Kooth Plc Regulatory News (KOO)

4 July 2023

Kooth plc

("Kooth" or the "Group")

 $188m four year contract in California

Material upgrade to 2023 revenue guidance

Four-year contract to serve all 6 million 13-25 year olds in California

Proposed fundraise of approximately £10m to accelerate expansion strategy

Trading update

Further to the announcement on 16 March 2023 of the selection of Kooth (AIM: KOO), a global leader in youth digital mental well-being, as primary vendor partner to California for digital mental health to 13-25 year olds, the Group is pleased to confirm that definitive contract documentation in relation to this has now been signed (the "Contract"). The Contract confirms Kooth's momentum in the US market and follows a pilot contract signed with Pennsylvania State in 2022.

Kooth intends to raise £10m to fund its expansion strategy. Further details will be included in a separate announcement, following this announcement, today.

Highlights

· The Contract has a minimum total contract value of $188m through to June 2027. Kooth's service is expected to launch in January 2024, with platform development underway in readiness for this.

· As a result of this contract win, the Group now expects a material upgrade to 2023 revenue guidance, to not less than £34m (FY2022: £20.1m).1

· The Contract is also expected to have a highly material impact on revenues and ARR from 2024 with the timing of revenue linked to usage, promotional activity and product development. There is potential revenue upside from increased usage, and a minimum expectation of service levels and product milestones.

· To support this Contract, Kooth intends to hire over 200 staff during the next twelve months to support and build its Californian and broader US infrastructure. These additional staff will primarily be practitioners, marketing and promotion staff, clinicians, and product and engineering professionals.

· The Company intends to raise £10m to fund its expansion strategy.

Contract overview

Kooth has been selected as primary vendor partner to deliver its digital mental health platform to all 13-25 year olds in California. Kooth is responsible for digital platform, workforce and service delivery as well as marketing and promotion across the State of California (the "State"). This is part of California Governor Newsom's $4.7 billion investment in youth behavioural health, the Master Plan for Kids' Mental Health, and the Children and Youth Behavioral Health Initiative ("CYBHI").

Kooth will provide services integral to the Behavioral Health Virtual Services Platform (the "Platform"), a new technology-enabled services solution, for all children and youth in California. The platform is one of 15 workstreams within the CYBHI. Kooth was selected as a primary vendor in competition with more than 450 different providers with existing digital behavioural health platforms and content.

As part of the Contract, Kooth will be working with the Department of Health Care Services and the youth of California to extend Kooth's existing platform with a mobile app and additional capabilities that provide a welcoming, safe, and stigma-free space for behavioural health support, in multiple languages, with no waiting lists, qualifying criteria, or cost to end users. In support of this, Kooth will invest further in product development until mid 2024 to extend its platform:

· Providing early intervention to help at a pre-clinical level with a focus on achieving positive life outcomes

· Building a mobile app and content available in multiple languages and providing culturally relevant content

· Delivering professional support via chat, messaging, video and phone

· Integration with high acuity / crisis services to enable simple navigation across the care system

· Leveraging artificial intelligence to enable personalisation, risk detection and moderation

With a population of six million 13-25 year olds, there is a clear imperative to transform mental health support in California. More than 284,000 youth2 in the State cope with major depression, while 66% of those with depression currently do not, or are unable to, receive treatment. There is also an increasing suicide rate in children aged 10-18 in the State, with a 20% increase3 between 2019 and 2021. This problem is not limited to California, with 22% of high school students across the US seriously considering suicide in the past year and nearly half of US parents very or extremely worried about the mental health of their children4.

This is Kooth's second significant contract in the US, following the announcement of a pilot contract with the State of Pennsylvania in September 2022.

Kooth has identified additional opportunities in the US, a key market for future growth, underlining the scale of opportunity in the world's largest health care market and the Group's ability to localise its services internationally.

Proposed fundraising

Kooth intends to raise £10m before expenses to fund its expansion strategy of which approximately £5m will go towards accelerating platform development and approximately £4.5m will go towards investing in US growth. This includes the development of a single platform for all US customers, rollout of new capabilities in the UK and extending the platform for other international markets. In the US, additionally, Kooth intends to build teams and proof points to extend support to other States, pilot Kooth with Medicaid managed care plan providers, and explore opportunities to support the 0-12 year old age group. Further details are included in a Proposed Fundraising announcement announced separately today.

Trading update

Trading for the first half of 2023 was in line with management expectations. The Contract, together with the proceeds of the Placing, is expected to fully fund the development of the US platform and enables the Company to accelerate its US expansion. The Group expects a material upgrade to 2023 full year revenue guidance, to not less than £34m (FY2022: £20.1m). The Contract is also expected to have a material impact on revenues in 2024 and beyond with the timing of revenue linked to usage, promotional activity and product development milestones.

Whilst the Group will incur significant upfront costs in respect of the Contract, principally relating to platform opex and recruitment in FY23, the Group anticipates increased EBITDA margin in FY24, and thereafter aims to deliver a sustainable Group EBITDA margin in the mid-teens for the remaining life of the Contract with the potential to improve after the initial investment phase. Following the initial investment phase cash generation is expected to increase significantly from 2025 and beyond.

Tim Barker, Chief Executive Officer of Kooth, said: 

"We're incredibly proud to partner with California's Department of Health Care Services to help tackle the growing crisis in youth mental health. As a pioneer and innovator in digital mental health care, being awarded this contract in a highly competitive process is a huge testament to the world-class technology and clinical expertise that we have developed over decades."

Further details can be found here: https://www.dhcs.ca.gov/formsandpubs/publications/oc/Documents/2023/23-13-CYBHI-3-15-23.pdf

- Ends -

Enquiries:

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

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.

Our three services are:

· Kooth: for children and young persons

· Kooth: for adults

· Kooth Work: for frontline employees

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. Currently, Kooth sees more than 4,000 logins a day.

Kooth is the only 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 2021/22 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. Kooth's first contract in the US was signed in October 2022 with the State of Pennsylvania.

Notes

1. Company-compiled analyst consensus for FY23 revenues is £24.3m, as at 3 July 2023.

2. Governor Newsom's Master Plan for Kids' Mental Health

3. Centers for Disease Control and Prevention

4. Pew Research