Waystar Holding Corp (WAY) 2025 Q2 法說會逐字稿

(Music Playing)

Good day and thank you for standing by. Welcome to the Waystar 2nd Quarter 2025 earnings conference call (Operator Instructions).

I would not like to hand the conference over to your first speaker today.

Greg McDowell, Investor relations. Please go ahead.

Thank you, operator.

Good afternoon, everyone, and thank you for joining Waystar's 2nd Quarter, 2025 earnings call.

Joining me today are Matt Hawkins, Waystar's Chief Executive Officer, and Steve Oreskovic Waystar's Chief Financial Officer. After their remarks, we will open the call up for questions.

This afternoon we issued a press release announcing our financial results and published a presentation slide deck to accompany our prepared remarks. You can find these materials in the Investor Relations section of our website at investors.wastar.com

Before we begin, I would like to 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 afternoon'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 this call are made only as of the date of this call.

During today's call, we will also discuss certain non-gap financial measures. We have provided reconciliations of the non-gap 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.

With that, I'll turn it over to Matt.

Thank you, Greg, and good afternoon, everyone.

Thank you for joining our 2nd quarter of 2025 earnings call. I will begin today by highlighting Waystar's recently announced agreement to acquire iodine software, a proven leader in AI-powered clinical intelligence. Iodine is a highly complementary strategic fit, and this transaction is a major step forward in accelerating Waystar's mission to simplify healthcare payments. We look forward to extending WayStar's leadership.

In the critical stage of the revenue cycle between care delivery and claim submission, where providers lose billions each year to administrative inefficiencies and expanding Waystar's total addressable market by more than 15%.

The purchase price of 1.25 billion represents a high 10s enterprise value to adjusted EBITDA multiple based on iodine's estimated 2025 EBITDA adjusted for synergies. As a clear vote of confidence in Waystar, Advent International, iodine's largest shareholder, is expected to receive 100% of its consideration in the form of Waystar Common stock. Subject to an 18-month lockup agreement.

Iodine brings a highly recurring subscription-based business model with a financial profile that is aligned with Watars. We expect the transaction to be immediately accreted to gross margin and adjust to the margin following closing and accretive to revenue growth and non-gap net income per diluted share in 2027.

The acquisition of iodine also accelerates Waystar's product roadmap by nearly 2 years, unlocking a new level of automation, accuracy, and performance for providers. It advances Waystar's strategic position to eradicate unnecessary denials, maximize reimbursement, and deliver meaningful ROI across the revenue cycle.

Following the anticipated close by year end. We will activate Waystar's proven M&A playbook. Our combined go to market team will capitalize on bidirectional cross-sell opportunities, expanding Waystar reach into iodine's client base, introducing iodine's platform to waste our clients, and unlocking greater value where we already intersect.

Across the nine acquisitions Waystar has completed, we have demonstrated our ability to ensure seamless integration and capture identified synergies to drive growth, operational excellence, and financial performance.

For more on this important milestone, we encourage you to review the materials published last week available on our investor relations website. We will dedicate the remainder of today's call to reviewing Waystar's Q2 results.

Waystar delivered its fifth consecutive quarter as a public company of double-digit revenue growth and strong margins in Q2. Revenue reached $271 million representing 15% year over year growth, with an adjusted EBITDA margin of 42%.

Our momentum in the first half of 2025 has enabled Waystar to raise full year guidance for both revenue and adjusted EBITDA , which Steve will cover in more detail shortly.

As providers navigate margin pressure, workforce shortages, and legislative changes, Waystar's AI powered software platform is in strong demand. Decision makers prioritize our mission critical platform because we help their organizations get paid fully and accurately while reducing complexity and administrative burden.

Waystar is uniquely positioned to address evolving industry needs, deliver meaningful ROI, and create long-term value for shareholders. In a dynamic market and evolving policy landscape, two recent developments are worth noting. First, the one big Beautiful Bill Act. And second, the prior authorization pledge led by America's health insurance plans.

The One Big Beautiful Bill Act introduces changes to Medicaid funding over the next decade and imposes stricter eligibility criteria for both Medicaid and Affordable Care Act exchange coverage. Importantly, we believe Waystar is well insulated from downside risk across a range of scenarios. In a hypothetical analysis in which 15% of Medicaid funding were to be affected.

Waystar's trailing 12-month revenue would be impacted by less than 1%. More importantly, these conditions highlight the advantage of Waystar's purpose-built platform, which is already equipped to support providers across all payer types. Whether volumes shift across Medicaid, Medicare, commercial, or self-pay, Waystar enables providers to maximize reimbursement, reduce denials, and operate efficiently.

As I will describe in a moment, capabilities such as insurance coverage detection, charity screening, patient payments, and unified payment processing are essential for helping providers navigate this evolving funding landscape. Now let's turn to the prior authorization pledge led by America's health insurance plans.

More than 60 health insurers recently signed a non-binding commitment with the US Department of Health and Human Services outlining a multi-year path to reduce unnecessary prior authorization requirements by 2026 and implement standardized electronic workflows by 2027.

We note that Waystar has long been a market leader in prior authorization automation, well ahead of this anticipated industry pledge. Our software authorization Manager connects healthcare providers to a broad range of payers while Of Accelerate, launched earlier this year, automates every step of the prior authorization process and enables auto approval.

With more than 2 billion prior authorization submissions occurring annually. This remains one of healthcare's most burdensome and resource intensive manual processes. Today, Waystar delivers more than 90% touchless authorizations for a mid-size help system. This level of advanced automation can unlock capacity equivalent to over a dozen full-time employees, freeing staff to focus on higher value work.

Waystar is encouraged to see the broader industry coalescing around initiatives that benefit providers and patients. And Waystar will continue to lead from the front, anticipating change and tackling healthcare's most complex challenges with AI-powered software. As a result, Waystar clients are well equipped to navigate regulatory demands, unlock meaningful ROI, and drive strong financial performance.

Waystar has established deep trust with over 1 million providers reinforcing our conviction that our growth strategy is making a tangible impact. This trust is reflected in our 115% net revenue retention rate and the growing number of clients generating more than $100,000 in trailing 12-month revenue now at 1268. Which is a 14% increase year over year.

Our compounding growth algorithm begins with the enduring relationships we create with our clients. Waystar is a proven innovator delivering software that empowers providers to get paid fully and faster with unprecedented automation and greater accuracy. Each innovation is purpose built to address healthcare's most complex challenges. Let me highlight a few now.

First, insurance coverage and eligibility. As shifting coverage policies introduce more complexity and increased gaps in insurance eligibility, providers face a rising risk of denied or delayed payments.

Waystar's AI powered software platform delivers unmatched performance in resolving inaccurate or unknown coverage, automatically identifying the correct insurance in as many as 55% of cases that would otherwise result in write-offs. The result revenue is recovered in seconds with no manual effort required from the provider. For a mid-sized health system. This can drive upwards of $20 million in incremental annual reimbursement.

Second, patient payment optimization. As more financial responsibility shifts to patients. Providers face growing pressure to improve affordability, streamline collections, and deliver a positive patient experience. Waystar's AI powered software platform automatically identifies financial assistance eligibility and pairs it with intuitive digital first billing and integrated patient payment options.

This approach drives up to 80% patient self-service adoption and more than a 20% lift in patient collections, translating to nearly $8 million in annual impact for a mid-size help system, while significantly reducing the effort required to collect. Importantly, a strong patient payment experience builds trust between the provider and patient. At a critical point in the patient journey, reflecting in patient net promoter scores above 60 for healthcare providers using Waystar software platform.

Third, reimbursement and cash flow. In the first half of 2025, Waystar's AI-powered software platform prevented nearly $6 billion in denied claims. When denials do occur, our appeal capabilities accelerate recovery and increase overturn rates, unlocking millions in reimbursement. Clients also reduced days to pay by up to 15%, strengthening cash flow and operational resilience.

AI is at the center of Waystar's innovation strategy. Today, the vast majority of revenue is generated from software where AI is actively driving results. We are also generating new incremental revenue with the launch of Waystar Altitude AI, which deploys generative AI in key use cases on Waystar's platform.

Waste altitude AI delivers tangible outcomes such as a 70% boost in appeal productivity and double digit increases in overturn rates, freeing up capacity equivalent to nearly 10 full-time employees for a mid-size health system. Innovations like these are delivering meaningful ROI, strengthening Waystar’s leadership, and improving provider financial performance.

A recent Forrester study of more than 300 provider leaders confirmed. That trusted vendors like Waystar are preferred for AI adoption. In contrast to new market entrants, revenue cycle leaders cited scale, integration, and outcomes as top priorities, areas where Waystar has demonstrated clear leadership in all three categories.

Waystar's growth strategy is grounded in proven results, impactful innovation, and enduring client trust. As the industry evolves, Waystar is uniquely positioned to lead with a unified AI-powered software platform that delivers automation, accuracy, and meaningful results at scale. We look forward to advancing our software product roadmap and helping providers strengthen financial performance and stay ahead in an increasingly complex environment.

Waystar is proud of the continued recognition of its software platform, culture, and the results we deliver to providers and patients. In Q2, Waystar was recognized as the best overall healthcare payments solution provider by Medtech Breakthrough and named one of the US news best companies to work for. These accolades reflect the unwavering commitment of the Waystar team and our clients to simplify healthcare payments.

Waystar is well governed by a strong, experienced board of directors. In Q2, two new independent board members, Ashima Gupta and Mike Roman, joined, bringing valuable expertise and perspective that are already contributing meaningfully to Waystar's long-term strategy.

With that, I'll turn it over to Steve to walk through the financial details from the quarter.

Thanks, Matt.

Revenue increased 15% year over year in the second Quarter to 271 million. The basis of Q2 growth continues to be our durable. Predictable model that produces low double digit revenue growth annually on a normalized basis.

This includes expanding the client base, producing more than $100,000 of revenue in the last 12 months to 1268 at Quarter end. An increase of 24 clients in the quarter and an increase of 14% year over year.

It also includes a high net revenue retention rate, which was 115% for the last 12 months and compares to 17% year over year growth over the last 12 months. As discussed on our last call, the net revenue retention rate benefits from the rapid time to revenue from clients impacted by a competitor cyber event in early 2024.

And elevated patient utilization of the health care system over the past year. The other components of the bridge from gross to net revenue retention are consistent with prior Quarters.

Subscription revenue of 131 million increased 17% year over year and 5% sequentially, reflecting strong performance in the business. Volume-based revenue of 138 million increased 14% year over year and 6% sequentially.

Volume-based revenue benefited from rapid time to revenue from a few large clients that we took live in the Quarter. These 3 implementations highlight our ability to rapidly onboard large clients. Adjusted EBITDA of 113 million for the second quarter, increased 20% year over year.

Our adjusted EBITDA down margin is 42%, above our long-term target of approximately 40%.

The adjusted even the outperformance was driven by both the revenue upside as well as a slight revenue mix shift to higher margin provider solutions, which comprised approximately 70% of the total revenue. Additionally, we realize benefits from operational efficiency initiatives while at the same time investing in areas such as innovation, cybersecurity, and client experience.

Unlevered free cash flow was 111 million in the second Quarter of 2025 with an unlevered free cash flow to adjusted EBITDA conversion ratio of 98%. The ratio this quarter benefits from the appropriate delay of federal tax payments to the 4th Quarter. The strong first half puts us in a good position to achieve our 70% long term target for the year.

The trend of high cash flow conversion coupled with expansion of our trailing 12 month adjusted EBITDA generated a 2.2 times net debt to adjusted EBITDA leverage ratio at June 30.

Which is down 0.6 times since the beginning of the year. Our continued ability to deliver this Quarter aligns with our previously stated goal of approximately one turn annually.

Regarding 2025 full year guidance, please note the following excludes any potential impact from the pending acquisition of iodine. We are raising revenue guidance for 2025 to a range of $130 million to $142 million with a midpoint of 1 billion $36 million which represents an increase of $22 million or 2% versus prior guidance midpoint.

And represents 10% year over year growth. We've included a slide in the IR presentation reconciling the expected 2025 revenue growth rate of 10% at the midpoint of guidance. And a normalized revenue growth rate of 12%. Which is adjusted for revenue realized in 2024 that would have occurred in 2025 under typical timelines. On previous calls we've talked about the 1st half, second half dynamic of our business.

As expected, our first half revenue was over 50% of projected full year guidance, primarily based on the shaping of volume-based revenue, including seasonality in the approximate 30% of total revenue generated by patient payment solutions.

As a reminder, 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 meet those deductibles in the latter portion of the year.

Altogether, we expect total revenue to be down sequentially in Q3 as compared to Q2 and on an absolute dollar basis we currently expect Q3 and Q4 revenue to be similar. We are also raising adjusted EBITDA guidance to a range of 418 million to 426 million with a midpoint of 422 million.

Increasing by $12 million or 3% versus the prior guidance midpoint we now expect an adjusted even to margin of approximately 41% for 2025. Driven in part by the outperformance in the first half of the year.

Again, our updated guidance excludes the impact of the pending acquisition of iodine. As we mentioned on the call last week, on a stand-alone basis, iodine expects approximately 120 million to $125 million of subscription-based revenue for 2025.

At a gross margin of approximately 75% and an adjusted EBITDA margin of approximately 40%. Additionally, we expect to realize over 15 million of cost synergies within two years of closing the acquisition.

We prioritize maintaining a strong balance sheet and project net leverage to be approximately 3.5 times following the transaction. For clarity, this would only include the expected trailing 12 months of adjusted EBITDA from was our stand alone.

As noted earlier, we have demonstrated the ability to deliver quickly through strong free cash flow and adjusted EBITDA growth, and we expect to do so post close.

Operator, please open the call for questions.

Thank you, ladies and gentlemen (Operator Instructions).

Alexei Gogolev, JPMorgan.

Hi, this is Destiny one for Alexei. Thanks for taking the call. And 1225 you mentioned, 10 million revenues boosts coming from client migration post-chain cyberattack.

Has there been any benefit in Q2. Or it's now completely over and are we back to intentional business decision making?

Thank you.

Yeah, thanks for the question, Destiny. This is Steve.

As we had mentioned on our prior earnings call, we had expected by the time we hit Q2 of 2025 that year over year benefit would essentially have a lapse, such that it doesn't have a significant difference between the as reported growth rate and the normalized growth rate, and we did see that come to fruition here in the 2nd Quarter, so there isn't. Anything notable to call out, and that's why he didn't see me mention anything in the prepared remarks.

Yeah, and Destiny, what I would add, this is Matt.

In the original cohort of those that did adopt the Wastear software platform, we've seen excellent retention and continued progress in in the cross sell opportunities there.

And not calling it out doesn't mean that we're not seeing a tremendous progress. We just are choosing to be sound, given the competitive nature of what we're doing. I will say that it's, it represents a tremendous opportunity for Waystar to continue to execute our play.

And we do see, just given the level of unrest in that client base, we see continued switching on the horizon. We know one recent survey suggested that more than 36% of respondents are likely to switch clearinghouse vendors and that, some of those changed clients that have not switched represented nearly a third of the respondents.

So, we feel like Waystar is a great home, a trusted vendor with strong net promoter scores amongst that cohort that we've already helped and certainly more broadly across our whole client base, but we look forward to being a share gainer during this period of time as we continue to execute our play.

Thank you.

Adam Hodgkiss, Goldman Sachs.

Great, thank you so much for taking the question.

I just wanted to touch on the rapid onboarding of large clients you mentioned. Is there any reason that some of the volume-based revenue that was brought on from those clients wouldn't be recurring in the second half of the year? I just note that because the guidance implies.

A greater step down in second half revenue than I than I think we're used to. And so I'm just trying to understand the outperformance in the second quarter and why we wouldn't expect that to flow through to the second half and I guess how you think about the upside risk to the second half around those dynamics plus the volume-based side. Thanks so much.

Thanks, Adam.

Let me speak to our ability to rapidly onboard clients first of all. As you'll recall, we're a cloud-based software platform and we can deploy our software very rapidly, especially in moments where like we saw with the change cohort of impacted clients where they needed it. But also in opportunities where clients make a decision and they just want to move fast.

We have a lot of experience and our software is architected and certainly configurable in ways that make it easy to deploy rash.

We were thrilled to be able to work with these 3 clients to rapidly onboard them and that, as you noted did impact our second quarter revenue results. Steve, let me turn it to you for thinking through the second part of his question.

Yeah, just for some context to the 2ndQquarter, Adam, from a benefit perspective as it pertains to year over year growth rate, if I round up, it's about 2%. Of that year over year growth rate to your question regarding the recurring nature of that, we would expect it to be highly recurring as you're well aware, we have a construct with our contracts such that roughly half of the revenue that we generate comes through subscription software revenue with the other piece, the other approximately 50% volume based, and the timing, especially with larger clients of when the.

The aspect kicks intends to be a little a few months or several months post signing of the contract based upon the expected roll out. So that revenue is illustrating itself and showing up this quarter in volume based as a result of the fact that it's outperforming.

The contractual monthly minimums and we would fully expect as we get further along in the contract. A life cycle with those three clients that that will then show up as subscription revenue at that point in time based upon the fact of where they are contractually versus the expectation.

So we expect that to be in the recurring and in the future revenue stream for quite the near future. Specific to your questions surrounding 2H versus 1H and sort of the expectation of the back half being, sub 50% of the total year revenue, that is more a factor of two items.

First, the 30% of revenue that comes from patient payments, please recall and mention in the prepared remarks the impact of. Of patient deductibles and how they tend to impact the first half and second half of the year and then as it pertains to our approach to expectations from the volume-based revenue stream.

And patient utilization, we think we're appropriate in our view, but if the patient utilization of the healthcare system continues to remain high as it as it has for the or higher as it has for the first couple of quarters of this year.

That could lead to the upside of, the guidance range that we provided and if we were to see something happen, negatively, that would lead to the downside, of our full year guidance expectation in the range.

So hopefully that's helpful context, Adam it is.

Thanks so much.

Alan Lutz, Bank of America.

Good afternoon and thanks for taking the questions. One for either Matt or Steve.

Look at subscription revenue, this was the biggest sequential increase in subscription revenue in the past year, and I guess that would be a little counterintuitive given. The benefit that you observed from the cybersecurity piece in 2024.

So as we think about the benefit you saw in Q2 more than 6 million of sequential revenue growth in subscription. What's driving that exactly and was there Any type of impact from tariffs, just concern from customers, and then how do you think about the demand environment in the second half of the year?

Is there any contemplation of a pullback just what drove the growth in the quarter and then how to think about 28 from here.

Thanks.

Well, let me speak first about the demand environment, Alan, and then I'll ask Steve to comment on subscription revenue if that's okay with you.

First of all, the demand environment we see as being robust, and strong. And I, I'll tell you why. We see provider decision makers looking for efficiency, they are adopting technology or wanting to help them drive efficiency and collect faster and more accurately, and they want, cyber secure solutions and they want to work with vendors that they can trust.

So while our business has no direct exposure to tariffs as we talked about in the past, we are, we're serving US clients only. We are noticing that provider decision makers are, they're very thoughtful, they're very diligent and probably stressed as they prioritize areas of spend.

We're really grateful that Waystar is on the favourable side of that prioritization and. Because we are a trusted platform, we are mission critical, and we help providers drive efficient cash flows, and are we stand by our results.

They're just demonstrable return on investment results. When you look at the ways that we think about demand and how it shows up in our business, we have a strong qualified pipeline of opportunities. That we look to the second half of 25 and into the future with excitement and a sense of momentum, and we also feel good and optimistic about the year-to-date bookings results that we've achieved.

So feeling good overall about demand, recognizing that it's stressful, but where provider decision makers tend to prioritize mission critical solutions like Waystar.

Steve, second part of that question.

Yeah, So specific to the question, Eleanor surrounding the subscription revenue and the sequential growth, you are correct on the on the last call I had made a statement that we had expected to see prior Quarters in which the benefit of those clients we rapidly onboarded.

Through that that were impacted by the change cyber event that that we had expected to see the subscription sequential growth rate, start to taper off in the second quarter and through the rest of the year.

What we saw actually was the mix of revenue this quarter and I think in the prepared the prepared comments apologies. I stated they are reflecting the strong performance in the business. Well, that's specific to those provider solutions that comprise 70% of the total revenue.

If you recall the majority of our subscription revenue, or about 70% of that 70% which if you follow the calculus through is about 50% of total revenue comes from those is generated through those provider solutions.

The strength in those and continued adoption and implementation of those in the 2nd Quarter has continued to drive the subscription revenue basis and it's also just sort of tie out sort of all the way through the P&L is also the piece where I mentioned.

Generate that mixed shift between provider solutions revenue and that 70% also led to the higher margins and ultimately at a higher gross margin or sorry, the higher adjusted EBITDA down margin for the second Quarter as well.

So very, we're very pleased to see that strength in the business continue and obviously it has, positive impacts for us throughout the entire P&L.

Great. Thank you very much.

Richard Close, Canaccord Genuity Corp.

Yes, thanks for the question.

Congratulations, Just maybe on the volume growth, again even with, I guess the rapid onboarding, adding a couple percentage points in the second quarter, that, the quarter was still above the 11% in the first Quarter. So I'm just curious, is it your sense it's the higher utilization environment or, is there any read through?

Maybe moving more clients to digital payments and getting, better collection rates and I guess I'm just curious where you stand on, penetration of patient payments on the digital versus traditional methods and how that's progressing.

Thanks, Richard. Yeah, we're thrilled with obviously to deliver Q2, and this represents five consecutive quarters of double-digit revenue growth, strong IAA margin performance, cash flow, conversion, and doing exactly basically what we say we're going to do.

So we're thrilled with that. On the volume growth side, we are seeing strong. A strong utilization environment. Obviously, we're prudent in how we think about the business and how we create operating plans and forecasts for the business, but, it's been encouraging to see, higher utilization, and that tends to benefit the volumetric side of our business as you know.

With respect to the digital payment solutions, the digital. First payment, solutions that we offer with the integrated patient financial care solutions that we have. We, we're not calling that out in particular. We do know that those solutions are driving better collection rates and certainly better patient satisfaction because patients want transparency and what their financial obligations going to be, and we like that.

The that activity that we're seeing in the business but not necessarily calling it out and I'll pause there, Steve, what would you add to kind of this volume related question?

Yeah, and as we think of the utilization of the healthcare system, recall that roughly half of that volume based revenue is associated with provider solutions. The other half. With the patient payment solutions. So to your point about the digitization and we're seeing a good mix and volume from both of those.

So if we looked at the second quarter of the year over year growth rate, I would say it probably breaks down roughly about 60 to 40 year over year 60% of that growth is coming to those. Patient payment solutions, 40% roughly is coming from the provider solutions. So a good mix of volume increase across all of the solutions in our business.

Yeah, and I'd say from a penetration perspective, Richard, we have a long, field right in front of us, right down the middle where we can just go address and become a market share gainer here with the compelling solutions that we have to offer, so a long way to run.

Alright thank you.

George Hill, Deutsche Bank.

Hey, good afternoon, guys. I've got two quick ones. One's a lay-up for Matt and one's a little bit tougher one for Steve.

So Matt, if you're listening to Matt, if you're listening to MCO earnings calls, they're basically all creating a commercial for Waystar Talk complaining about how the impacts of AI and revenue cycle management tools are killing their cost targets.

So I guess what I would ask is, have you seen any downstream impact of that from a client demand perspective? And I guess is there a way to quantify. Like on a year over year basis, if we think about your revenue, like what is the benefit of kind of increased charge capture or the increased ability to code in the in the volume-based revenue, and I apologize for this being a long question.

And then for Steve, maybe I missed this in the detailed in the detailed commentary. But if I look at the subscription revenue and the volume-based revenue, like is the expectation that like either the volume-based revenue.

I'm sorry, the subscription-based revenue tracks back meaningfully or the volume based revenue because if the subscription revenue doesn't, the volume based revenue would really have to backtrack in order to see Q3 and Q4 down meaningfully to kind of get to the.

The guidance targets. So what I would just love kind of more interplay on like which revenue lines are moving in which direction and why as it relates to the guidance, which is looking pretty conservative. Sorry for the long question.

Hey, thanks, George.

I'm going to take your first one. I'm going to lean into it a little bit if you don't mind just giving the AI opportunity that we see. We were recently ranked number one in AI platform solutions by Black Book Research. Our clients, as AI is pervasive across the Waystar platform today. The vast majority of our revenue includes software where AI is in use today.

So when we're selling and you're seeing revenue growth in our business, You can assume that there's AI embedded in the software solutions that we're delivering.

We bring the right AI to the right use case and in the case of us launching altitude AI at the start of the year where it has several Gen AI use cases, one of the things that we're seeing, and we did listen closely to the NCO calls, we're aware of what's going on in the market, we brought first to market capability around denial prevention Cap solutions.

So I think, things that prevent the likelihood that a claim gets denied. We're hearing that in the market a lot and people want those type of capabilities. Our Gen AI solutions are preventing $6 billion of denied claims so far this year. On the other side of that, on the appeal side.

Solutions to see a 40% increase in appeal overturn rates at 3 times of faster ability because the GAI is autonomously gathering financial and clinical information. And so I'm going to lean in just a moment further and then I'll turn it to Steve. But when you think about what Waystar’s ultimate goal and you is start to think and reflect on why iodine, we think it's a perfect strategic fit.

And part of that is really about the use of AI. So you think Waystar has solutions that highly accurately, rapidly, and automatically identify patients, do prior authorizations, and prevent denials. On the other side, we also have solutions that use AI to process claims that market leading first past claim acceptance rates and rapidly appeal denied claims.

And what it makes perfect sense for us to go and announce the acquisition of iodine is because in that middle area between the clinical encounter and the formation of a claim and the submission of that claim, there's more than 60 million denied claims that occur in that area.

And so our ultimate goal is to create The perfect undeniable claim. You can write that down. Our goal is to create the perfect undeniable claim using AI.

And we're on a mission to do just that to help providers because we're listening to their commentary and we know the pain that they're experiencing, and we're excited about this.

So, I'll pause to ask Steve to help us just clarify for you, George, the subscription revenue versus the transactional or volumetric revenue and what we expect on the back half.

Yeah, and I might revert a little bit, George, back to the prepared comments that that I stated reminding you about the first half of the year, second half of the year dynamic that happens within, and seasonality that happens within the patient payment solutions, primarily associated with patients that are under high deductible. Healthcare plans that have those deductibles reset at the beginning of the year.

And are generally started to meet those deductibles in the second half of the year. So that 30% of the revenue tends to be primarily volume-based revenue. And what we're looking at from a full year guide is the expectation that that patients start to hit those or meet those deductibles, sorry.

In that second half of the year, so if you're looking at sort of the expectation from a subscription revenue growth rate and volume-based growth rate, it's probably more heavily weighted towards the volume-based growth rate in the second half of the year as it pertains to the full year guide.

Okay, I appreciate the call. I'll hop back in the queue.

Elizabeth Anderson, Evercore ISI.

Hi guys, thanks so much for the question. I don't know if I can get such a sound bite out of you, as George can, but I was hoping you could help me understand the math that you were, talking about the, one big beautiful bill math we're talking about sort of the 15% of Medicaid funding and the HICS funding as well, with the 1% impact, obviously that's the key question, in terms.

Of how people are thinking about a bunch of healthcare services companies for 2026. So I was wondering if you could just sort of help us flesh out like how to think about those assumptions and obviously, there isn't a one to one impact with the volume, so maybe you could just walk us through that again as well and make sure we all understand your thinking there.

Sure, let me highlight it. Elizabeth, thank you, and then I'll turn it to Steve as well.

Basically, the way to think about our business is We With respect to the one big, beautiful bill, Waystar serves every payer type on a single platform, and we have solutions that address efficiency and finding funding. And so you think about the how we might be insulated from any one source of funding and it really starts with the fact that we serve a very large and diverse group of clients.

Who have, who serve a very large population of patients and not all of those patients necessarily have the same exposure to any one source of funding. Speaking to the one big, beautiful bill, it's Medicaid in particular.

And so really, it just goes to the fact that we have such a diverse business model, a resilient business model that we're insulated from any one particular type of things. And if there were to be a 15% reduction of Medicaid funding, what would happen is, Some of our other solutions would come in even more demand as providers work to find alternative ways for to help their organizations get paid.

We highlighted a few on our prepared remarks, but that would include solutions that waste our offers such as insurance coverage detection and automatic eligibility verification as providers seek sources of how a patient might be covered, charity care screening and propensity to pay AI that wastes our offers today.

And an integrated patient financial care suite with patient payments. So all those things we felt you combined to say, we feel very well positioned. And insulated from this type of particular exposure and we did run the math on the hypothetical scenario of a 15% reduction of Medicaid funding followed it all the way through our business model, and that resulted in a retrospective look, a trailing 12 month look of less than 1% of revenue of Waystar that would be impacted.

And Steve, if you clarify anything further there, that, that'd be great.

Yeah, I think you said it spot on, Matt.

I think the only thing to just add to that, Elizabeth, is the scenario that Matt just articulated is a full downside scenario, so it doesn't include the offsets where we think.

Our clients would move to and the solutions that we have that could help them that could generate additional revenue for us if that if that basis. If that particular client base, pardon me, were impacted as we had articulated.

And if states weren't there's a bunch of other things it's a multi-varied environment, but we were comfortable with our analysis and the resilience of our business.

Great, thank you very much.

Brian Tanquilut, Jefferies.

Hey, good afternoon guys and congrats on the Quarter.

Maybe just to follow up on Elizabeth's question, as I think about EAPTCs, the health insurance exchange subsidies expiring, have you looked into how that would look or what that quantification would be?

I know the one big bill is less than 1%, but EAPTCs will be more relevant. I just curious how you think about that.

Thank you.

Yeah, we have, we've looked at the analysis in our business and again, I feel like we're appropriately insulated just given the diversity of clients that we serve and the diversity of patients that they serve. So, but it's similar thought process there.

We've done some sensitivity analysis on our business model and Again, what I think what it speaks to in the affirmative is Waystar strong business model, how in demand our solutions are, the ways that provider organizations are prioritizing Waystar to be able to procure solutions that help them.

Manage this type of difficult environment and we can help them do that and our results attest to that.

Thanks, Brian.

One moment for our next question.

Brian Peterson, Raymond James.

Thanks, gentlemen, and I welcome my congrats in a Quarter. Matt wanted to double click on mid cycle.

You're clearly leaning into that opportunity with iodine. Could you help me understand how penetrated that segment is relative to the other areas of RCM?

And as we think about the AI impact on the value to customers, like, do you think mid-cycle is maybe the first act Relative to other areas we would love to unpack that a bit.

Thanks Guys.

Yeah, thanks, Brian.

So, several thoughts here. We do know that mid-cycle is the source where providers experience a lot of pain. You think historically, you can probably picture this in your mind when the, when you as the patient walk into the provider and they see you as the patient, and they're trying to keep track of that interaction from a clinical perspective. .

That, that's historically been very manual labour, manual work. If a provider seeing 40 patients to 50 patients a day, trying to keep track of that, we often hear providers talking about going back at the end of their day trying to retrospectively recall what their encounter was. Sometimes they'll dictate, sometimes there's other ways to get that information recorded.

We do think that the mid-cycle that, again, that space between the patient-provider clinical encounter and on the other side, where a claim is formed and successfully submitted, that space is ripe with opportunity for. AI for AI impact when we think about how much opportunities is left, we said, last week on the call that this represents about a 15% total addressable market expansion for us.

That's by the strictest definitions, but we believe That there's opportunity for us to make it much larger as software and AI consume manual work and manual service. And we think step one for us in this regard is the acquisition that we announced, and we'll just work to make this really successful again, because it's a source of where a lot of pain has been experienced by providers.

We like the fact that Iodine has some really compelling solutions that they are market leaders. They have over 160 leading custom AI models that reduce the need for manual work and claim re-review by more than 70%, and they're processing 160 million clinical encounters and improving the notes in those encounters every year.

And they cover approximately 34% of all inpatient discharges. So as we think about the opportunity, what we've spoken to is, the fact that, this clinical data that iodine generates, it certainly feeds their AI models today and it's this learning kind of self-improving thing.

But as Waystar gets appropriate access to that clinical data set in the future, we believe that it will bolster Waystar's current software with clinical information and make our current software even better and more compelling.

Think about the clinical data benefits that we could add to prior authorizations and denial and appeal. Management automation and the patient financial experience solution. So we're really excited about the AI opportunity here and not just us, we, announced this last week, we had the chance to like get insight from our clients.

So you can bet that as soon as our announcement was over, we scheduled a call with our advisory board. I know iodine did the same. The client sentiment was 100% positive. I heard direct quotes from our advisory board client members who said, quote, We're thrilled about this announcement. This will be impressive for us and for healthcare.

Another one said, quote, very exciting acquisition for Waystar feels like the perfect fit for you. As you may be aware, we recently implemented iodine across our system. We're looking forward to realizing the full benefit of the opportunities. Discovered in our assessment, the iodine team, much like Waystar's team, has been very invested and engaged throughout the implementation.

And then this other one that's a favourite, quote, now I can say that I'm an early adopter at both Waystar and iodine. You know I've been a long-time advocate of Waystar, but now, I'm not sure that you knew that I was also an early adopter at iodine. This is all very exciting.

And so we think about the AI opportunity here to bring modern software, AI that improves the clinical documentation that optimizes the claim, and our quest, our ultimate goal to create the perfect undeniable claim that this is a great fit.

And one other thing I just would add Iodine serves 150 plus clients that constitute or represent more than 1000 hospitals in our research, approximately 1/3 of those clients are also Water clients.

And so there's this tremendous bidirectional cross-sell opportunity that will emerge from this. So not only is this a perfect AI fit and strategic fit, but it also will lead to, we believe, long term great financial sense as well.

Great color and love the passion, Matt.

Thanks Guys.

Thanks. You can tell I'm excited about this.

Ryan Daniels, William Blair.

Yeah guys, thanks for taking the questions.

Matt, one for you hit on this a little bit in your prepared comments, but earlier this week we effectively heard from one of your competitors that their techno technology is falling behind the curve and really impacting market performance.

I'm curious if you could dive a little bit deeper about what you're seeing on the competitive front and perhaps any color on recent win rates or how your modern platform is impacting the sales pipeline versus what you've seen in past years against your peers. Thanks.

Thanks, Ryan.

We, I did add some comments earlier, we are seeing continued switching on the horizon. Our win rates. Have stayed consistent with what we published as part of the S1, so strong win rates against all of our direct competitors, and we believe that this is an opportunity for Waystar to continue to execute on our play.

We have noted a level of unrest in the changed client base in particular, as I mentioned, and. And we believe that looking at reflecting on our qualified pipeline of opportunities, seeing the number of RFPs and jump balls, staying consistently strong, and looking at the bookings results that we've achieved so far this year, we're excited about the opportunity that we see and the momentum that we feel is kind of building in the market. We believe that Waystar could be a share gainer here.

Okay perfect I appreciate it thank you.

Thanks.

Jeering, Tru Securities.

Thank you and congratulations on a strong Quarter. I want to follow up on your comments around health plans, pledge around reducing the need for prior authorization, given your deep partnership with health systems and providers.

What is the early feedback on this development? Are providers making any changes in their workflow in response? Is it too early to say? And related to that we have heard about that concern among providers that this might drive more denials post-patient interaction which could be actually good for your platform denial management, but just curious, like any feedback from providers on that.

Yes, thank you, Jeering. I don't know that necessarily there's, we see that there's more than 2 billion prior authorizations that occur today. As the authorization process can be very necessary and important at times. It's a way for payers to kind of play a stage gate on what care gets delivered for complex medical procedures or encounters.

And I think what the prior authorization pledge highlighted from our perspective is that can increasingly be, they can increasingly deploy modern technical protocols to drive those interactions. We think that's a very good thing.

Modern APIs that are secure that allow for providers to rapidly get authorization from payers. And I'll tell you right now, the early feedback is, providers and patients suffer from authorizations that are manually. That take some cases days where care is delayed, a patient comes to the office hoping to get a procedure or something done or advancing their health, care, and they can't, they're paused, they have to end up leaving and coming back at another time.

We our prior authorization solutions automate as we highlighted 90% of the of those authorizations, and we think we're just getting started and we can have a voice and be a market leader here to represent providers and pay.

Patients and to help streamline and bring more benefit. I don't know that it will be reducing the need for fi for prior authorizations to your earlier question as much as it will be streamlining the need and creating more real-time opportunities and Waystars in a position to help and continue its market leadership in this area.

Great, thanks, matt.

Thank you.

Charles Ree, (in audible) TD Cow

Hi, this is Lucas on for Charles.

Thanks for taking the questions and congrats on the Quarter. Recently we've heard that the competitor impacted by the cyberattack has recently been reaching out to customers that have left as a result of the outage, pushing hard for them to return after them.

Are back online possibly using contractual obligations to do so. I guess one, are you experiencing this? And then two, you noted earlier seeing excellent retention amongst these customers from that competitor but curious if it's possible that you see this as a risk going forward.

We have not noticed that again, we, we've seen excellent retention amongst the cohort that joined us, and, I won't make a lot of additional comments on kind of what they might be doing in the market, but we believe that as we move further and further away from the actual cyberattack and outage itself, this will be an opportunity for Waystar to help.

The, this next kind of cohort of clients that are potentially in a state of unrest, find a great home at Waystar. So, I think that's all I'll comment further given what I've already said, but we would note that there was a survey that suggested that there's more. More than 36% of the survey respondents that are looking or likely to switch vendors and that a third of those respondents are.

Coming from the incumbent competitor that you highlighted. So I'll just leave it at that's okay.

Thanks, appreciate it.

Daniel Grossle, City.

Hi guys, thanks for taking the question. I'd like to go back to the 3 large client wins that helped boost volume revenue this Quarter. Were those wins contemplated in guidance last quarter, and so, the upside is really coming from onboarding them faster than anticipated.

And then I'm curious if you can provide a bit more detail on those clients, namely for these competitive takeaways? Are they health system or ambulatory clients and Is there opportunity for further cross sales this year? Thanks.

Yeah, thanks, Daniel. This is Steve.

I'll hit the first question regarding the contemplation and with respect to Guidance. We for our larger clients we typically, and we've talked about this in the past. We typically expect the time to revenue associated with implementation from those larger Clients. To occur over several months, generally between 6 months to 12 months.

And maybe sometimes even longer depending upon how they're rolling in those out amongst their various facilities in this case the three noted wanted to move rapidly and the solutions that they had. Contracted for allowed us to roll those out across the entire their entire footprint very rapidly, so they did lead to upside versus.

Our expectations as it pertained to the second Quarter of 2025. We have considered that now in the rest of the full year guide and it's part of the reason while beating rev. By 15 million.

From our expectation in the second Quarter for the full year we increased revenue guidance by 22 million, so that's part of the contextually our thought process on the rate substantially above our second Quarter beat. We, oh sorry, one other part to your question, as far as the mix, it wasn't all health system or large ambulatory clients rather, a mix of both.

Yeah, and were these competitive takeaways?

Yes, they were in all three cases.

Okay great thank.

Steven Valiquette, Mizuho Securities LLC.

Thanks. Yeah, hi, it's Steven Valiquette from Mizuho.

So yeah, obviously at this point a lot of key topics have already been talked about. One thing I was kind of curious about, you're really in the clearinghouse solutions market really most of the back end of a revenue cycle continuum.

Some of your biggest competitors are obviously still owned by managed care payers. One's been talked about a lot in this call, but there's other ones too. So I guess really with the results you're seeing in some of the wins you've had.

Curious if you're getting more feedback that in this environment the way stars independence is really resonating just as strong, if not even stronger, in 2025 versus 2024. You know it's hard to, quantify something like that but any qualitative color.

You know somebody mentioned, that competitor talked about kind of falling behind from a technology innovation standpoint, but really just on the independence part in particular, just curious to hear more about that and whether that's resonating really against, a lot of your other competitors that are owned by payers. Thanks.

I think Steven. We do hear that feedback from time to time. I think what providers are wanting and looking for is a sense of fairness and the concern that the claims management system or the clearinghouse might be owned by a potential payer may create a concern of conflict. We do hear that. .

Providers need and patients need a referee. They need a sense of fairness and Waystar brings that through transparency, accuracy, and efficiency. That's all, that's what we're advocating for, and we have great technology that deploys AI to help bring fairness and a referee to this process. And I do see that message resonating even stronger in 2025.

And I think part of, again, going back to, Was start as a public company. It's been really important for us to be able to share this fairness message in the market and to build our awareness that Waystar is here to help and we can help providers and thereby also help patients and so yes, to answer your questions succinctly, Steven. We do see that.

And the good news is we're delivering technology all the time, as we're delivering hundreds and hundreds of feature improvements and new capabilities in any quarter. And so providers are looking to us to help future proof the way they get paid to do it very efficiently and with a sense of fairness. And that message is resonating.

Okay, that's helpful. Thanks.

Thank You.

And I'm not showing any further questions this time.

I would like to turn the call back over to Matt Hawkins, CEO for any closing remarks.

Okay, great. Hey, thank you so much for joining today, everybody. We definitely appreciate the thoughtful questions and the engagement. Waystar enters the second half of 2025 with a sense of momentum and a sharp focus on execution, and we've updated our 2025 full year guidance. Kind of as a signal of that. We continue to deliver durable growth, impactful innovations, and meaningful ROI that drives tangible value.

And with an AI powered software platform accelerating automation and a growing base of engaged clients, we believe we're well positioned to shape the future of healthcare payments and to define what's possible, which is you've heard me say, the creation and delivery of the perfect undeniable claim.

Our vision reflects our commitment to eliminating friction, maximizing reimbursement, and delivering compounding long-term growth and innovation that leads to value. I'd like to just especially thank our, heroic clients, our amazing team members, and our shareholders for your continued trust and Partnership.

Thank you.

Ladies and gentlemen, that's conclude today's presentation. You may not disconnect and have a wonderful day (Operator Instructions and Music Playing).

Good day and thank you for standing by. Welcome to the Way Star 2nd Quarter 2025 earnings conference call (Operator Instructions).

I would not like to hand the conference over to your first speaker today, Greg McDowell, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining Waystar's 2nd quarter, 2025 earnings call. Joining me today are Matt Hawkins, Waystar's Chief Executive Officer, and Steven Oreskovich. Waystar's Chief Financial Officer.

After their remarks, we will open the call up for questions.

This afternoon we issued a press release announcing our financial results and published a presentation slide deck to accompany our prepared remarks. You can find these materials in the investor relations section of our website at investors. Wastar.com.

Before we begin, I would like to 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 afternoon'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 this call are made only as of the date of this call.

During today's call, we will also discuss certain non-gap financial measures. We have provided reconciliations of the non-gap 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. With that, I'll turn it over to Matt.

Thank you, Greg, and good afternoon, everyone.

Thank you for joining our 2nd Quarter of 2025 earnings call. I will begin today by highlighting Waystar's recently announced agreement to acquire iodine software, a proven leader in AI-powered clinical intelligence. Iodine is a highly complementary strategic fit, and this transaction is a major step forward in accelerating Waystar's mission to simplify healthcare payments. We look forward to extending WayStar's leadership.

In the critical stage of the revenue cycle between care delivery and claim submission, where providers lose billions each year to administrative inefficiencies and expanding Waystar's total addressable market by more than 15%.

The purchase price of 1.25 billion represents a high 10s enterprise value to adjusted EBITDA multiple based on iodine's estimated 2025 EBITDA adjusted for synergies. As a clear vote of confidence in Waystar, Advent International, iodine's largest shareholder, is expected to receive 100% of its consideration in the form of Waystar's Common stock. Subject to an 18-month lockup agreement.

Iodine brings a highly recurring subscription-based business model with a financial profile that is aligned with wears. We expect the transaction to be immediately accretive to gross margin and adjust to the margin following closing and accretive to revenue growth and non-gap net income per diluted share in 2027.

The acquisition of iodine also accelerates Waystar's product roadmap by nearly two years, unlocking a new level of automation, accuracy, and performance for providers. It advances Waystar's strategic position to eradicate unnecessary denials, maximize reimbursement, and deliver meaningful ROI across the revenue cycle.

Following the anticipated close by year end, we will activate Waystar's proven M&A playbook.

Our combined go to market team will capitalize on bidirectional cross-sell opportunities, expanding Waystar's reach into iodine's client base, introducing iodine's platform to Waystar clients, and unlocking greater value where we already intersect.

Across the nine acquisitions Waystar has completed, we have demonstrated our ability to ensure seamless integration and capture identified synergies to drive growth, operational excellence, and financial performance. For more on this important milestone, we encourage you to review the materials published last week available on our investor relations website. We will dedicate the remainder of today's call to reviewing Waystar's Q2 results.

Waystar delivered its fifth consecutive quarter as a public company of double-digit revenue growth and strong margins in Q2. Revenue reached $271 million representing 15% year over year growth, with an adjusted EBITDA margin of 42%.

Our momentum in the first half of 2025 has enabled Waystar to raise full year guidance for both revenue and adjusted EBITDA , which Steve will cover in more detail shortly.

As providers navigate margin pressure, workforce shortages, and legislative changes, Waystar's AI powered software platform is in strong demand. Decision makers prioritize our mission critical platform because we help their organizations get paid fully and accurately while reducing complexity and administrative burden.

Waystar is uniquely positioned to address evolving industry needs, deliver meaningful ROI, and create long-term value for shareholders.

In a dynamic market and evolving policy landscape, two recent developments are worth nothing. First, the one big, beautiful Bill Act. And second, the prior authorization pledge led by America's health insurance plans.

The One Big Beautiful Bill Act introduces changes to Medicaid funding over the next decade and imposes stricter eligibility criteria for both Medicaid and Affordable Care Act exchange coverage. Importantly, we believe Waystar is well insulated from downside risk across a range of scenarios. In a hypothetical analysis in which 15% of Medicaid funding were to be affected.

Waystar's trailing 12-month revenue would be impacted by less than 1%. More importantly, these conditions highlight the advantage of Waystar's purpose-built platform, which is already equipped to support providers across all payer types.

Whether volumes shift across Medicaid, Medicare, commercial, or self-pay, Waystar enables providers to maximize reimbursement, reduce denials, and operate efficiently. As I will describe in a moment, capabilities such as insurance coverage detection, charity screening, patient payments, and unified payment processing are essential for helping providers navigate this evolving funding landscape.

Now let's turn to the prior authorization pledge led by America's Health Insurance plans.

More than 60 health insurers recently signed a non-binding commitment with the US Department of Health and Human Services outlining a multi-year path to reduce unnecessary prior authorization requirements by 2026 and implement standardized electronic workflows by 2027.

We note that Waystar has long been a market leader in prior authorization automation, well ahead of this anticipated industry pledge.

Our software authorization Manager connects healthcare providers to a broad range of payers while Of Accelerate, launched earlier this year, automates every step of the prior authorization process and enables auto approval. With more than 2 billion prior authorization submissions occurring annually. This remains one of healthcare's most burdensome and resource intensive manual processes.

Today, Waystar delivers more than 90% touchless authorizations for a mid-size help system. This level of advanced automation can unlock capacity equivalent to over a dozen full-time employees, freeing staff to focus on higher value work.

Waystar is encouraged to see the broader industry coalescing around initiatives that benefit providers and patients.

And Waystar will continue to lead from the front, anticipating change and tackling healthcare's most complex challenges with AI powered software. As a result, Waystar clients are well equipped to navigate regulatory demands, unlock meaningful ROI, and drive strong financial performance.

Waystar has established deep trust with over 1 million providers reinforcing our conviction that our growth strategy is making a tangible impact. This trust is reflected in our 115% net revenue retention rate and the growing number of clients generating more than $100,000 in trailing 12-month revenue now at 1268. Which is a 14% increase year over year.

Our compounding growth algorithm begins with the enduring relationships we create with our clients.

Waystar is a proven innovator delivering software that empowers providers to get paid fully and faster with unprecedented automation and greater accuracy. Each innovation is purpose built to address healthcare's most complex challenges. Let me highlight a few now. First, insurance coverage and eligibility.

As shifting coverage policies introduce more complexity and increased gaps in insurance eligibility, providers face a rising risk of denied or delayed payments.

Waystar's AI powered software platform delivers unmatched performance in resolving inaccurate or unknown coverage, automatically identifying the correct insurance in as many as 55% of cases that would otherwise result in write-offs. The result revenue is recovered in seconds with no manual effort required from the provider. For a mid-sized health system. This can drive upwards of $20 million in incremental annual reimbursement.

Second, patient payment optimization. As more financial responsibility shifts to patients.

Providers face growing pressure to improve affordability, streamline collections, and deliver a positive patient experience. Waystar's AI powered software platform automatically identifies financial assistance eligibility and pairs it with intuitive digital first billing and integrated patient payment options. T

his approach drives up to 80% patient self-service adoption and more than a 20% lift in patient collections, translating to nearly $8 million in annual impact for a mid-size health system, while significantly reducing the effort required to collect. Importantly, a strong patient payment experience builds trust between the provider and patient. At a critical point in the patient journey, reflecting in patient net promoter scores above 60 for healthcare providers using Waystar software platform.

Third, reimbursement and cash flow. In the first half of 2025, Waystar's AI powered software platform prevented nearly $6 billion in denied claims. When denials do occur, our appeal capabilities accelerate recovery and increase overturn rates, unlocking millions in reimbursement.

Clients also reduced days to pay by up to 15%, strengthening cash flow and operational resilience.

AI is at the center of Waystar's innovation strategy. Today, the vast majority of revenue is generated from software where AI is actively driving results. We are also generating new incremental revenue with the launch of Waystar's Altitude AI, which deploys generative AI in key use cases on Waystar's platform.

Waste altitude AI delivers tangible outcomes such as a 70% boost in appeal productivity and double digit increases in overturn rates, freeing up capacity equivalent to nearly 10 full-time employees for a mid-size health system. Innovations like these are delivering meaningful ROI, strengthening Waystar’s leadership, and improving provider financial performance.

A recent Forrester study of more than 300 provider leaders confirmed. That trusted vendors like Waystar are preferred for AI adoption. In contrast to new market entrants, revenue cycle leaders cited scale, integration, and outcomes as top priorities, areas where Waystar has demonstrated clear leadership in all three categories.

Waystar's growth strategy is grounded in proven results, impactful innovation, and enduring client trust. As the industry evolves, Waystar is uniquely positioned to lead with a unified AI powered software platform that delivers automation, accuracy, and meaningful results at scale. We look forward to advancing our software product roadmap and helping providers strengthen financial performance and stay ahead in an increasingly complex environment.

Waystar is proud of the continued recognition of its software platform, culture, and the results we deliver to providers and patients. In Q2, Waystar was recognized as the best overall healthcare payments solution provider by Med tech Breakthrough and named one of the US news best companies to work for. These accolades reflect the unwavering commitment of the Waystar team and our clients to simplify healthcare payments.

Waystar is well governed by a strong, experienced board of directors. In Q2, 2 new independent board members, Ashima Gupta and Mike Roman, joined, bringing valuable expertise and perspective that are already contributing meaningfully to Waystar's long-term strategy.

With that, I'll turn it over to Steve to walk through the financial details from the Quarter.

Thanks, Matt.

Revenue increased 15% year over year in the second Quarter to 271 million. The basis of Q2 growth continues to be our durable. Predictable model that produces low double digit revenue growth annually on a normalized basis.

This includes expanding the client base, producing more than $100,000 of revenue in the last 12 months to 1268 at Quarter end. An increase of 24 clients in the quarter and an increase of 14% year over year.

It also includes a high net revenue retention rate, which was 115% for the last 12 months and compares to 17% year over year growth over the last 12 months. As discussed on our last call, the net revenue retention rate benefits from the rapid time to revenue from clients impacted by a competitor cyber event in early 2024.

And elevated patient utilization of the health care system over the past year. The other components of the bridge from gross to net revenue retention are consistent with prior Quarters.

Subscription revenue of 131 million increased 17% year over year and 5% sequentially, reflecting strong performance in the business. Volume-based revenue of 138 million increased 14% year over year and 6% sequentially.

Volume-based revenue benefited from rapid time to revenue from a few large clients that we took live in the Quarter. These 3 implementations highlight our ability to rapidly onboard large clients. Adjusted EBITDA of 113 million for the second quarter, increased 20% year over year.

Our adjusted EBITDA down margin is 42%, above our long-term target of approximately 40%.

The adjusted even the outperformance was driven by both the revenue upside as well as a slight revenue mix shift to higher margin provider solutions, which comprised approximately 70% of the total revenue. Additionally, we realize benefits from operational efficiency initiatives while at the same time investing in areas such as innovation, cybersecurity, and client experience.

Unlevered free cash flow was 111 million in the second Quarter of 2025 with an unlevered free cash flow to adjusted EBITDA conversion ratio of 98%. The ratio this quarter benefits from the appropriate delay of federal tax payments to the 4th Quarter. The strong first half puts us in a good position to achieve our 70% long term target for the year.

The trend of high cash flow conversion coupled with expansion of our trailing 12 month adjusted EBITDA generated a 2.2 times net debt to adjusted EBITDA leverage ratio at June 30.

Which is down 0.6 times since the beginning of the year. Our continued ability to deliver this Quarter aligns with our previously stated goal of approximately one turn annually.

Regarding 2025 full year guidance, please note the following excludes any potential impact from the pending acquisition of iodine. We are raising revenue guidance for 2025 to a range of $130 million to $142 million with a midpoint of 1 billion $36 million which represents an increase of $22 million or 2% versus prior guidance midpoint.

And represents 10% year over year growth. We've included a slide in the IR presentation reconciling the expected 2025 revenue growth rate of 10% at the midpoint of guidance. And a normalized revenue growth rate of 12%. Which is adjusted for revenue realized in 2024 that would have occurred in 2025 under typical timelines. On previous calls we've talked about the 1st half, second half dynamic of our business.

As expected, our first half revenue was over 50% of projected full year guidance, primarily based on the shaping of volume-based revenue, including seasonality in the approximate 30% of total revenue generated by patient payment solutions.

As a reminder, 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 meet those deductibles in the latter portion of the year.

Altogether, we expect total revenue to be down sequentially in Q3 as compared to Q2 and on an absolute dollar basis we currently expect Q3 and Q4 revenue to be similar. We are also raising adjusted EBITDA guidance to a range of 418 million to 426 million with a midpoint of 422 million.

Increasing by $12 million or 3% versus the prior guidance midpoint we now expect an adjusted even to margin of approximately 41% for 2025. Driven in part by the outperformance in the first half of the year.

Again, our updated guidance excludes the impact of the pending acquisition of iodine. As we mentioned on the call last week, on a stand-alone basis, iodine expects approximately 120 million to $125 million of subscription-based revenue for 2025.

At a gross margin of approximately 75% and an adjusted EBITDA margin of approximately 40%. Additionally, we expect to realize over 15 million of cost synergies within two years of closing the acquisition.

We prioritize maintaining a strong balance sheet and project net leverage to be approximately 3.5 times following the transaction. For clarity, this would only include the expected trailing 12 months of adjusted EBITDA from was our stand alone.

As noted earlier, we have demonstrated the ability to deliver quickly through strong free cash flow and adjusted EBITDA growth, and we expect to do so post close.

Operator, please open the call for questions.

Thank you, ladies and gentlemen (Operator Instructions).

Alexei Gogolev, JPMorgan.

Hi, this is Destiny one for Lexi. Thanks for taking the call. And 1225 you mentioned, 10 million revenues boosts coming from client migration post-chain cyberattack.

Has there been any benefit in Q2. Or it's now completely over and are we back to intentional business decision making?

Thank you.

Yeah, thanks for the question, Destiny. This is Steve.

As we had mentioned on our prior earnings call, we had expected by the time we hit Q2 of 2025 that year over year benefit would essentially have a lapse, such that it doesn't have a significant difference between the as reported growth rate and the normalized growth rate, and we did see that come to fruition here in the 2nd Quarter, so there isn't.

Anything notable to call out, and that's why he didn't see me mention anything in the prepared remarks.

Yeah, and Destiny, what I would add, this is Matt.

In the original cohort of those that did adopt the Wayar software platform, we've seen excellent retention and continued progress in the cross sell opportunities there.

And not calling it out doesn't mean that we're not seeing a tremendous progress. We just are choosing to be sound, given the competitive nature of what we're doing. I will say that it's, it represents a tremendous opportunity for Wastar to continue to execute our play. And we do see, just given the level of unrest in that client base, we see continued switching on the horizon.

We know one recent survey suggested that more than 36% of respondents are likely to switch clearinghouse vendors and that, some of those changed clients that have not switched represented nearly a third of the respondents. So, we feel like Waystar is a great home, a trusted vendor with strong net promoter scores amongst that cohort that we've already helped and certainly more broadly across our whole client base, but we look forward to being a share gainer during this period of time as we continue to execute our play.

Thank you.

One moment for our next question.

Adam Hotchkiss, Goldman Sachs.

Great, thank, thanks so much for taking the question. I just wanted to touch on the rapid on boarding of large clients you mentioned. Is there any reason that some of the volume-based revenue that was brought on from those clients wouldn't be recurring in the second half of the year? I just note that because I think the guidance implies.

A greater step down in second half revenue than I than I think we're used to and so I'm just trying to understand the outperformance in the second quarter and why we wouldn't expect that to flow through to the second half and I guess how you think about the upside risk to the second half around those dynamics plus the volume based side. Thanks so much.

Thanks Adam. Let me speak to our ability to rapidly onboard clients first of all. As you'll recall, we're a cloud-based software platform and we can deploy our software very rapidly, especially in moments where like we saw with the change cohort of impacted clients where they needed it, but also in opportunities where clients make a decision and they just want to move fast.

We have a lot of experience and our software is architected and certainly configurable in ways that make it easy to deploy rapidly. We were thrilled to be able to work with these 3 clients to rapidly onboard them and that, as you noted, did impact our second quarter revenue results.

Steve, let me turn it to you for thinking through the second part of his question.

Yeah first, just for some context specific to the second Quarter, Adam, from a benefit perspective as it pertains to year over year growth rate, if I round up, it's about 2% of that year over year growth rate to your question regarding the recurring nature of that.

We would expect it to be highly recurring as you're well aware, we have a construct with our contracts such that roughly half of the revenue that we generate comes through subscription software revenue with the other piece, the other approximately 50% volume based, and the Timing, especially with larger clients of when the subscription based aspect kicks intends to be a little, a few months or several months post, signing of the contract based upon the expected roll out. So that revenue is illustrating itself and showing up this quarter in volume based as a result of the fact that it's out.