Babylon Holdings Limited Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Employee Benefits

Employee Benefits

3 Months Ended

Mar. 31, 2023

Retirement Benefits [Abstract]

Employee Benefits

13. Employee Benefits

Equity Incentive Plans

The Company disclosed details of the 2021 Equity Incentive Plan (the “2021 Plan”) pursuant to which new awards can and past awards have been made, and concerning the Company Share Option Plan and Long-Term Incentive Plan pursuant to which past awards have been, but new awards may not be made, in our 2022 Form 10-K as of December 31, 2022. There have been no changes to these plans during the three months ended March 31, 2023. As of March 31, 2023, there are 1,023,938 Class A ordinary shares available for issuance pursuant to future awards under the 2021 Plan.

Stock-based Payments

Stock-based compensation expense is recognized using the graded vesting method. Stock-based payments are recognized as expense for restricted stock units (“RSUs”), Restricted Stock Awards (“RSAs”), Performance Stock Units (“PSUs”) and options, net of estimated forfeitures, as follows:


	For the Three Months Ended March 31,
	2023	2022
(in thousands)	$	$
Total stock-based compensation expense	2,167	9,174

Restricted Stock Awards

The following table displays RSA activity and weighted average grant date fair values for the three months ended March 31, 2023:


	RSAs	Weighted average grant date fair value per RSA
Balance at January 1, 2023	570,314	$	19.50
Granted	—	$	—
Vested and issued	(68,048)	$	33.76
Forfeited	(39,952)	$	7.95
Balance at March 31, 2023	462,314	$	21.03
Vested and unissued at March 31, 2023	116,874	$	12.47
Unvested at March 31, 2023	345,440	$	23.93

No RSAs were granted during the three months ended March 31, 2023.

The Company recorded stock-based compensation expense related to RSAs of $1.5 million during the three March 31, 2023. No stock-based compensation expense related to RSAs was recognized during the three months ended March 31, 2022.

As of March 31, 2023, the unrecognized compensation cost related to unvested RSAs is $6.5 million, which is expected to be recognized over a weighted average period of 2.8 years.

Restricted Stock Units

The following table displays RSU activity and weighted average grant date fair values for the three months ended March 31, 2023:


	RSUs	Weighted average grant date fair value per RSU1
Balance at January 1, 2023	702,823	$	82.85
Granted	19,400	$	8.46
Vested and issued	(11,812)	$	132.61
Forfeited	(148,867)	$	87.26
Balance at March 31, 2023	561,544	$	77.83
Vested and unissued at March 31, 2023	23,933	$	76.19
Unvested at March 31, 2023	537,611	$	113.73

(1) The calculation of weighted average grant date fair value excludes RSUs issued to Higi employees upon the acquisition of Higi during the period ended March 31, 2023.

The total grant-date fair value of RSUs granted during the three months ended March 31, 2023 and 2022 was $0.2 million and $1.7 million, respectively.

The Company recorded stock-based compensation expense related to RSUs during the three months ended March 31, 2023 and three months ended March 31, 2022 of $0.02 million and $6.9 million, respectively.

As of March 31, 2023, the Company had $28.4 million in unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 2.6 years.

Performance Share Units

The following table displays PSU activity and weighted average fair values for the periods presented:


	PSUs	Weighted average fair value
Balance at January 1, 2023	624,000	$	11.23
Granted	—	$	—
Vested and issued	—	$	—
Forfeited / cancelled during the period	(32,000)	$	8.58
Balance at March 31, 2023	592,000	$	11.73
Vested and unissued at March 31, 2023	—
Unvested at March 31, 2023	592,000	$	11.73

No PSUs were granted during the three months ended March 31, 2023.

The Company recorded stock-based compensation expense related to PSUs of $0.2 million during the three months ended March 31, 2023. No stock-based compensation expense related to PSUs was recognized during the three months ended March 31, 2022.

As of March 31, 2023, the Company had $6.3 million in unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.1 years.

Options

There were no options granted during the three months ended March 31, 2023. The fair value of each employee and non-employee stock option award was estimated on the date of grant for each option using the Black-Scholes option pricing model. The group uses the following key assumptions to determine the grant date fair value of options in the period they were granted as follows:

Fair Value of Underlying Stock

The fair value of the Company’s Class A ordinary shares is determined by the closing price, on the date before the grant, of the Class A ordinary shares, which are traded on the NYSE. Prior to the Merger described in the 2022 Form 10-K, the estimated fair value of the Class A ordinary shares had been determined by the board of directors as of the date of each grant, with input from management, considering the most recently available third-party valuations of the Group’s Class A ordinary shares, and the assessment of additional objective and subjective factors that they believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

Volatility

The Company uses an average historical stock price volatility of a peer group of comparable publicly traded healthcare companies representative of our expected future stock price volatility, as there is not sufficient trading history for our Class A ordinary shares. For purposes of identifying these peer companies, the Company considers the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, the Company measures historical volatility over a period equivalent to the expected term.

Risk-Free Interest Rate

The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with maturities similar to the expected term of the award.

Expected Dividend Yield

The Company has not paid and does not anticipate paying any dividends in the foreseeable future. Accordingly, the Company estimates the dividend yield to be zero.

Expected Term

The Company determines the expected term of awards using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

The following table displays option activity, aggregate intrinsic values, and weighted average exercise prices and remaining contractual lives for the three months ended March 31, 2023:


	Weighted average exercise price	Number of options	Weighted average remaining contractual life in years	Aggregate intrinsic value
	$			$’000
Outstanding at the beginning of the period	19.76	368,069	8.32	$	(4,723)
Granted during the period	—	—	N/A
Exercised during the period	0.01	(5,792)	N/A	$	(40)
Forfeited / cancelled during the period	21.04	(43,388)	N/A
Outstanding at the end of the period	19.96	318,889	9.18	$	(4,846)
Exercisable at the end of the period	19.43	302,031	8.67	$	(4,427)

No options were granted during the three months ended March 31, 2023.

The Company recorded stock-based compensation expense related to Options during the three months ended March 31, 2023 and three months ended March 31, 2022 of $0.5 million and $2.3 million, respectively.

As of March 31, 2023, the Company had $1.5 million in unrecognized compensation cost related to unvested options, which is expected to be recognized over a weighted average period of 0.7 years.