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215. Bull, Bear & Beyond – Kooth: executive interview
18 Plays17 days ago
In this interview, Kooth’s CEO Kate Newhouse and CFO Sanjay Jawa discuss progress in 2025, a year of consolidation in which the company demonstrated the scalability and effectiveness of its digital mental health model across the UK and US. Kate highlights Soluna’s progress in California, where it serves six million 13–25-year-olds, has reached users earlier in their healthcare journey and has been independently evaluated by Northwestern University. She also discusses Kooth’s state alliance model, with new activity in New Jersey and Michigan, and the strategic migration of UK services onto Soluna. The interview covers how Kooth is using clinically governed AI, supported by proprietary data, to improve engagement, moderation, practitioner training and outcomes while keeping human interaction at the centre of care. Sanjay outlines the financial profile, including resilient gross margins, strong cash generation, a debt-free balance sheet and the potential for operating leverage as new US contracts scale.
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Transcript
Introduction to KOOS and Guests
00:00:07
Speaker
Hello and welcome to Edison TV. Today I'm joined by Kate Newhouse and Sanjay Jawa from KOOS. KOOS is a digital mental health platform serving children, young people and adults with growing traction across the US and the UK.
2025 Vision and Expansion Plans
00:00:24
Speaker
Kate, may it say to join you today. Thank And um can we start off by looking at 2025? You've described the year as an important year of consolidation.
00:00:34
Speaker
Can you discuss, i guess, the key proof points of your model that you've developed over the course of the year? Yes, certainly. Obviously, we are it's our 25th birthday this year, so we have um multiple proof points across the whole of the UK where we're the largest youth provider of ah digital mental health. Over in the US, um we're ah in 2025, that was our second year of full operation across California, where we're delivering to 6 million 13 to 25 year olds with our Saluna platform.
00:01:04
Speaker
And some very important key proof points there is obviously delivering to and users across the state, and meeting the objectives of our commissioner. So that's the Department of Health Care Services in California.
00:01:17
Speaker
um And those include reaching people earlier in their health care journey, reaching those that otherwise would not have access to anything if it wasn't for Saluna, and reaching those people that are in highest areas of health inequality across the state. We have delivered against all of those key objectives and really importantly to deliver and ah to a large population because we know that the need is high. So again, surpassing our department's expectations in terms of usage where we penetrated one in 41 of the population across the state of California.
00:01:48
Speaker
And importantly, and I've talked about this a lot, it's important that we are part of the system and that we work alongside the other provision that happens across a population.
Research and Evaluation Outcomes
00:01:57
Speaker
So importantly, working with healthcare organisations, education organisations and the community to really showcase how Saluna is valuable to them so that they can be key advocates and that they can be key referrers into our platform for the young people that they also serve. So those are two key elements of the proof points. and And then I'm really excited to share that we've got the results of an independent evaluation of Saluna in California by the very prestigious Northwestern University. and They have come out with, um and it's just gone to preprint their evaluation showing that there is significant and sustained reductions in psychological distress across a three month period. I'll go into a little bit more detail of that, but that's really important to showcase that independent evaluation that it works. So, it's scalable, it's cost effective,
Expansion Strategies in New States
00:02:44
Speaker
it works. And then again, showing that we can replicate that model um in new states as we move outside of California, so in New Jersey and Michigan.
00:02:53
Speaker
Thank you. and And then just digging into the Californian yeah implementation a bit more detail, you've highlighted your systems integration, your integration to the system as being a sort of key goal for yourselves and a key um yeah a key driver of the business going forward. Can you discuss that and and any other sort of particular proof points that you've seen coming out of California?
00:03:15
Speaker
Yeah, it's an important part of becoming a sort of sustained and and sustainable part of the healthcare system is to show your value to other parts of that system and to show how you fit into it.
00:03:26
Speaker
So um a key part of how we do that is together with our team. So we have engagement leads and that work sort of sort of field workers within the system. And then we also have an ambassador so um ah program. So we have youth ambassadors, we have parent and carer ambassadors, we have educator ambassadors. And we work with those and throughout the state with key healthcare organizations, education organizations and community organizations so they can understand the value of Saluna and they can work with us and we can integrate with them.
00:03:54
Speaker
So some key proof points of that and sort of ah illustrating that success of the work that we have done in state is at the end of 2025 December. The LA County Board of Supervisors, so LA l a County is the largest county across and California and actually it's larger than a number of other US states. They um signed a motion mandating all of their youth facing services to report back on how they are embedding Saluna into their services. So again, that's a good kind of structural indicator of how we're um embedding within the system.
00:04:28
Speaker
Similarly, another ah sort of key proof point is the state education department and state healthcare department co-signing a letter to every single local education authority across the state of California. Again, showcasing California as a state-vetted, state-supported, free support that they can use within their their systems and really showing how to embed Saluna into their care pathways within schools.
00:04:52
Speaker
And turning to elsewhere in in the US, um you've been um building out in the State Alliance model that you yeah announced a number of number number of months ago, Windsor, New Jersey and um and Michigan. Yeah.
00:05:06
Speaker
Firstly, can you remind us what the State Alliance model involves? And then, yeah, just discuss the key, you know I guess, the key, what we should be looking for in terms of how you build that pipeline.
00:05:19
Speaker
Yeah, so as a reminder of what the State Alliance model is, this is where we're focusing on building a kind of networked continuum of care. What does that mean? That means that we have government funding that unlocks kind of population-wide access to Saluna. And then we're developing our partnerships that we have with other funders in the state. So that might include Medicaid managed care organisations, large school districts, colleges, universities, where they over time will then pay for their more targeted support for their covered populations. So it's a kind of combined funding model as you expand out from that initial state funded model, where typically you'll cover a certain proportion of of children, young people. So as you mentioned, in New Jersey, we cover 50,000 13 to year olds across four counties. And in Michigan, where we're about to go live, we cover 100,000. Actually, it's not it's not defined by a geographical um area.
00:06:14
Speaker
And so if we look at how we then unlock that go-to-market model, and from the get-go, you're establishing those partnerships where you want them to understand how Saluna is used and how they can benefit their users and they can refer people into the Saluna platform. And then over time, you're converting them into into paying um for sort of funders.
00:06:34
Speaker
And then if we look at New Jersey and Michigan specifically, ah so we've renewed New Jersey at the end of last year, we're seeing similar similar kind of proof points to California, where over half of our coaching interactions that happen in New Jersey are outside school hours. So really showcasing the need for that on-demand outside of traditional nine to five Monday to Friday provision that really you know is not doesn't exist very much across the US.
00:07:01
Speaker
And really showing again that importance of user satisfaction as well and and seeing that over 95% of our users come to the platform and get what they need and on that first use ah sort of use case. in In Michigan very much we're just about to go live, but we're really meeting the need, and so this is sort of talking to the kind of market context, of the shortage of demand within the more traditional model of provision that exists. So typically um you would expect to have one school counselor or or so and psychologist for every 500 students.
00:07:36
Speaker
And we know that there's an overwhelm overwhelming demand and and the supply is not not being able to meet meet that. So in Michigan, we can see that it's almost one school psychologist for every 1500 students. So again, to be able to deliver ah at scale through that digital model, and again, outside of those more traditional hours and it being accessible, reducing barriers to access is that really important kind of model that we're seeing.
00:08:02
Speaker
And turning to the UK, obviously there's pressure on the NHS, but you've seen resilient performance, I think through diversifying your yeah funding sources. Can you discuss that and and also um As I understand you're migrating your UK customer base to the Saluna platform. can Can you discuss the implications of that move? Yeah, certainly. So
Funding and Financial Strategies
00:08:24
Speaker
yeah, you're right. you know We have been under sustained and NHS budget pressures over the last few years. And so it was a significant and deliberate strategic priority in the middle of last year to look to diversify our funding outside of the and NHS.
00:08:36
Speaker
um And this includes Department of Work and Pensions, local authorities and public health. In particular, Department of Work and Pensions, and this is this it really recognises the need for mental health support for those that are ah not in education, employment and training. So there's some really quite shocking statistics that some 900,000 young people and between the ages of to are out of education employment and training in the u k And actually, even if you look at school-aged children, there's still 20% are persistently absent from school. its come down a little bit from COVID where it was just post-COVID, it was 24%, but it's double pre-COVID figures.
00:09:17
Speaker
So there's a um really strong recognition that for the economic productivity of our of of our country, that really meeting the needs of those mental health requirements for children, young people and is is an economic necessity, if not an individual and societal one. And so we're increasingly seeing um ah the the the commitment for that ah through the Treasury and to DWP funding. So we secured three DWP co-funded contracts at the back end of last year and um are moving into going live with those contracts over the next few months. So we really see that as ah as a key kind a growth lever as we move into 2027.
00:09:57
Speaker
When we look at our um existing kind of more traditional kind of ah children, young people, ah whole population covered contracts, we see across 2025, a stabilisation of that model, where um when we come to renewal, still over half of our contracts expand upon renewal. um I would see as we're bringing Saluna back to the UK and Saluna had a big investment in terms of the development of it. um And ah we've we've taken our 25 years of experience from from the UK and now the US, s ah coupled with significant work that California had done um across covered populations and with young people to really make that an engaging and personalized platform.
00:10:41
Speaker
So we see bringing that back to the UK, which is a you significant internal project to to to migrate all of our um existing contracts onto the Saluna platform. We see that there'll be higher usage of our platform. That coupled with what i I'm hoping to see with the 10-year mental health strategy that's coming and later this summer in this year, followed by the budget um in in October 2021.
00:11:05
Speaker
Finally, that recognition of moving funding more into the digital and prevention and out of hospital care, which has been very much flagged as key priorities for the government. So moving into 2027, seeing our ability to be able to expand because we know that the need is there.
AI Innovations in Mental Health Support
00:11:22
Speaker
on any one um year, sort of one in seven, one in eight of the population require our support and we're covering on average about one in 40. So we know that we can deliver more and we just need that sort of funding to come down the line to be able to to match that.
00:11:36
Speaker
And turning towards artificial intelligence, it's it's a it's a hugely emotive subject in the field of dis mental health care. um But you've outlined a differentiated clinically governed um solution based on your own proprietary data.
00:11:51
Speaker
um can Can you discuss that and why why that should deliver um typically of significantly more benefits than than than risk, I guess? and um And how should we expect that to be rolled out in the in the future?
00:12:03
Speaker
Yeah. Well, you're right. I mean, the sector, legislators and regulators alike are extremely wary of general purpose AI in the field of youth behavioral health, and quite rightly so. and There have been some particularly and ah ah devastating use cases. what What it does show in terms of ah children, young people turning to the likes of general LLM models, um and they are doing so, um it shows the need for having that on-demand support and but put but potentially and you know meets that some of the naysayers that you know you need to wait a long time and have those sort diagnostic challenges to be able to before you can get any support. It really shows that there's there's a pull on that on-demand support.
00:12:47
Speaker
But we certainly have that what we would consider a structural advantage. So we um are looking at how we deploy AI using a both a data mode and a regulatory mode. And what do we mean by that? So we have 20 years worth of data of and clinically governed and clinician and user interactions. So over two and a half million clinical case notes, and over 500,000 interactions between practitioner and um our our users that is all within our clinical governance model. So, this is not web scrape data, ah it is data that is according to a a very robust clinical governance model. And then the way that we are then using that is ah ah again through and remaining human at the heart and really and
00:13:33
Speaker
ah treasuring that human to human interaction and really enhancing the efficiency of that model so that practitioners are spending their time, their valuable time with our users ah rather than on um administrative top tasks or anything like that.
00:13:48
Speaker
And then we look at um where we're sitting from a regulatory perspective. So if you look out um ah in the non-sector or in the sector, in the non-sector, essentially, they will be regulated out of supporting, in particular, under 18s. And you can see that across the states with ah governors and legislators literally outlawing the use of LLMs and chatbots for under eighteen s and You might have seen last week Google actually announced that where there would be and relational and triggers through using Gemini, they will be signposted out into state or national endorsed mental health support.
00:14:24
Speaker
So you're seeing from a regulation regulation perspective that, as I said, non-sector experts will be kind of regulated out. And then when we look within the sector, There are few examples of scaled providers that have both the trust and credibility but the data set that can really take advantage of this. So as you'll know, most clinical interactions happen within four walls and and um ah rather than through that text-based interactions, we have the record of every interaction that our users have with our practitioners. And so what are we then looking to do with that? So it's really about three elements. It's about enhancing our user engagement. So making sure that they find the things that they need to in the platform, that things are served up that will be most useful to them. And that we also can manage our platform in the most efficient way. So we are recognising any risk or and moderation requirements more quickly and more efficiently. efficiently um And as we move towards class 2A MHRA accreditation in the UK, and doing that alongside that. And then again, as I said, it's about how do we improve the outcomes, the clinical outcomes and the functional outcomes that our users receive through delivering that. And we truly believe that that diversifies AI strategy can deliver more outcomes at scale than just our digital model alone. And ah one example of that is about how we train and audit our practitioners. so We do that already. We have done that for years. It's a key part of our piece. We ah employ and train and audit all of our practitioners. And and they that's something that they really value from us because they can learn with us. And typically, we'll do that on a kind of biannual basis. And that will be according to our our clinical governance model using our and the text-based interaction they'll be having and having a look at how that sits alongside our clinical governance model.
00:16:10
Speaker
And now with the application of AI, we can now do that in real time. And we can be serving up supportive um training um application to our practitioners on a biweekly basis. And again, thinking about how that can enhance the outcomes of ah of those on our platform is really game changing. Many thanks for joining me today. Fascinating conversation. Thank you very much, Dan.
00:16:32
Speaker
Sanjay, many thanks for coming in today. um Can you start by discussing your your financial performance in 2025?
Financial Performance and Challenges in 2025
00:16:41
Speaker
Revenues was were slightly down, but there's a lot of um investment in growth going on behind the covers, and there's also come currency movements there. Can you just run us through the key moving parts in financials? Sure. um Well, look, 2025, as Kate would have indicated, was you know a year of a bit of consolidation for us, coming off some very strong results in 2024, when revenues doubled um and we saw significant EBITDA, 15.8 million sterling. um And so in that context, 2025, it was um
00:17:14
Speaker
We saw revenue slip back a little bit um to 63.3 million sterling. Around half of that 3.4 million drop was FX related. We report in sterling 75% of our revenues are dollar denominated. um And obviously, you know, as everyone knows, sterling appreciated against the dollar last year.
00:17:38
Speaker
Now we do have a bit of a natural hedge because about 50% of our costs are also sterling denominated, but that accounted for around half of the fall. um And then the remainder was um really related to our California contract.
00:17:52
Speaker
and That's a four-year contract. um And our clients effectively funded the development of our Saluna platform in California, contributing around $25 to $30 million dollars to that.
00:18:05
Speaker
and And as we moved into year three of the contract, those product development revenues have started to fall off. um That was essentially the difference that we're seeing there.
00:18:16
Speaker
But what I think that does mask, however, is New Jersey was a new client last year. That contributed 1.1 million sterling to revenues last year. The benefit of that was offset by some UK churn, predominantly churn that we saw in 24, because in 25, again, it had sort of slowed down. And effectively, you're seeing the full impact of not having those clients in 25.
00:18:42
Speaker
And then looking ahead, what are the key margin levers in terms of margins going forward? You've said that you expect gross margins to stabilize in the mid-70s. Can you discuss the factors influencing that and then the drop through to the operating level? What the key levers there? Yeah, great. So, our direct costs typically are the costs of our practitioners delivering the coaching and counselling services, around 250 staff. And those staff are all employed by us, they're not contractors, we're not running any kind of gig economy, that's really important to us because it means we can ensure they have proper careers, we look after training, safeguarding, audit processes as well. So they're a key part of the direct costs. And then in addition to that, within direct costs, we have our direct media spend in California.
00:19:37
Speaker
We don't typically split that out on other contracts because um we haven't we typically have um you know ah a bundled revenue number for most of our other contracts. But in California, the marketing revenue is split out. So we take the media spend into cost of sales. And we accelerated that last year um to drive registrations in California to get a sort of critical mass of users.
00:20:01
Speaker
um And that helped the gross margin, well, helped is probably the wrong word, but reduced the gross margin by about three or four percentage points last year to 73, 73 and a half percent. um That marketing spend will continue, but I expect it to drop back. We like to think that we're seeing a flywheel effect of the more users we get on the platform, and we start to see organic growth because they start saying their friends about it, for example, and that allows us to rein in some of the marketing expenditure. But typically what you'll then see is and perhaps some of the delivery costs go up as we see more usage of the professional support.
00:20:41
Speaker
So medium term, we expect gross margin to settle at around 75%.
00:20:46
Speaker
And you've been building out the client base, the US client base through the State Alliance model. You've won New Jersey and Michigan. Yeah. And then but you know how how should we expect new client wins there you to to flow through to the P&L?
00:21:04
Speaker
um That's a good question. we're we're now at this you know We've got a very strong infrastructure platform, both in the UK and the US, and you know they're very sort of um fungible, I suppose. you know We've got product staff in the UK working on the US platform, for example, oh obviously all within sort of data privacy constraints. um But with that infrastructure we now have in place, we are able to, two things, we're able to roll out pretty quickly. So New Jersey, we signed the contract December 24, and we went live in January 25. And Michigan, again, there was you know that probably about six weeks between contract signing and launching, a soft soft launching that service. So that's, it's not quite cookie cutter, and but we can roll out pretty quickly.
00:21:55
Speaker
Typically what I'd expect to see um in terms of flow through is if we assume the 25% direct costs continue on the client and that's predominantly service delivery with that one exception I mentioned in California. um In addition to that, we tend to put aside 10 to 15% of revenue for marketing and promotion and engagement. And that can either take the form of social media work, for example, but also we have feet on the street. So we have engagement staff who work for us, they're visiting schools, they're talking about coup the school assembly, encouraging kids to sort of sign up or take a look at the and platform.
00:22:34
Speaker
um And so if I look at the practitioner costs of around 25%, the marketing costs of say 15%, that's 40% of revenue. And generally I can add to that um you know account management, sales commissions, call that another 15% or so. So I'd like to think that between 40 and 45% of revenue now flows through to both cash and to EBITDA.
00:22:59
Speaker
That's very helpful, thank you. And you're cash generative, you're profitable, you've
Capital Allocation and Future Plans
00:23:03
Speaker
got no debt. um can you Can you discuss your priorities in terms of capital allocation? Yeah, great question. and We finished last year with 22 million of cash on the balance sheet. We do have a working capital facility but no debt. um And I'd like to think that our working capital requirement is around 10 to 12 million. So I suppose arguably there's about 10 million of um excess cash on the balance sheet. um you know With the results announced last week, we've obviously met a whole um range of investors and it's a question that you know we we talk about quite a lot. And you know the one extreme, a couple of investors have said, well, there's an energy crisis on at the moment. You want to be keeping as much cash on your balance sheet as possible. And at the other end, we've got, well, you know
00:23:50
Speaker
at the current valuation and given that you have share option plans in place for staff, doesn't it make sense to start buying back some shares? And we did a small buyback in the court in quarter one of last year, about one and a half million. And then somewhere in the middle, and you know our thinking is very much around, um you know should we be accelerating business development for the US, for example, which is a huge market and there's a lot of opportunity for us there. And we have investors who say, look, we invest in this business because you're a growth business and that's where we want you to focus your um capital allocation. Or um a little bit like the Kismet acquisition we made at the end of last year. We're starting to see ah really good businesses that were well-funded perhaps during COVID, maybe they've invested $10, $15 million dollars into strong platforms, but then have had some challenges around revenue traction um and perhaps are starting to run out of cash. um And we've seen a few of those opportunities, low single um millions um in terms of potential cost. So some of that stuff is quite interesting as well. um So what's been great is meeting investors on the roadshow. We're taking some of those soundings. And I think over the next sort of two or three months, we'll make some decisions around that.
00:25:05
Speaker
as ever a complete market of opinions to to get your heads around. Absolutely. Sanjay, many thanks for joining me today. Great. Thanks, Dan.