Kooth – executive interview

In this interview, Kooth CEO Kate Newhouse and CFO Sanjay Jawa discuss the company’s H1 financial performance, US growth opportunities and UK expansion. Kate discusses how the Meta settlement funding could help Kooth convert its US pipeline, and notes that negotiations on the California contract renewal, due next July, are on track. She also highlights the early traction from the UK Soluna launch, where registrations are almost double last year’s level two weeks after launch, and UK policy tailwinds, including the focus on young people not in education, employment or training. Sanjay covers the H1 financials, highlighting improved gross margin, a doubling of EBITDA, a return to profit after tax and a strong cash position. He also outlines the company’s capital allocation priorities, including US business development, international expansion, M&A and a possible return of capital.

How does the Meta settlement change Kooth’s US opportunity and sentiment towards youth mental health services?

Kate Newhouse: Significantly. Youth mental health has been a serious issue across the US, and a top priority for governors and state legislators, for a number of years now. When we came into work in the US and won our statewide California contract nearly four years ago, we looked across the states and it was a top-three priority for the majority of US governors. So the need for support for young people – in the moment, accessible, non-judgmental, at scale – has been recognised. I think the Meta settlement gives a significant and seismic shift in being able to fund services to match that need.

As you said, it’s $18bn over the next 10 years. That is $12bn guaranteed, with an additional $6bn from Meta if TikTok and YouTube also deliver an additional $6bn. That takes the potential funding settlement to $30bn. It covers 47 states across the US, with the remaining states all pursuing their own legal settlements, including Texas, Florida and New Mexico.

From our perspective, we’re now in year four of a transformational contract across the state of California, accessible to all six million 13- to 25-year-olds through our statewide universal platform for early intervention youth mental health support. So we have the proof points and the efficacy from that work. Alongside that, we’ve been building a pipeline across the rest of the US states. During that phase, we’ve secured a contract in New Jersey and, earlier this year, in Michigan. What we see is that the Meta settlement funding enables us to convert the pipeline we already have, but also to build that pipeline further as we go into 2027 and 2028, showing the need but also the support we can deliver at scale.

A couple of things on the funding itself. It will come directly into the states and will differ from state to state. In the main, it will come through the attorney general settlement funding pot, or it could go directly to county healthcare organisations and into the education system. Our work in states, both at state level and as part of our alliance model more widely, to expand and diversify the payers we have, to support Soluna getting out across the states, puts us in pole position to meet that need.

What early feedback and traction has the Soluna platform seen since its UK launch, and how far can it go in the UK?

Kate Newhouse: Bringing Soluna back to the UK took up a lot of our H1 energies, and I’m really pleased to say that we successfully launched a few weeks ago. We deliberately launched in line with the school year. With our 25 years of experience in the UK, we know that things are a little quieter over the summer, and it’s really important to be alongside young people as they transition from one school year to another. So we successfully and safely migrated all our existing users from Kooth into Soluna in those quiet August weeks, and then launched as everyone came back to school.

It’s still only been a few weeks, but if we compare the same two weeks post-launch last year with this year, we’ve almost seen double the level of registrations – and that’s without the wider marketing launch that is due in October. I think that is testament to the design of Soluna. We designed Soluna together with the state of California, in line with the California contract a few years back. We brought our 20 years of experience in the UK, seeing how young people wanted and needed services to be designed and brought to them, together with some of the work ‘been doing over there. We brought those two things together, thoughtfully considering personalisation, the level of engagement, the navigability of the service and what young people need in that moment of need. So we’re really pleased with the early signs.

In terms of what that can do for us in the UK, we have over 100 contracts, and when we come up to renewal we successfully uplift, so expand, those contracts in over half of all cases. With Soluna being a more engaging, innovative and effective platform, we want to see those contracts expand in more cases – perhaps moving from around 50% up to 75% – and to increase the level at which we can expand.

We know the need is there. We know it is between one in six and one in eight. Professor Peter Fonagy said last week, before he trailed a very significant national policy report, that the need among 16- to 24-year-olds is now as high as one in four. When we look at our contracts, we serve around one in 20 to one in 40 of the population. What we need is the funding alongside that to meet the need.

Alongside Soluna being a more engaging and effective product, we also see some really favourable policy tailwinds, recognising the need to support people earlier in their healthcare journey. People shouldn’t have to jump through hoops before they get support, or before they deteriorate or it escalates into crisis. We see that increasingly recognised, and we hope to see those policy tailwinds convert into more funding settlements in the UK, as has just happened in the US.

What are the main catalysts for Kooth over the next 12 months?

Kate Newhouse: I think we’ve mentioned one of them. I do believe the Meta settlement funding is a transformative catalyst for our business. The need has always been proven to be there. We have gathered huge support for our model of care because it’s accessible outside school hours and accessible at scale. Our Northwestern evaluation of Soluna, which we reported at our annual results, showed a significant reduction in psychological distress over three months and an improvement in psychological wellbeing, regardless of how old the young person was, their background or how they used the platform. So we also have the evidence points that show the effectiveness of this model of care – earlier, preventative and available at scale with no barriers to entry. I think the Meta settlement is a catalytic part of our business over the next year.

Equally, as we’ve touched on with Soluna in the UK, there are the policy tailwinds we see and seeing those convert into funding. That is particularly the case around a potential new funding pot for us, supporting NEET – not in education, employment or training. That has hit the headlines quite a bit over the last six months. [Alan] Milburn’s report is due to come out in the next few weeks on how we can transformationally meet the needs of the nearly one million young people aged 16 to 24 who are out of education, employment or training, recognising that mental health support is a key support mechanism these young people require.

Lastly, but certainly not least, as we come into year four of our California contract, we are due to renew in July next year, and we are on track with renewal negotiations with the Department of Healthcare Services in California. Showing that this can be translated into a permanent fixture of the behavioural health landscape infrastructure across the state is also a transformative piece of our organisational growth and sustainability.

What were the main takeaways from Kooth’s half-year results?

Sanjay Jawa: As CFO, I love to focus on the financials. The key takeaway compared with the first half of last year was Kooth’s move to sustainable profitability, with improved margins and strong cash generation, while we continued to invest in the business and the platform.

Gross margin increased to just under 75%, which is where we like the business to be. That was about a 13% increase on last year. Last year, some may remember, we invested quite heavily in user acquisition in California – marketing and media – and we accelerated that investment. That has come back to a more normalised level now. In addition to the improvement in gross margin, that drove a doubling of EBITDA to just over £5m. What was encouraging was that, despite gross margin and gross profit increasing, we were able to keep underlying opex unchanged, which helped drive the increase in EBITDA. At the very bottom line, profit after tax was £2m compared with a loss of £1m in the first half of last year. That gave us a very healthy cash position, with cash increasing over the 12-month period from around £15m to just over £23m.

Revenue did drop back a little. Part of that was FX, as sterling appreciated against the dollar in the first half of this year versus the first half of last year. About 75% of our revenues are now dollar denominated, and we have a bit of a natural hedge, with about 50% of our costs also dollar denominated. That did impact revenue by around 700k in the first half. It was accompanied by an expected reduction in California’s contribution to product development revenues, of a similar amount. Those two were offset by revenues we started to generate on the Michigan contract, which we announced in January but which went live around March or April.

How is Kooth thinking about using its strong cash position?

Sanjay Jawa: Our cash is about £23m. That’s probably about £10m to £12m more than the working capital requirement of the business. You’re absolutely right, we do have a strong cash position. There are really three buckets we’ve been thinking about for investment.

We’d like to get the California contract negotiations concluded over the next couple of months and out of the way first. But Kate and I are most focused on accelerating our business development efforts in the US. The Meta settlement, which I’m sure Kate has talked about, has significantly increased our addressable market in the US, and we think we’re incredibly well placed to benefit from that. Investing in business development – for example, lobbyists across states we might otherwise not have been present in – may well be the first port of call for cash investment. That could have a short-term impact on cost, but the revenue opportunities are very significant.

We continue to think about international expansion, which might take a little of the cash balance. We’re also starting to see quite a bit of M&A come across our desks. These are particularly businesses that may have been well funded by private equity or VCs back in the COVID days and have built really strong, good products. They might have spent $5m to $10m on those, aren’t quite getting the revenue traction they hoped for, and may now be looking for a new home. Those are interesting. Valuations are still a bit higher than we would probably want to pay, at 4x or 5x revenue multiples. Kismet, which we acquired in November last year, was a good example of that. So that’s probably another area we’re thinking about.

Finally, we do get asked by investors quite a bit about capital allocation to shareholders. I don’t think we’re going to be paying a dividend – we’re a growth company – but we may well look at a return of capital, either through a tender offer or a buyback.

This transcript has been lightly edited for clarity and readability. Verbal fillers, false starts and minor repetitions have been removed from the interviewee’s responses only. Punctuation, spelling and formatting have also been standardised in line with Edison house style. No substantive changes have been made to the meaning of the discussion.