Convey Health Solutions Holdings, Inc. (NYSE:CNVY) Q4 2021 Earnings Conference Call March 23, 2022 5:00 PM ET
Company Participants
Stephen Farrell – CEO
Tim Fairbanks – CFO
John Steele – EVP of Technology Enabled Solutions
Conference Call Participants
Anne Samuel – JPMorgan
Richard Close – Canaccord Genuity
Cindy Motz – Goldman Sachs
Steven Valiquette – Barclays
Operator
Good afternoon and welcome to Convey Health Solutions Fourth Quarter and Yearend 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 question. [Operator instructions] 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, Convey’s 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 statement in include those in the risk factor 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 and 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.
Stephen Farrell
I’d like to thank you for joining us for our fourth quarter and yearend 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 and 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 of 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 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 rates. 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 upsell 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 plan to a combined marketing and clinical program.
As we mentioned in our press release, the marketing strength of the program is evident as health plans that had this benefit grew 11%. And those that did not shrink 6% in this year alone. Third on February 01 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 product 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 of 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 yearend financial results as well as our 2022 guidance. Then we will open the call to questions, Tim.
Tim Fairbanks
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 of approximately $8.1 million during the fourth quarter of 2020.
From a comparison standpoint, Q4 2020 had benefited from a onetime $10.8 million increase related to 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 cost 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 to the fourth quarter of 2020. This decrease reflects lower term loan imbalances 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% an 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 upsell 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 DNO 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 onetime IPO expenses, our net income would’ve 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 items, as of December 31, 2021 cash and cash equivalence 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 capital development costs were $5.9 million. As a reminder, our operating cash flow was impacted by $13 million of onetime costs related to the DNO policy, public readiness costs and the termination fee of the TPG management services agreement.
We also made a onetime $10.3 million payment, which final contingent payment related to the TPG acquisition. Adjusting for the onetime 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 1. The transaction is included in our 2022 guidance and we expect it will be accretive 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 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 million to $410 million representing an 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 million 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, upper opportunistic in the market from a strategic M&A perspective and B, continue to organically develop additional technology products for existing client base.
To summarize, Convey has a revenue growth rate in high teams 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 in 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 of 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 produce such an exceptional year.
Operator, we are now ready to open the call to questions.
Question-and-Answer Session
Operator
[Operator instructions] Thank you. We will now begin the Q&A session. Our first question is from the line of Anne Samuel of JPMorgan. Anne, please proceed with your question
Anne Samuel
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 and the advisory services business. Thanks.
Stephen Farrell
Sure. So the labor pressure that we are 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 you’ve got it under control and are managing well through it. Tim, anything you want to add to that?
Tim Fairbanks
Yeah. And just in terms of the quantification while we can’t line item quantify, obviously on this call, we’ve obviously incorporated what we expect those inflationary pressures to be in our ’22 guidance. And you’ll notice that the midpoint of that guy items has nearly identical adjusted EBITDA margins as we had in ’21 kind of signalling that we feel we’re managing those margins appropriately, given that pressure
Operator
Thank you, Anne. Our next question is from the line of Richard Close of Canaccord Genuity. Richard, please proceed.
Richard Close
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, the comments being that some of the customers didn’t grow as fast as the market in for 2022.
Can you just talk a little bit about the wide range on guidance? Seems a little bit wider than I thought it would be. I thought end would be a little bit higher, but can you just talk a little bit about what went into the bottom-end of and the top-end? What the Delta is there and maybe if you stripped out HealthSmart, where would you be?
Stephen Farrell
Sure. So the 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 of the, of a step back on average with some lower growth with our clients and we’ve we are managing through that through upsell and cross sell and think that notwithstanding some of that 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 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, a range that would allow for some variability in that customer new customer front. Tim, anything you want to add to that?
Tim Fairbanks
I think that completes the answer there.
Richard Close
Okay. So my, a follow up question for Tim, I guess you called out the nuances with cash from operations, free cash flow in 2021, the one timers. How were you thinking about free cash flow for 2022 and maybe free cash as well. And then also, do you have the annual contract revenue of figure and gross in that dollar retention?
Tim Fairbanks
Yeah, I, I do Richard in terms of, in terms of cash flow from op free cash flow and not the 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, and so those were truly one-time items and, and wouldn’t expect those to obviously recur in ’22 in, in terms of our key metrics. And you’ll see more detail on our K, which was filed maybe 10 minutes ago. Our gross dollar retention, if we remember was 99 to 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.
Richard Close
Okay, great. Thank you. Congratulations.
Stephen Farrell
Great. Thanks Richard.
Operator
Thanks Richard. Our next question is from Cindy Motz of Goldman Sachs. Cindy, please proceed.
Cindy Motz
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, you, you mentioned like for the first quarter, we should expect a little bit less you in terms of EBITDA and 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 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’d be great. Thanks.
Tim Fairbanks
Sure, Cindy. It’s Tim. So let let’s start 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, 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 12/31, we’ve got about $189 million – $190 million of debt. We’ve also posted, or announced in our [indiscernible] subsequent events of an additional $78 million of debt related to the HealthSmart transaction.
So I don’t want to ignore that. So if I add those the $78 million to the, to the $189 million, you’ve got about $267 million of, of gross debt. Let’s assume we just use the 12/31 cash balance of $39 million. That kind of brings you to a net debt of $228 million.
And then if you take the midpoint of our guidance this year, EBITDA guidance of $82 million, that would imply kind of a 2.8 X net, less 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 is kind of our target leverage ratio.
Circling back to the first part of your question around EBITDA, so the midpoint of our guidance EBITDA margins about 20.5, or exactly 20.25 percent. 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 percent mark.
The first quarter could be three or basis points less than that due to the integration expenses of HealthSmart new clients that, that, 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 given scale and volume kind of bringing the full year average to that 20.5%. I hope that helps.
Cindy Motz
Sure. Yeah, no. So you’re, you’re intending to see a pretty nice ramp then that fourth quarter EBITDA margins going to be pretty significant, pretty big ramp, I guess, correct. To get to the, yeah…
Tim Fairbanks
We’ll have, those economies to scale and we’ll have an oversight fourth quarter, but really, maybe not that surprising. And let’s, let’s, let’s just talk about that for a minute. So if you look at a fourth quarter of ’21 numbers 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 onetime implementation costs, that were inside that number.
So if you kind of add back that $3 million to our fourth quarter obviously you would see expanded margin in the fourth quarter of this year as well. And, and so we’re going to benefit in the fourth quarter of ’22 from not having the, that 3 million of implementation costs 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.
Stephen Farrell
Yeah. To set, simplify that story a bit. Yeah. To simplify that story a bit, the ramping is really due to seasonality in our business and we’re continuing to reinvest in, in growth. And so we are, we’re not forecasting a permanent increase in in that adjust, but gum margin, as long as we are a continuing to reinvest.
Cindy Motz
Okay. That makes a lot of sense. I mean, if I could just slip one more in like, so for the first quarter two it’s is part of that. You said integration, but is part of that, like any sort of labor retention bonuses or any other things like that, that I mean, I guess it doesn’t matter if be a one-time thing anyway, but just curious if there’s any of that in there, just cause some of the other companies you’ve been talking about that? So thanks.
Stephen Farrell
No none of, none of that it’s really what we described, which is we’ve got a number of brand new logos. 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, and ramp up for those new clients and, and new business.
Cindy Motz
Great. Makes sense. Thanks a lot.
Stephen Farrell
Thanks Cindy.
Operator
Thanks Cindy. Our next question is from Steven Valiquette of Barclays. Steven, please proceed.
Steven Valiquette
Great. Thanks. Good afternoon, everybody. So I think you mentioned that excluding HealthSmart on an organic basis, you still expected double digit revenue in EBITDA growth in ’22 is definitely encouraging 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 perform better than expected.
Some if you’re able to comment on this or not, but I’m more, let’s say if we just think about maybe your top five customers in aggregate with some of those 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 than maybe your you next not let’s say customers six through 50 or just the next wave after that makes up for maybe a little bit slower growth among those top five.
I don’t know if you have framed it that way in your own heads, just curious how calorie you can provide, just kind of thinking about the contribution from the largest set of customers versus that next wave? Thanks.
Stephen Farrell
Sure. So thanks for the question, Steve. We haven’t really bifurcated between our, our top five and, and the overall population, and we’re be reluctant 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 customer and just our overall approach to the market. We are overcoming that less than less than market growth. I know that’s not a complete answer, but that’s I think my best shot. Yeah.
Steven Valiquette
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 res this year versus last year, you, 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 just curious to hear more about the mechanics and that it’s really just a function of more of the end the 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 and loaded into the four quarter?
Tim Fairbanks
Yeah, there’s a — Steve its Tim. So there’s a, there’s a couple of, of different sub mechanics there, but one is just a plan that design to hit the nail on the head. The, 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, than usual. and 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 based on the type of work we’re doing for them, we expect the, the revenue to build throughout the year.
And so there’ll be a little bit more backend mode, 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, 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 ’22. And that additional 2% will come from the first quarter.
So the 24% of, of revenue that we had in the first quarter of ’20 one 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 pre 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 compared to last year.
Steven Valiquette
Okay. That’s very helpful. Thanks
Operator
Our next is from Michael Cherny of Bank of America. Michael, please proceed.
Unidentified Analyst
This is Alan and 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 are 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, that’s baked in there?
Stephen Farrell
Sure. Hey, Alan. Thanks for the question. So the supply chain challenges really hit their peak last spring for us in spring of 2021. 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 a, 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, we’ve between the Philippines operation, which is a safety valve for us from a, a labor perspective and the HealthSmart acquisition in which we’ll be able to increasingly go direct to manufacturers. We, we feel like we’ve got the inflationary and supply chain challenges in, in good shape.
Unidentified Analyst
Great. Thank you very much, much.
Operator
Thank you, Michael. The next question is from Richard Close of Canaccord Genuity. Richard, go ahead.
Richard Close
Great. Thanks for the follow up here. Steve, I was on the advisory business I understand that 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 front and center for your customers that you’re seeing this year, or at the end of 2021 versus maybe a year ago that you guys are spending a lot of time on?
Stephen Farrell
Sure. So I’m going to ask John steel to weigh in on, 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 to the clients that doesn’t change on a regular basis. So John can you answer the topic question?
John Steele
Yeah, a couple topics. Richard, I mean, one certainly is growth. our, our plan clients are looking particular ones, maybe didn’t perform as well in this most recent open enrollment to recognize some of their growth. And, and certainly with some of the, kind of how the funding looks next year, how should that be sort of deployed and sort of benefit?
So I think the whole growth question and the new market entry and expansion is certainly one area and, and the other area that continues to be an area that, that our consulting and advisory is just the continual a shift of value based care and, and providers taking risk and kind of reshaping some of those networks continues also to be an area that we spend quite a of time in.
Richard Close
Okay. That’s helpful. Maybe just to go into the growth a little bit more, or 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 a [indiscernible]
John Steele
That is certainly one of the topics kind of distribution channel and as well as the, the retention. So probably a high focus on what you can do to retain a lot of members that you have as well as the kind of distribution channels that they are coming to the plants from. So that’s certainly one of the topical areas.
Richard Close
Okay. Yeah,
Stephen Farrell
I would just, yeah. Richard, it’s a good question. I would just point out that I know the churn has hurt broadly speaking companies that are in the Medicare advantage space. It really doesn’t hurt us. It might drive some enrollment costs a bit, but it’s the aggregate revenue growth, what aggregate membership growth that ultimately impacts us. So Sharon, isn’t something that that concerns us.
Richard Close
Great. Thanks.
Stephen Farrell
Thanks Richard.
Operator
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.
Stephen Farrell
So thank you all for joining our year end conference call. And we look forward to meeting with more and more you in person in the coming months.
Operator
That concludes the Convey fourth quarter 2021 and earnings conference call. Thank you all for your participation. You may now disconnect your lines.
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