Sparks - Kooth

Kooth’s H126 results show a sharp improvement in profitability despite modest top-line pressure: revenue fell 3.9% to £30.8m, or 2% at constant currency, as FX, the planned tapering of California product development revenue, and UK churn outweighed a £0.5m contribution from Michigan. ARR rose 1.9% on a reported basis to £62.9m, although constant-currency ARR slipped 0.5% to £61.4m, with reported net revenue retention of 99%. Gross margin expanded 11.3pp to 74.1% as California direct marketing spend normalised, driving a 102% increase in adjusted EBITDA to £5.3m and a swing to £2.0m profit after tax from a £1.3m loss. Cash generation also improved, leaving Kooth debt-free with £23.1m of net cash and an undrawn $9.5m working-capital facility.

Operationally, California remains the core proof point, with Soluna registrations exceeding 187k at end-June versus more than 130k a year earlier, while independent outcome validation, American Psychological Association ‘Gold’ accreditation and a joint state directive encouraging school-district integration further strengthen its position. Kooth has also broadened its US footprint to three states, with Michigan contributing £0.5m in H126, and New Jersey continuing to grow under its renewed contract. Post-period end, Soluna was successfully launched in the UK across Kooth’s contracts, providing enhanced outcome reporting and product flexibility, while initial Department for Work and Pensions NEET (Not in Education, Employment, or Training) contracts offer an early route to payer diversification.

Management continues to expect underlying FY26 results broadly in line with expectations before FX effects, although it plans to increase investment in H226 to further embed Soluna in California, meaning the H126 margin improvement should not simply be extrapolated. Near-term execution therefore centres on converting the US state pipeline, while the multi-payer Alliance Model is being developed to broaden funding sources, with positive results expected from 2027. Key watchpoints are continued sterling strength, given c 73% of group revenue is US dollar-denominated, and the pace of pipeline conversion, while the stronger cash position provides ample capacity to fund the next phase of growth.