Babylon Holdings Limited

Today, I will share an update of our progress in 2021, including our revenue growth, technology development, and early operational performance. I will also share some business initiatives for 2022 before passing the call to Charlie to provide more details in our financial results and our guidance before we open the call for questions. In our last earnings call, I spent some time describing Babylon and our philosophy. We believe in proactively managing members' health while leveraging the structural advantages offered by technology to deliver significant growth and, in time, cost savings through automation and prediction. Our message today is consistent, therefore, with our last earnings call and can be summarized as follows. In 2021, we showed the scalability of our model by quadrupling revenue to $323 million. Two, importantly, we demonstrated that we can do this while maintaining excellent customer satisfaction ratings and clinical quality. Three, we have signed further contracts to continue to grow at pace and will increase revenue by up to three times to circa $1 billion, but in 2022, we will focus on improving the revenue mix with higher margin segments and building the software licensing pipeline for 2023. Four, we will continue to invest in technology, data, and AI, which is a key differentiator for us, enabling further scale and cost savings and growth areas within our revenue mix. Five, we will decrease adjusted EBITDA losses as a percentage of revenue by six times from minus 184% in 2020 to around minus 30% in 2022. And we will focus this year on reducing cost of delivery expenses for each contract. Now, let me discuss three aspects of our performance in more detail, financial, operations, and technology. Financially, we continue to deliver a strong performance and reaffirm our status as one of the fastest growing digital healthcare companies in the world. As I previously noted, we believe growth at the time that an industry is in transformation is an important indicator of future market leadership. We spend 2021 demonstrating our ability to grow, particularly in the United States. our revenue grew four times from 79 million to 323 million in 2021 and this growth continues to accelerate we did more revenue in january 2022 than the entire year in 2020 for the full 2022 year, we indicated that we expect $900 million to $1 billion, which is up to 40% higher than our forecast at the time of our listing on the New York Stock Exchange in October of $710 million for this year. We continue to focus on growth in the United States, value-based care segments, but also building our software licensing pipeline during 2022 for revenues in 2023. Importantly, we have achieved this growth while continuing to have a high net promoter score and maintaining clinical safety. It is very important when growing to maintain the advocacy of clients and excellence of their experience in the same way that successful heart growth companies have done in other industries. It is worth noting that nearly 40% of our U.S. value-based care members were new in Q4 2021. And because they are new, we need to invest heavily in year one to see benefits in year two and three. In particular, they are costly in the first quarter. As we have outlined before, this is because we take the medical loss ratio from the payers We then add our own costs to engage the members, serve them, provide access to digital-first primary care, incur stop-loss insurance expenses, et cetera, et cetera. So by definition, a new group is loss-making in the first few quarters until we can start to affect their pathway into health care, and we aim to reduce their medical claims expenses to a degree that this upsets our own costs and makes it profitable. We have done this in the UK, where we now see an average of six and a half appointments per year for individuals who have had at least one appointment. And this is a huge driver to seeing the cost savings of up to 35% on acute care. We are now simply doing the same in the US. The early results are encouraging, where in Missouri, for instance, we are seeing the same behavior pattern with already 3.6 appointments per year for members who have had at least one appointment. Additionally, I'm proud that across all our territories, our clients love our services. For example, in Missouri again, Babylon's net promoter score was 86 for the second half of 2021. We have also achieved that while maintaining an excellent record on clinical quality. I have no doubt that we can continue to grow Babylon at significant rates while maintaining very high quality of care standards. Our mission is to make quality healthcare accessible and affordable for all. I think most now agree that we can deliver quality and accessibility. So our effort now is to prove that we can deliver affordability to members profitably. Let me be super clear on what that means. While we will continue to keep our growth flywheel in motion, we are now focused on demonstrating how profitable that growth can become. Our goal is for everyone of our clients and contracts to make a positive contribution to our profitability. Let me finish by explaining a bit more on our technology platform. We understand that most people who follow us are healthcare investors and analysts. But equally, we are a technology company, and we have built the business from a technology perspective first. For example, our product and technology team is one of our largest with over 600 engineers and technologies across three continents, over 100 of whom are highly specialized AI scientists and engineers. This represents a significant investment. We demonstrated operational leverage with technology costs declining as a percentage of revenue from 117% in 2020 to 28% in 2021, with a further expected decline to 15% in 2022. In my summary of 21 things we delivered in 2021, I listed some of our technology team's achievements. But the great thing about technology platforms is that once we create an advantage, they keep reinforcing it and accelerating their capability. Increasingly, people will see the advantages we can achieve through our technology platform. I'm excited about what I see in the pipelines. This year, we are focusing our technology on our own operations to show what it can do for us. But in 2023, we will accelerate the licensing of this to others. We believe in time our technology licensing will play an important role in our ability to help others make healthcare accessible and affordable for their members too. Before I turn the call over to Charlie to review fourth quarter financial results, I want to take the time to recognize and thank all Babylonians across the globe for their tireless dedication during these past few months and over the last several years. It is not companies who deliver. It is their people. The Babylon mission wouldn't be achievable if not for the extraordinary effort of our teams everywhere. And I'm very proud of our people and our accomplishments thus far. 2021 was a remarkable year for Babylon, and I couldn't be more excited to push forward into a very exciting future with this group of Babylonians. As I've said before, this is just the start for us, and we will continue to work together to transform this reactive, expensive, sick care service for a few to a proactive, affordable health care service for all. With that, I'll turn the call over to Charlie, who will review our financial results in more detail.

Thank you, Ali, and thanks to everybody for joining the call today. We appreciate your time and interest in Babylon. Today, I plan to provide some further perspective on the performance and trends we are seeing in the business as we review our fourth quarter and full year 2021 financial results, as well as provide details regarding our 2022 business outlook. For 2021 overall, we're happy to report that total revenue and adjusted EBITDA results were in line with guidance we released in November. But more notable is the four times year-over-year revenue increase. From $79.2 million in 2020, to $322.9 million in 2021. This result is phenomenal. It's the product of the dedication, planning, and effort of the entire organization, and we are very pleased with this performance. During the fourth quarter, we had a successful listing in October as Babylon began trading on the New York Stock Exchange under the ticker BBLN. Focusing on a few financial topics from the quarter, I'd like to discuss our financial performance and some of our KPIs, such as cost of care delivery margins, as well as the impact of our increase in value-based care revenue reflected by new BBC contract execution in Georgia and Mississippi. We also generated significant operating expense leverage during the quarter, largely due to our significant year-over-year revenue growth and continued discipline on expense management. Moving to our financial results for the fourth quarter of 2021, we produced strong financial results and revenue growth in all segments. Our fourth quarter total revenue was $119.7 million, almost three X the revenue we generated in the fourth quarter of 2020. Topline revenue growth was again driven by our value-based care segment, which accounted for 83% of fourth quarter revenue and was nearly four times the VBC revenue we generated in the fourth quarter of 2020. Even as we close out the year, we continue to add to our value-based care business. initiating new contract execution for over 100,000 new members on January 1st, bringing our global managed care members, which includes our GP at hand and RWT members in the UK, to over 440,000. Growth in BBC revenue and related revenue represents the most significant contributors to the top line. Fourth quarter 2021 BBC and related revenue increased $72.7 million to $98.7 million, or 279% over the 26 million of BBC revenue in the fourth quarter of 2020. This was as a result of accumulated membership growth during the first three quarters of 2021, as well as the addition of 64,000 new members in Georgia and Mississippi in the fourth quarter of 2021. Full year 2021 BBC and related revenue was $220.9 million, a 748% year-over-year growth in 2020. Licensing revenue increased 30% year-over-year to $7.8 million during the fourth quarter of 2021. For the full year 2021, we generated $60.1 million of software licensing revenue, which represents 144% year-over-year growth from the $24.6 million of licensing revenue in 2020. As we've discussed before, because the entire licensing revenue from Telus was paid up front, $28.4 million of the fee was recognized in Q1 2021. Normalizing for this, year-over-year growth in licensing revenue would be 29%. Clinical services revenue, which is all of our service delivery outside of the US, plus our US fee for service business, was $13.1 million during the fourth quarter of 2021, an increase of 47% from $8.9 million in the fourth quarter of 2020. This year-over-year growth is attributable, in part, to the additional 1.7 million members added in New York during 2021, as well as the increase in GP at hand members in the UK. The fiscal year 2021, clinical services revenue was $42.0 million compared to $28.6 million in 2020, a 47% year-over-year increase. The end of 2021 in the United States, we had 167,000 members, of which 84% were Medicaid, 9% commercial, and 7% were Medicare. At the end of 2020, we had 66,000 U.S. BBC members, of which 88% were Medicaid and 12% were Medicare. At the beginning of 2022, we added over 100,000 new U.S. BBC members with increased penetration of Medicare members, totaling 11% of our total U.S. BBC members as of January 31st. Percentages of total US BBC members for Medicaid and commercial members declined slightly to 83% and 6% respectively. In tandem, the monthly revenue increased from approximately $40 million in December 2021 to over $80 million in January 2022 as a result of the increased BBC business in the US. For the full year 2021, as I discussed before, we generated $322.9 million of total revenues, slightly exceeding our guidance of 321 million and achieving a four times multiple for 2020 revenue. We are pleased by our 2021 revenue performance and are encouraged by the growth and impact that BBC is making in its first full year. As we've mentioned before, management has placed significant emphasis on delivery of revenue growth, a strategy reiterated by increasing FY 2022 revenue guidance significantly to $900 million to a billion dollars representing expected incremental revenue of over half a billion dollars for 2022. For reasons I'll discuss shortly, this exceptional revenue growth comes with associated margin impacts in the short term. I'll discuss the impacts that influence the fourth quarter results and also touch on some of our initiatives. Cost of care delivery expense is $129.2 million for the fourth quarter of 2021, up from $40.4 million in the fourth quarter of 2020. Our cost of care delivery expense increased as a result of the additional medical claims expenses associated with the new BBC business we added in 2021. Further, as we implement new contracts, such as the two new contracts in the fourth quarter of 2021 covering 64,000 US BBC members, we incur incremental costs, including those related to increasing capacity of our virtual provider network and care management staffing and member marketing initiatives. With these activities, we expect to see longer-term margin benefits as our ability to generate better health outcomes increases with digital engagement. As a follow-on to Ali's remarks on our year one investments in DVC contracts, I think it's helpful to provide further perspective on what we do to support a contract with a new cohort to facilitate digital-first engagement. There are several pillars to stand up as we seek to optimize our engagement with members. Firstly, commencing with the number of new members in a specific cohort We need to ensure that sufficient capacity is established in the virtual network to support new member interactions. There is also a staffing component to this initial infrastructure build-out, where medical professionals, support staff, and local outreach ambassadors need to be vetted, hired, and trained to the elevated standards we at Babylon hold ourselves to. This process, which is necessary in any new state that we enter and requires being placed before we can interact with a single member, can take up to several months. Once this infrastructure is established, we can optimize our engagement with new members. This process begins with an initial outreach, which includes marketing, community events, and outreach ambassadors, and can take up to three months. From this initial push, sign-ups to the Babylon platform take place gradually over time. The ultimate goal of this initial engagement push is to schedule and complete a virtual consultation, at which point the Babylon team can continue to engage with the member regularly over time and establish ongoing care and high-value interactions. When Babylon converts from being a repeat user of its business, it has a meaningful impact on how that person chooses to navigate the healthcare system. For repeat users of Babylon's service, evidence indicates that Babylon is quickly becoming their gateway into the healthcare system, which enables Babylon to improve their experience and better control cost of care. In Missouri, for example, we've seen encouraging results where more than half of patients that complete their first appointment go on to have future appointments. Understanding this process and the time and cost associated with setting up new cohorts is crucial to contextualize our cost of care and margins as we enter new states and sign up new cohorts. Nearly all of these costs are included in the cost of care delivery expense, thus impacting our cost of care delivery margin, incremental technology expenses associated with new contracts and minimums, which is the reason why we continue to see the benefits of operational leverage. Finally, While we haven't been unaffected by the dynamics of taxing up on the back of local procedures that were delayed as a result of COVID-19, we believe we've been impacted less than the rest of the industry, due to our population being predominantly Medicaid, i.e. younger and healthier. For 2021, the cost of care delivery margin, which is revenue minus cost of care delivery expense, was 10.3%. It's important to note that the cost of care delivery expense comprises both medical claims expenses and Babylon's own costs incurred in covering our members, which, during a contract startup phase prior to achieving engagement with our members, can place pressure on margins. We are seeking areas for improvement to this. For example, our current scaling model for our virtual provider network is built for speed of growth and clinical quality rather than for financial efficiency. And we are actively working towards a more efficient network and scheduling for providers to better manage the expense to support the network. Technology expenses comprise the platform application expense and R&D expense were $25.3 million in the fourth quarter of 2021, a decrease of $12.4 million from $37.7 million in the fourth quarter of 2020, a 33% year-over-year decrease. Given the significant growth in revenue, technology costs declined as a percentage of revenue from 92% in the fourth quarter of 2020 to 21% in the fourth quarter of 2021. Sales, general and administrative expenses were $77.9 million for the fourth quarter of 2021, up from $18.2 million in the fourth quarter of 2020. As a percentage of revenue, however, SG&A expenses were 65% compared to 44% in the fourth quarter of 2020. A one-time non-cash recapitalization transaction expense relating to our listing of $148.7 million was booked in the fourth quarter of 2021 to reflect the calculated value of the fair value of shares issued to investors in Al-Quri and the warrants assumed in excess of the fair value of the net assets acquired in the transaction upon the closing of our business combination. For the full year in 2021, the adjusted EBITDA loss was $174.1 million, an increase of $28 million from our 2020 adjusted EBITDA loss of $146.1 million. Moving to balance sheet items, I'll provide the most relevant balance sheet and cash flow information and some context of the changes. Cash and cash equivalents as of December 31st, 2021 was $262.6 million and debt raised through our Albuquerque financing totaled $200 million. We executed an additional debt funding arrangement for $100 million with Albuquerque at the end of 2021 and expect to receive the funds at the end of March 2022. The contract provided a cash flow commitment subject only only to customary closing conditions without any interest expense for three months as the capital is not immediately required by us. When added to our cash balance at December 31st, 2021, this provides aggregate cash availability of over $360 million. Acquisitions to date have been funded largely by equity, allowing us to grow with minimal cash investments, reducing cash burns. In January this year, we raised 2022 revenue guidance to a range of $900 million to $1 billion from our initial guidance of $710 million, an increase of 34% of the midpoints of the range. The growth in 2022 revenue is largely related to value-based care, where we initiated implementation of contracts covering over 100,000 new USDBC members starting in January 2022. The guidance we have provided to the market for 2022 does not include any acquisitions, and none are planned at this time. We are reaffirming revenue guidance for 2022 ranging from $900 million to $1 billion, a 3x increase over 2021 revenue. This outlook includes consideration of Medicaid redetermination. Adjusted EBITDA loss for 2022 is expected to be approximately 30% of 2022 revenue, demonstrating continued operational leverage with declining losses in successive years from 950% in 2019 to 184% in 2020, to approximately 54% in 2021. This reflects significant revenue and member growth in U.S. value-based care contracting. With increased penetration of U.S. value-based care business to the overall mix, the company will incur incremental costs, including those associated with expanding the virtual provider network and supporting new members, as I outlined earlier. At the top end of the revenue range of $1 billion, of which approximately 90% is BBC-related, Every 100 bits of MLR improvement translates roughly to $9 million across the care delivery margin. It is worth noting this is not symmetrical because as MLR declines, we have stopped loss insurance and other protections embedded within our contracts to mitigate the downside risk. It's also helpful to appreciate that, as of today, the weighted average tenure of our U.S. BBC members is less than eight months, with our BBC contracts in Missouri and California having the longest tenure at less than 18 months. We have shown that not only is there significant demand for our solution, but also we have the ability to operationalise and scale the business to match that demand. Now is the time to demonstrate we can drive improvements in the same way we delivered up to 35% of keeps care savings in the UK. Just as we focus on delivering our projected revenue growth in 2021, far exceeding expectations, Managers is now planning to increase focus on cost of care delivery margins for the rest of 2022 to reach our profitability goals on all of our business lines. Whilst we believe we can continue to deliver significant revenue growth, we will balance this against the cost of growth and the means of funding it. We take a disciplined approach to deployment of capital, but solely considering how we best deliver future value to shareholders. In the short term, this means not only adding to revenue, but also driving operational leverage in the business, particularly by focusing cost of care delivery margin improvements. We continue to evaluate the timing to reach profitability on a cash and adjust an EBITDA basis, which we're targeting as no later than 2025, and management and centre plans are aligned to this goal. 2021 was about proving we can deliver growth. 2022 is about continuing that growth, but also proving profitability. Additionally, the board and management noted the lack of liquidity in the stock, and we're looking at potential ways to alleviate this. In summary, we deliver strong financial results in the fourth quarter and for the year. I want to thank all the Babylonians for their incredible contributions to the year and for our advisors and stakeholders who have worked hard to help us grow and succeed in our mission to provide the highest quality care to our members. And with that, operator, we're now ready to open the call to questions.

Thank you. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you, and our first question will be coming from the line of David Larson with BTIG. Please proceed with your questions.