Waystar Holding Corp.

Good day. Thank you for standing by. Welcome to Waystar fourth quarter 2024 earnings conference call. At this time, all participants are in the suddenly mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I now hand the conference over to your speaker host, Sandy Draper, Pettip and Restylations. Please go ahead.

Thank you, operator, and good morning, everyone. It is my pleasure to welcome you to Waystar Holding Corporation's fourth quarter 2024 earnings call. Matt Hawkins, Waystar's chief executive officer, and Steve Orescovitz, Waystar's chief financial officer, are joining me today. After their remarks, we will open the call for your questions. Earlier this morning, 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 license section of our website at .waystar.com. Before we get started, I will remind you that this call contains forward-looking statements, which are predictions about future events. Examples of these statements include expectations of future financial results, growth, and margins. These statements involve a number of risks and uncertainties that may cause actual results to differ materially from those expressed in these statements. For a full discussion of the risks and other factors that may impact these forward-looking statements, please refer to this morning's press release and the 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 our call are made only as of the date of this call. During today's call, we will also discuss certain non-GAAP financial measures. We have provided reconciliations of the 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. Please note that in order to better align with our peers, we are now excluding amortization of intangibles from our non-GAAP net income and EPS metrics. A reconciliation of these metrics for 2023 and 2024 are included in the earnings slides on our website. With that, I'll turn the call over to Matt.

Thank you, Sandy, and good morning, everyone. Thank you for joining our Q4 2024 earnings call. 2024 was a defining year for Waystar as we achieved significant growth, demonstrated agility, and reached strategic milestones that strengthened our position in the industry. In addition to our normal work of adding clients and expanding relationships with them, we helped more than 30,000 providers recover from a cyber attack on a competitor, restoring their cash flow and expanding our client community. In June, we completed our IPO, raised approximately a billion dollars, and strengthened our financial position to drive continued growth and innovation. In today's rapidly evolving health care landscape, administrative waste costs more than $350 billion annually, which creates extra work and stress for health care providers. The Waystar software platform is purpose-built to reduce administrative waste, manual work, and errors. Our mission is to simplify health care payments with modern software that enhances operational efficiencies, improves payment accuracy and timeliness, and augments cash flow. We believe Waystar is positioned to drive sustainable growth and create long-term value. We have optimism about our future and are focused on delivering measurable results and maximizing returns for our clients and investors. Now, as I do each quarter, I'll cover four key topics that highlight our progress and future direction. First, I will discuss Waystar's sustainable and compounding revenue growth. Second, I will share how we are driving operational profitability and efficiency. Third, I will highlight the latest innovations driving client value. Fourth, I will review recent client and team member successes. Then, I'll turn the call over to our CFO Steve, who will review our financial results for Q4 2024 and fiscal year 2024 and speak to our fiscal 2025 guidance. First, sustainable growth. In Q4, Waystar delivered another quarter of strong top-line growth. Our revenue reached $244 million, representing an 18% -over-year increase, bringing full year revenue to $944 million, or 19% -over-year growth. This exceeded our long-term target of low double-digit normalized growth. Steve will cover the details of this outperformance in more detail later in our call. Our sustainable growth strategy is to create enduring client relationships by delivering software that drives tangible return on investment, while reducing the total cost of achieving their goals. As clients realize value, they deepen their adoption of the Waystar software platform, making it essential to their business operations and cash flow management. Two key metrics highlight our momentum. First, net revenue retention came in at 110% in Q4. At the high end of our historical range of 108% to 110% over the past 10 quarters. Second, the number of clients generating more than $100,000 in trailing 12-month revenue grew to 1,203, an increase of 15% -over-year. Our Q4 growth continued to benefit from the clients we onboarded who were seeking an alternative clearinghouse after a cyber attack on a competitor. We are confident most of these clients will deepen their adoption of the Waystar platform. In fact, approximately 30% are already pursuing cross-sell opportunities beyond their initial implementation of claims and remit solutions. In 2024, we achieved a record number of implementation activations from the backlog of projects. In 2025, we start the year with a strong pipeline of projects ready for implementation. Additionally, recent activations are ramping as expected, reinforcing our view into 2025's outlook. Next, profitability and efficiency. This quarter continues the trend of strong adjusted EBITDA performance. Adjusted EBITDA reached $100 million, up 16% -over-year. For fiscal year 2024, we delivered on our target of 40% adjusted EBITDA margins, with full year margins of 40.6%. This performance highlights the value of our software platform and our commitment to creating operating leverage as we scale while we continue to make important long-term investments that position Waystar for future growth. Our Q4 performance also highlights our business model's ability to generate strong cash flow. Unlevered free cash flow in the quarter was $80 million, bringing fiscal 2024's total to $265 million. The 69% conversion of adjusted EBITDA to unlevered free cash in 2024 underscores our operational efficiency and ability to generate cash. We are pleased to report that growth in adjusted EBITDA and a higher cash balance reduced our net leverage ratio to 2.8 times compared to the three times at the end of Q3-24. Waystar's cash flow profile provides opportunities to reinvest in the business, pursue M&A, and reduce debt. We remain committed to leveraging our strong position to drive sustainable growth and maximize value for our investors. Now, platform innovation. At Waystar, innovation fuels our growth, empowering clients to get paid faster, more accurately, and more efficiently. Our modern cloud-based platform streamlines the -to-end healthcare payments workflow from pre-service patient identification and access to post-service collections, with hundreds of new enhancements delivered each quarter to drive efficiency, accuracy, and sustainable return on investment. Waystar processes more than 6 billion insurance transactions and over $1.8 trillion in gross claims annually generating powerful network effects that fuel our AI-powered software. By leveraging this data, our AI capabilities continuously learn, which enables providers to automate error-prone workflows and reduce manual intervention. As a result, providers can allocate more time and resources to patient care. AI has been a core component of our -to-end software platform for over a decade and is pervasive across our solutions. Last year, we formed a collaboration with Google Cloud and identified more than a dozen high-impact generative AI capabilities to advance our mission. On January 9th, we launched Waystar Altitude AI, continuing to deliver on our vision of AI-powered innovation for providers. Its -its-kind generative AI capability, Altitude Create, is now embedded in our denial and appeal management solution, giving existing clients early access to the new capability. Altitude Create accelerates denial recovery by autonomously drafting appeal letters across multiple denial types, improving efficiency and reimbursement speed. In its first month, early access clients are already seeing meaningful results. Clients use Waystar to complete appeal packages three times faster, saving an average of 16 minutes per appeal package. Additionally, denial overturn rates are significantly improving when Altitude Create generates the appeal. Beyond these early access clients impact, we believe the launch will drive incremental ROI for current clients and fuel interest for prospective clients in our denial and appeal management solution, reinforcing strong demand for AI-powered automation in the market. In addition to the denial and appeal management solution, we delivered innovation within our denial prevention-oriented solutions, including eligibility verification and prior authorization to further streamline patient financial clearance. In our eligibility verification solution, we introduced the ability to automatically trigger additional eligibility checks when secondary or unknown coverage is detected to enable faster, more accurate insurance verification. In prior authorizations, we increased the level of software automation to boost the rate of auto approvals, which significantly benefits provider reimbursement and timely patient care. Early adopter clients of the prior authorization automation are already experiencing reduced submission times of 70% from seven minutes to two. Recent industry events have reinforced the need for cybersecurity as well. Waystar is vigilant in our cybersecurity efforts as we work to proactively monitor, measure, and mitigate against risk. Our focus on innovation and cybersecurity is reflected in an independent market study that ranked Waystar as the number one trusted vendor among our top competitors, recognizing our commitment to data protection, client experience, and innovation. Finally, client and team successes. Clients invest their time with us because they trust Waystar as a long-term partner in achieving their goals. Demonstrating our commitment to excellence, we delivered exceptional client support during a year of rapid expansion, sustaining industry best satisfaction scores and strong win rates against direct competitors. A recent third-party survey confirms that client service is the top reason healthcare providers consider switching revenue cycle management vendors. Waystar is strengthening its position as the industry's most trusted leader. The latest best in class results reflect our focus on supporting clients at the highest level, earning the number one rankings in claims management and clearinghouse and patient access solutions. Additionally, in a comprehensive survey of 600 clients and prospects, Waystar was ranked highest for having its, quote, best days ahead, unquote, reflecting strong confidence in our future. Additionally, Forbes recognized Waystar as one of America's most trusted companies and honor-backed by hundreds of thousands of data points. These recognitions give us confidence that Waystar can be a strong choice for providers as they evaluate potential vendors who they can trust to meet their needs. These achievements are truly a direct result of our exceptional team. In 2024, Waystar team members went the extra mile to support new and existing clients amid unpredictable industry events. In December, Fortune recognized our team members and the performance culture we cultivate by naming Waystar one of the best workplaces in healthcare, reflecting our commitment to fostering an environment where top talent thrives. We are incredibly proud of our team's unwavering commitment and the fulfillment that they find in driving Waystar's mission forward. In conclusion, Waystar enters 2025 with momentum, purpose, and a clear vision for the future. We have experience delivering stable, enduring, and compounding growth and affirm our long-term outlook of normalized low double-digit revenue growth and disciplined adjusted EBITDA margin performance. We will continue to disrupt the status quo, transform the revenue cycle, and shape the future of healthcare payments. We believe the best days for Waystar and those we serve are indeed ahead and are excited about the work we do. With that, I will hand the call over to Steve who will discuss the financial details.

Thanks, Matt. Revenue increased 18% year over year in the fourth quarter to $244 million. This growth was primarily driven by three factors. First, the strength of our software business model and ability to deliver compounding normalized low double-digit growth. This includes continuing to execute our proven plan to drive cross-sell and upsell with existing clients. We successfully expanded the number of clients producing more than $100,000 LTM revenue to 1,203 as of the end of Q4, an increase of 30 clients in the quarter for a 15% year over year growth rate. Second, the trend of higher volumes continued in Q4. This helped deliver a 110% net revenue retention rate, which is on the high side of the 108 to 110% we've experienced over the past three years. And finally, we continued to recognize revenue faster than normal from the clients we rapidly implemented in the first half of 2024 who were impacted by the competitor Clearinghouse cyber event. These rapid implementations, along with sustaining higher levels of transactions from existing clients, generated $12 million of revenue above our normal business model in Q4 compared to $12 million in Q3, $9 million in Q2, and $1 million in Q1, which equates to $34 million for the full year and 4% of year over year growth. Under normal implementation timelines, we would have recognized the significant portion of this revenue growth in 2025. Based on the results of the past three quarters, we are increasingly confident this revenue is durable and sustainable. The last item, along with a 3% year over year impact to the 2024 growth rate from the timing of two acquisitions in 2023, account for the difference between our target of normalized low double digit revenue growth and our 2024 as reported year over year growth rate of 19%. Gap net income for the fourth quarter of 2024 was 19 million compared to a net loss of $14 million in the prior year. For the full year 2024, gap net loss was $19 million compared to a loss of $51 million in 2023. Adjusted EBITDA of $100 million for the fourth quarter increased 16% year over year. The adjusted EBITDA margin of 41% reflects continued investment in the business and slightly higher revenue mix from provider solutions, which continues to account for approximately 70% of the revenue for the full year 2024. On a full year basis, adjusted EBITDA was $383 million, reflecting a .6% margin. This is in line with our long-term target of approximately 40%. On December 30th, we repriced the full 1.2 billion of first lien debt, lowering our rate by 50 basis points to SOFR plus 225, which we expect will save us $6 million of interest expense annually. We also increased our unused revolver capacity to $400 million and lowered its rate to SOFR plus 175. On a trailing 12 month basis, our net debt to adjusted EBITDA leverage ratio is 2.8 times, which decreased by approximately a quarter of a turn in Q4, primarily from the $55 million increase in our cash balance in the quarter to $182 million at year end. Unlevered free cash flow was $80 million in the fourth quarter of 2024. For the year, unlevered free cash flow was $265 million, up over $40 million compared to 2023. The strong cash flows in the second half of the year brought the 2024 EBITDA to unlevered free cash flow conversion to 69%, which aligns with our 70% long-term target. Our capital allocation priorities remain the same and may start to sound very familiar. We expect to continue to de-lever the balance sheet, targeting approximately one turn a year. We continue to invest in the business to drive sustainable top line growth. And we will continue to look at opportunities for inorganic growth based on our disciplined acquisition criteria. Turning to 2025 guidance, we expect revenue of $1 billion to $1 billion, $16 million, which is above the approaching $1 billion preliminary target we provided on the Q3 call. At the midpoint, this represents 7% full year growth over 2024 and 10% on a normalized basis. In 2024, we had very strong growth outperforming our long-term low double digit target for the reasons previously discussed. Historically, our solutions take months and for larger clients over a year, from contract signing to full revenue realization. In 2024, we onboarded those impacted clients in days, resulting in near full realization of the contract in the first month. Normalizing for the timing benefit recognized in 2024 that would have occurred in 2025, we expect 10% revenue growth based on the midpoint of our 2025 guidance compared to 7% on an as reported basis. We also expect annual volume growth for 2025 to be consistent with the 1% to 2% our client basis historically experienced, recognizing annual growth rates were higher in 2024. While we do not provide quarterly guidance, please note the following two items. We expect the faster time to revenue previously noted to continue generating a higher year over year quarterly growth rate for the first half of 2025, most notably in Q1. As such, we would expect the as reported quarterly growth rates for the first and second quarter of 2025 to be above the overall 7% full year rate at guidance midpoint. This also means we expect the percentage of total revenue for the year generated in the first half of 2025 to be slightly higher than the approximately 49% we experienced in 2024. As we have mentioned on prior calls, there exists seasonality within the 30% of revenue associated with patient payments processed on our software platform. Specifically, revenue dollars tend to be higher in the first half of the year compared to the second half as patients with high deductible plans see those deductibles reset annually and typically achieve those deductibles in the latter portion of the year. We expect a similar shaping of patient payments revenue in 2025 as 2024. So we would not expect this to meaningfully impact quarterly year over year growth rates. We have set adjusted EBITDA guidance to a range of 399 to $407 million equating to an adjusted EBITDA margin of 40%. Our expectations for adjusted EBITDA continue to include investments in software development, including generative AI, cybersecurity initiatives, and go to market excellence. Additionally, we expect cost of revenue as a percentage of revenue to remain consistent with 2024. Finally, we adjusted our non-GAAP net income and non-GAAP EPS calculations to add back intangible amortization in an effort to better align with the majority of our peers. For 2025, we expect non-GAAP net income to be in the range of 237 to $243 million equating to non-GAAP EPS of $1.29 to $1.32. At the mid points, these ranges represent 41% and 19% growth over 2024 respectively with non-GAAP EPS having a full year of dilution from our June 2024 IPL. We are ready to answer your questions.

Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of and Samuel with JP Morgan. Yelena is now open. Hi, thanks

so much for the question and congrats on a great quarter. In the fourth quarter, or heading into the fourth quarter, you had said that you were expecting the volume-based revenue to see a seasonal drop-off just due to deductibles rolling off. But your performance is still really, really strong despite that. So I was hoping maybe you could just talk about the dynamics of what's happening around utilization and your volume-based revenue, and how do we reconcile that with maybe the more normalized rate that you're expecting in 2025? Yeah,

thanks, Annie. This is Steve. We actually did see, if you look at sequentially, quarter over quarter, Q4 versus Q3, a decline in the volume-based revenue specific to the patient payments business, which we had expected. That said, the decline was less than we had initially expected based on the timing of when we would expect patients to hit their deductibles. So while we don't have perfect information, our belief at this point in time is we're seeing a larger swath of patients utilizing the system, and therefore, those that were utilizing it either not having hit the deductibles or as many patients hitting the deductibles. So when we think about it from a timing perspective and in utilization, I think that's why we saw a better performance there in the fourth quarter than we otherwise would have expected, and transparently have otherwise seen in the prior two to three years. The second part of your question, I think, pertain to what we expect from a volume basis in 2025 versus 2024. And we recognize 2024 was a strong year. We do expect continued growth over the 2024 baseline in 2025, but we expect that back at what we've traditionally seen, which is within that one to 2% annual growth over the prior year versus the higher growth rates we saw in 2024 from a utilization perspective.

Thank you. And our next question coming from the line of Elizabeth Anderson with Evercore ISI, Yolana Snalpin.

Hi, guys. Thanks so much for the question. Can you help us give us an update, one, on the direct connectivity that you're seeing with payers? And then, two, can you just maybe help us quantify some of the M&A contribution and how you think about the contribution maybe from Health Pay and Olive AI? I assume that was pretty small, but I just want to make sure I'm teeing it up -a-vis the graph that you had in the presentation. Thank you.

Thank you, Elizabeth. This is Matt. Let me take the first question about our work and effort to expand our network even further than it already is with direct connections to an incremental number of payers, particularly those that were previously exclusive with another clearinghouse. And what I'd say is that work continues. We're very focused on using modern technical protocols to ensure that Waystar's software platform and clearinghouse network is directly connected to these payers. We think that helps make healthcare better for certainly providers, also for payers, and ultimately patients. And so this work is ongoing. We're pleased with the progress that we continue to make and have a dedicated team focused on building out this expansive network. And then I'll turn it to Steve for the second part of your question.

Yeah, Elizabeth, I assume you're speaking to slide 13, if I'm remembering correctly, the investor deck presentation we put out there. And what we, the intent of this new slide is to illustrate the growth rates, the actual growth rates we're reporting versus the normalized growth rate that we expect of low double digit revenue growth annually. And as you could see in fiscal 2024, what we've called out as a growth rate versus 23, about 3% of that year over year growth was attributed to having a full year of revenue from those two acquisitions in 2024 versus partial year in 2023. I think if we speak down, taking it maybe a step further into how those two acquisitions impacted our adjusted EBITDA margin, I would say that we're still in the process of finalizing those integrations and believe that we will have continued opportunity to expand the overall margins from those businesses as we've talked about in the past, our intent from an acquisition is to take all of the software we've acquired and those clients and move them onto our single waste our platform. That generally takes a little bit longer in the cycle and we would expect to continue the vast majority of, or sorry, complete the vast majority of that work here in 2025. So we believe it has some of those initiatives that we generally talk about of where we look to improve our overall cost profile in order to allow us to invest in other areas of the business. We believe that that's an opportunity in 25 to help us improve the overall cost profile while allowing us to invest in other areas of the business.

Thank you. Now our next question coming from the line up, Richard Close with Canaccord, Yolannis Nelfin.

Yes, congratulations and thanks for the question. Matt, obviously a lot of unknowns on what policy and funding changes are gonna come out of DC. I was wanting to, you know, Medicaid specifically, maybe the ACA, but how are you thinking about how Waystar is positioned? Any potential headwinds for your clients? Maybe tailwinds, but just getting your perspectives on that would be helpful and impact to purchasing decisions, impact the volumes and such.

Okay, well thank you, Richard. It's good to hear from you. I'd say a couple of foundational things. First, we believe Waystar, our software, our purpose really does transcend any political environment or administration. We work with over a million providers across every care setting, as you know. And we connect them to all of the commercial payers as well as the different government payers, Medicare and Medicaid as you referenced. We monitor things very closely in Washington, DC. And what we would say is that we don't foresee anything on the horizon that would negatively impact our business model. Rather, we actually think favorably, we can be positioned to be helpful. We note that there's a tremendous focus on eliminating wasteful spending and using technology solutions to drive improvement. And that's core to Waystar's mission. That's central to the return on investment that we're able to deliver to the providers we work with. As you also know, our software platform is based on modern technology and we're able to deliver hundreds and hundreds of feature improvements each quarter. And so that allows us to be able to navigate and be agile and move quickly to meet the needs of providers in any environment. But what I affirm is that we do see, generally speaking, since 1960, healthcare expenditures have increased on a compound annual growth rate of about 9% a year. We think that providers in this environment, I think, carrying over from 24, providers will be very focused on how do they do more and see more patients as patient visits uptick, as Steve highlighted, with the same resources or less. And so they're going to expect operating efficiency. They want to be able to get more from their solutions. So they're focused on smart IT spend. They're focused on how can we possibly use AI and cybersecurity to address utilization and address efficiency gain. And I think that's where the value of what we deliver to providers really does kick in nicely. We note that as we look into this market, that 75% of providers cite an actual increase in their expected IT spend based on smart, focused solutions and an expectation for a return on investment. And so we don't see, we see that as opportunity for Waystar as we look ahead.

Thank you. And our next question, coming from the lineup, Jared Hussey with William Blair & Company. Yolanda Snalpin.

Hey, good morning. This is Jared, on for Ryan Daniels. Thanks for taking our questions and congrats on all the momentum. I was just curious, and Matt, I think you alluded to some of this a second ago, just in terms of some of the priorities for hospitals, but maybe just to put a fine point on the demand environment. I'm curious if you're seeing any particular products or solution areas in your platform resonate more meaningfully than others today, or is the consumption of newer products and modules more broad based across the platform? And then in terms of beginning 2025 here, anything incremental that you're seeing in the market in terms of hospital priorities, how they're ranking their investment needs. I assume RevCycle is still top of mind for a lot of people, but any shifting priorities across different, kind of more specific solution areas would be interested to hear any color you have there. Thanks.

Thanks, Jared. And please give Ryan our best as well. We do see strong demand as we begin 2025 as we've highlighted, we do expect volumes via patient visits to increase and more and more utilization of the system. We note that hospitals expect utilization and patient visits to increase. We see ambulatory volume sustaining and modestly increasing as well. As we stay close to provider decision makers and are active in the market, we again note that decision makers are expected to do more with the same resources or less with an emphasis on efficiency and operating margin. And I'd also highlight that, an important part of the recent national conversation seems to be about the negative impact of denied claims and burden that it creates in these organizations. We note that there are about 450 million claims denied in any given year. And these organizations are spending $20 billion trying to follow up and appeal these denied claims. And so that burdens and creates inefficiency in the system. Your question about, well, what way star software modules on the way star software platform are most relevant? What we highlighted in our earnings called transcript was those types of things that prevent denied claims from even occurring. So we're leveraging AI across our platform as you've heard us indicate and highlight and increasingly automate to create more efficiency and reduce the likelihood that a claim gets denied in the first place. So our eligibility automation suite is very powerful. Our ability to detect insurance coverage for a patient when they may not even know if they have access to coverage is good, it's good work and it's meaningful to patients individually who come to a hospital and may not even know they have access to care. We help providers find that access, but that also in turn reduces the likelihood that a claim gets denied. Our work around prior authorization automation is also of interest and certainly as we launched at the start of the year, leveraging generative AI in the use of appealing denied claims, we have, we see certainly interest in that area of our software as well. I'd say holistically, the ability to bring efficiency to provider organizations is what they want. They want increasingly a platform approach and we start the year with our approach to in our -to-market efforts in the face of what we see as the demand environment looking like, we start the year with a more robust pipeline in 2025 than we did in 2024. So we're encouraged and have a sense of momentum that we carry forward from 24 into 25.

Thank you. And our next question coming from the line of Adam Hotchkiss with Goldman Sachs, Yalan Snellman.

Great, thanks so much for taking the question. Matt, I just wanted to dig a little deeper on the 30% of change-related customers pursuing cross-sell opportunities beyond remittance and claims. Could you just elaborate a little bit more on which pieces of the platform customers are most interested in and then maybe for Steve, how you're embedding that into the guidance, if at all, here? Thanks so much.

Thanks, Adam. As we noted in previous calls, it just would kind of summarize here, we've had over 30,000 providers join the Waystar software platform due to this cyber attack on a competitor of ours. And we indicated that most would begin to establish, as we normally do, an enduring relationship with clients. They've signed a typical Waystar agreement. And as we highlighted here this morning, about 30% of those are already engaged in exploring additional software modules on the Waystar software platform. As you'll recall, we have dedicated -to-market teams who are fantastic and productive and are having these types of conversations with those that were impacted, those providers that join us that were impacted by this cyber attack. We don't disclose the specific modules that they are focused on using, but we will say that it's consistent with what we see across our broader base of clients from a cross-cell, up-cell perspective. They are focused on incrementally using our software, believing that there's this compounding benefit as more and more of our software modules are used. And the themes are consistent. Automation, efficiency, anything that will help prevent a denial or rapidly help them follow up and appeal when a claim does get denied. They're also focused on holistically looking at the clearinghouse part of the business and seeing what intelligence can be derived from understanding the claims reimbursement process and superimposing that on patient payments. And what can we do to bring more intelligence there? So we have a number of these providers that are also evaluating our patient payment solutions. And we're encouraged again by the momentum that we carry into 2025. With that, I'll turn it to Steve for the second part of your question, Adam. And would you repeat that question, actually?

Yeah, I think the question was about how we factored in the cross-cell, up-cell into our guidance for 2025.

Okay. Yeah, so, yeah, Adam, as you're aware, we talked about in the prepared comments, we have a net revenue retention rate for the fourth quarter of 110% over the past several years. It's been between 108 and 110%. And one of those components to that is cross-cell. And as we look at the opportunities, we look at it from a broad perspective, not specific just to these clients that we're bringing on there. So we have considered them within the overall aspect of the opportunities and revenue that we would expect to derive from cross-cells into the existing client base in 2025. I will provide one additional metric that I think I've mentioned in a prior setting. And that is, as we start any year, we historically have about 98% of that year's revenue already under contract with existing clients and existing solutions at the beginning of the year. It doesn't mean that they're all fully implemented and up to revenue realization. Some of that could exist in backlog, but we feel really good about the visibility of the opportunity for the full revenue and the guidance that we're providing based on that. Recognizing that 2024 was a little different with the numerous clients that we brought on as a result of the competitor cyberattack, and I can just give as a data point there, looking at 2024, what was historically had been a 98% figure that I just provided, that number for 2024 was about 95%. Great.

Thank you. Now, next question coming from the line of George Hill with Deutsche Bank, Elon is now open.

Hey, good morning, guys, and thank you for taking the question. I guess Matt and Steve, I'm gonna ask the product question a slightly different way, and as we look at the 2025 guide, I mean, I recognize that you guys have 110% NRR, but that kind of captures basically most of the growth for 2025. Steve, I was wondering if you might talk about, like if we thought about it as new footprint growth versus wallet share gains versus core growth, which is just, I'll call that the volume and price mix of healthcare. Would love it if you could attribute the 2025 revenue growth in those three buckets. And then Matt, I'd love it if you could just comment for a second on what you guys are seeing in patient credit quality, and are you guys seeing any erosion there, like patient payable stays extending or anything like that? Thank you.

Yeah, let me just indicate, while we don't necessarily talk about specific software modules of ours, as you know, we start the year with a pursuit into a very large, addressable market opportunity. We have a very focused sales organization that covers the ambulatory opportunity as well as the health system opportunity. And we believe that right now is a very important time just given the momentum that we're establishing for our software to be relevant and meaningful to the clients who we serve. And Steve, I'll turn it to you for the second

part of the question. Yeah, I appreciate the question, George, and we don't provide specific indications on what you're asking for and breaking down a little bit more the cross-sell opportunity versus specifically some other aspects. What I can do is maybe I'll just reiterate, and I know we've talked about it in the past, sort of the bridge from gross revenue retention to net revenue retention, and hopefully you can give a little context there that would be helpful. We have over the past several years started with a very strong gross retention rate of approximately 97%. And then as you indicated, to bridge to net revenue retention, it's a component or a combination of price increases, volumes, and cross-sell. For the fourth quarter, we specifically commented that the 110%, which is on the high side of the 108 to 110% we've experienced for the past three years, was primarily due to continued higher volumes, which at its core are derived from patient visits to healthcare providers. That said, in prior years, sometimes the cross-sell was the component that was driving the overall net revenue retention rate of between 108 or 110%. And during the period where CPI was higher, obviously price increases was probably a leading driver out of those three components. We like the fact that we have four components that allow us the ability to maintain a consistently high NRR, while not having to be overly reliant on any one of them. And I guess I'll also add, we did include a new slide in the IR deck this quarter. I think it's slide five that kind of breaks down the components of revenue between subscription revenue and volume-based revenue, because we have, I think we've mentioned the word volume on this call so far a lot. So I would like to take the moment to remind everybody that we consistently over the past three years derived 50% of our revenue base from subscription revenue, which we like very much as well.

I'd also note that we have high visibility to the volume side of our business and just affirm our outlook. You'd ask a question about patient credit and we won't comment on that at this time.

Thank you. Our next question coming from the line of Brian Peterson with Raymond James. The line is now open.

Yeah, thank you. Good morning. This is Jonathan McCary on for Brian. Thanks for taking the question. So we heard last quarter about Waystar being invited to the table and increasingly complex RFPs. So just curious, has that traction with larger and more complex systems of providers picked up into 2025? Now, you noted a stronger pipeline this year than last. So just curious, $100,000 deal is becoming a larger portion of the pipeline than historically is a trend that you all are seeing. Thank you.

Thank you, Jonathan. We don't necessarily unpack or go into the details within our pipeline. What we would say is that we're seeing nice momentum in hospitals and health systems, which tend to be larger opportunities. We also are seeing strong momentum on the ambulatory side of our business. And I just would emphasize once again that we start the year in 2025 with a strong pipeline of opportunity, again, higher than it was at the start of 2024. We have a sense of momentum. We've also, you know, we highlighted in our transcript recent client satisfaction scores from third-party surveys and industry folks that cover revenue cycle in particular. And we're really pleased and encouraged by the client advocacy that we're generating. And we utilize that in our -to-market work as we engage with prospects and clients. And we've built a nice library, so to speak, of case studies and relevant examples that we use to introduce to prospects and clients as they evaluate the return on investments they can achieve utilizing the Waystar software platform. We start the year focused on just executing our plan. And we feel good about the brand awareness and recognition and sense of trust that we've been able to establish in 24. And all those things carry forward with us in our sales discussions and conversations with clients.

Thank you. And our next question, coming from the lineup, Alan Woods with Bank of America, Yolana Snalopin.

Good morning. Thanks for taking the question. One for Matt or Steve. The change benefit was flat quarter over quarter. Is there any way to bifurcate between ambulatory and health systems as it relates to the change benefit that you've seen over the past three quarters? I would think just taking a step back here, the first type of customer would be on the ambulatory side. They'd be much more willing to move very quickly. And you've talked in the past about a 12 to 18 month sale cycle for health systems. And so it seems like maybe that opportunity is coming more as a near-term opportunity for you, where maybe it wasn't before. Is that the right way to think about the benefit that you've seen to date and maybe the benefit opportunity as we look into 2025? Thanks.

Yeah. Thanks for the question, Alan. This is Steve. I think broadly, your characterization is the right way to think about it. We did see from the initial client base that was moving a nice mix of both health system and hospital clients as well as ambulatory. If we were trying to gauge the majority, I would say that the majority, as you stated, was on the ambulatory side. I think the other point to talk through is, and as you referenced in prior calls, we had talked about some of the health system hospital activity we're starting to see from clients that, or potential clients, prospective clients, that were able to, for lack of a better term, weather the storm of the initial hit to their cash flows. That's part of that phase two that we've talked about in the past that we do continue to see as an opportunity in front of us.

Thank you. And our next question coming from the line of Second Kalia with Barclays. Yolana Snalpin.

OK, great. Hey, guys. Thanks for taking my question here. Nice finish to the year. Matt, maybe for you, just to go back to the pipeline theme a little bit, given the consistent land and expand motion here, how do you think about the pipeline of cross sell into some of those competitive wins that you had in 2024? And Steve, maybe relatedly for you, I know you talked about the components of NRR, but maybe directionally, how should we think about NRR in 2025?

Yeah. So thank you, Socket. Good morning. We, as you know, we do have a land and expand approach where we land with a client, and then we, over time, expand that relationship. We create enduring long relationships with these clients. And so that's something that's a natural part of our business motion and has been for many years. The phenomenon that you're speaking to that is unique, where we feel good about, again, the work that we're doing now with these providers that joined us because they were disrupted by this cyber attack. A very natural thing for us to do is to follow up with them. And so as we highlighted on our earnings call earlier in the transcript, approximately 30% are engaged in exploring additional software. We believe that number will continue to grow and we'll add software and more usage of our software platform to those providers. And as we've seen occur elsewhere across our platform, we know that there is a benefit as providers use more and more of our software. We know that there's insight and automation that occurs as more than one of our software modules gets used. For example, if you're using our patient access suite, which again is market leading, and also using our clearinghouse, you're getting more and more incremental benefit and ROI. So we're having those conversations very actively with our total client base, but within the specific client base that you highlighted, the more than 30,000 providers that have been impacted and feel good about the work that we're doing as we start the year.

And talking to your second question, this is Steve. Just directionally, how do we think about it? I appreciate you didn't ask for a specific number since we don't give guidance on that metric. But we did, I think in the prepared comments, I can certainly kind of triangulate a couple of items together that would help you out there. The net revenue retention rate of 110% for the fourth quarter, we did indicate that it was helped by and driven by the higher continued volumes that we saw over all of 2024, and that in our guidance for 2025, we see the year over year volume growth rate in what we've historically seen, that one to 2% versus a higher rate here in 2024. So hopefully that's helpful to you.

Thank you. And I see there are no further questions in the queue at this time. I will now turn the call back over to Matt Hawkins for any closing remarks.

Thank you, Livia. We're doing this earnings call from our Utah office this morning. So we're watching the sun come up over these snow-capped mountains, and we think that that's symbolic of how we feel about 25. It always brings, light brings joy and opportunity and we're very excited about that. And the sense of conviction of what we're doing. So that's a nice visual as I look out our office window here. I wanna take just a moment to, in this setting, to thank our incredible Waystart team members and our hero and remarkable provider clients who we feel so grateful to serve. We're excited about the opportunities ahead of us. As you've heard us mention in 2025, we're confident in our ability to execute and deliver strong performance in 2025. We reaffirm our target low double digit revenue growth and 40% target around adjusted EBITDA margins. And we're just focused on executing our game plan this year to build and develop great software and to delight our clients, to build a strong team of people focused on achieving our mission to simplify healthcare payments and feel encouraged by the work that we do. So thank you all for joining us today. We hope that you have a great day and we'll look forward to being in touch with you.

This concludes today's conference call. Thank you for your participation and you may now disconnect.