Transcript
Speaker: Hello, and welcome to Edison TV. I'm Chloe Wong, Analyst at Edison Group, and I'm joined today with the management team at Kuth. Kate Niehaus, who's the Chief Exec, and Sanjay Jawa, who's CFO.
Speaker: Kate, thank you for being here with us today. Thank you for having me. So let's start with the US where mental health has been quite a big topic this season. So in August, Meta had their settlement where they agreed to pay up to 18 billion US dollars to settle claims against the alleged harmful links over Facebook and Instagram. How do you see this shifting the opportunity that COOF has in the US and sentiments for mental health services? I think significantly, but I think ah youth mental health as a serious issue across the states has been a top priority for governors and state legislators for a number of years now.
Speaker: So um as we came into work in the US and won our statewide California contract nearly four years ago, and we looked across the states and it was a top three priority to to deal with for and the majority of US governors. So I think the 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 to being able to fund the services to match that need.
Speaker: So, as you said, yes, $18 billion dollars um over the next 10 years. That is $12 billion guaranteed with an an additional $6 billion from Meta if TikTok and YouTube also deliver an additional $6 billion. So that does take the potential funding settlement to a $30 billion. dollars That is across 47 states across the and United States with the remaining states all pursuing their own legal settlements. So that includes Texas, Florida and New Mexico.
Speaker: So from our perspective, having um we're now in year four of a transformational ah contract across the state of California, being accessible to all 6 million 13 to 25 year olds with our statewide universal platform for early intervention youth mental health support. So we have the proof points and the efficacy from that work.
Speaker: And then alongside that, we've been delivering and a statewide pipeline and building a pipeline across the rest of the US states. During that that phase, we've and secured a contract in New Jersey and earlier this year in Michigan. And what we see is this meta-state settlement funding really enables us to convert the pipeline that we have already, but also to build that pipeline further as we go into 27 28, showing the need um of these mental health ah crisis, but also the support that we can deliver at scale and and that really just delivers the funding. So just a couple of things on the funding itself that will come directly into the states.
Speaker: It will differ from state to state. in the In the main, it will come through the Attorney General settlement funding pot, um or it could go directly to county healthcare organisations and also into the education system. So our work that we have been doing in states, both both at the state level, but also as part of our alliance model on a wider basis to expand our and ah ah ah the the and diversify the payers that we have to support Saluna getting out across the state really puts us in pole position to meet that need. That sounds exciting. It is. And last time that you were on the interview in April, you spoke bit about how the launch of the Saluna platform in the UK will happen this year.
Speaker: And now I believe that's happened. Can you share some of the initial feedback and traction that you've received? And how far do you see Saluna platform going in the UK? I can. So yeah, bringing Saluna back to the UK took up a lot of our H1 energies and really pleased to say that we successfully launched and a few weeks ago. We deliberately launched in line with the school year. We know with our 25 years of experience out here over in the UK, that things were a little bit quieter over the summer and it's really important to make sure that we are alongside young people as they transition from one school year to another. And so we need to we wanted to make sure that Saluna came in line with that timing.
Speaker: So we successfully and safely migrated all our existing users from Couth into Saluna in those quiet August weeks and then could successfully launch as everyone came back to school. So it's still only been a few weeks, yeah and but we can see that if we look at two weeks similar two weeks post-launch last year compared to this year, we've almost seen double the level of registrations. And that is without and the wider marketing that launched that is due in October. And I think that really is testament to the the design of Saluna. So when we designed Saluna together with the state of California in line with the California contract a few years back, We were bringing our 20 years of experience um in the yeah UK and seeing how young people wanted and needed those services to be designed and brought brought to them together with some of the work that they've been doing over there. And we brought those two things together.
Speaker: And so really thoughtfully thinking about the personalisation, the level of engagement and the navigability of the service and what those young people need in that in that moment of need. So, yeah, really pleased with early signs. And in terms what can that do for us in the UK?
Speaker: So, um on when we we have over 100 contracts in the UK and when we come up to our renewal period, we we we successfully uplift, so expand those contracts in over half of all cases.
Speaker: Now with Saluna, a more engaging and ah in our view effective platform, we want to see those and contracts expand in more cases. So moving those fat sort of 50% figure up to 75 and then level at which we can expand. So we know that the need is there.
Speaker: We know the need is around between one in six and one in eight. And actually, and Professor Peter Fonagy last week, before he trailed a very significant national policy report, said that the need between 16 to 24-year-olds is now as high as one in four.
Speaker: So we know the need is extremely high. and in And when we look at our contracts, we serve between around one in 20 to one in 40 of the population. So the need is there. What we need is the funding and to to to be alongside that, to be able to meet that need. And we do see alongside Saluna being a more engaging and effective product, and some really ah ah favorable policy tailwinds recognizing the need to support people earlier in their healthcare care journey. to not have and to jump through hoops before they get support or before they deteriorate or before it escalates into crisis. We see that being increasingly recognised and hope to see those policy tailwinds then convert into more funding settlement in the UK, as we can see it's just happened in the US.
Speaker: um And lastly, Kate, what are the main catalysts that you would like investors to know about over the next 12 months? I think we've mentioned one of them. So i do i do believe that the Meta Settlement Funding is a ah transformative catalyst for our business.
Speaker: and As I said, the the need has always been proven to be there. We have ah gathered so so huge so support for our model of care to meet that need because it's accessible outside of school hours. It's accessible at scale. Our Northwestern evaluation of Saluna that we reported out at annual results proved that it it delivered significant reduction in psychological wellbe at psychological distress over three months and an improvement in psychological and well-being. And that was irrelevant and regardless of how old that young person was, their background and how they use the platform. So we've also got the evidence points that really show the effectiveness of this model of care being earlier, and being preventative and being available at scale with no barriers to entry. So I think metasettlement is a catalytic and part of our business over the next year. Equally, I think, as we've already touched on with Saluna to the UK, the policy tailwinds that we see and seeing that convert into... into funding, particularly around and potentially a new funding pot for us, which would be around supporting NEETs, so not in education, employment and training. We can see that's hit the headlines quite a bit over the last six months. And Milburn's report's due to come out in the next few weeks about how can we transfer of transformationally meet that need of those nearly one million young people who are out of work, education and training between the ages of 16 24. and recognizing that mental health support is a key and sort of support and mechanism that is required for for those young people.
Speaker: And I think lastly, but certainly not least, um as we come into the year four of our California contract, and ah we are due to renew in July of next year. And ah we are on track with negotiations for those renewals with the Department of Health Care Services in California. And so showing that that can be and translated into a permanent fixture of the behavioral health landscape infrastructure across the state of California is also a transformative piece of um of of our organizational growth and sustainability.
Speaker: Thanks for sharing that, Kate. There's a lot to look forward to over the next year. And now we'll turn to Sanjay for more on the financials. Welcome back, Sanjay. Thanks for coming back to the interview. Thank you for having me us. So last week you published the half-year results for Kuth. Could you share a little bit about what the main points you want investors to take away? Great, love to. ah you know As CFO, obviously, I love to focus on the financials. um I think um for me, the key takeaways compared to the first half last year was really the sort of um the move for Kuth to sustainable profitability, profit profitability margins, and strong cash generation whilst we were able to continue to invest in the business and in the platform.
Speaker: um Things I'd perhaps like to draw out, um yeah gross margin, profit gross margins, ah gross profit margins increased to just under 75%, which is where we'd kind of like the business to be. um That was about a 13% increase on last year. ah Last year, um some folks may remember that we invested quite heavily in um some user acquisition work in California, marketing and media, etc. um We accelerated that investment, and that's sort of gone come back to a more normalized level now.
Speaker: um In addition to the improvement in gross margin, that drove a doubling of EBITDA to just over 5 million. and And what was encouraging was to see that um despite our gross margin and gross profits increasing, we were able to keep underlying OPEX at an unchanged level. So that that's what helped drive the increase in EBITDA. And actually, um at the very bottom line, profit after tax was 2 million compared to a loss of 1 million in the first half of last year.
Speaker: And that gave us a very healthy cash position. and Cash increased over the 12 month period from around 15 million to just over 23 million sterling. um Revenue did drop back a little bit. Part of that was FX related as um sterling appreciated against the dollar in the first half of this year versus the first half of last year.
Speaker: About 75% of our revenues are dollar denominated now. um And we've got a bit of a natural hedge, but it's about 50% of revenue as our costs are also dollar denominated. But that did impact revenue by around 700k in the first half of the year.
Speaker: And that was accompanied by um an expected reduction in the contribution for California to Product development revenues, ah which is a similar number. And those two were offset by revenues that we started to generate on the Michigan contract, which we announced in January, but went live about March, April time. And you mentioned that you ended the period on a strong cash position. So what are you thinking about in terms of usage for this cash? Cash was about 23 million sterling. probably about That's probably about 10, 12 million more than the working capital requirement that we have within the business. site So you're absolutely right. we we We do have a strong cash position. There's probably three buckets that i'd but I think we've been thinking about. investments. um We'd like to first get, you know, how we've talked about our California contracts, um um sort of concluding on um the negotiations around that in the next couple of months. We'd like to get out of the way first, but um I think probably Kate and I are most focused on wanting to accelerate our business development efforts in the US. and The Meta Settlement, um which, you know, andm but I'm sure Kate's talked about, has
Speaker: significantly increase our addressable market in the US and um we think we're incredibly well placed to but benefit from that. So, you know, investing in business development, you know, we, for example, lobbyists across um states we might otherwise not have been present in um may well be the first port of call for a cash investment and that that could add a sort of short term impact on costs, but we the revenue opportunities are very significant there.
Speaker: um We've thought about international as well, um continue to think about international expansion. So that might take a little bit of the ah cash balances. And then what we're starting to see is quite a bit of M&A come across our desks. um Opportunities, particularly um you know businesses that may have been well-funded by private equity or VCs back in COVID days.
Speaker: have built really strong, good products. They might have sent five and $10 million dollars on those um and perhaps aren't quite getting the revenue traction that they were hoping for and may now be looking for a new home. um So that those those are interesting. Variations are still a bit higher than we would probably want to pay, ah you know, four or five times revenue multiples. But um a Kismet, which we acquired in um November of last year, was a good example of that. So that that's probably another area that we're thinking about. And then, um you know, finally, and we do get asked this by investors quite a bit um in terms of capital allocation to shareholders.
Speaker: 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 for a buyback. Thank you for sharing your insights, Sanjay.
