Summary of Significant Accountant Policies |
3 Months Ended |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accountant Policies |
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Other Comprehensive Loss, Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) and the Condensed Consolidated Statements of Cash Flows, all of which are unaudited, along with the Notes to the Unaudited Condensed Consolidated Financial Statements, are collectively referred to as the “Unaudited Condensed Consolidated Financial Statements” throughout “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q (this “Form 10-Q”).
The accompanying Unaudited Condensed Consolidated Financial Statements of Babylon Holdings Limited (collectively with its subsidiaries, referred to as the “Company” or the “Group”) for the three months ended March 31, 2023 and 2022, in the opinion of management, have been prepared with all necessary adjustments, including normal recurring adjustments, for the fair presentation of its condensed consolidated financial position, results of operations and cash flows of the Company for the periods presented. However, these financial results over the interim periods presented are not necessarily indicative of the financial results that may be expected for the full fiscal year or any other subsequent periods.
Certain information contained in the Notes to the Unaudited Condensed Consolidated Financial Statements normally included in financial statements prepared in conformity with the Generally Accepted Accounting Principles of the United States (“U.S. GAAP”), have been omitted or condensed pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information contained in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023 (the “2022 Form 10-K”), which includes a complete set of footnote disclosures in conformity with U.S. GAAP, including our significant accounting policies.
The Company consolidates certain professional service corporations (“PCs”) that are owned, directly or indirectly, and operated by appropriately licensed physicians. The Company maintains control of these PCs through contractual arrangements, which can include service agreements, financing agreements, equity transfer restriction agreements, and employment agreements, or a combination thereof, which are primarily established during the formation of the PCs. At inception, the contractual framework established between the Group and the PCs provides the Group with the power to direct the relevant activities in the conduct of the PC’s non-clinical administrative and other non-clinical business activities. The physicians employed by the PC are exclusively in control of, and responsible for, all aspects of the practice of medicine for their patients. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and a substantive process and whether the acquired set has the ability to produce outputs.
Variable Interest Entities
The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a VIE. These evaluations are complex, and involve judgment and the use of estimates and assumptions based on available historical information, among other factors. The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights (“variable interest entities” or “VIEs”) and determines which business entity is the primary beneficiary of the VIE. The
Company consolidates VIEs when it is determined that the Company is the primary beneficiary of the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively (see Note 7).
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business and economic factors, and various other assumptions that the Company believes are necessary to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment evolves. The Company believes that estimates used in the preparation of these Unaudited Condensed Consolidated Financial Statements are reasonable; however, actual results could differ materially from these estimates.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the Consolidated Statement of Operations and Other Comprehensive Loss, and if material, are also disclosed in the Notes to Consolidated Financial Statements. Estimates that involve a significant level of estimation uncertainty and reasonably likely to have a material impact on the Consolidated Financial Statements of the Company 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, incurred but not reported (“IBNR”) amounts within claims expense, and the accounting for business combinations. Other policies that use estimates include the accounting for financial instruments and the accounting for stock-based compensation awards. For more details related to these estimates, refer to their sections within Note 2 in our 2022 Form 10-K.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. As of March 31, 2023 and December 31, 2022, the Group had restricted cash of $0.3 million. The Company’s cash and cash equivalents generally consist of restricted cash and short-term investment funds. Cash and cash equivalents are stated at fair value.
Going Concern
The Group incurred a Net loss of $63.2 million and of $29.1 million for the three months ended March 31, 2023, and the three months ended March 31, 2022, respectively. As of March 31, 2023, and December 31, 2022, the Group had a net liability position of $315.1 million and $255.9 million, respectively. As of March 31, 2023, and December 31, 2022 the Group had cash and cash equivalents of $77.7 million and $104.5 million, including $52.1 million, and $61.0 million of cash and cash equivalents included in assets held for sale as of March 31, 2023, and December 31, 2022, respectively. The Group has financed its operations principally through issuances of debt and equity securities and has a strong record of fundraising, including the closing of the Merger and PIPE Transaction (each as defined below) on October 21, 2021 receiving proceeds of $229.3 million, entering into a note subscription agreement for $200.0 million on October 8, 2021 (Note 12), entering an additional unsecured note on March 31, 2022 for $100.0 million (Note 12), and entering into subscription agreements with several investors for a private placement of our Class A ordinary shares for $80.0 million in November 2022. The Group’s ability to continue as a going concern is dependent upon its ability to raise additional capital, which is necessary to fund its working capital requirements and ultimately achieve profitable operations.
Management performed a going concern assessment for a period of twelve months from the date of approval of these Unaudited Condensed Consolidated Financial Statements to assess whether conditions exist that raise substantial doubt regarding the Group’s ability to continue as a going concern. On March 9, 2023, we entered into a committed working capital facility (the “Bridge Facility”) for an aggregate principal amount of up to $34.5 million with certain affiliates of our existing counterparty for our note subscription agreement (Note 12). On May 10, 2023, we entered into the Additional Bridge Facility for a further amount up to $34.5 million (Note 12) on terms substantially similar to the Bridge Facility and
the Framework Agreement (Note 19). Please refer to Note 12 and Note 19 of the unaudited condensed consolidated financial statements for further discussion of the Additional Bridge Facility and the Framework Agreement.
While there is no assurance that the Additional Bridge Facility and the Framework Agreement will be implemented in a manner that will provide us with the funding that we need, management believes it remains appropriate to prepare our financial statements on a going concern basis.
However, the above indicates that there are material uncertainties relating to these potential events, including our ability to raise further capital through the successful implementation of the Additional Bridge Facility and the Framework Agreement and other strategic alternatives, and there is substantial doubt about the Group’s ability to continue as a going concern within one year after the date the Unaudited Condensed Consolidated Financial Statements have been issued.
The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
Income Taxes
The Company determines the tax (provision) or benefit in interim periods using an estimate of the Company’s annual effective tax rate applied to the Company’s operating results during the interim period presented, adjusted for the potential tax impact of discrete events or transactions occurring during the period, as applicable.
New Standards and Interpretations Not Yet Adopted
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. ASU 2022-03 also requires the disclosure of the fair value, as reflected in the statement of financial condition, of equity securities subject to contractual sale restrictions and the nature and the disclosure of the remaining duration of those restrictions. ASU 2022-03 is effective for the Company beginning on January 1, 2024 and early adoption is permitted for both interim and annual financial statements that have not yet been issued. The ASU is to be applied prospectively, with any adjustments from the adoption recognized in earnings on the date of adoption. We are currently evaluating the impact of ASU 2022-03 on our Unaudited Condensed Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The new standard is effective for our fiscal year beginning after December 15, 2022. Early adoption is permitted. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the effective date of adoption, and the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. As no business combinations were consummated during the periods presented, this new standard has no impact on these Unaudited Condensed Consolidated Financial Statements.
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