UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _ to _

Commission file number 001-40506

Convey Health Solutions Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	84-2099378
(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer Identification No.)
100 SE 3rd Avenue, 26th Floor, Fort Lauderdale, Florida	33394
(Address of Principal Executive Offices)	(Zip Code)

(800) 559-9358

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CNVY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ☐     No  ☒

As of July 29, 2022, the registrant had 73,221,622 shares of common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION	4
Item 1. Financial Statements (Unaudited)	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
Item 4. Controls and Procedures	50
PART II – OTHER INFORMATION	52
Item 1. Legal Proceedings	52
Item 1A. Risk Factors	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3. Defaults Upon Senior Securities	54
Item 4. Mine Safety Disclosures	54
Item 5. Other Information	54
Item 6. Exhibits	55
SIGNATURES	56

3

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) (unaudited)

	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	19,714	$	38,811
Accounts receivable, net of allowance for doubtful accounts of $69 as of June 30, 2022, and December 31, 2021	71,565		62,813
Inventories, net	38,570		14,060
Prepaid expenses and other current assets	11,322		16,569
Total current assets	141,171		132,253
Property and equipment, net	20,387		20,400
Intangible assets, net	242,025		220,014
Goodwill	482,623		455,206
Operating lease right-of-use assets	19,943		—
Other assets	5,564		2,030
Total assets	$	911,713	$	829,903
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,223	$	13,868
Accrued expenses	40,425		48,558
Operating lease liabilities, current portion	5,916		—
Finance lease obligations, current portion	555		498
Deferred revenue, current portion	8,163		7,472
Term loans, current portion	780		—
Total current liabilities	64,062		70,396
Operating lease liabilities, net of current portion	19,480		—
Finance leases obligations, net of current portion	312		528
Deferred taxes, net	32,447		25,992
Term loans, net of current portion	264,592		189,643
Other long-term liabilities	100		5,595
Total liabilities	380,993		292,154
Commitments and contingencies (Note 15)
Shareholders’ equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized and no shares issued or outstanding as of June 30, 2022 and no shares authorized, issued or outstanding as of December 31, 2021	—		—
Common stock, $0.01 par value; 500,000,000 shares authorized as of June 30, 2022, and December 31, 2021; 73,221,622 shares issued and outstanding as of June 30, 2022, and 73,194,171 as of December 31, 2021	732		732
Additional paid-in capital	574,339		570,252
Accumulated other comprehensive (loss) income	(41)		31
Accumulated deficit	(44,310)		(33,266)
Total shareholders’ equity	530,720		537,749
Total liabilities and shareholders’ equity	$	911,713	$	829,903

See accompanying notes to unaudited condensed consolidated financial statements

4

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(unaudited)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net revenues:
Services	$	43,828	$	42,284	$	90,308	$	85,811
Products	45,954		32,964		96,182		72,069
Net revenues	89,782		75,248		186,490		157,880
Operating expenses:
Cost of services(1)	22,397		20,785		47,873		44,806
Cost of products(1)	36,909		22,299		74,145		48,826
Selling, general and administrative	24,095		29,589		47,308		49,690
Depreciation and amortization	9,012		7,823		17,264		15,194
Transaction related costs and restructuring charges	5,754		1,556		6,395		2,642
Change in fair value of contingent consideration	—		96		—		96
Total operating expenses	98,167		82,148		192,985		161,254
Operating income (loss)	(8,385)		(6,900)		(6,495)		(3,374)
Other income (expense):
Loss on extinguishment of debt	—		(5,015)		—		(5,015)
Interest expense	(4,188)		(6,394)		(7,908)		(11,861)
Total other expense, net	(4,188)		(11,409)		(7,908)		(16,876)
Income (loss) before income taxes	(12,573)		(18,309)		(14,403)		(20,250)
Income tax (expense) benefit	2,683		5,166		3,359		6,173
Net income (loss)	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)
Income (loss) per common share – Basic and diluted
Net income (loss) per common share	$	(0.14)	$	(0.21)	$	(0.15)	$	(0.23)
Net income (loss)	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)
Foreign currency translation adjustments	(58)		(5)		(72)		(12)
Comprehensive income (loss)	$	(9,948)	$	(13,148)	$	(11,116)	$	(14,089)

________________________

(1)    Excludes amortization of intangible assets and depreciation, which are separately stated below.

See accompanying notes to unaudited condensed consolidated financial statements

5

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except for number of shares)

(unaudited)

	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
For the Three Months Ended June 30, 2022
March 31, 2022	73,194,171	$	732	$	571,516	$	17	$	(34,420)	$	537,845
Share-based compensation	—	—		2,866		—		—		2,866
Foreign currency translation adjustments	—	—		—		(58)		—		(58)
Issuance of shares of common stock with respect to vested restricted stock units, net of 10,947 shares valued at forty-three thousand dollars tendered for tax withholding	27,451	—		(43)		—		—		(43)
Net loss	—	—		—		—		(9,890)		(9,890)
June 30, 2022	73,221,622	732		574,339		(41)		(44,310)		$	530,720
For the Six Months Ended June 30, 2022
December 31, 2021	73,194,171	732		570,252		31		(33,266)		$	537,749
Share-based compensation	—	—		4,130		—		—		4,130
Foreign currency translation adjustments	—	—		—		(72)		—		(72)
Issuance of shares of common stock with respect to vested restricted stock units, net of 10,947 shares valued at forty-three thousand dollars tendered for tax withholding	27,451	—		(43)		—		—		(43)
Net loss	—	—		—		—		(11,044)		(11,044)
June 30, 2022	73,221,622	$	732	$	574,339	$	(41)	$	(44,310)	$	530,720

See accompanying notes to unaudited condensed consolidated financial statements

6

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)

(in thousands, except for number of shares)

(unaudited)

	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
For the Three Months Ended June 30, 2021
March 31, 2021	61,321,424	$	613	$	419,237	$	71	$	(24,222)	$	395,699
Share-based compensation	—	—		1,083		—		—		1,083
Foreign currency translation adjustments	—	—		—		(5)		—		(5)
Issuance of common stock to a board of directors member	25,200	—		250		—		—		250
Issuance of common stock in initial public offering, net of issuance costs of $17.2 million	11,666,667	117		146,019		—		—		146,136
Net loss	—	—		—		—		(13,143)		(13,143)
June 30, 2021	73,013,291	$	730	$	566,589	$	66	$	(37,365)	$	530,020
For the Six Months Ended June 30, 2021
December 31, 2020	61,321,424	613		492,747		78		(23,288)		470,150
Share-based compensation	—	—		2,073		—		—		2,073
Foreign currency translation adjustments	—	—		—		(12)		—		(12)
Issuance of common stock to a board of directors member	25,200	—		250		—		—		250
Issuance of common stock in initial public offering, net of issuance costs of $17.2 million	11,666,667	117		146,019		—		—		146,136
Dividend	—	—		(74,500)		—		—		(74,500)
Net loss	—	—		—		—		(14,077)		(14,077)
June 30, 2021	73,013,291	$	730	$	566,589	$	66	$	(37,365)	$	530,020

See accompanying notes to unaudited condensed consolidated financial statements

7

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(11,044)	$	(14,077)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense	3,182		2,728
Amortization expense	14,083		12,466
Loss on extinguishment of debt	—		5,015
Write off capitalized software costs	305		—
Provision for bad debt	44		(130)
Provision for inventory reserve	399		643
(Gain) loss from disposal of assets	10		—
Deferred income taxes	(3,831)		(6,138)
Amortization of debt issuance costs	646		654
Change in fair value of contingent consideration	—		96
Share-based compensation	4,130		2,073
Non-cash lease expense	2,649		—
Inventory step-up	4,731		—
Changes in operating assets and liabilities:
Accounts receivable	(2,316)		6,163
Inventory	(6,760)		(2,735)
Prepaid expenses and other assets	3,460		1,477
Accounts payable and other accrued liabilities	(21,006)		(17,808)
Deferred revenue	691		(1,189)
Operating lease liabilities	(3,145)		—
Payment on contingent consideration	—		(10,311)
Net cash (used in) provided by operating activities	(13,772)		(21,073)
Cash flows from investing activities
Acquisition, net of cash received	(74,613)		—
Purchases of property and equipment, net	(3,309)		(3,861)
Capitalized software development costs	(2,302)		(2,390)
Net cash used in investing activities	(80,224)		(6,251)
Cash flows from financing activities
Repurchase of common stock for tax withholding	(43)		—
Proceeds from issuance of debt	78,000		78,000
Payment of debt issuance cost	(2,631)		(2,133)
Principal payment on term loan	(195)		(132,368)
Payment on finance leases	(160)		(221)
Proceeds from issuance of common stock to a board of directors member	—		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)
Payment on contingent consideration	—		(10,303)
Dividend	—		(74,500)
Net cash provided by financing activities	74,971		3,298
Effect of exchange rate changes on cash	(72)		(8)
Net (decrease) increase in cash and cash equivalents and restricted cash	(19,097)		(24,034)
Cash, cash equivalents and restricted cash at beginning of period	38,811		49,086
Cash, cash equivalents and restricted cash at end of period	$	19,714	$	25,052

See accompanying notes to unaudited condensed consolidated financial statements

8

CONVEY HEALTH SOLUTIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(unaudited)

	For the Six Months Ended June 30,
	2022		2021
Cash, cash equivalents and restricted cash as of the end of the period
Cash and cash equivalents	$	19,714	$	21,372
Restricted cash	—		3,680
Cash, cash equivalents and restricted cash	19,714		25,052
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	496	$	1,077
Cash paid for interest	$	7,883	$	11,714
Non-cash investing and financing activities:
Capitalized software and property and equipment, net included in accounts payable	$	510	$	750

See accompanying notes to unaudited condensed consolidated financial statements

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

Business

Convey Health Solutions Holdings, Inc. (collectively with its subsidiaries, which includes our main operating subsidiary, Convey Health Solutions, Inc., “we”, “us”, “our”, “Convey” or the “Company”) provides technology enabled solutions to payors within the large and growing government sponsored health plan market. Our platform combines proprietary modular technology and end-to-end solutions to serve as an extension of our clients’ operations and core systems. Our clients are primarily Medicare Advantage, Medicare Part D and Employer Group Waiver Plans, as well as Pharmacy Benefit Managers. Convey is a United States (“U.S.”) based holding company incorporated in Delaware. Our principal executive offices are located in Fort Lauderdale, Florida.

Plan of Merger, Going Private and Restructuring Charges

On June 20, 2022, the Company, Commodore Parent 2022, LLC, a Delaware limited liability company (“Commodore”), and Commodore Merger Sub 2022, Inc., a Delaware corporation and a wholly owned subsidiary of Commodore (“Commodore Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions and on the terms set forth therein, Commodore Merger Sub will merge (the “ Merger”) with and into the Company, with the Company continuing as the surviving corporation (the “Surviving Corporation”). Commodore and Commodore Merger Sub are affiliates of TPG Cannes Aggregation, L.P., an affiliate of TPG Global, LLC and the holder of a majority of the outstanding shares of capital stock of the Company (the “TPG Stockholder”).

A special committee of the board of directors of the Company (the “Board”) comprised solely of members of the Board that are independent of TPG Stockholder and its respective affiliates, reviewed, evaluated and (i) determined by unanimous vote, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and its stockholders (other than the TPG Stockholder and any of its respective affiliates or the Company’s officers and directors) and (ii) recommended that the Board approve the transaction. Acting upon the recommendation of the special committee, the Board approved the transaction.

Following the execution of the Merger Agreement, the TPG Stockholder, the holder of approximately 75% of the outstanding shares of common stock, executed a written consent adopting the Merger Agreement and approving the transactions contemplated thereby, including the Merger. No further approval of the stockholders of the Company is required to approve the Merger. The transaction is expected to close in the second half of 2022. Completion of the transaction is subject to customary closing conditions. Upon completion of the transaction, the Company will become a private company and the shares of common stock of the Company will no longer be publicly listed or traded on the New York Stock Exchange.

At the effective time of the Merger (the “Effective Time”) each share of common stock of the Company, issued and outstanding immediately prior to the Effective Time, (other than Rollover Shares (as defined below), common stock owned by the Company, the TPG Stockholder and its respective affiliates and common stock with respect to which appraisal rights under Delaware law are properly exercised and not withdrawn) will be converted into the right to receive an amount in cash equal to $10.50 per share, payable to the holder thereof, without interest. Commodore and Commodore Merger Sub have secured commitments (which may be assigned to the Company) for debt financing consisting of an incremental term loan facility in an aggregate principal amount of up to $180.0 million to be provided by certain lenders to the Company under the Company’s existing Credit Agreement (as defined below) on the terms and subject to the conditions set forth in the debt commitment letter. The obligations of such lenders to provide debt financing under the debt commitment letter are subject to a number of customary conditions. In addition, certain of the Company’s directors and officers have entered into a rollover and support agreement with Commodore, pursuant to which, among other matters, such rollover investors have agreed that a certain portion of their shares of common stock (the “Rollover Shares”) will be converted into Surviving Corporation shares.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding option to purchase shares of common stock, restricted stock unit and performance-based restricted stock unit, will remain outstanding and continue to be subject to the same terms and conditions as immediately prior to the Effective Time, as set forth in the applicable Company equity plan and award agreement, with certain exceptions.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company will prepare and file with the SEC, and thereafter mail to its stockholders, a Schedule 14C Information Statement where you can find additional information about the Merger.

As part of the assessment of the Merger and the going private transaction, the Company incurred legal and financial advisory fees which are recorded as transaction related costs.

In addition, the Company recorded severance costs as restructuring charges as a result of labor force reductions associated with the going private transaction, the closure of the Pompano Beach, Florida distribution center and other labor force reductions initiatives. On June 22, 2022, the Company filed a Workers Adjustment and Retraining Notification (“WARN”) alerting state officials of job cuts driven by closure of the Pompano Beach, Florida distribution center. The closure is to be effective August 31, 2022. The Pompano Beach distribution center operations will be handled through a new distribution center in Las Vegas, Nevada. Restructuring charges are recorded as corporate costs and not allocated to the reportable segments. See Note 14. Transaction Related Costs and Restructuring Charges for cost details.

Acquisition

On February 1, 2022, Convey’s indirect wholly-owned subsidiary, D-M-S Holdings Parent, LLC (f/k/a Dragon Holdings Parent, LLC), a Delaware limited liability company, acquired all of the issued and outstanding capital stock of D-M-S Holdings, Inc. d/b/a HealthSmart International, a Delaware corporation (“HealthSmart”). HealthSmart provides a diverse portfolio of health, wellness and diagnostic products centered on home based care outcomes. See Note 4. Acquisitions for additional information.

Stock Split

Prior to the IPO (as defined below), in June 2021, the Board and stockholders approved a forward split of shares of Convey’s common stock, par value $0.01 per share, on a 126-for-1 basis (the “Stock Split”), which became effective as of June 4, 2021. Prior to the Stock Split, we were authorized to issue 1,000,000 shares of common stock of which (i) 915,000 shares were designated as voting common stock and (ii) 85,000 shares were designated as non-voting common stock. In connection with the Stock Split, the total number of authorized shares of common stock was proportionately increased and the par value of the common stock was not adjusted as a result of the Stock Split. In addition, all authorized shares of common stock were designated voting common stock. All references to common stock, options to purchase common stock, per share data and related information contained in our condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Stock Split.

Initial Public Offering

On June 18, 2021, we closed our initial public offering (“IPO”) of our common stock through an underwritten sale of 13,333,334 shares of our common stock at a price of $14.00 per share. In the offering, we sold 11,666,667 shares and a selling stockholder sold 1,666,667 shares. The aggregate net proceeds to us from the offering after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $146.1 million. We used approximately $131.5 million of the net proceeds from the IPO to repay outstanding indebtedness under our credit agreement. We did not receive any of the proceeds from the sale by the selling stockholder.

Prior to the closing of the IPO, on June 17, 2021, our Second Amended and Restated Certificate of Incorporation (the “Charter”) and our Second Amended and Restated Bylaws, became effective. The Charter, among other things, provides that our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.01 per share and 25,000,000 shares of preferred stock, par value $0.01 per share.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are unaudited and include the accounts of Convey and our wholly-owned subsidiaries. They have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) and pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Our condensed consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the six months ended June 30, 2022, and 2021, and the condensed consolidated balance sheet as of June 30, 2022, reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair statement of the results for the periods shown.

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Our condensed consolidated balance sheet as of December 31, 2021, has been derived from our audited consolidated financial statements as of that date. Our condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2021, which include a complete set of footnote disclosures, including our significant accounting policies, and are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 23, 2022 (“Form 10-K”). The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period. All significant intercompany balances and transactions have been eliminated in consolidation.

COVID-19 Pandemic

During the first quarter ended March 31, 2020, concerns related to the spread of novel coronavirus (“COVID-19”) began to create global business disruptions as well as disruptions in our operations. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. Governments at the national, state and local level in the U.S., and globally, have implemented varying measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings of people, work from home and supply chain logistical changes. While some of these actions have eased, escalating transmission rates (including of variants of COVID-19), uneven vaccination and vaccination booster rates and further governmental guidance and orders may result in having to reimplement certain of these measures or implementing new and additional ones. The spread of COVID-19 has also caused significant volatility in the U.S. and international markets and has had and continues to have widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. The impact of COVID-19 on our business has resulted in elongated sales cycles, postponement of customer contract renewals, and slower implementation of software solutions for our clients, as well as a reduction in billable hours in one of our reportable segments, the Advisory Services segment.

The full extent to which the COVID-19 pandemic and the various responses to the COVID-19 pandemic continues to impact our business, operations or financial condition will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to, the duration, severity and scope of the COVID-19 pandemic (including due to new variants); actions by governmental entities, businesses and individuals that have been and continue to be taken in response to the pandemic; the effect on our clients and demand by clients, clients and our clients’ members for and ability to pay for our solutions and services; and disruptions or restrictions on our employees’ ability to work and travel. The impact of these factors and others on our suppliers and clients could persist for some time after governments ease their restrictions and after the overall number of COVID-19 cases in the United States decreases.

We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context with the unknown future impacts of COVID-19 using information that is reasonably available to us at this time. While our current assessment of our estimates did not have a material impact on our condensed consolidated financial statements as of and for the six months ended June 30, 2022, as additional information becomes available to us, our future assessment of our estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our consolidated financial statements in future reporting periods.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information currently available to us and based on various other assumptions that we conclude to be reasonable under the circumstances. While management concludes that such estimates are reasonable when considered in conjunction with our condensed consolidated balance sheets and statements of operations and comprehensive income (loss) taken as a whole, actual results could differ materially from those estimates.

Acquisitions

We allocate the purchase consideration to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on estimated fair values at the date of the acquisition. The excess of the fair value of the purchase consideration over the fair value of the identifiable assets and liabilities, if any, is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date. Upon the

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

conclusion of the measurement period, any subsequent adjustments are recorded to the condensed consolidated statements of operations and comprehensive income (loss).

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies which techniques include the royalty method, the multi-period excess earnings method, the cost approach, the market approach, and the probability weighted assessment method as considered necessary. Significant assumptions used in those methodologies include, but are not limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates. The use of different valuation methodologies and assumptions is highly subjective and inherently uncertain and, as a result, actual results may differ materially from estimates.

Customer Concentrations

Revenue and Accounts receivable from our major customers are as follows:

	Revenues						Revenues
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands, except percentages)	2022			2021			2022			2021
Customer A	$	22,393		$	18,280		$	49,501		$	38,681
% of total revenue	24.9		%	24.3		%	26.5		%	24.5		%
Customer B	$	15,070		$	14,651		$	31,783		$	31,396
% of total revenue	16.8		%	19.5		%	17.0		%	19.9		%

	Accounts Receivable
(in thousands, except percentages)	June 30, 2022			December 31, 2021
Customer A	$	7,317		$	13,161
% of total accounts receivable	10.2		%	21.0		%
Customer B	$	11,987		$	15,174
% of total accounts receivable	16.7		%	24.2		%

Our customer base is highly concentrated. Revenue may significantly decline if we were to lose one or more of our major customers. However, our risk is reduced due to our significant customers having multiple product delivery solutions under separate contracts.

Contingent Consideration

We recognized an earn-out liability in connection with the November 2018 acquisition of HealthScape Advisors, LLC (“HealthScape Advisors”) and Pareto Intelligence LLC (“Pareto Intelligence”), which represented contingent consideration.

The initial fair value of the earn-out liability was determined by employing a Monte-Carlo simulation model. The underlying simulated variable was adjusted revenue discounted by the market price of risk embedded in the revenue metrics. The revenue volatility estimate was based on a study of historical asset volatility and implied volatility for a set of comparable public companies, adjusted by our operating leverage. The earn-out payments were calculated based on simulated revenue metrics and payment thresholds as set forth in the HealthScape Advisors and Pareto Intelligence purchase agreement. The calculated payments were further discounted back to present value using cost of debt reflecting our credit risk. The fair value of the earn-out liability at each reporting date subsequent to the acquisition was measured using a probability weighted approach. Any change in fair value was recognized in the condensed consolidated statements of operations and comprehensive income (loss).

On September 4, 2019, Cannes Parent, Inc. (“Cannes”), a direct subsidiary of Convey, entered into an agreement to acquire all of the outstanding stock of Convey Health Solutions, Inc. (“CHS”) through the merger of Cannes Merger Sub, Inc. (“Cannes Merger Sub”) and Convey Health Parent, Inc. (“Convey Parent”) (the “Convey Merger”) with Convey Parent surviving as a direct subsidiary of Cannes. The Convey Merger principally occurred through an investment from TPG Cannes Aggregation, L.P., which is primarily funded by partners of TPG Partners VIII, L.P. and TPG Healthcare Partners, L.P. or any parallel fund or their alternative investment vehicles (collectively, “TPG”). In connection with the Convey Merger, we recognized a holdback liability, which represented contingent consideration. The initial fair value of the holdback liabilities and at each subsequent

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

reporting date was measured using a probability weighted approach. Any change in fair value was recognized in the consolidated statements of operations and comprehensive income (loss).

In connection with the acquisition of HealthSmart in February 2022, we recognized an earn-out liability which represented contingent consideration. The initial fair value of the earn-out liability was determined by employing a Black-Scholes Merton model. The earn-out payments were calculated based on projected revenue metrics and payment thresholds as set forth in the HealthSmart purchase agreement. The calculated payments were further discounted back to present value using the cost of debt reflecting our credit risk.

The following table provides a reconciliation of our Level 3 earn-out and holdback liabilities for the six months ended June 30, 2022:

(in thousands)
Balance at December 31, 2021	$	—
Fair value of contingent consideration in connection with the HealthSmart acquisition	2,254
Payments	—
Change in fair value	—
Balance at June 30, 2022	$	2,254

The following table provides a reconciliation of our Level 3 earn-out and holdback liabilities for the six months ended June 30, 2021:

(in thousands)
Balance at December 31, 2020	$	20,538
Fair value of contingent consideration	(7,500)
Payments	(13,114)
Change in fair value	96
Balance at June 30, 2021	$	20

Net Income (Loss) Per Common Share

Basic income (loss) per share is computed by dividing net income (loss) attributable to common shareholders (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted net income (loss) per common share attributable to common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period adjusted for the dilutive effects of common stock equivalents. In periods when losses from operations are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net income (loss) attributable to common shareholders
Net income (loss)	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)
Net income (loss) attributable to common shareholders	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)
Weighted-average common shares outstanding:
Basic and diluted	73,195,076		63,013,291		73,194,626		62,172,031
Net income (loss) per share:
Basic and diluted	$	(0.14)	$	(0.21)	$	(0.15)	$	(0.23)

For the three and six months ended June 30, 2022, and 2021, 9,423,356 and 6,386,849 of potentially dilutive share-based awards outstanding, respectively, were excluded from the computation of diluted net income (loss) per share related to common shareholders as their effect was anti-dilutive. See Note 11. Share-Based Compensation.

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which supersedes the previous guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases except those which meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or financing. Classification is based on criteria that are similar to those applied in previous lease accounting, but without explicit bright lines. The recognition of these lease assets and lease liabilities represents a change from previous U.S. GAAP requirements, which did not require lease assets and lease liabilities to be recognized for most leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee, have not significantly changed from previous U.S. GAAP requirements. The Company adopted the provisions of Topic 842 on January 1, 2022, using the modified retrospective approach. All comparative periods prior to January 1, 2022 are not adjusted and continue to be reported in accordance with Topic 840.

The Company elected to utilize the package of practical expedients permitted within the new standard, which among other things, allowed the Company not to reassess prior conclusions about lease identification, classification and initial direct costs of existing leases as of the date of adoption. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the Company’s condensed consolidated balance sheet which resulted in recognizing those lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term.

Adoption of the new standard resulted in the recording of right-of-use assets and corresponding lease liabilities of $14.7 million and $20.7 million, respectively, as of January 1, 2022. The difference between the right-of-use assets and the lease liabilities was recorded to eliminate existing deferred rent balances and remaining balances of lease incentives recorded under Topic 840. The adoption of the new standard did not materially impact the Company's condensed consolidated statements of operations and had no impact on the Company's condensed consolidated statements of cash flows. See Note 18. Leases for further information.

Accounting Pronouncements Issued Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), subsequently clarified in January 2021 by ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The main provisions of this update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. We are currently evaluating the new guidance to determine the impact ASU 2020-04 and ASU 2021-01 will have on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) (“ASU 2021-08”). The new guidance creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. Under this exception, an acquirer applies Topic 606 to recognize and measure contract assets and contract liabilities on the acquisition date. Topic 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and liabilities it assumes at fair value on the acquisition date. This generally will result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date. This new guidance is effective for emerging growth companies following private business adoption dates, for the fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS

We provide technology enabled solutions and advisory services to assist our clients with workflows across product developments, sales, member experience, clinical management, core operations and business intelligence and analytics. We generate our revenues through our two reporting segments: (i) Technology Enabled Solutions and (ii) Advisory Services.

Technology Enabled Solutions

We help health plans grow membership and revenue as well as operate more effectively and efficiently. We also assist our clients in managing the compliance and administrative requirements imposed under government sponsored health plans. Our technology solutions are primarily delivered through a web-based customizable application. This application is used to identify, track, and administer contractual services, or benefits provided under a client’s plan to its Medicare and Medicaid beneficiaries. We also provide analytics over healthcare data to capture and assess gaps in risk documentation, quality, clinical care, and compliance. With our technology enabled solutions, we offer the following services:

•Health Plan Management provides technology-enabled plan administration services for government-sponsored health plans. Our service encompasses eligibility and enrollment processing, member services, premium billing, payment processing, reconciliation and other related services. In addition, we provide technology enabled services to manage supplemental benefits provided to members through their Medicare Advantage plans. Our services include benefit design and administration, member eligibility and engagement, analytics and reporting.

•Software Services provide additional services to our clients for ad hoc enhancements on their existing software solutions.

•Data Analytics provide payment tools and data analytics to improve revenue accuracy and identify gaps in quality, clinical care and compliance. Increasingly we are combining these analytics capabilities with our Health Plan Management offerings.

•Supplemental Benefit Services include product fulfillment, as well as catalog development and product distribution. Many of these services are provided through our technology enabled solutions.

Advisory Services

We provide Advisory Services that complement our technology enabled solutions, including sales and marketing strategies, provider network strategies, compliance, Star ratings, quality, clinical, pharmacy, analytics and risk adjustment.

Revenue Recognition

We recognize revenue under ASC Topic 606, Revenue from Contracts with Customers. We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for contracts that are within the scope of the standard, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Disaggregation of revenue

The following tables present disaggregated revenue by reporting segment:

(in thousands)	For the Three Months Ended June 30, 2022
	Technology Enabled Solutions		Advisory Services		Total
Supplemental Benefit Services	$	45,954	$	—	$	45,954
Health Plan Management	24,035		—		24,035
Consulting Services	(473)		14,143		13,670
Software Services	2,628		20		2,648
Data Analytics	3,475		—		3,475
Total	$	75,619	$	14,163	$	89,782

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(in thousands)	For the Six Months Ended June 30, 2022
	Technology Enabled Solutions		Advisory Services		Total
Supplemental Benefit Services	$	96,182	$	—	$	96,182
Health Plan Management	49,897		—		49,897
Consulting Services	1,853		27,600		29,453
Software Services	4,820		105		4,925
Data Analytics	6,033		—		6,033
Total	$	158,785	$	27,705	$	186,490

(in thousands)	For the Three Months Ended June 30, 2021
	Technology Enabled Solutions		Advisory Services		Total
Supplemental Benefit Services	$	32,964	$	—	$	32,964
Health Plan Management	21,166		—		21,166
Consulting Services	1,445		13,882		15,327
Software Services	2,194		—		2,194
Data Analytics	3,597		—		3,597
Total	$	61,366	$	13,882	$	75,248

(in thousands)	For the Six Months Ended June 30, 2021
	Technology Enabled Solutions		Advisory Services		Total
Supplemental Benefit Services	$	72,069	$	—	$	72,069
Health Plan Management	45,107		—		45,107
Consulting Services	2,483		26,931		29,414
Software Services	4,925		—		4,925
Data Analytics	6,365		—		6,365
Total	$	130,949	$	26,931	$	157,880

The revenue recognition pattern, point in time or over time, is consistent within all revenue categories with the exception of Data Analytics which includes revenue recognized on both a point in time and over time basis. The amount of point in time revenue within Data Analytics was $1.2 million and $1.7 million during the three months ended June 30, 2022, and 2021, respectively, and $1.8 million and $3.1 million during the six months ended June 30, 2022, and 2021, respectively.

Contract Balances

The timing of our revenue recognition, invoicing, and cash collections results in billed accounts receivable, unbilled receivables, and deferred revenue. Accounts receivable includes unbilled receivable balances of $10.4 million and $7.0 million as of June 30, 2022, and December 31, 2021, respectively.

Deferred revenue represents payments received from our customers in advance of recognition of revenue. Deferred revenue that will be recognized during the succeeding 12 months is recognized as current deferred revenue and the remaining portion is recognized as non-current deferred revenue within Other long-term liabilities. Revenue recognized during the six months ended June 30, 2022, and 2021 that was included in the deferred revenue balance at the beginning of the period was $5.6 million and $5.0 million, respectively.

17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes contract liabilities and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.

The timing and amount of revenue recognition for our remaining performance obligations are influenced by several factors and therefore the amount of remaining obligations may not be a meaningful indicator of future results. Total RPO equaled $9.0 million as of June 30, 2022, of which we expect to recognize approximately $4.7 million over the next 12 months. The remaining $4.3 million is expected to be recognized in fiscal years 2023, 2024, 2025, 2026 and 2027 by $2.3 million, $1.8 million, $0.2 million, $7.5 thousand and $7.5 thousand, respectively.

NOTE 4. ACQUISITIONS

On January 9, 2022, Convey’s indirect wholly-owned subsidiary, D-M-S Holdings Parent, LLC (f/k/a Dragon Holdings Parent, LLC), a Delaware limited liability company (“Buyer”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Briggs Medical Service Company, a Delaware corporation (“Seller”), and D-M-S Holdings, Inc. d/b/a HealthSmart International, a Delaware corporation (“Target”), pursuant to which, on the terms and subject to the conditions set forth in the Purchase Agreement, Buyer agreed to acquire from Seller all of the issued and outstanding capital stock of Target (the acquisition of such capital stock, the “Acquisition”). Target provides a diverse portfolio of health, wellness and diagnostic products centered on home based care outcomes, and the Company intends to leverage the Target’s supply chain and logistics expertise to get high quality products to members faster and at a lower cost.

On February 1, 2022, Buyer completed its acquisition of all of the issued and outstanding capital stock of the Target. The Acquisition was consummated pursuant to the Purchase Agreement.

Pursuant to the terms set forth in the Purchase Agreement, at closing Buyer paid to Seller cash in an amount equal to $74.7 million, subject to certain adjustments for, among other things, Target’s cash, indebtedness and net working capital (the “Closing Purchase Price”). If the Target achieves certain amounts of net revenue in calendar year 2022, Buyer will pay to Seller cash up to an additional $15 million. A portion of the Closing Purchase Price was deposited into an escrow account held by an escrow agent and will be released to Buyer or Seller, as applicable, following the final determination of any purchase price adjustment.

In connection with the Purchase Agreement, CHS obtained a first lien incremental term loan facility under CHS’s existing First Lien Credit Agreement in an aggregate principal amount of $78 million, for the purpose of financing the Acquisition and paying fees and expenses related thereto. See Note 9. Credit Facility for additional information related to the incremental term loan facility.

The Acquisition was accounted for using the acquisition method of accounting under which assets and liabilities of the Target were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. A deferred tax liability has been recorded for the excess of financial statement basis over tax basis of the acquired assets and assumed liabilities with a corresponding increase to goodwill. The goodwill attributable to the Acquisition has been recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment. Such goodwill, which is non-deductible for income tax purposes, is part of the Technology Enabled Solutions segment.

The Acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed are considered preliminary and are based on the most recent information available. The Company believes that the information provides a reasonable basis for assigning the fair values of assets acquired and liabilities assumed. Thus, the provisional measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes the Acquisition date fair value of the allocation of the purchase consideration assigned to each major class of assets acquired and liabilities assumed as of February 1, 2022, the acquisition date:

(in thousands)	Preliminary allocation as of March 31, 2022		Adjustments for the three months ended June 30, 2022		Preliminary allocation as of June 30, 2022
ASSETS ACQUIRED
Cash	$	112	$	—	$	112
Accounts receivable	6,481		—		6,481
Inventories	22,879		—		22,879
Prepaid expenses and other current assets	1,840		—		1,840
Property and equipment	1,269		—		1,269
Operating lease right-of-use-assets	4,908		—		4,908
Total identifiable assets acquired	37,489		—		37,489
Fair value of intangible assets
Trade names	8,600		—		8,600
Customer relationships	25,500		—		25,500
Total fair value of intangible assets acquired	34,100		—		34,100
Total assets acquired	$	71,589	$	—	$	71,589
LIABILITIES ASSUMED
Accounts payable	$	2,937	$	—	$	2,937
Accrued expenses	3,895		—		3,895
Operating lease liabilities, current portion	1,003		—		1,003
Deferred taxes	10,222		65		10,287
Operating lease liabilities, net of current portion	3,905		—		3,905
Total liabilities assumed	21,962		65		22,027
Net identifiable assets	49,627		(65)		49,562
Goodwill	27,352		65		27,417
Total consideration	$	76,979	$	—	$	76,979

Due to a change in our tax estimate we made a measurement period adjustment of $0.1 million for the three months ended June 30, 2022.

Indications of fair value of the intangible assets acquired in connection with the Acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. The trade names and customer relationships are being amortized on a straight-line basis over an estimated useful life of twenty years and seventeen years, respectively. The goodwill recognized is primarily attributable to synergies of the business and the acquisition of workforce knowledgeable of product development and supply chain expertise in the healthcare industry.

The following table summarizes the purchase consideration transferred in connection with the Acquisition and consists of the following:

(in thousands)	June 30, 2022
Initial purchase price	$	74,725
Earn-out (contingent consideration)	2,254
Total consideration	$	76,979

Included in the condensed consolidated statement of operations and comprehensive income (loss) are net sales of $15.3 million and a net loss of $0.4 million for the three months ended June 30, 2022, and net sales of $22.6 million and a net loss of $2.0 million for the six months ended June 30, 2022, related to the Target’s operations since the acquisition date of February 1, 2022.

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Unaudited Supplemental Pro Forma Information

The following table presents the unaudited pro forma combined results of operations of the Company and Target for the three and six months ended June 30, 2022 and 2021, as if the acquisition had occurred on January 1, 2021. The pro forma information presented is for informational purposes only and is not indicative of results of operations that would have been achieved had the Acquisition taken place at the beginning of the period.

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(in thousands)	2022	2021	2022	2021
Net revenue	89,782	87,592	190,957	185,158
Net income (loss)	(6,933)	(14,227)	(6,727)	(14,526)

NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

(in thousands)	June 30, 2022		December 31, 2021
Prepaid expenses and other advances	$	6,181	$	6,904
Software licenses	2,648		2,547
Insurance	500		1,271
Inventory purchase advances	1,151		23
Cloud computing subscription & implementation costs	549		4,841
Other current assets	293		983
Total prepaid expenses and other current assets	$	11,322	$	16,569

NOTE 6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

(in thousands)	Estimated Life (in years)	June 30, 2022		December 31, 2021
Office and computer equipment	3 – 7 years	$	17,439	$	14,442
Leasehold improvements	Up to 10 years	10,539		10,503
Furniture and fixtures	3 – 7 years	4,065		4,054
Software	3 – 5 years	2,366		2,277
		34,409		31,276
Less: accumulated depreciation		(14,022)		(10,876)
Property and equipment, net		$	20,387	$	20,400

Depreciation expense for the three months ended June 30, 2022, and 2021 totaled $1.6 million and $1.3 million, respectively. Depreciation expense for the six months ended June 30, 2022, and 2021 totaled $3.2 million and $2.7 million, respectively.

We lease various equipment and software under finance leases. The depreciation expense associated with the assets under finance leases for the three months ended June 30, 2022, and 2021, totaled $0.1 million for each period. The depreciation expense associated with the assets under finance leases for the six months ended June 30, 2022, and 2021, totaled $0.2 million for each period.

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Assets held under finance leases are included in property and equipment as follows:

(in thousands)	June 30, 2022		December 31, 2021
Office and computer equipment	$	1,682	$	1,682
Less: accumulated depreciation	(816)		(656)
Total financing leases included in property and equipment	$	866	$	1,026

NOTE 7. INTANGIBLE ASSETS AND GOODWILL

The activity for goodwill as of June 30, 2022 is as follows:

(in thousands)
Balance at December 31, 2021	455,206
Acquisitions (see Note 4)	27,417
Impairment	—
Balance at June 30, 2022	$	482,623

The carrying amount of goodwill by reporting unit as of June 30, 2022 is $88.9 million for Advanced Plan Administration (“APA”), $190.2 million for Supplemental Benefits Administration (“SBA”), $138.2 million for Value Based Payment Assurance (“VBPA”), $37.9 million for Advisory Services (“Advisory”) and $27.4 million for HealthSmart acquisition, respectively.

The goodwill allocated to the Technology Enabled Solutions and Advisory Services reportable segments is $444.7 million and $37.9 million, respectively as of June 30, 2022. Goodwill is assessed for impairment on an annual basis (on October 1 of each year) and on an interim basis when indicators of impairment exist. There were no indicators of impairment as of June 30, 2022.

As a result of the decline in our stock price for the three months ended March 31, 2022, we performed an interim impairment test for goodwill for APA, SBA, VBPA and Advisory reporting units using the quantitative approach as of March 31, 2022. Since HealthSmart was recently acquired, no impairment test was performed on that reporting unit. Based on our evaluation performed, we determined the fair value of each of the reporting units exceeded its respective carrying amount, and therefore, we determined that goodwill was not impaired at any of our reporting units as of March 31, 2022. Our stock price increased during the three months ended June 30, 2022, and it was not considered an indicator of impairment as of June 30, 2022.

Evaluation of goodwill for impairment requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of the fair value of each reporting unit. We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash flow analysis, and a market approach, using market multiples. Under the income approach, we estimate projected future cash flows, the timing of such cash flows and long-term growth rates, and determine the appropriate discount rate that reflects the risk inherent in the projected future cash flows. The discount rate used is based on a market participant weighted-average cost of capital and may be adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected future cash flows. Under the market approach, we estimate fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. The assumptions and estimates used in determining the fair values of the reporting units contain uncertainties, and any changes to these assumptions and estimates could have a negative impact and result in a future impairment.

21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The carrying value of identifiable intangible assets consisted of the following as of June 30, 2022:

(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets
Trade names	$	35,900	$	(4,302)	$	31,598
Customer relationships	214,500		(49,306)		165,194
Technology	47,800		(13,543)		34,257
Capitalized software development costs	14,407		(3,431)		10,976
Total intangible assets	$	312,607	$	(70,582)	$	242,025

The carrying value of identifiable intangible assets consisted of the following as of December 31, 2021:

(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets
Trade names	$	27,300	$	(3,395)	$	23,905
Customer relationships	189,000		(40,091)		148,909
Technology	47,800		(11,153)		36,647
Capitalized software development costs	12,454		(1,901)		10,553
Total intangible assets	$	276,554	$	(56,540)	$	220,014

Amortization expense for Trade names, Customer relationships and Technology for the three months ended June 30, 2022, and 2021, totaled $6.1 million and $5.9 million, respectively. Amortization expense for Trade names, Customer relationships and Technology for the six months ended June 30, 2022, and 2021, totaled $12.3 million and $11.7 million, respectively.

Amortization expense for Capitalized software development costs for the three months ended June 30, 2022, and 2021, totaled $1.0 million and $0.6 million, respectively. Amortization expense for Capitalized software development costs for the six months ended June 30, 2022, and 2021, totaled $1.6 million and $0.8 million, respectively.

NOTE 8. ACCRUED EXPENSES

Accrued expenses and other current liabilities consist of the following:

(in thousands)	June 30, 2022		December 31, 2021
Contingent consideration	$	2,254	$	—
Incentive bonus	780		15,214
Restructuring - severance costs	1,134		—
Employee related	9,687		11,154
Sales and use tax	6,717		6,865
Rebates	4,073		4,276
Accrued interest	1		637
Accrued professional fees	9,252		7,046
Refundable deposits	3,191		—
Other	3,336		3,366
Total accrued expenses	$	40,425	$	48,558

22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

NOTE 9. CREDIT FACILITY

On September 4, 2019, we entered into the First Lien Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for senior secured credit facilities consisting of (i) a $225.0 million closing date term loan (the “Term Facility”) and loans thereunder (the “Term Loans”) and (ii) a $40.0 million revolving credit facility (the “Revolving Facility”) (collectively, the “Credit Facility”). The Term Facility has a seven-year term which expires on September 4, 2026 and the Revolving Facility has a five-year term which expires on September 4, 2024. We paid debt issuance costs of approximately $6.1 million on the closing date of the Credit Facility, $5.2 million is being amortized over the life of the Term Facility (84 months) and $0.9 million is being amortized over the term of the Revolving Facility (60 months) on a straight-line method. The Revolving Facility includes a letter of credit sub-facility (subject to a sublimit not to exceed $10.0 million) and a swing line loan sub-facility (subject to a sublimit not to exceed $10.0 million).

On April 8, 2020, we amended the Credit Agreement to establish an incremental loan facility in an aggregate principal amount equal to $25.0 million for an incremental term loan request (the “2020 Incremental Term Loan”) bearing interest at the Eurodollar Rate (as defined in the Credit Agreement) expiring September 4, 2026. We capitalized debt issuance costs of approximately $1.1 million on the closing date of the 2020 Incremental Term Loan.

On February 12, 2021, we amended the Credit Agreement to establish an incremental term loan in an aggregate principal amount equal to $78.0 million (the “2021 Incremental Term Loan”) bearing interest at the Eurodollar Rate (as defined in the Credit Agreement) expiring September 4, 2026. We capitalized debt issuance costs of approximately $2.4 million on the closing date of the 2021 Incremental Term Loan.

On February 1, 2022, we further amended the Credit Agreement to establish an incremental term loan in an aggregate principal amount equal to $78.0 million (the “2022 Incremental Term Loan”) bearing interest at the Eurodollar Rate (as defined in the Credit Agreement) expiring September 4, 2026. We capitalized debt issuance costs of approximately $2.6 million on the closing date of the 2022 Incremental Term Loan, which is being amortized over the life of the 2022 Incremental Term Loan. The proceeds of the term loans borrowed under the 2022 Incremental Term Loan were used to finance the HealthSmart acquisition (see Note 4) and pay fees and expenses related thereto. The 2022 Incremental Term Loan was accounted for as a debt modification.

The Credit Agreement includes an uncommitted incremental facility, which provides that we have the right at any time to request term loan increases, additional term loan facilities, revolving commitment increases and/or additional revolving credit facilities, in an aggregate principal amount, together with the aggregate principal amount of permitted incremental equivalent debt under the Credit Agreement, not to exceed (a) the sum of the greater of (i) $46.9 million and (ii) 100.0% of Consolidated EBITDA (as defined in the Credit Agreement) of CHS and its restricted subsidiaries for the most recently ended period of four consecutive fiscal quarters of CHS (calculated on a pro forma basis), plus (b) certain additional amounts, including an unlimited amount subject to pro forma compliance with a leverage ratio test.

Interest Rate and Fees

Borrowings under the Credit Agreement (other than borrowings of swing line loans) bear interest at a rate per annum equal to, at our election, either (i) the LIBOR for the relevant interest period (subject to a floor of 1.00% per annum) plus an applicable margin, as defined in the Credit Agreement, or (ii) a base rate plus an applicable margin, as defined in the Credit Agreement. We elected to use the LIBOR rate for the Term Loans and the Revolving Facility. The Credit Agreement provides for the replacement of LIBOR with a successor or alternative index rate in the event LIBOR is phased-out.

In addition to paying interest on the outstanding principal of the Credit Facility, we are required to pay a commitment fee in respect of any unused commitments under the Revolving Facility at a rate that is subject to adjustment based upon the First Lien Net Leverage Ratio, as defined in the Credit Agreement (maximum debt to Earnings Before Interest, Income Tax, Depreciation and Amortization (“EBITDA”), as defined in the Credit Agreement) at such time and ranges from 0.375% to 0.500% per annum. We are also required to pay customary letter of credit fees and certain other agency fees.

On July 12, 2021, CHS entered into Amendment No. 4 to the Credit Agreement (“Amendment No. 4”). Amendment No. 4 amends the Credit Agreement to provide for, among other things, (i) the reduction of the Applicable Rate (as defined in the Credit Agreement) for Eurodollar Rate Loans (as defined in the Credit Agreement) from 5.25% to 4.75% and, for Base Rate Loans (as defined in the Credit Agreement), from 4.25% to 3.75%, and (ii) the reduction of the floor for the Eurodollar Rate (as defined in the Credit Agreement) from 1.00% to 0.75% for the Closing Date Term Loans (as defined in the Credit Agreement). Amendment No. 4 was accounted for as a debt modification.

23

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Covenants

The Credit Facility contains a financial covenant that requires us to maintain as of the last day of each period of four consecutive quarters of the Company, a First Lien Net Leverage Ratio not to exceed 7.4 to 1.0 if, as of the last day of any fiscal quarter of the Company, there are outstanding revolving loans and letters of credit (excluding (i) undrawn letters of credit in an aggregate face amount up to $10.0 million and (ii) letters of credit (whether drawn or undrawn) to the extent reimbursed, cash collateralized or backstopped on terms reasonably acceptable to the applicable issuing bank on or prior to the date that is three business days following the end of the applicable period of four consecutive fiscal quarters of CHS in an aggregate principal amount exceeding 35% of the aggregate principal amount of the Revolving Facility at such time. We were in compliance with our debt covenants at June 30, 2022.

Prepayments and Mandatory Prepayment

Under the terms of the Credit Agreement, we are permitted to voluntarily prepay outstanding loans or commitments in whole or part without premium or penalty other than certain exceptions described in the Credit Agreement; however, the Credit Agreement requires us to prepay outstanding term loans, subject to certain exceptions and limitations with (i) 50% of our annual excess cash flow, subject to certain step-downs based upon the First Lien Net Leverage Ratio; (ii) 100% of the net cash proceeds of certain asset sales or casualty events; and (iii) 100% of the net cash proceeds of certain incurrences or issuances of indebtedness. We were not required to prepay outstanding term loans based on our 2021 results.

Scheduled Repayments

In connection with the prepayment noted under the “Extinguishment of Debt” below, no additional scheduled installments of principal are required on the Term Facility.

We are required to make scheduled quarterly payments on the 2022 Incremental Term Loan. We are required to make quarterly payments commencing with the quarter ending June 30, 2022, in an amount equal to 0.25% of the aggregate principal amount of the 2022 Incremental Term Loan outstanding on February 1, 2022 with the balance due upon maturity date.

Guarantees and Collateral

All obligations under the Credit Agreement are unconditionally guaranteed by Parent and certain subsidiaries. All obligations under the Credit Agreement are secured, subject to permitted liens and other exceptions and limitations, by first priority security interests in substantially all the assets of the Company and each guarantor (including all the equity interests of CHS).

Extinguishment of Debt

On June 18, 2021, $131.5 million from the IPO proceeds (see Note 1) were used to repay the principal balance, accrued but unpaid interest, and prepayment premium under the Credit Agreement. The 2020 Incremental Term Loan and the 2021 Incremental Term Loan were repaid in full and the remainder of the proceeds were used to repay a portion of the Term Facility. The prepayment for the Term Facility was applied to the remaining scheduled installments of principal.

Other Information

As of June 30, 2022, and December 31, 2021, unamortized deferred financing costs for the Term Loans totaled $5.1 million and $3.0 million, respectively. Amortization of deferred financing costs for the three months ended June 30, 2022, and 2021, totaled $0.2 million and $0.3 million, respectively. Amortization of deferred financing costs for the six months ended June 30, 2022, and 2021, totaled $0.3 million and $0.6 million, respectively.

As of June 30, 2022, and December 31, 2021, unamortized deferred financing costs associated with the Revolving Facility totaled $0.4 million and $0.5 million, respectively, and were included in Other assets in the condensed consolidated balance sheets. Amortization of deferred financing costs was approximately $50 thousand for each of the three months ended June 30, 2022, and 2021. Amortization of deferred financing costs was approximately $0.1 million for each of the six months ended June 30, 2022, and 2021.

Amortization of deferred financing costs is included within Interest expense in the condensed consolidated statement of operations and comprehensive income (loss).

24

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

For the six months ended June 30, 2022, and 2021, the average interest rate for the Term Facility was 5.6% and 6.6%, respectively. As of June 30, 2022, and December 31, 2021, the aggregate principal balance was $192.6 million for each period.

For the six months ended June 30, 2022, the average interest rate for the 2022 Incremental Term Loan was 5.6%. As of June 30, 2022, the aggregate principal balance was $77.8 million.

For the six months ended June 30, 2022, and 2021, the average interest rate for the Revolving Facility was 2.75% for each period. As of June 30, 2022, and December 31, 2021, the available balance was $39.4 million. On January 23, 2020, we established an irrevocable transferable letter of credit (“LOC”) in the favor of a lessor totaling $0.5 million. The LOC expired on January 31, 2021, however, per the terms of the agreement, the LOC automatically extends for a one year period upon the expiration date and each anniversary thereafter, unless at least 60 days prior to such expiration date or anniversary written notice is provided that we elect not to extend the LOC. The LOC was automatically extended for a one year period on January 31, 2022.

Debt consists of the following as of June 30, 2022, and December 31, 2021:

(in thousands)	June 30, 2022		December 31, 2021
Term loans	$	270,436	$	192,631
Less: deferred financing costs	(5,064)		(2,988)
Term loans, net of deferred financing costs	265,372		189,643
Less: current portion	(780)		—
	$	264,592	$	189,643

Debt Maturities Schedule

The required principal payments for Term Loans for each of the five years and thereafter following the balance sheet date are as follows:

(in thousands)
For the six months ending December 31, 2022	$	390
2023	780
2024	780
2025	780
2026	267,706
Total	$	270,436

NOTE 10. SHAREHOLDERS’ EQUITY

As of June 30, 2022, we are authorized to issue 500,000,000 shares of common stock, par value $0.01 per share and 25,000,000 shares of preferred stock, par value $0.01 per share. See Note 1 for additional information related to the Stock Split and IPO.

In February 2021, our Board, through a unanimous written consent, adopted a written resolution declaring a special dividend of $1.18 per share of common stock totaling $74.5 million in cash (“Special Dividend”) ultimately to be distributed to the shareholders of Convey. Of the Special Dividend, $72.2 million was paid to existing shareholders and $2.3 million was paid to outstanding and vested stock option holders. The Special Dividend was paid out during the six months ended June 30, 2021.

NOTE 11. SHARE-BASED COMPENSATION

On September 4, 2019, our Board adopted the Cannes Holding Parent, Inc. 2019 Equity Incentive Plan (the “2019 Equity Plan”). The 2019 Equity Plan was terminated and replaced and superseded by the 2021 Plan (as defined below) on the effective date of the 2021 Plan and no further grant of awards under the 2019 Equity Plan have been made since such effective date. Outstanding awards granted under the 2019 Equity Plan remain in effect pursuant to their terms.

On June 4, 2021, in connection with the IPO, the Company adopted the Convey Holding Parent, Inc. 2021 Omnibus Incentive Compensation Plan (the “2021 Plan”). The 2021 Plan has a term of ten years.

25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

In March 2021, pursuant to the 2019 Equity Plan, Convey issued option awards to acquire 69,300 shares of Convey’s common stock with an exercise price of $9.92 per share and a term of ten (10) years. The awards were comprised of time-vesting options which vest 25% on each anniversary date from the vesting commencement date.

In June 2021, in connection with the IPO and pursuant to the 2021 Plan, Convey issued option awards to acquire 497,321 shares of Convey’s common stock with an exercise price of $14.00 per share and a term of ten (10) years. In addition, Convey issued 198,929 restricted stock units (“RSUs”) with a grant date fair value of $13.00 per unit. The option awards and RSUs are time-vesting awards which vest 25% on the first anniversary of the commencement date, and the remainder will vest in 12 equal 3-month installments over the following three years.

In August 2021, pursuant to the 2021 Plan, Convey issued option awards to acquire 20,380 shares of Convey’s common stock with an exercise price of $9.20 per share and a term of five (5) years. In addition, Convey issued 8,152 RSUs with a grant date fair value of $9.20 per unit. The option awards and RSUs were fully vested as of the date of the grant.

In March 2022, pursuant to the 2021 Plan, the Company issued 2,508,629 RSUs and 1,245,943 performance restricted stock units (“PSUs”) with a grant date fair value of $6.70 per unit to certain employees and Board members. The grants are time-vesting awards which vest 25% on the first anniversary of the commencement date, and the remainder will vest in 12 equal 3-month installments over the following three years. The RSU grants issued to the Board members are time-vesting awards which vest 100% on the earlier of (a) the 1st anniversary of the vesting commencement date or (b) the day immediately prior to the next annual meeting of shareholders. The PSUs have a performance condition that affects vesting and is subject to the Company meeting certain annual Adjusted Earnings Before Interest, Income Tax, Depreciation and Amortization (“Adjusted EBITDA”) target.

The following table summarizes the total share-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Selling, general and administrative	$	2,866	$	1,083	$	4,130	$	2,073
Total stock-based compensation expense	$	2,866	$	1,083	$	4,130	$	2,073

Stock Option Modification

On February 15, 2021, our Board approved a stock option award modification (the “Modification”) whereby the exercise price of certain previously granted and still outstanding unvested stock option awards held by current employees and certain executives were reduced by $1.18 per award, which represented the cash payment made for the vested awards as part of the Special Dividend. No other terms of the repriced stock options were modified, and the modified stock options will continue to vest according to their original vesting schedules and will retain their original expiration dates. As a result of the Modification, 3,653,837 unvested stock options outstanding with an original exercise price of $7.94 were modified.

There was no incremental stock-based compensation expense as there was no incremental fair value generated as a result of the Modification.

26

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Stock Option Grants

Stock option activity and information about stock options outstanding are summarized in the following table:

	Stock Option Awards	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2021	5,636,154	$	7.68	8.29
Granted	—	—		—
Exercised	—	—		—
Forfeited	(21,749)	6.76		—
Outstanding at June 30, 2022	5,614,405	7.68		7.79
Vested or expect to vest as of June 30, 2022	5,614,405	7.68		7.79
Vested and Exercisable as of June 30, 2022	3,101,532	7.70		7.72

The stock options are equity-based awards and their aggregate intrinsic value outstanding and exercisable at June 30, 2022, is $8.7 million.

As of June 30, 2022, there was approximately $8.2 million total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.80 years.

We estimate the fair value of the time-vesting stock option awards on the date of grant using the Black-Scholes Merton model. The time-vesting options have a service condition. Option valuation models, including the Black-Scholes Merton model, require the input of certain assumptions that involve judgment. Changes in the input assumptions can materially affect the fair value estimates and, ultimately, how much we recognize as stock-based compensation expense.

Restricted Stock Units

Activity and information about non-vested RSUs outstanding are summarized in the following table:

	Restricted Stock Units	Weighted Average Grant Date Fair Value (in thousands)
Outstanding at December 31, 2021	154,286	$	2,006
Granted	3,754,572	25,156
Vested	(38,572)	(500)
Forfeited	(61,335)	(411)
Outstanding at June 30, 2022	3,808,951	$	26,251

One RSU gives the right to one share of the Company’s common stock. RSUs that vest based on service are measured based on the fair value of the underlying stock on the date of grant. Compensation with respect to RSU awards is expensed on a straight-line basis over the vesting period.

As of June 30, 2022, there was approximately $24.5 million total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted average period of 3.61 years.

Long-Term Incentive Awards

In March 2020, Convey issued fifty-six (56) Long-Term Incentive (LTI) awards with a total grant-date fair value of $1.1 million to employees. These awards vest upon satisfaction of the performance condition as determined by our Board at its sole discretion, subject to the participants continued employment or service. The performance condition is satisfied by TPG meeting a certain multiple-of-money return, on a scale, prior to or upon (i) TPG in the aggregate beneficially owning less than 20% of the voting equity securities of the Company or (ii) the date on which a change in control occurs. The awards contain a market condition with an implicit performance condition. No awards have vested as of June 30, 2022, as such events did not occur during the six months ended June 30, 2022. No awards have been granted or cancelled during the six months ended June 30, 2022. The awards do not expire. On the date the performance condition is met, any unvested awards will be forfeited.

27

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

	LTI Awards
Outstanding as of December 31, 2021	43
Forfeited	(6)
Outstanding as of June 30, 2022	37

Settlement of the award can be made, as determined by our Board at its sole discretion, (i) in cash, (ii) common stock, or (iii) in other property acceptable to our Board. The LTIs are treated as liability-based awards under Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation, (“ASC 718”) and the Company shall recognize compensation expense for the LTIs upon the liquidity event occurring.

NOTE 12. EMPLOYEE SAVINGS PLAN

We offer our employees a savings plan pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), whereby employees may contribute a percentage of their compensation, not to exceed the maximum amount allowable under the Code. At the discretion of our Board, we may elect to make matching or other contributions into the savings plan. We made matching contributions of $0.7 million and $0.5 million for the three months ended June 30, 2022 and 2021, and $1.6 million and $1.2 million for the six months ended June 30, 2022, and 2021, respectively, to our employee savings plan, which is included within Selling, general and administrative expenses, Cost of services and Cost of products in the condensed consolidated statement of operations and comprehensive income (loss).

NOTE 13. TAXES

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our global annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to change resulting from several factors, including variability in forecasting our pre-tax and taxable income and loss due to external changes in market conditions, changes in statutes, regulations and administrative practices, principles, and interpretations related to tax. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Our income tax (expense) benefit for the three months ended June 30, 2022 and 2021, was $2.7 million and $5.2 million, respectively. For the six months ended June 30, 2022 and 2021, our income tax (expense) benefit was $3.4 million and $6.2 million, respectively. For the six months ended June 30, 2022, our effective tax rate of 35.3%, before discrete items, was above the U.S. statutory rate of 21.0% primarily due to foreign and state taxes net of the federal benefit, disallowed wage expense and fringe benefits, and non-deductible compensation for covered employees. These unfavorable items were offset by tax credits. Additionally, for the six months ended June 30, 2022, we recorded discrete tax expense associated with non-deductible compensation for covered employees and nondeductible mergers and acquisitions related costs, offset by a discrete tax benefit associated with a change in our state tax rate. For the six months ended June 30, 2021, our effective tax rate of 27.3% was above the U.S. statutory rate of 21.0% primarily due to state taxes, tax on Global Intangible Low-Taxed Income, disallowed wage expense and fringe benefits, and certain other non-deductible items. These items were primarily offset by tax credits. We did not have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period. No interest or penalties were recorded as a result of tax uncertainties.

28

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

NOTE 14. TRANSACTION RELATED COSTS AND RESTRUCTURING CHARGES

The following table represents the components of Transaction related costs and restructuring charges as reported in the condensed consolidated statements of operations and comprehensive income (loss):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Transaction related costs
Mergers and acquisitions related costs	$	94	$	68	$	735	$	98
Public company readiness costs	446		1,488		446		2,544
Going private costs	4,080		—		4,080		—
Restructuring charges
Severance costs	1,134		—		1,134		—
Total	$	5,754	$	1,556	$	6,395	$	2,642

NOTE 15. COMMITMENTS AND CONTINGENCIES

Employment Agreements

We have employment agreements with various executives. The agreements have open-ended terms providing that employment shall continue until terminated by either party in accordance with the agreement. In addition to salary, bonuses, and benefits, the agreements also provide for termination benefits if the agreements are terminated by us for reasons other than cause or by the executives for good reason.

Inventory Purchases

As of June 30, 2022 and December 31, 2021, we have contractual commitments to purchase inventory from certain manufacturers totaling $13.8 million and $5.2 million, respectively.

Legal Proceedings

We are involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should our exposure be materially different from our estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.

Because of the uncertainties associated with claims resolution and litigation, future losses to resolve these matters could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential losses. If new information were to become available that allowed us to reasonably estimate a range of potential losses in an amount higher or lower than what we have accrued, we would adjust our accrued liabilities accordingly. Based upon current information, we concluded that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows. Additional lawsuits, claims, inquiries, and other regulatory and compliance matters could arise in the future. The range of losses for resolving any future matters would be assessed as they arise.

On August 2, 2022, the Company received a demand from a purported stockholder of the Company pursuant to 8 Del. C. § 220 (the “Demand Letter”) to inspect books and records of the Company relating to, among other things, the Company’s entry into the proposed Merger with Commodore and the TPG Stockholder. On August 9, 2022, the Company replied, offering to meet and confer with the stockholder's counsel to negotiate an appropriate production in response to the Demand Letter, while reserving all rights. On August 10, 2022, the purported stockholder filed a complaint in the Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the Delaware General Corporation Law. The case is at a very early stage and the outcome of such demand and complaint and any litigation ensuing from such demand and complaint cannot be assured, including the amount of fees and costs associated with defending this claim or any other liabilities that may be incurred in connection therewith. For this same reason, the Company cannot currently estimate the loss or the range of possible losses it may experience in connection with this claim.

29

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Sales Tax Accrual

ASC Topic 450, Contingencies, (“ASC 450”) requires an estimated loss to be accrued by a charge to income if it is probable that a liability has been incurred at the date of the financial statements and the amount of the liability can be reasonably estimated. We recognized liabilities for contingencies related to state sales and use tax deemed probable and estimable totaling $6.7 million and $6.9 million at June 30, 2022, and December 31, 2021, respectively. These are included in accrued liabilities in our condensed consolidated balance sheets.

NOTE 16. RELATED PARTY TRANSACTIONS

TPG Management Service Agreement

On September 4, 2019, in connection with the Convey Merger, we had entered into a management services agreement (“MSA”) with TPG. Under the MSA, TPG agreed to provide certain financial, strategic advisory services, and consulting services in exchange for (i) reimbursement of certain expenses incurred by TPG and (ii) an aggregate annual retainer fee of 1% based on our previous year’s consolidated EBITDA determined by our Board. Additional services may be provided in exchange for the fees structured within the MSA. During the six months ended June 30, 2022, and 2021, we paid management and consulting fees of $0 and $0.3 million, respectively. Also, during the six months ended June 30, 2022, and 2021, we paid TPG a fee of $1.0 million for each period for services provided in connection with establishing: (i) the 2022 Incremental Term Loan and (ii) the 2021 Incremental Term Loan.

In the event the MSA was terminated by an IPO or business combination and TPG continues to hold at least 10% of equity of the Company upon closing of such transaction, we were required to pay TPG the net present value of the remaining portion of management and consulting fees that would have been incurred until three years after the date of such termination, as well as certain other expenses of TPG. In connection with the IPO completed in June 2021, the MSA was terminated and we incurred a $2.3 million termination fee. The termination fee is included within Selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income (loss). There were no amounts payable to TPG as of June 30, 2022, or December 31, 2021.

EIR Partners Consulting Agreement

We have a Consulting Agreement with EIR Partners, LLC (“EIR”), a former member of our Board, and a current shareholder. Under the terms of the Consulting Agreement, EIR provides consulting services for the purpose of analyzing and reviewing potential sellers in the marketplace for the benefit of the Company as agreed to from time-to-time. As compensation for service, the Company remits to EIR $10 thousand monthly, plus reasonable out-of-pocket expenses incurred in the performance of the duties under the Consulting Agreement. The Consulting Agreement may be terminated by either party upon providing 10 days advance written notice and unless terminated, automatically renews for additional terms of one year. For the six months ended June 30, 2022, and 2021, $60 thousand was paid for services rendered during each period. The Consulting Agreement is still active with the Company.

NOTE 17. SEGMENT INFORMATION

ASC 280 establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, we have determined that we have two reportable segments: Technology Enabled Solutions and Advisory Services. These reportable segments reflect the manner in which the Chief Operating Decision Maker (“CODM”) group assesses information for decision-making purposes. The CODM group consists of our Chief Executive Officer and Chief Financial Officer.

The key factors used to identify these reportable segments are the organization and alignment of our internal operations and the nature of our products and services. This reflects how the CODM group monitors performance, allocates resources, and makes strategic and operational decisions.

In addition to the reportable segments, we have the “Unallocated” classification which includes those profit and loss items not allocated to either reportable segment. Unallocated includes corporate costs, primarily relating to group wide functions, including but not limited to, finance, tax and legal.

We present reportable segment revenue and Segment Adjusted EBITDA. Segment Adjusted EBITDA is the financial measure by which management and the CODM group allocate resources and analyze the performance of the reportable segments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Segment Adjusted EBITDA represents each segment’s earnings before interest, tax, depreciation and amortization and is further adjusted to exclude certain items of a significant or unusual nature, including but not limited to, COVID-19 cost impacts, sales and use tax, non-cash stock compensation expense, transaction related costs and restructuring charges, acquisition bonus expense, inventory step-up, loss on extinguishment of debt, director and officer prior act liability insurance policy and other costs. Other includes costs such as management and board of directors fees, management service agreement termination fee, and fees associated with obtaining the incremental term loans.

We do not report assets by reportable segment, as this metric is not used by the CODM group to allocate resources to the segments.

Presented in the tables below is revenue and Segment Adjusted EBITDA by reportable segment:

	For the Three Months Ended June 30, 2022				For the Six Months Ended June 30, 2022
(in thousands)	Technology Enabled Solutions		Advisory Services		Technology Enabled Solutions		Advisory Services
Revenue	$	75,619	$	14,163	$	158,785	$	27,705
Segment Adjusted EBITDA	$	8,668	$	5,897	$	21,038	$	11,221

	For the Three Months Ended June 30, 2021				For the Six Months Ended June 30, 2021
(in thousands)	Technology Enabled Solutions		Advisory Services		Technology Enabled Solutions		Advisory Services
Revenue	$	61,366	$	13,882	$	130,949	$	26,931
Segment Adjusted EBITDA	$	15,877	$	5,264	$	32,253	$	8,602

The following table presents a reconciliation of Segment Adjusted EBITDA to the condensed consolidated U.S. GAAP net income (loss) from operations:

(in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Technology Enabled Solutions Segment Adjusted EBITDA	$	8,668	$	15,877	$	21,038	$	32,253
Advisory Services Segment Adjusted EBITDA	5,897		5,264		11,221		8,602
Total	$	14,565	$	21,141	$	32,259	$	40,855
Unallocated(1)	$	(2,387)	$	(2,873)	$	(4,761)	$	(4,991)
Adjustments to reconcile to U.S. GAAP net income (loss)
Depreciation and amortization	(9,012)		(7,823)		(17,264)		(15,194)
Interest, net	(4,188)		(6,394)		(7,908)		(11,861)
Income tax provision	2,683		5,166		3,359		6,173
Cost of COVID-19(2)	—		(1,127)		(274)		(2,311)
Sales and use tax	—		(2,570)		—		(3,968)
Non-cash stock compensation expense	(2,866)		(1,083)		(4,130)		(2,073)
Transaction related costs and restructuring charges(3)	(5,754)		(1,556)		(6,395)		(2,642)
Acquisition bonus expense	(88)		(96)		(147)		(289)
Inventory step-up(4)	(2,838)		—		(4,731)		—
Loss on extinguishment of debt	—		(5,015)		—		(5,015)
Director and officer prior act liability insurance policy (5)	—		(7,861)		—		(7,861)
Other(6)	(5)		(3,052)		(1,052)		(4,900)
Net income (loss)	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)

________________________

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(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. While we had previously expected that these costs would not be an adjustment in the calculation of Segment Adjusted EBITDA after 2021, the COVID-19 pandemic has not subsided and during 2022, to a lesser extent, we have continued to incur higher product costs due to higher pricing from vendors for certain items (e.g., masks and other similar high demand products). We now expect that these expenses will not be an adjustment in the calculation of Segment Adjusted EBITDA after 2022.

(3)Transaction related costs and restructuring charges primarily consist of public company readiness costs, expenses for corporate development such as mergers and acquisitions activity, due diligence costs, going private costs and restructuring charges such as severance costs.

(4)Incremental cost of products associated with the step-up of inventory recognized in purchase accounting for the HealthSmart acquisition.

(5)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.

(6)These adjustments include individual adjustments related to fees associated with obtaining the incremental term loans, management fees, management service agreement termination fee, and board of director related fees.

NOTE 18. LEASES

We lease office space, warehouse and distribution space, and equipment under non-cancelable operating and finance leases expiring at various dates through 2029.

We determine whether an arrangement is a lease at inception, based on the (1) conveyed rights to obtain substantially all economic benefits from using the asset and (2) the right to direct the uses to which the asset is put.

Our lease population does not include any residual value guarantees, and therefore none were considered in the calculation of the lease balances. We have leases with variable payments, most commonly in the form of common area maintenance charges which are based on actual costs incurred. These variable payments were excluded from the right-of-use asset and lease liability balances since they are not fixed or in-substance fixed payments. We have lease agreements with lease and non-lease components. We elected the practical expedient to account for lease and non-lease components as a single lease component.

For leases with terms greater than 12 months, right-of-use assets and lease liabilities are recognized at the implementation date of Topic 842 or lease commencement date based on the present value of the future lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, we utilize our incremental borrowing rate. Our lease agreements generally do not provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate our incremental borrowing rate based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter in determining the present value of future payments. Lease expense for net present value of payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The components of lease expense were as follows:

(in thousands)	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Operating lease costs	$	1,393	$	2,649
Variable lease costs	745		1,500
Short-term lease costs	373		706
Finance lease cost
Amortization of right-of-use assets	89		178
Interest on lease liabilities	7		13
Total lease expense	$	2,607	$	5,046

The table below summarizes our scheduled future minimum lease payments under operating and finance leases, recorded on the condensed consolidated balance sheet as of June 30, 2022:

(in thousands)	Operating Leases		Finance Leases
For the six months ending December 31, 2022	$	3,402	$	315
2023	6,846		368
2024	6,085		138
2025	4,558		89
2026	2,741		—
Thereafter	4,471		—
Total	$	28,103	$	910
Less: amounts representing interest	$	(2,707)	$	(43)
Net present value of lease obligations	$	25,396	$	867

The following table presents the balances for operating and finance right-of-use assets and lease liabilities:

(in thousands)	Classification	June 30, 2022
Assets
Operating lease assets	Right-of-use assets	$	19,943
Finance lease assets	Property and equipment	866
Total lease assets		$	20,809
Liabilities
Current liabilities
Operating lease liabilities	Operating lease liabilities	$	5,916
Finance lease liabilities	Finance lease obligations	555
Non-current liabilities
Operating lease liabilities	Operating lease liabilities	19,480
Finance lease liabilities	Finance lease obligations	312
Total lease liabilities		$	26,263

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The table below presents additional information related to our leases as of June 30, 2022:

(in thousands)	Six Months Ended June 30, 2022
Supplemental cash flow information and non-cash activity:
Cash paid for amounts related to lease liabilities:
Operating cash flows from finance leases (interest)	$	13
Operating cash flows from operating leases	$	3,145
Financing cash flows from finance leases (principal payments)	$	160
Operating lease assets obtained in exchange for lease liabilities	$	2,490
Weighted Average Remaining Lease Term (in years):
Operating leases	4.8
Finance leases	2.1
Weighted Average Discount Rate:
Operating leases	3.7		%
Finance leases	3.9		%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the Form 10-K.

The following discussion and analysis also includes discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see “Non-GAAP Financial Measures” below.

This Form 10-Q 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, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, 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 Form 10-Q. 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 Form 10-Q, 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: with respect to the Merger, the Merger not being completed or delayed and the business uncertainties and certain contractual restrictions we are subject to while the Merger is pending; 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; our ability to achieve or maintain profitability; Federal reductions in Medicare Advantage funding; significant consolidation in the healthcare industry, and decisions by clients to perform internally some of the same solutions or services we offer; the limited operating history we have with certain of our solutions; a failure to deliver high-quality member management services to our clients’ members; the competition we face from healthcare services and technology companies; 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; the long and unpredictable sales and integration cycles for our solutions; an economic downturn or volatility, including as a result of the ongoing COVID-19 pandemic; our ability to achieve market acceptance of new or updated solutions and services; our reliance on third parties for certain components of our business; significant fluctuations in our quarterly results of operations due to seasonality; our ability to achieve or maintain adequate utilization and suitable billing rates for our consultants, and our ability to deliver our services to our clients; recent and future developments in the Medicare Advantage market or the healthcare industry generally, including with respect to changing laws and regulations; our ability to comply with applicable laws, regulations and standards relating to data privacy and security; 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 Part I, Item 1A "Risk Factors" of our Form 10-K and our other filings with the Securities and Exchange Commission (“SEC”). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. 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. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and

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actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-Q, and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We qualify all of the forward-looking statements in this Form 10-Q 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.

Overview

The Company is a leading healthcare platform that utilizes technology and processes to improve government-sponsored health plans, including Medicare Advantage (“MA”) plans. We help health plans to grow membership and revenue as well as operate more effectively and efficiently. We are a trusted solutions-oriented partner to payors and deliver purpose-built technology and services to enhance our clients’ mission-critical workflows. Our solutions address health plan needs, including product development and sales, member experience management, clinical management, core operations, business intelligence and analytics. Leveraging our technology and expert advisory services, we serve as a unified and integrated extension of our clients’ core health plan operations. Our proprietary, modular technology and end-to-end solutions replace or supplement our clients’ existing systems and processes, enabling us to help health plans attract and retain members, improve revenue accuracy, drive cost savings, facilitate regulatory compliance, and enhance operational effectiveness.

On February 1, 2022, Convey’s indirect wholly-owned subsidiary, D-M-S Holdings Parent, LLC (f/k/a Dragon Holdings Parent, LLC), a Delaware limited liability company, acquired all of the issued and outstanding capital stock of D-M-S Holdings, Inc. d/b/a HealthSmart International, a Delaware corporation (“HealthSmart”). HealthSmart provides a diverse portfolio of health, wellness and diagnostic products centered on home based care outcomes. The acquisition of HealthSmart supports Convey's vision to empower health plans to excel by delivering a more diverse healthcare product portfolio to their members while streamlining logistics, resulting in a better healthcare consumer experience. The acquisition will combine Convey's best-in-class supplemental benefits administration technology and services solution with HealthSmart's market leading abilities as a trusted supplier of quality consumer healthcare products. Convey will extend the solutions serving the MA supplemental benefits business through a broader set of consumer healthcare products and expertise that serves many of the top health plans in the U.S.

Since our inception, we have created and continuously refined our technology solutions to best serve government-sponsored health plans. Our clients are primarily MA plans, Medicare Part D plans, including Employer Group Waiver plans, and pharmacy benefit managers.

We foster long-term collaborative partnerships as evidenced by our average relationship with our top 10 clients of over eight years, and we serve as a partner to nine of the nation’s top 10 MA payors by lives covered, in each case as of December 31, 2021. We believe that we have significant opportunity to grow within our existing client base as the majority of our clients currently subscribe to only a subset of our overall solutions and services. Moreover, we believe we have significant opportunity to grow by winning new clients in the MA market, by selling more products to our existing clients, by expanding into adjacent markets such as Medicaid and commercial insurance, and through complementary strategic acquisitions.

Our clients face significant and constantly evolving challenges managing their Medicare health plans:

•Increasingly Competitive Environment for Medicare Plans: Effective benefit design and sales are critical to retaining and growing members during the Medicare annual enrollment period. Once members are enrolled in a plan, effective member engagement and supplemental benefits administration are paramount to ensuring strong satisfaction and retention. Moreover, the proliferation of value-based reimbursement models such as MA requires effective member management and broad ecosystem coordination, which fall outside the core competencies of many health plans.

•Compliance with Centers for Medicare and Medicaid Services (“CMS”) Requirements: Constantly evolving CMS and client requirements result in hundreds of modifications per year that inhibit the operational effectiveness and capabilities of health plans. Our purpose-built government sector technology platform addresses these constantly evolving requirements.

•Complex and Highly Regulated Medicare Market: Many health plans enter the government plan market by simply adapting their existing systems designed for the commercial insurance market. As a result, the technology they employ often lacks the sophistication and design needed to effectively maintain and administer benefits tailored for the complex and highly regulated Medicare market.

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Health plans increasingly recognize the need for specialized solutions like ours to help them overcome these challenges and drive superior performance. We believe our proprietary technology and processes facilitate member engagement, health plan growth, and operational efficiencies.

We operate in two segments: Technology Enabled Solutions (“TES”) in which we provide technology and support solutions to our clients, and Advisory Services (“Advisory”) in which we provide project-based consulting services led by our long-tenured subject matter experts. We believe that our combination of technology and advisory solutions gives us a competitive advantage in the government-sponsored health plan market. Our Technology Enabled Solutions and Advisory teams collaborate effectively to combine a strong technology platform with deep domain expertise to deliver best-in-class solutions to our clients. Furthermore, we leverage the Advisory team’s industry expertise to identify new opportunities as well as cross-sell our solutions within existing clients.

We have a highly predictable and recurring revenue model with strong cash flow from operations. We typically charge a recurring subscription or per-member fee or a re-occurring utilization-based fee, which, coupled with our long-term contracts and strong client retention, has historically provided us with strong revenue visibility into estimated future revenue. Our Technology Enabled Solutions business historically has been highly predictable as most of our revenue in any given year is under contract or otherwise visible by the beginning of that year due to the contract structures we employ.

Initial Public Offering

On June 18, 2021, we closed the initial public offering (“IPO”) of our common stock through an underwritten sale of 13,333,334 shares of our common stock at a price of $14.00 per share. In the offering, we sold 11,666,667 shares and a selling stockholder sold 1,666,667 shares. The aggregate net proceeds to us from the offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $146.1 million. We used approximately $131.5 million of the net proceeds from the IPO to repay outstanding indebtedness under our First Lien Credit Agreement (as amended, the “Credit Agreement”). We did not receive any of the proceeds from the sale by the selling stockholder.

Plan of Merger, Going Private and Restructuring Charges

On June 20, 2022, the Company, Commodore Parent 2022, LLC, a Delaware limited liability company (“Commodore”), and Commodore Merger Sub 2022, Inc., a Delaware corporation and a wholly owned subsidiary of Commodore (“Commodore Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions and on the terms set forth therein, Commodore Merger Sub will merge (the “ Merger”) with and into the Company, with the Company continuing as the surviving corporation (the “Surviving Corporation”). Commodore and Commodore Merger Sub are affiliates of TPG Cannes Aggregation, L.P., an affiliate of TPG Global, LLC and the holder of a majority of the outstanding shares of capital stock of the Company (the “TPG Stockholder”).

A special committee of the board of directors of the Company (the “Board”) comprised solely of members of the Board that are independent of TPG Stockholder and its respective affiliates, reviewed, evaluated and (i) determined by unanimous vote, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and its stockholders (other than the TPG Stockholder and any of its respective affiliates or the Company’s officers and directors) and (ii) recommended that the Board approve the transaction. Acting upon the recommendation of the special committee, the Board approved the transaction.

Following the execution of the Merger Agreement, the TPG Stockholder, the holder of approximately 75% of the outstanding shares of common stock, executed a written consent adopting the Merger Agreement and approving the transactions contemplated thereby, including the Merger. No further approval of the stockholders of the Company is required to approve the Merger. The transaction is expected to close in the second half of 2022. Completion of the transaction is subject to customary closing conditions. Upon completion of the transaction, the Company will become a private company and the shares of common stock of the Company will no longer be publicly listed or traded on the New York Stock Exchange.

At the effective time of the Merger (the “Effective Time”) each share of common stock of the Company, issued and outstanding immediately prior to the Effective Time, (other than Rollover Shares (as defined below), common stock owned by the Company, the TPG Stockholder and its respective affiliates and common stock with respect to which appraisal rights under Delaware law are properly exercised and not withdrawn) will be converted into the right to receive an amount in cash equal to $10.50 per share, payable to the holder thereof, without interest. Commodore and Commodore Merger Sub have secured commitments (which may be assigned to the Company) for debt financing consisting of an incremental term loan facility in an aggregate principal amount of up to $180.0 million to be provided by certain lenders to the Company under the Company’s existing Credit Agreement (as defined above) on the terms and subject to the conditions set forth in the debt commitment letter. The obligations of such lenders to provide debt financing under the debt commitment letter are subject to a number of customary conditions. In addition, certain of the Company’s directors and officers have entered into a rollover and support

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agreement with Commodore, pursuant to which, among other matters, such rollover investors have agreed that a certain portion of their shares of common stock (the “Rollover Shares”) will be converted into Surviving Corporation shares.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding option to purchase shares of common stock, restricted stock unit and performance-based restricted stock unit, will remain outstanding and continue to be subject to the same terms and conditions as immediately prior to the Effective Time, as set forth in the applicable Company equity plan and award agreement, with certain exceptions.

Pursuant to rules adopted by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company will prepare and file with the SEC, and thereafter mail to its stockholders, a Schedule 14C Information Statement where you can find additional information about the Merger.

As part of the assessment of the Merger and the going private transaction, the Company incurred legal and financial advisory fees which are recorded as transaction related costs.

In addition, the Company recorded severance costs as restructuring charges as a result of labor force reductions associated with the going private transaction, the closure of the Pompano Beach, Florida distribution center and other labor force reductions initiatives. On June 22, 2022, the Company filed a Workers Adjustment and Retraining Notification (“WARN”) alerting state officials of job cuts driven by closure of the Pompano Beach, Florida distribution center. The closure is to be effective August 31, 2022. The Pompano Beach distribution center operations will be handled through a new distribution center in Las Vegas, Nevada. Restructuring charges are recorded as corporate costs and not allocated to the reportable segments. See Note 14. Transaction Related Costs and Restructuring Charges, to the notes accompanying our financial statements, for cost details.

COVID-19 Pandemic

COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. Governments at the national, state, and local level in the U.S., and globally, have implemented varying measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings of people, work from home and supply chain logistical changes. While some of these actions have eased, escalating transmission rates (including variants of COVID-19), uneven vaccination and vaccination booster rates and further governmental guidance and orders may result in having to reimplement certain of these measures or implementing new and additional ones. The spread of COVID-19 has also caused significant volatility in United States and international markets and has had and continues to have widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices.

Our operations have been impacted by COVID-19 since March 2020. During March and April 2020, we obtained approval from our clients for a work-at-home model, though not all required our approval, and transitioned most of our employees to the home environment so that they could work more safely. COVID-19 created a hardship for many of our employees. We worked during 2020 to care for our employees by periodically implementing temporary premium pay and temporary paid sick leave programs which provided additional financial resources for our employees, as well as partial pay for those employees who contracted the virus or had to care for a family member who was affected. We also had provided compensation to employees who worked with us for more than six months so that they can take time off to be vaccinated. In addition, we increased cleaning protocols throughout our facilities. Certain of these measures have resulted in increased costs.

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 the following:

•Higher Pricing from Vendors and Higher Shipping Costs:   We experienced higher costs to procure certain products included in the formulary available to Medicare members. The price increases were due to supply chain disruptions and product shortages caused by the COVID-19 pandemic. We quantified the pricing increase by comparing the pre-pandemic prices for high demand products directly attributable to the COVID-19 pandemic (e.g., masks and other similar high demand products) to the prices to procure such products during the pandemic. Further, we incurred additional costs due to expedited shipping fees as a result of new inventory management practices put into place due to supply chain disruptions and delays caused by COVID-19 in order to fulfill product demand.

•Sick Pay, Premium Pay and Hazard Pay:   Temporary sick leave was paid to employees if specific criteria related to the COVID-19 pandemic were met. Incremental premium pay and hazard pay were paid to distribution and shipping employees who worked their normal scheduled shifts. In addition, we paid a one-time bonus to supervisors for working additional hours to support the transition of our employees to a work-at-home model.

•Work-at-Home Training:   In response to the COVID-19 pandemic, we held work-at-home remote training. To accomplish this transition, hourly new hire employees were required to receive training regarding at-home information

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technology (“IT”) and telephony equipment setup. We paid the hourly new hire employees four hours for these efforts at their regular hourly wage rate and applicable fringe benefit rate.

•IT Expenses:   Additional temporary IT resources were retained, and overtime hours were incurred, for existing IT resources, in order to implement the remote working environment designed in response to the COVID-19 pandemic.

•Janitorial Costs:   Due to the onset of the COVID-19 pandemic, we implemented an enhanced sanitation policy. The enhanced sanitation policy included special deep cleaning sessions in areas contacted by employees who had tested positive for COVID-19 and enhanced sanitation sessions through our facilities compared to the sanitation methods used prior to the COVID-19 pandemic.

See “Non-GAAP Financial Measures” for amounts related to the additional expenses due to the COVID-19 pandemic (Cost of COVID-19). While we had previously expected that these costs would not be an adjustment in the calculation of Adjusted EBITDA after 2021, the COVID-19 pandemic has not subsided and during 2022, to a lesser extent, we have continued to incur higher product costs due to higher pricing from vendors for certain items (e.g., masks and other similar high demand products). We now expect that these expenses will not be an adjustment in the calculation of Adjusted EBITDA after 2022.

The full extent to which the COVID-19 pandemic and the various responses to the COVID-19 pandemic continues to impact our business, operations or financial condition will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to, the duration, severity and scope of the COVID-19 pandemic (including due to new variants); actions by governmental entities, businesses and individuals that have been and continue to be taken in response to the pandemic; the effect on our clients and demand by clients, clients and our clients’ members for and ability to pay for our solutions and services; and disruptions or restrictions on our employees’ ability to work and travel. The impact of these factors and others on our suppliers and clients could persist for some time after governments ease their restrictions and after the overall number of COVID-19 cases in the United States decreases. We may continue to experience higher than usual costs as a result of COVID-19 for the foreseeable future. 

Non-GAAP Financial Measures

We present our financial results in accordance with GAAP. However, we use certain non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management to better understand our consolidated financial performance from period to period and better project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP financial measures provide investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. In particular, we use EBITDA and Adjusted EBITDA to assess our financial performance and also for internal planning and forecasting purposes. We believe EBITDA and Adjusted EBITDA provide investors with useful information because such metrics offer a consistent and comparable overview of our operations across historical financial periods. In evaluating EBITDA and Adjusted EBITDA, 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 Form 10-Q. 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 EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial measure, net income (loss), 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. The tables below provide reconciliations of EBITDA and Adjusted EBITDA to net income (loss) on a consolidated basis for the periods indicated.

We define EBITDA as net income (loss) 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 of contingent consideration, COVID-19 cost impacts, non-cash stock compensation expense, transaction related costs and restructuring charges, acquisition bonus expense, loss on extinguishment of debt, director and officer prior act liability insurance policy, inventory step-up and other costs. Other includes costs such as

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management fees, management service agreement termination fee, and fees associated with obtaining the incremental term loans.

In addition, we measure the performance of our individual segments using Segment Adjusted EBITDA. Segment Adjusted EBITDA is the financial measure by which management allocates resources and analyzes the performance of the reportable segments. The main difference between Segment Adjusted EBITDA and Adjusted EBITDA is that Segment Adjusted EBITDA includes add backs for sales and use tax and board of directors fees.

The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Net income (loss)	$	(9,890)	$	(13,143)	$	(11,044)	$	(14,077)
Interest, net	4,188		6,394		7,908		11,861
Income tax expense (benefit)	(2,683)		(5,166)		(3,359)		(6,173)
Depreciation and amortization expense	9,012		7,823		17,264		15,194
EBITDA	627		(4,092)		10,769		6,805
Change in fair value of contingent consideration	—		96		—		96
Cost of COVID-19(1)	—		1,127		274		2,311
Non-cash stock compensation expense(2)	2,866		1,083		4,130		2,073
Transaction related costs and restructuring charges(3)	5,754		1,556		6,395		2,642
Acquisition bonus expense	88		96		147		289
Loss on extinguishment of debt(4)	—		5,015		—		5,015
Director and officer prior act liability insurance policy(5)	—		7,861		—		7,861
Inventory step-up(6)	2,838		—		4,731		—
Other(7)	5		2,464		1,052		3,978
Adjusted EBITDA	$	12,178	$	15,206	$	27,498	$	31,070

________________________

(1)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) COVID-19 training costs, (iv) overtime costs for IT personnel to setup eligible employees to work from home and temporary resources and (v) 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). See “COVID-19 Pandemic” above for additional information related to these expenses. While we had previously expected that these costs would not be an adjustment in the calculation of Adjusted EBITDA after 2021, the COVID-19 pandemic has not subsided and during 2022, to a lesser extent, we have continued to incur higher product costs due to higher pricing from vendors for certain items (e.g., masks and other similar high demand products). We now expect that these expenses will not be an adjustment in the calculation of Adjusted EBITDA after 2022.

(2)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).

(3)Transaction related costs and restructuring charges primarily consist of public company readiness costs, expenses for corporate development such as mergers and acquisitions activity, due diligence costs, going private costs and restructuring charges such as severance costs.

(4)The loss on extinguishment of debt was recognized for prepayment of outstanding indebtedness.

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(5)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.

(6)Incremental cost of products associated with the step-up of inventory recognized in purchase accounting for the HealthSmart acquisition.

(7)Other includes other individual adjustments related to fees associated with obtaining the incremental term loans, management fees and management service agreement termination fee. All costs are included in selling, general and administrative expenses on our statements of operations and comprehensive income (loss).

Components of Results of Operations

Revenue

We generate revenue from contracts with our clients within our two operating segments: Technology Enabled Solutions and Advisory Services.

Through our Technology Enabled Solutions segment, we primarily provide technology solutions and services to assist our clients with workflows across product development, member experience, clinical management, core operations, business intelligence, and analytics. Through our Advisory Services segment, we provide fixed or variable fee arrangements to assist clients in the design and management of government and commercial health plans. Our revenue includes both product revenue and service arrangements.

Products revenue consists of technology enabled solutions for supplemental benefits to members through their Medicare Advantage plans. These include supplemental benefit products, administration, fulfillment, and shipment of eligible product, as well as catalog development and distribution. Revenue is derived from supplemental benefit membership, supplemental benefit dollars, member utilization of the benefits and, as a result of the HealthSmart acquisition, health, wellness and diagnostic products sold through the retail channel.

Services revenue consists of:

•Technology-based Medicare plan administration services including eligibility and enrollment processing, member services, premium billing and payment processing, reconciliation and other related services. Our solutions are primarily priced on recurring per member per month fees, annual software license fees, and transaction-based fees.

•Value based payment assurance solutions, including payment tools and data analytics, that improve revenue accuracy and gaps in quality, clinical care, and compliance. Our value-based solutions are primarily priced on an annual subscription fee, shared savings or fee-based engagement. Advisory (consulting) services that support health plan operations and drive business model evolution. Our Advisory services are priced on a fixed-fee or time and materials basis.

Operating Expenses

Costs of products consist of the value of supplemental benefit products, the value of health, wellness and diagnostic products, shipping and handling costs to acquire and to deliver the product to our clients; personnel costs including salaries, wages, overtime, benefits; facility costs and overhead allocation covering information technology, telecommunications costs, and other costs specifically identified to the shipment of our products.

Costs of services consist of all costs directly attributable to service revenue generation activities as outlined in contracts with our clients. Our largest components in costs of services are personnel costs, including salaries, wages, overtime, benefits, and discretionary bonus; facility costs and overhead allocation covering information technology, telecommunications costs, and other costs needed in the delivery of our services.

Selling, general and administrative expenses (“SG&A”) include corporate management and governance functions comprised of general management, legal, accounting, financial reporting, human resource, sales, marketing, and other costs not directly associated with revenue generation activities, including those involved with developing new service offerings. SG&A includes salaries, bonuses, and related benefits. SG&A also includes all general operating expenses, including, but not limited to, rent and occupancy costs for non-revenue generating activities, telecommunications costs, information technology infrastructure, and operations costs, including software licensing costs, advertising and marketing expenses, insurance expenses, professional services and consulting expenses.

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Depreciation and amortization includes depreciation expense of property and equipment, including leasehold improvements, computer equipment, furniture and fixtures and software and amortization expense of capitalized internal-use software and software development costs, customer relationships, acquired software and certain trade names.

Transaction related costs and restructuring charges include professional services incurred in connection with public company readiness costs, expenses for corporate development such as mergers and acquisitions activity, due diligence costs, going private costs and restructuring charges such as severance costs.

Other Income (Expense)

Other Income (expense) is primarily composed of:

•Interest income. Interest income consists of interest on cash and cash equivalents.

•Interest expense. Interest expense consists of accrued interest and related payments on our outstanding term loans and revolving loans, as well as the amortization of debt issuance costs associated with our debt. Interest expense also includes interest on our sales tax accrual.

Results of Operations

Comparison of the Three Months Ended June 30, 2022, and 2021

The following table sets forth our results of operations for the periods indicated:

	For the Three Months Ended June 30,				Change
(in thousands, except for percentages)	2022		2021		$		%
Net revenues:
Services	$	43,828	$	42,284	$	1,544	4	%
Products	45,954		32,964		12,990		39	%
Net revenues	89,782		75,248		14,534		19	%
Operating expenses:
Cost of services	22,397		20,785		1,612		8	%
Cost of products	36,909		22,299		14,610		66	%
Selling, general and administrative	24,095		29,589		(5,494)		(19)	%
Depreciation and amortization	9,012		7,823		1,189		15	%
Transaction related costs and restructuring charges	5,754		1,556		4,198		270	%
Change in fair value of contingent consideration	—		96		(96)		—	%
Total operating expenses	98,167		82,148		16,019		20	%
Operating income	(8,385)		(6,900)		(1,485)		22	%
Other income (expense):
Loss on extinguishment of debt	—		(5,015)		5,015		—	%
Interest expense	(4,188)		(6,394)		2,206		(35)	%
Total other expense, net	(4,188)		(11,409)		7,221		(63)	%
Income (loss) before income taxes	(12,573)		(18,309)		5,736		(31)	%
Income tax (expense) benefit	2,683		5,166		(2,483)		(48)	%
Net income (loss)	$	(9,890)	$	(13,143)	$	3,253	(25)	%

Net Revenues

Services Revenue

Services revenue was $43.8 million and $42.3 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The $1.5 million increase is driven by $3.2 million attributable to customer membership base increase and $5.0 million by net new consulting projects. This is offset by a decrease of $6.7 million in discontinued contracts.

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Products Revenue

Products revenue was $46.0 million and $33.0 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The increase of $13.0 million is driven by $15.1 million attributable to the acquisition of HealthSmart and $8.4 million in new and existing client growth memberships. This is offset by a decrease of $10.5 million in discontinued contracts.

Operating Expenses

Cost of Services

Cost of services was $22.4 million and $20.8 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The increase of $1.6 million is primarily attributable to higher staffing levels to handle increased support to our existing clients, wage increases and incentives paid to agents to handle increased call volumes.

Cost of Products

Cost of products was $36.9 million and $22.3 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The increase of $14.6 million is driven by $10.5 million attributable to product costs associated with HealthSmart, $2.8 million of purchase accounting inventory step-up for HealthSmart, $0.8 million due to higher volume, and $0.5 million due to higher rates and increased shipping costs.

Selling, General and Administrative

Selling, general and administrative was $24.1 million and $29.6 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The decrease of $5.5 million is driven by $10.2 million of non-recurring going public costs incurred in 2021; offset by $1.6 million attributable to the acquisition of HealthSmart, $1.8 million higher stock compensation expense, and $1.3 million driven by higher IT, accounting, HR, and operational costs, offset by lower expected management incentive bonus.

Depreciation and Amortization

Depreciation and amortization was $9.0 million and $7.8 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The increase of $1.2 million in depreciation and amortization expense is due to the acquisition of HealthSmart and capitalization of software development programs.

Transaction Related Costs and Restructuring Charges

Transaction related costs and restructuring charges were $5.8 million and $1.6 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The increase of $4.2 million is primarily due to the costs associated with the company restructuring and costs incurred for the assessment of the Merger and going private transaction, offset by costs associated with readiness of last year’s IPO.

Other Income (Expense)

Interest Expense

Interest expense was $4.2 million and $6.4 million for the three months ended June 30, 2022, and June 30, 2021, respectively. The decrease of $2.2 million is mainly attributable to lower outstanding balances due to the pay down of the term loan from IPO proceeds; offset by the incremental term loan entered into to finance the HealthSmart acquisition. Furthermore, lower interest rates for both the term loan and the incremental term loan were also a factor.

Segment Information

Our reportable segments have been determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting. We have two reportable segments: Technology Enabled Solutions and Advisory Services. We evaluate the performance of each of our two operating segments based on segment revenue and Segment Adjusted EBITDA.

Segment Adjusted EBITDA represents each segment’s earnings before interest, tax, depreciation and amortization and is further adjusted to exclude certain items of a significant or unusual nature, including but not limited to, COVID-19 cost impacts, sales and use tax, non-cash stock compensation expense, transaction related costs and restructuring charges, acquisition bonus expense, inventory step-up, loss on extinguishment of debt, director and officer prior act liability insurance

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policy and other costs. Other includes costs such as management and board of directors fees, management service agreement termination fees, and fees associated with obtaining the incremental term loans.

See Note 17. Segment Information, to the notes accompanying our financial statements.

The segment measurements provided to and evaluated by the chief operating decision maker group are described in the notes to our financial statements. These results should be considered in addition to, and not as a substitute for, results reported in accordance with GAAP.

	For the Three Months Ended June 30,				Change
(in thousands, except for percentages)	2022		2021		$		%
Revenue
Technology Enabled Solutions	$	75,619	$	61,366	$	14,253	23	%
Advisory Services	14,163		13,882		281		2	%
Total	$	89,782	$	75,248	$	14,534	19	%
Segment Adjusted EBITDA
Technology Enabled Solutions	$	8,668	$	15,877	$	(7,209)	(45)	%
Advisory Services	5,897		5,264		633		12	%
Total	$	14,565	$	21,141	$	(6,576)	(31)	%

Segment Revenues

Technology Enabled Solutions revenue was $75.6 million and $61.4 million for the three months ended June 30, 2022, and 2021, respectively. The increase of $14.3 million was mainly attributable to: (i) revenue from the acquisition of HealthSmart, and (ii) existing client growth of membership base accounts.

Advisory revenue was $14.2 million and $13.9 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $0.3 million was primarily driven by new projects within our existing client base.

Segment Adjusted EBITDA

Technology Enabled Solutions Segment Adjusted EBITDA was $8.7 million and $15.9 million for the three months ended June 30, 2022, and 2021, respectively. The decrease of $7.2 million was primarily attributable to higher staffing levels to handle increased support to our existing clients, wage increases, higher product costs, and increased shipping costs due to continued supply chain constraints and inflationary pressures. The decrease is offset by the contribution from the HealthSmart acquisition and higher volume.

Advisory Segment Adjusted EBITDA was $5.9 million and $5.3 million for the three months ended June 30, 2022, and 2021, respectively. The increase of $0.6 million was attributable to flow through of consulting services demand and higher utilization of our consultants.

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Comparison of the Six Months Ended June 30, 2022, and 2021

The following table sets forth our results of operations for the periods indicated:

	For the Six Months Ended June 30, 2022				Change
(in thousands, except for percentages)	2022		2021		$		%
Net revenues:
Services	$	90,308	$	85,811	$	4,497	5	%
Products	96,182		72,069		24,113		33	%
Net revenues	186,490		157,880		28,610		18	%
Operating expenses:
Cost of services	47,873		44,806		3,067		7	%
Cost of products	74,145		48,826		25,319		52	%
Selling, general and administrative	47,308		49,690		(2,382)		(5)	%
Depreciation and amortization	17,264		15,194		2,070		14	%
Transaction related costs and restructuring charges	6,395		2,642		3,753		142	%
Change in fair value of contingent consideration	—		96		(96)		—	%
Total operating expenses	192,985		161,254		31,731		20	%
Operating income	(6,495)		(3,374)		(3,121)		93	%
Other income (expense):
Loss on extinguishment of debt	—		(5,015)		5,015		—	%
Interest expense	(7,908)		(11,861)		3,953		(33)	%
Total other expense, net	(7,908)		(16,876)		8,968		(53)	%
Income (loss) before income taxes	(14,403)		(20,250)		5,847		(29)	%
Income tax (expense) benefit	3,359		6,173		(2,814)		(46)	%
Net income (loss)	$	(11,044)	$	(14,077)	$	3,033	(22)	%

Net Revenues

Services Revenue

Services revenue was $90.3 million and $85.8 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The $4.5 million increase is driven by $4.6 million attributable to customer membership base increase and $0.2 million by net new consulting projects. This is offset by a decrease of $0.3 million in discontinued contracts.

Products Revenue

Products revenue was $96.2 million and $72.1 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The increase of $24.1 million is driven by $22.3 million attributable to the acquisition of HealthSmart and $1.8 million for net new clients and existing client growth of memberships.

Operating Expenses

Cost of Services

Cost of services was $47.9 million and $44.8 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The increase of $3.1 million is primarily attributable to higher staffing levels to handle increased support to our existing clients, wage increases, and incentives paid to agents to handle increased call volumes.

Cost of Products

Cost of products was $74.1 million and $48.8 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The increase of $25.3 million is driven by $15.6 million attributable to product costs associated with HealthSmart, $4.7 million of purchase accounting inventory step-up for HealthSmart, $2.0 million due to higher volume, and $3.0 million due to higher rates and shipping costs due to supply chain constraints.

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Selling, General and Administrative

Selling, general and administrative was $47.3 million and $49.7 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The decrease of $2.4 million is driven by non-recurring IPO costs incurred in 2021; offset by $2.6 million attributable to the acquisition of HealthSmart and $2.1 million driven by higher IT, accounting, HR, and operational costs, offset by lower expected management incentive bonus.

Depreciation and Amortization

Depreciation and amortization was $17.3 million and $15.2 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The increase of $2.1 million in depreciation and amortization expense is due to the acquisition of HealthSmart and capitalization of software development programs.

Transaction Related Costs and Restructuring Charges

Transaction related costs and restructuring charges were $6.4 million and $2.6 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The increase of $3.8 million is primarily due to the costs associated with the company restructuring and costs incurred for the assessment of the Merger and going private transaction, offset by costs associated with readiness of last year’s IPO.

Other Income (Expense)

Interest Expense

Interest expense was $7.9 million and $11.9 million for the six months ended June 30, 2022, and June 30, 2021, respectively. The decrease of $4.0 million is mainly attributable to lower outstanding balances due to the pay down of the term loan from IPO proceeds; offset by the incremental term loan entered into to finance the HealthSmart acquisition. Furthermore, lower interest rates for both the term loan and the incremental term loan were also a factor.

Segment Information

Our reportable segments have been determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting. We have two reportable segments: Technology Enabled Solutions and Advisory Services. We evaluate the performance of each of our two operating segments based on segment revenue and Segment Adjusted EBITDA.

Segment Adjusted EBITDA represents each segment’s earnings before interest, tax, depreciation and amortization and is further adjusted to exclude certain items of a significant or unusual nature, including but not limited to, COVID-19 cost impacts, sales and use tax, non-cash stock compensation expense, transaction related costs and restructuring charges, acquisition bonus expense, inventory step-up, loss on extinguishment of debt, director and officer prior act liability insurance policy and other costs. Other includes costs such as management and board of directors fees, management service agreement termination fees, and fees associated with obtaining the incremental term loans.

See Note 17. Segment Information, to the notes accompanying our financial statements.

The segment measurements provided to and evaluated by the chief operating decision maker group are described in the notes to our financial statements. These results should be considered in addition to, and not as a substitute for, results reported in accordance with GAAP.

	For the Six Months Ended June 30,				Change
(in thousands, except for percentages)	2022		2021		$		%
Revenue
Technology Enabled Solutions	$	158,785	$	130,949	$	27,836	21	%
Advisory Services	27,705		26,931		774		3	%
Total	$	186,490	$	157,880	$	28,610	18	%
Segment Adjusted EBITDA
Technology Enabled Solutions	$	21,038	$	32,253	$	(11,215)	(35)	%
Advisory Services	11,221		8,602		2,619		30	%
Total	$	32,259	$	40,855	$	(8,596)	(21)	%

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Segment Revenues

Technology Enabled Solutions revenue was $158.8 million and $130.9 million for the six months ended June 30, 2022, and 2021, respectively. The increase of $27.8 million was mainly attributable to: (i) revenue from the acquisition of HealthSmart, and (ii) existing client growth of membership base accounts.

Advisory revenue was $27.7 million and $26.9 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $0.8 million was primarily driven by new projects within our existing client base.

Segment Adjusted EBITDA

Technology Enabled Solutions Segment Adjusted EBITDA was $21.0 million and $32.3 million for the six months ended June 30, 2022, and 2021, respectively. The decrease of $11.2 million was attributable to higher staffing levels to handle increased support to our existing clients, wage increases, higher product costs, and increased shipping costs due to continued supply chain constraints and inflationary pressures. The decrease is offset by the contribution from the HealthSmart acquisition and higher volume.

Advisory Segment Adjusted EBITDA was $11.2 million and $8.6 million for the six months ended June 30, 2022, and 2021, respectively. The increase of $2.6 million was attributable to flow through of consulting services demand and higher utilization of our consultants.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are our existing cash and cash equivalents, cash provided by operating activities and borrowings available under our Credit Agreement. As of June 30, 2022, we had unrestricted cash and cash equivalents of $19.7 million, and as of June 30, 2022, our total indebtedness was $270.4 million.

We are a holding company that transacts substantially all of our business through our operating subsidiaries. Consequently, our ability to pay dividends to stockholders, meet debt payment obligations, and pay taxes and operating expenses is largely dependent on dividends or other distributions from our subsidiaries, whose ability to pay such distributions to us is restricted, subject to certain exceptions, pursuant to the terms of the Credit Agreement. Covenants contained in the Credit Agreement may restrict our operating subsidiaries from issuing dividends and other distributions to us.

Our principal liquidity needs have been, and we expect them to continue to be, working capital and general corporate needs, debt service, capital expenditures and potential acquisitions. Our capital expenditures for property and equipment to support growth in the business were $3.3 million and $4.2 million for the six months ended June 30, 2022, and 2021, respectively. Additional expenditures for software development were $2.3 million and $2.8 million for the six months ended June 30, 2022, and 2021, respectively.

We believe that our primary sources of liquidity, including our cash and cash equivalents, cash provided by operating activities and borrowing capacity under our Credit Agreement, will be sufficient to meet our liquidity needs for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of additional indebtedness, the issuance of additional equity, or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control.

Cash Flows Information

The following table presents a summary of cash flows for the periods presented:

(in thousands)	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Net cash used in operating activities	$	(13,772)	$	(21,073)
Net cash used in investing activities	$	(80,224)	$	(6,251)
Net cash provided by financing activities	$	74,971	$	3,298

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Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022, was $13.8 million compared to $21.1 million of net cash used in operating activities for the six months ended June 30, 2021.

Net loss was $11.0 million for the six months ended June 30, 2022, as compared to $14.1 million net loss for the six months ended June 30, 2021. The net loss for the six months ended June 30, 2022 is attributable to: (i) costs incurred for the HealthSmart acquisition including a $4.7 million purchase accounting inventory step-up and $0.7 million of additional transaction related costs, (ii) going private costs of $4.1 million consisting of legal and financial advisory costs, (iii) restructuring charges of $1.1 million consisting of severance costs, and (iv) higher labor costs and higher freight costs driven by supply chain constraints. Non-cash items were $26.3 million for the six months ended June 30, 2022, as compared to $17.4 million for the six months ended June 30, 2021.

The effect of changes in operating assets and liabilities was a cash decrease of $29.1 million for the six months ended June 30, 2022, as compared to a cash decrease of $24.4 million for the six months ended June 30, 2021. The most significant drivers contributing to this net decrease of $4.7 million relate to the following:

•An increase in accounts receivable when compared to the prior period; and

•Higher cash used on inventory purchases when compared to the prior period.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2022, was $80.2 million compared to $6.3 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, net cash used in investing activities was primarily attributable to the HealthSmart acquisition.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2022, was $75.0 million compared to $3.3 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, net cash provided by financing activities was primarily attributable to net proceeds from the incremental loan established in February 2022 to finance the HealthSmart acquisition and pay fees and expenses related thereto.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of June 30, 2022. The principal commitments consisted of obligations under outstanding operating leases for office facilities, finance leases related to copy machines, our long-term debt, and purchase commitments. The amount of the obligations presented in the following table summarizes as of June 30, 2022, the commitments to settle contractual obligations in cash for the periods presented.

	Payments Due by Period
(in thousands)	Total		Less than 1 year		1-3 Years		4-5 Years		More than 5 years
Operating leases for facilities	27,876		3,324		17,345		4,467		2,740
Finance leases	910		315		595		—		—
Long-term debt obligations(1)	270,436		390		2,340		267,706		—
Purchase commitments	14,058		14,058		—		—		—
Total contractual obligations	$	313,280	$	18,087	$	20,280	$	272,173	$	2,740

________________________

(1)Includes the term loan under our Credit Agreement.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any off-balance sheet arrangements, as defined in Regulation S-K promulgated by the SEC.

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Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, income, and expenses and related disclosures of contingent assets and liabilities. We base these estimates on our historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results experienced may vary materially and adversely from our estimates. Revisions to estimates are recognized prospectively.

During the six months ended June 30, 2022, there were no material changes to our critical accounting policies and use of estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Use of Estimates” included in our Form 10-K for the year ended December 31, 2021. The following discussion supplements our Critical Accounting Policies and Use of Estimates Policy for Goodwill as it relates to the interim goodwill impairment test performed as of March 31, 2022.

As a result of the decline in our stock price for the three months ended March 31, 2022, we performed an interim impairment test for goodwill for APA, SBA, VBPA and Advisory reporting units using the quantitative approach as of March 31, 2022. Since HealthSmart was recently acquired, no impairment test was performed on that reporting unit. Based on our evaluation performed, we determined the fair value of each of the reporting units exceeded its respective carrying amount, and therefore, we determined that goodwill was not impaired at any of our reporting units as of March 31, 2022. Our stock price increased during the three months ended June 30, 2022, and it was not considered an indicator of impairment as of June 30, 2022.

Evaluation of goodwill for impairment requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of the fair value of each reporting unit. We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash flow analysis, and a market approach, using market multiples. Under the income approach, we estimate projected future cash flows, the timing of such cash flows and long-term growth rates, and determine the appropriate discount rate that reflects the risk inherent in the projected future cash flows. The discount rate used is based on a market participant weighted-average cost of capital and may be adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected future cash flows. Under the market approach, we estimate fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. The assumptions and estimates used in determining the fair values of the reporting units contain uncertainties, and any changes to these assumptions and estimates could have a negative impact and result in a future impairment.

Recent Accounting Pronouncements

See Note 2 to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.

Emerging Growth Company Status

Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies.

We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are subject to market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Financial instruments that are exposed to concentrations of credit risk primarily consist of accounts receivable. We do not require collateral or other security for

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receivables, but believe the potential for collection issues with any clients was minimal as of June 30, 2022, based on the lack of collection issues in the past and the high financial standards we require of clients. As of June 30, 2022, two clients accounted for 10.2% and 16.7% of total accounts receivable.

Interest Rate Risk

As of June 30, 2022, we had cash of $19.7 million deposited in non-interest bearing accounts at a major bank with limited to no interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage interest rate risk exposure.

The current administrator of LIBOR will cease to publish the overnight and 1, 3, 6 and 12 months USD LIBOR settings immediately following the LIBOR publication on June 30, 2023 and has ceased to publish all other LIBOR settings, including the 1 week and 2 months USD LIBOR settings, since December 31, 2021. The discontinuation, reform, or replacement of LIBOR may result in fluctuating interest rates, or higher interest rates, which could have a material adverse effect on our interest expense.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2022.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Previously Disclosed Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed in our Form 10-K for the year ended December 31, 2021, we identified the following material weaknesses in our internal control over financial reporting:

•We did not design and maintain an effective control environment commensurate with the financial reporting requirements of an SEC registrant. Additionally, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain formal documentation of accounting policies and procedures nor did we maintain sufficient evidence to support the operation of key control procedures. Specifically, we did not design and maintain controls to ensure (i) the appropriate segregation of duties within our financial reporting function, including the preparation and review of journal entries and (ii) account reconciliations and balance sheet and income statement fluctuation analyses were reviewed at the appropriate level of precision.

•We also did not design and maintain effective controls over IT general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privilege access to financial applications, programs, and data to appropriate Company personnel.

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These IT deficiencies did not result in a material misstatement to the financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected on a timely basis. Accordingly, management has determined these deficiencies in the aggregate constitute material weaknesses.

These material weaknesses resulted in adjustments in our 2019 and 2020 financial statements primarily related to revenues recognized from contracts with customers that were recognized in the improper periods, the accrual of certain compensation related costs, and the misstatement of income tax benefit related to the treatment of certain deferred tax positions. The material weaknesses described above could result in misstatements of our account balances or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.

Remediation Efforts to Address Material Weaknesses

With the oversight of the Audit Committee of our Board of Directors, we have designed and are implementing a remediation plan to remediate the material weaknesses described above. Accordingly, our remediation activities include the following measures:

•We implemented in the first quarter of 2022 a new Enterprise Resource Planning (“ERP”) system, Workday, to replace legacy and decentralized financial reporting systems. We have also standardized our account reconciliation and analysis process and will leverage our ERP implementation to centralize our controls over journal entries. In addition, we are in the process of refining appropriate segregation of duties and system access within our ERP and other relevant supporting systems.

•We have formalized several of our financial reporting policies and procedures and will continue to reflect evolution of the business and the impact of the new ERP.

•Provide ongoing training for individuals involved with internal control over financial reporting.

We continue to monitor the effectiveness of our remediation efforts and will refine our remediation plan as appropriate. In addition, we report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis. While we believe these efforts will improve our internal control over financial reporting and address the underlying causes of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented, and we have concluded that our controls are operating effectively for a sufficient period of time.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are a party to various legal proceedings incidental to the conduct of our business. The results of legal proceedings are inherently unpredictable and uncertain. We are not presently party to any legal proceedings that we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels. We periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels for the proceedings and claims described in the notes to our condensed consolidated financial statements could change in the future.

Regardless of the outcome, legal proceedings have the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

On August 2, 2022, the Company received a demand from a purported stockholder of the Company, Christopher Beuer, pursuant to 8 Del. C. § 220 (the “Demand Letter”) to inspect books and records of the Company relating to, among other things, the Company’s entry into the proposed Merger with Commodore and the TPG Stockholder. On August 9, 2022, the Company replied, offering to meet and confer with the stockholder's counsel to negotiate an appropriate production in response to the Demand Letter, while reserving all rights. On August 10, 2022, the purported stockholder filed a complaint in the Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”).

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 23, 2022, except as noted below.

The consummation of the Merger is subject to a number of conditions, many of which are largely outside of the control of the parties to the Merger Agreement, and, if these conditions are not satisfied or waived on a timely basis, the Merger Agreement may be terminated and the Merger may not be completed.

The Merger is subject to certain customary closing conditions, including: (i) the absence of an order, injunction or law restraining, enjoining, rendering illegal or otherwise prohibiting consummation of the Merger; (ii) subject to customary materiality qualifiers, the accuracy of the representations and warranties contained in the Merger Agreement, including the representation that the Company has not suffered a “Material Adverse Effect” (as defined in the Merger Agreement) since December 31, 2021; and (iii) performance in all material respects by the parties to the Merger Agreement of their respective obligations thereunder. The failure to satisfy all of the required conditions could delay the completion of the Merger by a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause the parties to the Merger Agreement to not realize some or all of the benefits that are expected to be achieved if the Merger is successfully completed within the expected timeframe. There can be no assurance that the conditions to closing of the Merger will be satisfied or waived or that the Merger will be completed within the expected timeframe or at all.

Failure to complete the Merger could adversely affect our stock price and business, results of operations or financial condition.

There can be no assurance that the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed. If the Merger is not completed within the expected timeframe or at all, our ongoing business could be adversely affected and we will be subject to a variety of risks and possible consequences associated with the failure to complete the Merger, including the following: (i) we will incur certain transaction costs, including legal, accounting, financial advisor, filing, printing and mailing fees, regardless of whether the Merger closes; (ii) under the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to the closing of the Merger, which may adversely affect our ability to execute certain of our business strategies (iii) we may lose key employees during the period in which we and the TPG Stockholder are pursuing the Merger, which may adversely affect us in the future if we are not able to hire and retain qualified personnel to replace departing employees; and (iv) the proposed Merger, whether or not it closes, will divert the attention of certain of our management and other key employees from ongoing business activities, including the pursuit of other opportunities that could be beneficial to us. If the Merger is not completed, these risks could materially affect our business, results of operations or financial condition and stock price, including to the extent that the current market price of our common stock is positively affected by a market assumption that the Merger will be completed.

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While the Merger is pending, we are subject to business uncertainties and certain contractual restrictions that could adversely affect our business, results of operations or financial condition.

In connection with the pending Merger, some of our customers, vendors or other third parties may react unfavorably, including by delaying or deferring decisions concerning their business relationships or transactions with us, which could adversely affect our revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. In addition, due to certain restrictions in the Merger Agreement on the conduct of business prior to completing the Merger, we may be unable (without Commodore’s prior written consent), during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial and may cause us to forego certain opportunities we might otherwise pursue. In addition, the pendency of the Merger may make it more difficult for us to effectively retain and incentivize key personnel and may cause distractions from our strategy and day-to-day operations for our current employees and management.

Litigation against us, Commodore, the TPG Stockholder, or the members of their respective boards, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.

It is a condition to the Merger that no court or other governmental authority of competent jurisdiction shall have enacted, announced, issued, promulgated, enforced or entered any order, injunction or law that is in effect that restrains, enjoins, renders illegal or otherwise prohibits consummation of the Merger. On August 2, 2022, the Company received a demand from a purported stockholder of the Company pursuant to 8 Del. C. § 220 to inspect books and records of the Company relating to, among other things, the Company’s entry into the proposed Merger with Commodore and the TPG Stockholder. On August 9, 2022, the Company replied, offering to meet and confer with the stockholder's counsel to negotiate an appropriate production in response to the Demand Letter, while reserving all rights. On August 10, 2022, the purported stockholder filed a complaint in the Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the DGCL. As of the date hereof, no other demands have been made and no other complaints have been filed but it is possible that additional demands may be made and additional complaints may be filed by our stockholders challenging the Merger. The outcome of any such demands and complaints and any litigation ensuing from such demands and complaints cannot be assured, including the amount of fees and costs associated with defending these claims or any other liabilities that may be incurred in connection therewith. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed therewith upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated at all. Whether or not any plaintiff’s claim is successful, this type of litigation can result in significant costs and divert management’s attention and resources from the closing of the Merger and ongoing business activities, which could adversely affect our operations.

Uncertainty about the Merger may adversely affect the relationships between us and our customers, vendors and employees, whether or not the Merger is completed.

In response to the announcement of the Merger, existing or prospective customers, vendors and other third party relationships of ours may delay, defer or cease providing goods or services, delay or defer other decisions concerning us, refuse to extend credit to us, or otherwise seek to change the terms on which they do business with us. Any such delays or changes to terms could materially harm our business.

In addition, as a result of the Merger, current and prospective employees could experience uncertainty about their future with us. These uncertainties may impair our ability to retain, recruit or motivate key management and technical, manufacturing, and other personnel.

If the Merger is not consummated by December 20, 2022, either we or Commodore may terminate the Merger Agreement, subject to certain exceptions.

Either we or Commodore may terminate the Merger Agreement if the Merger has not been consummated by December 20, 2022. However, this termination right will not be available to a party to the Merger Agreement if that party failed to comply with its obligations under the Merger Agreement and that failure was the primary cause of, or has primarily resulted in, the failure to consummate the Merger on or prior to such date. In the event the Merger Agreement is terminated by either party due to the failure of the Merger to close by December 20, 2022 or for any other reason provided under the Merger Agreement, we will have incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities and ongoing business activities without realizing the anticipated benefits of the Merger.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index below.

Exhibit Number	Exhibit Description
2.1 ^	Agreement and Plan of Merger, dated June 20, 2022, by and among Commodore Parent 2022, LLC, Commodore Merger Sub 2022, Inc., and Convey Health Solutions Holdings, Inc. (Incorporated by reference to Exhibit 2.1 of Form 8-K, filed by Convey Health Solutions Holdings, Inc. on June 21, 2022 (File No. 001-40506)).
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).

________________________

*    Filed herewith

**    Furnished herewith.

^ All schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon its request.

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Signatures

Pursuant to the requirements of the Securities Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

		Convey Health Solutions Holdings, Inc.
Date:	August 12, 2022	By:	/s/ Stephen C. Farrell
			Name: Stephen C. Farrell
			Title:   Chief Executive Officer and Director
			(Principal Executive Officer)
		Convey Health Solutions Holdings, Inc.
Date:	August 12, 2022	By:	/s/ Timothy Fairbanks
			Name: Timothy Fairbanks
			Title:   Chief Financial Officer & Executive Vice President
			(Principal Financial Officer)

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