Waystar Holding Corp.

Welcome to the Waystar second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Sandy Draper. Chief of Staff and Vice President of Special Projects. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. It's my pleasure to welcome you to Waystar Holding Corporation's second quarter 2024 earnings call. Today's call is being webcast, and a replay along with the transcript will be available on our website, along with other related materials following the conclusion of this call. Matt Hawkins, Waystar's Chief Executive Officer, and Steve Oreskevich Waystar's Chief Financial Officer, are joining me today. After their remarks, we will open the call to your questions. Earlier today, we issued a press release announcing our financial results and a presentation slide deck to accompany our prepared remarks. The materials are available on the investor relations section of our website at investors.waystar.com. Before we get started, I will remind you that this call contains forward-looking statements, which include all statements that are not historical facts. Examples of these statements include expectations of future growth and margins. These statements do not guarantee future performance and involve a number of risks and uncertainties, and undue reliance should not be placed on these forward-looking statements. Actual results may differ materially from those expressed in these statements. For full discussion of the risks and other factors that may impact these forward-looking statements and our business generally, Please refer to this evening's press release and our prospectus filed with the SEC on June 7, 2024, and in other reports we filed with the SEC, all of which are available on the investor relations page of our website. Any forward-looking statements provided during this call are made only as of the date of this call, and we undertake no obligation to update and will revise such statements except as required by law. During today's call, we will also discuss certain non-GAAP financial measures, which we believe may be useful in evaluating our financial performance. We have provided reconciliations of adjusted EBITDA and non-GAAP net income and earnings per share and certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures, together with explanations of these measures, in the appendix of the presentation slide deck and our earnings release. These non-GAAP measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Lastly, we are pleased to note our participation in the Canaccord Genuity Annual Growth Conference in Boston on August 13th, where we look forward to engaging with many of you. With that, I'll turn it over to Matt.

Thank you, Sandy, and good afternoon, everyone. Thank you for joining our inaugural earnings call as a publicly traded company. On today's call, we will cover the following four topics. First, I will review Waystar's second quarter results reflecting on our strong performance and highlighting a few areas that favorably impacted our results. Second, I will provide insight into our response to and the impact of February 21st's cybersecurity attack on a competitor's claims clearinghouse. I'll take the opportunity to share what we're building at Waystar, including innovations and developments that are shaping our future. And last, I'll turn the call over to Steve Oreskevich, our CFO, who will walk through more detailed financial materials and highlight guidance for the full year 2024. We're pleased to report that we have delivered a strong second quarter, continuing our momentum and showcasing the efforts of our entire team. Q2 revenue was $235 million, representing a 20% year over year growth. Our revenue growth in the quarter, which was greater than the low double digit growth rate that we typically expect, is attributable to a few primary factors. First, our business continued to perform well in Q2. We maintained solid client retention, closed a number of new sales opportunities that we expect to implement at our regular cadence, and continue to grow our bookings pipeline. Second, Q2 revenue had some favorability due to increases in patient payment volumes that we processed on the Waystar software platform. We believe this outperformance is due to expected increases in patient visits as well as patients choosing to make payments to fulfill their insurance deductible at a modestly faster pace. We note that there is some seasonality in the timing of when patients fulfill their insurance deductibles in any given year. Third, we completed two small acquisitions in the second half of 2023, which favorably impacted the year-over-year comparison versus last year. And finally, as I will address in more detail in just a moment, our revenue growth benefited from our efforts to onboard thousands of providers to the Waystar software platform After these providers' operations were disrupted by the February 21st cyber attack against a competitor. Importantly, we expect to retain the majority of this revenue uplift going forward. So to summarize, we were pleased with our business performance and a few favorable factors in Q2 supplemented our revenue growth. Normalized for these items, the business grew slightly above our expected low double-digit range. We're also pleased to report that Q2 adjusted EBITDA was $94 million, up 12% year over year, and in line with our adjusted EBITDA margin goal of 40%. Within Q2 adjusted EBITDA, we incurred expenses associated with onboarding thousands of providers to the Waystar software platform who were impacted by the February 21st cyber attack. We also focused on integrating recent acquisitions and incrementally investing in growth, cybersecurity, and innovation-related initiatives. From a margin perspective, we're pleased with our adjusted EBITDA margin and are actively pursuing ways to drive operational efficiency to maintain and expand margins over the longer term. Our business model promotes strong cash flow conversion, and Q2 was no exception. In the second quarter, we generated unlevered free cash flow of $50 million. The combination of our strong cash flow profile and our recent IPO puts Waystar in a sound financial position. As we committed, we used the proceeds of our initial public offering in June to pay down debt, bringing our net leverage to 3.7 times at the end of the quarter. Reflecting subsequent debt pay down with the proceeds from the partial exercise of the IPO green shoe option in early July, our net leverage ratio is approximately 3.4 times today. In addition, I want to highlight two key metrics that we use to track our business's performance and give us confidence in our durable growth model. First, the number of clients generating more than $100,000 in trailing 12-month revenue increased to 1,117, an increase of 9% year over year. We believe this metric demonstrates our ability to land and then expand business with our clients. Our net revenue retention in Q2 was 108%, within the range of the 108 to 110% that we have seen over the past 10 quarters. Our strong net revenue retention highlights the enduring relationships we establish with our clients, beginning with strong gross revenue retention, and then delivering value to our clients as we focus on expanding the Waystar software modules they use through our cross and upsell efforts. Dee will discuss Q2 financials in more detail and also provide guidance for fiscal year 2024. Now onto the second point, a topic that I know many of you are keenly focused on, Waystar's response to and the impact of the February 21st competitor cyber attack event. Following this unfortunate event in the market, healthcare providers and patients faced tremendous disruption. At Waystar, we quickly focused our efforts and marshaled additional resources to help impacted providers simplify their healthcare payments and regain cash flow. We are pleased to report that Waystar has helped more than 30,000 providers move rapidly to the Waystar software platform, many in as little as three days, to minimize their disruption during this time and to get paid for the healthcare services they delivered. This urgency to maintain continuity in critical business operations resulted in pulling forward implementation timelines for many of these providers and the corresponding time to revenue for Waystar. We feel grateful to be in a position to help thousands of providers resume normal business operations so quickly. Importantly, we expect to build enduring relationships with these new clients, most of whom signed standard Waystar business agreements with two- to three-year terms and annual auto renewals thereafter. This incident not only created a near-term opportunity for Waystar to help thousands of providers, but also a longer-term opportunity to cross-sell additional Waystar software modules to these provider organizations. For many, this cyber attack reinforced the importance of using a modern cloud-based software platform such as Waystar's. which provider organizations can deploy rapidly with limited to no disruption while successfully managing their finances. Due to Waystar's performance during this trying period, we believe our competitive position in the industry is even stronger and we continue to work hard to help provider organizations and to capitalize on the positive momentum that we have seen. I want to also comment briefly on Waystar's approach to cybersecurity. We understand the importance of protecting our clients' data and privacy. We are committed to proactively monitoring and safeguarding our clients' information in today's ever-evolving cyber landscape. Waystar utilizes a robust framework for cybersecurity to proactively monitor, measure, and mitigate risk. We validate our cyber program and readiness with regular HITRUST, PCI, SOC 2, and NIST audits. In light of the recent cyber attack on a competitor's system, it's important to note that we have already been using modern cybersecurity protocols, such as requiring multi-factor authentication for system access, credential restrictions and theft alerts, data exfiltration and endpoint detection capabilities, and system backups that cannot be modified by malware or bad actors to secure our software platform and data. We believe our rigorous approach to cybersecurity can help us minimize the cost of any potential disruption through system resiliency and rapid restoration, and we will remain vigilant in safeguarding against potential threats. Now onto the third point. In our inaugural call, I want to highlight Waystar's mission and what makes our company unique. We are focused on simplifying healthcare payments through our modern end-to-end cloud-based software, enabling our provider clients to prioritize patient care and optimize their financial performance. We are transforming healthcare payments for providers while simultaneously helping patients navigate an often frustrating healthcare payments experience with greater transparency and clarity. I will now highlight six attributes that make us unique and fuel our belief in the positive benefits we can deliver to our clients. First, we are a software company purpose-built for healthcare. We are not a services company trying to become more tech-enabled. Building great software to disrupt long-standing payment challenges is the focus of Waystar's work. Second, our software is mission-critical to our clients. In 2023, we facilitated over 5 billion healthcare payment transactions, including over $1.2 trillion in gross claims. When clients adopt the Waystar platform, we become essential to their business operations and cash flow generation. We develop long, enduring relationships with clients because our software helps them get paid faster, more accurately, and more efficiently than ever before. Our strong client and revenue retention attest to this. Third, Our differentiated cloud-based software platform with advanced technology is integrated into more than 500 electronic health record and practice management systems. This allows us to serve more than 1 million providers of all sizes across every setting of care. Our platform enables us to deliver several benefits to our clients. We rapidly deploy and implement our cloud software to serve clients of all types and sizes, addressing their unique needs. Waystar's end-to-end capabilities enable providers to manage all of their healthcare payments through a single platform, which serves as a meaningful differentiator for Waystar relative to numerous point solution vendors that exist in the market. We believe that no competitor matches the breadth, depth, and quality of our software platform. And we deliver an average of 300 software feature innovations and improvements each quarter without interrupting the operations of our clients. And our clients achieve the real return on investment they expect as they work with Waystar. Fourth, as we are at the forefront of actively deploying AI and machine learning to automate work, prioritize tasks, and eliminate errors as clients use Waystar software, our software uses AI pervasively today. And we are well positioned to harness the power of generative AI to drive ROI for our clients. We recently announced that we have identified more than a dozen promising new generative AI capabilities across the healthcare payments processes. Our collaboration with Google Cloud builds on Waystar's proven track record of deploying innovative AI solutions. I'd like to highlight just a few generative AI use cases we are actively developing. co-pilot to further automate prior authorization submission. We believe this will materially differentiate our existing prior authorization product, positioning it to accelerate the pace of penetration. Second, a co-pilot to automate appeal management when a claim has been denied, substantially accelerating speed to payment. And third, an agent to enable real-time conversion of payer policy changes into claims rules. This technology will allow clients to upload their specific payer contracts and policies to Waystar's cloud rules engine with high degree of automation and accuracy, driving lower denial rates and improving the ROI of Waystar's products versus competition. In addition, we have several longer-term generative AI products in our pipeline for 2025 and beyond. that drive automation and efficiency across the processes that lead to accurate healthcare payments. The fifth attribute is that we have a strong track record of delighting our clients, resulting in number one rankings in client satisfaction in several industry surveys and strong net promoter scores. We have an active and engaged client advisory board and delighted referenceable clients. And finally, we have a highly visible and durable revenue growth model with sustainable 40% plus adjusted EBITDA margins. We believe there is meaningful embedded growth within our client base and a large addressable market to pursue. We are focused on building and sustaining this momentum that we have created. Now, I will turn the call over to Steve to discuss our results in more detail and highlight our full year guidance for 2024. Thanks, Matt.