Convey Health Solutions Announces Fourth Quarter and Record Full Year 2021 Financial Results
Provides 2022 Guidance
Fourth Quarter 2021 Highlights
- Net revenues of $97.3 million, up 12% compared to Q4 2020
- Net income of $0.4 million, compared to net income of $8.1 million in Q4 2020 which included a one-time benefit of $10.8 million due to the valuation of certain earn-out payments
- Adjusted EBITDA or AEBITDA of $19.9 million, up 3% compared to Q4 2020. Q4 2021 included previously announced one-time implementation costs related to a new client win
Full Year 2021 Highlights
- Net revenues of $337.6 million, up 19% compared to prior year
- Net loss of $10.0 million which included $18.0 million of one-time costs related to the IPO, compared to net loss of $6.5 million in prior year which included a one-time benefit of $10.8 million due to the valuation of certain earn-out payments
- Adjusted EBITDA of $69.2 million, up 34% compared to prior year
Full Year 2022 Guidance
- Net revenues of $390 million to $410 million, the midpoint of which represents 18% growth over prior year
- Adjusted EBITDA of $80 million to $84 million, the midpoint of which represents 18% growth over prior year1
FORT LAUDERDALE, Fla., March 23, 2022 /PRNewswire/ --Convey Health Solutions Holdings, Inc. (NYSE:CNVY) (the "Company" or "Convey"), a leading healthcare technology and services company in the U.S., announced today financial results for the fourth quarter and year ended December 31, 2021.
"We achieved new records in terms of net revenues and AEBITDA for the year, which we believe demonstrate the strength of our customer relationships, the recurring nature of our business, the value of our technology, and the commitment of our team," said Stephen Farrell, CEO of Convey. "We saw solid results in each of our three core offerings in our Technology Segment as well as our Advisory Segment. Additionally, we are pleased to announce full year 2022 guidance, which represents 18% growth in both net revenues and AEBITDA."
Mr. Farrell continued, "In 2021, we helped our health plan clients drive membership growth, increase member engagement, and reduce payor costs by leveraging Convey's proprietary technology and tech-enabled services. Specifically, analyzing over 250,000 over-the-counter ("OTC") beneficiaries across a three-year period, we found that users of Convey's OTC program who had diabetes, cardiovascular disease, or a history of slip and fall accidents had between 6% and 8% lower medical costs than members with similar conditions who did not use our OTC offering. Additionally, this past year, Medicare Advantage ("MA") plans offering OTC benefit programs saw average membership growth of 11% vs. a 6% average membership decline for MA plans excluding such a benefit. Leveraging the 3.1 billion automated transactions and 29 million member touchpoints that Convey facilitated in 2021, our OTC program helps health plans contain member costs by addressing key social determinants of health."
Mr. Farrell concluded, "In addition to strong execution across our existing business lines, we believe our acquisition of HealthSmart, completed earlier this year, strengthens Convey's value proposition for our health plan clients. The acquisition helps ensure that health plan members have access to high quality consumer healthcare products, which have been shown to improve their health outcomes. Also, we further strengthened our supplemental benefits offering by partnering with InComm Payments. This partnership will allow health plan members to use their OTC benefit across InComm's network of 65,000 retail locations, as well as through our existing home delivery channel. We can now provide what we believe is the best-in-class supplemental benefits solution as we are able to offer a health plan the 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. As a result, we believe Convey is now even better positioned for go-forward growth."
Tim Fairbanks, CFO of Convey, said, "Convey continued its growth trajectory in 2021, driven by strong execution and one of the strongest secular trends in U.S. healthcare – the growth of the MA population. We believe our proprietary technology and tech-enabled services continue to deliver a strong value proposition for our health plan customers, and by doing so, provide attractive revenue growth opportunities for Convey. Further, Convey ended 2021 with a solid balance sheet, which allowed us to complete our first tuck-in acquisition as a public company without shareholder dilution. We are excited to continue this momentum in 2022 and look forward to another strong year."
Fourth Quarter 2021 Financial Results
- Net revenues of $97.3 million, up 12% compared to $87.1 million in the fourth quarter of 2020. Fourth quarter revenue growth was driven by Technology Enabled Solutions (TES) segment revenue of $84.4 million, up 13% year over year from $74.5 million in fourth quarter 2020, and $12.9 million of revenue in our Advisory Services segment, which was up 2% year over year from $12.6 million in fourth quarter 2020.
- Net income was $0.4 million compared to net income of $8.1 million for the fourth quarter of 2020.
- Adjusted EBITDA of $19.9 million increased 3% year over year from $19.3 million in the fourth quarter of 2020. Q4 2021 included previously announced one time implementation costs related to a new client win
- As of December 31, 2021, Convey had cash and cash equivalents of $38.8 million and $39.4 million available on the Company's revolver. Total debt, excluding unamortized cost of $3.0 million, was $192.6 million.
Year Ended December 31, 2021 Financial Results
- For the year ended December 31, 2021, net revenues of $337.6 million were up 19% compared to $282.9 million for the year ended December 31, 2020.
- Net loss in 2021 was $10.0 million compared to net loss of $6.5 million for the year ended December 31, 2020. Net loss for 2021 included $18.0 million of one-time costs attributed to our IPO consisting of $7.9 million for prior acts D&O insurance premium, $5.0 million expense related to the June 2021 extinguishment of debt, $2.8 million of public company readiness costs, and $2.3 million related to the one-time termination of the management service agreement with TPG.
- Adjusted EBITDA for the year ended December 31, 2021 was $69.2 million, up 34% year over year from $51.5 million for the year of 2020.
Full Year 2022 Guidance
- Net revenues of $390 million to $410 million, the midpoint of which represents 18% growth over prior year
- Adjusted EBITDA of $80 million to $84 million, the midpoint of which represents 18% growth over prior year2
Fourth Quarter and Full Year 2021 Conference Call
Convey will host a conference call to discuss fourth quarter and year end 2021 results on March 23, 2022 at 5:00 p.m. Eastern Time. The conference call can be accessed by dialing (844) 200-6205 for U.S. participants or +1 (929) 526-1599 for international participants, and referencing conference ID 637508; or via a live audio webcast that will be available online at https://ir.conveyhealthsolutions.com. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for approximately 90 days.
About Convey Health Solutions
Convey Health Solutions is a specialized healthcare technology and services company that is committed to providing clients with healthcare-specific, compliant member support solutions utilizing technology, engagement, and analytics. Convey Health Solutions' administrative solutions for government-sponsored health plans help to optimize member interactions, ensure compliance, and support end-to-end Medicare processes. By combining its best-in-class, built-for-purpose technology platforms with dedicated and flexible business process solutions, Convey Health Solutions creates better business results and better healthcare consumer experiences on behalf of business customers and partners. Convey Health Solutions' clients include some of the nation's leading health insurance plans and pharmacy benefit management firms. Their healthcare-focused teams help several million Americans each year to navigate the complex Medicare Advantage and Part D landscape. To learn more about Convey Health Solutions, please visit www.ConveyHealthSolutions.com.
Forward-Looking Statements
This press release contains "forward-looking statements." These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies and other future conditions. Such forward-looking statements may include, without limitation, statements about future opportunities for us and our products and services, our future operations, financial or operating results, including our 2022 financial guidance, our belief that the acquisition of HealthSmart strengthens Convey's value proposition for our health plan clients, our belief that Convey is now even better positioned for go-forward growth, and are excited for another strong year in 2023, our belief that our proprietary technology and tech-enabled services continue to deliver a strong value proposition for our health plan customers, and by doing so, provide attractive revenue growth opportunities for Convey, that we are excited to continue this momentum in 2022 and look forward to another strong year, anticipated business levels, our ability to create value for our clients and serve their business objectives, future earnings, planned activities, anticipated growth, market opportunities and our expectations with respect to the growth of the markets in which we compete, including the Medicare Advantage market, trends in the markets in which we compete, strategies, competitions and other expectations and targets for future periods. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "predict," "project," "target," "potential," "seek," "will," "would," "could," "should," continue," "contemplate," "plan" and other words and terms of similar meaning. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. 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 the forward-looking statements contained in this press release. In addition, even if our results of operations, financial condition and cash flows, and the development of the markets in which we operate, are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, among others, the following: our ability to retain our existing clients or attract new clients, and sell additional solutions and services to our clients; our dependence on a small number of clients for a substantial portion of our total revenue; limitations of our clients' growth prospects, and the failure of the size of the total addressable markets in which we compete or expect that we may compete in the future to grow at rates currently expected; risks related to acquisitions of other businesses or technologies and other significant transactions; increases in labor costs, including due to changing minimum wage laws, and an overall tightening of the labor market; an economic downturn or volatility, including as a result of the ongoing COVID-19 pandemic; recent and future developments in the Medicare Advantage market or the healthcare industry generally, including with respect to changing laws and regulations; security breaches or incidents, failures and other disruptions of the information technology systems used in our business operations and of the sensitive information we collect, process, transmit, use and store; disruptions in service, and other software and systems failures, affecting us and our vendors; our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights; our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties; our substantial indebtedness, and the restrictions imposed by our indebtedness on our subsidiaries; identified material weaknesses in our internal control over financial reporting and a failure to remediate these material weaknesses, and the effectiveness of our internal control over financial reporting; and the significant influence our principal stockholder, TPG, has over us. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section Part II, Item 1A "Risk Factors" included in our Form 10-Q for the period ended September 30, 2021 and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We qualify all of the forward-looking statements in this press release by these cautionary statements. 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.
Use of Non-GAAP Financial Measures
This press release includes the presentation and discussion of certain financial information that differs from what is reported under accounting principles generally accepted in the United States ("GAAP"). EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP financial measures and are presented in order to supplement investors' and other readers' understanding and assessment of the financial performance of the Company. We use EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin to assess our financial performance and also for internal planning and forecasting purposes. We believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin provide investors with useful information because such metrics offer a consistent and comparable overview of our operations across historical financial periods. In evaluating EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, you should be aware that in the future we may incur expenses similar to those eliminated in the presentation.
Non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. There are limitations to the use of the non-GAAP financial measures presented in this press release. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
The non-GAAP financial measures we present are not meant to be considered as indicators of performance in isolation from or as a substitute for measures prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of each of these non-GAAP measures to the most directly comparable GAAP financial measure are presented below. We encourage you to review our financial information in its entirety, not to rely on any single financial measure and to view the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future periods, we may exclude such items, may incur income and expenses similar to these excluded items, and include other expenses, costs, and non-recurring items.
Convey is not providing forward-looking guidance for U.S. GAAP reported financial measures (other than net revenues) or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including net (loss) income and adjustments that could be made for income tax expense/benefits, contract termination costs, and extinguishment of debt in its reconciliation of historic numbers. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP reported results for the guidance period.
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1 | Convey is not providing forward-looking guidance for U.S. GAAP reported financial measures (other than net revenues) or a quantitative reconciliation of forward-looking non-GAAP financial measures. Please see "Use of Non-GAAP Financial Measures" for additional information. | |||||||||||
2 | Convey is not providing forward-looking guidance for U.S. GAAP reported financial measures (other than net revenues) or a quantitative reconciliation of forward-looking non-GAAP financial measures. Please see "Use of Non-GAAP Financial Measures" for additional information. | |||||||||||
CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) | |||
December 31, | December 31, | ||
ASSETS | |||
Current assets | |||
Cash and cash equivalents | $ 38,811 | $ 45,366 | |
Accounts receivable, net of allowance for doubtful accounts of $69 and $610 as of December 31, | 62,813 | 50,589 | |
Inventories, net | 14,060 | 11,094 | |
Prepaid expenses and other current assets | 16,569 | 15,220 | |
Restricted cash | — | 3,560 | |
Total current assets | 132,253 | 125,829 | |
Property and equipment, net | 20,400 | 20,667 | |
Intangible assets, net | 220,014 | 238,842 | |
Goodwill | 455,206 | 455,206 | |
Restricted cash | — | 160 | |
Other assets | 2,030 | 2,364 | |
Total assets | $ 829,903 | $ 843,068 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |||
Current liabilities | |||
Accounts payable | $ 13,868 | $ 21,308 | |
Accrued expenses | 48,558 | 67,159 | |
Capital lease obligations, current portion | 498 | 361 | |
Deferred revenue, current portion | 7,472 | 6,466 | |
Term loans, current portion | — | 2,500 | |
Total current liabilities | 70,396 | 97,794 | |
Capital leases obligations, net of current portion | 528 | 1,129 | |
Deferred taxes, net | 25,992 | 26,561 | |
Term loans, net of current portion | 189,643 | 239,290 | |
Other long-term liabilities | 5,595 | 8,144 | |
Total liabilities | 292,154 | 372,918 | |
Commitments and contingencies | |||
Shareholders' equity | |||
Preferred stock, $0.01 par value; 25,000,000 shares authorized and no shares issued or outstanding | — | — | |
Common stock, $0.01 par value; 500,000,000 and 126,000,000 shares authorized as of December 31, | 732 | 613 | |
Additional paid-in capital | 570,252 | 492,747 | |
Accumulated other comprehensive income | 31 | 78 | |
Accumulated deficit | (33,266) | (23,288) | |
Total shareholders' equity | 537,749 | 470,150 | |
Total liabilities and shareholders' equity | $ 829,903 | $ 843,068 | |
CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share amounts) (unaudited) | |||||||||||||||
For the Three Months Ended | For the Year Ended | ||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||
Net revenues: | |||||||||||||||
Services | $ | 47,573 | $ | 42,377 | $ | 177,575 | $ | 147,191 | |||||||
Products | 49,733 | 44,704 | 160,021 | 135,723 | |||||||||||
Net revenues | 97,306 | 87,081 | 337,596 | 282,914 | |||||||||||
Operating expenses: | |||||||||||||||
Cost of services(1) | 26,442 | 24,425 | 92,241 | 84,144 | |||||||||||
Cost of products(1) | 30,033 | 26,510 | 103,080 | 87,153 | |||||||||||
Selling, general and administrative | 23,109 | 21,068 | 94,093 | 79,955 | |||||||||||
Depreciation and amortization | 7,812 | 7,323 | 30,480 | 28,032 | |||||||||||
Transaction related costs | 2,924 | 3,672 | 5,894 | 3,949 | |||||||||||
Change in fair value of contingent consideration | — | (10,770) | 96 | (10,770) | |||||||||||
Total operating expenses | 90,320 | 72,228 | 325,884 | 272,463 | |||||||||||
Operating income (loss) | 6,986 | 14,853 | 11,712 | 10,451 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 18 | — | 18 | 7 | |||||||||||
Loss on extinguishment of debt | — | — | (5,015) | — | |||||||||||
Interest expense | (2,168) | (5,381) | (17,312) | (18,860) | |||||||||||
Total other expense, net | (2,150) | (5,381) | (22,309) | (18,853) | |||||||||||
Income (loss) from continuing operations before income taxes | 4,836 | 9,472 | (10,597) | (8,402) | |||||||||||
Income tax (expense) benefit | (4,423) | (1,368) | 619 | 1,904 | |||||||||||
Net income (loss) from continuing operations | 413 | 8,104 | (9,978) | (6,498) | |||||||||||
Income (loss) from discontinued operations, net of tax | — | — | — | 36 | |||||||||||
Net income (loss) | $ | 413 | $ | 8,104 | $ | (9,978) | $ | (6,462) | |||||||
Income (loss) per common share – Basic and diluted | |||||||||||||||
Continuing operations | 0.01 | 0.13 | (0.15) | (0.11) | |||||||||||
Discontinued operations | — | — | — | — | |||||||||||
Net income (loss) per common share | $ | 0.01 | $ | 0.13 | $ | (0.15) | $ | (0.11) | |||||||
Net income (loss) | $ | 413 | $ | 8,104 | $ | (9,978) | $ | (6,462) | |||||||
Foreign currency translation adjustments | (2) | 10 | (47) | 57 | |||||||||||
Comprehensive income (loss) | $ | 411 | $ | 8,114 | $ | (10,025) | $ | (6,405) | |||||||
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(1) | Excludes amortization of intangible assets and depreciation, which are separately stated below. |
CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) | ||||
For the Years Ended December 31, | ||||
2021 | 2020 | |||
Cash flows from operating activities | ||||
Net ( loss) income | $ (9,978) | $ (6,462) | ||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||
Depreciation expense | 5,603 | 4,192 | ||
Amortization expense | 24,877 | 23,840 | ||
Loss on extinguishment of debt | 5,015 | — | ||
Provision for bad debt | (202) | 542 | ||
Provision for inventory reserve | 639 | — | ||
Gain from disposal of assets | 28 | 397 | ||
Deferred income taxes | (569) | (2,317) | ||
Write-off of capitalized software costs | — | 69 | ||
Amortization of debt issuance costs | 1,082 | 1,056 | ||
Change in fair value of contingent consideration | 96 | (10,770) | ||
Share-based compensation | 4,380 | 6,682 | ||
Changes in operating assets and liabilities: | ||||
Accounts receivable | (12,021) | (2,031) | ||
Inventory | (3,605) | (7,796) | ||
Prepaid expenses and other assets | (1,195) | (4,653) | ||
Accounts payable and other accrued liabilities | (7,686) | 29,659 | ||
Deferred revenue | 1,550 | (845) | ||
Payment on contingent consideration | (10,329) | — | ||
Net cash (used in) provided by operating activities | (2,315) | 31,563 | ||
Cash flows from investing activities | ||||
Acquisition, net of cash received | — | (3,758) | ||
Purchases of property and equipment, net | (6,435) | (5,159) | ||
Capitalized software development costs | (5,894) | (4,355) | ||
Net cash used in investing activities | (12,329) | (13,272) | ||
Cash flows from financing activities | ||||
Proceeds from issuance of debt | 78,000 | 25,000 | ||
Payment of debt issuance cost | (2,133) | (1,148) | ||
Principal payment on term loan | (132,368) | (2,438) | ||
Payment on capital leases | (464) | (118) | ||
Proceeds from issuance of common stock to Board of Director | 250 | — | ||
Proceeds from issuance of common stock in initial public offering, net of issuance costs | 146,136 | — | ||
Prepayment premium on early repayment of term loan | (1,563) | — | ||
Proceeds from capitalization | — | — | ||
Payment on contingent consideration | (10,303) | (11,867) | ||
Exercise of vested stock options | 1,358 | — | ||
Dividend | (74,500) | — | ||
Net cash provided by (used in) financing activities | 4,413 | 9,429 | ||
CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands) (unaudited) | ||||
For the Years Ended December 31, | ||||
2021 | 2020 | |||
Effect of exchange rate changes on cash | (44) | 20 | ||
Net (decrease) increase in cash and cash equivalents and restricted cash | (10,275) | 27,740 | ||
Cash, cash equivalents and restricted cash at beginning of period | 49,086 | 21,346 | ||
Cash, cash equivalents and restricted cash at end of period | $ 38,811 | $ 49,086 | ||
Cash, cash equivalents and restricted cash as of the end of period | ||||
Cash and cash equivalents | $ 38,811 | $ 45,366 | ||
Restricted cash | — | 3,560 | ||
Restricted cash, non-current | — | 160 | ||
Cash, cash equivalents and restricted cash | $ 38,811 | $ 49,086 | ||
Supplemental disclosures of cash flow information: | ||||
Cash paid for taxes | $ 1,412 | $ 50 | ||
Cash paid for interest | $ 18,517 | $ 15,288 | ||
Non-cash investing and financing activities: | ||||
Capitalized software and property and equipment, net included in accounts payable | $ 1,918 | $ 3,672 | ||
CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND ITS SUBSIDIARIES SEGMENT REVENUES AND ADJUSTED EBITDA | |||||||||||||||
Presented in the tables below is revenue and Segment Adjusted EBITDA by reportable segment: | |||||||||||||||
For the Three Months Ended | For the Year Ended | ||||||||||||||
(in thousands) | Technology | Advisory | Technology | Advisory | |||||||||||
Revenue | $ | 84,423 | $ | 12,883 | $ | 284,619 | $ | 52,977 | |||||||
Segment Adjusted EBITDA | $ | 17,245 | $ | 3,071 | $ | 69,214 | $ | 16,232 | |||||||
For the Three Months Ended | For the Year Ended | ||||||||||||||
(in thousands) | Technology | Advisory | Technology | Advisory | |||||||||||
Revenue | $ | 74,486 | $ | 12,595 | $ | 241,336 | $ | 41,578 | |||||||
Segment Adjusted EBITDA | $ | 21,848 | $ | 4,137 | $ | 66,043 | $ | 8,204 | |||||||
The following table presents a reconciliation of Segment Adjusted EBITDA to the consolidated U.S. GAAP net income (loss) from continuing operations: | |||||||||||||||
(in thousands) | For the Three Months Ended | For the Years Ended | |||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||
Technology Enabled Solutions Segment Adjusted EBITDA | $ | 17,245 | $ | 21,848 | $ | 69,214 | $ | 66,043 | |||||||
Advisory Services Segment Adjusted EBITDA | 3,071 | 4,137 | 16,232 | 8,204 | |||||||||||
Total | $ | 20,316 | $ | 25,985 | $ | 85,446 | $ | 74,247 | |||||||
Unallocated(1) | $ | (3,156) | $ | (2,609) | $ | (11,819) | $ | (9,024) | |||||||
Adjustments to reconcile to U.S. GAAP net income (loss) from continuing operations | |||||||||||||||
Depreciation and amortization | (7,812) | (7,323) | (30,480) | (28,032) | |||||||||||
Interest, net | (2,150) | (5,381) | (17,294) | (18,853) | |||||||||||
Income tax provision | (4,423) | (1,368) | 619 | 1,904 | |||||||||||
Change in fair value of contingent consideration | — | 10,770 | 96 | 10,770 | |||||||||||
Cost of COVID-19(2) | (770) | (2,402) | (3,827) | (10,174) | |||||||||||
Consultant lower utilization due to COVID-19 (3) | — | (197) | — | (2,062) | |||||||||||
Sales and use tax | 3,232 | (2,618) | (2,569) | (8,194) | |||||||||||
Non-cash stock compensation expense | (1,214) | (1,011) | (4,380) | (6,682) | |||||||||||
Transaction related costs | (2,924) | (3,672) | (5,894) | (3,949) | |||||||||||
Acquisition bonus expense – HealthScape and Pareto acquisition | (186) | (513) | (667) | (1,989) | |||||||||||
Loss on extinguishment of debt | — | — | (5,015) | — | |||||||||||
Director and officer prior act liability insurance policy(4) | — | — | (7,861) | — | |||||||||||
Other(5) | (500) | (1,557) | (6,333) | (4,460) | |||||||||||
Net income (loss) from continuing operations | $ | 413 | $ | 8,104 | $ | (9,978) | $ | (6,498) | |||||||
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(1) | Represents certain corporate costs associated with the executive compensation, legal, accounting, finance, and other costs not specifically attributable to the segments. |
(2) | Expenses incurred due to the COVID-19 pandemic are primarily related to higher pricing from vendors due to supply chain disruptions and product shortages and higher employee costs due to hazard pay for our employees. |
(3) | Consultant lower utilization due to COVID-19 reflects the decreased productivity of the Advisory segment in connection with the COVID-19 pandemic. The average utilization for consultants in the Company's Advisory Services segment declined during the COVID-19 pandemic as compared to pre-pandemic comparable periods. The utilization variance was multiplied by the average consultant cost to derive the cost absorbed by the Company. This change in utilization represents consultants' idle time that otherwise would have been billed to clients if the consulting arrangements would have materialized. In addition, we chose not to reduce our headcount as we expected the lower utilization to be temporary in nature. |
(4) | In connection with the IPO, we made a $7.9 million one-time payment on a 3-year director and officer prior act liability insurance policy. We deemed this policy to be a retroactive insurance policy and in accordance with Accounting Standard Codification ("ASC") 720-20-25, "Retrospective Contracts," we expensed the premium of $7.9 million in June 2021. |
(5) | These adjustments include individual adjustments related to legal fees associated with obtaining the incremental loans, management fees, management service agreement termination fee, board of directors related fees, and consulting costs for the selection of our Enterprise Resource Planning solution. |
Non-GAAP Reconciliations
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define EBITDA as net income (loss) less income (loss) from discontinued operations adjusted for interest, net, income tax expense (benefit), and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA further adjusted for certain items of a significant or unusual nature, including but not limited to, change in fair value contingent consideration, COVID-19 cost impacts, non-cash stock compensation, transaction related costs, acquisition bonus expense, loss on extinguishment of debt, director and officer prior act liability insurance policy and other costs. Other includes costs such as contract termination fees, management, and board of directors' fees, and arrangement fees paid to TPG in connection with obtaining the incremental term loans.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.
The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:
For the Three Months Ended December 31, 2021 | For the Three Months Ended December 31, 2020 | For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income (loss) | $ | 413 | $ | 8,104 | $ | (9,978) | $ | (6,462) | ||||||||
Less income (loss) from discontinued operations, net of tax | — | — | — | 36 | ||||||||||||
Net income (loss) from continuing operations | 413 | 8,104 | (9,978) | (6,498) | ||||||||||||
Interest, net | 2,150 | 5,381 | 17,294 | 18,853 | ||||||||||||
Income tax expense (benefit) | 4,423 | 1,368 | (619) | (1,904) | ||||||||||||
Depreciation and amortization expense | 7,812 | 7,323 | 30,480 | 28,032 | ||||||||||||
EBITDA | 14,798 | 22,176 | 37,177 | 38,483 | ||||||||||||
Change in fair value of contingent consideration(1) | — | (10,770) | 96 | (10,770) | ||||||||||||
Cost of Covid-19(2) | 770 | 2,402 | 3,827 | 10,174 | ||||||||||||
Non-cash stock compensation expense(3) | 1,214 | 1,011 | 4,380 | 6,682 | ||||||||||||
Transaction related costs(4) | 2,924 | 3,672 | 5,894 | 3,949 | ||||||||||||
Acquisition bonus expense – HealthScape and Pareto acquisition(5) | 186 | 513 | 667 | 1,989 | ||||||||||||
Loss on extinguishment of debt(6) | — | — | 5,015 | — | ||||||||||||
Director and officer prior act liability insurance policy(7) | — | — | 7,861 | — | ||||||||||||
Other(8) | — | 313 | 4,316 | 986 | ||||||||||||
Adjusted EBITDA | $ | 19,892 | $ | 19,317 | $ | 69,233 | $ | 51,493 | ||||||||
Adjusted EBITDA as a percentage of net revenues | 20% | 22% | 21% | 18% | ||||||||||||
_______________________ | |
(1) | Change in fair value of contingent consideration is composed of two components: earn-out liability and holdback liability. The earn-out liability resulted from the HealthScape Advisors, LLC ("HealthScape Advisors"), and Pareto Intelligence, LLC ("Pareto Intelligence") acquisition that closed on November 16, 2018. The holdback liability resulted from the merger with TPG that closed on September 4, 2019. The earn-out liability and holdback liability were re-measured to fair value at each reporting date until the contingency was resolved. During the year ended December 31, 2021, we made a final payment of $13.1 million related to the holdback liability and a $7.5 million final payment related to the earn-out liability due to HealthScape Advisors. |
(2) | Due to significant volatility to the markets, as well as business and supply chain disruptions, we incurred several additional expenses due to the COVID-19 pandemic, including: (i) higher pricing from vendors due to supply chain disruptions, product shortages and increases in shipping costs, (ii) higher employee costs due to premium pay and hazard pay for our employees and enhanced sick pay due to illness and quarantine protocols, (iii) costs related to early hiring of employees due to social distancing and work at home protocols, (iv) COVID-19 training costs, (v) overtime costs for IT personnel to setup eligible employees to work from home and temporary resources, (vi) IT costs due to the change in the work environment and (vii) janitorial costs due to enhanced COVID-19 protocols. The expenses are included in cost of services and cost of products on our statements of operations and comprehensive income (loss). During 2021, to a lesser extent, we have continued to incur these expenses. These expenses are not expected to be an adjustment in the calculation of Adjusted EBITDA after 2021. |
(3) | Represents non-cash stock-based compensation expense in connection with the stock awards that have been granted to employees and non-employees. The expense is included in Selling, general and administrative expenses on our statements of operations and comprehensive income (loss). |
(4) | Transaction related costs primarily consist of public company readiness costs, expenses for corporate development, such as mergers and acquisitions activity, and due diligence costs. |
(5) | In conjunction with the HealthScape Advisors and Pareto Intelligence acquisitions, the previous shareholders set aside funds for an incentive compensation plan for employees who remained post acquisition. The costs were expensed on a monthly basis and funded through an escrow account which was established on the closing date and was included in restricted cash on our consolidated balance sheets. The expense is included in Selling, general and administrative expenses on our statements of operations and comprehensive income (loss). |
(6) | The loss on extinguishment of debt was recognized for the prepayment of outstanding indebtedness. |
(7) | In connection with the IPO, we made a $7.9 million one-time payment on a 3-year director and officer prior act liability insurance policy. We deemed this policy to be a retroactive insurance policy and in accordance with ASC 720-20-25, "Retrospective Contracts," we expensed the premium of $7.9 million in June 2021. |
(8) | Other includes other individual adjustments related to legal fees associated with obtaining the incremental loans, severance costs incurred as a result of eliminating certain positions, management service agreement termination fee and management fees. All costs are included in Selling, general and administrative expenses on our statements of operations and comprehensive income (loss). |
Investor Contacts
Kevin Ellich
ICR Westwicke
[email protected]
Media Contact
Tom Pelegrin
Senior Vice President & Chief Revenue Officer
[email protected]
Investor Contacts
Kevin Ellich
ICR Westwicke
[email protected]
Media Contact
Tom Pelegrin
Senior Vice President & Chief Revenue Officer
[email protected]
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SOURCE Convey Health Solutions