Babylon, which offers AI-enabled virtual diagnosis and medical appointments, increased its revenue fourfold in the second quarter but faces a bumpy road to profitability.
As a result, Babylon will tweak operations and search for efficiencies, said CEO Ali Parsa to Digital Health Business & Technology.
“Let’s say it takes us another two or three years to get to $3 billion of revenue and let’s say we get to 10% margins. By then, we’ll have broken even,” Parsa said the company also sells its software at a gross margin between 70% and 80%. “So, the combination of those two will get us to a place that we’ll get to profitability some time before 2025.”
While the company increased value-based revenue by 534% to $244 million, its claims expense increased nearly as much and totaled $234 million. Babylon’s medical margin of 2.2% is up from negative 3.2% last year. The company’s adjusted earnings before interest, taxes, depreciation, and amortization margin improved 60% year-over-year, but was still in the red at negative 25.9%. Its losses totaled $157.1 million.
Parsa is confident the company can continue to scale in the U.S.
“A combination of more profitable contracts on one hand and penetrating our members more so we can manage more of their lives to avoid more of their emergencies and crisis will get us there,” Parsa said. “And again, in the United Kingdom, it took us some time to get to between 15 to 35% cost saving, and the U.S. is just the same, we just have to carry through the same path.”
Acquiring customers in more profitable segments is important, Parsa said. Babylon will target growth in commercial and Medicare advantage health plans. Medicaid members make up more 80% of the company’s customers but account for only about 60% of revenue. Babylon increased its U.S.-based membership by 220%.
“As we increase revenue, that operating cost doesn’t go up,” Parsa said. “Our revenue went up, our engineering costs, technology costs almost stayed flat and therefore as a result, our [selling, general and administrative expenses] cost almost stayed flat and therefore as a result has sharply fallen.”