Waystar (WAY) Q3 2026 earnings review
Waystar raises its profit target, but trims its revenue plan
Waystar's software subscriptions lifted profit margins, but the healthcare payments firm trimmed its full-year sales plan. Third-quarter revenue rose 21% to $326 million, or about 10% excluding last year's purchase of Iodine Software by our math. Chief executive Matt Hawkins cited strong customer demand, yet the revised full-year outlook points to fourth-quarter sales growth slowing to about 6% by our math.
| Revenue | $325.6M +21.2% from a year ago (~10% excluding Iodine, by our math) |
|---|---|
| Adjusted EBITDA margin | 42.8% above the 40.9–42.5% H2 band implied at Q2 |
| Net revenue retention rate | 108% down from 108.3% last quarter and 113% a year ago |
| Full-year revenue outlook | Trimmed $3M middle of the range: $1,282M (+16.6%) |
⚖️ Verdict: 🔴 Bearish
The story got worse because the lower revenue ceiling points to mid-single-digit growth once the Iodine purchase enters the comparison base next quarter. Expansion among existing clients also slipped to 108%, the bottom of its historical band, while stock-based pay doubled. On the positive side, volume-based revenue growth improved to 8%, and lower service delivery costs allowed a $6 million raise to full-year operating profit.
The question now is whether recent large customer signings will lift underlying growth back to 10% next year. Either those contracts are big enough to offset slower expansion at older clients, or total growth stays near the 6% pace implied for the fourth quarter. Fourth-quarter results and the first 2027 outlook will settle it.
🐂 Bull Case
Subscription Growth Lifts Profit Margin Above Plan
Chief executive Matt Hawkins said healthcare providers are moving more billing work onto Waystar's software as they adopt its "AI-powered capabilities". That shift pushed subscription sales up 34% from a year ago to $180.7 million, or $4.4 million above last quarter. Large customers paying over $100,000 a year rose 14% to 1,488, adding 35 clients in the quarter.
Because software subscriptions carry lower direct costs than patient billing mailings, the cost of making and delivering services fell by 1.2 percentage points of sales to 30.5%. That lifted the Adjusted EBITDA margin (operating profit before depreciation, stock pay, and one-offs) to 42.8%. This beat the 40.9% to 42.5% second-half band implied by the prior full-year plan, so the company raised its full-year profit target by $6 million.
What to watch: fourth-quarter subscription revenue when the company laps the October 2025 purchase of clinical software maker Iodine. Holding the $4 million quarterly dollar gain without an acquisition boost will show that new customer deals are turning into billed revenue.
Transaction Revenue Picks Up After Three Slowing Quarters
Waystar earns nearly half its sales from volume-based fees, which charge hospitals and clinics per insurance claim or patient statement processed. Growth in this transaction line had slowed for three straight quarters, dropping from 11% late last year to 3% in the second quarter as big 2025 customer rollouts entered the base.
In the third quarter, volume-based revenue rose 8.0% from a year ago to $142.9 million. Revenue from hospital and doctor software grew 28% to $243.4 million, while patient payment revenue increased 5% to $82.2 million. A single quarter does not settle the concern over paper-to-digital statement pricing, but it stops the slide.
What to watch: fourth-quarter volume-based revenue growth. Staying near 8% will show that claim volumes across its 30,000 clients can offset lower prices on digital patient statements.
🐻 Bear Case
Trimmed Revenue Plan Points to 6% Q4 Growth
"Waystar delivered another quarter of robust bookings and healthy demand across the business," chief executive Matt Hawkins said. Yet the healthcare payments firm cut the top of its full-year revenue forecast by $7 million and lowered the middle of the range by $3 million, to $1.282 billion.
- Third-quarter revenue: $325.6 million, up 21.2% from a year ago (or about 10% excluding Iodine, by our math)
- Implied fourth-quarter revenue: $322.8 million at the middle of the full-year range, by our math
- Implied fourth-quarter growth: 6.4% from a year ago and down 0.9% from the third quarter, by our math
The fourth quarter is the first period that includes Iodine in both years, so headline growth naturally drops to the underlying rate. Even so, an implied 6.4% rate is below the company's 10% underlying target and requires a quarterly revenue drop.
What to watch: fourth-quarter revenue against the $322.8 million implied middle of the plan. A result near that mark would confirm that underlying growth has slipped into the mid-single digits.
Client Expansion Rate Hits the Floor of Target
Waystar tracks how much existing customers spend compared with a year earlier through its net revenue retention rate (NRR). Because new customer contracts take 6 to 18 months to go live, extra spending by current clients drives nearly all of the company's underlying growth.
That retention rate slipped to 108% in the third quarter from 108.3% in the second, marking seven straight quarters of deceleration from 114.6% a year ago. It now sits right on the bottom of the 108% to 110% historical band the company targets. Meanwhile, deferred revenue — cash collected for services not yet delivered — fell 4.1% since December to $70.3 million, and the release still gives no dollar figure for new bookings.
What to watch: the net revenue retention rate in the fourth quarter. A reading below 108% would break the historical floor and pull next year's underlying revenue growth down with it.
Stock-Based Pay Doubles and Flattens Accounting Profit
While profit excluding one-offs grew 29% to $87.2 million, statutory net income barely moved, rising 1.2% from a year ago to $31.0 million. Diluted earnings per share under accounting rules fell 6% to $0.16 because the share count rose 8.1% to 195.9 million after the Iodine purchase.
General and administrative overhead — management pay, legal, and back-office costs — jumped by 3.7 percentage points of revenue to 15.8%. The driver was stock-based compensation, which more than doubled from a year ago to $24.4 million (7.5% of revenue, up 3.2 percentage points) after the board modified employee stock options in July. Deal and integration costs also rose to $9.6 million from $5.3 million.
What to watch: fourth-quarter stock-based compensation in the cash flow statement. Staying near $24 million a quarter would mean the July option changes created a lasting drag on statutory profit.
Risks this quarter didn't answer
Four standing concerns from prior quarters could not be tested or remained unaddressed in the third-quarter earnings release.
- Unexplained cybersecurity costs: footnote (a) of the profit reconciliation quietly strips out $1.4 million of "costs associated with a cybersecurity incident" ($3.0 million over nine months), with no explanation in the release text.
- Withheld bookings and AI metrics: the release gives no dollar value for bookings and does not update the ~40% AI-enabled share of bookings given on prior calls.
- Competition from hospital record systems: whether chief executive Matt Hawkins again had to defend against automated rivals awaits the conference call transcript.
- Iodine standalone revenue and cost savings: the release does not break out what Iodine contributed or how much of the $15 million cost-savings target is complete.
💲 Other KPIs
Net debt (total borrowings minus cash and marketable securities) fell 6.9% from $1,283 million last quarter as operating cash flow built up the investment portfolio to $246.1 million. Net debt now stands at 2.2 times trailing 12-month Adjusted EBITDA, down from 2.5 times in June and 3.0 times after the Iodine purchase closed.
Unlevered free cash flow — operating cash flow before $20.8 million of interest payments, minus $9.9 million of capital and software spending — rose 19.9% from a year ago and rebounded from $63.9 million in the second quarter. Capitalized software and equipment spending cooled to 3.0% of sales, down from 5.0% last quarter.
By our math, the healthcare software group spent $20.7 million buying back shares in the third quarter, up from $12.7 million in the second quarter, bringing nine-month buybacks to $33.5 million out of its $200 million May authorization. Even so, new employee stock grants pushed diluted shares up by 1.4 million from last quarter.
🔮 Guidance
Cut. Management raised the bottom of the range by $1 million but trimmed the top by $7 million, lowering the middle of the range by $3 million to $1,282 million (16.6% annual growth). It is the first downward move after two small raises (+$0M, +$1M, -$3M). By our math, that leaves $322.8 million for the fourth quarter, or 6.4% growth from a year ago and a 0.9% drop from the third quarter.
Raised. The middle of the range moved up $6 million to $546 million, or 18.1% growth from last year and a 42.6% full-year margin. It is the second straight raise (+$0M, +$5M, +$6M). By our math, the outlook leaves $134.6 million for the fourth quarter, or a 41.7% margin on implied fourth-quarter sales, down from 42.8% in the third quarter.
Cut. Waystar held the bottom of the range at $322 million and trimmed the top by $3 million, lowering the middle by $1.5 million to $329.5 million (25.3% growth). By our math, after $251.6 million in the first nine months, the plan leaves $77.9 million for the fourth quarter, down from $87.2 million in the third quarter.
Raised. The middle of the range rose $0.015 to $1.67 per share, up about 18% from last year. After $1.29 per share across the first three quarters, the full-year plan leaves $0.38 per share for the fourth quarter by our math, down from $0.44 in the third quarter.
❓ Key Questions
Why does the outlook imply a Q4 revenue drop?
The trimmed full-year revenue range leaves $322.8 million for the fourth quarter at the middle of the range, down $2.8 million from the third quarter and up 6.4% from a year ago. Is transaction volume slowing, or are customer rollouts taking longer?
What caused the $3 million cybersecurity incident costs?
Footnote (a) of the profit table excludes $1.4 million in the third quarter and $3.0 million over nine months for a cybersecurity incident. Were any hospital clients or patient payment records affected, and when will these costs end?
What is the dollar value of recent bookings?
Management has cited strong large-deal bookings for four quarters without giving a dollar total, while deferred revenue fell 4% since December. What is the contracted dollar backlog scheduled to go live in 2027?
What did Iodine grow on its own this quarter?
October 1 marks one full year since Waystar bought Iodine Software. How much revenue did Iodine generate in the third quarter, and has the company finished the $15 million cost-savings plan?