REG - Kooth PLC - $188m four year contract in California

KoothAnnouncement

04/07/2023 07:00

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RNS Number : 8308E  Kooth PLC  04 July 2023

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
(https://www.gov.ca.gov/wp-content/uploads/2022/08/KidsMentalHealthMasterPlan_8.18.22.pdf?emrc=6d3847)
, 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 youth(2)
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%
increase(3) 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 children(4).

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
(https://www.dhcs.ca.gov/formsandpubs/publications/oc/Documents/2023/23-13-CYBHI-3-15-23.pdf)

- Ends -

 

 

Enquiries:

 Kooth plc                                                  investorrelations@kooth.com
 Tim Barker, CEO
 Sanjay Jawa, CFO

 Panmure Gordon, Nominated Adviser and Joint Broker
 Corporate Finance:                                         +44 (0) 20 7886 2500

 Dominic Morley, James Sinclair-Ford, Daphne Zhang
 Corporate Broking:

 Rupert Dearden, James Todd

 Stifel, Joint Broker                                       +44 (0) 20 7710 7600
 Ben Maddison, Nick Adams, Nicholas Harland, Richard Short

 FTI Consulting                                             kooth@fticonsulting.com
 Jamie Ricketts, Alex Shaw, Usama Ali

 

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

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