Waystar Holding Corp. (WAY) Earnings Call Transcript & Summary

Well, great. Thanks so much, everyone, for being here. My name is Adam Hotchkiss. I cover the emerging software space here at Goldman. Really thrilled to have Matt Hawkins, CEO of Waystar, here with us today. Matt, thanks so much for being here. for your first time.

Yes, my first Goldman Tech Conference. I'm grateful to be here. Thank you.

Fantastic. I guess for those in the room, I know you obviously have a health care angle to you. So for those in the room who are a little bit less familiar with what Waystar does and what you're trying to build at the company, maybe just give a brief overview of the history, your role at the company and then maybe help us understand the software angle a little bit here.

So I'm Matt Hawkins. I'm the CEO of Waystar. I spent most of my career in and around software. And a lot of that has been private equity backed. I've worked with private equity firms in leading portfolio companies for them with Vista Equity Partners and Bain Capital. And I came to this opportunity in 2017 with Bain Capital, and I helped form Waystar with a really great team of people in the summer fall of 2017. And I'll tell you a little more about that. But essentially, what we did is we brought 2 really impressive revenue cycle technology businesses together. One of them had been backed by Sequoia Capital, a business called ZirMed. It had architected and built this great cloud-native software platform. And we thought to ourselves, let's combine ZirMed with a business called Navicure, which we did in the fall of 2017. We formed Waystar then. And our first test was to unite all the Navicure clients onto what we call the Waystar software platform. It was the ZirMed great cloud-native tech stack. And we did that. And as we did it, we discovered, gosh, this cloud software is very extensible. We can add capability to it. It delighted clients. It was a really great user interface, and we could also do it without disrupting their workflow of operations. What Waystar does to get to the second part of your question, Adam, is we help health care providers get paid from all different types of insurance companies and also from patients. We help them get paid faster, more accurately and more efficiently than ever before. We're going after a tremendously large addressable market that is fraught with inefficiency and errors and manual services. And as we work to create cloud software that deploys AI on our platform, we have now created a really strong track record of delighting our clients with modern software and disrupting the status quo that has persisted in health care for a long time.

Yes. One of the things, Matt, I think I underappreciated when I first started looking at your business was what the legacy operations look like, how fragmented the technology solutions are almost to the point where we were seeing a reversal of all of the other sort of on-prem to cloud or services to cloud transitions that we had seen in software where you had a bunch of fragmented technology and there were decision-makers at hospitals saying, "I now want to go and do services." And it was a backward-looking situation. It's really surprising for me. So maybe distill that a little bit for people who are less familiar with your industry. And then with that backdrop in mind, where do you think Waystar is positioned? And how do you convince folks who didn't enjoy the fragmented situation to look back at technology?

Sure. A couple of facts for the group here. In health care, in the United States, on the administrative side of care, there's approximately $450 billion of administrative waste that occurs every year. The industry is fraught with denied claims. It's fraught with manual work and services that take too long. There are staffing shortages, hospitals and other health care providers are constantly trying to train new staff. And as we formed Waystar, what we observed on top of all this was that provider organizations in the U.S. were consolidating to form integrated delivery networks or health systems. And you guys have observed this where hospitals were buying other hospitals, they're buying physician sites, post-acute, non-acute sites of care to form these integrated delivery networks. That was exacerbating this administrative complexity of helping these providers understand how they were going to get paid from insurance companies and trying to collect from patients. And so we came along and we observed that there wasn't really any enterprise caliber or scaled modern platform to serve the needs of these increasingly complex organizations. And we said, let's get to work. What we did see, to your point, Adam, was a bunch of legacy incumbent software, some of which have been in place for 20 years. We saw a bunch -- and we still do see a bunch of homegrown solutions. And sometimes decision-makers, they tend to be a little more risk adverse in health care because on the clinical side, patients' lives are on the line. And on the administrative side, they're operating at such low operating margins that cash flow becomes super important. So we come along now, we deploy our software. We've created over 1 million providers that are now using Waystar software every day. Hundreds of thousands of those people in those organizations are using Waystar software for the majority of their workdays to streamline and reduce the friction in the payment process. And our proposition, quite frankly, to these decision-makers is a very strong ROI use case. a minimal disruption, if no disruption to their business. And we can deploy our software because it is cloud-based very rapidly. And so we're creating a lot of interest and momentum in the business.

Okay. And maybe in addition to the administrative waste, talk a little bit about the gap in what hospitals are receiving from insurance companies versus what they should be? And how you bridge that gap versus maybe others in the market?

Okay. It's another statistical fact that there are still 450 million denied claims a year. Approximately 17% of every claim that a hospital or other providers submit initially get denied and sent back to the provider for rework. So Waystar, when these providers use Waystar software, the denial rate that they experience drops substantially. Part of that's because we use a cloud-based rules engine that governs our network, and we help providers accurately and successfully submit claims with a first pass claim acceptance rate that's nearly 99% across our entire network. So we're coming along with something completely new and novel and allowing them to reimagine the way they use software that leverages AI on our platform. And you get large impressive provider organizations like the Cleveland Clinic telling us when they began to use our software, they were experiencing denial rates, they were experiencing a low first pass claim acceptance rate as they self-reported in the low 90s. So when they went to work with us where it was nearly 99% right out of the box, they said, you're helping us reimagine what's possible. We're minimizing the gaps. We're helping them find more revenue. We're helping them find it much faster. We're helping them collect from patients as well because given our insurance knowledge, we process over 6 billion insurance transactions every year that constitute over $1 trillion of gross claim charges. So because we do that, we algorithmically can understand what the patient's financial responsibility is oftentimes before the patient even sees the provider. And we're helping to shape behavior where providers can present to the patient before they receive care, here's what your estimated financial responsibility will be. We have an integrated patient payment capability on our platform. And we're helping kind of reduce the gap in the patient payment rate as well. Sometimes and we might all experience this in one form or another as patients ourselves or if we know someone who is, we oftentimes don't even get bills in the mail until 60 or 90 days post care, right? That makes it very hard for a provider to collect once it's that old. And they're not equipped to collect. So our software helps kind of reduce that gap and reduce that burden, too.

Yes. In a lot of ways, you sit in a really unique position in a classic vertical software sense where you utilize AI to effectively help you with things like patient payments and improving things at point of sale and also with providers, right? And so when you think about -- and this is what other vertical software companies are doing from a moat perspective. When you think about your moat, right, versus other Gen AI opportunities out there, how do you think about what that looks like? And in particular, how do you think about what that looks like given the risk aversion of buyers in your space?

Sure. We -- it's a fact that even since inception when we formed Waystar, one of the things we admired all the way back when we saw those 2 companies that we brought together was the cloud software from the ZirMed side was using some form of basic AI even then. So it had smart fields and doing some simple machine learning to prioritize work or to automate certain tasks. And so now as we've expanded the use of that platform to over 1 million providers, we've basically conditioned end users to be able to consume AI sometimes it's invisible to them. It's worked at tasks that have been automated and prioritized for them. So they're consuming it today. And as we have a relationship with Google, we launched at the start of 2025, something that we call AltitudeAI. It's Gen AI capability that we begin to embed in certain software modules across the Waystar platform. And we think our competitive moat is a couple of things. One, we have a very engaged end user group that's using our software and conditioned to consume AI and they trust us. The platform is very cybersecure. We're doing all the things we can to attest to those things, cybersecurity protocols. We have a massive data set. and that we're constantly training our foundation models on as we introduce more and more Gen AI capability. And what we're excited about is our platform is a learning platform. It's not the static platform that only gets updated a couple of times a year. We're delivering hundreds and hundreds of feature improvements to our clients every quarter. And so they're used to that. In a way, we're future-proofing their use of our software as we deliver them more and more AI capability versus some static monolithic software application. That probably will die over some certain period of time. We like what we're doing. And with the acquisition of Iodine, something we haven't necessarily talked about yet, we're uniting one of the largest financial or administrative data sets with from Iodine, one of the largest clinical data sets that we'll use to continuously train and teach our platform. So we create this learning model that we expect to be able to deliver the AI platform of the future for revenue cycle or even revenue management within health care.

Yes. The word that was escaping me in my last question was rules-based engines. I think whenever we see rules-based engines being used in so many different use cases, it feels like there is a particularly large percentage of workflows that can be augmented by AI. Is that something you think is true across your platform and in your space as well?

It's a great prompt, Adam, because we do have a cloud-based rules engine. And one of the things that we do, it's a classic use case for the use of AI is we're going out and gathering using Gen AI, health plan claim rule updates Also, we're scouring CMS for CPT code changes and updates. There's thousands of changes that are occurring in a very dynamic way in health care. And so because we have this rules engine that is a learning engine, we like to say every transaction we process makes us incrementally smarter, and we're delivering that value to our clients. And so we're excited about the deployment of autonomous AI, some agentic AI capability, where we do, in some cases, keep humans in the loop where they oversee certain things to make sure that it meets their standards or what they expect. And we think we're very early in a very exciting run as an AI platform of the future for health care.

Okay. Very helpful. I want to pivot into the business and growth drivers. And I'll just start this open-ended, right? You've talked about this business being a 10%-plus growth business, and you far exceeded that since you came public. Talk about what you're seeing from that perspective. I know you had a cyberattack at a competitor that drove some business to you. But even after -- and now that we've lapped that a year later, you still managed to reaccelerate the business last quarter, lapping that. And so talk a little bit about, I guess, the drivers for the first couple of quarters as a public company and then maybe more recently, what you're seeing as well.

Thank you for acknowledging that. Yes, we've had 5 consecutive quarters of double-digit revenue growth above our long-term growth rates. I think it starts for us, we're going after a very large addressable market. The conservative strictest definition of that market is a $15 billion a year of replacing legacy software market. But what we're really going after is all of the manual services work. The BPOs that serve health care today would say that's a $100 billion-plus market. So we start there and we say, for every AI application or capability that we can offer that eats into that service work, then we're expanding this massive addressable market opportunity. So we love the momentum that we're building. We delight clients with the use of our software. We have very strong ROI and Net Promoter Scores and client satisfaction. That tends to show up for us in referenceability and new sales. It shows up in cross-sell and upsell referenceability as well. And it ultimately shows up in us creating enduring very sticky relationships with our clients. When you look at our growth algorithm, you start with gross revenue retention that has lasted for -- been consistent for the last several years of 97%. And our net revenue retention pre-public has averaged somewhere between 108% and 110%. So as a prudent young public company, we think, well, we talked about low double-digit revenue growth. But since we've been out, we're -- we've exceeded that by several percentage points. Early on, it was the Change Healthcare clients that were impacted by that cyberattack that we've been able to rescue and help put on the Waystar software platform. And more recently, it's just consistent delivery of our solutions and driving growth to new clients and cross-selling others.

Yes. I wanted to touch on in the most recent quarter in particular. And I think this is one of the most remarkable things is you -- again, you lapped this event and yet accelerated growth. And I think you talked about, in particular, a couple of client -- large clients that you were pulling forward implementations for in the quarter. And so maybe what is driving that incremental level of interest in your business? And then how should we think about the sustainability of that as we go forward? Because your guidance does imply some deceleration in the back half and you have sort of talked us to normalization in revenue growth to more normalized levels in future years. So maybe just talk about those dynamics.

Yes. I think part of the guidance is us not necessarily being able to foresee the future and also kind of balancing a little bit of prudence there. But what I would say is we did update our guidance for the full year to be above what our beat was in Q2. With respect to the call out in Q2, we did highlight that there were 3 clients that were large competitive takeaways from others besides Change Healthcare. And as they joined us, these larger clients, they tend to have 12-month plus implementation plans, not because it's difficult to implement our software, but because they have other things that they have going on in their often multisite, multi-hospital organizations. In this case, one of the things we were able to showcase is with these 3 clients, in particular, was they got into the implementation process in configuring and deploying our software, realizing how straightforward and easy it is to begin to use our software successfully that they said, let's do it all right now." And so we saw the benefit of that in Q2. And we would love for every client to do that. I mean what we've been able to educate clients with and in some ways, overcome a long-standing perception of how hard it is to install software is when we present Waystar they'll ask us sometimes, how many man years of IT staff should we procure for this implementation. And we look at each other and scratch our heads and say, well, you could take, I guess, maybe man hours. But we can configure and deploy our software with large health systems like we did during the Change cyberattack outage, we took hospitals live in a weekend. And we're able to deploy that successfully. And I think there is opportunity for us to continue to educate the market that you can deploy Waystar and not have your business operations get disrupted. And there's opportunity in front of us that way. And as we compete in a record number of RFPs that we're involved in and have a strong pipeline, you can be assured that we're highlighting that ability to deploy our software very rapidly and successfully.

And is it as simple as referenceability and being able to tell someone, look at, we implemented a very large customer that's a similar size of yours in a very short time period, and that's maybe the first time or first handful of times we've done that, and so we can prove to you that we can do that. Is it as simple as that referenceability? Or is there something else going on?

I think it really does help. Referenceability surely helps. And I'll say this, health care decision-makers, they are brilliant people in all over the world, but certainly in health care. On the clinical side, they tend to be a little more risk adverse because if they implement their own technology, it impacts people's lives. So they want to see other examples of how it works in other settings. So before they tend to be a little more risk on in that regard. On the administrative side, they tend to be a little more risk adverse because if it disrupts their cash flow or their business operations, these hospitals are operating on razor-thin margins. And so they tend to have that orientation. We've grown enough, and we have enough referenceability where we can go to clients. Let's say, it's a large health system in New York that has 20 hospitals and has a $5 billion a year net patient revenue Epic customer. We can go to them and say, guess what, we've got someone that looks like you, and they're in the Southeast, and they do $4.5 billion of net patient revenue, and they use Epic. And here's how they're deploying Waystar software to help them. And so we're finding that now we have enough of those matches and enough case studies where it really is becoming hopefully a long-term momentum shift and a market share gain element to how we approach the opportunity.

Yes. And does that actually help you catalyze RFPs in excess of what the normal replacement cycle market looks like? Because you did talk about that $15 billion software replacement market. Does you having more referenceability actually make you catalyze RFPs in excess of what a historical procurement cycle might look like for a hospital? Or is that not something you're seeing yet?

We believe that's a contributor to our seeing more elevated RFP participation for sure. We're now hearing people talk to each other and then calling us, which is a really nice phenomenon to experience as you're growing a software business. And we're grateful for that. And that plus the -- they wouldn't be referenceable if we weren't delivering a real return on investment for these organizations. And so we stand by that, and we do think that's a contributor to our growth.

Okay. And who do you compete with specifically? Is it really just a bunch of homegrown solutions or small fragmented solutions? Are there any large players we should think about in the software space? And then on the BPO side, are you actually competing with the BPOs today in that $100 billion market? Or are you helping augment them with technology as well?

Yes. It's a great question. We like to say that we don't have a competitor that's like us in the market, a cloud-based, cloud-native platform that's using AI across the platform to organize work for both the ambulatory client base, that long field of non-hospitals providers that are caring for patients as well as for the hospital base. Think about the power of that. We have one platform that can be deployed in small care settings where they may not even have a dedicated IT person and also in large sophisticated settings where they have several hospitals. So I don't know if there's anybody like us in the space. And I think that's going to give us the chance to grow. That being said, when you look at the incumbent legacy kind of providers of solutions, you would say Change Healthcare is one of those. That's the amalgamation of Emdeon and Relay Health and multiple businesses that weren't ever necessarily tightly integrated. You would also run into other competitors that have presence in only one side or the other. So you think TriZetto, primarily on the ambulatory side, Availity, which incidentally is owned by a group of payers on the ambulatory side. You have FinThrive that is mostly on the hospital side. And that's who we run into most often, and we have strong 80% or so win rates against those when we go head-to-head. We -- when you think about the BPOs and the work that they do, they have been partners of ours in the sense that they're consuming our software behind the scenes when they go to a hospital and the hospital elects to say, "Hey, I don't want to do this work myself. I would rather have the billing and collection work be done by a third party." Those third parties oftentimes are using elements of Waystar software. It's never the case that they're using all of Waystar software to be clear. We're constantly talking to them about how they can use more. In some cases, we're competing against them for certain aspects of revenue cycle work within a hospital or health system. In other cases, we're cooperating with them. They're a partner of ours. But people like Conifer and Optum and Ensemble and R1 are names that you may recognize, where we've had some form of coopetition with those type of entities. We -- more often than not as we go forward, with the way that we're deploying AI agentically or even autonomously to gather information and compress work and automate work, sometimes making it invisible to the end user. So they don't even know what's going on. They're just seeing the end result of it or reviewing appropriate data elements. We think the long-term opportunity, again, is to eat into this much larger service market with great software. And we've seen that take place in other industries and other vertical markets as well. But we believe that Waystar can be that AI-powered platform that helps providers succeed.

Okay. So you operate in the revenue cycle from sort of that initial patient touch point to patient eligibility all the way to that claims management process. You made an acquisition recently or announced an acquisition of Iodine Software, which fits the middle piece, as you said, of that revenue cycle. For those in the audience, maybe not as familiar, what does that mean? And why did you announce the acquisition?

Perfect. Yes. So just a quick grounding on what we -- when we talk about the revenue cycle, it's a series of processes or tasks that is organized in the front when a provider is trying to understand who the patient is and understand whether or not they have insurance or a form of payment. Waystar software is market-leading, market leader in helping to financially clear that patient, gather insurance eligibility information, detect insurance coverage using AI where the patient may not even know if they have access to coverage and automate prior authorizations. That's the front part. The back part is in the claims processing. Again, market leadership, first pass claim acceptance rates that are 99% across our entire network and recognized to be fast and help to dramatically reduce denials, the likelihood that a claim gets denied. We got familiar with a business called Iodine. Iodine is in the middle part, where Waystar doesn't have any competing software. And what the middle part typically reflects is the point in time where a provider is actually seeing a patient clinically. And you can probably picture this in your minds, where that provider may be seeing 40 or 50 patients a day. They're trying to keep track of all the clinical encounter information for each and every patient. Sometimes they're transcribing, sometimes they've got a physician assistant, keeping track of the notes. What Iodine does is Iodine is also cloud native. Iodine also deploys AI, hundreds of AI models that take unstructured clinical information and begin to make it more intelligent and structure it. And through their AI models, I'm kind of drawing a funnel. They begin to filter what actually shows up and create structured clinical notes that are used to create accurate codes, commonly combined codes, CPT codes, if I can use that designation, clinical codes that can be used ultimately to form and create a highly accurate claim. So with the combination of all of these capabilities, Iodine by itself, a couple of other interesting data points. They're processing over 160 million clinical encounters on -- in their software every year and work with over 1,000 hospitals. So they have this massive clinical data set. They're discharging -- like 34% of every patient in the United States right now. So one thing that I think since the announcement that we made, people are underappreciating is this really amazing clinical data set that they trust with HIPAA compliant usage, everything else that we can use to combine with Waystar's massive administrative data set and begin to train AI models to, again, constantly learn, constantly do work, identify, I can use that expression, work that has never been automated or done by another entity before. And all of a sudden, we get this opportunity to combine these businesses look to create that perfect undeniable claim where we reduce the likelihood that a denial ever occurs. And then we start talking about things that are happening in other industries for decades. But like auto adjudication, auto payment, real-time understanding of what the payment to the provider is going to be. What does that mean for a patient? What type of transparency? What type of satisfaction does that bring to a patient? How does that streamline a bunch of work and reduce a bunch of inefficiencies that exist on the administrative side of care. So we're super pumped about the Iodine acquisition opportunity. And just as we've done in 9 previous acquisitions that we've made as we've built out the Waystar software platform, we do the hard work to unite and completely integrate that capability onto the Waystar software platform so that ultimately, the end users have a very consistent, I'll say, delightful user experience. It's intuitive. It's easy. There's in-app prompts and training to guide the end users, and we'll expect to deliver the same thing as we unite iodine with Waystar.

To what degree are there limitations or guardrails around what you're able to actually do with the underlying data, whether that's anonymized or otherwise in the context of AI models to help inform the other pieces of the revenue cycle. Can you use this data at large? Are there limitations? How do you go about?

I mean we certainly have some limitations, some that are self-imposed just given our approach to being responsible and ethical in the use of information. We always appropriately anonymize information. As you would expect, we are absolutely HIPAA compliant, HITRUST Certified. And we'll always make that as a standard. So we're -- and in some cases, we have some contracts with provider organizations that limit how information can be used, and we absolutely abide by those.

Helpful. I want to switch gears a little bit in the last 5 minutes to your exposure to patient payments volumes and just visits volumes and things that are maybe separate from the minimums that are paid for your software product. How should we think about Waystar's exposure as a subscription business to these volumes, how that impacts revenue on a year-to-year basis?

Sure. I think we should basically start with an understanding of our revenue model. Approximately 50% of Waystar's revenue model today is subscription. And the primary driver of that is a per provider per month subscription. Interestingly, Iodine is also a subscription-based model. where the provider count is the best driver of value in that type of situation. We tend to offer subscription agreements to the smaller end of the market, where provider count is knowable, it tends to be the best driver of activity. So you think about the 25-person doc practice of primary care physicians orthopedic surgeons that are practicing together, they often have a subscription. Where health care is being delivered where a volumetric relationship becomes more meaningful or places like laboratories where they might be processing 5 million lab tests a year, and they have 3 providers on staff. So like we would enter a volumetric relationship with them where there's often a volume minimum that acts like a subscription. And then the way our software works is we know we have great visibility to these volumes. We know and we can update as we need to on a regular basis, like what the volume overages are, and that tends to show up in our model. Also, larger hospitals, you think about these large multisite, multi-hospital systems that -- where provider count would not be the right kind of driver of activity. It's more patient visits to your point. And as patient volumes increase, patient visits increase, we have a volumetric relationship with them. The third thing I'd call out in that other -- that 50% of our business that has a volumetric component is there's a smaller portion of that, that is patient payment related. And what we have is we have an integrated patient payment solution where Waystar is taking a take rate on the patient dollars where we put a card on file or they swipe a card or we establish a financial care plan for the patient, and we secure that, we tokenize it, of course. But where we have a -- if we're processing that payment, we have a modest take rate associated with that, and that shows up in the volumetric side of our business as well.

Got it. And we don't need to break down between the sort of payments volumes versus the visits volume. But how should we think about what sort of outlook is embedded in your numbers or your guidance or how you think about the growth of these things? I know there's been an elevated utilization environment. How much have you benefited from that? And how should we think about how that's embedded into numbers?

Yes. We take a conservative view on volume estimates or expectations. I think the long-term historical average has been about a 2% increase a year. What we're seeing today is a little higher than that. We're seeing about a 4% utilization impact the year. And part of the secular trends in health care, you see the baby boomer population going to the doctor more, et cetera. There's some tailwinds there. Waystar, -- that being said, we tend to take a conservative approach. There also is a little bit of seasonality in -- for patient payment processing, if there's a high deductible health plan, and we know more patients are participating in high deductible health plans than ever before, they tend to reset in January. And at the start of each year, they'll have a higher out-of-pocket payment responsibility, then they'll work through it over the course of the year. So we see a little bit of seasonality that starts to taper off in the back half of the year. We factor all of that in. And overall, we try to take a prudent approach to our guidance as a young public company and -- but we have a model that benefits from utilization and from usage. And we help providers successfully navigate utilization increases with less resources.

That's great. In the last 30 seconds, what are you most focused on over the next 6 to 12 months as CEO? And what are you most excited about over a 3- to 5-year time frame?

Thank you, Adam. It's great to visit with you. Successful integration of the Iodine acquisition, really starting to leverage the power of the clinical and administrative data set to continue to train these AI models to grow into that massive addressable market opportunity. That's what we're focused on and of course, delighting our clients along the way so we continue to build momentum in the business.

Okay. Matt Hawkins, thanks so much.

Thank you very much. Good to see you.

Good to see you. Thanks so much.

All right.