Excellent. Even him? Good, good to go?
Good to go.
Excellent. Okay. Well, hey, good afternoon, everyone. Welcome to day one of the Barclays TMT conference. My name is Saket Kalia. I cover software here at Barclays. Honored to have the team with us here from Waystar. We've got Matt, Matt Hawkins, CEO. Also have Sue Dooley, head of investor relations there in the audience, as well, so we've got about 30 minutes together. I'd love to lead some fireside chat here for 20 or 25 minutes 'cause I know that's gonna be fun here with Matt.
Thank you.
And then we'd love to make this interactive. So anyone that's got a question, just pop up your hand. We'll make sure we circulate the mic for the benefit of the webcast. So with that, Matt, thanks so much for being here.
Thank you. I'm grateful to be here. It's been a fast year since we were here together last.
Yeah, yeah. I know. A lot of good stuff that's happened too, so.
Yeah.
And I definitely wanna jump into that. But maybe for those of us that are less familiar with the company, could you just maybe start with an overview of Waystar and, as part of that, maybe recap some of the points from last quarter that you were most proud of to just make sure we're all on the same page?
Absolutely. Waystar is a cloud-native software platform that's purpose-built to help healthcare providers as they interact with insurance companies and also as they interact with patients to help those providers get paid faster, more efficiently, and more accurately than they ever have before. We serve 1 million providers, more than a million providers across our platform, including 17 of the top 20 hospitals and health systems in the United States today, and we help them connect to every insurance company, including the government forms of insurance, Medicare and Medicaid, across the United States, and those providers are reaching approximately 50% of the U.S. patient population, and we're deploying AI on our platform as we serve these more than a million providers to help them bring efficiency and help them automate tasks that historically have been manual for a long time.
We're helping to bring automation and insight and productivity to these provider organizations. And our mission is taking hold. We've been public now since June of 2024. We now have had our sixth consecutive quarter of revenue and EBITDA beat above the consensus, the analyst consensus. Our business is performing well, and we have a sense of conviction in our business. In fact, we updated our full year 2025 guidance for 2025, more than the revenue and EBITDA beat in Q3. So we're thrilled with that.
So, a real beat and raise.
A real beat and raise. The midpoint of our guidance reflects $1.09 billion of revenue and is about 12% revenue growth year- over- year. So we're really a Rule of 50 business because we're producing greater than 40% Adjusted EBITDA margins and converting a majority of that to free cash flow. And that allows us to do a number of good things.
Boy, I talked to our companies that are aspiring to Rule of 40, and here I've got one at Rule of 50, so that's a great highlight.
Thank you.
I wanna dig into some of the points that you mentioned just around the contours of the business, like your acquisition of Iodine. But before we do that, right, I'd love to maybe do a little bit of a mini teach-in or a mini one-on-one here.
Sure.
For tech investors just on the revenue cycle management space 'cause I think it's not a space that necessarily a lot of tech investors are following. So, you know, as I've spent time with the company, folks in the industry really talk about front end, right? Front end, mid-cycle, back end, revenue cycle management.
Yes.
Maybe what would be really helpful is, you know, all of us have gone to a physician, a doctor, or some sort of medical professional.
Yeah.
Maybe you can just walk us through an example. You know, let's say I go see my primary care physician for an annual checkup. Maybe you could just walk us through what are some of the key tools that Waystar provides in that process in terms of what's front end, what's mid-cycle, what's back end, taking us from sort of the appointment all the way to reimbursement.
Perfect. Yeah. Great setup. So, we can relate to this, right? So Waystar's workflow platform is organized to help the provider understand who the patient is on the front end. They understand who that patient is and their financial ability to pay. For many patients, that means they have some form of insurance. It might be commercial insurance through their employer. It might be Medicare or Medicaid. Waystar has software and uses that that uses AI to automate the insurance eligibility verification process. We also detect insurance coverage. Think about the nobility of this and humanity of this. We detect insurance coverage for a patient when they show up, and they may not even know if they have access to healthcare insurance or not.
So we've got AI working across our more than six billion insurance transactions that we're processing annually to scan for whether or not a patient might be eligible for insurance coverage. We're then helping the provider interact with the payer before they see the patient, especially if the health service is known, the provider may need to get authorization from the payer to perform a certain health service. If it's an MRI or a complex laboratory test or something like that, they'll need to get insurance authorization, something that's referred to as prior authorization on that front end to know whether or not the patient is going to be insured for that service or to get approval from the payer. So we do all of that in a highly automated way. Historically, all of that's been done very manually in a very cumbersome way.
So we're bringing efficiency and automation to that. In the middle part of the revenue cycle, that really kicks in when a provider has an encounter with a patient. You can probably picture this in your minds, but historically, the provider might see the patient and go their whole day and then at the end of the day try to remember exactly what did they do with that patient and try to account for it in the patient's clinical record. Oftentimes in the clinical chart, there are unstructured clinical notes where they either remember or perhaps there's a physician assistant scribing in the clinical chart real time if they happen to be attending the patient in that provider visit. But there, therein is the middle part begins.
Typically, historically, the middle part is where the source of a lot of manual work, agitation, and any clinical inefficiency begin to occur, the source of where a claim could get denied. In fact, 60 million claims get denied beginning somewhere in that middle part of the revenue cycle. Waystar has a solution that we just acquired through Iodine that takes unstructured clinical information and using AI begins to filter and improve that information so that on the other side of that, a patient discharge information is cleared and understood using accurate diagnostic codes that then can also be used to create an accurate claim, and that automating that process with software and AI, which we do, is unlocking tremendous value for providers and for patients.
On the back end of the revenue cycle then, we're processing insurance claims, and we're doing it at scale. Again, we're processing 6 billion insurance claims annually that constitute nearly $2 trillion of gross claim charges, and we're doing it with market-leading first-pass claim acceptance rates that are nearly 99% across our entire platform, so while we're talking about this one patient example, imagine us seeing approximately 50% of the U.S. patient population that's flowing through Waystar software at some point in their year, and we're helping to bring tremendous efficiency to that provider, transparency to the patient. On the back end, not only are we processing the claim accurately, in the case where a claim might get denied, we're helping the provider to again use AI tools to automatically appeal that denied claim and have those denied claims get overturned, and our results are remarkable.
We're having tremendous success, and it's a prime use case for GenAI, by the way, to create automated appeal letters that are leveraging clinical information and administrative health-plan-level information to help the provider overturn that denied claim, and that helps the patient, and it helps the provider. It brings fairness to this historically imbalanced system. The last thing I'd say is we offer an integrated patient payment suite, so using all of the insurance knowledge that we have, we're informing what the patient financial responsibility is with AI-driven insights about what their co-payment is, what their deductible, their remaining portion of their payment is reflecting the deductible balance that might be due.
So we're doing a bunch of these things on our platform from front, middle, to back, and we're bringing unprecedented efficiency to this process in healthcare that historically has been very cumbersome and has resulted in nearly $400 billion a year of administrative waste.
So, I mean, what I take away from that is that we've got a really complete platform. I think Iodine's gonna add to that, right?
Yes.
Which we'll touch on in a second.
Yes.
but also there's a lot of opportunity for automation, right, which is where I'm sure we're gonna talk a little bit about AI in discussion as well.
Yes.
But maybe another foundational question I wanna ask again, just for the benefit of our tech investor audience. I mean, Waystar's business is about 50/50 subscription and volume-based revenue. We'll call that pre-Iodine, right? We'll layer in Iodine in a second.
Sure.
But sometimes when software investors hear volume-based, they immediately think not recurring. So maybe you could sort of share what, you know, with us maybe the visibility that you have into that volume-based line, if you will.
You bet, so we have exceptional visibility to our revenue growth. In fact, our long-term organic revenue growth target is low double digits, and we've exceeded that every quarter that we've been public and have great confidence and conviction in our business model as we look ahead to the future. As you noted, 50% of our revenue today is subscription on a per provider per month kind of model, and the types of clients of ours that use that per provider per month subscription tend to be the types of doctors that practice in 10 to 20 to 50 doctor groups. Think orthopedic surgeons that are practicing together, cardiologists, primary care physicians.
Those that take advantage of our volumetric-related contractual relationship with us, they tend to be larger hospitals where a better measure of activity in those hospitals tends to be the number of patient visits that they have that tie to an insurance transaction or something that Waystar could help process for them, so typically in those relationships, rather than a per provider per month subscription, we create a volumetric-type relationship where there are volume minimums, and then on top of that, there are volume overages. We get great visibility to all of those volumes because they're processed. We're processing that insurance transaction or those transactional volumes through our software every single day, and they're very predictable. We start each year with about 98% visibility on future year's revenue opportunity.
So the go get tends to be small and, with you know, coming from new clients that we add. And that gives us confidence in the business that we're building. A portion of the volumetric side of our business, again, approximately 50/50, but about 30% of the volumetric side of our business is patient payment dollar volume related. So again, as I highlighted a moment ago, we offer an integrated patient payment solution on our platform. That's really helpful for providers, and it's helpful for patients to help them understand what their financial responsibility is going to be. And of that 30%, that is a take rate relationship. So for every dollar we process, we have a modest take rate on that dollar volume that we process. And again, great visibility to that.
We like the secular trend there because as you likely know, more and more patients are participating in high deductible health plans that require them to pay out of pocket and meet their deductible, which typically resets every January, and you know, they fulfill that deductible as they visit doctors or hospitals throughout the year, and so we like the nature of our business model. Yeah.
Highly predictable.
Yeah. Absolutely. Maybe to put a bow on sort of that volumetric part of the business, I think one of the things that Steve mentioned on the Q3 call was that healthcare utilization has been elevated, it seems like, for the better part of the past year. Again, maybe for us tech investors that aren't following your end customers as closely, what do you look at to sort of get reads on how utilization is trending and how should we maybe relatedly, 'cause you talked about sort of the move to high deductible plans, which is very topical, but how should we be thinking about the seasonality in that volumetric part of the business? Yeah. So, a lot to unpack there. Let me say this.
The utilization. Waystar starts in our growth algorithm. We start with an assumption that ties to a 60-year historical trend, which is that utilization increases about 1%-2% every year. Utilization's a measure of how much patients are visiting the providers. Our business model is fine-tuned to help providers address utilization and to see patients. That's where we start. 1%-2% is what we conservatively model. We've seen that in higher utilization years that tends to mean patients are seeing the provider more or sooner in the year. If they're participating in a high deductible health plan, then they're coming out of pocket to pay for their healthcare sooner. That's what we've noted this year.
Given higher utilization, as a patient meets their deductible, there tends to be some seasonality in the second half of that starts in the second half of the year. And of course, we prudently or conservatively model that, and the Q4 guidance that we gave suggested that our Q4 growth reflecting the patient payment seasonality would be about 8% before it resets on January 1st and we go back to our kind of normal growth.
Absolutely.
We did that, but we also updated our guidance for 2025 too. So we feel good about our business.
Absolutely.
So hopefully that's helpful.
Yeah. That's really helpful, actually. I wanna shift gears to AI a little bit.
Sure.
Right? Because it's clearly been topical for all of our application software companies. But I also think it's particularly topical in your end market because revenue cycle management is so process-oriented. As you described, that was the reason why I wanted to go through kind of the.
Thank you.
Your different parts of the revenue cycle management process. So maybe, Matt, you could just talk to us about what generative or agentic AI looks like for Waystar in the next couple of years, perhaps leveraging some of what you walked us through in terms of the different parts of the workflow.
Sure.
Maybe we'll start there.
Thank you. Yes. We foundationally believe that Waystar will be a long-term winner in the AI race in revenue cycle, and we've got a number of things that we're doing that are competitively differentiating, and let me start, so Waystar is primarily focused on leveraging AI to automate some of these tasks that have been manually performed. We've conditioned over a million providers and end users that we serve to consume AI that we've been delivering for over a decade, to do some of the work that I described it as bringing insight or automation or prioritization of work on this workflow platform that we have. We have a tremendous amount of, you know, billions of administrative data elements, and now with Iodine, Iodine's processing through its software as we unite that and put that onto the Waystar software platform.
Iodine's processing about 34% of all patient discharges that occur in the United States today. So a tremendous amount of clinical data. So just foundationally, we believe that data is in Waystar's data foundry, if you will. That's proprietary data that Waystar has access to, to train and fine-tune our LLMs and AI models to further automate, to further bring insight to and further delight our clients. And as we've conditioned them to consume AI, and as we deliver more of it, that it fits intuitively into how they think about the work that they do, we believe Waystar will be a long-term winner. We think the winning solution, you know, as LLMs are important today, the winning solution will really be those that have access to the most relevant and proprietary data.
That's where Waystar, you'll see as we unite Iodine with Waystar, this tremendous data foundry with billions of data elements that we'll train our AI models on, we'll deliver real value. We're already doing that today. We've announced at the start of 2024 several GenAI-based capabilities that we've launched to our clients. They're seeing tremendous efficiency gain in the world of preventing denied claims, much more, much more rapidly doing far less work, deploying autonomous generative AI to gather content and information that will help us automate the prior authorization, for example. On the other side of that, when a claim does get denied, we're using GenAI capability to automatically draft appeal letters that can then be submitted.
And we're doing that with better accuracy than a human can produce, in moments, not hours and days to gather and write those appeal letters. So we're doing some remarkable things there. And I'm pleased to report, we mentioned this a few weeks ago that we have a very robust pipeline of opportunity as we look ahead in our business, with a record number of RFPs that we're participating in, with strong win rates, with tremendous sales activity. I alluded to the fact then, but I'd like to share it with you today, that a portion of the sales pipeline of opportunity, that we've closed year to date, these are bookings that we've won, have come from these new AI modules that we've sold.
And I'm pleased to report that 31%, more than 30% of all of our bookings that we've closed year to date have come from a new AI solution. So Waystar's delivering AI capability that increasingly will impact our business model. And we believe we're very well positioned to win because of the proprietary data that we'll use to train the LLMs. And we think that's the long-term winning strategy in this game.
Wow. 31% of year-to-date bookings is.
Yes.
Is a heck of a ramp in the short term.
You can, if you were to look at our qualified pipeline of opportunity that, again, is very robust, you'd see, you know, a nice mix of new clients that we're going after, cross-sell opportunities that we're going after, where AI is playing an increasing role in the opportunities that we're and the dialogue that we're having with prospects and with clients. We're very encouraged by the work that we're doing.
Yeah. Absolutely. I mean, it's funny for, you know, I've got a lot of coverage companies that are kind of talking about AI very conceptually, but, you know, in an industry like healthcare where you can actually drive real dollars, real value.
Mm-hmm.
That's great to see. You know, maybe the follow-on question there is, how do we monetize it? Right? Because.
Mm-hmm.
You provide so much value to the healthcare industry. I mean, is this something where we can command maybe higher pricing for?
Mm-hmm.
Is it a separately billable SKU? How do we? And there are multiple ways that you can monetize.
Mm-hmm.
But I'm just kind of curious, what's been the main driver of that 31%?
Certainly we sell everything on an ROI-based, you know, concept. We're turning AI hype into this ROI reality discussion with clients. As we think about monetization, I think there are four ways that we think about monetizing the AI benefit that we're delivering to clients. The first is certainly elongating relationships with clients. As we infuse more GenAI capability into existing software SKUs, and they're consuming that, we're creating enduring retention with clients. We have fabulous gross revenue retention already at 97%, but in creating elongating, that's a great starting point. Again, as we infuse AI capability into our current software modules, there's a chance to reflect pricing to value there. We typically have an annual price increase program that averages about 3% today.
And we'll, without disclosing more on from a pricing perspective, we expect to be able to price AI solutions to the value that they're delivering. And we know they're delivering real value. Third, you mentioned new SKUs. We're excited about the new SKUs that we're launching and the value that they will bring, and we'll have the chance to price those to value as well. And then the fourth thing I'd say is not necessarily a commercialization effort, but more of an internal one. Internally, we've identified more than 100 AI use cases where we can use AI internally to delight clients and create market-leading client experiences. We're already really good at that. We have market-leading Net Promoter Scores that exceed 70. And we're thrilled with how we delight our clients. But we're also able to create operating leverage.
You know, we have a long-term EBITDA margin target of 40% today, Adjusted EBITDA margin target of 40%. You've seen us the last couple of quarters exceed that. We've been at 41%-42%. I think you're starting to see some of the impact of some of the operating leverage that we're creating. My goal for our team is, given the market moment and the opportunity to continue to drive growth and innovation, let's run the business at 40%, even though we know we could run it at higher than that. Let's create operating leverage through some of this AI use cases that we know are creating value. And then let's use those incremental identified OpEx resources to invest back in the business to drive further innovation and further growth and delight our clients.
Yeah. It's funny, you know, I used to co-cover a company that would have a saying of, well, we would spend our way to our margin target. Right? And it sounds like a very, very similar concept.
We say, yeah. Invest.
Invest our way to our margin target. Absolutely. Absolutely.
Yeah, but we will be disciplined in how we think about the whole thing.
Absolutely. And that's definitely shown. I wanna wrap up with some financial questions here in a second, but I think that AI point was really interesting. Any questions here before we move on? Maybe just to move to a couple of financial questions here for you, Matt.
Sure. Yeah.
I mean, clearly this has been a strong year for growth. I think we've seen growth year-to-date in the mid-teens.
Yes.
Versus what we've seen historically, kind of in the low double-digit growth, which, you know, you've just been so consistent with since the IPO. It's obviously early to guide to 2026. I'm not looking for a guide, but what are maybe some of the puts and takes that you want us thinking about from a growth perspective as we go into next year, high level?
Thank you. Yes. We have seen year-to-date growth about 14%. We're thrilled with that. That's above our low double-digit kind of revenue growth target for good reason. The business is creating value for our clients. And again, our full year 2025 target that we've shared is 12%. I think, you know, what we would highlight to investors is that our long-term growth target is organic low double-digit revenue growth. And things that influence that are our ability to launch and deliver new capabilities. As I just mentioned, we're doing that, and our provider clients are beginning to buy those solutions, and we'll implement those solutions and create value and be able to price to value appropriately. Driving cross-sell on our platform. It's an incredible cross-sell opportunity.
We could more than double the size of our company if we didn't add another client, and we just sold the existing software solutions that we have to those clients. We could more than double the size of our business, so that's another thing that can inflect growth. The third is, as we think about this exciting acquisition and as we unite it with Waystar, what we identified in Iodine that stands out to us is not only it philosophically very aligned with us as we think about AI market leadership, but they have 151 clients that represent over 1,000 hospitals. Waystar serves well over 1,000 hospitals, and on a combined basis, we serve 17 of the top 20, but as we look at the Venn diagram of their group of clients and ours, there's about a 35% overlap.
One of the things that could really inflect growth as we think about it is how quickly can we begin to cross-sell Waystar solutions to Iodine clients and Iodine solutions to Waystar clients?
Waystar. Right.
And then, of course, you know, there's other factors that we look ahead to with confidence: the robustness of our pipeline, our continued strong win rates, the fact that we see great sales activity, and we're creating tremendous client referenceability. I'd highlight the fact that every spring and every fall, we do an innovation showcase. It's available on our website. You can see previous ones on our website where we're highlighting areas where Waystar is using AI to solve a real market problem in healthcare. We're showing how our AI works. And then we're showing a client testimonial, a live person talking about how they're getting value from using our solution. And so I'm generally excited about the momentum that we're creating in the business. And you know, we've seen some of the stuff going on recently in our stock price.
It feels like there's misunderstandings that I'm working to correct. And I hope you have a sense of confidence in what I feel in our business. And the silver lining is I think there's a good buying opportunity right now for Waystar.
Yeah. No, I wanted to ask you about that point about where you think the disconnect might be. But we hit on that. Maybe the last question I wanna ask on then is on capital structure. You know, I think we financed the Iodine deal with a combination of debt, equity, and some cash on the balance sheet.
Mm-hmm.
Ever since the IPO, we've just done a really good job of steadily delivering the balance sheet.
Thank you.
Should we expect to continue to see sort of, you know, as you and the board kind of think about capital allocation, should we sort of expect to see a similar pace of delivering or anything else that you want us to know on capital allocation?
Our business produces tremendous free cash flow. This year, I think we've averaged greater than 80% of Adjusted EBITDA to free cash flow conversion. So we deliver about.
That's quality.
A full, full turn a year.
Yeah.
And we did more than that. Our rate was more than that the first five quarters we were public. So, we're grateful for that. That, I think, puts us in a strong position. Our strong cash flow production gives us optionality, and we'll continue to be very disciplined as we approach all options on the table. So, to continue to deliver, to use our cash for other things, you know, as we evaluate the strength of our business and some of the opportunities we see in the market.
Done, excellent. Well, there's so much to talk about there, but I think that's about all the time that we have left. Matt, Sue, thanks so much for being with us here today.
Thank you so much.
Really enjoyed it. Yeah.
Great to see you so much.
Absolutely. Same here, Matt.
Yeah. Thank you.