Babylon Holdings Limited (BBLN) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to Babylon’s Fourth Quarter and Year End 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note, this event is being recorded. Leading the call today is Dr. Ali Parsadoust, Founder and Chief Executive Officer; and Charlie Steel, Chief Financial Officer. Before we begin, we would 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 as 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 at differ materially. Although Babylon believes that these expectations are reasonable the company undertakes no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to different materially from these forward-looking statements can be found in the Risk Factors section of the company’s registration statement on Form F1 filed on November 9th, 2021 and as 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 valuing 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. With that, I’d like to turn the call over to Babylon’s CEO, Dr. Ali Parsadoust. Please go ahead.
Ali Parsadoust: Good morning, everybody. I would like to welcome everyone and thank you for your time and interest in Babylon. I’m joined today by Charlie Steel, our Chief Financial Officer. Today, I will share an update of our progress in 2021, including our revenue growth, technology developments and early operational performance. I will also share some business initiatives for 2022 before passing to 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 their structural advantages offered my technology to deliver significant growth and in time cost savings to automation and prediction. Our message today is consistent therefore with our last earnings call and can be summarized as follows. One, 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 set a $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 details. Financial, operation, 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 spent 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, then 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 segment, 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 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 in 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 the pathway into healthcare and we aim to reduce the medical claims expenses to a degree that this upset our own costs and makes it profitable. We have done this in the UK where we now see an average of 6.5 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 U.S. 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 territory, 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 clinic 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 numbers 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 at – we are a technology company and we have built the business from a technology perspective first. For example, our product and in technology team is one of our largest with over 600 engineers and technologies across three continents, over a 100 of whom are highly specialized AI scientists and engineers. While this represents a significant investment, we demonstrated operational leverage with technology cost declining as a percentage of revenue from 117% in 2020 to 28% in 2021, which a further expected decline to 15% in 2022. In my summary of 2021 things we delivered in 2021, I listed some of our technology teams 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 pipeline. 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 choose. Before I turned 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 accomplishment 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 healthcare service for all. With that, I’ll turn the call over to Charlie, who will review our financial results in more detail.
Charlie Steel: Thank you, Ali, and thanks 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 were released in November. For more notable 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. 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 margin, as well as the impacts 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 3x the revenue regenerated in the fourth quarter of 2020. Top-line 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 BBC 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 contact execution to over a 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 VBC revenue related revenue represents most significant contributor to the top-line. Fourth quarter 2021, VBC and related revenue increased $72.7 million to $98.7 million or 279% over the $26 million of VBC revenue in the fourth quarter of 2020. This was as a result of accumulated membership growth during the first three quarter 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 was paid up front $28.4 million of the fee was recognized in Q1 2021, normalizing for this year-over-year growth and licensing revenue would be 29%. Clinical services revenue, which is all of our service delivery outside of the U.S. plus our U.S. VBC 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 $28.6 million in 2020, a 47% year-over-year increase. The end of 2021 in the United States, we had 167,000 BBC members at which 84% were Medicaid, 9% commercial and 7% were Medicare. At the end of 2020, we had 66,000 U.S. VBC members, which 88% were Medicaid and 12% were Medicare. At the beginning of 2022, we added over a 100,000 new U.S. VBC members with increased penetration of Medicare members, totaling 11% of our total U.S. VBC members as of January 31. Percentages of total U.S. VBC members for Medicaid commercial members decline slightly to 83% and 6% respectively. In tandem the monthly revenue increase from approximately $40 million in December, 2021 to over $80 million in January, 2022. As a result of the increased VBC business in the U.S. For the full year 2021, As I discussed before we generated $322.9 million of total revenue, certainly exceeding our guidance of $321 million and achieving a four times multiple of 2020 revenue. We are pleased our 2021 revenue performance and are encouraged with, by the growth and impact the VBC is making in its first full year. As we’ve mentioned before, management has faced significant emphasis delivery of revenue growth, a strategy reiterated by increasing FY 2022 revenue guidance significantly to $900 million to a $1 billion representing expect incremental revenue of over $0.5 billion for 2022. For reasons, I discuss shortly it’s exceptional revenue growth comes is associated with margin impacts in the short term, I discuss that the influence the fourth quarter results, and also touched 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 association with the new VBC 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 U.S. VBC members, we encourage incremental costs, including those relates to increasing capacity of our virtual providing networks and care management staffing and member marketing initiatives. With these activities, we expect to see longer term margin benefits as our abilities to generate better health outcomes increases the digital engagement. As a following to Ali’s remarks on our year one investments in VBC contracts. I think it’s helpful to provide further perspective on what we do to support a contract within new cohort, to facilitate digital-first engagement. There are several pillars to stand up. As we seek to optimize our engagement with members. Firstly, commensurate with the number of new members in a specific cohort, we need to ensure sufficient capacity established in the virtual network support new member interactions. There is also a staffing component to this initial to build out where medical professionals, support staff and local outreach ambassadors need to be invested, hired, and trained to the elevator standards we at Babylon . 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 initial outreach, which includes marketing, community events and outreach ambassadors, and can take up to three months. From this initial push sign up 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 on being a repeat user of its business, it has a meaningful impact on how that person chooses to navigate the healthcare system. The repeat user of Babylon service evidence indicates that Babylon quickly becoming their gateway into the healthcare system, which enables Babylon’s to improve their sense and better control cost of care. In Missouri, for example, we’ve seen encouraging results and 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 of we enter these states and sign up new cohorts. Nearly all of these costs are include the cost of care’s deliver expense, thus impacting our cost of care delivery margin, incremental technology expenses associated with new contracts and minimal, which is the reason why we see continue to see the benefits of operational leverage. Finally, while we haven’t been unaffected by the dynamics catching off on the back of procedures that were delayed as a result of COVID-19. We believe we’ve been impacted less than the rest of the industry, these are 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 were which during a contract startup phase, prior to achieving engagement with our members can place pressure on margin. We are seeking errors 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 financial efficiency. And we are actively working towards a more efficient network and sheds and or providers to better manage the expense to support the network. Technology expenses, comprised of platform and 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 decline 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, $77.9 million for the fourth quarter of 2021 up from $18.3 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 onetime 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 shared issued to invest in our caring. 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 is $174.1 million, an increase of $28 million from our 2020 adjusted EBITDA loss of $146.1 million. Moving to balance sheet Titans are provide the most relevant balance sheet and cash flow information between context of the changes. Cash and cash equivalent as of December 31, 2021 was $262.6 million and debt rates for our AlbaCore financing totaled $200 million. We executed an additional debt funding arrangements for a $100 million with AlbaCore at the end of 2021, and expect to receive the funds the end of March, 2022. The contract provides a capital commitment subject own to customer 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 31, 2021, this provides accurate cash availability of over $360 million. Acquisitions to date have been funded largely by equity, allowing us to grow minimal cash investment, reducing cash burn. In January this year, we raised 2022 revenue guidance to a range of $900 million to a $1 billion from our initial guidance of $710 million an increase the 34% of the midpoint of the range. The growth in 2022 revenue is largely relates to value-based care where we initiate implementation and contracts covering over a 100,000 new U.S. VBC members starting in January, 2022. The guidance we have provided to the market for 2022 does not include any app progression and none of planned at this time. We are reaffirming revenue guides to 2022 when $900 million to $1 billion 3x increase over 2021 revenue. This outlook increases consideration of Medicaid redetermination. Adjusted EBITDA loss of 2022 affect the approximately 30% 2022 revenue demonstrating continued operational leverage with declining losses and success of years from 950% in 2019 to 184% in 2020 to approximately 54% in 2021. This reflects significant revenue member growth in U.S. value-based care contracting with increased penetration of U.S. value-based care business the overall mix. The incremental costs, including those associated with expanding the virtual providing network and supporting new members as I outlined earlier. At the top end of the revenue range of $1 billion of which approximately 90% of VBC related every 100 bps of MLR improvement translates roughly to $9 million across the care delivery margin, it is worth noting this is not symmetrical because it’s MLR declines. We have stop 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 VBC members is less than eight months with our VBC contract 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 operationalize 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 care savings in the UK. Just as we focus on delivering our projected revenue working 2021 far exceeding expectations, management is now planning to increase on cost of care delivery margins for the rest of 2022, to reach our profitability goals on all of our business lines. While, we believe we can continue to deliver significant revenue growth we will balance this against the cost of growth and the means of funding. We take a disciplined approach to deployment of capital, so solely considering how we best deliver future values as 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 improvement. We continue to evaluate the timing to reach possibility on a cash and adjusted EBITDA basis, which we are targeting is no later than 2025 and management incentive plans are align to the goal. 2021 was about proving we can deliver growth. 2022 is about continuing that growth, but also proving possibility. Additionally, the Board and management, knows the lack of liquidity in the stock, and we are 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 advising 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 for questions.
Operator: Thank you. Thank you. And our first question will be coming from the line of David Larsen with BTIG. Please proceed with your questions.
David Larsen: Hi congratulations on a good quarter. If 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, more about how you squeeze water from the sponge in terms of earnings over year one and year two, where does like 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.
Ali Parsadoust: David. This is Ali, thank you for your question. Oh, Charlie, go ahead.
Charlie Steel: Sure. So, 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. So it goes back really to what Ali was saying early 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 at 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 that, by the way, that’s exactly the same as what we also see from our statistics in the UK.
Ali Parsadoust: Maybe just pick up on what Charlie. Okay. If you want to follow, please go ahead.
David Larsen: No, please go ahead. Ali. Thank you.
Ali Parsadoust: Yes, David, I just wanted to follow up on Charlie and 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 that efficient. We do not provide enough care for people until they hit into crisis emergencies. They end up in hospital for incentivized to maximize the amount of money they can take out of them. And after – there is significant amount of ways in this system; we believe that actually, if you look after people really well upfront, you would avoid those expensive crisis and emergencies. And in UK, we spend three times per capital, 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 75% in UK, but that’s because all of our patients go through it so we can manage their costs completely and well in here, the numbers may be a little bit different. We also share those cost savings with our 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, the simple belief that if you look at the people upfront really well, you avoid their emergencies and try that you must believe that we will be able to save the cost. This is not an efficient system. It’s not like taking water out of stone. It actually is much more like taking water off than the sponge.
David Larsen: Yes. That’s actually what I referenced taking, squeezing water from a sponge, not squeezing water from a stone. So yes, I’m very…
Ali Parsadoust: Oh, my apologies. You’re absolutely right. Sorry about that.
David Larsen: Yes, no problem at all. And then can you talk about your mix of lives please, like Medicaid around 83% Medicare are 11%, commercial 6%. How would you expect that to trend over time and is any one of these buckets more profitable than the other?
Charlie Steel: 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 that 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 the affordable, accessible healthcare tool. And the way that we think about this is delivery of healthcare needs and keeping people healthy as Ali as mentioning earlier. We don’t think about kind of 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 of the other types significant easier.
David Larsen: 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.
Charlie Steel: Exactly.
David Larsen: Okay. And then in terms of like your total lives on platform, 276, that’s about a 100,000 lives higher than what we had been sort of expecting for 1Q of 2022. 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 wins, and any color on the, commercial win in particular would be helpful.?
Ali Parsadoust: So, David, these are entirely new health plan wins. The commercialized coming through during 2021 came through our IPAs.
David Larsen: Okay. Very helpful. I’ll hop back in the queue there. Thanks.
Operator: Thank you. Our next question comes from the line of Glen Santangelo with Jefferies. Please proceed with your question.
Glen Santangelo: Yes. Thanks and good morning. Thanks for taking the questions. I just wanted to follow up on Dave’s question regarding the EBITDA margin improvement. 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, negative EBITDA margin. You’re benefiting from a mix shift, but could you maybe talk about your first cohort of patients in Missouri? Are they profitable yet? I mean, they, this 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, and maybe where the profit on that cohort stands now?
Charlie Steel: Yes, sure. So Glen taking the two bits in turn. So first of all, when we think about the operational leverage, that 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, 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, 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 engagements 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.
Glen Santangelo: All right. Maybe if we could just talk about the cadence of EBITDA through 2022. Charlie, I think, based on the guidance that you gave of the negative 30% EBITDA margin, you’re assuming, almost negative $300 million in EBITDA, and that’s on an adjusted basis, which doesn’t take into account like stock comp and things like that. And, even with the a $100 million in funding, 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?
Charlie Steel: Yes, 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? Like we are 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 will always be disciplined about how we think about spending our capital. The one other thing I would just note though and is that raising capital in order to grow, isn’t the only way that, 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.
Glen Santangelo: Okay. That’s helpful. Maybe just one last question. I mean, just to follow up on, your comments about, the alleviating, maybe the lack of liquidity in the stock, could you maybe just give us a sense for, 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 I’m and the last part of that question is I just want to make sure I understand when does the lockup expire from, both the pipe investors and the employees, just so we have all those dates and the correct share counts, we’re all using the same number?
Charlie Steel: Yes, sure. So the lockup expires April 21. We have disclosed in our F1 filing the total number of shares. And we will do that again in our 20-F there hasn’t been a change in that it’s just a 400 million shares. The one thing that I would encourage you to note though is that share count includes the management earn out that only start to kick in above $12.50. So in effect up to $12.50, there is the higher share count. And that is material to about 10% of the outstanding shares that, that doesn’t affect stockholders at all. If that $12.50 share price is not achievable within five years, those shares are effectively canceled.
Glen Santangelo: Okay. Thanks for all those details.
Operator: Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity. Please proceed with your questions.
Richard Close: Yes, 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 U.S.? And what does the pipeline look like from a licensing perspective right now?
Charlie Steel: Sure. So, up until now, we’ve basically done a small number of very large very large contracts that are generally relatively speaking, quite for spoke. But at the same time, a highly profitable for us and lever our excellent technology platform, what we’re spending some in 2022 during is making that product much more accessible. So that basically there’s more self-service and we can do smaller, but not service spoke licensing contracts. And that will be global. One of the big advantages of our platform is that we can spun 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 active models. We do the translations and the low regulatory requirements. But basically there’s 11 countries from Southeast Asia. We spun up in a matter of months onto our platform.
Richard Close: All right. Do you have a target in terms of percentage of revenue? You would think licensing would be in 2023?
Charlie Steel: Yes, 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.
Richard Close: 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.? In 2022 and 2023, or just curious there?
Charlie Steel: Absolutely no. We’ve got so much demand coming for our products 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 demonstrate 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 U.S. value based care is the core elements of growth in 2022.
Richard Close: Okay. And then my final question…
Ali Parsadoust: Maybe I can?
Richard Close: Go ahead.
Ali Parsadoust: 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 were 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 now increased that by 40% or so to up to a $1 billion. At the very same time, we did say that we will focus on growth when we have this scale, we will then turn those per contracts profitable. And as we built the technology necessary to deliver those contracts, we will eventually license those technologies. So we are sticking exactly to the plan that we outlined at the time of the IPO. And if you refer to those documents, almost nothing change, we are playing it page by page going forward.
Richard Close: Okay, that’s helpful
Ali Parsadoust: Deploy the technology, make their technology show itself and then license our technology to somebody else. But none of those wheels will stop, we will, as Charlie said, at $700 million of new revenue this year, and we will accelerate that growth next year too.
Richard Close: Okay. And then with respect to the U.S. value based contracts, can you just remind me us in terms of, what is the duration of the contracts in terms of are they annual, or, just curious there, how you think about the timing of those contracts, whether there’s any renewals just thoughts there?
Ali Parsadoust: The average on track length which 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.
Richard Close: Okay. All right. Thank you.
Operator: Our next question comes from the line of Daniel Grosslight with Citi. Please proceed with your questions.
Anna Kruszenski: Hi guys. This is Anna Kruszenski on 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 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.
Ali Parsadoust: Actually we’re in different places. So we can’t see each other. But I think – we are not seeing any further pressure on the cost of care that we expected. We’re seeing actually things are going as we plan. And you must remember that we get our 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 patient. 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 leveragability, those numbers are falling significantly. We use our care assistances extensively to allow less doctors involvement, because so much of our, we do patient self administer too. I mean, about 40% plus of all our interactions is with technology only. So actually we are not seeing that pressure on our operations and also our mission to make healthcare accessible and affordable for everybody and help those who still need in any society we are including United States is highly attractive to a very large group of practitioners. So, we are finding little problem in that front so far.
Anna Kruszenski: 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.
Charlie Steel: Yeah. So as you can imagine, the PMM particularly around Medicare and commercial are higher than the PMMs 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 about 10,000 members that have gone through to global cap risk. So, that we’ll see an increase in the PMPMs come through there as well.
Anna Kruszenski: Okay, gotcha. Sorry, I just want to clarify that you just said so all of the California members have been converted to the global capitation risk?
Charlie Steel: Yes. They have a Medicare. Yeah.
Anna Kruszenski: Okay. Thank you.
Ali Parsadoust: We’ll make an announcement with further detail on that shortly.
Operator: Thank you. The next one questions coming from the line of with Deutsche Bank. Please proceed your questions.
Unidentified Analyst: Thank you very much. Hello. I have three questions please. My first question is on your guidance for 2022 taking the monthly run rate revenue run rate from January, obviously yes leads you to the guidance corridor. So, are you 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? Then 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. Then my third question is we, we noticed you’re now targeting you adjusted EBITDA breakeven no later than 2025. And unless we are wrong, we thought that your previous goal was to achieve that adjusted EBITDA breakeven by 2023. So, we were just wondering why that is now being a push a back a little bit? Thank you.
Charlie Steel: 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 2023, 20, we actually updated that a few weeks ago. But the reason for that is that we are 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 $710 million to $900 to $1 billion. When we think about that exactly as you say, run rate revenue in January was over $80 million. The only sort of, I guess, flying the arguments around revenue for this year 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 fortune position we can be a lot more selective about that, which will also help of profitability.
Unidentified Analyst: Okay. Thank you. But it’s then fair to assume that your EBITDA margin guidance for 2022, that is assuming that you win further contract, right, that minus 30% goal?
Charlie Steel: Yes. So, the reason why we’ve guided around the 30% is because we’re focusing 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.
Unidentified Analyst: Okay. Thanks a lot. Thank you. Our final question is coming from the line of David Larsen from BTIG. Please proceed with your question.
David Larsen: Just, just one more quick follow-up. Can you talk about the in sell potential into mainly the U.S. value-based care business? 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.
Charlie Steel: Yeah, sure. So, David pipeline continue – sorry. I’ll cover the pipeline quickly, David, actually Ali and I in different locations on the other side of the world. But the pipeline continues to grow. As I mentioned, that we’ve got a huge amount of demand for our value-based care products primarily in the U.S., 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.
Ali Parsadoust: 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 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 continue the in sell and satisfy the demands out 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 stock anyone is covering that grew four-fold last year, continue to grow threefold this year has reduced the EBITDA losses by six-fold 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 leveragability 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 margin and in their totality they will be a great contributor. From there almost, 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 Wanda business is growing our licensing business demand, that pipeline is growing. So, we are super happy. Charlie, anything you want to add to that?
Charlie Steel: No, nothing else to add on that, but very, very excited about the pipeline growth in 2022 continue deliver and really pleased that we are delivering on our promises as Ali said.
David Larsen: That’s, 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. And are you seeing that or not? And what are your sort of assumptions in 2022 for COVID? Thanks.
Charlie Steel: Yeah, sure. So for 2021, actually our medical claims expenses were lower than the revenue that we received on the contract as an aggregate 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 so 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 generally younger and less exposed to other hospital care procedure needs, but Medicare populations maybe 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 from the states. We get that translated through into our PMPM through our contract. So it’s not as though we lose out from that and therefore we see that automatically save by coming back.
David Larsen: Okay, great. Thanks very much.
Operator: 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 Parsadoust for closing remarks.
Ali Parsadoust: 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 sometime ago as a company with $80 million of revenue in 2020. In this January, we did more revenue in a single month that we did that entire year. We delivered in 2021, four times growth on our revenue. We delivered – we will deliver at least three times or three times growth this year in our revenue projections and we continue to focus significantly on demonstrating the leveragability of our model. We are not doing anything beyond what we promise 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. As I, before that’s primarily reactive that it’s about sick care into a proactive healthcare or company that we all need. We all need to be treat, all 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 has been convenient 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.
Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
