Convey Health Solutions Holdings, Inc.

Good afternoon, and welcome to Convey Health Solutions' fourth quarter and year-end 2021 earnings conference call and webcast. All participants will be in a listen-only mode for the duration of the presentation. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, please press star 1 on your telephone keypad. Please note, this event is being recorded. Leading the call today is Stephen Farrell, Chief Executive Officer, and Tim Fairbanks, Chief Financial Officer. John Steele, Conveys Executive Vice President of Technology, is also joining the call. Before we begin, we would like to remind you that certain statements made during this call, including during the Q&A, will be forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to known and unknown risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by such forward-looking statements. Factors that could cause actual results to differ materially from those reflected in forward-looking statements include those in the risk factors section of the company's Form 10-Q for the period ended September 30, 2021, and its other filings with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Additional information will also be set forth in Convey Health Solutions' annual report on Form 10-K for the year ended December 31, 2021, which is expected to be filed later today. In addition, please note that the company will be discussing certain non-GAAP financial measures that it believes are important in understanding and assessing its financial performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website. With that, I'd like to turn the call over to Convey Health Solutions CEO, Stephen Farrell. Stephen, please go ahead.

I'd like to thank you for joining us for our fourth quarter in year-end 2021 earnings call. I'm joined today by Tim Fairbanks, our Chief Financial Officer, and John Steele, our Executive Vice President of Technology. I would like to start by thanking our team members and then our investors. We had an excellent first three quarters as a public company, partly because we have excellent technology, partly because we have an excellent team committed to our clients and their members, and partly because we have a highly predictable and recurring business model with dependable revenue and adjusted EBITDA. Taking a company public is a massive endeavor, and the entire team managed to get there without missing a beat operationally. I know you are all disappointed with the stock price and valuation. No one is more disappointed than the management team, which has met or exceeded the operating and financial targets presented during the IPO. Many of our investors have held the stock despite the downturn. Thank you for your long-term investment horizon. I believe that our investors will be rewarded in the end as we continue to grow revenue, adjusted EBITDA and cash flow, and demonstrate the strength of our technology platform. Today we reported net revenues of $337.6 million for 2021, an increase of 19% over last year. And we provided net revenue guidance for 2022 of $390 million to $410 million, which at the midpoint represents 18% year-over-year growth. When we first announced our adjusted EBITDA guidance for the year ended December 2021, last summer after our IPO, we provided adjusted EBITDA guidance of $66 million to $68 million. We adjusted that guidance in November to $67 million to $69 million. And today we announced that we exceeded the upper end of that adjusted EBITDA guidance by reporting $69.2 million in adjusted EBITDA. Today, we also reported adjusted EBITDA guidance for 2022 of $80 million to $84 million, which also represents 18% year-over-year growth at the midpoint. We believe the recurring nature of our business makes our revenue adjusted EBITDA, and cash flow generation predictable. We continue to drive revenue and adjusted EBITDA growth, and we believe we are operating in great markets with great tailwinds. Let me provide a bit of color on guidance. Unlike in many prior years, on average, our customers grew less than the market for 2022. which somewhat impacts our year-over-year growth rate, although we believe, as our guidance demonstrates, that we can more than overcome that shortfall through a combination of new client wins and cross-sell and up-sell to our existing client base. Although we are not providing guidance on convey without the HealthSmart acquisition, we believe it is fair to say that after all the puts and takes, we would expect to achieve solid double-digit growth in 2022 over 2021 in both revenue and adjusted EBITDA, even without the HealthSmart acquisition. During 2021, we continued to improve our technology business model and prospects in three critical ways. First, our retail partnership with Income, a leading fintech company, significantly strengthened our value proposition for health plans. We are now providing what we believe is the best-in-class, over-the-counter solution because we are able to offer a health plan option of allowing its members to access their supplemental benefits through the retail setting using a single cash card or through the home delivery channel or a combination of the two. We believe this differentiated hybrid offering at scale extends our leadership in the OTC benefits market. Second, as we mentioned last quarter, we have also strengthened the value proposition of our supplemental benefits business by leveraging the data analytics capabilities of our value-based payment assurance team. Our three-year longitudinal analysis of medical claims data and usage of our over-the-counter benefit found a strong correlation between users of our OTC supplemental benefit program and lower medical costs. And we're using this data to position our supplemental benefits business from solely a marketing tool for health plans to a combined marketing and clinical program. As we mentioned in our press releases, The marketing strength of the program is evident as health plans that had this benefit grew 11% and those that did not shrank 6% in this year alone. Third, on February 1st of this year, we acquired HealthSmart International, which we are tucking into our supplemental benefits business as our primary logistics and supply chain channel. HealthSmart provides a diverse portfolio of health, wellness, and diagnostic products centered on home-based care outcomes, and we intend to leverage their supply chain and logistics expertise to get high-quality products to members faster and at a lower cost. It is good to officially welcome the HealthSmart team to Convey. Now that we have what we believe is a best-in-class retail solution to complement our home delivery OTC channel, and we have acquired logistics and supply chain expertise, and we have validated the clinical value of our supplemental benefits program, we are extremely well positioned for the future. On the advanced plan administration side, We completed the large technology implementation we discussed in our last two calls, which depressed Q4 adjusted EBITDA some. But we are on track with that long-term contract and expect a good payoff from that investment. Our value-based payment assurance technology is also off to a strong start in 2022, as clients are beginning to reopen their offices for face-to-face meetings, which should help that growth rate be even stronger. I would be remiss if I didn't spend a minute on our advisory team. They are bringing innovative solutions to the market, and helping our technology team develop new products and identify cross-sell opportunities. So a special thank you to that advisory team. Turning to COVID, hopefully for the last time. Although we operated at near full capacity through COVID, it did cause some internal challenges with work at home and inflationary pressures on both products and labor. COVID also made it difficult to sell new technology offerings because we couldn't meet face-to-face with clients. I'm pleased to report that we are now in front of most clients again, and the 2023 sales season is in full swing. So I hope that revenue challenge is behind us. On the cost side, like many other companies in the United States, we have experienced and are continuing to experience some labor cost pressure, inflation, and supply chain challenges, at least in part due to COVID. We believe we will be able to manage these supply chain challenges and that our HealthSmart acquisition should help us as we are now positioned to leverage their manufacturer relationships to deliver high-quality and cost-effective products on time. We are also leveraging our Philippines footprint and work at home skillset, which were accelerated by COVID as cost and inflation safety valves. So we will have some headwinds due to the labor inflation and supply chain challenges, but we think it will be manageable and it is incorporated into our 2022 guidance. In closing, we delivered another strong quarter, and ended 2021 with net revenues up 19% compared to last year and adjusted EBITDA up 34% in each case ahead of our initial forecast. We are improving the operations of our health plan clients as well as clinical outcomes for their members. So our value proposition is strong. And given our recurring business model, we believe we have a good line of sight into our business in 2022. Now, I will turn the call over to Tim, who will provide more details on fourth quarter and year-end financial results, as well as our 2022 guidance. Then we will open the call to questions.

Tim? Thank you, Steve, and thanks to everyone for joining the call today. I will review our fourth quarter and full-year 2021 financial results and discuss our 2022 guidance. We generated strong fourth quarter 2021 financial results with net revenues of $97.3 million compared to $87.1 million in the fourth quarter of 2020. Our technology enabled solution segment revenue was $84.4 million for the fourth quarter of 2021, an increase of 13% from $74.5 million during the prior year's quarter. The increase was primarily driven by 30% growth in health plan management revenue, which accounted for approximately $6.3 million of the $10 million year-over-year increase in revenue. Health plan management is a largely recurring revenue stream where we can leverage our proprietary technology and services to manage the Medicare Advantage and prescription drug plans of our clients. This technology coordinates member management and is critical to our clients as it connects the member to both the health plan and CMS and typically serves as a system of record for the health plan. Our advisory services segment revenue was approximately $12.9 million during the fourth quarter of 2021, compared to $12.6 million in the fourth quarter of 2020. While our advisory services business continues to grow nicely, the quarter-over-quarter comparison was impacted by a strong fourth quarter of 2020, which benefited from pent-up demand when our clients initially returned to their offices after pandemic lockdown. We generated net income of $0.4 million during the fourth quarter of 2021 compared to net income of approximately $8.1 million during the fourth quarter of 2020. From a comparison standpoint, Q4 2020 had benefited from a one-time $10.8 million increase related to the valuation of certain earn-out payments. Adjusted EBITDA was $19.9 million for the fourth quarter of 2021 compared to $19.3 million in the fourth quarter of 2020. While our fourth quarter adjusted EBITDA was ahead of plan, it was negatively impacted by the previously announced and expected one-time implementation costs of approximately $3 million related to a new client, which was included in the $19.9 million of adjusted EBITDA. This implementation is now successfully complete. Interest expense was $2.2 million for the fourth quarter of 2021 compared to $5.4 million for the fourth quarter of 2020. This decrease reflects lower term loan balances following the second quarter pay down using IPO proceeds. Also, in July, we amended our credit agreement, which reduced our effective interest rate by approximately 75 basis points. Moving to our annual results for 2021, consolidated revenue was $337.6 million, representing a 19% increase from $282.9 million in 2020. Our technology-enabled solution segment revenue was $284.6 million for the full year 2021, which is an 18% increase over $241.3 million in 2020. The year-over-year increase reflects solid double-digit growth in all of our technology business units, which was driven by high client retention, technology cross-sell and up-sell, as well as the general Medicare Advantage market growth. Our advisory services segment revenue increased 27% in 2021 to approximately 53 million, compared to 41.6 million in 2020. It's encouraging to see this strong rebound after the pandemic impacted our 2020 results, and we continue to experience demand from both new and existing clients. For the year, we reported a net loss of approximately 10 million. However, 18 million of that loss was driven by IPO-related items. These costs included $7.9 million for the prior act's D&O insurance premium, $5 million in expenses related to the June 2021 extinguishment of debt, $2.8 million in public company readiness costs, and $2.3 million related to the termination of our management service agreement with TPG. Without the impact of these one-time IPO expenses, our net income would have been $8 million. Our 2021 adjusted EBITDA was $69.2 million, which is an increase of 34% over $51.5 million in 2020. This increase was driven by a recurring revenue model, high customer retention, and better than expected operating leverage. Our adjusted EBITDA margin expanded from 18% in 2020 to 21% in 2021, primarily due to strong revenue growth and operating cost leverage. Moving to balance sheet and cash flow items. As of December 31st, 2021, cash and cash equivalents totaled approximately $38.8 million, and we had $39.4 million available on our revolver. Total debt excluding unamortized costs of $3 million was $192.6 million. Net cash provided by operating activities during the fourth quarter of 2021 was $2.5 million, while capital expenditures were $1.7 million and capitalized development costs were $1.8 million. For the year, net cash used by operating activities was $2.3 million and capital expenditures were approximately $6.4 million and capitalized development costs were $5.9 million. As a reminder, our operating cash flow was impacted by $13 million of one-time costs related to the DNO policy, public readiness costs, and the termination fee of the TPG Management Services Agreement. We also made a one-time $10.3 million payment, which was the final contingent payment related to the TPG acquisition. Adjusting for the one-time items listed above, adjusted net cash provided by operating activities is $21 million during 2021. Before I shift to our 2022 outlook, I want to discuss the HealthSmart acquisition, which closed February 1st. The transaction is included in our 2022 guidance, and we expect it will be accreted to earnings in 2022, and the incremental debt will not change our targeted long-term net debt leverage ratio. Overall, we think this is a valuable asset that will enhance our supplemental benefit product offering to both health plans and their members. As we conclude the end of our first year as a public company, I'd like to reflect on and summarize three key financial measures and discuss our 2022 financial guidance. Number one, revenue growth. We reported 19% growth in net revenues in 2021. This revenue growth was driven by a strong recurring revenue stream, long-term contracts and client relationships, a growing marketplace, and a best-in-class technology that represents an excellent value proposition to our clients. We see those trends continuing and have provided 2022 revenue guidance of $390 to $410 million, representing 18% growth over 21 at the midpoint. The fourth quarter is historically our largest quarter due to seasonality. Our fourth quarter of 2022 will be a slightly larger percentage of total revenue than it was in 2021 due to certain supplemental benefit plan design changes and new client revenue growth during the year. Number two, adjusted EBITDA. We reported 34% growth in 2021 compared to 2020, while simultaneously exceeding our adjusted EBITDA margin target of 20%. We expect 2022 to be another strong year, and it provided 2022 EBITDA guidance of 80 to 84 million, representing 18% growth over 2021 at the midpoint. Our margin at the midpoint is 21%, but expect the first quarter to be below and the fourth quarter to be above this annual average. The first quarter will be negatively impacted by new client and HealthSmart integration expenses, and the fourth quarter will benefit from volume and economies of scale. Number three, cash flow and liquidity. We generate strong cash flow and carry modest debt levels. This liquidity and strong balance sheet allows us to be, A, opportunistic in the market from a strategic M&A perspective, and, B, continue to organically develop additional technology products for our existing client base. To summarize, Conveya is a revenue growth rate in high teens, and we've consistently demonstrated our ability to continue growing over the past decade. Our 21% adjusted EBITDA margins reflect the relative premium our clients place on our technology. We combine that with strong cash flow, long-term contracts and clients, high recurring revenue, and a differentiated technology anchored to the growing Medicare Advantage market. We think this is a very attractive and underappreciated financial profile. In addition to the operating and financial updates we discussed today, we look forward to speaking with investors during 2022 and making sure our story is more widely known. Steve and I think we have a great story that's not yet fully recognized, and we'd certainly like to change that. We look forward to seeing and speaking with many of you over the next several months. Finally, I'd like to thank our employees and their hard work that produced such an exceptional year. Operator, we are now ready to open the call to questions.

Thank you. We will now begin the Q&A session. If you'd like to ask a question, please press star 1 on your telephone keypad. And if for any reason you'd like to remove that question, please press star 2. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question is from the line of Anne Samuel of JP Morgan. Anne, please proceed with your question.

Hi, guys. Congrats on a great quarter, and thanks for taking the question. I was hoping maybe you could provide a little bit more color or perhaps quantify for us some of the inflationary pressures that you're seeing within your margins, particularly around labor pressure in the advisory services business. Thanks.

Sure. So the labor pressure that we're seeing is primarily in our more entry-level positions. We've, I think, are paying people at good rates in our management team. And we've seen a little less of an issue at the senior level and more of an issue at the entry level. So our inflationary concerns are really there and also on the product side, where we've obviously done this HealthSmart acquisition, which will allow us to go directly to manufacturers and should help offset any inflationary pressures. So we know that The market in general has been talking a lot about inflation and labor issues, especially as it relates to COVID. And we felt it was important to highlight that we've got it under control and are managing well through it. Tim, anything you want to add to that?

Yeah, just in terms of the quantification, while we can't line item quantify, obviously, on this call, You know, we've obviously incorporated what we expect as inflationary pressures to be in our 22 guidance. You'll notice that the midpoint of that guidance has nearly identical adjusted EBITDA margins as we had in 21, kind of signaling that we feel we're managing those margins appropriately given that pressure.

Very helpful. Thank you.

Great.

Thanks, Ann.

Thank you, Ann. Our next question is from the line of Richard Close of Canaccord Genuity. Richard, please proceed.

Yeah, thanks for the questions. Congratulations on finishing the year strong. Steve or Tim, whoever wants to take this, I guess with respect to the comments and the revenue guidance, for 2022. Can you just talk a little bit about the wide range on guidance? It seems a little bit wider than I thought it would be. I thought the bottom end would be a little bit higher. But can you just talk a little bit about what went into the bottom end and the top end, what the delta is there? And maybe if you stripped out HealthSmart, where would you be?

Sure. So, Richard, thanks for the question. In terms of our clients, we have been very fortunate over the years to have been partnered with winners who year in and year out have exceeded market growth. This year we had, I think, a bit of a step back on average. with some lower growth with our clients. And we are managing through that, through upsell and cross-sell, and think that notwithstanding some of that tailwind that we normally have, we think we're going to have an excellent year this year. We have landed some new customers. And whenever you have a significant number of new customers, there's a greater degree of uncertainty as to what that revenue and expected EBITDA are. We've all operated in public companies before and understand the importance of, at a minimum, hitting our guidance. And so we've created a range that would allow for some variability in that new customer front. Tim, anything you want to add to that? I think that completes the answer there.

Okay. So a follow-up question for Tim, I guess. You know, you called out the nuances with cash from operations, free cash flow in 2021, the one-timers. How are you thinking about free cash flow for 2022 and maybe free cash as well? And then also, do you have the, you know, annual contract revenue figure and gross in that dollar retention?

Yeah, I do, Richard. In terms of cash flow from ops or free cash flow, we're not providing that guidance. However, the reason we wanted to itemize kind of the unusual items in 21 is just to really help everyone understand they truly were one-time items. Most of them were IPO-related, but we also had that $10.3 million contingent payment related to TP acquisition, TPG acquisition as well. And so those were truly one-time items and wouldn't expect those to obviously recur in 2022. In terms of our key metrics, and you'll see more detail in our K, which was filed maybe 10 minutes ago, our gross dollar retention, if you remember, was 99% and 98% the last two years, respectively. For 21, that was back up to 99%. And then the net dollar retention was 117% on the year.

Okay, great. Thank you. Congratulations. Thanks, Richard.

Thanks, Richard. Our next question is from Cindy Motz of Goldman Sachs. Cindy, please proceed.

Thanks, and thanks for taking my question, and congratulations on the quarter. Yeah, I just, in terms of, I know you're not bringing out the HealthSmart guidance, but you mentioned, like, for the first quarter, we should expect, you know, a little bit less, you know, in terms of EBITDA, and then it's going to ramp. Is that, like, the cadence is going to be steady ramp, like we see a little bit better second quarter, third quarter, or do we see, like, you know, a real ramp at the end of the year? And then if you could just also remind us of what your net debt leverage, that target ratio is, that would be great. Thanks.

Sure, Cindy. It's Tim. So let's start with the debt side of the question, then I'll circle back to the first part, which is on the EBITDA. In terms of debt, and I'm going to ignore the non-cash, unamortized $3 million of debt. So if you look on our balance sheet, At 1231, we've got about $189, $190 million of debt. We've also posted or announced in our K, a subsequent event, of an additional $78 million of debt related to the HealthSmart transaction. So I don't want to ignore that. So if I add the $78 to the $189, you've got about $267 of gross debt. Let's assume we just use the 1231 cash balance of 39 million. That kind of brings you to a net debt of 228. And then if you take the midpoint of our guidance this year, EBITDA guidance of 82 million, that would imply kind of a 2.8x net leverage, net debt leverage ratio, which kind of is right in line with what I've always guided everyone towards, which is kind of high twos and low threes. It's kind of our target leverage ratio. So circling back to the first part of your question around EBITDA. So the midpoint of our guidance, EBITDA margins about 20.5 or exactly 20.5%. I think the second and third quarters will be kind of average quarters in terms of adjusted EBITDA margin. They should be right around that 20.5% mark. The first quarter could be 300 basis points less than that due to the integration expenses of HealthSmart and new clients. that we discussed during the call. And then the balance of that will be made up in the fourth quarter. So the fourth quarter margins will expand, you know, given scale and volume, kind of bringing the full year average to that 20.5%. I hope that helps.

Sure. Yeah, no, so you're intending to see a pretty nice ramp then. That fourth quarter EBITDA margin is going to be a pretty big ramp, I guess, correct?

Yeah, we'll have those economies of scale, and we'll have an oversized fourth quarter. But really maybe not that surprising, and let's just talk about that for a minute. So if you look at our fourth quarter of 21 numbers, you know, the quarter that just concluded, we had a 20.4% adjusted EBITDA margin in this quarter that just concluded. However, let's not forget the $3 million of one-time implementation costs. that were inside that number. So if you kind of add back that $3 million to our fourth quarter, you know, obviously you would see expanded margins in the fourth quarter of this year as well. And so, you know, we're going to benefit in the fourth quarter of 22 from not having that $3 million implementation cost again. And so it really isn't a huge surprise to the management team that we have that margin expansion with our big seasonal fourth quarter.

Yeah, to simplify that story a bit, the ramping is really due to seasonality in our business, and we're continuing to reinvest in growth. And so we're not forecasting a permanent increase in that adjusted EBITDA margin as long as we are continuing to reinvest.

Okay, that makes a lot of sense. I mean, if I could just slip one more in. Like, so for the first quarter, too, is part of that, you said integration, but is part of that like any sort of labor retention bonuses or any other, you know, things like that that, you know, I mean, I guess it doesn't matter. It would be a one-time thing anyway. But just curious if there's any of that in there, just because some of the other companies have been talking about that.

So, thanks. No, none of that. It's really what we described, which is we've got a number of brand-new logos that We've got some new solutions we're introducing, and then we've got the HealthSmart acquisition. And so we've got some fair amount of integration and ramp up for those new clients and new business.

Great. Makes sense. Thanks a lot.

Thanks, Cindy. Thanks, Cindy. Our next question is from Stephen Valliquette of Barclays. Stephen, please proceed.

Great. Thanks. Good afternoon, everybody. So, you know, I think you mentioned that excluding HealthSmart on an organic basis, you still expected a double-digit revenue and EBITDA growth in 22, which is definitely encouraging. You know, obviously, amongst some of your largest customers, there was one that was highly visible. That's a little bit worse than expected, but also some of your largest customers actually performed better than expected. So I don't know if you're able to comment on this or not, but I'm wondering, let's say if we just think about maybe your top five customers in aggregate. with some of those, you know, gains and losses or accelerated growth within those top five. But you still expect your top five customers to contribute double-digit growth in 22. Or would it be something maybe a little bit less than that, that maybe your next, you know, let's say customers six through 50 or just, you know, the next wave after that makes up for maybe a little bit slower growth among those top five. I'm up to you. you know have uh you know framed it that way in their own heads just curious any color you can provide just kind of thinking about the contribution from the largest set of customers versus that next wave thanks sure so um thanks for the question steve uh

We haven't really bifurcated between our top five and the overall population, and we're a bit reluctant to start to drill down on any specific customers. But what you reiterated, you heard correctly, and that is on average our plans, have grown at a slower rate than the market. That is unusual for us, and we believe that we will be back on track in terms of our customer growth rate going forward because this year is not what we have historically experienced. But due to new products, due to expansion, due to new customers, and just our overall approach to the market, we're overcoming that less-than-market growth. I know that's not a complete answer, but that's, I think, my best shot there.

Okay, that's still helpful. Then just a quick follow-up on your comment about the revenues in the fourth quarter. being a little bit higher as a percentage of total full-year REVs this year versus last year. I think you mentioned it was due to some benefit design changes. I'm not sure if that was OTC specifically or not, but I was just curious to hear more about the mechanics of that. Is it really just a function of more of the end-member spending in relation to those benefits will just occur later in the year and it's correlated to that, or are there some other mechanics that drives that revenue being more back-end loaded into the fourth quarter?

Yeah, Steve, it's Tim. So there's a couple of different sub-mechanics there. But one is just a plan to hit the nail on the head that each of our clients typically have many different plan designs, and we've gotten fairly accurate in predicting the seasonality of that revenue based on the plan design. And the way the plans are designed this year, we predict they'll be a little bit more back-end loaded. They're typically seasonal, so no surprise there, and we think they'll be just a bit more seasonal than usual. There's other factors at play here as well outside of the supplemental benefit realm. We've got a number of new clients and some of these clients, you know, based on the type of work we're doing for them, we expect the revenue to build throughout the year. And so there'll be a little bit more back-end load, but this isn't dramatic. And so to give you, to give everyone just a sense of kind of what we're talking about here, if you look at our 2021 revenue distribution, About 29% of our total annual revenue landed in the fourth quarter and 24% of our total annual revenue landed in the first quarter. I expect, we expect that 29% in the fourth quarter to maybe be 31% in the fourth quarter of 2022. And that additional 2% will come from the first quarter. So the 24% of revenue that we had in the first quarter of 21 might decline to 22%. I think quarters two and three in the middle there will be roughly similar in their distribution to what we had in the previous years. And so this isn't a massive shift of seasonality, but a 200 basis point shift of seasonality in our first and fourth quarters compared to last year.

Okay. That's very helpful. Thanks.

Thank you, Stephen. Our next question is from Michael Cherney, Bank of America. Michael, please proceed. This is Alan in for Mike. Thanks for taking the questions. I guess, are the supply chain challenges that you're seeing, are they changing? Have they gotten worse? Are they improving at all? And then I guess, is there what's embedded in guidance? Is the assumption that these challenges that you're seeing are just going to be consistent over the course of the year? Or is there any improvement that's baked in there?

Sure. Hey, Alan, thanks for the question. So the supply chain challenges really hit their peak last spring for us in spring of 2021. And we've seen slow but gradual improvement. I would say that it's significantly less of an issue now than it was a year ago, but it is something that we continue to manage through. So it's just an ongoing battle in our business like it is in lots of other businesses. And we've modeled a slight improvement there. But, again, between the Philippines operation, which is a safety valve for us from a labor perspective, and the HealthSmart acquisition, in which we'll be able to increasingly go direct to manufacturers, we feel like we've got the inflationary and supply chain challenges in good shape.

Great. Thank you very much. Thank you, Michael. The next question is from Richard Close of Canaccord Genuity. Richard, go ahead.

Great. Thanks for the follow-up here. Steve, on the advisory business, I understand that that's project-based and not necessarily recurring, but your clients do come back to you guys, it seems, year over year or year after year. Are there any topics that are, you know, front and center for your customers that, you know, you're seeing this year or, you know, at the end of 2021 versus, you know, maybe a year ago that you guys are spending a lot of time on?

Sure. So I'm going to ask John Steele to weigh in on the topic question. But, Richard, you are correct that most of the work there is project-based. and not technically recurring, but the same customers come back to us on a regular basis because we do a good job for them. So although it's not contractually recurring, there is a recurring nature to the clients that doesn't change on a regular basis. John, can you answer the topic question?

Yeah, a couple topics, Richard. I mean, one certainly is growth, you know, Our plan clients are looking on particular ones maybe didn't perform as well in this most recent open enrollment to reignite some of their growth. And certainly with some of the kind of out-of-the-funding looks next year, how should that be sort of deployed and sort of benefited? So I think the whole growth question and the new market entry and expansion is certainly one area. And the other area that continues to be an area that drives growth Our consulting and advisory is just the continual shift to value-based care and providers taking risk and kind of reshaping some of those networks continues also to be an area that we spend quite a bit of time in.

Okay, that's helpful. Maybe just to go into the growth a little bit more, do you have a lot of people asking you how they can do better with respect to churn or attrition? I know that seemed to be a problem, if I'm not mistaken, during this current AEP.

That is certainly one of the topics, kind of distribution channel as well as the retention. So probably a high focus on what you can do to retain a lot of the members that you have as well as the kind of distribution channels that they are coming to the plans from. So that's certainly one of the topical areas.

Okay. Yeah, Richard, it's a good question. I would just point out that I know that churn has hurt, broadly speaking, companies that are in the Medicare Advantage phase. It really doesn't hurt us. It might drive some enrollment costs a bit, but it's the aggregate revenue growth or the aggregate membership growth that ultimately impacts us. So churn isn't something that concerns us.

Great. Thanks. Thanks, Richard.

Thank you, Richard. There are no additional questions waiting at this time, so I'll hand the call back over to the management team for any closing remarks.

So thank you all for joining our year-end conference call, and we look forward to meeting with more and more of you in person in the coming months.

That concludes the Convey Fourth Quarter 2021 Earnings Conference Call. Thank you all for your participation. You may now disconnect your lines.