EARNINGS ANALYSIS: Waystar Expects Patient Visits to Increase; Clients Focused on Solutions to Address Claim Denials

Relevant Document:
Q4 2024 Earnings Results

Revenue cycle management company Waystar said during its fourth-quarter 2024 earnings call that it sees strong demand and expects patient visits to increase with more people using the healthcare system.

The company’s guidance implies a 6% to 7.7% year-over-year increase in revenue.

Waystar typically reports a net revenue retention rate that compares the total amount invoiced during the prior 12-month period with the total amount invoiced to the same clients for the current 12-month period, inclusive of upsells, downsells, pricing changes, clients who cancel or choose not to renew, and discontinued solutions with continuing clients.

The net revenue retention rate is calculated by dividing the current 12-month period invoices by the prior 12-month period invoices.

Management said Waystar usually starts with a gross retention rate of 97% and then bridges to a net retention rate of 108% to 110% as a result of price increases, volumes, cross-sells and upsells.
 

When asked what products or solutions on the company’s platform are resonating more meaningfully, management said Waystar’s clients are being asked to do more with the same resources or less, as there is currently an emphasis on efficiency and operating margin.

Management said recent conversations have centered on the negative economic impact of denied claims, noting that healthcare organizations are spending, in aggregate, about $20 billion trying to follow up and appeal denied claims, which creates a burden on and inefficiency in the system.

Management said the types of solutions garnering attention are the ones that prevent claim denials from occurring and highlighted Waystar’s AI capabilities, which are being leveraged across the company’s platform to reduce the likelihood of claim denials.

In addition, management noted Waystar’s coverage detection product, which detects coverage for patients that in some instances may show up at a hospital without knowing they are covered and have access to care.

Moreover, at the start of the year, Waystar launched Waystar AltitudeAI, which uses generative AI to appeal denied claims.
 

Throughout FY 2024, Waystar has experienced increased costs stemming from higher transaction volumes and third-party costs, including higher platform usage, mostly because of greater patient payment solutions volumes.

The company’s patient payment solutions are aimed at helping increase cash collections from patient payments, as opposed to provider solutions, which are aimed at increasing cash collections from insurance providers.

For FY 2024, cost of revenue was $315.7 million, up 26.4% year over year, driven by $52.3 million in higher costs stemming from greater transaction volume and associated third-party costs, of which $39.2 million was from patient payments solutions and the remainder was costs associated with provider solutions.

Waystar’s adjusted gross margin for FY 2024 was about 66.8%, down from 68.5% a year earlier.

Third-party costs for patient payment solutions are about 60% of revenue generated from those solutions. This stands in contrast with third-party costs for provider solutions, which are about 6% to 8% of associated revenue.

Chief of Staff and Vice President of Special Projects Sandy Draper said on Dec. 12, 2024, that a lot of the third-party costs relate to fees paid to process card-based transactions, or interchange fees. He said as Waystar gets bigger, the company can work on being more efficient vis-à-vis patient payment costs.

Waystar’s sales and marketing, general and administrative, and research and development expenses, in aggregate, were about 26.2% of sales in FY 2024, compared with 26.3% in FY 2023. The company’s EBITDA margin fell by 160 bps year over year to 40.6%.

For FY 2025, management expects EBITDA margin of about 40%.
 

Management said more than 30,000 care providers joined Waystar in the wake of the February 2024 cyberattack on competitor Change Healthcare, which presents cross-sell opportunities. Waystar’s typical approach is to land with a client and then expand the relationship over time.

The company is engaged with about 30% of the 30,000 new care providers to explore additional software modules on Waystar’s software platform.