Waystar Holding Corp.(WAY) - 2024 Q2 - Quarterly Results

Executive Summary Q2 2024 Performance Highlights Waystar reported 20% revenue growth to $234.5 million in Q2 2024, achieving a 40% Adjusted EBITDA margin and positive client metrics - Waystar's CEO highlighted strong Q2 performance driven by client utilization of their cloud-based software, noting significant future opportunities in healthcare payment software demand[2] | Metric | Q2 2024 Value | YoY Change | | :--------------------------- | :----------------- | :--------- | | Revenue | $234.5 million | +20% | | Net Loss (GAAP) | $(27.7) million | N/A | | GAAP Net Income per share | $(0.21) | N/A | | Net Loss Margin | (11.8)% | N/A | | Non-GAAP Net Income | $5.0 million | N/A | | Non-GAAP Net Income per share| $0.04 | N/A | | Adjusted EBITDA | $93.9 million | N/A | | Adjusted EBITDA Margin | 40% | N/A | | Cash flow from operations | $15.5 million | N/A | | Unlevered Free Cash Flow | $50.3 million | N/A | | Metric | Q2 2024 Value | YoY Change | | :----------------------------------------- | :------------ | :--------- | | Clients > $100K LTM Revenue | 1,117 | +9% | | Net Revenue Retention Rate (NRR) | 108% | N/A | Financial Outlook Full Fiscal Year 2024 Guidance Waystar projects full fiscal year 2024 revenue between $902 million and $918 million, with Adjusted EBITDA of $360 million to $368 million | Metric | FY 2024 Guidance Range | | :----------------------------------- | :--------------------- | | Total Revenue | $902 million - $918 million | | Adjusted EBITDA | $360 million - $368 million | | Non-GAAP Net Income | $36 million - $42 million | | Diluted Non-GAAP Net Income per share| $0.23 - $0.27 | - Reconciliation of forward-looking non-GAAP measures to GAAP is not feasible due to unreasonable effort and variability and low visibility of certain costs[5] Non-GAAP Financial Measures and Key Performance Metrics Purpose and Limitations of Non-GAAP Measures Non-GAAP measures aid investors in performance comparison and management strategy, but are not GAAP recognized and have analytical limitations - Non-GAAP measures assist investors in comparing operating performance by excluding items not indicative of core operations[6] - Management utilizes Adjusted EBITDA for evaluating business strategies, budgeting, incentive compensation, and peer performance comparison[6] - Non-GAAP measures are not GAAP recognized and should not be considered alternatives to GAAP, possessing limitations as analytical tools[7] Definitions of Non-GAAP Financial Measures This section defines key non-GAAP measures: Adjusted EBITDA, Non-GAAP Net Income, Unlevered Free Cash Flow, Net Debt, and Adjusted Net Leverage Ratio - Adjusted EBITDA is net loss adjusted for interest, taxes, D&A, stock-based compensation, acquisition/integration, impairments, debt agreement, and IPO costs[8] - Non-GAAP Net Income excludes stock-based compensation, acquisition/integration, impairments, IPO, and debt agreement costs, applying a 21% estimated non-GAAP tax rate[9][10] - Unlevered Free Cash Flow is cash from operations plus cash interest less capital expenses; Net Debt and Adjusted Net Leverage Ratio are also defined[10] Definitions of Key Performance Metrics Waystar defines Net Revenue Retention Rate (NRR) and Customer Count with >$100,000 Revenue, including their calculation and acquisition integration rules - Net Revenue Retention Rate (NRR) compares client invoiced amounts over two twelve-month periods, accounting for upsell, downsell, pricing, and churn, with acquired businesses included after the ninth quarter[11] - Customer Count with >$100,000 Revenue is based on accumulated invoices over the preceding twelve months, including acquired clients from the first full calendar quarter post-acquisition[12] Forward-Looking Statements and Risk Factors Nature of Forward-Looking Statements The press release contains forward-looking statements about Waystar's future performance and strategy, based on current expectations and not guarantees - The press release includes forward-looking statements on Waystar's future operating results, financial position, and strategy, identified by terms like "anticipate" and "expect"[13] Risks and Uncertainties Forward-looking statements are subject to various risks including competition, client retention, acquisition risks, data privacy, and regulatory compliance - Forward-looking statements face various risks, including competition, client retention, acquisition risks, data privacy, regulatory compliance, and macroeconomic conditions[14] - The company undertakes no obligation to publicly update or review any forward-looking statement, except as legally required[15] About Waystar Company Overview and Mission Waystar provides mission-critical software to simplify healthcare payments, serving 30,000 clients and processing over $1.2 trillion in gross claims annually - Waystar's mission is to simplify healthcare payments, enabling providers to focus on patient care and financial optimization[16] - The company serves approximately 30,000 clients, representing over 1 million providers, including 18 of the top 22 U.S. hospitals[16] - Waystar's platform processes over 5 billion healthcare payment transactions annually, totaling over $1.2 trillion in gross claims, covering approximately 50% of U.S. patients[16] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Operations Q2 2024 revenue grew 20% to $234.5 million, but net loss widened to $(27.7) million due to higher operating expenses | Metric | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :------------------------------------------------------------------ | :------------------ | :------------------ | :--------- | | Revenue | $234,543 | $195,969 | +19.7% | | Cost of revenue (exclusive of depreciation and amortization expenses)| $80,451 | $60,500 | +33.0% | | Sales and marketing | $45,715 | $31,413 | +45.5% | | General and administrative | $39,955 | $14,478 | +176.0% | | Research and development | $15,901 | $8,249 | +92.8% | | Depreciation and amortization | $44,276 | $44,140 | +0.3% | | Total operating expenses | $226,298 | $158,780 | +42.5% | | Income from operations | $8,245 | $37,189 | -77.8% | | Interest expense | $(49,195) | $(49,145) | +0.1% | | Related party interest expense | $(1,346) | $(2,001) | -32.7% | | Loss before income taxes | $(42,296) | $(13,957) | +203.0% | | Income tax benefit | $(14,611) | $(3,147) | +364.3% | | Net loss | $(27,685) | $(10,810) | +156.1% | | Net Income per share (Basic & Diluted) | $(0.21) | $(0.09) | +133.3% | Condensed Consolidated Balance Sheets As of June 30, 2024, total assets slightly decreased to $4.57 billion, while total liabilities reduced to $1.62 billion, increasing stockholders' equity | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (Absolute, in thousands) | | :----------------------------------------- | :--------------------------- | :------------------------------- | :------------------------------ | | Cash and cash equivalents | $68,375 | $35,580 | +$32,795 | | Accounts receivable, net | $147,966 | $126,089 | +$21,877 | | Total current assets | $270,752 | $222,050 | +$48,702 | | Intangible assets, net | $1,108,776 | $1,186,936 | -$(78,160) | | Goodwill | $3,030,013 | $3,030,013 | $0 | | Total assets | $4,566,881 | $4,582,974 | -$(16,093) | | Total current liabilities | $125,866 | $123,489 | +$2,377 | | Deferred tax liability | $130,594 | $174,480 | -$(43,886) | | Long-term debt, net, less current portion | $1,301,208 | $2,134,920 | -$(833,712) | | Related party long-term debt, net | $32,882 | $64,758 | -$(31,876) | | Total liabilities | $1,620,783 | $2,533,042 | -$(912,259) | | Total stockholders' equity | $2,946,098 | $2,049,932 | +$896,166 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $26.2 million for H1 2024, while financing activities provided $21.3 million due to equity and debt issuances | Metric | 2024 (in thousands) | 2023 (in thousands) | Change (Absolute, in thousands) | | :------------------------------------------------------------------ | :------------------ | :------------------ | :------------------------------ | | Net loss | $(43,617) | $(21,433) | -$(22,184) | | Depreciation and amortization | $88,450 | $88,106 | +$344 | | Share-based compensation | $39,497 | $4,298 | +$35,199 | | Loss on extinguishment of debt | $19,016 | $0 | +$19,016 | | Deferred income taxes | $(42,377) | $(26,111) | -$(16,266) | | Net cash provided by operating activities | $26,180 | $50,451 | -$(24,271) | | Net cash used in investing activities | $(12,428) | $(9,482) | -$(2,946) | | Proceeds from equity offering, net | $914,288 | $0 | +$914,288 | | Proceeds from issuances of debt, net | $535,209 | $0 | +$535,209 | | Payments on debt | $(1,425,874) | $(8,991) | -$(1,416,883) | | Net cash provided by (used in) financing activities | $21,278 | $(8,656) | +$29,934 | | Increase in cash and cash equivalents during the period | $35,030 | $32,313 | +$2,717 | | Cash and cash equivalents and restricted cash – end of period | $80,458 | $104,949 | -$(24,491) | Non-GAAP Reconciliations Reconciliation of Adjusted EBITDA Q2 2024 Adjusted EBITDA increased to $93.9 million with a 40.0% margin, reflecting adjustments for stock-based compensation and IPO costs | Metric | 2024 (in thousands) | 2023 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Net Loss | $(27,685) | $(10,810) | | Interest expense | $50,541 | $51,146 | | Income tax benefit | $(14,611) | $(3,147) | | Depreciation and amortization | $44,276 | $44,140 | | Stock-based compensation expense | $36,969 | $2,148 | | Acquisition and integration costs | $206 | $278 | | Costs related to amended debt agreements| $2,368 | $0 | | IPO related costs | $1,841 | $3 | | Adjusted EBITDA | $93,905 | $83,758 | | Revenue | $234,543 | $195,969 | | Net loss margin | (11.8)% | (5.5)% | | Adjusted EBITDA margin | 40.0% | 42.7% | Reconciliation of Non-GAAP Operating Expenses Non-GAAP operating expenses for Q2 2024 reflect adjustments for stock-based compensation, acquisition/integration, and IPO-related costs | Operating Expense Category | GAAP (2024, in thousands) | Stock-based Comp. (in thousands) | Acquisition/Integration (in thousands) | IPO Costs (in thousands) | Debt Agreements (in thousands) | Non-GAAP (2024, in thousands) | | :----------------------------------- | :------------------------ | :------------------------------- | :------------------------------------- | :----------------------- | :----------------------------- | :---------------------------- | | Cost of revenue | $80,451 | $(1,739) | $0 | $(5) | $0 | $78,707 | | Sales and marketing | $45,715 | $(8,892) | $0 | $(235) | $0 | $36,588 | | General and administrative | $39,955 | $(20,672) | $(103) | $(1,592) | $(2,368) | $15,220 | | Research and development | $15,901 | $(5,666) | $(103) | $(9) | $0 | $10,123 | | Income tax benefit | $(14,611) | N/A | N/A | N/A | N/A | $(5,920) | Reconciliation of Non-GAAP Net Income Q2 2024 non-GAAP net income reached $5.0 million, a significant improvement after adjusting for stock-based compensation and IPO costs | Metric | 2024 (in thousands) | 2023 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Net Loss | $(27,685) | $(10,810) | | Stock-based compensation expense | $36,969 | $2,148 | | Acquisition and integration costs | $206 | $278 | | Costs related to amended debt agreements| $2,368 | $0 | | IPO related costs | $1,841 | $3 | | Tax effect of adjustments | $(8,691) | $(510) | | Non-GAAP net income/(loss) | $5,008 | $(8,891) | | Non-GAAP net income/(loss) per share, basic| $0.04 | $(0.07) | | Non-GAAP net income/(loss) per share, diluted| $0.04 | $(0.07) | Reconciliation of Unlevered Free Cash Flow Q2 2024 Unlevered Free Cash Flow decreased to $50.3 million, derived from operating cash flow adjusted for interest and capital expenditures | Metric | 2024 (in thousands) | 2023 (in thousands) | | :------------------------------------------------------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $15,450 | $33,593 | | Interest paid | $41,751 | $47,910 | | Purchase of property and equipment and capitalization of internally developed software costs| $(6,868) | $(4,712) | | Unlevered free cash flow | $50,333 | $76,791 | Reconciliation of Net Debt and Adjusted Net Leverage Ratio As of June 30, 2024, Net Debt significantly decreased to $1.29 billion, resulting in an improved Adjusted Net Leverage Ratio of 3.7x | Metric | June 30, 2024 (in thousands) | June 30, 2023 (in thousands) | Change (Absolute, in thousands) | | :------------------------------------------------------------------ | :--------------------------- | :--------------------------- | :------------------------------ | | First lien term loan facility outstanding debt, current | $12,909 | $17,983 | -$(5,074) | | First lien term loan facility outstanding debt, net of current portion| $1,277,991 | $2,189,824 | -$(911,833) | | Receivables facility outstanding debt | $70,000 | $50,000 | +$20,000 | | Cash and cash equivalents | $(68,375) | $(95,738) | +$27,363 | | Net debt | $1,292,525 | $2,162,069 | -$(869,544) | | Metric | June 30, 2024 | June 30, 2023 | | :----------------------------------- | :------------ | :------------ | | Trailing twelve months Adjusted EBITDA| $353,900 | $318,380 | | Adjusted net leverage ratio | 3.7x | 6.8x |