Great, we'll go ahead and kick it off. Thank you for coming to the Canaccord Genuity Growth Conference. I think it's 44 years now, so we appreciate your support. I'm Richard Close. I cover digital health and tech-enabled services. We're excited to have Waystar here, Matt Hawkins, CEO of Waystar. It's their first investor event post the IPO, I believe, the June IPO. And then a strong second quarter report out of the gates. Just a little background on Waystar.
In 2017, I believe it was November two sort of fresh technology companies, Navicure, down in, Georgia, near Atlanta, and ZirMed in Louisville, merged, and it sort of became, Waystar, eventually rebranding as, Waystar. It's really, I consider it a leading provider of next-generation revenue cycle solutions for both physician practices as well as hospitals and health systems. So Matt, congratulations on the IPO- and thanks for joining us and supporting, the Canaccord Conference.
Thanks, Richard.
So for today's time, you know, I really wanted to cover who Waystar is, Get a better feel of that. Hit on cybersecurity, obviously that's a hot-button topic. GenAI, and then patient payments a little bit, 'cause that's a relatively new business of, for Waystar. Just pick your brain on insourcing versus outsourcing. and what's going on there in the healthcare marketplace, and then we'll hit on the financial model. Hopefully, we'll get to all that. So, w ith that being said, you know, you reported last week, last Wednesday, obviously a good report out of the gates, as I mentioned.
You know, we'll dive deeper into some of this, but just, you know, if you gave us the you know, two highlights, two or three highlights from the second quarter, what investors should take away from the report, and again, we'll get into the meat and potatoes.
Okay, great. Well, first, it's great to be here. It's our first, as Richard said, it's our very first time that we've shown up as a public company at an investor conference. So thank you. I've known Richard for a number of years, and I'm grateful for the just to know you. So thank you for the chance to visit. We did post, as our inaugural opening quarter, it's nice to get it under our belts. We posted 20% revenue growth year-over-year, and 12% EBITDA growth year-over-year, with strong free cash flow. So we're pleased with that. We're a software company purpose-built for healthcare, and we've very intentionally, since the fall of 2017, when we formed Waystar, we've been on a mission to simplify healthcare payments.
And as you likely know, that's a very involved process, as we help providers interact with both insurance companies and increasingly with patients. And we're doing that with modern cloud software. Our financial model is constructed in a way to be very durable, visible, and so Q2 was a testament to that. I'd also add that it was just a thrill to be able to go through the IPO process and involve our team members across our business, and to celebrate them and their many contributions to help us create a special company.
Okay, that's great. So let's dive in a little bit deeper, like, what you guys do. So, you know, maybe describe some of the products. You have a pretty broad portfolio, so if you could just hit on some of the products that you have, and then maybe the TAM that you're addressing. What differentiates you? There's a lot of revenue cycle vendors. What really differentiates the company? That would be helpful, I think, to better understand.
Perfect. So, I'll indicate a couple things. First, when we formed Waystar, we put, as Richard said, two companies together, one called Navicure and one called ZirMed. And that's when I joined. I helped Bain Capital do a little bit of confirmatory diligence at the time on ZirMed, and we were really impressed with the cloud-based architecture of the ZirMed business. And as we looked at the U.S. healthcare marketplace, we saw what the Wall Street Journal had referred to at the time as the supersizing of American healthcare, where provider organizations were consolidating, they were buying physician networks and other non-acute and post-acute sites of care to form these integrated delivery networks.
Our thesis, all the way back in 2017, in forming Waystar, was to take this cloud-based platform, a software platform that ZirMed had architected so well, and then use that as the chassis, so to speak, to build out an end-to-end software platform that these increasingly complex and sophisticated provider organizations could use to simplify their healthcare payments. So, like a software company, a good software company would do, we had a product roadmap, and we started at one end of this payment complexity.
You think about how providers initially work to engage with the patient and understand the patient, whether or not they have insurance eligibility... all the way to the other end, where they're working to collect from provider, excuse me, from payers, insurance payers, as well as from patients. And we just started to build software and then acquire solutions that we could add to and integrate completely with the Waystar software platform. So this is a large addressable market. It's about $15 billion a year, and growing about 5% a year.
So we're growing into this addressable market opportunity with the software that we have to offer to provider organizations today, to help them simplify all of the insurance interactions, and then use that insight from the insurance interaction exchange to also bring clarity to and create a more elegant provider-patient interaction. And, you know, we, we like what we're building, and, providers tell us that. And so it's a large market opportunity for us, and, we're very focused on, building momentum in the, in the space.
So, I think my knowledge in interacting with Navicure and ZirMed dates back to 2009 or so. And, you know, back then, they had new technology, right? And was gaining share taking market share, I guess, back then. You know, one of the things in going through the IPO process and talking with investors, that is not, like, really fully understood, I think, and we've seen it, some examples of it that we'll get into later. But, like, you know, the tech-- there's pretty decent technology adoption for the most part in revenue cycle. A lot of point solutions and, and whatnot, but there's a lot of old technology.
Can you just talk a little bit about, like, what Waystar has and then, you know, maybe what's out there now in the marketplace?
Sure. So, Waystar is a modern architected, you know, multi-tenant, single database, software application. We have a beautiful user interface and experience. It's modern, it's intuitive, there's in-app training and prompts. There's AI running in the background to automate work, to prioritize tasks, to reduce the likelihood of error that occurs in any one of these steps. So there's software that's doing so much work, and what we're finding is that we're able to address this very fragmented marketplace. It's a fact that in the U.S. healthcare system today, where we spend $4.3 trillion a year, there's the American Medical Association estimates that there's over $750 billion of administrative waste.
And a lot of that is in pursuit of helping provider organizations get paid. The reason for that waste is you have old legacy solutions, antiquated on-premise software. You even have homegrown Microsoft Excel-based solutions, that have been self-developed, or even manual work that we have the opportunity to replace with very modern software. And I think there was incentive and motivation for providers to begin to use software. Some of that was facilitated by Meaningful Use and by the HITECH Act, and we saw a lot of EHR adoption.
I think there's now this effort, and there's this realization, I think, as providers are really seeking operating efficiency: How do I do more with less? How do I take care of more patients and have utilization in our system and do it with the same number of resources? And the only way to really do that effectively is with modern software.
And that's our, that's where we start, and that's where we come in.
Can you talk a little bit about the efficiency and the value that your customers get because it is cloud-based, and you know, I think you've talked about a certain number of iterations and, per quarter, and, you know, payers don't necessarily wanna pay. So, just go into a little bit how you help the client. Customer.
Thank you. There's multiple ways we're helping the clients. Part of it is, as providers interact with insurance companies, you can appreciate this, that it used to be, years ago, where if a provider was using on-premise software, and some of them still are, they were getting... There are rules and there are things that govern the provider-payer interactions. If that network of interactions isn't kept up to date, if it's not modernized and treated like a normal network should be, then as soon as it's dated, then you create inefficiency.
You know, it takes 60-90 days for a provider to get fully resolved in their interactions with the payer because payers are changing rules. They're changing what they're going to reimburse. They're changing codes that they'll accept, et cetera, and there are thousands of those occurring every year.
And so if a provider organization has to wait for 60 days to get an updated rule, it's. Then they're getting claims denied. They're not following up appropriately with patients, and there's this just negative, vicious cycle that occurs. It's a fact that in the United States, 17% of all claims are still getting denied. And so we see that, and we have our approach is to have this cloud-based rules engine, where every rule that governs our network is embedded on the platform. So we deliver a first-pass claim acceptance rate, which measures network efficiency, of nearly 99%. And so because of that, and because of all the work that our software does, we're statistically reducing the likelihood that a claim gets denied. We're increasing payment. We're delivering, you know, compressing time to payment.
We tell people we help them get paid faster, more fully, and more efficiently than ever before. That's one big operating efficiency that we deliver. The other is around labor. You know, you think about how much staff turnover occurs in a provider organization, a large hospital, or, you know, a group of orthopedic surgeons practicing together. When someone walks out the door, all that institutional knowledge leaves, unless the knowledge is resident somewhere else. And so we put a lot of knowledge in the software itself, and so we're able to deliver another form of efficiency in the form of we're helping these providers' staff use the software effectively, and where it does require work, we're prioritizing tasks for them with the software, and it's very helpful.
That's good that you added that. I didn't have that in my subjects here to cover. I do want to move from this old technology, new technology to cybersecurity. You know, two big events so far this year. First, we had the Change Healthcare, which Change is now part of UnitedHealth. And then, you know, soon after that, Ascension. But, you know, it was interesting to hear the UnitedHealth Group CEO in front of Congress, you know, just mention, like, old technology, and referring to Change Healthcare. So we could spend a couple hours talking about cybersecurity, but, you know, I'm curious your thoughts in terms of the benefit the company has had, Waystar, from the cyber situations.
You definitely called it out, on your first conference call. Maybe talk a little bit about the near term, what's happened, and what you're expecting, you know, here, the rest of the year in 2024, and then longer term.
Okay. So when the attack occurred on Change Healthcare on February 21st, obviously that was a very traumatizing experience for certainly Change, and we wish them health and wellness soon, you know, as they work to recover, but also thousands, if not millions, of providers. So we were grateful to be in a position where we could help providers very rapidly be able to move from Change to Waystar. We established some guidelines right at the outset. We said: Look, we want to be very helpful, and but we're not gonna compromise our business practices to do some temporary work.
So we said: We want people to sign a normal Waystar agreement, which tends to be a multi-year, auto-renewing agreement. So the vast majority of the more than 30,000 providers that we helped move to the Waystar platform, that we called out in our earnings material, have signed, you know, a standard agreement with us, and we believe those relationships will be enduring. I've talked about, you know, this a number of times, as you know, but really, I see this in phases.
For us, phase zero was the fact that we already had strong win rates that we've highlighted in our IPO materials, about, you know, competing against incumbent competitors, and we feel good about how we're lined up there. We like to compete. We respect our competition, but we don't mind competing at all. But, you know, when this cyberattack occurred, we see, you know, that phase one, where it's just this urgent work, we were able to help thousands of providers.
We were able to also do it very rapidly. So, we accelerated kind of the natural course of software implementations, and we were able to help large hospitals, smaller organizations, medium-sized organizations, move as rapidly as within three days to the Waystar software platform. And now, as we kind of move past that urgent phase, and we enter this longer, call it multi-quarter, perhaps multi-year phase, there's agitation in the market. People are still kind of. That have stayed with that clearinghouse from the competitor, they're still kind of limping along in some aspects.
And so we hear that, and a number of them are going out to RFPs, and we're getting invited to participate in those, which we're grateful for. And I think the next period of time will be characterized as kind of, larger organizations thinking through their options, and we hope that Waystar can be a productive option for them.
Okay, that's helpful. So you had mentioned electronic health records and Meaningful Use. So there was, you know, obviously significant investment in that over the years. And it, you know, maybe revenue cycle technologies, you know, providers decided not to replace those, at that time. So do you think the cyber events is going to accelerate the rip and replace and, or at least technology evaluation in terms of, you know, potential reducing the risk?
We do see that as an important decision criteria. Obviously, cybersecurity attestation is very important. It's. We're all impacted by it, so being able to demonstrate cybersecurity is paramount when we're having conversations with decision-makers. We do see that. We've been able to demonstrate that, we've been, you know, able to help these providers very rapidly move to the Waystar software platform with minimal to no disruption, and so people have been encouraged by that. And I think there's this awakening that is occurring, where people are saying.
"Hey, I don't have to stay on this incumbent dated solution. I can move forward. And, you know, we're watching that pretty closely, but we see it as opportunity. And, you know, we're focused on cybersecurity. We focus on preventative aspects of cybersecurity. You know, all sorts of modern techniques. We attest through HITRUST and SOC 2, and even the NIST, you know, 2.0 modern framework, which is an important form of attestation, preventative attestation, and then also rapidly restoring. In the event, heaven forbid, that something would occur, I think one of the things that was really detrimental to providers was that the Change clearinghouse stayed down, and for many weeks and months.
And, you know, we think about measuring restoration in hours and, you know like, not weeks. And so, how do you reduce the cost, heaven forbid, if an event occurred? And us having conversations with decision-makers along those lines, we think has been very helpful.
Is that the first question you get when you walk in the door now?
We prepare proactively material to highlight that. And if not the first question, I think top of mind to provider decision-makers tends to be: Help me get operating efficiency, can you attest for cybersecurity, and can you help me get access to the payments I deserve to get paid for? And, and, it's a function of those three things. And we also like our platform approach. So the last thing I'd say from a cyber perspective is, you know, point solutions, we talk to all sorts of organizations that are using, gosh, more than 5 point solutions just to address their revenue cycle, sometimes far more than that.
I was with a CIO in a large state, couple quarters ago, and she was managing well over 10 instances of point software, just for the revenue cycle portion. And so they're wanting more of a platform approach, and because it's. In a way, it's at least can point to one organization that can attest for cybersecurity, not having to manage several. And so I think that's becoming an important aspect of this as well.
And then you have two, two-way authentication, or?
We do. We do multi-factor authentication. We do end-to-end point encryption. We do all sorts of stuff internally to containerize access to our platform, and then secure it on the other side as well.
Good, good to hear. Let's move on to AI, and you have a relationship with Google Cloud. I mean, there's other provider or companies, R1's talking about GenAI. And so tell us what you guys are doing, how real is it? What's the potential opportunity, for Waystar on that front?
Well, we've been longtime deployers of AI on the software platform already. Given that we work with over 1 million providers across all the different care settings, we're processing over 5 billion insurance transactions that represent over $1 trillion of gross claim charges on our platform today. We think we're naturally positioned to also be able to harness the power of generative AI. As you all know, large language models tend to benefit from large data sets. Our data is all on a single database and has been since we first started processing insurance transactions, so we, we like what we're doing.
We're not taking a pie-in-the-sky approach and a, you know, come-lately to the party approach. We've been doing this for a while, and we've identified specific use cases in this set of processes that ultimately result in an accurate, efficient, and timely payment. And we're just focused on those things and automating those, and then we'll move to the next. And we like the work that we're doing with Google.
Okay. When should we see potential positive impact?
Well, what I'd say is, we haven't disclosed that, so I have to be a little careful. You can imagine we track everything internally. But what, what I would say is, thematically, we believe that the work we're doing will result in more automation more prioritization and organization of work, and it's more accurate. Those are the early results that we've seen are kind of a 5x improvement in productivity or automation, which is exciting across the different use cases, and more accurate than a human can produce. So we like that, and that will be very value-creating when we can talk about specific dates.
Okay, great.
So, we look forward to that. So let's shift to patient payments. It's a painful experience for all of us. I know, my practice in Nashville uses Phreesia for the scheduling and whatnot, but I think it's Allscripts or something. on the back end for payments, and there's this website, and I have to enter all this, you know, E-I-O-U, whatnot, patient code and invoice code, and it's a pain in, you know what. So what are you doing on the patient payment side? You know, the out-of-pocket or the patient responsibility is continuing to grow. It's, you know, a problem. It's probably a majority of bad debt for providers.
Talk a little bit about what you guys are doing to make our lives easier on patient payments?
Our whole approach is to completely integrate the patient payment capability right with the insurance payment processing. So we're developing tremendous insight based on, again, the 5 billion insurance plus transactions we're processing every year. We know with a high degree of accuracy what the estimated patient payment and remaining financial responsibility is. And interestingly enough, patients want to know. They wanna know upfront. It's not, right now, the scariest thing to a patient is they don't know until 60 or 90 days later.
They've all been conditioned to wait until insurance fully adjudicates before they engage. And provider organizations have not been historically equipped to be collection agencies following up individually with patients. "Hawkins, did you pay your bill? Can you pay us now?" So what we're seeing is, we've had this software, we call it the Waystar Patient Wallet. We're educating providers on how to fully harness the power of it, and it's really encouraging. We're seeing 30 percentage point lifts in patient payment collection rates.
We're seeing you know, 80% rates of self-pay, so patients are self-paying when they're using the software. We're putting the vast majority of patients on a plan, so to speak, using our software, when they actually... We tokenize the credit cards that we put on file, and then it just hits the credit card or the HSA card, and so it's delighting them. We see Net Promoter Scores of as high as 60%, or 60, excuse me, and faster time to payment is the fourth thing I was gonna highlight. We're seeing a 40% increase in, or decrease in time to payment.
That's great.
So it's really exciting, and we think that there's a lot we can do to help make a more modern, patient payment experience.
That's helpful. I do want to spend a little time. I would classify you guys as more an insourcer, right? Your technology is being used by the health systems, physician practices, but there's outsourcing as well. R1 that I cover, I mentioned earlier, going private, but, you know, Conifer, the other ones. Can you talk a little bit about the dynamics of, like, a health system choosing to do it themselves versus outsourcing, and just talk about that.
It's rapidly evolving. So I think historically, there was two decisions that a decision-maker could make. They could choose to outsource all of it, to say, "I don't want to deal with this. I'm just gonna outsource it to an R1, a Conifer, an Ensemble, or many other BPOs." Or they could choose to go the insource route, and the experience, I think, has varied over the last 20 years. I think we're at a point where we've never had more technological capability than we do right now, and we're actually able to showcase the demonstrable return on investment, the sustained return on investment that these organizations can achieve, and so we think the ball game has shifted.
We think the ball game is, now we have a compelling software platform that provider organizations can choose to insource and use and get the long-term benefit of. Now, the good news is, is even when they choose to outsource, we're grateful to partner with R1 and, and, Ensemble and Conifer, and, and many others who are using our software or elements of our software platform behind the scenes to do the service work that they've, that they've been, you know, contracted to perform for the organizations.
And then you've also partnered with some of the electronic health record companies?
We do. Yeah, we have over 200 active channel partner relationships, and it's through those channel partner relationships that we're able to serve basically all the different types of providers across the field, where you think, well, they have the practice management or the EHR in these channel partnerships. They're bringing Waystar software in as a natural companion to them, and we grow with them, we help them grow and get access to their client base. And we're, we think that, you know, we're delivering an average of 300 feature improvements every quarter on the software platform, innovations every quarter.
And so we tell folks that you can future-proof the use of your payment platform by using Waystar, because we integrate so effectively to these channel partners, these large EHRs, like, you know, the Epics and Cerner and MEDITECH as well. So, we like how we're positioned there. We're not trying to be an EHR. We just can be focused on, helping those providers process payments more.
So in our last minute here, too, let's just talk about the financial model a little bit. Just remind us what your targets are, maybe for this year and longer term. We know it's a recurring revenue model, so.
Well, I'd like to just emphasize that. It is a recurring revenue model. We're a software company, purpose-built for healthcare. Highly durable, visible revenue. We start every year with the vast majority of our revenue in sight, and we like that. We target low double-digit revenue growth and sustaining that, and we target an Adjusted EBITDA margin of about 40%. So we think that's a great place to be. We're developing operating efficiency in our business as we grow top line, as we compound growth on our platform, and then reinvest some of the efficiencies that we gain back into innovation and growth and things like cybersecurity.
And so those are our targets, but we produce strong, free cash flow. I think through the proceeds of the IPO, we were able to de-lever quite a bit. Today, we sit at about 3.4 times a leverage ratio, and we naturally de-lever over the course of any given year, about a full turn a year. So, that's our financial profile, and we believe that our purpose-built software for healthcare will be something that can grow and be trusted by provider organizations, strong revenue retention, and we like how we're lined up. Can you sustain those 40% margins with gen AI investments, you know, cyber-?
That's our target. You know, we on an annual basis, our target's about 40%, and we pick up operating efficiencies as we do more digital, digitization of some of the work that we provide providers, and so some of that gain, we are just reinvesting, and we've operated the business for many years at that 40% range.
Awesome.
Yeah.
Well, congratulations.
Thank you.
Thank you for coming.
Yeah. Thank you, all.