Waystar Holding Corp. Q3 FY2025 earnings call

• Q3 saw strong momentum with double-digit revenue growth and strong margins, anchored by healthy client retention and expansion.
• Completed acquisition of Iodine Software on October 1, expanding total addressable market by over 15%, accelerating innovation, and strengthening growth.
• Hosted Waystar True North client conference, highlighting client results with meaningful ROI, such as reduced prior authorization submission time and increased cash collections.
• Iodine brings proven AI-powered mid-cycle capabilities like clinical documentation integrity and utilization management, uniting clinical, financial, administrative, and payer data.
• Platform advances continuously with new AI-powered capabilities launched, addressing challenges like denial prevention and patient financial care, driving better outcomes for providers and patients.

In Q3, Waystar's revenue grew to $269 million, representing 12% year-over-year growth. Subscription revenue was $134 million, increasing 14% year-over-year and 3% sequentially. Volume-based revenue was $132 million, up 10% year-over-year but down 4% sequentially. Adjusted EBITDA was $113 million, up 17% year-over-year with an adjusted EBITDA margin of 42%. The number of clients generating more than $100,000 in trailing 12-month revenue grew to 1,306 in Q3, an increase of 11% year-over-year. Net retention rate was 113% for the last 12 months.

• Raised 2025 revenue guidance to a range of $1.085 billion to $1.093 billion, with the midpoint at $1.089 billion, representing a 15% year-over-year growth rate. This includes a full quarter of contribution from Iodine.
• Raised adjusted EBITDA guidance to a range of $451 million to $455 million, with the midpoint at $453 million, driven in part by outperformance in the first 3 quarters. Assumes $12 million of contribution from Iodine in Q4 at its historic adjusted EBITDA margin of approximately 40%.

• Data fragmentation: Nearly 95% of AI initiatives rely on incomplete or inconsistent data, limiting AI effectiveness.
• Integration: Providers need technology that operates seamlessly within their current systems and workflows; without interoperability, AI value remains unrealized.
• Cybersecurity: Critical as AI becomes more deeply embedded in clinical and financial processes; secure, compliant data management is essential.

Q: Congrats on the strong performance. Interesting that True North took place right around the Iodine transaction close. And I'm curious if you had the opportunity to introduce clients to that and see new Iodine clients? And just overall, kind of what areas were key focus and what the overall feedback on Iodine and Waystar from the Iodine clients were?

A: Thanks, Ryan. It was a perfectly timed client conference for us. Waystar True North was fabulous. We hosted an innovation lab where we allowed clients to get hands on with our technology advancements and see AI at work. We also had the opportunity to showcase how Iodine can really connect Waystar's front-end and back-end solutions effectively together. And the client sentiment was 100% positive.

Q: I'll echo my congrats on a strong quarter. Matt, maybe a high-level one for you, especially as you think about the platform with Iodine in the fold, how do you think about the cadence of the legacy or replacement of legacy processes in RCM? I know some of these sales cycles for hospital health systems can be long. But I'm curious in kind of an AI-enabled and Agentic world, will we start to see customers maybe move faster to tackle this opportunity?

A: Thanks, Brian. Let me start with maybe just a bit of 1 more background or 2 comment on Iodine and then how we're leaning into being able to sell the full Waystar platform. So just as a quick reminder, Iodine sits in the mid-revenue cycle. It is really a powerful software that does clinical documentation, integrity, utilization management and prebill anomaly detection. And these capabilities bring structure to unstructured clinical information. They detect missing codes or incorrect codes before a bill is complete. And they keep a human in the loop, so to speak, as they deploy over 160 different leading AI models within Iodine Software that allow the human to validate what the AI has identified as an accurate code. So what that's doing is that's leading to a 70% reduction in the likelihood of a set of codes needing to be rereviewed before a claim is submitted. So that fits perfectly into Waystar's next-generation cloud platform, and we really feel like this will allow us to continue to demonstrate market leadership and establish us as the next-generation revenue cycle solution of choice.