BABYLON HOLDINGS LIMITED 
99 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents Executive Overview We are a leading digital-first, value-based care company. Founded in 2013, our mission is to make high-quality healthcare accessible and affordable for everyone on Earth. We believe we are poised to reengineer the global healthcare market to better align system-wide incentives and to shift the focus from reactive sick care to preventative healthcare, resulting in better member health, improved member experience and reduced costs. To achieve this goal, we are leveraging our highly scalable, digital-first platform combined with high quality virtual clinical operations and affiliated provider networks to provide an integrated, end-to-end healthcare solution. We combine artificial intelligence and broader technologies with human expertise to deliver modern healthcare.
We monetize our products and services in three primary ways:
•Value-Based Care, or VBC, in which we manage a defined subset or the entire medical costs of a member population and assume financial responsibility for member healthcare services. During the years endedDecember 31, 2022 , 2021, and 2020, 92.5%, 68.2%, and 32.9%, respectively, of our revenue was derived from VBC arrangements.
•Clinical Services, in which our affiliated providers deliver medical
consultations, typically on a fee-for-service ("FFS"), or a combination of
capitation fee and FFS basis under a risk-based agreement. During the years
ended
•Software Licensing, in which we predominantly sell our digital suite of
products to partners who may provide care through their own medical networks.
During the years ended
As ofDecember 31, 2022 , our VBC, software licensing and/or clinical service offerings supported patients in 15 countries. We have scaled our VBC offering rapidly over the last year to become one of the largest VBC networks inthe United States , with 261 thousandU.S. VBC members as ofDecember 31, 2022 , and we expect to remain focused onU.S. growth. Our company has developed as follows:
•2013: Founded by our Chief Executive Officer, Dr. Ali Parsadoust.
•2014: Became the first digital-first health service provider to be registered with theCare Quality Commission ("CQC"), the healthcare services regulator and inspector inEngland . In response to primary care doctor shortages in theUnited Kingdom , Babylon contracted with theNHS to offer a technology platform to improve accessibility to primary care and to doctors, proving out the ability to tackle accessibility with high quality in a very advancedU.K. healthcare market. •2015: Began providing clinical services through our virtual care platform, offering diagnoses, advice and treatments via medical professionals to patients on a remote basis. •2016: First expanded outside theUnited Kingdom , launching inRwanda . We sought to prove our model in a more challenging environment and partnered with theBill and Melinda Gates Foundation and the government ofRwanda , a country with limited resources and infrastructure for healthcare.
•2017: Made our technology available for licensing to corporate and institutional clients.
•2018: Launched our agreement with Prudential in
•2019: Launched our partnership withTELUS Health ("TELUS") inCanada , the Canadian parent holding company of various telecommunication and other subsidiaries. TELUS agreed to use our platform to deliver digital health services acrossCanada through a joint venture namedBabylon Health Canada Limited . We soldBabylon Health Canada Limited to TELUS inJanuary 2021 and entered into a seven-year agreement to license our white-labeled digital platform toTELUS Health , allowingTELUS Health to provide integrated clinical services to members through a TELUS-branded version of the Babylon digital platform.
•2020: Entered the U.S. market with a clinical services network and formed our first end-to-end digital, integrated VBC service, Babylon 360.
•2021: Became a public company inthe United States , with our Class A ordinary shares and warrants listed on the NYSE, upon completing a merger (the "Business Combination") with Alkuri, onOctober 21, 2021 . In addition, 100 [[Image Removed: bbln-20221231_g2.jpg]]
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we completed a private placement of our Class A ordinary shares to certain
investors for an aggregate purchase price of
•2022: Partnered withAmbetter Health to provide digital-first value-based care services to Commercial Exchange members across 6 U.S. states fromJanuary 2023 , as well as extending key partnership with Bupa in theU.K. to cover 2.3 million customers.
We have also completed certain investments and acquisitions in recent years that have helped improve our ability to deliver our products in services:
•Fresno Health Care. InOctober 2020 , we acquired certain portions of the Fresno Health Care business ofFirstChoice Medical Group ("FCMG") for$25.7 million . This acquisition was intended to advance the growth of our value-based care services, by transitioning members to digital-first tools that will enable members to access our virtual care network in conjunction with the existing physical access to services. •Meritage Medical Network. InApril 2021 , we acquiredMeritage for$31.0 million . This acquisition was intended to expand the growth of our value-based care services, by transitioning over 20,000Medicare Advantage and Commercial Health Maintenance Organization ("HMO") patients within theMeritage network to digital-first tools that will enable members to access our virtual care network in conjunction with the existing physical access to services. OnOctober 12, 2022 , we announced that we intend to sell our IPA Business, includingMeritage Medical Network, a network of physicians which provides physical care inCalifornia , in order to focus on our core business model through further investment in digital-first contracts. We have initiated the formal process for the sale of the IPA Business. •Higi. OnDecember 7, 2021 , we exercised our option to acquire the remaining 74.7% outstanding equity interest in higiSH Holdings, Inc. ("Higi") pursuant to the Second Amended and Restated Agreement and Plan of Merger, datedOctober 29, 2021 (the "Higi Acquisition Agreement"). The closing of this acquisition occurred onDecember 31, 2021 . The exercise price of the option to acquire the remaining Higi equity stake included the payment of$4.6 million in cash and the issuance of 136,480 Class A ordinary shares at the closing, the payment of$5.4 million at the closing to satisfy the principal and interest payable by a subsidiary of Higi pursuant to a promissory note in favor ofALP Partners Limited , an entity owned by our founder and Chief Executive Officer$0.3 million in cash and issuance of up to 19,631 additional Class A ordinary shares after the expiration of a 15-month indemnification holdback period, and the issuance of 79,200 restricted stock units for Higi continuing employees and consultants in respect of Class A ordinary shares, of which 49,502 were vested at closing. Higi provides digital healthcare services via a network of Smart Health Stations located inthe United States , and makes health kiosks found in retail pharmacies and grocery stores that provide free screenings of blood pressure, weight, pulse and body mass index. We have experienced rapid revenue growth as we have recently expanded our VBC offerings. Our Total revenue for the years endedDecember 31, 2022 , 2021, and 2020 was$1,109.7 million ,$320.8 million , and$79.3 million , our Claims expense was$1,017.0 million ,$219.6 million , and$25.1 million , our Clinical care delivery expense was$80.6 million ,$69.8 million , and$42.1 million , our Platform & application expenses were$29.9 million ,$32.7 million , and$32.2 million , our Research & development expenses were$79.2 million ,$68.5 million , and$80.5 million , our Sales, general & administrative expenses were$227.9 million ,$187.2 million , and$90.7 million , our Premium deficiency reserve income / (expense) was$31.3 million ,$46.5 million and$5.6 million , our Impairment expense was$64.1 million , zero, and zero, our Depreciation and amortization expenses were$12.1 million ,$9.2 million and$4.0 million , and our Loss from Operations was$369.8 million ,$312.7 million , and$201.0 million , respectively. Our Net loss was$221.4 million ,$83.4 million , and$213.0 million , our EBITDA was$(177.8) million ,$(63.0) million , and$(201.0) million , and our Adjusted EBITDA was$(274.5) million ,$(212.2) million , and$(183.0) million for the years endedDecember 31, 2022 , 2021, and 2020, respectively. EBITDA and Adjusted EBITDA are non-GAAP measures. For a description of how we calculate EBITDA and Adjusted EBITDA, a reconciliation to the most directly comparableU.S. GAAP measure, and the limitations of these non-GAAP financial measures, see "-Key Business and Financial Metrics-Non-GAAP Measures."
Impact of the COVID-19 Pandemic
The rapid spread of COVID-19 around the world (the "Pandemic") has altered the behavior of businesses and people, with significant negative effects on national, state and local economies, the duration of which remains unknown at
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this time. Many state governors issued executive orders permitting physicians
and other healthcare professionals licensed in other states to practice in their
state without any additional licensure or by using a temporary, expedited or
abbreviated licensure or registration process. In addition, changes were made to
the Medicare and Medicaid programs (through legislative changes, and the
exercise of regulatory discretion and authority) to increase access to
telehealth services by, among other things, increasing reimbursement, permitting
the enrollment of out of state providers and eliminating prior authorization
requirements. It is uncertain how long these COVID-19 related regulatory changes
will remain in effect and whether they will continue beyond this public health
emergency period.
It is not currently possible to predict the ultimate financial impact of
COVID-19 on our business, results of operations and financial condition. Key
factors will include the extent to which changes in the behavior of people
during the Pandemic result in a permanent change in their behavior, a
longer-term reversion back to pre-Pandemic behaviors or a significant immediate
reversion in behaviors as the impacts of the Pandemic become more manageable
because of global vaccination programs.
Merger Agreement
InJune 2021 , we entered into a Merger Agreement, by and among Alkuri, Babylon and certain other parties which, among other things, provided for the Business Combination, in which our merger subsidiary merged with and into Alkuri, with Alkuri surviving as a wholly-owned subsidiary of Babylon. Following the consummation of the Business Combination, our Class A ordinary shares have been traded on the NYSE, and we have been developing the functions and resources necessary to operate as a public company, including employee-related costs and equity compensation, which has resulted in increased operating expenses when compared to our time as a private company and may continue to increase.
Key Business and Financial Metrics
We review a number of operating and financial metrics, including the following
key metrics and non-GAAP measures, to evaluate our business, measure our
performance, identify trends affecting our business, formulate business plans,
and make strategic decisions. Governmental and other economic factors affecting
our operations are discussed in "Item 1. Business."
For the Year Ended
2022 2021 2020
$'000 $'000 $'000
Revenue:
Value-based care 1,026,251 218,758 26,038
Clinical services 54,480 42,017 28,631
Software licensing revenue 28,938 60,052 24,603
Total revenue 1,109,669 320,827 79,272
Claims expense (1,017,003) (219,625) (25,120)
Clinical care delivery expense (80,624) (69,831) (42,134)
Platform & application expenses (29,897) (32,723) (32,209)
Research & development expenses (79,155) (68,473) (80,538)
Sales, general & administrative expenses (227,937) (187,172) (90,687)
Premium deficiency reserve income / (expense) 31,311 (46,533) (5,639)
Impairment expense (64,066) - -
Depreciation and amortization expenses (12,050) (9,185) (3,955)
Loss from operations (369,752) (312,715) (201,010)
EBITDA (177,770) (62,974) (201,015)
Adjusted EBITDA (274,499) (212,150) (182,983)
The breakout of
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For the Year Ended December 31,
2022 2021 2020
Medicaid 79 % 84 % 88 %
Medicare 15 % 7 % 12 %
Commercial 6 % 9 % -
Total U.S. VBC Members(1) 261,000 167,000 66,000
(1) Rounded to the nearest thousands.
Our key business and financial metrics are explained in detail below.
Revenues
Revenue is derived from capitation revenue under our VBC contracts withU.S. health plans and healthcare providers, clinical service revenue from the provision of clinical services, and software licensing revenue from technology licensing agreements for the use of our digital healthcare platform. Value-Based Care Revenue. Value-based care revenue consists primarily of capitation revenue for the delivery of VBC services under VBC contracts withU.S. health plans and healthcare providers. Under VBC contracts, we manage the healthcare needs of our members in a centralized manner, where we negotiate a per-member-per-month ("PMPM") or capitation allocation, often based on a percentage of the payer's premium or Medical Loss Ratio ("MLR") with the payer. We assume financial responsibility for member healthcare services, which means that, throughout the measurement period, the total actual medical costs are compared to the capitation allocation. At the end of the measurement period, we will either receive all or part of any savings, as compared to the capitation allocation or will be responsible for all or part of excess costs above the capitation allocation. Capitation revenue under VBC contracts is not dependent upon the volume of specific care services provided, nor the utilization of our digital healthcare platform. A small portion of the capitation revenue received under VBC contracts is variable, as the contracts contain provisions for performance-based incentives, performance guarantees and risk shares where amounts received are dependent upon factors such as contractual terms, quality metrics, member-specific attributes, and healthcare service costs. Capitation revenue is estimated using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. Such uncertainties may only be resolved several months after the end of the reporting period because of the availability of sufficient reliable data relating to factors such as quality metrics, member specific attributes and healthcare service costs. Subsequent changes in capitation fees and the amount of capitation revenue to be recognized by us are reflected in subsequent periods. The amount of variable capitation revenue recognized is expected to increase as the number of members we provide VBC services to increases. Value-based care revenue is recognized gross when it is assessed that the performance obligation relates to the whole of the patient journey with the Group responsible for arranging, providing and controlling the value-based care services provided to the attributed members. This is a significant judgement when assessing the performance obligation. For the year endedDecember 31, 2022 , revenue related to value-based care arrangements totaling$1,026.3 million (2021:$218.8 million , 2020:$26.0 million ) was recognized gross. Clinical Services Revenue. Clinical services revenue is represented by our provision of clinical services to business and private users. Clinical service fees are FFS fees or a combination of FFS and capitation fees, including PMPM subscription fees for the provision of virtual consultations. PMPM subscription fees give members access to our clinical services over the contractual period as set forth in the arrangement. FFS revenue is based on contracted rates determined in agreed-upon compensation schedules. Software Licensing Revenue. Software licensing revenue relates to a business customer obtaining a right to use and/or access our digital services. Where we have determined that the customer obtains a right to access our artificial intelligence ("AI") services, we recognize revenue on a straight-line basis over the contractual term beginning when the customer has access to the service. Where we identify that the customer obtains a right to use license, we recognize revenue from the license upfront at the point in time at which the license is granted and the software is made available to the customer. In these licensing arrangements, we primarily provide digital services to corporate entities, and these corporate entities are considered our customers since the contract is for services that represent our ordinary business. 103 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents Use of Estimates in Software Licensing Revenue. Certain of the Group's contracts with customers include promises to transfer multiple services to a customer. The Group assesses the promises in a contract and identifies distinct or bundled performance obligations in the contract. If multiple performance obligations are identified in the contract the transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Group recognizes revenue as or when the performance obligations under the contract are satisfied. For certain contracts, significant judgments are made by management to determine (i) the appropriate costs of providing the product or service and (ii) the selection of market data which underlines our estimate for the stand-alone selling price of each distinct performance obligation that applies the expected cost plus margin approach.
Claims Expense
Claims expense includes the costs of healthcare services rendered by third
parties on behalf of patients that the Company is contractually obligated to
pay, which includes estimates for medical expenses incurred but not yet reported
("IBNR") using actuarial processes that are applied on a systematic and
consistent basis. This process includes the development of estimates described
below. Claims expense also includes other external costs incurred in the
delivery of healthcare services including insurance premiums and recoveries.
Use of Estimates in Claims Expense. Claims expense includes estimates of our
obligations for medical care services that have been rendered on behalf of our
members, but for which claims have either not yet been received or processed. We
utilize both internal and independent actuaries to develop estimates for IBNR
using actuarial processes that are applied on a systematic and consistent basis.
These estimates use actuarial methods that are commonly used by health insurance
actuaries and meet Actuarial Standards of Practice. These actuarial methods
consider factors, such as historical data for payment patterns, membership risk
profile and demographics, geographical location of members, seasonal variances,
membership volume, utilization patterns, as well as other medical cost trends.
Each period, we re-examine previously established Claims payable estimates based
on actual claim submissions and other changes in facts and circumstances. As the
Claims payable estimates recorded in prior periods develop, we adjust the amount
of the estimates and include the changes in estimates in claims expenses in the
period in which the change is identified.
Actuarial Standards of Practice generally require that the medical claims
liability estimates be adequate to cover obligations under moderately adverse
conditions. Moderately adverse conditions are situations in which the actual
claims are expected to be higher than the otherwise estimated value of such
claims at the time of estimate. In many situations, the claims amount ultimately
settled will be different than the estimate that satisfies the Actuarial
Standards of Practice. We include in our IBNR an estimate for medical claims
liability under moderately adverse conditions, which represents the risk of
adverse deviation of the estimates in its actuarial method of reserving.
We believe that Claims payable is adequate to cover future claims payments required. However, such estimates are based on knowledge of current events and anticipated future events. Therefore, the actual liability could differ materially from the amounts provided.
Clinical Care Delivery Expense
Clinical care delivery expense includes the internal costs that we incur in the provision of healthcare services to patients, which is substantially composed of employee-related expenses such as salaries and wages for Babylon healthcare professionals. Other costs within Clinical care delivery expense include operating costs incurred for the delivery of healthcare services to patients, such as occupancy, medical supplies, and other support-related costs.
Platform & Application Expenses
Platform & application expenses are costs of revenue related to our digital healthcare platform. These costs primarily include employee-related salaries, benefits, stock-based compensation, as well as contractor and consultant expenses, for individuals that are engaged in providing professional services related to support and maintenance of the digital healthcare platform, as well as third-party application costs, hosting services and other direct costs. We expect our Platform & application expenses to increase commensurate with increased maintenance attributable to new contracts and continuing development of our technology platform offset by reductions as a result of the cost-reduction actions initiated in the third and fourth quarter of 2022.
Research & Development Expenses
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Research & development expenses primarily include employee-related salaries, benefits, stock-based compensation, as well as contractor and consultant expenses for individuals that are engaged in performing activities to develop and enhance our digital healthcare platform as well as third-party application costs, hosting services and other indirect costs. It includes research costs and development costs that do not meet the criteria for capitalization and are expensed as incurred. We expect our Research & development expenses to continue to decline due to the cost-reduction actions initiated in the third and fourth quarter of 2022.
Sales, General & Administrative Expenses
Sales, general & administrative expenses include employee-related expenses, contractors and consultants' expense, stock-based compensation, property and facility related expenses, directors and officers insurance, IT and hosting, marketing, training and recruiting expenses. Enterprise IT and hosting costs are primarily software subscriptions, and domain and hosting costs. We expect our Sales, general & administrative expenses to decrease as a result of execution of our publicly announced cost-reduction actions initiated in the third and fourth quarter of 2022. Our Sales, general & administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the nature and timing of expenses, as well as increases in Sales, general & administrative expenses that we have incurred to operate as a public company. However, we expect Sales, general & administrative expenses to decline as a percentage of revenue over time through leverage of costs that are scalable relative to increases in revenue.
Premium Deficiency Reserve Income / (Expense)
Premium deficiency reserve is a liability balance based on actuarial estimates for anticipated losses on value-based-care contracts reassessed by management when it becomes probable that future losses will be incurred. The reserve balance is the sum of expected future costs, claims adjustment expenses, and maintenance costs that exceed future premiums under contracts excluding consideration from investment income. Losses or gains from these reassessments are recorded in the period in which such losses were identified and reflected within the Consolidated Statement of Operations and Other Comprehensive Loss. Premium deficiency reserves are amortized over the period in which loses are expected to be incurred and expected to have an offsetting impact on operating losses in that period. Use of Estimates in Premium Deficiency Reserves. Our Premium deficiency reserve income/expenses may fluctuate from period to period as a percentage of total revenue and value-based care revenue. This is due to the significant uncertainty and varying nature of key inputs into the measurement of the reserves, driving the income or expense in the period. These key inputs include the contractual rates within value-based care contracts, forecasted benefit and member population changes, contractual periods, risk adjustments and claims costs forecasts associated with our member populations and allocation of operating costs to these contracts.
Impairment Expense
As a result of our Higi and IPA reporting units meeting held for sale criteria in the fourth quarter of 2022, we are required to measure these reporting units at the lower of their carrying values or fair values less costs to sell. Management made certain judgements when assessing if this sale qualified for the presentation and disclosure requirements of a discontinued operation as defined under ASC 205, Presentation of Financial Statements, and concluded that the sale is not a strategic shift and therefore is not considered a discontinued operation. We estimated the fair value less costs to sell of the Higi reporting unit as ofDecember 31, 2022 by revising our estimated future cash flows and business volumes used in our interim impairment test, including revenues and margin to reflect our best estimates at this time. We also updated certain significant inputs into the valuation model, including the discount rate which increased by 1% and lowering our terminal growth rate by 1%. Both of which reflecting, in part, higher market rates of interest and market volatility. Further, we decreased projected revenue by approximately 10% to 15% due to lower results of operations for the Higi reporting unit when compared to our prior estimates. Our updates to our discount rate and estimated future cash flows each had a significant impact to the estimated fair value of our Higi reporting unit. This required us to recognize an impairment charge for Higi's assets classified as held for sale of$35.0 million in the fourth quarter of 2022. This impairment charge primarily consisted of a$20.6 million impairment charge to the Higi reporting unit'sGoodwill along with a$14.3 million impairment valuation allowance against other assets held for sale. This valuation allowance used against the Higi reporting unit classified as held for sale is subject to subsequent adjustments for changes in its fair value less cost to sell, as a result in changes to the underlying significant assumptions and estimates, but will never exceed the cumulative losses previously recognized. No impairment charge was determined for the IPA reporting unit as part of this annual impairment test or held for sale classification. Refer to Note 10 in our consolidated financial statements for disclosure of the sensitivities of the underlying significant estimates and assumptions used for the IPA Business impairment analyses. Prior to this classification of Higi and IPA reporting units as held for sale, we identified a triggering event for the decrease in our publicly quoted share price and market capitalization as ofJune 30, 2022 . As a result of identification of a 105 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents triggering event, we estimated the fair value of the Higi reporting unit atJune 30, 2022 using a discounted cash flow projection, a form of the income approach. As part of the interim impairment test, we reduced our estimated future cash flows and business volumes used in the purchase price allocation at the time of acquisition, including revenues, margin, and capital expenditures to reflect our best estimates at this time. We also updated certain significant inputs into the valuation model, including the discount rate which increased reflecting, in part, higher market rates of interest and market volatility. Our updates to our discount rate and estimated future cash flows each had a significant impact to the estimated fair value of our Higi reporting unit. As a result of this analysis, we identified an impairment charge of$24.8 million for the Higi reporting unit, primarily allocated betweenGoodwill for$14.3 million , Other intangible assets for$4.3 million and Property plant and equipment for$6.3 million . No impairment charge was determined for the IPA reporting unit. Refer to Note 10 in our consolidated financial statements for disclosure of the sensitivities of the underlying significant estimates and assumptions used for the IPA Business impairment analyses. Separately from the impairment expense associated with the Higi reporting unit, we also impaired right-of-use assets in the amount of$4.2 million associated with certain operating leases as a result of our cost-reduction actions initiated in the third and fourth quarter of 2022. Use of Estimates in Impairment Expense. In the event there are future adverse changes in our estimated future cash flows and/or changes in key assumptions, including but not limited to discount rate increases, lower revenue growth, lower margin, higher sales and marketing expenses, and/or a lower terminal growth rate, we may be required to record additional non-cash impairment charges to our goodwill, or impairment charges to other intangibles, and/or long-lived assets. Such non-cash charges would likely have a material adverse effect on our consolidated financial statements during the reporting period of the charge.
Depreciation & Amortization Expenses
Depreciation & amortization include depreciation of property, fixtures and fittings and amortization of acquired intangible assets. We expect our Depreciation & amortization expenses to decrease as a result of the intent to sell the IPA and Higi businesses.
Critical Accounting Judgements, Estimates and Assumptions
Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements and supplemental data included in this Annual Report which have been prepared in conformity withU.S. GAAP. The preparation of our consolidated financial statements included elsewhere in this Annual Report, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those considered to involve a significant level of estimation uncertainty and reasonably likely to have a material impact on the consolidated financial statements of the Company. Estimates meeting this definition include our impairment analyses over the carrying value of long-lived assets (including goodwill and intangible assets), certain assumptions for revenue recognition, the accounting for premium deficiency reserves, IBNR within claims expense and the accounting for business combinations (collectively referred to as our "critical accounting estimates"). We base our estimates on a combination of factors including historical and anticipated results and trends, and on various other assumptions that we believe are reasonable under the circumstances, including assumptions with regards to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and balance sheets. For discussion of all significant accounting policies, judgements, estimates and assumptions, see Note 2. Summary of Significant Accounting Policies in our consolidated financial statements included in this Annual Report. For details of our critical accounting estimates, refer to the -Use of Estimates" sub-section within " to "-Impairment Expense", "-Premium Deficiency Reserve Income / (Expense)", "-Claims Expense", and "-Revenues" above for details. While no business combinations occurred during the year endedDecember 31, 2022 , critical accounting estimates existed for business combinations completed during the year endedDecember 31, 2021 , and are as follows: Use of Estimates in 2021 Business Combinations. We record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting. Acquisition consideration typically includes cash payments and equity issued as consideration. In acquisitions where no consideration is transferred, goodwill is measured based on the fair value of the acquiree. Amounts paid for each acquisition are allocated to the assets acquired and 106 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents liabilities assumed based on their estimated fair values at the date of acquisition inclusive of identifiable intangible assets. The estimated fair value of identifiable assets and liabilities, including intangibles, are based on valuations that use information and assumptions available to management. We allocate any excess purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed to goodwill. Significant management judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly acquired intangible assets, including estimated useful lives. The valuation of purchased intangible assets is based upon estimates of the future performance and discounted cash flows of the acquired business. Each asset acquired or liability assumed is measured at estimated fair value from the perspective of a market participant. Non-GAAP Measures EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Medical Loss Ratio, Medical Margin and Cost of Care Delivery Margin are non-GAAP measures. We define EBITDA as Net loss, adjusted for depreciation, amortization, net interest income (expense), and income taxes. We define EBITDA as profit (loss) for the financial year, adjusted for depreciation, amortization, net interest (income) expense, and income taxes. We define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based compensation, foreign exchange gains or losses, restructuring and other termination benefits, loss on settlement of warrants, (gains) losses on fair value remeasurement, premium deficiency reserve (income) expenses and gains (losses) on sale of subsidiaries. We define Medical Loss Ratio as the absolute value of claims expense divided by Value-based care revenue. We define Medical Loss Ratio as the absolute value of claims expense divided by Value-based care revenue. We define Medical Margin as one minus the Medical Loss Ratio. We define Cost of Care Delivery Margin as one minus the absolute value of claims expense and clinical care delivery expense divided by total revenue. Medical Loss Ratio, Medical Margins and Cost of Care Delivery Margins are derived from amounts presented in the Consolidated Statement of Operations and Other Comprehensive Loss and the associated Notes to the Consolidated Financial Statements. We believe that EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Medical Loss Ratio, Medical Margin and Cost of Care Delivery Margin (collectively, the "Non-GAAP Measures") are useful metrics for investors to understand and evaluate our operating results and ongoing profitability because they permit investors to evaluate our recurring profitability from our ongoing operating activities. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Medical Loss Ratio, Medical Margin and Cost of Care Delivery Margin have certain limitations, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported underU.S. GAAP. We caution investors that amounts presented in accordance with our definitions of any of the Non-GAAP Measures may not be comparable to similar measures disclosed by other issuers, because some issuers calculate certain of the Non-GAAP Measures differently or not at all, limiting their usefulness as direct comparative measures. 107 [[Image Removed: bbln-20221231_g2.jpg]]
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Reconciliations of EBITDA, Adjusted EBITDA and Other Non-GAAP Measures
The following table presents a reconciliation of EBITDA and Adjusted EBITDA from the most comparableU.S. GAAP measure, Net loss, and the calculations of the Net loss Margin, Adjusted EBITDA Margin, Medical Loss Ratio, Medical Margin and Cost of Care Delivery Margins for the years endedDecember 31, 2022 , 2021, and 2020:
For the Year Ended
2022 2021 2020
$'000 $'000 $'000
Net loss (221,449) (83,438) (213,028)
Adjustments to EBITDA:
Depreciation and amortization expenses 12,050 9,185 3,955
Interest expense and income 31,695 12,722 3,419
Tax (benefit) / provision (66) (1,443) 4,639
EBITDA (177,770) (62,974) (201,015)
Adjustments to Adjusted EBITDA:
Impairment expense 59,819 - -
Stock-based compensation 34,556 48,186 9,557
Exchange loss / (gain) 10,420 (783) 2,836
Restructuring and other termination benefits 20,139 - -
Loss on settlement of warrants 2,397 - -
Gain on fair value remeasurement (192,749) (239,195) -
Premium deficiency reserve (income) / expense (31,311) 46,533 5,639
(Gain) on sale of subsidiary - (3,917) -
Adjusted EBITDA (274,499) (212,150) (182,983)
Total revenue 1,109,669 320,827 79,272
Value-based-care revenue 1,026,251 218,758 26,038
Claims expense (1,017,003) (219,625) (25,120)
Clinical care delivery expense (80,624) (69,831) (42,134)
Net loss Margin (20.0) % (26.0) % (268.7) %
Adjusted EBITDA Margin (24.7) % (66.1) % (230.8) %
Medical Loss Ratio 99.1 % 100.4 % 96.5 %
Medical Margin 0.9 % (0.4) % 3.5 %
Cost of care delivery margin 1.1 % 9.8 % 15.2 %
108 [[Image Removed: bbln-20221231_g2.jpg]]-------------------------------------------------------------------------------- Table of Contents Results of Operations - Year EndedDecember 31, 2022 Compared to the Year EndedDecember 31, 2021 The results of operations presented below should be reviewed in conjunction with "Item 8. Financial Statements and Supplementary Data". The following table presents data derived from our audited Consolidated Statement of Operations and Other Comprehensive Loss for the years endedDecember 31, 2022 and 2021: Year Ended December 31, Variance 2022 2021 $ % $'000 $'000 $'000 Revenue: Value-based care 1,026,251 218,758 807,493 369.1 % Clinical services 54,480 42,017 12,463 29.7 % Software licensing revenue 28,938 60,052 (31,114) (51.8) % Total revenue 1,109,669 320,827 788,842 245.9 % Claims expense (1,017,003) (219,625) (797,378) 363.1 % Clinical care delivery expense (80,624) (69,831) (10,793) 15.5 % Platform & application expenses (29,897) (32,723) 2,826 (8.6) % Research & development expenses (79,155) (68,473) (10,682) 15.6 % Sales, general & administrative expenses (227,937) (187,172) (40,765) 21.8 % Premium deficiency reserve income / (expense) 31,311 (46,533) 77,844 (167.3) % Impairment expense (64,066) - (64,066) NM Depreciation and amortization expenses (12,050) (9,185) (2,865) 31.2 % Loss from operations (369,752) (312,715) (57,037) 18.2 % Interest expense (32,736) (13,047) (19,689) 150.9 % Interest income 1,041 325 716 220.3 % Gain on fair value remeasurement 192,749 239,195 (46,446) (19.4) % Loss on settlement of warrants (2,397) - (2,397) NM Exchange (loss) / gain (10,420) 783 (11,203) (1,430.8) % Gain on sale of subsidiary - 3,917 (3,917) (100.0) % Share of net loss on equity method investments - (3,339) 3,339 (100.0) % Net loss from operations before income taxes (221,515) (84,881) (136,634) 161.0 % Tax benefit / (provision) 66 1,443 (1,377) (95.4) % Net loss (221,449) (83,438) (138,011) 165.4 % NM = not meaningful
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Table of Contents The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding:
Year Ended December 31,
2022 2021
Revenue:
Value-based care 92.5 % 68.2 %
Clinical services 4.9 % 13.1 %
Software licensing revenue 2.6 % 18.7 %
Total revenue 100.0 % 100.0 %
Claims expense (91.6) % (68.5) %
Clinical care delivery expense (7.3) % (21.8) %
Platform & application expenses (2.7) % (10.2) %
Research & development expenses (7.1) % (21.3) %
Sales, general & administrative expenses (20.5) % (58.3) %
Premium deficiency reserve income / (expense) 2.8 % (14.5) %
Impairment expense (5.8) % - %
Depreciation and amortization expenses (1.1) % (2.9) %
Loss from operations (33.3) % (97.5) %
Interest expense (3.0) % (4.1) %
Interest income 0.1 % 0.1 %
Gain on fair value remeasurement 17.4 % 74.6 %
Loss on settlement of warrants (0.2) % - %
Exchange (loss) / gain (0.9) % 0.2 %
Gain on sale of subsidiary - % 1.2 %
Share of net loss on equity method investments - % (1.0) %
Net loss from operations before income taxes (20.0) % (26.5) %
Tax benefit / (provision) - % 0.4 %
Net loss (20.0) % (26.0) %
Revenues
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Revenue:
Value-based care 1,026,251 218,758 807,493 369.1 %
Clinical services 54,480 42,017 12,463 29.7 %
Software licensing 28,938 60,052 (31,114) (51.8) %
Total revenue 1,109,669 320,827 788,842 245.9 %
Total revenue increased by
Total Value-based care revenue increased by$807.5 million from$218.8 million for the year endedDecember 31, 2021 to$1,026.3 million for the year endedDecember 31, 2022 . The increase in revenue from Value-based care of$807.5 million is attributable to the expansion of our related product offerings inthe United States , of which$624.1 million of the increase in VBC revenue relates to new VBC contracts with various health plans betweenDecember 31, 2021 andDecember 31, 2022 , which increased the number ofU.S. VBC Members from approximately 167 thousand as ofDecember 31, 2021 to approximately 261 thousand as ofDecember 31, 2022 . The excess increase in VBC revenue is 110 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents primarily attributable to the recognition of a full year of revenue for those contracts entered into during the year endedDecember 31, 2021 . Total Clinical services revenue increased by$12.5 million from$42.0 million for the year endedDecember 31, 2021 to$54.5 million for year endedDecember 31, 2022 . The increase in Clinical services revenue is primarily attributable to increased virtual consultations on our digital healthcare platform following the expansion of our digital healthcare platform inthe United States throughout 2021 and continuing into 2022.
Claims Expense
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Claims expense (1,017,003) (219,625) (797,378) 363.1 %
Claims expense increased by $797.4 million from $219.6 million for the year
ended December 31, 2021 to $1,017.0 million for the year ended December 31,
2022 . Claims expense as a percentage of VBC revenues was 99.1% in 2022 and
100.4% in 2021. The increase in Claims expense is primarily attributable to the
expansion of our VBC product offerings in the United States , which largely
contributed to the increase in U.S. VBC Members from approximately 167 thousand
as of December 31, 2021 to approximately 261 thousand as of December 31, 2022 .
The decrease in Claims expense as a percentage of VBC revenue was largely
attributable to increased engagement with our U.S. VBC Members and the impacts
of new VBC contracts.
Clinical Care Delivery Expense
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Clinical care delivery expense (80,624) (69,831) (10,793) 15.5 %
Clinical care delivery expense increased by$10.8 million from$69.8 million for the year endedDecember 31, 2021 to$80.6 million for the year endedDecember 31, 2022 . Clinical care delivery expense as a percentage of revenues was 7.3% in 2022 and 21.8% in 2021. The increase in Clinical care delivery expense is primarily attributable to an increase in wages and salaries of$12.3 million attributable to the expansion of our VBC product offerings in new geographic areas and additional healthcare providers to support the increasedU.S. VBC Members. The increase in wages and salaries was slightly offset by a$2.5 million decrease in clinical contractors expense in an effort to provide more cost-effective clinical support services. The decrease in Clinical care delivery expense as a percentage of revenue is due to leverage from the scale of our operations through our digital healthcare platform as we add newU.S. VBC Members. Stock-based compensation expense of$1.0 million has been included in Clinical care delivery expense for the year endedDecember 31, 2022 .
Platform & Application Expenses
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Platform & application expenses (29,897) (32,723) 2,826 (8.6) %
Platform & application expenses decreased by$2.8 million from$32.7 million for the year endedDecember 31, 2021 to$29.9 million for the year endedDecember 31, 2022 . The decrease in Platform & application expenses is primarily attributable to a$7.7 million decrease in wages and salaries due to the combination of our cost-reduction actions initiated in the third and fourth quarters of 2022 and the redeployment of certain Platform & application employees to Research & development departments initiated in the second quarter of 2022. These costs were offset by a$3.3 million increase in platform costs incurred for the maintenance of our digital healthcare platform for the year endedDecember 31, 2022 . 111 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents Stock-based compensation expense of$1.6 million has been included in Platform & application expense for the year endedDecember 31, 2022 .
Research & Development Expenses
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Research & development expenses (79,155) (68,473) (10,682) 15.6 %
Research & development expenses increased by$10.7 million from$68.5 million for the year endedDecember 31, 2021 to$79.2 million for the year endedDecember 31, 2022 . The increase in Research & development expenses is primarily attributable to a$4.7 million increase and$5.5 million increase in employee benefit expenses and IT and hosting costs, respectively. These increases are a result of the redeployment of certain Platform & application employees to Research & development departments initiated in the second quarter of 2022 and further expansion of the functionality of our digital healthcare platform. Stock-based compensation expense of$11.5 million has been included in Research & development expense for the year endedDecember 31, 2022 .
Sales, General & Administrative Expenses
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Sales, general & administrative expenses (227,937) (187,172) (40,765) 21.8 %
Sales, general & administrative expenses increased by $40.8 million from
$187.2 million for the year ended December 31, 2021 to $227.9 million for the
year ended December 31, 2022 . The increase in Sales, general & administrative
expenses is primarily attributable to a $21.8 million increase in employee
benefits expense. The increase of employee benefits expense is primarily due to
a $11.1 million increase for severance and termination costs associated with our
cost-reduction actions initiated in the third and fourth quarter of 2022.
Separately, there is a $6.8 million increase in property related expenses
related to incremental leases entered into during the year ended December 31,
2022 . In addition, there was a $11.2 million increase in insurance related costs
as a result of operating as a public company for a full year and an increase in
insurance premiums due to the expansion of our related product offerings in the
United States . Furthermore, a $4.8 million increase in compensation-related
contract termination costs payable to a previous senior, non-Director, employee
was incurred during the year ended December 31, 2022 . Stock-based compensation
expense of $20.5 million has been included in Research & development expense for
the year ended December 31, 2022 .
Premium Deficiency Reserve Income / (Expense)
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Premium deficiency reserve income /
(expense) 31,311 (46,533) 77,844 (167.3) %
Premium deficiency reserve income / (expense) decreased by $77.8 million from a
$46.5 million expense during the year ended December 31, 2021 to $31.3 million
in income for the year ended December 31, 2022 . The change in Premium deficiency
reserve income / (expense) is a result of the change in premium deficiency
reserve liability balances to $20.9 million , including the $14.7 million
liability balance classified as held for sale, as of December 31, 2022 , from
$52.2 million of current and non current liabilities as of December 31, 2021 .
The change in the liability balances are primarily due to $73.6 million of
income from improved profitability of existing contracts estimated for future
periods and $4.8 million of income from the removal of estimated losses for
contracts we exited due to their lack of profitability.
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Impairment Expense
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Impairment expense (64,066) - (64,066) NM
Impairment expense increased by $64.1 million from no impairment expense during
the year ended December 31, 2021 to $64.1 million for the year ended December
31, 2022 . The increase in impairment expense is due to our interim test of
impairment and as a result of our Higi reporting unit being classified as held
for sale, indications that the useful lives of Higi's assets were shorter than
initially anticipated. Refer to Note 10 and 5 to the consolidated financial
statements included in this Annual Report for more details.
Depreciation and Amortization Expenses
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Depreciation and amortization expenses (12,050) (9,185) (2,865) 31.2 %
Depreciation and amortization expenses increased by $2.9 million from $9.2
million for the year ended December 31, 2021 to $12.1 million for the year ended
December 31, 2022 . The decrease in Depreciation and amortization expense is
primarily due to impairment of Other intangible assets and Property, Plant and
Equipment described in "Key Business and Financial Metrics - Impairment
Expense".
Interest Expense
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Interest expense (32,736) (13,047) (19,689) 150.9 %
Interest expenses increased by $19.7 million during the year ended December 31,
2021 , from $13.0 million for the year ended December 31, 2021 to $32.7 million
for the year ended December 31, 2022 . The increase in interest expenses is
primarily due to the increase in Loans and borrowings from December 31, 2021 to
December 31, 2022 .
Gain / (Loss) on Fair Value Remeasurement
Year Ended December 31, Variance
2022 2021 $ %
$'000 $'000 $'000
Gain on fair value remeasurement 192,749 239,195 (46,446) (19.4) %
Gain / (loss) on fair value remeasurement resulted in an expense of$192.7 million during the year endedDecember 31, 2022 , and$239.2 million in the year endedDecember 31, 2021 . This included Gain / (loss) on warrant liabilities resulted in income of$18.2 million during the year endedDecember 31, 2022 , and an income of$27.8 million in the year endedDecember 31, 2021 and Gain / (loss) on Earnout liabilities resulted in income of$174.3 million during the year endedDecember 31, 2022 , and an income of$206.7 million in the year endedDecember 31, 2021 . This non-cash gain is a result of our publicly quoted share price being the primary driver for the change of these liability balances fromDecember 31, 2021 toDecember 31, 2022 . Accordingly, as our share price has decreased fromDecember 31, 2021 toDecember 31, 2022 , Earnout liabilities reduced and this corresponding gain was recognized for the year endedDecember 31, 2022 . 113 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents Loss on Settlement of Warrants Year Ended December 31, Variance 2022 2021 $ % $'000 $'000 $'000 Loss on settlement of warrants (2,397) - (2,397) NM Loss on settlement of warrants of$2.4 million was recognized during the year endedDecember 31, 2022 , and is primarily related to the settlement of our public and private placement warrants in exchange for the issuance of Class A ordinary shares occurring in the second and third quarters of 2022, resulting in the delisting of the warrants under the ticker BBLN.W from the NYSE. Exchange (Loss) / Gain Year Ended December 31, Variance 2022 2021 $ % $'000 $'000 $'000 Exchange gain / (loss) (10,420) 783 (11,203) (1430.8) % Exchange loss increased by$11.2 million from a gain of$0.8 million for the year endedDecember 31, 2021 to a loss of$10.4 million for the year endedDecember 31, 2022 . The key driver of the reduction in the exchange (loss) / gain was the strengthening of theU.S. Dollar to Pound Sterling. Gain on Sale of Subsidiary Year Ended December 31, Variance 2022 2021 $ % $'000 $'000 $'000 Gain on sale of subsidiary - 3,917 (3,917) (100.0) % Gain on sale of subsidiary decreased by$3.9 million for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The activity in the prior period is related to the sale ofBabylon Health Canada Limited to TELUS as discussed in Note 5 to the consolidated financial statements included in this Annual Report. Tax Benefit / (Provision) Year Ended December 31, Variance 2022 2021 $ % $'000 $'000 $'000 Tax benefit / (provision) 66 1,443 (1,377) (95.4) % Tax benefit for the year decreased by$1.4 million from a Tax benefit of$1.4 million for the year endedDecember 31, 2021 to a Tax benefit of$0.1 million for the year endedDecember 31, 2022 . The decrease in Tax benefit for the year endedDecember 31, 2022 is primarily a result of the primarily related to the post-acquisition movement of deferred income taxes recognized in purchase accounting related to acquisitions that closed during the year endedDecember 31, 2021 that did not occur during the year endedDecember 31, 2022 114 [[Image Removed: bbln-20221231_g2.jpg]] -------------------------------------------------------------------------------- Table of Contents Results of Operations - Year EndedDecember 31, 2021 Compared to the Year EndedDecember 31, 2020 The results of operations presented below should be reviewed in conjunction with "Item 8. Financial Statements and Supplementary Data." The following table presents data derived from our audited Consolidated Statement of Operations and Other Comprehensive Loss for the years endedDecember 31, 2021 and 2020: Year Ended December 31, Variance 2021 2020 $ % $'000 $'000 $'000 Revenue: Value-based care 218,758 26,038 192,720 740.1 % Clinical services 42,017 28,631 13,386 46.8 % Software licensing revenue 60,052 24,603 35,449 144.1 % Total revenue 320,827 79,272 241,555 304.7 % Claims expense (219,625) (25,120) (194,505) 774.3 % Clinical care delivery expense (69,831) (42,134) (27,697) 65.7 % Platform & application expenses (32,723) (32,209) (514) 1.6 % Research & development expenses (68,473) (80,538) 12,065 (15.0) % Sales, general & administrative expenses (187,172) (90,687) (96,485) 106.4 % Premium deficiency reserve expense (46,533) (5,639) (40,894) 725.2 % Depreciation and amortization expenses (9,185) (3,955) (5,230) 132.2 % Loss from operations (312,715) (201,010) (111,705) 55.6 % Interest expense (13,047) (4,029) (9,018) 223.8 % Interest income 325 610 (285) (46.7) % Gain on fair value remeasurement 239,195 - 239,195 NM Exchange gain / (loss) 783 (2,836) 3,619 (127.6) % Gain on sale of subsidiary 3,917 - 3,917 NM Share of net loss on equity method investments (3,339) (1,124) (2,215) 197.1 % Net loss from operations before income taxes (84,881) (208,389) 123,508 (59.3) % Tax benefit / (provision) 1,443 (4,639) 6,082 (131.1) % Net loss (83,438) (213,028) 129,590 (60.8) % NM = not meaningful
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Table of Contents The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding:
Year Ended December 31,
2021 2020
Revenue:
Value-based care 68.2 % 32.9 %
Clinical services 13.1 % 36.1 %
Software licensing revenue 18.7 % 31.0 %
Total revenue 100.0 % 100.0 %
Clinical care delivery expense (21.8) % (53.2) %
Claims expense (68.5) % (31.7) %
Platform & application expenses (10.2) % (40.6) %
Research & development expenses (21.3) % (101.6) %
Sales, general & administrative expenses (58.3) % (114.4) %
Premium deficiency reserve expense (14.5) % (7.1) %
Depreciation and amortization expenses (2.9) % (5.0) %
Loss from operations (97.5) % (253.6) %
Interest expense (4.1) % (5.1) %
Interest income 0.1 % 0.8 %
Gain on fair value remeasurement 74.6 % - %
Exchange gain / (loss) 0.2 % (3.6) %
Gain on sale of subsidiary 1.2 % - %
Share of net loss on equity method investments (1.0) % (1.4) %
Net loss from operations before income taxes (26.5) % (262.9) %
Tax benefit / (provision) 0.4 % (5.9) %
Net loss (26.0) % (268.7) %
Revenues
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Revenue:
Value-based care 218,758 26,038 192,720 740.1 %
Clinical services 42,017 28,631 13,386 46.8 %
Software licensing 60,052 24,603 35,449 144.1 %
Total revenue 320,827 79,272 241,555 304.7 %
Total revenues increased by $241.6 million from $79.3 million for the year ended
December 31, 2020 to $320.8 million for the year ended December 31, 2021 largely
due to the expansion of the value-based care revenue stream in the United
States , including the full year contribution of revenues from the acquisition of
FCMG in October 2020 and nine months of revenue from the acquisition of Meritage
Medical Network in April 2021 . In addition, revenue from Software licensing
increased by $35.4 million , primarily attributable to the execution of a
software licensing agreement with TELUS, concurrent with the sale of Babylon
Health Canada Limited to TELUS in January 2021 .
Total Value-based care revenue increased by $192.7 million from $26.0 million
for the year ended December 31, 2020 to $218.8 million for the year ended
December 31, 2021 . The increase in revenue from Value-based care of $192.7
million is attributable to the expansion of our related product offerings in the
United States , of which $94.6 million relates to the full-year impact of revenue
from the acquisition of FCMG closed in October 2020 and Meritage Medical Network
in April 2021 . In addition, $66.7 million of the increase in VBC revenue relates
to new VBC contracts with various health plans in 2021, which increased the
number of members covered under VBC contracts from 66 thousand as of
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December 31, 2020 to 167 thousand as of December 31, 2021 , and $31.7 million
relates to the inclusion of a full-year contribution of revenue from VBC
contracts that were new in 2020.
Total Clinical services revenue increased by $13.4 million from $28.6 million
for the year ended December 31, 2020 to $42.0 million for year ended December
31, 2021 . The increase in Clinical services revenue is primarily attributable
increased virtual consultations on our digital healthcare platform following the
expansion of our digital healthcare platform in the United States throughout
2021.
Total Software licensing revenue increased by $35.4 million from $24.6 million
for the year ended December 31, 2020 to $60.1 million for the year ended
December 31, 2021 . The increase in revenue from Software licensing of $35.4
million is primarily attributable to upfront revenue recognized in connection
with the TELUS license of $28.4 million , with the remainder of the increase in
Software licensing revenue attributable to the recognition of deferred revenue
from the TELUS software license throughout the remainder of the year.
Claims Expense
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Claims expense (219,625) (25,120) (194,505) 774.3 %
Claims expense increased by $194.5 million from $25.1 million for the year ended
December 31, 2020 to $219.6 million for the year ended December 31, 2021 . Claims
expense as a percentage of VBC revenues was 100.4% for the year ended December
31, 2021 and 96.5% for the year ended December 31, 2020 . The increase in Claims
expense is primarily attributable to the expansion of our VBC product offerings
in the United States , which largely contributed to the increase in U.S. VBC
Members from approximately 66 thousand as of December 31, 2020 to approximately
167 thousand as of December 31, 2021 . The increase in Claims expense as a
percentage of VBC revenue was largely attributable to increased engagement with
our U.S. VBC Members and the impacts of new VBC contracts.
Clinical Care Delivery Expense
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Clinical care delivery expense (69,831) (42,134) (27,697) 65.7 %
Clinical care delivery expense increased by$27.7 million from$42.1 million for the year endedDecember 31, 2020 to$69.8 million for the year endedDecember 31, 2021 . Clinical care delivery expense as a percentage of revenues was 21.8% in 2021 and 53.2% in 2020. The increase in Clinical care delivery expense is primarily attributable to an increase in wages and salaries of$23.2 million attributable to the expansion of our VBC product offerings in new geographic areas and additional healthcare providers to support the increasedU.S. VBC Members. The decrease in Clinical care delivery expense as a percentage of revenue is due to leverage from the scale of our operations through our digital healthcare platform as we add newU.S. VBC Members. Stock-based compensation expense of$1.1 million has been included in Clinical care delivery expense for the year endedDecember 31, 2021 .
Platform & Application Expenses
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Platform & application expenses (32,723) (32,209) (514) 1.6 %
Platform & application expenses increased by$0.5 million from$32.2 million for the year endedDecember 31, 2020 to$32.7 million for the year endedDecember 31, 2021 . The increase in Platform & application expenses is primarily attributable to an increase in IT and hosting costs of$6.1 million to maintain the growing customer base using the platform. These costs were almost entirely offset by the decrease in employee benefits costs related to a decrease in employees allocated to platform and application and research and development departments for the year endedDecember 31, 2021 . Stock-based compensation expense of$0.1 million has been included in Platform & application expense for the year endedDecember 31, 2021 . 117 [[Image Removed: bbln-20221231_g2.jpg]]
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Research & Development Expenses
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Research & development expenses (68,473) (80,538) 12,065 (15.0) %
Research & development expenses decreased by$12.1 million from$80.5 million for the year endedDecember 31, 2020 to$68.5 million for the year endedDecember 31, 2021 . The decrease in Research & development expenses is primarily attributable to a decrease in our employee headcount related to our Research & development activities contributing to a decline of$12.3 million in related employee benefits expense. Stock-based compensation expense of$9.8 million has been included in Research & development expense for the year endedDecember 31, 2021 .
Sales, General & Administrative Expenses
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Sales, general & administrative expenses (187,172) (90,687) (96,485) 106.4 %
Sales, general & administrative expenses increased by $96.5 million from $90.7
million for the year ended December 31, 2020 to $187.2 million for the year
ended December 31, 2021 . The increase in Sales, general & administrative
expenses is primarily attributable to an increase in employee benefits expense
of $65.7 million which is primarily derived from to an $58.4 million increase in
stock-based compensation expense and salaries and wages. This increase primarily
related to a higher number of RSUs granted to employees in the fourth quarter of
2021 with higher grant date fair values than previously granted equity awards,
as well as hiring across general & administrative departments as we began to
operate as a public company. The remainder of the difference in Sales, general &
administrative expense is attributable to an increase in professional fees and
insurance of $14.0 million and $5.4 million , respectively, primarily related to
increased expenses associated with operating as a public company. Stock-based
compensation expense of $37.2 million is included within employee benefits
expense for the year ended December 31, 2021 .
Premium Deficiency Reserve Income / (Expense)
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Premium deficiency reserve expenses (46,533) (5,639) (40,894) 725.2 %
Premium deficiency reserve income / (expense) increased by $40.9 million from
$5.6 million for the year ended December 31, 2020 to $46.5 million for the year
ended December 31, 2021 . The change in Premium deficiency reserve income /
(expense) is a result of the change in premium deficiency reserve liability
balances to $52.2 million of current and non current liabilities as of
December 31, 2021 , from $5.6 million as of December 31, 2020 . The change in the
liability balances are primarily due to $52.2 million of expense for estimated
losses of newly entered contracts or from agreements acquired through business
combinations and offset by a $5.6 million in income from improved profitability
of existing contracts estimated for future periods.
Depreciation and Amortization Expenses
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Depreciation and amortization expenses (9,185) (3,955) (5,230) 132.2 %
Depreciation and amortization expenses increased by $5.2 million from $4.0
million for the year ended December 31, 2020 to $9.2 million for the year ended
December 31, 2021 . The increase in Depreciation and amortization expenses is
primarily attributable to the incremental intangibles and long-lived assets
acquired in acquisitions that closed in October 2020 and April 2021 .
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Interest Expense
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Interest expense (13,047) (4,029) (9,018) 223.8 %
Interest expenses increased by $9.0 million during the year ended December 31,
2021 , from $4.0 million for the year ended December 31, 2020 to $13.0 million
for the year ended December 31, 2021 . The increase in Interest expense is
primarily attainable to the higher Loans and borrowings balances during the year
ended December 31, 2021 .
Gain / (Loss) on Fair Value Remeasurement
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Gain / (loss) on fair value remeasurement 239,195 - 239,195 NM
Gain / (loss) on fair value remeasurement resulted in a gain of $239.2 million
during the year ended December 31, 2021 , whereas we did not have fair value
remeasurement in the year ended December 31, 2020 . This increase during the year
ended December 31, 2021 is primarily due to gains recognized upon the
remeasurement of our Warrant and Earnout liabilities through the year. Gain /
(loss) on Warrant liabilities had a gain of $27.8 million during the year ended
December 31, 2021 , whereas we did not have warrants outstanding in the year
ended December 31, 2020 and Gain / (loss) on Earnout liabilities resulted in a
gain of $206.7 million during the year ended December 31, 2021 , whereas we did
not have earnouts outstanding in the year ended December 31, 2020 . This non-cash
gain is a result of our publicly quoted share price being the primary driver for
the change of these liability balances from the date the liabilities were
initially recognized in October of 2021 through the year ended December 31,
2021 . Accordingly, as our share price has decreased from the initial recognition
period to December 31, 2021 , this corresponding gain was recognized for the year
ended December 31, 2021 .
Exchange Gain / (Loss)
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Exchange gain / (loss) 783 (2,836) 3,619 (127.6) %
Exchange loss decreased by $3.6 million from a loss of $2.8 million for the year
ended December 31, 2020 to a gain of $0.8 million for the year ended December
31, 2021 . The key driver of the reduction in the exchange loss was the
strengthening of the Pound Sterling against the U.S. Dollar.
Gain on Sale of Subsidiary
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Gain on sale of subsidiary 3,917 - 3,917 NM
Gain on sale of subsidiary increased by $3.9 million for the year ended December
31, 2021 compared to the year ended December 31, 2020 . The activity in the
current period is related to the sale of Babylon Health Canada Limited to TELUS
as discussed in Note 5 to the consolidated financial statements included in this
Annual Report. There was no such activity in the prior period.
Tax Benefit / Provision
Year Ended December 31, Variance
2021 2020 $ %
$'000 $'000 $'000
Tax benefit / (provision) 1,443 (4,639) 6,082 (131.1) %
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Tax benefit / (provision) for the year decreased by $6.1 million from a Tax
provision of $4.6 million for the year ended December 31, 2020 to a Tax benefit
for the year of $1.4 million for the year ended December 31, 2021 . The Tax
benefit for the year ended December 31, 2021 primarily related to the
post-acquisition movement of deferred income taxes recognized in purchase
accounting related to acquisitions that closed during 2021.
Liquidity and Capital Resources
The Company has financed its operations principally through issuances of debt and equity securities and has a strong record of fundraising, including$173.2 million and$384.7 million of cash generated through financing activities for the years endedDecember 31, 2022 and 2021, respectively. In 2022, we issued an additional unsecured note onMarch 31, 2022 for$100.0 million to an affiliate ofAlbaCore Capital LLP (Note 17 of the consolidated financial statements), and entered into subscription agreements with several investors for our 2022 Private Placement for$80.0 million (Note 19 of the consolidated financial statements). Both of the foregoing were offset by$6.8 million of financing cash outflows primarily related to debt and equity issuance costs associated with the aforementioned proceeds. In 2021, as part of the Business Combination, we received$229.3 million (Note 3 of the consolidated financial statements) in proceeds related to the Merger and PIPE Transaction partially offset by$31.2 million for equity issuance costs, combined with additional funds from a note subscription agreement for$200.0 million onOctober 8, 2021 (Note 17 of the consolidated financial statements) generating$183.8 million of net proceeds. OnMarch 9, 2023 we entered into a committed working capital facility (the "Bridge Facility") for an aggregate principal amount of up to$34.5 million (Note 25 of the consolidated financial statements) with certain affiliates of our existing counterparty for our note subscription agreement (Note 17 of the consolidated financial statements). For the years endedDecember 31, 2022 , 2021, and 2020, we had a Net loss of$221.4 million ,$83.4 million and$213.0 million , respectively. AtDecember 31, 2022 , the Group had cash and cash equivalents of$104.5 million (2021:$262.6 million ) including$61.0 million of cash and cash equivalents held for sale. We require and will continue to need significant cash resources to, among other things, fund working capital requirements, make capital expenditures, including those related to product development. Our future capital requirements will depend on many factors, including the timing and extent of proceeds from the sale of the IPA Business or incremental funding, our ability to provide more affordable healthcare, and our headcount costs. While there is no assurance that the facility will provide us with the funding for a time period that allows us to execute binding bids relating to a successful sale of our IPA Business or other strategic alternatives, management believes these sources of funding will provide with sufficient financing to satisfy the Company's obligations as the arise for the twelve month period after the date these consolidated financial statements are issued. For more details related to this assessment, refer to Note 2 of the consolidated financial statements included in this Annual Report.
Cash Flows
The following table discloses our consolidated cash flows provided by (used in) operating, investing and financing activities for the periods presented:
Year Ended December 31,
2022 2021 2020
$'000 $'000 $'000
Net cash used in operating activities (311,408) (189,446) (180,483)
Net cash used in investing activities (8,514) (33,733) (36,390)
Net cash provided by financing activities 173,175 384,719 101,851
Less: Cash and cash equivalents classified as held for sale
(61,000) - (577)
Net (decrease) increase in cash and cash equivalents (207,747)
161,540 (115,599)
Cash and cash equivalents beginning of the year 262,581 101,757 214,888
Effect of exchange rates (11,359) (716) 2,468
Cash and cash equivalents end of the year 43,475 262,581 101,757
Cash Flows Provided by (Used in) Operating Activities
Net cash used in operating activities was
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The increase in our cash used in operating activities is primarily attributable a higher Net loss, after adjusting for non-cash items, of$76.5 million when compared to the prior period. In addition to this increase, there was an unfavorable impact of$45.4 million for the changes in working capital between the periods primarily due to an upfront payment of$66.9 million during the first quarter of 2021 in connection with a software licensing agreement. This upfront payment resulted in an increase to our contract liability balances and was reduced for the corresponding software license revenues recognized through the years endedDecember 31, 2021 and 2022. See "Results of Operations - Year EndedDecember 31, 2022 Compared to the Year EndedDecember 31, 2021 " for additional discussion of the increase in expenses contributing to the Net loss for the period. Net cash used in operating activities was$189.4 million for the year endedDecember 31, 2021 compared to net cash used in operating activities of$180.5 million for the year endedDecember 31, 2020 an increase of$9.0 million . The increase in our cash used in operating activities is primarily attributable to a higher Net loss, after adjusting for non-cash items, of$31.4 million when compared to the prior period. In addition to this increase, there was a favorable impact of$19.3 million for the changes in working capital between the periods primarily due to upfront payment of$66.9 million during the first quarter of 2021 in connection with a software licensing agreement. This upfront payment resulted in an increase to our contract liability balances and was reduced for the corresponding software license revenues recognized through the year endedDecember 31, 2021 . The upfront payment was the primary reason for the$23.0 million favorable impact for the change in contract liabilities between the periods and offset by a unfavorable impact of$6.5 million due to an increase in trade and other receivables.
Cash Flows Provided by (Used in) Investing Activities
Net cash used in investing activities was$8.5 million in the year endedDecember 31, 2022 compared to net cash used in investing activities of$33.7 million in the year endedDecember 31, 2021 , a decrease of$25.2 million . The decrease in cash used in investing activities was primarily due to the acquisition activities occurring in the year endedDecember 31, 2021 , resulting in$27.8 million of incremental cash used for investing activities during the year endedDecember 31, 2021 . No acquisitions occurred during the year endedDecember 31, 2022 . Net cash used in investing activities was$33.7 million in the year endedDecember 31, 2021 compared to net cash used in investing activities of$36.4 million in the year endedDecember 31, 2020 , a decrease of$2.7 million . The decrease in cash used in investing activities is primarily attributable to$2.2 million in proceeds from a disposition of a subsidiary occurring during the year endedDecember 31, 2021 .
Cash Flows Provided by (Used in) Financing Activities
Net cash provided by financing activities was$173.2 million in the year endedDecember 31, 2022 compared to net cash provided by financing activities of$384.7 million in the year endedDecember 31, 2021 , a decrease of$211.5 million . The decrease in Net cash provided by financing activities is primarily attributable to a$319.9 million decrease in proceeds from equity and debt instruments offset by a$26.2 million net decrease in debt and equity issuance costs related to those forms of financing between the years endedDecember 31, 2022 andDecember 31, 2021 . Further, there is an incremental$82.0 million decrease in cash flows used in financing activities related to a repayment of cash loan only occurring in the year endedDecember 31, 2021 . Net cash provided by financing activities was$384.7 million for the year endedDecember 31, 2021 compared to net cash provided by financing activities of$101.9 million for the year endedDecember 31, 2020 , an increase of$282.9 million . The increase in net cash provided by financing activities of$282.9 million is primarily attributable to a$387.8 million increase in proceeds from equity and debt instruments offset by a$22.4 million net increase in debt and equity issuance costs related to those forms of financing between the years endedDecember 31, 2021 andDecember 31, 2020 . Further, there is an$82.0 million decrease in cash flows provided by financing activities related to a repayment of cash loan only occurring in the year endedDecember 31, 2021 .
Funding Requirements
As ofDecember 31, 2022 , we had a net liability position of$255.9 million (2021:$161.4 million ), including cash and cash equivalents of$43.5 million (2021:$262.6 million ) and$61.0 million cash and cash equivalents classified as held for sale as ofDecember 31, 2022 . Management performed a going concern assessment for a period of twelve months from the date of approval of these consolidated financial statements included in this Annual Report to assess whether conditions exist that raise substantial doubt regarding the Group's ability to continue as a going concern. OnMarch 9, 2023 we entered into a Bridge 121 [[Image Removed: bbln-20221231_g2.jpg]]
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Facility Agreement for an aggregate principal amount of up to$34.5 million (Note 25 of the consolidated financial statements) with certain affiliates of our existing counterparty for our note subscription agreement (Note 17 of the consolidated financial statements). The purpose of this is to provide us with the funding for a time period that allows us to execute binding bids relating to a successful sale of our IPA Business or other strategic alternatives which would provide us with sufficient liquidity to fund our liabilities as they become due throughMarch 31, 2024 . While there is no assurance that the facility will provide us with funding for a time period that allows us to execute binding bids relating to a successful sale of our IPA Business or other strategic alternatives, management believes it remains appropriate to prepare our financial statements on a going concern basis. However, the above indicates that there are material uncertainties (ability to raise further capital through the successful execution of our planned sale of the IPA Business or other strategic alternatives) related to these potential events and there is substantial doubt about the Group's ability to continue as a going concern within one year after the date the financial statements have been issued.
The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
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