Waystar Holding Corp. (WAY) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of Waystar Holding Corp. (“Waystar”, the “Company”, “we”, “us”, and “our”) financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties, and other factors outside the Company’s control, as well as assumptions, such as our plans, objectives, expectations, and intentions. Our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including those described under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” above and Part I, Item 1A, “Risk Factors” in this Form 10-K and our other filings with the SEC.
Overview
Waystar provides healthcare organizations with mission-critical cloud software that simplifies healthcare payments. Our enterprise-grade platform streamlines the complex and disparate processes our healthcare provider clients must manage to be reimbursed correctly, while improving the payments experience for providers, patients, and payers. We leverage AI as well as proprietary, advanced algorithms to automate payment-related workflow tasks and drive continuous improvement, which enhances claim and billing accuracy, enriches data integrity, and reduces labor costs for providers.
Our software is used daily by providers of all types and sizes across the continuum of care, including physician practices, clinics, surgical centers, and laboratories, as well as large hospitals and health systems. We currently serve over 30,000 clients of various sizes, representing over one million distinct providers practicing across a variety of care sites, including 16 of the top 20 institutions on the U.S. News Best Hospitals Honor Roll. Our business model is designed such that as our clients grow to serve more patients, their claims and transactional volumes increase, resulting in corresponding growth in our business. In addition, our clients frequently adopt a greater number of our solutions over time and introduce our solutions across new sites of care. In 2024, we facilitated over six billion healthcare payments transactions, including over $1.8 trillion in gross claims volume. As of 2023, we facilitated healthcare payments transactions spanning approximately 50% of patients in the United States.
Our platform benefits from powerful network effects. Our cloud-based software is driven by a sophisticated, automated, and curated rules engine, employing AI to generate and incorporate real-time feedback from millions of network transactions processed through our platform each day. Every transaction we process provides additional data insights across providers, patients, and payers, which are embedded in updates that are deployed efficiently across our client base. This results in cumulative benefits to us over time —as we capture more data from each transaction we process, we leverage that data to continue to improve the Waystar platform through embedded machine learning, advanced algorithms, and other in-house AI technologies to deliver added value to our clients. In turn, the more value we create for our clients, the more likely it is that they will continue to use our products, allowing us to continue to capture more data that results in tangible improvements to our platform. As a result, our clients benefit from faster and more efficient performance from software that is evolving to meet ever-changing regulatory and payer requirements, enabling accurate and timely reimbursement.
We have demonstrated an ability to drive recurring, predictable, and profitable growth. Over 99% of our revenue is either recurring subscription or based on highly predictable volumes. For the twelve months ended December 31, 2024, our Net Revenue Retention Rate was 110.1% and we have 1,203 clients as of December 31, 2024 generating over $100,000 over the same twelve-month period. For the year ended December 31, 2024, we generated revenue of $943.5 million (reflecting a 19.3% increase compared to revenue of $791.0 million for the same period in the prior year), net loss of $19.1 million (compared to net loss of $51.3 million for the same period in the prior year), and Adjusted EBITDA of $383.5 million (reflecting a 14.9% increase compared to Adjusted EBITDA of $333.7 million for the same period in the prior year).
Initial Public Offering
In June 2024, we completed an IPO of 45,000,000 shares of common stock at a price of $21.50 per share. After underwriting discounts and commissions of $53.2 million, we received total proceeds from the offering of $914.3 million. On July 5, 2024, pursuant to the option granted to the underwriters for a period of 30 days from the date of the prospectus to purchase up to 6,750,000 additional shares of common stock from us at the IPO price less the underwriting discount, the underwriters exercised the right to purchase 5,059,010 additional shares of common stock, resulting in additional net proceeds of $102.8 million, after deducting underwriting discounts and commissions of $6.0 million. The remaining option to purchase additional shares expired unexercised at the end of the 30-day period. See Part II, Item 8, “Financial Statements—Note 1 (Business)”, for more information.
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Significant Items Affecting Comparability
We believe that the future growth and profitability of our business, and the comparability of our results from period to period, depend on numerous factors, including the following:
Our Ability to Expand our Relationship with Existing Clients
As our clients grow their businesses and provide more services and see more patients, our volume-based revenues also increase. In addition, our growth in revenues also depends on our ability to sell more products and solutions to existing clients, including through cross-selling as our clients adopt additional Waystar offerings as well as up-selling as our clients leverage our solutions across additional providers and sites of care.
Our Ability to Grow our Client Base
We are focused on continuing to grow our client base, which will depend in part on our ability to continue to maintain our product leadership, invest in our research and development team, and maintain our reputation and brand.
Timing and Number of Acquisitions
Since 2018, we have completed and successfully integrated nine acquisitions, two of which closed in the second half of 2023; HealthPay24 on August 3, 2023; and certain assets of Olive AI, Inc.’s Clearinghouse and Patient Access business on October 31, 2023. The historical results of operations of our acquisitions are only included starting from the date of closing of such acquisition. As a result, our consolidated statements of operations for any given period during which an acquisition closed may not be comparable to future periods, which would include the results of operations of such acquisition for the entirety of such future period.
Impacts of Our Competitor’s Cybersecurity Attack
Following the February 2024 cybersecurity incident involving one of our competitors, more than 30,000 providers, including a significant number of large health systems and ambulatory providers, began adopting our solutions, and we were able to implement our solutions for many of these new clients in as little as 48 hours. This incident and our response to it generated approximately $34 million in additional revenue in the year ended December 31, 2024 due to increased win rates above our historically competitive rates and associated accelerated implementation timeline.
Impacts of the IPO
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Debt Repayment. In connection with the closing of the IPO, we repaid $909.1 million outstanding principal amount and $2.8 million accrued interest on our First Lien Credit Facility and incurred debt extinguishment costs of $9.8 million related to the write-off of unamortized debt issuance costs. On July 12, 2024, we utilized the additional proceeds from the underwriters’ exercise of the overallotment option, as well as cash on hand, to repay $110.9 million outstanding principal and $0.4 million accrued interest on our First Lien Credit Facility. The debt repayments will result in lower interest expense moving forward, partially offset by losses on extinguishment of debt in the period the debt repayment is made. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Stock-Based Compensation Expenses. We expect to recognize stock-based compensation expense of $17.9 million per year over the applicable vesting periods in connection with equity awards granted in connection with the IPO. Such stock-based compensation expense will be reflected in our results of operations from the closing date of the IPO through the applicable vesting periods of such awards. Additionally, we recognized $33.1 million of stock-based compensation expense during the year ended December 31, 2024 as the vesting of our performance condition options became probable upon the closing of the IPO as the implicit service period for the awards established at the grant date had elapsed. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Incremental Public Company Expenses. Following the IPO, we have begun to incur significant expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, and investor and public relation expenses. These costs will generally be expensed under general and administrative expenses. |
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Components of Results of Operations
Revenue
We primarily generate two types of revenue: (i) subscription revenue and (ii) volume-based revenue, which account for 99% of total revenue for all periods presented. We believe we have high visibility into our volume-based and subscription revenue from existing clients. We refer to the solutions our clients use to better process and understand their payment workflows from payers as provider solutions, and we refer to the products that assist healthcare providers in collecting payments from patients as patient payment solutions. We expect provider solutions will continue to generate the substantial majority of our total revenue, although the revenue mix attributable to patient payment solutions is expected to increase slightly over time.
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Subscription revenue. Reflects recurring monthly provider count fees and minimum amounts owed. The vast majority of subscription revenue is generated by provider solutions, which constitute approximately 70% of total revenue for the periods presented. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Volume-based revenue. Represents recurring fees associated with transaction count or dollar volumes in excess of minimums. Generally, approximately half of our volume-based revenue is generated from provider solutions that are based on transaction count, with the other half from patient payments solutions that are based on either dollar volumes or transaction count. |
We also derive revenue from implementation fees for our software, as well as hardware sales to facilitate patient payments. Our implementation fees are billed upfront, and the revenue is recognized ratably over the contract term.
Cost of Revenue (Exclusive of Depreciation and Amortization)
Cost of revenue includes salaries, stock-based compensation, and benefits (“personnel costs”) for our team members who are focused on implementation, support, and other client-focused operations, as well as team members focused on enhancing and developing our platform. Cost of revenue also includes costs for third-party technology such as interchange fees and infrastructure related to the operations of our platform, including communicating and processing patient payments, and services to support the delivery of our solutions. Third-party costs for patient payments solutions are approximately 60% of the revenue generated from these solutions, while third-party costs for provider solutions are approximately 6% to 8% of the associated revenue, in each case, for the years ended December 31, 2024 and 2023.
Sales and Marketing
Sales and marketing costs consist primarily of personnel costs, internal sales commissions, channel partner fees, travel, and advertising costs.
General and Administrative
General and administrative expenses consist of personnel costs incurred in our corporate service functions such as finance expenses, legal, human resources, and information technology, as well as other professional service costs.
Research and Development
Research and development (“R&D”) costs consist primarily of personnel costs for team members engaged in research and development activities as well as third-party fees. All such costs are expensed as incurred, except for capitalized software development costs.
Depreciation and Amortization
Depreciation and amortization consists of the depreciation of property and equipment and amortization of certain intangible assets, including capitalized software.
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Other Expense
Other expense consists primarily of interest expense and related-party interest expense, inclusive of the impact of interest rate swaps.
Income Tax Benefit
Income tax benefit includes current income tax and income tax credits from deferred taxes. Income tax benefit is recognized in profit and loss except to the extent that it relates to items recognized in equity or other comprehensive income, in which case the income tax expense is also recognized in equity or other comprehensive income.
Results of Operations for the Years Ended December 31, 2024, 2023 and 2022
The following table provides consolidated operating results for the periods indicated and percentage of revenue for each line item:
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Years ended December 31, | ||||||||||||||||||
| | | 2024 | | 2023 | | 2022 | | 2024 vs 2023 Change | | 2023 vs 2022 Change | ||||||||||
| ($in thousands) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ||||||||||
| Revenue | | 943,549 | 100.0 | | 791,010 | 100.0 | | 704,874 | | 100.0 | | 152,539 | | 19.3 | | 86,136 | 12.2 | |||
| Operating expenses | | | | | | | | | | |||||||||||
| Cost of revenue (exclusive of depreciation and amortization) | | 315,730 | 33.5 | | 249,767 | 31.6 | | 214,891 | | 30.5 | | 65,963 | | 26.4 | | 34,876 | 16.2 | |||
| Sales and marketing | | 156,935 | 16.6 | | 124,437 | 15.7 | | 111,470 | | 15.8 | | 32,498 | | 26.1 | | 12,967 | 11.6 | |||
| General and administrative | | 111,753 | 11.8 | | 62,924 | 8.0 | | 73,089 | | 10.4 | | 48,829 | | 77.6 | | (10,165) | (13.9) | |||
| Research and development | | 48,775 | 5.2 | | 35,332 | 4.5 | | 32,807 | | 4.7 | | 13,443 | | 38.0 | | 2,525 | 7.7 | |||
| Depreciation and amortization | | 186,631 | 19.8 | | 176,467 | 22.3 | | 183,167 | | 26.0 | | 10,164 | | 5.8 | | (6,700) | (3.7) | |||
| Total operating expenses | | 819,824 | 86.9 | | 648,927 | 82.0 | | 615,424 | | 87.3 | | 170,897 | | 26.3 | | 33,503 | 5.4 | |||
| Income from operations | | 123,725 | 13.1 | | 142,083 | 18.0 | | 89,450 | | 12.7 | | (18,358) | | (12.9) | | 52,633 | 58.8 | |||
| Other expense | | | | | | | | | | |||||||||||
| Interest expense | | (141,762) | (15.0) | | (198,309) | (25.1) | | (148,967) | | (21.1) | | 56,547 | | (28.5) | | (49,342) | 33.1 | |||
| Related party interest expense | | (4,508) | (0.5) | | (7,608) | (1.0) | | (6,358) | | (0.9) | | 3,100 | | (40.7) | | (1,250) | 19.7 | |||
| Income/(loss) before income taxes | | (22,545) | (2.4) | | (63,834) | (8.1) | | (65,875) | | (9.3) | | 41,289 | | (64.7) | | 2,041 | (3.1) | |||
| Income tax expense/(benefit) | | (3,420) | (0.4) | | (12,500) | (1.6) | | (14,420) | | (2.0) | | 9,080 | | (72.6) | | 1,920 | (13.3) | |||
| Net income/(loss) | | (19,125) | (2.0) | | (51,334) | (6.5) | | (51,455) | | (7.3) | | 32,209 | | (62.7) | | 121 | (0.2) |
Revenue
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Years ended December 31, | |||||||||||||||||||
| | 2024 | | 2023 | | 2022 | | 2024 vs 2023 Change | | 2023 vs 2022 Change | |||||||||||
| ($in thousands) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ||||||||||
| Revenue | | | | | | | | | ||||||||||||
| Subscription revenue | | 457,975 | 48.5 | | 401,013 | 50.7 | | 366,717 | | 52.0 | | 56,962 | | 14.2 | | 34,296 | 9.4 | |||
| Volume-based revenue | | 479,913 | 50.9 | | 386,276 | 48.8 | | 335,452 | | 47.6 | | 93,637 | | 24.2 | | 50,824 | 15.2 | |||
| Services and other revenue | | 5,661 | 0.6 | | 3,721 | 0.5 | | 2,705 | | 0.4 | | 1,940 | | 52.1 | | 1,016 | 37.6 | |||
| Total Revenue | | 943,549 | 100.0 | | 791,010 | 100.0 | | 704,874 | | 100.0 | | 152,539 | | 19.3 | | 86,136 | 12.2 |
Revenue was $943.5 million for the year ended December 31, 2024 as compared to $791.0 million for the year ended December 31, 2023, an increase of $152.5 million, or 19.3%, of which $57.0 million was attributed to subscription revenue from new and existing clients, with $54.8 million generated by provider solutions, and $2.2 million generated from patient payments solutions. Another $93.6 million was attributed to volume-based revenue primarily related to expansion of existing client usage and acquired clients, of which $36.5 million was generated by provider solutions and $57.1 million by patient payments solutions.
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Included within the revenue increases over the period is an estimated $34 million increase due to our heightened win rates above our historically high rates and accelerated implementation timelines as well as increased volume-based revenue from existing clients related to the cybersecurity incident involving one of our competitors in February 2024.
Revenue was $791.0 million for the year ended December 31, 2023 as compared to $704.9 million for the year ended December 31, 2022, an increase of $86.1 million, or 12.2%, of which $34.3 million was attributed to subscription revenue primarily from existing clients, with $31.9 million generated by provider solutions, and $2.4 million generated from patient payments solutions. Another $50.8 million was attributed to volume-based revenue primarily related to expansion of existing client usage and acquired clients, of which $20.9 million was generated by provider solutions and $29.9 million by patient payments solutions.
Cost of Revenue (Exclusive of Depreciation and Amortization)
Cost of revenue was $315.7 million for the year ended December 31, 2024 as compared to $249.8 million for the year ended December 31, 2023, an increase of $66.0 million, or 26.4%. The increase was primarily driven by $52.3 million in increased costs stemming from higher transaction volume and associated third-party costs, including higher platform usage, of which approximately $13.1 million was from costs associated with provider solutions and $39.2 million from patient payments solutions. In addition, there was an $8.0 million increase in personnel costs and a $2.3 million increase in stock-based compensation expense primarily related to the recognition of performance condition options and new option and RSU grants related to the June IPO.
Cost of revenue was $249.8 million for the year ended December 31, 2023 as compared to $214.9 million for the year ended December 31, 2022, an increase of $34.9 million, or 16.2%. The increase was primarily driven by $28.5 million in increased costs stemming from higher transaction volume and associated third-party costs, including higher platform usage, of which approximately $9.5 million was from costs associated with provider solutions and $19.0 million from patient payments solutions. In addition, there was a $4.6 million increase in personnel costs.
Sales and Marketing
Sales and marketing expense was $156.9 million for the year ended December 31, 2024 as compared to $124.4 million for the year ended December 31, 2023, an increase of $32.5 million, or 26.1%. The increase was driven by an increase in channel partner fees and amortization of the internal sales commission deferred contract costs assets of $16.3 million associated with revenue growth. Additionally, there was an increase of $10.6 million in stock-based compensation expense related to the recognition of performance condition options and new option and RSU grants related to the June IPO.
Sales and marketing expense was $124.4 million for the year ended December 31, 2023 as compared to $111.5 million for the year ended December 31, 2022, an increase of $13.0 million, or 11.6%. The increase was primarily driven by an increase in channel partner fees and internal commissions of $9.1 million, an increase in marketing expenses of $0.8 million and an increase in third-party professional fees of $0.7 million.
General and Administrative
General and administrative expense was $111.8 million for the year ended December 31, 2024 as compared to $62.9 million for the year ended December 31, 2023, an increase of $48.8 million, or 77.6%. The increase was driven by a $26.3 million increase in stock-based compensation expense primarily related to the recognition of performance condition options and new option and RSU grants related to the June IPO. Additionally, there was an increase in third party fees of $14.1 million expensed as incurred, of which $10.3 million related to the debt modification related to the refinancing of the First Lien Credit Facility in February, $2.4 million related to the debt re-pricing in June, $1.3 million related to the debt re-pricing in December and $0.1 million relates to the payoff of the Second Lien Credit Facility in February.
General and administrative expense was $62.9 million for the year ended December 31, 2023 as compared to $73.1 million for the year ended December 31, 2022, a decrease of $10.2 million, or 13.9%. The decrease was primarily driven by an impairment expense recognized in 2022 related to leasehold improvements and right-of-use assets at closed office locations of $10.9 million.
Research and Development
Research and development expense was $48.8 million for the year ended December 31, 2024 as compared to $35.3 million for the year ended December 31, 2023, an increase of $13.4 million, or 38.0%. The increase was driven by higher personnel costs, net of capitalized expenses, of $7.3 million increase and increased third party consulting and engineering efforts. Additionally, there was increased stock-based compensation expense of $7.0 million primarily related to the recognition of performance condition options and new option and RSU grants related to the June IPO.
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Research and development expense was $35.3 million for the year ended December 31, 2023 as compared to $32.8 million for the year ended December 31, 2022, an increase of $2.5 million, or 7.7%. The increase was primarily driven by higher personnel costs, net of capitalized expenses, of $1.5 million and increased third party consulting and engineering efforts, net of capitalized amounts, of $0.4 million.
Depreciation and Amortization
Depreciation and amortization expense was $186.6 million for the year ended December 31, 2024, as compared to $176.5 million for the year ended December 31, 2023, an increase of $10.2 million, or 5.8%. Due to the relocation of one of our offices, we reduced the useful life of the related finance lease and leasehold improvement assets which represented $17.9 million of accelerated depreciation for the year ended December 31, 2024. This was offset by several intangibles fully matured in 2024, driving a decrease in intangible amortization.
Depreciation and amortization expense was $176.5 million for the year ended December 31, 2023 as compared to $183.2 million for the year ended December 31, 2022, a decrease of $6.7 million, or 3.7%. The decrease was primarily driven by $6.3 million of amortization in 2022 related to intangible assets that were fully amortized as of January 1, 2023.
Other Expense
Total interest expense was $146.3 million for the year ended December 31, 2024 as compared to $205.9 million for the year ended December 31, 2023, a decrease of $59.6 million, or 29.0%. The decrease was driven by the First Lien Credit Facility paydown during 2024 totaling $1.0 billion and the full paydown of the Second Lien Credit Facility.
Total interest expense was $205.9 million for the year ended December 31, 2023 as compared to $155.3 million for the year ended December 31, 2022, an increase of $50.6 million, or 32.6%, of which $48.6 million was primarily related to higher interest expense driven by higher interest rates with respect to our First Lien Credit Facility and Second Lien Credit Facility, which is net of the impact of interest rate swaps.
Income Tax Expense/ (Benefit)
Income tax benefit was $3.4 million for the year ended December 31, 2024, as compared to an income tax benefit of $12.5 million for the year ended December 31, 2023, a decrease of $9.1 million. The decrease was primarily driven by our net loss has decreased year over year, which is driven by a decrease in interest expense for the year ended December 31, 2024.
Income tax benefit was $12.5 million for the year ended December 31, 2023 as compared to $14.4 million for the year ended December 31, 2022, a decrease of $1.9 million, or 13.3%. The decrease was primarily driven by decrease in pre-tax loss.
Non-GAAP Financial Measures
We present adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income/(loss), and non-GAAP net income/(loss) per share as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes these non-GAAP financial measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses these non-GAAP financial measures to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone provide.
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Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income / (loss), and non-GAAP net income / (loss) per share are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or net income (loss) margin as measures of financial performance or cash provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, and debt service requirements. The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. A reconciliation is provided below for our non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net loss before interest expense, net, income tax benefit, depreciation and amortization, and as further adjusted for stock-based compensation expense, acquisition and integration costs, asset and lease impairments, costs related to amended debt agreements, and IPO related costs. Adjusted EBITDA margin represents adjusted EBITDA as a percentage of revenue.
The following table presents a reconciliation of net loss to adjusted EBITDA and net loss margin to adjusted EBITDA margin for the years ended December 31, 2024, 2023 and 2022:
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Years ended December 31, | ||||||||
| ($in thousands) | | 2024 | | 2023 | 2022 | |||||
| Net income/(loss) | $ | (19,125) | $ | (51,334) | | $ | (51,455) | | ||
| Interest expense | | 146,270 | | 205,917 | | 155,325 | | |||
| Income tax expense/(benefit) | | (3,420) | | (12,500) | | (14,420) | | |||
| Depreciation and amortization | | 186,631 | | 176,467 | | 183,167 | | |||
| Stock-based compensation expense | | 54,437 | | 8,848 | | 8,003 | | |||
| Acquisition and integration costs | | 859 | | 3,947 | | 2,208 | | |||
| Asset and lease impairments (b) | | | — | | | — | | | 10,856 | |
| Costs related to amended debt agreements | | 14,138 | | 393 | | 1,549 | | |||
| IPO related costs | | 2,140 | | 1,977 | | 275 | | |||
| Other (a) | | | 1,566 | | | — | | | — | |
| Adjusted EBITDA | | $ | 383,496 | | $ | 333,715 | | $ | 295,508 | |
| Revenue | | $ | 943,549 | | $ | 791,010 | | $ | 704,874 | |
| Net income/(loss) margin | | (2.0) | % | | (6.5) | % | | (7.3) | % | |
| Adjusted EBITDA margin | | | 40.6 | % | | 42.2 | % | | 41.9 | % |
| Column 1 | Column 2 |
|---|---|
| (a) | Adjustments relate to additional lease costs due to the relocation of our Louisville office. |
| Column 1 | Column 2 |
|---|---|
| (b) | Reflects the impact of the impairment expense recognized related to leasehold improvements and right-of-use assets at closed office locations. |
Non-GAAP Net Income / (Loss) and Non-GAAP Net Income / (Loss) Per Share
We define non-GAAP net income as GAAP net income excluding the impact of stock-based compensation, acquisition and integration costs, asset and lease impairments, IPO related costs, costs related to amended debt agreements and amortization of intangibles. We updated the definition of non-GAAP net income to include amortization of intangibles to align with a more common definition used by our peers. We have revised prior year disclosures to align with this updated definition. The tax effects of the adjustments are calculated using a management estimated annual effective non-GAAP tax rate of 21%.
Non-GAAP net income / (loss) per share is shown on both a basic and diluted basis and is defined as non-GAAP net income / (loss) divided by the basic or diluted weighted-average shares, respectively.
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The following table presents a reconciliation of net loss to non-GAAP net income / (loss) and non-GAAP net income / (loss) per share for the years ended December 31, 2024, 2023 and 2022:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Years ended December 31, | |||||||
| ($in thousands) | 2024 | | 2023 | 2022 | |||||
| Net income/(loss) | $ | (19,125) | | $ | (51,334) | $ | (51,455) | ||
| Stock-based compensation expense | | 54,437 | | 8,848 | | 8,003 | |||
| Acquisition and integration costs | | 859 | | 3,947 | | 2,208 | |||
| Asset and lease impairments (b) | | | — | | — | | | 10,856 | |
| Costs related to amended debt agreements | | 14,138 | | 393 | | 1,549 | |||
| IPO related costs | | 2,140 | | 1,977 | | 275 | |||
| Other (a) | | | 19,445 | | — | | | — | |
| Intangible amortization | | | 147,887 | | 159,406 | | | 167,485 | |
| Tax effect of adjustments | | (50,170) | | (36,660) | | (39,979) | |||
| Non-GAAP net income/(loss) | | $ | 169,611 | | $ | 86,577 | | $ | 98,942 |
| | | | | | | | | | |
| Non-GAAP net income/(loss) per share: | | | | | | ||||
| Basic | | $ | 1.13 | | $ | 0.71 | | $ | 0.81 |
| Diluted | | $ | 1.09 | | $ | 0.68 | | $ | 0.78 |
| Weighted-average shares outstanding: | | | | | | ||||
| Basic | | | 149,915,839 | | 121,675,430 | | | 121,684,771 | |
| Diluted | | 155,677,094 | | 126,888,989 | | 126,504,566 |
| Column 1 | Column 2 |
|---|---|
| (a) | Adjustments relate to additional lease costs of $1.6 million and accelerated depreciation of $17.9 million due to the relocation of our Louisville office. |
| Column 1 | Column 2 |
|---|---|
| (b) | Reflects the impact of the impairment expense recognized related to leasehold improvements and right-of-use assets at closed office locations. |
Key Performance Metrics
Net Revenue Retention Rate
We also regularly monitor and review our Net Revenue Retention Rate.
The following table presents our Net Revenue Retention Rate for December 31, 2024, 2023 and 2022, respectively:
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Twelve months ended December 31, | |||||
| ($in thousands) | 2024 | | 2023 | 2022 | |||
| Net Revenue Retention Rate | 110.1 | % | 108.6 | % | 109.5 | % |
Our Net Revenue Retention Rate compares twelve months of client invoices for our solutions at two period end dates. To calculate our Net Revenue Retention Rate, we first accumulate the total amount invoiced during the twelve months ending with the prior period-end, or Prior Period Invoices. We then calculate the total amount invoiced to those same clients for the twelve months ending with the current period-end, or Current Period Invoices. Current Period Invoices are inclusive of upsell, downsell, pricing changes, clients that cancel or chose not to renew, and discontinued solutions with continuing clients. The Net Revenue Retention Rate is then calculated by dividing the Current Period Invoices by the Prior Period Invoices. Our total invoices included in the analysis are greater than 98% of reported revenue. We use Net Revenue Retention Rate to evaluate our ongoing operations and for internal planning and forecasting purposes. Acquired businesses are included in the last-twelve month Net Revenue Retention Rate in the ninth quarter after acquisition, which is the earliest point that comparable post-acquisition invoices are available for both the current and prior twelve-month period.
Customer Count with $100,000 Revenue
We also regularly monitor and review our count of clients who generate more than $100,000 of revenue.
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The following table sets forth our count of clients who generate more than $100,000 of revenue for the periods presented:
| | | | | | | |
|---|---|---|---|---|---|---|
| | Year ended December 31, | |||||
| (For the 12 month period ended) | | 2024 | | 2023 | | 2022 |
| Customer Count with $100,000 Revenue | 1,203 | 1,046 | 982 |
Our count of clients who generate more than $100,000 of revenue is based on an accumulation of the amounts invoiced to clients over the preceding twelve months. The invoices for acquired clients are included starting in the first full calendar quarter after the date of acquisition.
Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short-term and long-term basis are for working capital, capital expenditures, debt service requirements, and investments in future growth, including acquisitions. We have historically funded our operations and acquisitions through our cash and cash equivalents, cash flows from operations, and debt financings. We believe that our existing unrestricted cash on hand, expected future cash flows from operations, and additional borrowings will provide sufficient resources to fund our operating requirements, as well as future capital expenditures, debt service requirements, and investments in future growth for at least the next 12 months. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings, or a combination of these potential sources of funds. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control, including those described under Part I, Item 1A, “Risk Factors” in this report.
On December 31, 2024 and 2023, we had restricted cash of $22.4 million and $9.8 million, respectively, which consists of cash deposited in lockbox accounts owned by us which are contractually required to be disbursed to participating clients on the following day, as well as cash collected on behalf of healthcare providers from patients that have not yet been remitted to providers. These funds payable are not available for our use and liquidity, and are offset on our balance sheet by an aggregated funds payable liability.
Our liquidity is influenced by many factors, including timing of revenue and corresponding cash collections, the amount and timing of investments in strategic initiatives, our investments in property, equipment, and software, as well as other factors described under Part I, Item 1A, “Risk Factors” in this report. Depending on the severity and direct impact of these factors on us, we may not be able to secure additional financing on acceptable terms, or at all.
Cash Flows
Cash flows from operating, investing, and financing activities for the years ended December 31, 2024, 2023 and 2022, are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Years ended December 31, | | 2024 vs 2023 Change | | 2023 vs 2022 Change | |||||||||||||
| ($in thousands) | 2024 | | 2023 | 2022 | Amount | | Change | | Amount | Change | |||||||||
| Net cash provided by operating activities | $ | 169,768 | $ | 51,460 | $ | 102,634 | $ | 118,308 | NM | $ | (51,174) | | NM | ||||||
| Net cash used by investing activities | | (27,268) | | (61,517) | | (17,433) | | 34,249 | NM | | (44,084) | | NM | ||||||
| Net cash provided/ (used) by financing activities | | 16,654 | | (17,151) | | (67,065) | | 33,805 | NM | | 49,914 | | NM | ||||||
| Net increase in cash and restricted cash | | $ | 159,154 | | $ | (27,208) | | $ | 18,136 | | $ | 186,362 | NM | | $ | (45,344) | | NM |
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities were $169.8 million for the year ended December 31, 2024 as compared to $51.5 million for the year ended December 31, 2023. This increase was largely driven by the changes in working capital, increases in revenue and profits, and decreases in the cash paid for interest due to the multiple paydowns on our First Lien Credit Facility in 2024.
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Cash flows provided by operating activities were $51.5 million for the year ended December 31, 2023 as compared to $102.6 million for the year ended December 31, 2022. The decrease was primarily driven by the change in deferred income taxes and income tax receivable resulting in a decrease of $43.4 million and by an impairment expense of $10.9 million recognized in 2022 related to leasehold improvements and right-of-use assets at closed office locations.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $27.3 million for the year ended December 31, 2024 as compared to $61.5 million for the year ended December 31, 2023. Cash flows used in investing activities decreased due to the $40.0 million of cash used in the 2023 acquisitions of HealthPay24 and certain assets of Olive AI (see Part II, Item 8, “Financial Statements—Note 6”).
Cash flows used in investing activities were $61.5 million for the year ended December 31, 2023 as compared to $17.4 million for the year ended December 31, 2022. Cash flows used in investing activities increased in 2023 relative to 2022 as we used $40.0 million for acquisitions completed in 2023.
Cash Flows Provided By (Used In) Financing Activities
Cash flows provided by financing activities were $16.7 million for the year ended December 31, 2024 as compared to cash flows used of $17.2 million for the year ended December 31, 2023. The increase was due to the proceeds from our IPO net of third-party IPO issuance costs (see Part II, Item 8, “Financial Statements—Note 1”), as well as the issuance of debt, net of creditor fees (see Part II, Item 8, “Financial Statements—Note 11). These increases were offset by increased payments on our debt compared to the prior period (see Part II, Item 8, “Financial Statements—Note 11”).
Cash flows used in financing activities were $17.2 million for the year ended December 31, 2023 as compared to $67.1 million for the year ended December 31, 2022. Cash flows used in financing activities decreased in 2023 relative to 2022 primarily due to the $47.0 million partial pay down in principal of the Second Lien Credit Facility in April 2022.
Indebtedness
First Lien Credit Facilities
Our indirect wholly-owned subsidiary, Waystar Technologies, Inc., a Delaware corporation (the “Borrower”), is the Borrower under a first lien credit agreement, dated as of October 22, 2019 (as amended from time to time, the “First Lien Credit Agreement”), that initially provided for an $825.0 million senior secured first lien term loans and commitments under a revolving credit facility in an aggregate principal amount of $125.0 million, with a sub-commitment for issuance of letters of credit of $25.0 million. The initial first lien term loans are scheduled to mature on October 22, 2026 and commitments under the revolving credit facility and the loans thereunder were initially scheduled to terminate and mature on October 22, 2024.
On December 1, 2019, the Borrower and certain lenders amended the First Lien Credit Agreement to add 2019 first lien incremental term loans in the amount of $100.0 million to be used for certain acquisitions consummated substantially simultaneously with the closing of such amendment. The terms of such 2019 first lien incremental term loans were the same as the terms of the initial first lien term loans, including in respect of maturity, and were considered an increase in the aggregate principal amount of the initial first lien term loans outstanding under the First Lien Credit Agreement and were part of the initial first lien term loans.
On September 23, 2020, the Borrower and certain lenders amended the First Lien Credit Agreement to (i) add 2020 first lien incremental term loans in the amount of $620.0 million to be used for certain acquisitions consummated substantially simultaneously with the closing of such amendment and (ii) add revolving credit commitments in the amount of $75.0 million to increase the revolving credit commitments available under the First Lien Credit Agreement to $200.0 million. Such 2020 first lien incremental term loans constituted a separate class of first lien term loans from the initial first lien term loans but were otherwise on the same as the terms of the initial first lien term loans (other than with respect to the “LIBOR-floor” applicable thereto).
On March 24, 2021, the Borrower and certain lenders amended the First Lien Credit Agreement to (i) reduce the “LIBOR-floor” applicable to the 2020 first lien incremental term loans and (ii) in connection therewith, combine the initial first lien term loans with the 2020 first lien incremental term loans which thereafter then constituted one class of first lien term loans.
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On August 24, 2021, the Borrower and certain lenders amended the First Lien Credit Agreement to add 2021 first lien incremental term loans in the amount of $247.0 million to be used for certain acquisitions consummated substantially simultaneously with the closing of such amendment. The terms of such 2021 first lien incremental term loans were the same as the terms of the initial first lien term loans outstanding at such time, including in respect of maturity, and were considered an increase in the aggregate principal amount of the initial first lien term loans outstanding under the First Lien Credit Agreement at such time and were part of the initial first lien term loans.
On June 1, 2023, the Borrower and certain lenders amended the First Lien Credit Agreement to replace all LIBOR-based interest rates applicable to borrowings under the revolving credit facility with a Term SOFR-based rate plus a credit spread adjustment of 0.11%.
On June 23, 2023, the Borrower and certain lenders amended the First Lien Credit Agreement to replace all LIBOR-based interest rates applicable to the first lien term loans with a Term SOFR-based rate plus a credit spread adjustment of 0.11%.
On October 6, 2023, the Borrower and certain lenders amended the First Lien Credit Agreement to, among others, (i) increase the revolving credit commitments under the First Lien Credit Agreement by $142.5 million to a total of $342.5 million, with a sub-commitment for issuance of letters of credit of $50.0 million, (ii) amend the applicable margin with respect thereto upon the consummation of a qualifying initial public offering, and (iii) extend the availability period of such revolving credit commitments and the maturity date of loans thereunder from October 22, 2024 to October 6, 2028; provided that if, prior to October 6, 2028, either (i) on the date that is 91 days prior to the maturity date of the first lien term loans (or any loans refinancing such first lien term loans), more than $150.0 million of such first lien term loans (or any such loans refinancing such first lien term loans) are outstanding or (ii) on the date that is 91 days prior to the maturity date of the second lien term loans under the Second Lien Credit Facility (or any loans refinancing such second lien term loans), any such second lien term loans (or any such loans refinancing such second lien term loans) are outstanding, the commitments under the revolving credit facility and the loans thereunder will terminate and mature on such date (the “Springing Maturity Condition”). The revolving credit commitments as increased by the amendment replaced the existing revolving credit commitments under the First Lien Credit Agreement.
On February 9, 2024, the Borrower and certain lenders amended the First Lien Credit Agreement to, among others, (i) increase the total First Lien Credit Facility term loan balance to $2.2 billion, $449.6 million of which was utilized to pay off the remaining principal and interest on the Second Lien Credit Facility, and (ii) extend the maturity date of the First Lien Credit Facility to October 22, 2029. As of February 9, 2024, the effective interest rate under the First Lien Credit Facility was 4.00% per annum above the SOFR rate.
On June 27, 2024, the Borrower and certain lenders amended the First Lien Credit Agreement to, among other things, reprice the outstanding balance bearing an interest rate of 2.75% per annum above the SOFR rate with a minimum base of 0.00%.
On December 30, 2024, the Borrower and certain lenders amended the First Lien Credit Agreement to, among other things, (i) fully refinance the Borrower’s $1,166,772,750 aggregate outstanding principal amount of term loans under the Existing Credit Agreement with replacement term loans bearing reduced interest at a rate per annum equal to, at the election of the Borrower, either (a) Adjusted Term SOFR (as defined in the First Lien Credit Agreement) subject to a floor of 0.00%, plus an applicable rate of 2.25% (compared to the previous applicable rate of 2.75%) or (b) the Alternate Base Rate (as defined in the First Lien Credit Agreement) subject to a floor of 1.00%, plus an applicable rate of 1.25% (compared to the previous applicable rate of 1.75%), (ii) increase the maximum borrowing capacity under the Revolving Credit Facility from $342.5 million to $400.0 million and (iii) reduce the interest rates under the Revolving Credit Facility to (a) Adjusted Term SOFR, plus an initial applicable rate of 1.75% (compared to the previous applicable rate of 2.25%) with adjustments to an applicable rate between 1.75% and 2.50% and (b) the Alternate Base Rate, plus an initial applicable rate of 0.75% (compared to the previous applicable rate of 1.25%) with adjustments to an applicable rate between 0.75% and 1.50%. Such adjustments will depend on the achievement of certain leverage ratios specified in the First Lien Credit Agreement.
All obligations under the First Lien Credit Agreement are unconditionally guaranteed on a senior first lien priority basis by, subject to certain exceptions, the Borrower and each of the Borrower’s existing and subsequently acquired or organized direct or indirect wholly owned restricted subsidiaries organized in the United States. Additionally, the obligations under First Lien Credit Agreement and such guarantees are secured on a first lien priority basis, subject to certain exceptions and excluded assets, by (i) the equity securities of the Borrower and of each subsidiary guarantor and (ii) security interests in, and mortgages on, substantially all personal property and material owned real property by the Borrower and each subsidiary guarantor.
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Borrowings under the First Lien Credit Agreement currently bear interest at a rate per annum equal to, at the option of the Borrower, either (i) (x) the Term SOFR rate for the applicable interest period, with a floor of 0.00%, plus (y) an applicable margin rate of, for the first lien term loans, between 3.75% and 3.50% and, for loans under the revolving credit facility, between 3.00% and 2.25%, in each case, depending on the applicable first lien leverage ratio or (ii) (x) an alternate base rate (“ABR”), with a floor of 1.00%, plus (y) an applicable margin rate of, for the first lien term loans, between 2.75% and 2.50% and, for loans under the revolving credit facility, between 2.00% and 1.25%, in each case, depending on the applicable first lien leverage ratio (with the ABR determined as the greatest of (a) the prime rate, (b) the federal funds effective rate plus 0.50%, and (c) the Term SOFR rate plus 1.00%).
In addition to paying interest on outstanding principal under the first lien term loans and the revolving credit facility, the Borrower is required to pay a commitment fee, payable quarterly in arrears, of 0.375% per annum on the average daily unused portion of the revolving credit facility, with step-down to 0.25% per annum, in each case, on such portion upon achievement of certain first lien leverage ratios. The Borrower must also pay customary letter of credit issuance and participation fees and other customary fees and expenses of the letter of credit issuers.
The Borrower is required to repay installments on the first lien term loans in quarterly principal amounts equal to approximately $2.9 million on the last business day of each March, June, September, and December of each year, with the balance payable on October 22, 2029. Additionally, the entire principal amount of revolving loans outstanding (if any) under the revolving credit facility are due and payable in full at maturity on October 6, 2028, subject to the Springing Maturity Condition, on which day the revolving credit commitments thereunder will terminate.
The Borrower is required, subject to certain exceptions, to pay outstanding amounts of the first lien term loan, (i) with 50% of excess cash flow, with step-downs upon achievement of certain first lien net leverage ratios, (ii) with 100% of the net cash proceeds of all non-ordinary course asset sales by the Borrower and its restricted subsidiaries, subject to customary reinvestment right, and (iii) with 100% of the net cash proceeds of issuances of debt obligations of the Borrower and its restricted subsidiaries, other than permitted debt. Additionally, the Borrower may voluntarily repay outstanding loans under the first lien term loan and the revolving credit facility at any time without premium or penalty. In addition, the Borrower may elect to permanently terminate or reduce all or a portion of the revolving credit commitments and the letter of credit sub-limit under the revolving credit facility at any time without premium or penalty.
The First Lien Credit Agreement also includes customary representations, warranties, covenants, and events of default (with customary grace periods, as applicable).
As of December 31, 2024, we had $1,164 million of outstanding borrowings on the first lien term loan and $400 million of availability under the revolving credit facility under the First Lien Credit Agreement, and outstanding letters of credit of $0 million under the First Lien Credit Agreement. As of December 31, 2024 and 2023, we were in compliance with the covenants under the First Lien Credit Agreement.
Second Lien Credit Facilities
Our indirect wholly-owned subsidiary, Waystar Technologies, Inc., a Delaware corporation (the “Borrower”), is the Borrower under a second lien credit agreement, dated as of October 22, 2019 (as amended from time to time, the “Second Lien Credit Agreement”), that initially provided for a second lien term loan of $255.0 million. On September 23, 2020, we increased the second lien term loan by an incremental $190.0 million (“2020 Incremental Second Lien Term Loan”) to a total of $445.0 million. On August 24, 2021, we increased the second lien term loan by an incremental $70.0 million to a total of $515.0 million in conjunction with the acquisition of Patientco (“2021 Incremental Second Lien Term Loan”). We refer to the term loan facilities under the Second Lien Credit Agreement as the “Second Lien Credit Facility.” The Second Lien Credit Facility matures on October 21, 2027. On June 27, 2023, we amended the Second Lien Credit Agreement to replace all LIBOR-based interest rates applicable to the second lien term loans with a Term SOFR-based rate plus a credit spread adjustment of 0.11%. On February 9, 2024, we utilized proceeds from the amended First Lien Credit Facility to paydown the remaining principal and interest on the Second Lien Credit Facility.
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Receivables Facility
On August 13, 2021, the Borrower, as servicer, and Waystar RC LLC, a wholly-owned “bankruptcy remote” special purpose vehicle, as “Receivables Borrower”, entered into a receivables financing agreement (the “Receivables Financing Agreement”), providing for an aggregate borrowing of up to $50 million. Loans under the Receivables Financing Agreement mature on August 13, 2024. Borrowings under the Receivables Financing Agreement accrue interest at a rate per annum of, at the option of the Receivables Borrower, either Term SOFR or base rate plus 2.00%. All amounts outstanding under the Receivables Financing Agreement are collateralized by substantially all of the accounts receivables and unbilled revenue of the Receivables Borrower. On October 31, 2023, the Borrower and Receivables Borrower amended the Receivables Financing Agreement to increase the aggregate borrowing availability to up to $80 million and extend the maturity date to October 30, 2026. On September 6, 2024, we drew $10.0 million on the Receivables Facility and used the proceeds to paydown $10.0 million on the First Lien Credit Facility.
In connection with the Receivables Financing Agreement, eligible accounts receivable of certain of our subsidiaries are sold to the Receivables Borrower. The Receivables Borrower pledges the receivables as security for loans. The accounts receivable owned by the Receivables Borrower are separate and distinct from our other assets and are not available to our other creditors should we become insolvent.
The Receivables Financing Agreement also contains customary representations, warranties, covenants, and default provisions.
As of December 31, 2024, the Receivables Borrower had $80 million in outstanding borrowings under the Receivables Financing Agreement. As of December 31, 2024 and 2023, we were in compliance with the covenants under the Receivables Financing Agreement.
Critical Accounting Policies and Estimates
The above discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are described in Note 2, “Significant Accounting Policies,” of the accompanying consolidated financial statements included elsewhere in this report. Critical accounting policies are those that we consider to be the most important in portraying our financial condition and results of operations and also require the greatest amount of judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.
Revenue Recognition
Revenue is recognized for each performance obligation upon transfer of control of the software solutions to the client in an amount that reflects the consideration we expect to receive. Revenues are recognized net of any taxes collected from clients and subsequently remitted to governmental authorities.
We derive revenue primarily from providing access to our solutions for use in the healthcare industry and in doing so generate two types of revenue: (i) subscription revenue and (ii) volume-based revenue, which account for 99% of total revenue for all periods presented. We also derive revenue from implementation fees for our software, as well as hardware sales to facilitate patient payments.
Revenue from our subscription services as well as from our volume-based services represents a single promise to provide continuous access (i.e., a stand-ready obligation) to our software solutions in the form of a service. Our software products are made available to our clients via a cloud-based, hosted platform where our clients do not have the right or practical ability to take possession of the software. As each day of providing access to the software solutions is substantially the same and the client simultaneously receives and consumes the benefits as services are provided, these services are viewed as a single performance obligation comprised of a series of distinct daily services.
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Revenue from our subscription services is recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the client. Volume-based services are priced based on transaction, dollar volume, or provider count in a given period. Given the nature of the promise is based on unknown quantities or outcomes of services to be performed over the contract term, the volume-based fee is determined to be variable consideration. The volume-based transaction fees are recognized each day using a time-elapsed output method based on the volume or transaction count at the time the clients’ transactions are processed.
Our other services are generally related to implementation activities across all solutions and hardware sales to facilitate patient payments. Implementation services are not considered performance obligations as they do not provide a distinct service to clients without the use of our software solutions. As such, implementation fees related to our solutions are billed upfront and recognized ratably over the contract term. Implementation fees and hardware sales represent less than 1% of total revenue for all periods presented.
Revenue recorded where we act in the capacity of a principal is reported on a gross basis equal to the full amount of consideration to which we expect in exchange for the good or service transferred. Revenue recorded where we act in the capacity of an agent is reported on a net basis, exclusive of any consideration provided to the principal party in the transaction.
The principal versus agent evaluation is a matter of judgment that depends on the facts and circumstances of the arrangement and is dependent on whether we control the good or service before it is transferred to the client or whether we are acting as an agent of a third party. This evaluation is performed separately for each performance obligation identified. For the majority of our contracts, we are considered the principal in the transaction with the client and recognize revenue gross of any related channel partner fees or costs. We have certain agency arrangements where third parties control the goods or services provided to a client and we recognize revenue net of any fees owed to these third parties.
Goodwill and Long-Lived Assets
Goodwill and long-lived assets comprise 88.7% of our total assets as of December 31, 2024. Goodwill represents the excess of consideration paid over the estimated fair value of the net intangible and identifiable intangible assets acquired in business combinations. We evaluate goodwill for impairment annually on October 1st or whenever there is an impairment indicator. Potential impairment indicators may include, but are not limited to, the results of our most recent annual or interim impairment testing, downward revisions to internal forecasts, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management and key personnel, changes in composition or carrying amount of net assets, and changes in share price.
ASC Topic 350, Intangibles — Goodwill and Other (“ASC 350”), allows entities to first use a qualitative approach to test goodwill for impairment by determining whether it is more likely than not (a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying value. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a quantitative impairment test is not required. If the qualitative assessment indicates that it is more likely than not that the fair value of the asset does not exceed its carrying value, we will perform the quantitative goodwill impairment test, in which we compare the fair value of the reporting unit to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, then goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
Goodwill is tested for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment (referred to as a component). Our single operating segment is also our single reporting unit as we do not have segment managers and there is no discrete information reviewed at a level lower than the consolidated entity level. All of our assets and liabilities are assigned to this single reporting unit.
For our annual goodwill impairment test during the year ended December 31, 2023, we elected to perform a qualitative assessment. Our assessment of relevant events and circumstances was designed to indicate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The assessment considered whether or not we observed changes in market conditions within the industry and macroeconomy, changes in cost factors which could result in a negative effect on earnings or financial performance of the reporting unit, such as negative or declining cash flows compared to prior period results, and other entity-specific events or conditions impacting the reporting unit. There were no indicators that it was more likely than not that the fair value of the asset did not exceed its carrying value. In connection with our goodwill impairment testing performed as of December 31, 2024, 2023, and 2022, we concluded that there was no impairment to goodwill.
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Prior assessments have indicated that the fair value exceeds the carrying value for the reporting unit with reasonable headroom and no indication of impairment. However, we elect to perform a goodwill impairment test utilizing a quantitative approach every fourth year in order to calculate a new fair value “base” to which future qualitative tests can be compared. Our most recent quantitative assessment was performed as of October 1, 2024. We utilized both an income approach and market approach to calculate a fair value of our single reporting unit, Waystar, and compared that value to the company’s carrying value as of October 1, 2024. As a result of this analysis, our fair value under each method exceeded our carrying value and therefore, no impairment was recorded.
Long-lived assets are amortized over their useful lives. We evaluate the remaining useful life of long-lived assets periodically to determine if events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We measure the recoverability of these assets by comparing the carrying amount of the asset group to the future undiscounted cash flows the assets are expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of the asset group, then the carrying amount of such assets is reduced to fair value.
Recent Accounting Pronouncements
Refer to Part II, Item 8, “Financial Statements—Note 2 (Summary of Significant Accounting Policies)”.
JOBS Act Election
We are currently an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.