Executive Summary / Key Takeaways

• Waystar Holding Corp. ($WAY) is a leading cloud-based, AI-powered software provider transforming the complex landscape of healthcare payments, from pre-service to post-service.
• The recent acquisition of Iodine Software significantly expands Waystar's total addressable market by over 15% and accelerates its AI product roadmap by nearly two years, uniting clinical and financial data to create the "perfect undeniable claim."
• Waystar delivered strong Q3 2025 financial results, with revenue growing 11.9% year-over-year to $268.7 million and an adjusted EBITDA margin of 42%, leading to raised full-year 2025 guidance.
• The company's advanced AI capabilities, including AltitudeAI for denial prevention and recovery and Auth Accelerate for prior authorizations, drive significant, quantifiable ROI for providers, reinforcing Waystar's competitive moat and market leadership.
• With a resilient, recession-resistant business model, strong cash flow generation, and a commitment to deleveraging, Waystar is well-positioned for sustained, profitable growth and strategic expansion.

Waystar's AI-Powered Revolution in Healthcare Payments

Waystar Holding Corp. is at the forefront of modernizing the intricate and often inefficient healthcare payment system. Founded in 2017, the company's core mission is to simplify healthcare payments through its mission-critical, cloud-based software platform. This platform streamlines the entire payment lifecycle, from initial patient engagement to final remittance and reconciliation, leveraging advanced artificial intelligence (AI) and proprietary algorithms. Waystar's technology is designed to enhance data integrity, eliminate manual tasks, improve billing accuracy, and ultimately reduce labor costs for healthcare providers, allowing them to focus on delivering quality patient care.

The company's extensive reach is a foundational strength, integrating with over 500 electronic health records (EHR) and practice management systems. This broad interoperability enables Waystar to serve over one million providers nationwide, including 17 of the top 20 U.S. News Best Hospitals. In 2024 alone, Waystar facilitated over six billion healthcare payment transactions, encompassing more than $1.8 trillion in gross claims volume and touching approximately 50% of U.S. patients. This vast transactional network creates powerful data insights that continuously fuel Waystar's AI-driven rules engine, generating network effects that enhance the platform's intelligence and automation capabilities.

Technological Edge: From AI Hype to ROI Reality

Waystar's technological differentiation is central to its investment thesis. AI has been a core component of its end-to-end software platform for over a decade, deeply embedded across its solutions. The company's cloud-native architecture allows for rapid deployment and continuous innovation, with hundreds of new capabilities launched each quarter.

A significant leap in this technological journey was the January 2025 launch of Waystar AltitudeAI, a comprehensive suite of generative AI capabilities. This suite includes:

• Altitude Create: This generative AI tool is embedded in Waystar's denial and appeal management solution. It autonomously drafts appeal letters across various denial types, accelerating denial recovery. Early access clients have reported completing appeal packages three times faster, saving an average of 16 minutes per appeal package, and achieving a more than 40% increase in overturn rates. This directly addresses the industry's $20 billion annual denial problem.
• Auth Accelerate: This solution significantly enhances prior authorization automation. It has enabled early adopters to achieve an 85% auto-approval rate and a 70% reduction in time spent on authorizations, streamlining a process that traditionally takes up to 24 minutes per request.
• Patient Financial Engagement: Waystar's AI-powered cost estimation, integrated into its digital patient experience, drives up to 80% patient self-service adoption and a more than 20% lift in patient collections. This translates to nearly $8 million in annual impact for a midsized health system, while also addressing the $17 billion uncompensated care gap.

These innovations underscore Waystar's commitment to moving from "AI hype to ROI reality," delivering tangible outcomes that directly impact providers' financial performance and operational efficiency. The company's ultimate technological vision, articulated by CEO Matthew Hawkins, is to "create the perfect undeniable claim" using AI, by continuously scanning data, identifying anomalies, automating tasks, and validating documentation accuracy.

Internally, Waystar views AI as a "productivity augmentation tool." An internal "Kaizen AI team" explores over 100 use cases for operational efficiency, and every team member receives training and a Copilot license to responsibly deploy AI, even in areas like software code production and review. This pervasive adoption of AI across both external solutions and internal operations highlights a deep-seated commitment to leveraging technology for scalable growth.

Strategic Expansion and Competitive Positioning

Waystar's strategic trajectory is marked by both organic innovation and disciplined inorganic growth. The company's IPO in June 2024, which raised approximately $1 billion, significantly strengthened its financial position. A notable demonstration of Waystar's agility occurred in early 2024 when it rapidly onboarded over 30,000 providers impacted by a cyberattack on a competitor, restoring their cash flow and expanding Waystar's client community. This event highlighted the resilience and critical nature of Waystar's platform, with approximately 30% of these newly acquired clients already exploring cross-sell opportunities beyond their initial claims and remit solutions.

The most significant strategic move in 2025 was the completion of the Iodine Software acquisition on October 1, 2025, for $1.25 billion. This acquisition is a "major step forward" for Waystar, expanding its total addressable market by over 15% and accelerating its product roadmap by nearly two years. Iodine brings proven AI-powered mid-cycle capabilities, including clinical documentation integrity, utilization management, and prebill anomaly detection. By uniting Iodine's clinical data—processing over 160 million patient encounters annually and approximately 34% of all U.S. patient discharges—with Waystar's financial and administrative data, the company aims to create a single intelligent platform that powers AI insights and automation across the entire revenue cycle. This integration is expected to be "immediately accretive to gross margin and adjusted EBITDA margin following closing" and "accretive to revenue growth and non-GAAP net income per diluted share in 2027," with over $15 million in cost synergies anticipated within 18 to 24 months.

In the competitive landscape, Waystar positions itself as a specialized, cloud-native leader in healthcare payments. While larger EHR vendors like Oracle Health (ORCL) (formerly Cerner) and Optum (UNH) (a division of UnitedHealth Group) "talk about RCM," Waystar is "doing RCM," with a team entirely focused on simplifying healthcare payments. Waystar's platform integrates with over 500 EHR systems, demonstrating its ability to be a "linchpin technology" rather than a monolithic system. The company's "independence" from payer ownership also resonates strongly with providers, who seek fairness and transparency in the payment process, a role Waystar embraces as a "referee." This focus on trust, combined with its advanced AI, has earned Waystar a ranking as the #1 trusted vendor among top competitors by an independent market study. Waystar's win rates remain consistently high, even modestly increasing since its S-1 filing, and it continues to secure competitive takeaways, as evidenced by three large client wins in Q2 2025.

Financial Strength and Outlook

Waystar's financial performance reflects its robust business model and strategic execution. For the three months ended September 30, 2025, Waystar reported revenue of $268.7 million, an 11.9% increase year-over-year. For the nine months ended September 30, 2025, revenue reached $795.7 million, up 13.8% from the prior year. This growth is underpinned by a highly predictable revenue mix, with over 99% derived from recurring subscriptions or highly predictable volumes. Subscription revenue for Q3 2025 was $134.5 million, growing 13.9% year-over-year, while volume-based revenue increased 9.7% to $132.3 million.

Profitability remains strong, with an adjusted EBITDA margin of 42% for Q3 2025 and 41.8% for the nine months ended September 30, 2025, consistently exceeding its long-term target of approximately 40%. Net income for Q3 2025 was $30.6 million, a significant improvement from the prior year. The company's gross profit margin (TTM) stands at 67.78%, with an operating profit margin (TTM) of 23.41% and a net profit margin (TTM) of 10.69%.

Waystar's cash flow generation is a key highlight. Unlevered free cash flow for Q3 2025 was $96 million, with an impressive adjusted EBITDA conversion ratio of 85% for the quarter and 86% year-to-date, both "well ahead of our 70% long-term target."

This strong cash flow has enabled rapid deleveraging, with the net debt to adjusted EBITDA ratio falling to 1.9x by September 30, 2025, nearly a full turn reduction year-to-date. While the Iodine acquisition increased this to 3.4x on October 1, 2025, Waystar is confident in its ability to delever by "approximately 1 turn annually."

Looking ahead, Waystar has raised its full-year 2025 guidance. Revenue is now projected to be between $1.085 billion and $1.093 billion, with a midpoint of $1.089 billion, representing 15% year-over-year growth. This includes an expected $30 million contribution from Iodine in Q4 2025. Adjusted EBITDA guidance is also raised to a range of $451 million to $455 million (midpoint $453 million), with an expected adjusted EBITDA margin of approximately 42% for the full year. Management's guidance assumes annual volume growth consistent with historical rates of 1% to 2%, acknowledging the higher rates seen in 2024. Seasonality in patient payment solutions, which tend to be higher in the first half of the year as deductibles reset, is also factored into the outlook.

Risks and Challenges

Despite its strong position, Waystar faces inherent risks. The rapid pace of AI innovation presents challenges, as "nearly 95% of AI initiatives rely on incomplete or inconsistent data," and "without high-quality data, AI doesn't create efficiency, it creates more work." Integration with existing systems and robust cybersecurity remain critical as AI becomes more deeply embedded in clinical and financial processes. Waystar's exposure to interest rate fluctuations on its First Lien Credit Facility (SOFR plus 2% as of September 30, 2025) could impact interest expense, with a hypothetical 100 basis point increase affecting Q3 2025 interest expense by approximately $3.2 million. Regulatory changes, such as the "One Big Beautiful Bill Act" impacting Medicaid funding, are also a consideration, although Waystar's diversified platform and client base provide significant insulation, with a hypothetical 15% reduction in Medicaid funding impacting trailing 12-month revenue by less than 1%.

Conclusion

Waystar Holding Corp. is carving out a compelling investment narrative, driven by its mission-critical, AI-powered software platform that is fundamentally transforming healthcare payments. The company's consistent double-digit revenue growth, robust profitability, and exceptional cash flow generation underscore the resilience and effectiveness of its business model. The strategic acquisition of Iodine Software represents a pivotal moment, significantly expanding Waystar's market opportunity and accelerating its technological leadership in uniting clinical and financial data to achieve the "perfect undeniable claim."

With a strong competitive position, fueled by its independence, deep integrations, and a relentless focus on delivering quantifiable ROI through advanced AI, Waystar is well-equipped to capitalize on the increasing demand for efficiency and automation in the healthcare sector. The company's disciplined approach to capital allocation, including rapid deleveraging and strategic M&A, further strengthens its long-term growth prospects. As Waystar continues to execute its vision, its blend of technological innovation, market leadership, and financial discipline positions it as a compelling opportunity for discerning investors seeking durable growth in the evolving healthcare technology landscape.