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.

Hi, congratulations on a good quarter. You know, the biggest sort of Change I hear this quarter relative to last quarter is your focus on profitability. Can you maybe just talk a little bit more about how you squeeze water from the sponge in terms of earnings over year one and year two? Where does that potential 30% to 35% in cost savings come from? How do you reduce inpatient admissions? for your plan clients. Just any sort of color or examples that you can provide on that would be very helpful. Thanks a lot.

David, this is Ali. Thank you for your question. Oh, Charlie, go ahead.

So look, David, Ali can talk a little bit about the operational side of this, but I thought I'd give a little bit of an update on the financial side of this. It goes back really to what Ali was saying earlier about how we think about this by providing a lot of primary care upfront in a highly accessible way, in a digital first way. So examples of this on the low hanging fruit that we have, for example, is reduction ER admission. So I think we've disclosed before that we see the average saving being around $340 per member each time we avoid an ER episode. And the more that we have people using Babylon, the more that we can do that. So another bit of information, for example, is that for people who have had one appointment with us, on average, they go on to have in total just under four appointments per person. So what you see is once we've hooked that initial engagement, we really see that engagement continuing. And by the way, that's exactly the same as what we also see from our statistics in the U.K.,

David, just to pick up on what Charlie said. Okay, if you want to follow, please go ahead.

No, please go ahead, Ali. Thank you.

David, I just wanted to follow up on what Charlie said. You mentioned that it's like squeezing water out of stone, but that assumes that the system is highly efficient and has optimized for the best delivery of care. What we both know is that the system is actually anything but efficient. We do not provide enough care for people until they head into crisis emergencies. They end up in hospitals who are incentivized to maximize the amount of money they can take out of them. And also there is significant amount of waste in this system. We believe that actually if you look after people really well upfront, you would avoid those expensive crisis and emergencies. In the UK, we spend three times per capita less money on people. We have a very efficient primary care system across the country, and even in that system, we manage to save costs. Now, it is true that we saved up to 35% in the UK, but that's because all of our patients go through it, so we can manage their costs completely unwell. In here, the numbers may be a little bit different. We also share those cost savings, which are payers in return for protection against our downside. So the numbers may be a little bit different. But what matters is that if you take this simple belief that if you look at the people up front really well, you avoid their emergencies and crisis, you must believe that we will be able to save the cost. This is not an efficient system. It's not like taking water off of stone. It actually is much more like taking water off of a sponge.

Yeah, that's actually what I referenced, squeezing water from a sponge, not squeezing water from a stone. Yeah, I'm very... Oh, my apologies.

You're absolutely right. Sorry about that.

Yeah, no problem at all. And then can you talk about your mix of lives, please, like Medicaid around 83%, Medicare 11%, commercial 6%. How would you expect that to trend over time? And is any one of these buckets more profitable than the other?

Yeah, David, so over time we expect to see A lot more coming out of the commercial, but also coming out of Medicare as well. And I think sort of when we think about profitability as of today, the Medicaid lives, as you probably expect, are less profitable than the other lives that we've got. But I think sort of part of this is twofold. One is that it's important to remember that our mission is to deliver affordable, accessible health care to all. And the way that we think about this is delivery of health care needs. and keeping people healthy, as Ali was mentioning earlier. We don't think about dividing people up into young or rich and poor, although that is the way that we're paid. So over time, we expect to see many more other cohorts coming through around, as I say, Medicare and commercial. But at the same time, though, we also think that once you can deliver successfully on Medicaid, it also actually makes delivery of the other types significantly easier.

Okay. It seems to me like there's a lot more premium to go around in Medicare and also commercial. And if you can be profitable in Medicaid, you could probably be certainly be profitable in Medicare and commercial with the higher premium rates.

Exactly. Okay.

And then in terms of like your total lives on platform 276, that's about 100,000 lives higher than what we had been sort of expecting for one Q of 22. Can you maybe talk about where those new wins are coming from? Are they additional cells into existing health plan clients where they're expanding into additional products that they have, like commercial and Medicare products? Or are those entirely new health plan clients? and any color on the commercial win in particular would be helpful.

So, David, these are entirely new health plan wins. The commercial lives coming through during 2021 came through our IPAs.

Okay. Very helpful. I'll hop back in the queue there. Thanks.

Thank you. Our next question comes from the line of Glenn Santangelo with Jefferies. Please proceed with your question.

Thanks, and good morning. Thanks for taking the questions. I just wanted to follow up on Dave's question regarding the EBITDA margin improvement. You know, maybe I think what we're all trying to understand is where this operating leverage comes from. I mean, it seems like you're benefiting just on the – the negative EBITDA margin, you're benefiting from a mixed shift, but could you maybe talk about your first cohort of patients in Missouri? Are they profitable yet? I mean, you're already into year two with that cohort of patients. I'd be curious if you could talk about how maybe unprofitable they were when they came into the fold and maybe where the profit on that cohort stands now.

Yeah, sure. So, Glenn, taking the two bets in turn, so first of all, When we think about the operational leverage, that's because that's coming through from our technology fundamentally. And the reason for that is that when we add new cohorts and new members, we basically have an almost zero marginal cost of technology delivery in doing that. The only OPEX cost really in that is around some more hiring, some more administration on the SG&A line, but then also some marketing as well. So we've got huge operational leverage, and that will continue as we continue to grow. When we look at the cohorts in Missouri, I think sort of I will be disclosing sort of more on this when we've got some aggregated contracts that we can put together because clearly the financials for a single contract can't be disclosed. But what I would say, though, is it kind of goes back to the operational data that I was talking about earlier. which is when people have had one appointment, they go on to have just below four. And we've seen that engagement in Missouri. So very, very strong engagement and continuing engagement from people who are engaging, and we continue to increase that engagement on that contract.

All right, maybe if we could just talk about the cadence of EBITDA through 2022. Charlie, I think, you know, based on the guidance that you gave of a negative 30% EBITDA margin, you're assuming, you know, almost negative 300 million in EBITDA, you know, and that's on an adjusted basis, which doesn't take into account like stock comp and things like that. And, you know, even with the 100 million in funding, you know, you only have about 360 million in cash. So it kind of feels like you're going to burn through all that cash in 2022. Am I thinking about the cadence correctly and any sort of color you can provide around that?

Yeah, sure. So let me just be very clear that there's no need for us to raise cash in 2022. We'll always do what's right for the company and also stop liquidity and other concerns as well. But look, like, remember the growth, right? We're growing in 2022 by nearly $700 million, right? So that's 3x what we've got in 2021. That is just like phenomenal growth. And clearly that comes at a cost and requires some capital, but we'll always be disciplined about how we think about spending our capital. The one other thing I would just note, though, is that raising capital in order to grow isn't the only way that we can grow, right? So just to give you an example, our software licensing machine can also take cash up front to that software licensing and use that in order to grow, and we've done that twice already, and we could potentially continue to do that.

Okay, that's helpful. Maybe just one last question. I mean, just to follow up on your comments about, you know, alleviating maybe the lack of liquidity in the stock, Could you maybe just give us a sense for, you know, where's the fully diluted share count today if I include all the options and warrants? I didn't see that in the release. And, you know, and the last part of that question, I just want to make sure I understand, when does the lockup expire from, you know, both the pipe investors and the employees, just so we have all those dates and the correct share counts and we're all using the same number?

Yeah, sure. So the lockup expires April 21st. We have disclosed in our F1 filing the total number of shares, and we will do that again in our 20F. There hasn't been a change in that. It's just over 400 million shares. The one thing that I would encourage you to note, though, is that that share count includes the management earnouts that only start to kick in above $12.50. So in effect, up to $12.50, there's a higher share count, and that is material, it's about 10% of the outstanding shares, that doesn't affect stockholders at all. If that $12.50 share price is not achieved within five years, those shares are effectively cancelled.

Okay, thanks for all those details.

Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity. Pleased to see you with your questions.

Yeah, thanks for the questions. Can you discuss in more detail the focus on licensing? Specifically, is that more global? Or do you see licensing in the US? And what does the pipeline look like from a licensing perspective right now?

So up until now, we've basically done a small number of very large contracts that are generally, relatively speaking, quite bespoke, but at the same time are highly profitable for us and our excellent technology platform. What we're spending some of 2022 doing is making that product much more sassable. so that basically there's more self-service and we can do smaller but not so bespoke licensing contracts, and that will be global. One of the big advantages of our platform is that we can spin up new countries incredibly rapidly. You've seen that we've done that in 11 countries in Southeast Asia, for example, again in Canada where we license our software as well, and we can add new countries to the platform very rapidly. It's basically a few epi models. We do the translations and the local regulatory requirements. But basically, there's 11 countries in Southeast Asia we spun up in a matter of months onto our platform.

All right. Do you have a target in terms of percentage of revenue you would think licensing would be in 2023? Yeah.

So the number we had out there before was about 10% of revenue. And we don't see a reason for that to change at this point in time.

And then just to be clear, with like a focus for license on 2023, are you placing less emphasis on adding new value-based care business in the U.S., you know, in 2022 and 2023? Or just curious there.

Absolutely not. We've got so much demand coming for our product that actually kind of goes back to the questions that we had earlier about exactly how we continue to grow. We want to grow incredibly rapidly. We can do that. And we've demonstrated that we can do that. But we just need to make sure we balance the capital needs with that growth at the same time. But US value-based care is the core element of growth in 2022.

Okay, and then my final question. Maybe I can. Go ahead.

No, I was just going to add to this to make it super clear. When we took Babylon Public and we talked to each other at the time we were doing our IPO, we came up with the audacious growth numbers. We could see that based on the demands that were ahead of us. We beat those growth numbers we were going to do $710 million or so this year. We've now increased that by 40% or so to up to a billion dollars. At the very same time, we did say that we will focus on growth. When we have this scale, we will then turn those contracts profitable. And as we build the technology necessary to deliver those contracts, we will eventually license those technologies. So we're sticking exactly to the plan that we outlined at the time of the IPO And if you refer to those documents, almost nothing changed. We're playing it page by page going forward. Deploy the technology, make the technology show itself, and then license that technology to somebody else. But none of those wheels will stop. We will, as Charlie said, add $700 million of new revenue this year, and we will accelerate that growth next year, too.

okay and then with respect to the u.s value-based contracts can you just remind us uh in terms um in terms of you know what is the duration of the contracts in terms of um are they annual or you know just curious there how you think about um you know, the timing of those contracts, you know, whether there's any renewals, just thoughts there.

The average contract length, Rich, is around three years. It's important to note, though, that when it comes up for renewal, the engagement is with Babylon as a brand, right? So the users see Babylon, they engage with us, they engage with our clinicians, and therefore they're quite sticky. And we'd hope to see those renewals happen, of course. The contracts are pretty early on, so we haven't had any renewal discussions with any parties at this point in time, but we've got no reason to believe that anything would not be renewed.

Okay.

All right. Thank you.

Our next question comes from the line of Daniel Grosslight with Citi. Pleased to see with your questions.

Hi, guys. This is Anna Krasinski. I'm for Daniel. Thanks for taking my question. I wanted to go back to the cost of care delivery margin pressures you guys have been seeing. I was wondering if you could give any more color on provider hiring as you build out your network, whether you've had to offer additional incentives to attract talent, and then also if you feel that you have enough provider capacity currently to support all your new value-based care lives. Thanks.

Thank you for this question. We are in different places so we can't see each other. But I think we're not seeing any further pressure on the cost of care than we expected. We're seeing actually things are going as we planned and you must remember that because we get so much operational leverage on our clinicians, we actually need significantly less clinicians per value-based care member than, say, a telemedicine company needs. So we don't need to hire people in their hundreds or in their thousands. We just need a small number of people to look after our patients. In average, that's probably one full-time physician, a couple of nurses. for every 2,000, 3,000 people. And as we deploy our technology and our leverageability, those numbers are falling significantly. We use our care assistances extensively to allow less doctors' involvement because so much of what we do, patients self-administer to. I mean, about 40% plus of all our interactions is with technology only. So actually, we're not seeing that pressure on our operations and also our mission to make healthcare accessible and affordable for everybody and help those most in need in any society we are in, including United States, is highly attractive to a very large group of practitioners. So we are finding little problem in that front so far.

Okay, gotcha. Thanks. That's helpful. And then going back to the composition of the new value-based care members, it was really helpful you guys broke that out. I was wondering if you could provide any color on how you're expecting that to trend throughout the year as it relates to the potential for PMPM uplift?

Yeah, so as you can imagine, the PMPMs, particularly around Medicare and commercial, are higher than the PMPMs on Medicaid. So we'd expect to see that trend follow through. We've also converted some of our value-based care members in California from professional risk onto global capitation risk. That was the last of just about 10,000 members that have gone through to the global cap risk. So that will see an increase in the PMPMs come through there as well.

Okay, gotcha. And sorry, I just want to clarify what you just said. So all of the California members have been converted to the global capitation risk?

Yes, they have on Medicare, yes.

Okay, thank you.

Thank you.

We'll make an announcement with further detail on that shortly.

Thank you. The next question is coming from the line of Salco Fredericks with Deutsche Bank. Please proceed with your questions.

Thank you very much. Hello. I have three questions, please. My first question is on your guidance for 2022. Taking the monthly revenue run rate from January obviously leads you right into the guidance corridor. being just very, very conservative with that revenue guidance? Or is there anything we should be aware of in terms of potential additional contract wins in 2022? And my second question is also on the guidance. So if we were to assume additional contract wins in 2022, is it fair to assume that you would then obviously break through your revenue guidance? but would probably miss your EBITDA margin guidance because these new contracts tend to be at a lower margin at the onset. And then my third question is, we noticed you're now targeting your adjusted EBITDA break even no later than 2025. And unless we are wrong, we thought that your previous goal was to achieve that adjusted EBITDA break even by 2023. So we were just wondering why that is now being pushed back a little bit. Thank you.

Yeah, sure. So let me talk about those things in turn. So starting with the last one, which is the adjusted EBITDA guidance going from 23 to 25, we actually updated that a few weeks ago. But the reason for that is that we're just seeing massive growth ahead of where we expected. And that's the reason why we can upgrade our growth forecast for this year from where we originally were at $710 million to $900 to $1 billion. When we think about that, exactly as you say, the run rate revenue in January was over $80 million. The only sort of, I guess, flying the ointment around revenue for this year was is when we think about the Medicaid redetermination. That's been pushed out quite a few times already, but we have an assumption within the business around that. But at the same time, though, exactly as you say, we also have a fantastic commercial team that's very busy winning new contracts. What we can also do, though, is be a lot more selective about those new contracts at the same time, because basically we've got the pressures around the funding of that massive growth we have a huge amount of demand for our products and services. And we're in a fortunate position. We can be a lot more selective about that, which will also help drive the profitability.

Okay, thank you. But it's then fair to assume that your EBITDA margin guidance for 2022, that is assuming that you will infer the contract, right? That minus 30% goal.

Yes, so the reason why we've guided around the 30% is because we're focusing on the operational leverage, but at the same time it allows us to grow faster or indeed a little bit slower than we might otherwise want to do.

Okay, thanks a lot.

Thank you. Our final question is coming from the line of David Larson from PTIG. Please proceed with your question.

Just one more quick follow-up. Can you talk about the in-cell potential into mainly the U.S. value-based care business? You know, you're serving 24 million people globally. How many of those lives would be good to roll onto the value-based care platform? Any thoughts there? And I think you had mentioned a $3.6 billion pipeline at the time of the IPO. Just any high-level comments or color around that would be great. Thanks.

Yeah, sure. So, David, look, the pipeline continues to grow. We've had... Sorry, I'll cover the pipeline quickly, David. Actually, Ali and I are in different locations on the other side of the world. But the pipeline continues to grow. As I mentioned, we've got a huge amount of demand for our value-based care products, primarily in the US. But at the same time, we've got scope for further expansion, conversion of people from the other products that we deliver over to value-based care. Ali, you might want to expand on that.

So the question for us, the challenge for us is not demand. The challenge in a way is to do exactly what you described, David, which is how to balance the demand of our existing clients who are seeing the positive effect of our work and want to take us from a very tiny percentage of their members to increasing number of their members versus our need to bring new clients in and the appetite of new clients to be added versus our also desire to balance our book from Medicaid to Medicare to commercial. So that is primarily the balancing act we are performing on how to add new clients while continuing to in-sell and satisfy the demands of our existing clients. In a way, as I'm sure you appreciate, this is a fantastic problem to have. I emphasize again, I am not sure how many stocks anyone is covering that grew fourfold last year, continue to grow threefold this year, has reduced the EBITDA losses by sixfold in a two-year period as a percentage of revenue. We are continuing to do what we promised to do. which is build the scale as many, many other disruptive technology companies did in their earliest stages. And as we build the scale, apply technology and operational leverage ability to bring that scale to profitability. This year, we will show that almost every one of our contracts will become or will show a contribution to the gross margins and in their totality, they will be a great contributor. From there onwards, we will just keep playing the same flywheel. We remain incredibly positive about this business. United States couldn't have been better for us. United Kingdom business is doing very well. The Rwanda business is growing. Our licensing business demand and pipeline is growing. So we are super happy. Charlie, anything you want to add to that?

Nothing else to add on to that, but very, very excited. about the pipeline growth in 2020 to continue to deliver and I'm really pleased that we are delivering on our promises as Ali said.

That's very helpful, thank you. And then just any thoughts on Omicron? There have been a couple of companies in the space that have significant Medicare exposure that have had higher utilization rates amongst their Medicare population in the hospital setting. Are you seeing that or not? And what are your sort of assumptions in 22 for COVID? Thanks.

Yeah, sure. So for 2021, actually, our medical claims expenses were lower than the revenue that we received on the contracts and aggregates across the whole business. So that's very positive. We have not seen a significant uptake in the way that you say, David, in our claims expenses. And I think, as I alluded to last time, that's partly due to the fact that number one is that we can continue delivering our services remotely, but number two, we also have a significant Medicaid population that's generally younger and less exposed to other hospital care procedure needs that Medicare populations may be more exposed to. For 2023, 2022, we also do see So some automatic stabilizers basically within the contracts because if we get an increase in PMPMs, for example, from CMS or from the states, we get that translated through into our PMPMs through our contracts. So it's not as though we lose out on that, and therefore we see that automatic stabilizer coming back.

Okay, great. Thanks very much.

Thank you. At this time we've reached the end of the question and answer session. I'll now turn the call over to Ali Parsa for closing remarks.

Thank you very much. Thank you everybody for your interest in Babylon. We are, as I said earlier, at the very early days of what we are trying to do. We started coming to the United States some time ago as a company with $80 million of revenue in 2020. In this January, we did more revenue in a single month than we did that entire year. We delivered in 2021 four times growth on our revenue. We will deliver at least three times or circa three times growth this year in our revenue projections. And we continue to focus significantly on demonstrating the leverageability of our model. We are not doing anything beyond what we promised to do. We're delivering on that promise, but this is very early days for us. We think that we have the potential to create a valuable, significant global company in healthcare that will take that industry that I mentioned before, that is primarily reactive, that is about sick care, into a proactive healthcare company that we all need. We all need to be pre-warned about things that are going to happen to us. We need people to look after us as opposed to wait until things go wrong and then have all the hassles of dealing with that sector that is inconvenient and impractical. So there's a long way to go, but this is an industry that needs a fundamental change, and I hope that we can be part of a group of companies that will deliver that change. Thank you for your interest. Early days, but a long way to go, and we couldn't be more excited about what we're seeing in front. Thank you for your time.

Thank you. This concludes today's conference. We disconnect your lines at this time. Thank you for your participation.