Q1 2025 Waystar Holding Corp Earnings Call
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Good day, and thank you for standing by.
Welcome to the waste our first quarter 2025 earnings conference call.
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Speaker Change: I'd now like to hand, the conference over to your Speaker today, Sandy Draper Vice President of Investor Relations. Please go ahead.
Sandy Draper: Thank you operator, and good afternoon, everyone. It's my pleasure to welcome you to waste <unk> first quarter 2025 earnings call, Matt Hawkins wastewater as Chief Executive Officer, and Steve <unk>, Chief Financial Officer are joining me today after their remarks, we'll open the call to your questions.
Sandy Draper: This afternoon, we issued a press release announcing our financial results and a presentation slide deck to accompany our prepared remarks.
Sandy Draper: The materials are available on the Investor Relations section of our website at investors don't waste our dot com.
Sandy Draper: Before we get started I will remind you that this call contains forward looking statements, which are predictions about future events. Examples of these statements include expectations of future financial results growth and margins. These statements involve a number of risks and uncertainties that may cause actual results to differ materially.
Sandy Draper: From those expressed in these statements.
Sandy Draper: Full discussion of the risks and other factors that may impact. These forward looking statements. Please refer to this afternoon's press release and our reports we file with the SEC all of which are available on the Investor Relations page of our website.
Sandy Draper: Any forward looking statements provided during this call are made only as of the date of this call.
Sandy Draper: During today's call. We will also discuss certain non-GAAP financial measures. We have provided reconciliations of the non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures together with the explanation of these measures in the appendix of the presentation slide deck and our earnings release.
Matt: Lastly, we are pleased to note our participation in the Bank of America Health Care Conference in Las Vegas on May 13th and the William Blair growth Stock Conference in Chicago on June 3rd we look forward to seeing many of you there with that I'll turn it over to Matt.
Matt: Thank you Sandy and good afternoon, everyone. Thank you for joining our first quarter 2025 earnings call.
Matt: Star delivered a strong start to the year with Q1 revenue growth of 14% and adjusted EBITDA increase of 16% year over year. This momentum positions us to raise our full year guidance, which Steve will discuss in more detail shortly.
Speaker Change: I wanted to begin by emphasizing why waste or is uniquely equipped to create long term shareholder value independent of broader market conditions, given the increasing macro volatility since our last conversation.
Speaker Change: While no business our sector is entirely insulated from economic cycles, we believe waste our broad presence and business model are recession resistant we.
Speaker Change: We are confident in our ability to deliver strong performance.
Speaker Change: Our software has enabled providers to succeed despite the challenges.
Speaker Change: Predictable environment.
Speaker Change: We serve over 1 million U S based providers, who practice across every care study from large established integrated delivery networks to small independent physician practices.
Speaker Change: Starz software platform is embedded in our clients' workflow and plays a mission critical role in helping providers get paid faster and more accurately while reducing administrative costs in.
Speaker Change: In times of volatility and market stress waste our software can be deployed rapidly and efficiently to help providers optimize cash flow, which is essential in challenging economic conditions.
Speaker Change: While the new administration is discussing several potential policies that could impact the U S. Healthcare industry, we do not anticipate any major impact in 2025 in fact, new policy proposals confront health care providers their reliance on software platforms, such as waste ours will likely strengthen.
Speaker Change: To maximize revenue capture and streamline operational efficiency.
Speaker Change: Our agility in delivering hundreds of new software capabilities through our cloud platform each quarter gives us confidence that we can help clients address changes as they arise.
Speaker Change: Turning to our first quarter performance.
Speaker Change: I'll cover four key areas that highlight our progress and future direction first I'll discuss our sustainable and compounding revenue growth second.
Speaker Change: I'll highlight the latest innovations creating value for our clients.
Speaker Change: Third.
Speaker Change: I'll share, how we are driving operational profitability and efficiency and fourth I'll review recent client and team member successes, then I will turn the call over to our CFO, Steve who will review our financial results for the first quarter and discuss our increased 2025 guidance.
First sustainable growth.
Speaker Change: Waste are delivered another quarter of strong top line growth generating $256 million in revenue.
Speaker Change: 14% year over year increase.
Speaker Change: Our ability to sustain consistent performance is anchored in our strategy of building enduring client relationships, which is reflected in our 114% net revenue retention rate.
Speaker Change: We continue to expand those client relationships over time with 1244 clients now generating more than $100000 in trailing 12 month revenue.
Speaker Change: 15% increase year over year.
Speaker Change: We continue to experience strong demand fueled by our differentiated cloud based software platform exceptional client service and measurable return on investment we deliver to our clients.
Speaker Change: To validate and quantify the key drivers behind today's market demand. We recently conducted a large independent study in partnership with Quadrex surveying 600 revenue cycle leaders from provider organizations of all types and sizes.
Speaker Change: Providers want strong ROI operational efficiency and data security.
Speaker Change: When selecting and RCM technology vendor, 92% of respondents identified AI advanced automation and trust as top investment criteria.
Speaker Change: <unk> AI powered platform is purpose built to meet those priorities.
Speaker Change: <unk> proven outcomes with advanced technology designed to deliver results at scale reinforcing our growing market leadership.
Speaker Change: This brings us to another key driver of sustainable revenue growth platform innovation.
Speaker Change: Waste are our purpose is to simplify healthcare payments.
Speaker Change: We are pursuing a strategic and ambitious software product roadmap focused on scale automation efficiency and substantial ROI.
Speaker Change: Last week, we held the waste our innovation showcase.
Speaker Change: At this event, we demonstrated new capabilities powered by generative AI and advanced automation to prevent and address denied claims accelerate reimbursement and provide an integrated intuitive digital first patient payment experience.
Speaker Change: The innovation showcase builds on the momentum of our January 2025 launch of altitude AI waste, our comprehensive suite of AI capabilities designed to help providers streamlined workflows and improved financial performance.
Speaker Change: We were pleased with the tremendous client and prospect engagement during the waste our innovation showcase where thousands of clients and prospects joined to experience our latest innovations firsthand.
Speaker Change: We observed that.
Speaker Change: Budgets for Gen. AI enabled solutions are increasingly being centrally pooled and funded at the largest provider organizations.
Speaker Change: These resources often sit outside traditional healthcare budgets.
Speaker Change: Incremental pools of capital are being allocated to fund key initiatives that deliver real ROI.
Speaker Change: Providers are looking for trusted at scale vendors to help them re imagine and organized traditional processes.
Speaker Change: And.
Speaker Change: They expect Gen AI solutions to improve productivity increase automation and high volume low complexity tasks boost accuracy and accelerate time to payment.
Speaker Change: Waste, our software advocates for providers and patients by dramatically, reducing the likelihood of claim denials and by helping clients respond rapidly and efficiently when denials do occur.
Speaker Change: We help prevent denied claims through strong patient access solutions, including eligibility and prior authorization automation and AI powered insurance coverage detection.
Speaker Change: Securing payer prior authorization manually can take up to 24 minutes per request.
Speaker Change: With tens of millions of authorizations processed annually the burden on providers is significant and the patient experience is often frustrating.
Speaker Change: In Q1, we enhanced waste our authorization manager to include our new off accelerate solution and additional use cases for orphan status.
Speaker Change: On the accelerated unlocks auto approvals and significantly reduces manual staff workload.
Speaker Change: Early adopter clients are already seeing measurable results and 85% auto approval rate and a 70% reduction in time spent on authorizations.
Speaker Change: With this launch we are scaling our prior authorization capabilities for key payers across the ambulatory market.
Speaker Change: Including radiology, cardiac imaging and surgery centers with more specialties and payer expansions underway.
Speaker Change: Our clients use waste stars AI powered software altitude create to appeal denied claims.
Speaker Change: The platform autonomously gathers claim information and generates appeal packages three times faster than traditional services.
Speaker Change: We start helps providers receive rightful reimbursement as quickly as possible and.
Speaker Change: In the first 90 days post launch.
Speaker Change: <unk> reported a.
Speaker Change: More than 40% increase in overturn rates. These results demonstrate a clear impact on both operational efficiency and reimbursement outcomes.
Speaker Change: Trust and security are fundamental to waste our software platform.
Speaker Change: We continually invest in cyber security best practices for deterrence detection defense and rapid recovery.
Speaker Change: We maintained high cyber security standards and regularly audit our platform against industry, leading frameworks.
Speaker Change: Next profitability and efficiency.
Speaker Change: We sustained our trend of strong adjusted EBITDA performance with Q1, adjusted EBITDA of $108 million.
Speaker Change: Representing a 16% year over year increase.
Speaker Change: This result, underscores the high margin nature of our software platform and our consistent ability to meet our long range target of approximately 40% adjusted EBITDA margins.
Speaker Change: While strategically investing in innovation growth and cyber security.
Speaker Change: Together, our profitability and cash flow profile provides ample flexibility to invest in the business reduce debt and thoughtfully pursue M&A. We are focused on deploying this capital in ways that drive durable growth and maximize value for our investors. We are pleased to report.
Speaker Change: That our net leverage ratio at the end of Q1 is two five times.
Speaker Change: At the same time, we are continuously identifying ways to further improve profitability by operating even more efficiently that includes scaling automation and agenda AI within our market leading approach to client experience.
Speaker Change: All designed to continued leadership and client satisfaction.
Speaker Change: Today, 100% of clients received U S based support.
Speaker Change: And over.
Speaker Change: Over 40% of revenues tied to clients supported by a dedicated client success manager.
Our team resolved, 70% of service requests on the same day and answers 90% of inbound calls within 30 seconds and industry, leading performance that reflects our commitment to responsive high impact client experience at scale.
Finally client and team successes.
Speaker Change: Our unique approach to focusing on our clients continues to garner recognition in the industry.
Speaker Change: We've achieved multiple number one rankings in the latest best in Klas report where.
Were named by Black book, as the industry's leading AI platform and maintained a net promoter score that consistently exceed industry benchmarks.
Speaker Change: Together these accolades highlight the strength of our client experience and our ability to deliver innovation speed and scale that build long term trust and measurable results.
Speaker Change: As part of our market research recaptured strategic insight into waste our brand perception and performance.
Speaker Change: The results highlighted several key takeaways.
Speaker Change: Waste our earned the top position in both unaided and aided brand awareness, making us the most recognized brand name in healthcare payments.
Speaker Change: The market also ranked waste are number one in both brand Trust and best days are ahead, a reflection of the confidence they have in our revision pace of innovation and long term leadership.
Speaker Change: Additionally, we were recognized as the top choice for future RCM software investment underscoring market confidence and our continued momentum and industry role.
Speaker Change: To ensure we gather and incorporate provider insights, we recently expanded the waste our advisory board by more than 30%.
Speaker Change: This larger group includes distinguished leaders from top health systems ambulatory providers and strategic partners, our ongoing strategic engagements with this group, including at our most recent meeting in March are instrumental in raising timely insights that help shape, our vision and accelerate our.
Speaker Change: Software roadmap.
Speaker Change: In conclusion waste or started 2025 with momentum purpose and a clear vision for the future and our Q1 results reinforce that trajectory. We are building on our proven strategy to deliver stable enduring and compounding growth with another quarter of strong performance.
Speaker Change: We are confident in our ability to drive innovation deliver ROI and help providers navigate a rapidly changing landscape.
Speaker Change: As industry dynamics evolve waste or is working thoughtfully to help guide the future of the industry with agility focus and trust with that I'll turn it over to Steve to walk through the financial details.
Steve: Thanks, Matt.
Steve: <unk> increased 14% year over year in the first quarter to $256 million.
Steve: The basis of Q1 growth continues to be our durable predictable model that produces low double digit revenue growth annually on a normalized basis.
Steve: This includes expanding the client base producing more than $100000 of revenue in the last 12 months to 1000.
Steve: 244 at quarter end.
Steve: An increase of 41 clients in the quarter and an increase of 15% year over year.
Steve: It also includes a high net revenue retention rate, which was 114% for the last 12 months.
Steve: Given the significant number of new clients that went live during February through May of last year.
Steve: Q1, 2025, and IRR is above the typical range of 108% to 110% we've experienced over the past three years.
Steve: As the 114% net revenue retention rate is a 12 month view. The most applicable comparison is to the 18% total revenue growth over the same 12 months.
Steve: We continued to recognize revenue faster than normal in the first quarter from the clients. We've rapidly implemented in early 2024, who are impacted by the competitor clearinghouse cyber attack genera.
Steve: <unk> generated $10 million more.
Steve: From the faster time to revenue this quarter versus the first quarter of 2024.
Steve: Please note that Q1 2025 represents the last quarter with a notable impact to the year over year comparison.
Steve: Subscription revenue increased 18% year over year and 3% sequentially.
Steve: While this growth rate is generally consistent with the prior four quarters. It benefits from the noted rapid implementations for.
Steve: For the remainder of fiscal year 2025, we would expect modest sequential quarterly growth in subscription revenue.
Steve: Volume based revenue grew 11% year over year adjusting for our previously disclosed $4 million benefit in the first quarter of 2024.
Steve: Ah contract termination volume based revenue growth was approximately 15% year over year.
Steve: Accounting for the Q1, 'twenty five benefit faster revenue than normal from rapid implementations offset by the Q1 'twenty four pull forward of revenue produces an adjusted year over year growth rate of 12%.
Steve: Adjusted EBITDA of $108 million for the first quarter increased 16% year over year.
Steve: The adjusted EBITDA margin of 42% reflects continued investment in the business and timing of operating costs. We had expected in the first quarter and now anticipate incurring later in 2025.
Steve: The adjusted EBITDA margin continues to align with our long term target of approximately 40%.
Steve: Unlevered free cash flow was $79 million in the first quarter of 2025 with an unlevered free cash flow to adjusted EBITDA conversion ratio of 73%.
Steve: The strong start puts us in a good position to achieve our 70% long term target for the year.
Steve: Additionally, we moved $24 million of cash in the quarter, just slightly higher earnings short term investments.
Steve: As a result, our cash balance was 224 million at March 31.
Steve: The trend of high cash flow conversion, coupled with expansion of our trailing 12 month adjusted EBITDA generates a net debt to adjusted EBITDA leverage ratio of two five times at March 31.
Steve: A decrease of approximately a quarter turn in the quarter.
Steve: We continue to maintain flexibility with our overall capital structure and our allocation priorities remain unchanged.
Steve: First in the business to drive top line growth.
Steve: Delever, the balance sheet and evaluate disciplined acquisition opportunities.
Matt: As Matt indicated earlier.
Matt: Our business isn't recession proof it is recession resistant.
Matt: We also recognize the current environment of economic volatility and have modeled and considered several potential outcomes for the year.
Matt: Based on our first quarter performance, the modeled potential outcomes and our current visibility for the rest of the year.
Matt: We are confident in raising our revenue guidance to a range of $1 billion 6 million.
Matt: $1.022 billion, representing a $6 million increase.
Matt: At the midpoint of $1 billion $14 million.
Matt: On our February earnings call, we provided a couple of data points regarding quarterly growth rate expectations throughout the year, along with how we expected those to differ in the first half versus the last half of the year.
Matt: I am pleased to state the first quarter results aligned with those expectations.
Matt: Further our increased guidance midpoint of $1 billion $14 million includes an expectation that the first half revenue is slightly higher than 50% of full year revenue.
Matt: Primarily based on shaping a volume based revenue, including seasonality in the 30% of total revenue generated by patient payment solutions.
Matt: We are also raising adjusted EBITDA guidance to a range of $406 million to $414 million with the midpoint of $410 million, increasing by $7 million above prior guidance midpoint.
Matt: We continue to expect an adjusted EBITDA margin of approximately 40% for 2025, which includes cost of revenue as a percentage of revenue to remain unchanged from our original guidance.
Matt: Operator, please open the call for questions.
Matt: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Matt: To withdraw your question. Please press star one again.
Matt: In the interest of time, please limit yourself to one question you may rejoin the queue.
Matt: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Adam Hotchkiss with Goldman Sachs. Your line is open.
Matt: Yes.
Speaker Change: Great. Thanks, so much for taking the question I guess just to start I would love to get a breakdown on the outperformance in the quarter I know historically, we've talked about.
Speaker Change: Performance from change, we've talked about patient payments.
Speaker Change: Being elevated relative to historical norms, and I know you've guided to that normalizing. This year I'm just curious what happened in Q1 and sort of what's embedded in the guidance from a component perspective, as we think about growth. Thanks. So much.
Speaker Change: Yes. Thanks for the question Adam This is the second I can answer both of those so I think the key for the first quarter and the performance versus our expectation and built into guidance is primarily driven by the continuing as we saw starting in 2024, a strong patient payment utilization of the services that.
I provided.
Speaker Change: And by our clients.
Speaker Change: If you think then to how that.
Speaker Change: Related to the guidance.
Speaker Change: Raised in the range specific to revenue for the full year I guess, a couple of things just as a reminder.
Speaker Change: The first is recall at 98% of our revenue in any given year.
Speaker Change: Generally comes from contracted solutions that we have in house at the beginning of the year and then secondly, as you think in terms of the macro environment. Please recall that our clients are 100% U S based.
Speaker Change: Have a big diversity in terms of size specialty and geography within the U S.
Speaker Change: Which means that we are fairly isolated or insulated sorry.
Speaker Change: From anything that may happen to a specific specialty or type of reimbursement rate. We also have very limited direct exposure to tariffs. So when we think about.
Speaker Change: The guidance range, and what might lead from an upside or to the top side of guidance.
Speaker Change: It would be that continuation of strong patient utilization above and beyond our expectations for the year.
Speaker Change: That being said if we look at the lower end of guidance.
Speaker Change: A notable difference in utilization throughout the rest of the year versus our expectation and the strong start to Q1 would be the primary factor.
Speaker Change: The low end of guidance I would also say the other piece to that could be.
Speaker Change: The impact of ability of patients to pay for the services that are provided.
Speaker Change: And in terms of just the general economic environment that said, we haven't seen any degradation in the patient's ability to pay in the first quarter.
Socket Calia: Thank you. Our next question comes from socket Calia with Barclays. Your line is open.
Socket Calia: Okay, Great Hey, guys. Thanks for taking my question here and nice start to the year.
Socket Calia: Thanks for that thank you.
Matt: Matt maybe maybe for you.
Matt: The number that jumped out to me the most in the press release was the was the net revenue retention at about 114%.
Matt: Could you just maybe dig into what products are maybe driving that cross sell success.
Matt: And what do you think is driving that.
Socket Calia: Thank you socket, yes.
Matt: I'd have to say.
Matt: We're so pleased to deliver four consecutive quarters of double digit revenue growth and EBITDA margins above 40% as a public company and we look at the strong retention rates of the business.
Matt: Youll recall that the retention rates are a look back so a last 12 month look back.
Matt: That being said some of the things that are influencing that net revenue retention rate of 114% include the fact that we've had robust bookings.
Matt: Bookings from revenue cycle solutions and claims management patient access solutions that are coming from in some cases clients that had been impacted by cyber attack and really just the overall fact that are our solutions are driving return on investment for clients and as we build more advocacy as he.
Matt: Build more case reference ability and demonstrable return on investment.
Matt: It's just the case that.
Matt: Clients are talking to each other and so that portion of our platform is.
Matt: Performing nicely and we're seeing nice growth there and that shows up in a lot of cases in the subscription portion of our revenue performance, Steve When you take the second part of that yes, I can I would add if you think about our typical bridge too.
Speaker Change: Starting with gross revenue retention of approximately 97% the factors that we typically talk about leading to the 108% to 110%.
Speaker Change: Similar to what we saw last quarter, meaning we would have expected that calculation or seeing the calculation.
Speaker Change: Normalized basis to be at about 110%, maybe slightly a little ahead of that driven by the strong continuous continuation sorry.
Speaker Change: The volume side or patient utilization.
Speaker Change: As you get to the <unk>.
Speaker Change: Factor from a slightly above 110 to $1 14, Thats also seeing the benefit of those clients we rapidly onboard it early in 2024 and the associated revenue from that just purely by the way that the NRI calculation.
Speaker Change: <unk> has performed and I won't go into the specifics of it you can read about it in our filings, but we get a bump in the above normal range from that as well.
Speaker Change: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.
Elizabeth Anderson: Thanks for the question Joanne.
Speaker Change: Joanna for Elizabeth.
Elizabeth Anderson: One question.
Speaker Change: Some of the utilization trends that payers have been saying can you remind us about your updated thoughts.
Speaker Change: The trend in 'twenty, five and how do you think about it Tony.
Speaker Change: Both the payer and.
Speaker Change: And providers.
Speaker Change: Thank you.
Speaker Change: So if I if I heard all of that the question was really about utilization trends and what providers are reporting what we're experiencing and how does that impact our business model is it is it fair to frame it that way I'm not sure I completely heard the question.
Speaker Change: Good.
Speaker Change: Sure.
Speaker Change: We just would start with the fact that we feel like we have a very predictable and proven.
Speaker Change: Our business model part of that business model as a subscription based revenue model subscription based as you know part of it is volume based.
Speaker Change: And both benefit, but primarily the volume side benefits from utilization and we build that into the way that we grow and so we typically model what is that.
Speaker Change: 1% to 2% utilization increases each year.
Speaker Change: Largely consistent with the <unk>.
Speaker Change: Longer term historical average.
Speaker Change: We've seen in this recent start to the year is that utilization has trended above that and so that tends to benefit our business model and its consistent with what providers are reporting they are reporting that we're certainly seeing more patients experiencing more patient visits.
Speaker Change: But they are doing that with the same resources or less and we think that's where waste our software platform can really help them.
Speaker Change: Our ability to help them address utilization increase.
Speaker Change: But from a payment perspective, we're helping them do that very efficiently. We are helping them take out costs as you've heard us describe and we're helping them find more dollars in <unk>.
Speaker Change: Ability to collect dollars and drive cash flow is making a waste our software relevant and important right now.
Speaker Change: Yes specific to the question around seasonality, but provider solutions to 70% of revenue tends to have.
Speaker Change: Very little seasonality, whereas the 30% of revenue coming from patient payments.
Speaker Change: As deductibles reset.
Speaker Change: At the beginning of the year that tends to have more from a dollars perspective.
Speaker Change: Happening in the first half of the year and then tapering off in the back half of the year as patients hit the deductibles under under their high deductible plans, we haven't seen anything.
Speaker Change: So far in the first quarter, nor have changed our expectation for the full year as it pertains to the seasonality in that 30% of the business.
Brian Peterson: Thank you. Our next question comes from Brian Peterson with Raymond James Your line is now open.
Brian Peterson: Thanks for taking my question and congrats on a really strong quarter. So I know you mentioned the $10 million in revenue impact from change this quarter.
Speaker Change: I'm curious how big of a factor is the security in really the time to implementation that you guys are referencing in terms of moving deals through sales cycles, and I'd love to understand maybe the nature of these customer conversations and how those have changed over the last 30 days. Thanks Scott.
Brian Peterson: Sure.
Scott: Let me start there thanks, Brian for the nice words.
Scott: What I'd say is what we what we've described over the last year.
Scott: Phased approach, we're speaking specifically to those providers that were disrupted by the cyber attack as you'll recall there was this.
Rush to move to another system and waste our was in a position to help providers do that.
Scott: Recall that phase one and and then you've also heard US talk about a second phase a phase two where it's more of a return to normal but intentional.
Scott: Our business decision, making and factors that come into play include.
Scott: Cyber security and ability to trust the vendor partner.
Scott: The ability to address utilization and scale.
Scott: References ability of clients that are also using the waste our software platform and the ability perhaps as important as the cyber security piece, the ability to get tangible ROI and to be able to deploy the software rapidly and get that type of ROI and so as we engage with clients in the mall.
Scott: You highlighted last 30 days and what we've seen is we've seen continued strong demand. We've seen rfps that are robust wasters getting invited to participate in rfps and working our way through those rfps.
Scott: We did notice an uptick as we described.
Scott: The second half of last year, and we see that being robust.
Scott: And really an emphasis on.
Scott: Providers prioritizing, what's most important for them during this economic environment and really that's where the virtue of.
Scott: True mission critical solutions comes to play and.
Scott: And we feel like we are positively able to address all of those things.
Scott: <unk>.
Scott: Cash flow is mission critical.
Scott: So as providers address more utilization they wanted to be able to convert those patient visits to cash rapidly and efficiently and so we see that demand environment for grateful to be in a position to help providers.
Scott: And we have a robust pipeline.
Scott: With strong win rates.
Speaker Change: Thank you. Our next question comes from Allen Lutz with Bank of America. Your line is now open.
Allen Lutz: Good afternoon, and thanks for taking the questions one for Matt really a follow up on the last question around RFP activity.
Speaker Change: Matt You mentioned you talked about.
Speaker Change: Really strong RFP activity in the second half of last year with prospects like hospitals and health systems.
Speaker Change: I guess has anything changed more recently due to tariffs can you talk about your recent conversations that youre having.
Speaker Change: As part of these themes prospect meetings has anything changed at all and then you mentioned.
Speaker Change: Conversations around new AI buckets are new.
Areas of spend there that are outside of the <unk>.
Sandy Draper: National Health buckets, how big in terms of dollars relative to the traditional health buckets is that span and then has that unlocked at all or is that something that's sort of on the come. Thank you. Alan This is sandy I apologize, we had a bit of a technical difficulty on our side and have to ask you to repeat the question I apologize.
Speaker Change: Pat.
Speaker Change: No problem at all so.
Speaker Change: Two part question so.
Speaker Change: Really a follow up to the last question can you talk about the recent RFP activity with prospective hospitals and health systems and have those conversations changed at all as it relates to the.
Speaker Change: The prospect of tariffs have those conversations been pushed out or is it really the same conversation that youre, having with those.
Speaker Change: Prospective customers and then second.
Speaker Change: Matt you mentioned, new AI buckets of potential spend there is outside of the traditional health I E.
Speaker Change: Allocation. My question is how big is the allocation to that and has any of that spend been deployed or is that all perspective and forward looking.
Allen Lutz: Yes, Thank you Allen.
We read the same headlines that are having the same conversations about potential tariff impact to any company or any provider organization. In this case, let me let me just make a few comments and then speak to the second question about AI and economic pools associated with AI inverse.
Allen Lutz: <unk>, what I would say just to reaffirm what Steve said earlier, our clients are U S based and waste our itself has no direct exposure to tariffs and so we're very empathetic as we read these headlines about potential headwinds or supply chain.
Allen Lutz: Impact that could result from some of these tariffs and.
Allen Lutz: We're mindful of that what we see taking place is that in these types of difficult times.
Clients are looking for ways and prospects are looking for ways to help them operate efficiently and to get paid and so again I just would reaffirm that.
Allen Lutz: Without commenting specifically on RFP volume or our pipeline occasionally we will comment on our pipeline, we'll do that probably once a year type of a thing not every quarter, but what we are seeing is.
Allen Lutz: Strong demand and that demand is based on our ability to deploy cloud software that leverages AI.
Allen Lutz: Help is helping providers get tangible return on investment we believe that way star can be a net winner share gain winter. During this cycle and what we know is that that 90% of health care decision makers that we're talking to they're prioritizing AI and advanced automation.
Allen Lutz: To help them address this economic cycle, but the vast majority of them were still very early in the actual adoption and use of.
Allen Lutz: And this this timeframe so the vast majority have either been using it for less than a couple of months AI in any form or not at all and so we view this as opportunity.
Allen Lutz: Commenting on our observation.
Allen Lutz: We do see.
Allen Lutz: Dollars set aside from traditional HCI opex spend.
Allen Lutz: Where there are.
Allen Lutz: Dollar set aside for Gen AI focused spend where there's real ROI associated with that spend and the good news for us with waste or with what you've seen us talk about recently and some of you may have participated in the waste.
Allen Lutz: Waste our innovation showcase that we launched just last week to show. These AI tools, we are actually moving from AI hype to ROI reality, and we're delivering real return on.
Allen Lutz: Investment with the areas that we've launched.
Allen Lutz: You'll recall that we launched altitude AI in January of 2025. This comprehensive suite of generative AI capabilities that is pervasive across the waste our software platform and were seeing early adopters achieve remarkable results and.
Allen Lutz: So we're able to go and have real conversations with these set aside pools that are AI focused.
Allen Lutz: You talk about the ROI that we can help clients achieve and I won't qualify.
Allen Lutz: Quantify the size of those pools.
Allen Lutz: But I will say that there is tremendous interest on behalf of health care decision makers to prioritize AI and automation capabilities in their organizations.
Speaker Change: Thank you. Our next question comes from <unk> Singh with true Securities. Your line is now open.
Speaker Change: Thank you and thanks for taking my questions and congrats on a strong quarter I was wondering if you could provide any update on coatings and personal care change related customer, especially in cross sell opportunities you flagged on the last call is there any change to that figure and do you see any of that benefit flowing through this year and related to that we had been hit.
Speaker Change: With several providers, who primarily switched to other vendors last year went back to change because of the existing contracts that changed and now as these contracts are coming up for renewal. This provide us had been more actively evaluating other alternatives have you seen any of that playing out yet and would you consider something like that.
Speaker Change: Enter to go to low double digit long term growth rate.
Speaker Change: Yeah.
Julien: Thank you Julien, it's nice to hear your voice as well.
Speaker Change: I would say is that.
Speaker Change: We're in a competitive active environment and as Youll recall I will speak to our our growth model just for a moment. We have this proven growth model and it starts with us.
Speaker Change: <unk> enduring relationships with our clients, which we do our retention rates are exceptional and then once they begin using our software as many thousands of impacted clients started to do last year. Then we are having conversations with them where they are naturally expanding the use of our software.
Speaker Change: Which is well architected and beautiful by the way, we're able to deploy it rapidly and clients can add in existing clients and add additional software and deploy that very rapidly as well.
Speaker Change: Normal business for us and so we made the comment about approximately 30% of of the providers that joined us in that cohort that was impacted.
Speaker Change: A quarter ago or actively in dialogue with us what I'd say is we've seen strong demand.
Speaker Change: In clients as they now are our clients and talking to them about additional solutions and when you look at and I wont speak in detail about this but our results in Q1 from a bookings perspective, we saw nice adoption of additional software modules amongst that cohort of existing clients I think I'll leave it at that.
Speaker Change: I just would characterize our work is very active and.
Speaker Change: And we are.
Speaker Change: Courage and excited about the opportunity just to have conversations with clients to use more software and prospects who are evaluating what to do next and you can imagine we have a go to market team thats very focused and thoughtful in our approach going through discovery processes and helping.
Speaker Change: These these prospects as they evaluate opportunities talk to or get references from our existing clients and certainly we have ROI calculators that help them make thoughtful decisions and so we'll be very active from time to time comment specifically on what we're doing but I'll leave it at that for right now.
Speaker Change: Thank you. Our next question comes from George Hill with Deutsche Bank. Your line is open.
Speaker Change: Yes.
George Hill: Guys and thanks for taking the question I've got a quick two parter here I guess that everything is going great and well with the business that you guys have kind of called out recession risk a couple of times in prepared commentary I wanted to ask are you seeing anything that kind of makes you bring up the risk like are you seeing any type of lengthening sales cycles and kind of has anything in the macro.
George Hill: Changed what clients are demanding of you guys from a product or a functionality perspective, I know that you guys called up AI, but is there like has the has the macro like me clients pivot from.
George Hill: From a like maybe the stronger solutions around patient self pay or.
George Hill: Our ability to pay tolls.
George Hill: Interesting if the macro was changed which widgets clients are looking at and.
George Hill: And kind of what you guys are seeing on sales cycles. Thanks sure yes. Thanks George.
George Hill: What I'd say is.
George Hill: There were a young public company working to deliver on our commitments, we feel very good about the fact that we've.
George Hill: Now delivered four consecutive quarters of good results, but we're working to be prudent. So we know that it's on people's minds, the potential for tariff impact on the economy and specifically on health care providers and we're very empathetic to those that may be impacted again I would just.
We are firm that.
George Hill: We've set a number of things that were.
George Hill: Kind of measure or give you a sense of our enthusiasm and design.
Desire to be helpful. During this economic cycle.
George Hill: We have a mission critical software platform we.
George Hill: Working with <unk> to help clients see the software get access to it it obviously highlights and showcases our AI capabilities to dramatically change manual work into automated tasks and to autonomously generate work that creates tremendous efficiency and we're going to now.
George Hill: The gate with clients through this cycle, we're not.
George Hill: We're noting that things haven't necessarily changed in their decision, making timeframe. They are working to be very thoughtful.
George Hill: We're also seeing them prioritize to the most important and essential solutions that will.
George Hill: Help them succeed and navigate this critical time and we're in a position to be that type of.
George Hill: Software platform that can help them do that so again, we believe will be a net winner during this cycle as we help clients and as we stay very focused on serving now.
George Hill: Thank you.
Speaker Change: Our next question comes from Ryan Daniels with William Blair. Your line is now open.
Ryan Daniels: Hey, guys. Thanks for taking the question.
Ryan Daniels: Wanted to ask another follow up on artificial intelligence, Matt you mentioned Black book earlier and I also saw a recent survey they had all talking about providers moving a lot more of the outsourced RCM back in house and it seems like AI is the driver for that because some of the <unk> operations, where maybe you need a big.
Ryan Daniels: U S staffs of pillars, Encoders are really becoming obsolete with artificial intelligence I'm curious if you think even in the near term pipeline over the long term that's a trend that could benefit you by kind of bringing some of that business back to the client base and then you're selling a software solution to address that.
Ryan Daniels: Thanks Ryan.
Or do think it's a trend that will benefit our business model and we are beginning to see that now you think about something I, often say, we've never had more technological capability to do.
Ryan Daniels: Hard things than we do right now and we're seeing that with generative AI.
Ryan Daniels: A couple of thoughts for you.
Ryan Daniels: We know there is interest and curiosity and we know that there is willingness to begin to deflect the expenses that you might otherwise have to spend if you were paying someone to do a job or a task in there.
Ryan Daniels: Kind of in air quotes the Clayton Christensen jobs to be done category. What we're seeing is that we have the opportunity to automate high volume low complexity tasks using generative AI.
Ryan Daniels: And we're showcasing that with the launch of altitude AI and when you think about our ability to prevent denials from occurring and taking tasks that used to take three days and compressing those through generative AI to take three minutes.
Ryan Daniels: Now now you don't have to have the outsource conversation you can in source it and re imagine what's possible through the use of generative AI you could do the same thing with denial and appeal management waste.
Ryan Daniels: <unk> offers a economists.
Ryan Daniels: And automatic.
Ryan Daniels: Letter writing capability.
Ryan Daniels: Compressing the time it takes staff time, 70% and actually creating a more accurate appeal letter that then we're seeing just really positive overturn rates from that is something that somebody may have had to outsource a year or three or five years ago. When we don't have to you today. So we do think that that will.
Ryan Daniels: Lead us to be able to expand the addressable market opportunity before us and serve that market with software with software and with AI and we are pleased with the competitive position that way stars in our ability to deliver automation and efficiency to clients. So last call.
Ryan Daniels: Ryan you really got me going on this now but look what we're also doing and we're mindful of as we're serving over $1 million providers across all the different care settings couple of thoughts there, one where tremendous we're creating a tremendous amount of data.
Ryan Daniels: Working to very carefully and thoughtfully custody that data and use it to then fuel degenerative AI capabilities that we launch that's unique we think long term, it's the data access and the data ability that you feed to the large language models so to speak.
Ryan Daniels: That that really becomes the powerful.
Ryan Daniels: Enabler of automation and capability gain here and then two we're also given that we are serving millions of providers across all care settings, we're taking a very disciplined and careful.
Ryan Daniels: Prudent approach to launching these capabilities amongst early adopters, making sure that we can attach to cyber security, making sure that we can help them adopt this in ways that will enable them to accomplish their goal and thats often associated with their ROI. So so thank you for highlighting that.
Ryan Daniels: And it is something that we're excited about as we shift the market and bring more decision, making opportunity back in house, where it previously it just had to be outsourced inexpensive ways.
Speaker Change: Thank you. Our next question comes from Richard close with Canaccord Genuity. Your line is now open.
Speaker Change: Thank you congratulations on the strong start to the year just on <unk>.
Speaker Change: And on the AI I'm curious, how you're thinking about it.
Speaker Change: Is this really.
Speaker Change: Maybe a market share gain new client win opportunity or our same store growth more same store growth opportunity and Im curious as.
Speaker Change: As people use these products.
Speaker Change: Just letting the clients use them get a feel of the capabilities and the improvement ROI as youre talking about.
Speaker Change: And then you come back behind and re price.
Speaker Change: Reprice their contracts or are these add ons to existing contracts just trying to get a better feel of it sure. Thank you Richard.
Richard: Last week, we showed several generative AI capabilities in our innovation showcase.
Richard: And we presented the problem that the AI capabilities working to address and we showed our software addressing that problem and then we showed clients who are benefiting from the use of that software and we'd highlighted several metrics that they're they're benefiting from the use of our <unk>.
Richard: We're two two <unk>.
Richard: Flex their business positively and so as we think about Gen ai's impact on our business I really like that analogy that you used the same store growth of analogy. We are certainly not a retailer, but we do think in terms of retention of our clients and.
Richard: Part of how we will have business impact is to infuse degenerative AI capability into our existing software that will make it even better any elongate that relationship with the client to drive fantastic retention. The second way is you mentioned pricing we don't disclose.
Richard: Specific terms on pricing, but our thoughts are we price to value and we know that there is value being generated and so as we've highlighted we do have a very modest annual price increase program across our business.
Richard: As we study this without disclosing more on this call. We believe that there is an opportunity to price to value appropriately for those that are using <unk>.
Richard: Generally of AI in our existing software and then the third way as we're thinking about it is.
Richard: Depending on the generative AI module it may be a new SKU, a new software module that we sell to both prospects into existing clients.
Richard: We're preparing our teams and operational team members and go to market team members and our whole business to be able to take new solutions and successfully launched those into our existing clients and new prospects as well the last way I think ginny impacts our business is the internal consumption of gen.
Which we're using today to drive efficiency.
Richard: To drive impact without compromising our ability to create the highest in the industry.
Richard: Market, leading client experiences experiences as we work to serve our clients.
Richard: We're also have a real effort underway to train our all of our teams, but especially our software engineering teams on how to use AI. So not just dedicated amongst that cohort of Gen. AI specific application engineers, but our whole engineering team, we want the ability to use.
Richard: Jen AI to become pervasive and we see that taking place.
Richard: Even to be able to help produce software code. So there's multiple ways that journey I will impact our business and we look forward to articulating that more specifically.
Richard: As we roll forward, but there are some things that are already taking place now that we're encouraged by.
Richard: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one.
Speaker Change: Our next question comes from Anne Samuel with Jpmorgan. Your line is open.
Speaker Change: Alright, Thanks for the question and congrats on the great results.
Speaker Change: You guys hit your leverage target a lot sooner than we were anticipating and now that youre. There I was wondering if maybe you could just talk about how youre thinking about adding to your existing portfolio through M&A.
Speaker Change: Well, thank you Ann.
Speaker Change: For highlighting that we're pleased to make and keep our commitments.
Speaker Change: Commented to Steve earlier today that we're proud of the.
Speaker Change: <unk> kept the commitments we made when we went public and that was to Delever the business successfully and we.
Speaker Change: We think it's a testament to our business model.
Speaker Change: Our business model that Steve highlighted earlier.
Our strong adjusted EBITDA margins and a really nice conversion ratio to Unlevered free cash flow. So we're pleased with the profile of our business and the strength of our balance sheet. What I'd say is with regards to M&A, we do have a.
Speaker Change: A history of successful M&A and our approach may be a bit unique in the sense that we look for companies that have technology people and clients that really fit what we're working to accomplish in Dew and then every time, we've been able to acquire a business as you know.
Speaker Change: Andy.
Speaker Change: We work to integrate and unite that company that technology, the people and the clients onto the waste our platform. So that all of our clients could benefit from it.
Speaker Change: And.
Speaker Change: We've seen really positive things occur.
Speaker Change: And so we believe that waste or can be a great home for the right types of companies and we have a very disciplined approach a dedicated corporate development team with a robust pipeline of.
Speaker Change: <unk> we're at.
Speaker Change: <unk> in the market, we have really good conversations with people that we admire with businesses that they lead and we're grateful for that and I think our commitment is to just continue that approach to be disciplined.
Speaker Change: And at the right time.
Speaker Change: <unk>.
Speaker Change: We will look forward to highlighting things that we.
Speaker Change: Expect to do.
Speaker Change: But we are active right now.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Matt Hawkins for closing remarks.
Matt Hawkins: Well, thank you Daniel for operating the call today.
Matt Hawkins: As we conclude today's call I, just want to take a moment to thank our incredible dedicated waste our team members, who I feel so grateful to work alongside them.
Matt Hawkins: I also just want to say how much we are privileged and thrilled to reserve to serve a remarkable clients, who really are health care heroes here, we're grateful to deliver them software that benefits them as they work to care for patients.
Matt Hawkins: We're passionate about what we're building I hope you sense that and we're pleased with our performance to start 2025.
Matt Hawkins: Looking ahead, just would reaffirm our our focus and our excitement about the opportunities that are right in front of US we're focused on executing our proven plan well.
Matt Hawkins: Recognizing the macroeconomic uncertainties facing providers and expressing empathy, there, but belief that we can really be helpful. So thank you all for joining we wish you a great evening and we're excited about getting to work. Thanks.
Matt Hawkins: This concludes today's conference call. Thank.
Matt Hawkins: Thank you for participating you may now disconnect.
Matt Hawkins: [music].