Babylon Holdings Limited

Good morning and welcome to Babylon's first quarter 2022 earnings conference call and webcast. All participants will be in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. If you'd like to be placed into question queue, please press star one on your telephone keypad. Please note this event is being recorded. Leading the call today is Dr. Ali Parsa, Founder and Chief Executive Officer, Charlie Steele, Chief Financial Officer, and Steve Davis, Chief Technology Officer. Before we begin, we'd like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and is further described at the end of the press release that is posted on the company's website. These forward-looking statements reflect Babylon's current expectations based on the company's beliefs, assumptions, and information currently available to the company and are subject to various risks and uncertainties that could cause actual results to differ materially. Although Babylon believes these expectations are reasonable, the company undertakes no obligations to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements can be found in the risk factor section of the company's annual report on Form 20F filed on March 30th, 2022 and other filings with the Securities and Exchange Commission. In addition, please note that the company will be discussing certain non-IFRS financial measures that they believe are important in evaluating performance. Details on the relationship between these non-IFRS measures to the most comparable IFRS measures and reconciliation of historical non-IFRS financial measures can be found at the end of the press release that is posted on the company's website. The presentation slides for today's call are also available on the company's website. With that, I'd like to turn the call over to Babylon's CEO, Dr. Ali Parson, please go ahead.

I would like to welcome everyone and thank you for your time and interest in Babylon. I'm joined today by Charlie Steele, our Chief Financial Officer, and Steve Davis, our Chief Technology Officer. Today, I will share an update on our business progress in the first quarter of 2022, including our outstanding revenue growth and cohort engagement. I will then pass the call to Steve to provide more color around our highly advanced technology platform and how our focused technology investments are enabling best-in-class data analysis and risk assessment for Babylon members. Charlie will then provide more details on our financial results before we open the call for questions. I would like to center my comments today around four key themes. Firstly, our continued exponential revenue growth. Secondly, our operating discipline. Thirdly, our continued strong engagement trends. And finally, our technological advantage. I will begin by expanding on our growth this quarter. After achieving four-time revenue growth in 2021 to a record of $323 million, I am pleased to share that our top line growth has continued well into 2022 with our first quarter revenue coming at $266 million, comfortably beating consensus estimates. These amounts represent three and a half times growth from the first quarter of 2021 and is just under $60 million shy of the revenue generated by Babylon in the entirety of 2021. Importantly, we were able to achieve this level of growth while maintaining excellent levels of customer engagement and satisfaction. We remain extremely optimistic about our prospects for 2022 and are confident that we are tracking to at least $1 billion of revenue for the full year. Accordingly, we are increasing our revenue guidance to $1 billion or greater, up from a range of $900 to $1 billion previously. As Charlie will discuss in a few minutes, this represents a revenue growth greater than threefold from 2021 on top of the fourfold growth we achieved last year. Our revenue growth has been powered by a robust expansion in our value-based care membership. Our USVBC membership grew by more than 300% year on year to over 270,000 members as of March 31st. This growth was driven by the launch of three new value-based care contracts this quarter, which added a further 105,000 US VBC lives across three states. We are proud to now provide clinical services in eight states across the united states and to work with a broad variety of payers including bcbs in new mexico and united humana etna anthem blue cross through our ipas in california i appreciate that revenue growth has become an unfashionable world and the mantra for most investors has turned from growth is everything to profit is everything like many I have seen these cycles come and go, and in my view, the companies that on one hand do not stay oblivious to the prevailing environment around them, but on the other, stay focused on executing their plan, will be the ultimate winners. In the same way that we never subscribe to the previous dominant view of growth at any cost, and always curb our growth at a sustainable level, Today, we do not believe in the now dominant bias against growth. We always believe that we should deliver profitable growth and profitability in platform businesses will come from scale and continuous investment in innovation. The operational leverage that I will highlight in more detail shortly shows that once the scale is achieved, it should lead to substantial cash generation as every incremental dollar contributed to the gross margin should in large part fall directly to the cash line. Moving on to my second point regarding operating discipline, we continue to make progress towards our goal of profitability no later than 2025, delivering an adjusted EBITDA for the quarter ahead of consensus expectations. As we emphasized, In our fourth quarter call, a key priority for us in 2022 and beyond is to demonstrate to the market that we can continue to deliver exponential growth while at the same time diligently focusing on balancing the cost of that growth. We're monitoring all contracts from this perspective and have a disciplined approach to their construction. For example, when taking on new contracts, we are focused on only those where we can see a path to gross margin neutrality from year one and with the potential to drive significant margin improvement every year after that until maturity. In addition, we are focusing on expanding our portfolio beyond our initial start with Medicaid to growing our Medicare advantage and commercial population. To this end, we are being very selective in our consideration of new or even existing Medicaid contracts and only accept or continue with those that are in line with the above objectives. This decision is factored into our outlook and demonstrates the selectivity of our approach and our resolution to grow in a disciplined manner, achieving profitability by or ahead of our targeted timeframe. Moving on to discuss engagement, I would like to take a few minutes to talk about the very positive trends we are observing across our VPC contracts. Engagement is the key to our business model and to our patient journey. In the UK, we have already proven our ability to create downstream cost savings through high upfront engagement. An independent study by the National Health Service and Ipsos-Mari showed we reduced ER visits by over 25%, and a peer-reviewed study proved we create acute care cost savings of up to 35%. engagement is key to this by creating a service that is highly accessible and members love we are able to become the gateway to the overall healthcare system once our uk members attend their first appointment they'll return for an average of seven more appointments annually i'm pleased that we are seeing the same pattern of engagement across our US contracts. This quarter, we saw members in our most mature contract in Missouri return for an average of four further appointments annually. And to help you understand why this is and why our members keep returning to our services, We've shared one member's testimonial about their experience with Babylon, which you can access through these conferences, accompanying Vic, posted on the investor relations page of our website. In addition to this success with engagement, we also see that our service in the U.S. leads to a reduction to expensive emergency room visits across all of our VBC contracts. 27% of appointments this quarter resulted in avoidance of emergency room and urgent care visits. Moreover, We are also seeing that our ability to engage members has ramped up to be even faster over time. For example, compared to our older New York and Missouri contracts, our rate of signing up high risk members and the new contracts in Georgia and Mississippi has been respectively four to five times and eight to 10 times faster. We have been able to do this due to continuous optimization of our outreach approaches, for example, by adding the ability for our staff to manually sign up members live on an initial phone call and by shifting our focus from high volume of outreach to creating fewer but high quality interactions. We are very pleased with this success and confident that we will continue to optimize further and ramp up even faster in future. What we are learning today will give Babylon a structural advantage tomorrow in the way we can onboard and engage our future members at scale and speed. Babylon took on its first value-based care deal in October 2020 in the midst of the COVID-19 pandemic, assuming global risk of approximately 17,000 Medicaid beneficiaries. It is worth noting that some of these beneficiaries were intentionally selected by Backlund's payer partner based on a lack of historical primary care utilization. Over the contract, nearly 40% of households have engaged with Backlund's digital first model of primary care and integrated behavioral health. This is a significant accomplishment, especially given these beneficiaries' historical disengagement from the healthcare system. The headwind of COVID, the presence of digital divide in the rural markets, and the lack of accurate contracting formation that is endemic in medication population. Despite the headwind faced by Medicaid health plans nationally during 2021, whereby many saw worsening MLR performances, Babylon maintained the MLR. for our members at projected levels and observed decreased patient utilization over the first 15 months of the contract, all while increasing engagement and access to the care for these historically underserved Medicaid members. Just as we have seen in our UK population, once our members are engaged on our platform, we are able to deliver significant cost savings. Currently in the US, 59% of our total VBC membership was added last quarter, and a further 23% were added in the fourth quarter of the last year. Members by definition have a higher cost profile when they enter our system, however, These cohorts, as these cohorts mature over time, we expect to see these contracts flip to profitability as the impact of our investments in proactively engaging members upfront in preventative care reduces the longer term downstream healthcare costs. In a moment, I will turn the call to Steve to expand upon our technology platform. But before I do, I would like to give you some more detail on the advantages provided by our technology. As we've stated in the past, our technology and our ongoing investment in R&D are a key differentiator for Babylon. Our AI and data analytics will increasingly be able to stratify population, conduct detailed risk assessments, and positively influence outcomes while ultimately driving down costs. Our significant investments and advances in the Babylon Street of technology and analytics are the key to switching from costly reactive sick care to proactive health care. improving members' health, and creating cost savings for both our partners and ourselves. While we cannot be certain how the accelerating pace of innovation will cause our technology to unfold, we expect that unlike our clinic-focused peers, our cost of computing, the scale of data collection, speed of processing, and ability to predict to prevent will exponentially improve with time. Our belief remains that there are structural advantages to a digital-first approach, and betting against technology has often proved wrong in the past and will do so in the future. Technology licensing will be a key revenue flywheel within our business model. Through our licensing partnership across three continents, we are able to expand the reach of our technology learning and bring in very high margin revenue. We continue to focus on building our technology licensing capabilities and pipeline this year with the expectation to convert the pipeline to increasing licensing revenue growth from 2023, driving towards our goal of profitability no later than 2025. Understanding the importance of our technological mode is key to understanding Babylon's competitive advantage. We are a technology company just as much as we are a healthcare company. We employ over 600 engineers and developers with roughly 100 in specialized areas of AI, data science, and predictive analytics. We expect to invest somewhere between $125 million to $135 million this year on our technology, having already invested over $350 million in our technology since 2019. This investment enables us to stay ahead of the innovation curve and stay leaps ahead of our competition. Through our technology, we are able to achieve significant operational leverage. Last year alone, whilst growing our top line by over 300%, we reduced our cost of technology as a percentage of revenue by three quarters to 28% of the revenue. And this quarter, we made further progress, reducing the cost of technology to just 10% of revenue. In addition, Through leveraging this investment and scaling our business, we will bring down our operating costs to a steady state and reach our goals of profitability. Before handing over to Steve, in closing out my prepared remarks, I'd like to thank the entire Babylon team for their hard work so far this year. Our company has continued to make strong progress this quarter and we have much to celebrate. I am, of course, also conscious that due to many factors, both general to the market sentiments and the specific challenges around the liquidity of our stock, our share price has not performed well. We will do all we can to address the part of this challenge that is in our hands. As I mentioned in my inaugural shareholder letter, our focus in Babylon has always been to create a platform that delivers a compounding competitive advantage to us over the long term. As Benjamin Graham wrote, in the short term, the market is a voting machine, but in the long term, the market is a weighing machine. We will remain focused on putting the weight on that long-term advantage. I am so proud of the amazing work of our team that continues to relentlessly drive our drive us towards our goal to make high-quality healthcare accessible and affordable for everyone on Earth. With that, I'll pass the call over to Steve, who will provide more details about the Babylon Technology Suite. Steve, over to you.

Thanks, Ali. One of the reasons I joined Babylon over a year ago was the belief that human life is one of the most valuable assets in the world. and the impact that we as an organization can have with the right technology strategy tied to such an incredible mission. Having worked in industries where the investment into purpose-built platforms fueled by data and AI unlocks so much value for hundreds of millions of consumers around the world, I saw that same unlock and potential here at Babylon. Providing higher quality healthcare at a lower cost will result in a level of scale already achieved in other industries, yet healthcare seems continually to lag behind. Over the past year, our global teams have been hard at work. They focused on delivering immediate value as well as investing into the core building blocks of our platform, which we will believe provide us a competitive advantage in the delivery of value-based care and growing our Babylon cloud services strategy. At the core of that platform is our investment into our HealthGraph strategy and platform. The HealthGraph is our ability to ingest large volumes of data both in real-time and in batch, unstructured and structured, from hundreds of various providers, wearables, and health record systems. This platform creates a data access strategy that powers our integrated AI capabilities while simultaneously enabling real-time member and clinical product experiences, all coupled with advanced analytical use cases. Sitting on top of that HealthGraph platform is our Health IQ service, Health IQ is a growing library of predictions that allows for real-time segmentation and health record enrichment of our members. These predictions provide our care teams with a scalable and effective way to service our members that may be at higher risk. Furthermore, our continued investment in causal AI has led to the growth of our triage product, which now includes Babylon Advisor. Babylon Advisor gives us the ability to codify industry-leading care guidelines into actionable member insights that allow our clinical care teams to provide scalable care delivery. Our goal with our technology investment and delivery is to elevate the quality of care, improve its accessibility, and deliver it in the most cost effective way at scale. This reflects our core mission as a company. You will hear more about our latest release, which is a large coordinated development effort that introduces upgrades to our platforms and applications and a single seamless experience at our Capital Markets Day on May 23rd. It remains our goal to continuously improve our purpose-built platform with our proprietary technology to assure a sustainable competitive advantage in the delivery of value-based care. With that, I'll pass the call over to Charlie to give an update on our financial progress this quarter. Charlie.