scale. Our solution not only delivers psychological improvement to the individual, but it also demonstrates economic value at a system level. We achieve real-world functional outcomes, helping young people stay in school and out of expensive and inappropriate emergency care. So to dig a little bit deeper here, we are the solution because we are cost effective and affordable. We have evidence that this model works, and we are both scalable and safe. We have a clear economic case. For every GBP 1 invested in Kooth in the U.K., we see a more than GBP 3 in-year return. And this has been validated independently by the York Health Economics Consortium. And when we look to the U.S., due to those higher health care costs, we estimate that, that saving could be up to $12 for every dollar invested in-year return back. So we have that clear economic case. We also have clinical evidence of an external validation of our clinical positive impact. You may have already heard us talking about how we have over 50 peer-reviewed publications, but this is on our U.K. service. And now we are extremely excited to announce the results of our Northwestern partnership. So this is Dr. Jessica Schleider's research at the prestigious Northwestern University in the U.S., evaluating specifically Soluna's impact in California. And this shows significant reductions in psychological distress and improvements in quality of life for Soluna users. And this reduction in distress is maintained and sustained at the 3-month mark, even if they stopped using the service. It shows a sustained and significant improvement regardless of background and age and gender and how the platform is engaged with. So this really shows that our personalized design of the platform is working in real time at a population level. And critically, we are safe. So we are proactive about safety. We have maintained our BACP U.K. accreditation. We're on track for MHRA Class 1 accreditation as we bring Soluna, our platform in the U.S. back to the U.K. In 2025, we also achieved URAC, our U.S. accreditation, which really is kind of gold standard for health care organizations in the U.S. And lastly, in terms of the sort of last pillar of our proven model, we have both a data moat and a regulatory moat that provides a differentiated AI strategy. This strategy can enable scale and impact that is a level beyond what our digital delivery model already achieves. Now while the sector legislators and regulators across both the U.S. and the U.K. are extremely wary of general purpose AI in the field of youth behavioral health, we have a structural advantage as our AI is purpose-built for mental health. It's trained on a unique proprietary data set and is governed by a sector-leading governance framework that was built from our safe and trusted foundations. We have 2.5 million clinical case notes. We have over 6 million messages between users and practitioners. This is not web scraped data. This is data modeled and rooted in clinical care. The data and regulatory moat is a differentiator as nonspecialist providers will be prohibited from delivering and the majority of sector providers just don't have the credibility, the resource or the data set to deliver on this opportunity. We aim to be the leading provider of evidence-based ethically governed AI tools to support youth mental health. Moving on to a deep dive on the strategic progress that we have made in 2025. So over 6 months ago, we set out our strategic progress, and we have consistently delivered against each and every one of our strategic priorities. They still form the core of what we need to deliver throughout 2026. So kicking off with California. So Soluna is now an integral part of California's system. Here are a few significant examples of the combination of our system integration work in 2025. You may remember that I focused on this at interims last year and at full year results, the importance of how to become embedded in the ecosystem for perpetuity and ensure that we are front of mind at point of need for all 13 to 25-year-olds across the state. How do we do this? Well, we work at all levels throughout the state with our team, our partners, our ambassadors. We have youth ambassadors, parent and care ambassadors, educator ambassadors and engagement leads in the field to advocate and share the message of Soluna and identify specific and structural interventions that will help embed us into the ecosystem. So here are really a good couple of examples of those structural interventions. So the L.A. Board of County Supervisors, this is -- sorry, the L.A. County Board of Supervisors. L.A. County is the largest county in California. It has a 10 million population, which is larger than a number of U.S. states. And they passed a motion back in December requiring all of their youth-facing services to report back within 120 days of how they are embedding Soluna into all of their care pathways. The department -- State Department of Education, the State Department of Healthcare signed a joint letter and sent that to all local education authorities across the state, demonstrating that Soluna is state supported, it's evidence informed and showing how to embed Soluna in their pathways. These really serve as examples of how we have become embedded across the state. And we continue to meet the state's expectations in terms of access where 1 in 2 haven't received mental health support before using Soluna. This is really important. So this has moved from 1 in 3 the previous year to 1 in 2. The Department of Health Care Services in California really wanted to ensure that we were reaching those people earlier in their health care journey and reaching those people that wouldn't have access to mental health support without Soluna. So 1 in 2 of all of our users would not have access to any mental health support without Soluna. And we are reaching the underserved, where 57% of our users come from areas of highest health in equality. We're also delivering against that contract delivery in all aspects. Alongside we're meeting the user expectations with 90% saying that Soluna provided them with the support that they wanted. And we now have those proven outcomes showcasing how Soluna has helped our users stay in education and stay out of the urgent care department. And crucially, those outcomes from the Northwestern partnership that I have also -- evaluation that I have also referred to really helps to show those -- all those key elements that show that we are delivering to the expectations across the state of California. And then if we move over to New Jersey. So in New Jersey, we see similar levels of access need. So over half of our coaching and counseling sessions take place outside of traditional hours of 9 to 5 Monday to Friday. And that really highlights the importance of flexible on-demand support that fits around young people's real lives. We see similar high levels of user satisfaction, where 95% of users would recommend us to a friend. And again, really importantly, the ecosystem partnership is alive and well with more than 250 organizations trained to promote Soluna, more than 80,000 parents and caregivers reached to build that trust. And we've also successfully secured a renewal through a governor transition in October and November of last year. And we are launching, as we speak, in Michigan. So Michigan, just to note, is a purple state with New Jersey and California being Democrat states, but Michigan is a purple state, and we are launching in particular to address a massive shortage of school psychologists, which is a very common issue across the states, where there's only 1 per 15,000 -- sorry, 1,500 students versus the recommended 1 in 500. And we're focusing in Michigan in both a very popular space. So we're working with the largest school district in Michigan as well as select kind of rural areas to really demonstrate the value in both of those different scenarios. And moving over the pond to the U.K. Despite continued NHS budget pressures, our U.K. revenue has held broadly stable at GBP 17.2 million. Over half of our contracts are growing on renewal, and we've improved net revenue retention to 96%. We've also delivered on our strategic priority to diversify our revenue base by securing 3 Department work and pension co-funded contracts, coupled with a strong pipeline in non-NHS funded channels. We have impressive outcomes not just seen in the U.S., but also in the U.K. In H2 in 2025, 75% of Kooth users responded saying, Kooth help them stay in education. This is really significant and relevant to commissioners and politicians alike, where nearly 20% of school age students, that's 1 in 5 are persistently absent from school. This is down from 24% in the peak post-pandemic period, but it's still double pre-pandemic rates. So before moving on to our 2026 outlook, to summarize, we have delivered against each of our strategic priorities that we set out. And this year of consolidation concludes with Kooth being a trusted, proven, embedded, effective and scalable platform with high-margin recurring revenue base and with the secure foundations in place to deliver the next phase of significant growth. So as a reminder, in terms of our growth model for expansion in the U.S., this is the termed state alliance model. And this is where we focus on building this network continuum of care where government funding unlocks that population-wide, so the illustration on the left-hand side of the slide, unlocks that population-wide access to our core Soluna provision. So the digital front door and that initial interaction with mental health support, including content, those self-guided tools and the pre-moderated community, where other partners can then fund those more targeted support for the populations they serve, such as Medicaid managed care plans, school districts, colleges, universities. So this is the direction in terms of our expansion for our go-to-market model across the U.S. And so across the states in which we already operate, so California, New Jersey, Michigan and those that are in our pipeline, we are sowing the seeds to move towards this model where we have this diversified funding. Now the full fruition of this model will take a bit of time as we move closer to it, though, we firmly believe that this delivers a unique and differentiated proposition that meets the needs of different providers and funders in that state ecosystem. In terms of where our focus is in 2026, it goes without saying that continued and sustained focus on delivering across the state of California is an organizational imperative to ensure removed evergreen funding. In parallel, we will also be looking for expansion opportunities outside of our existing contract. To note, we deliver a coaching model across California, whereas in New Jersey, in Michigan and across the U.K., we deliver both a coaching and counseling model. So there is the opportunity to see whether we deliver counseling across California. We have a very strong and active U.S. state-funded pipeline and would expect to see further expansion into other states together with secondary partnerships where we're building that sustainable usage, which will, in turn, bring that sustainable funding as per the state alliance model. Additionally, for 2026, we're also focused on delivering some examples of the state alliance model, but also focusing on additional diversified funding, including those federal grants, which consists of rural health transformation, opioid legal settlement and social media legal settlements. And we see those as new funding streams within the state pipeline. Over in the U.K., we are on track with bringing the Soluna platform back to the U.K. in the second half of this year. And this will drive both operational efficiency, user engagement, and we'll be taking advantage of some of those proven improvements in the U.S. We will continue to influence some of the key government policy initiatives taking place throughout 2026 as they get more detailed in how they shift to digital and prevention, those 2 out of the 3 key priorities for the U.K. government. Some of you may have seen the interim report of the independent review into mental health conditions, ADHD and autism. This is a really significant policy piece of work that will inform the U.K. mental health strategy, 10 years of mental health strategy that is due in June and the subsequent -- sorry, not June, summer and is the subsequent funding allocation that will follow that. I'm just going to quote directly the last couple of lines of the exec summary of the interim report that was released last week. This creates an opportunity and indeed a responsibility to consider how support might be organized differently, less dependent on diagnostic thresholds alone, more responsive to functional need and more available through earlier, less intensive and more accessible forms of provision beyond specialist clinical settings. And finally, last but certainly not least, on the Kismet acquisition that we made in Q4 of last year. This directly meets one of our strategic priorities of expanding the personalized care that we deliver and widening our funding pool. By acquiring Kismet Health, we can now support children under 12 through this play-based technology platform. And therefore, we now cover the entire life cycle from early childhood to young adulthood. In particular, for 2026, we'll be focused on that rural health transformation funding initially, which is this $50 billion over 5 years in the U.S. where they are looking to significantly enhance the digital and IT infrastructure in states where they have significant ways of rural areas, which have health care poverty as it's term, so significant distances to travel to in-person clinics and hospitals. So really looking at innovative technology and platforms to bridge that gap with those rural health transformation investments. So finally, just to conclude on the investment case. We have a GBP 1 billion (sic) [ USD 1 billion ] addressable market in the U.S. and nearly GBP 0.5 billion in the U.K. And this is where traditional models of care cannot meet the demand. So we see that Kooth is uniquely positioned at the intersection of clinical excellence, trust, credibility and that digital scale. We have the data, the evidence, the credibility, the pre-existing scale and the financial base to lead this market. And just over to Sanjay to wrap it up on the financial outlook.

Thanks, Kate. So as Kate indicated, we have a strong financial base. And just by way of reminder, our revenue growth has been -- has averaged 30% a year over the last 5 years. Gross margins, we believe, are market-leading at 70% to 75%. Kooth is cash generative and profitable. We carry no debt in the business. We do carry a working capital facility, but haven't had a need to draw down on that -- and those factors will give us a very positive outlook for the upcoming year as well as going into 2027, coupled with some of the factors that Kate has, of course, mentioned, including Soluna moving back to the U.K.

Great. So I think we've got a few questions, Kate. I've got one for you here. How will you maintain your impact and reach in California ahead of renewal?

Thank you, Sanjay. So I touched on the activities that we're already doing to ensure that we are embedded in the ecosystem. So really important that we have advocates and stakeholders within the system and see how the benefit of Soluna is to the work that they do. And also we are continuing to serve and demonstrate that impact on our users. So I touched on the Northwestern partnership and the evidence of the outcome that -- from their independent evaluation. So really important that we amplify that result across the state of California that we continue to deliver on the momentum of that system integration that we have built. So we touched on a couple of the really important structural interventions that we've done, the L.A. County Board of Supervisors motion, the state letter to all local education authorities. It's important that we then deliver that follow-up into all of those, almost the routes across California, so in the schools, in the youth facing services at a county level to show how Soluna can be embedded into those care pathways.

And so on a similar note, someone has asked when does the California contract renew, and that is in June of 2027. Question for me, I think, I've been asked about FX headwinds and have we thought about reporting in U.S. dollars? Yes, it's something that we do have under review. But not forgetting, of course, that 50% of our cost base is sterling denominated. So it's not as if the total business is U.S. dollar reporting. It's something we'll take a look at, but we do fall on both sides of the coin there, so to speak. And further down the line, it may well be that we have further international expansion and that may give us other currencies that come into the mix. Okay. Another one for you, I think, Kate. How is the current funding environment in the U.K. impacting Kooth and its service offering?

Yes. So as I said, I think we've withstood the kind of NHS budget pressures that have been maintained over the last few years. There is a lot of policy work that is being done in 2026, that will culminate in the 10-year mental health strategy over the summer that then will lead into new funding allocation. So I believe that the funding environment will be changing over the next year to 18 months in the U.K. But critically, up to this point and as part of one of our key strategic priorities last year, we are diversifying outside of the NHS to mitigate against some of that budget pressure where there is significant prioritization of Department of Work and Pensions funding, specifically for getting people back to work, education and training. And in particular, within that, mental health is seen as a key driver, particularly for that sort of 16 to 30 cohort. So that has been a deliberate expansion outside of the NHS that we are delivering on and we will continue to deliver on in 2026.

Great. I think you've covered most of this next question. Can you describe the current tendering dynamics for NHS? And what are your expectations with this client for 2026, probably worth pointing out that it's not one of the clients.

Yes. So in the U.K., we have over 100 contracts with different NHS and local authority entities across the U.K. And so they will all have different renewal timings and will be between single year and up to, I think we've got one of our longest 7 years. So there is diversity and variability across that contract base. What's the second part of the question?

Outlook for '26, which I think you mostly covered.

So we do have a number of our contracts that were renewing in quarter 1. You'll have seen that our net revenue retention increased in 2025. We see that saying sort of similar or improving in 2026. So yes, I think in terms of our existing contract base, that is particularly stable. We do have with Soluna coming back to the U.K. as we move into renewals next year and -- sorry, 2027 and beyond when the renewal dates come up, that gives us an opportunity to expand. So I mentioned already that over half of our contracts expand upon renewal. We do see Soluna to the U.K. as a significant opportunity to increase that expansion on renewal in future years.

All right. A couple of questions about share buybacks and capital allocation. We had a share buyback at the start of last year, GBP 1.5 million. And investor feedback has tended to be mostly they've invested in Kooth because we are a growth business. They'd like to see us perhaps use some of our capital to accelerate perhaps our business development efforts in the U.S., which, as Kate has outlined, is a very significant market for us. And we're also seeing along the lines of the Kismet acquisition, we're also seeing some interesting small M&A opportunities come along, perhaps businesses that have run out of cash runway, but have developed really strong products that we think would be complementary to what we're doing at Kooth. So we're having a -- we're keeping an eye out on those opportunities, but share buybacks are always something that we will consider going forward in the future as well.

There's another question around essentially, do you have red states in your U.S. pipeline? The answer to that is, yes. So as I mentioned, Michigan is a purple state. So halfway between your blue and your red, but we definitely have a significantly bipartisan pipeline for 2026. The rationale and prioritization of the use behavioral health crisis is as relevant in the red states as it is in the blue states. The level of the priority might change, but that is similar across all states. So it's not necessarily -- it's not a bipartisan issue.

A couple of questions about international expansion. Given that the Soluna platform is completely bilingual, do you want to touch on that?

Yes, I mean, we are focused on growth in the U.S. Obviously, there is significant growth to be had there. And again, following a year of consolidation, that's where we see our immediate priority. We are well networked internationally. So we are keeping an eye out on where countries are starting to see a population-based early intervention digital infrastructure as a key priority going forward. So we are keeping a watchful eye, but it is not a key priority for 2026 to execute on.

Great. There's been a couple of questions about the financial outlook, and I would direct investors -- potential investors to our investor website where we are covered by four analysts, research analysts, and we list on the site the sort of consensus forecast for '26 and '27, and that's a pretty good place to start, I would say.

There's a comment that the contract outside California seems slow to expand from initial levels. So this is around New Jersey. Just to note in terms of the timing of that and the way state budget cycles work. So we closed the year 1 of New Jersey in December 2024. We went live in January 2024. And as you are looking for year 2 funding, so typically, state -- sorry, '25, state budget cycles roll from July to June. Not everywhere, but in the main, that's the sort of typical state budget cycle. So we were going for renewal funding within the first few months of implementation. So we are seeking 2- to 3-year contracts within our pipeline so that we have that ramp-up phase and can demonstrate that usage. So that sort of demonstrates just the fact that we were only a few months into implementation to be able to sort of prove that expansion case.

Great. I think that's it. So back to Jake.

Perfect, guys. That's great. And thank you for your presentation for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Kate, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and to the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Thank you. So thank you, everybody, for joining us today for our annual results and also for our 25th birthday this year. We look forward to updating you all in due course, but I will leave you with a key message that there is a big unserviced need that traditional models of care cannot serve. We are uniquely positioned at the intersection of clinical excellence and digital scale and that we have the data, the evidence, the credibility, the pre-existing scale and the financial base to lead this market. Thank you very much.

Perfect. Kate, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback. On behalf of the management team of Kooth plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.