Flywire Corporation

Greetings and welcome to the Flywire Corporation third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Akil Hollis, Vice President of Investor Relations and SP&A. Thank you. You may begin.

Thank you and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Orgel, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our third quarter 2022 earnings press release, supplemental presentation, and when filed, associated quarterly report on Form 10-Q can be found at ir.flywire.com. During the call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. We will also be discussing certain non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks regarding these forward-looking statements that could cause actual results to differ materially, risk factors associated with our business, and required disclosures related to non-GAAP financial measures. This call is being webcast live and will be available for replay on our website. I would now like to turn the call over to Mike Massaro.

Thank you, Akhil, and thank you to everyone that is joining us today. We are pleased to share our Q3 2022 results in strong performance across the business amidst the current macroeconomic environment. In a few minutes, Rob Orgel, our president and COO, as well as Mike Ellis, our CFO, will go into greater detail about our operating and financial performance during the quarter. But first, I will start with a few financial highlights. During the quarter, our revenue-less ancillary services was $88.9 million, representing a year-over-year revenue growth of 43%. This was an all-time high for quarterly revenue and was delivered in the face of meaningful foreign exchange rate changes. For context, this year-over-year growth rate would have been over 50%, but for the impact of FX rates. Adjusted gross profit for the quarter was $61.3 million in Q3, an increase of 38% year-over-year. Adjusted EBITDA was $18.2 million, and payment volume growth for the quarter was 33% when compared to Q3 2021. These results are a tribute to the growing global distribution of our business, with clients in over 30 countries and flymates around the world, something that will continue to benefit us for years to come. We are pleased with yet another strong quarter of performance, and now let me share some of the trends we are seeing in our industries, starting with education. As many of you know, the third quarter has historically been the strongest for our education business. And consistent with this trend, we posted record revenue alongside strong new customer signings, growth within existing customers, and expansion of our product capabilities. We benefited from our geographically distributed business as international enrollments continued to normalize post-pandemic. New data from the U.S. Department of State shows that the total number of student visas awarded from May through August of 2022 was up from the same month last year, fueled by increased demand from India. According to the analysis from Chronicle of Higher Ed, more than 84,000 student visas were issued to Indian students from May to August this year. That represents nearly 45% more visas for Indian students than the same four months last year. and 148% more than during that same span of 2019. We have a strong solution for Indian payers and benefited from this trend. While we saw strength in multiple aspects of our education business and delivered strong overall revenue growth, we experienced less revenue growth than expected from students originating from China. The combination of decline in visa issuance and COVID-related travel obstacles, as well as changes in destination, may have impacted growth. Even with these trends, we believe there's an opportunity to continue to grow in the China market as we have relatively low market penetration. We have multiple strategies focused on better serving Chinese students and families, including our agent strategy, our pay any school capabilities that were just launched, and our expanding roster of schools and universities globally. Broadly speaking, we remain optimistic about the future of international education and believe Flywire is well positioned to support our clients as they continue to recruit students from around the world. In a recent Flywire survey of admissions leaders at some US institutions, their overall view on international enrollment was positive, and many are diversifying their recruitment efforts in new regions to grow their international students. In fact, 87% noted increases in applications from India, while over 95% expect total international enrollments at their institutions to increase or stay the same for the next three years. While we continue to monitor the shifting dynamics related to international students in a post-pandemic world, our education clients continue to remain resilient and our land and expand strategy positions Flywire to capture more of this market by providing additional solutions for clients and their payers. Shifting to healthcare, we are seeing IT play a greater role in the implementation process of our solutions as we continue to integrate with major healthcare platforms, or EHRs, like Epic and Cerner. In a recent survey we conducted of CIOs and other key decision makers in the healthcare space, we found that almost all healthcare IT leaders 97% of those surveyed say tight integration with EHRs is one of the most important considerations when choosing an outside technology vendor. And as systems like Cerner and Epic become more tightly integrated with all care-based services, we expect IT leaders will increasingly be measured against patient experience metrics, like satisfaction and patient collections, which are all outcomes our solutions help clients to achieve. In travel, we continue to see strong demand for our solutions all over the world. According to the US Travel Association, travel spending improved considerably in September. It is now at its highest mark since the pandemic started, at 6% above 2019 levels. This is consistent with some of the trends we are seeing across our client base. In particular, our clients are reporting an extension of their busy season, driven by pent-up vacation demand as well as the continued reopening of many top tourist destinations such as Japan. We continue to develop solutions that serve the specific needs of this industry, and those capabilities are helping drive our growing footprint in the travel sector. To highlight an example, we have enhanced our invoicing capabilities and payment acceptance to allow for scheduled payments, creating a streamlined and flexible way for clients to set payment terms to capture a deposit today and schedule payments at future dates as part of one seamless payment experience. To speak to the macroeconomic environment for travel, we believe that clients we see are still benefiting from the continued pent-up demand for post-COVID travel, especially for experience-focused trips like luxury travel, bespoke tours, adventure travel, and more. For our clients spanning across travel operators, destination management companies, and accommodations providers, we continue to share their confidence that the demand for these experiences will be more resilient than the broader travel sector across a range of macroeconomic environments. In B2B, we continue to see demand for our solutions from businesses looking to enhance their incoming payment processes to help free up cash trapped on the balance sheet. Treasurers, an audience we typically sell into, are focused on inward-facing tasks during inflationary periods. like managing cash and liquidity. This is according to AFP's Strategic Role of Treasury 2022 report. And these are challenges that Flywire helps solve. Furthermore, Flywire solutions can help all clients achieve valuable operational efficiencies. We enable clients to streamline what would normally be manual processes with legacy systems and create better payment experiences for their customers. And we expect our solutions to become even more valuable as clients navigate economic uncertainty. Finally, let me talk about investing in our future. We believe our strength comes from our diversified model, diversified verticals across diversified geographies, delivering best-in-class products through a mixture of organic and inorganic investments, positions us to continue our growth, navigate through periods of uncertainty, maintain margins, yet maintain focus on our strategic objectives. First, on the organic side, we've been squarely focused on solving major pain points for our clients, and we will continue to accelerate our ability to build, sell, and deploy solutions. We believe the significant market opportunity will be realized over the next decade, and our product technology roadmap is critical to our future success. As discussed during our 2022 Analyst Day, we continue to focus on key investment areas within the business. One of those areas is around enhancing our go-to-market, and we are pleased with the progress we continue to make on our sales ramp time, delivery capacity, and in our powerful digital acquisition strategies. For example, in our travel vertical, where we invested significantly in digital marketing and have more than a 60% year-over-year increase in marketing source pipeline and a 70% year-over-year increase in marketing source deals. We are also making good progress on our vision to continue to expand the Flywire Advantage to truly power the vertical ecosystems that we support. We are making progress on strategic payables, which is being successfully piloted in the education vertical for both domestic and international payouts. As a reminder, our approach to payables is one of focus and precision. We have discovered pain points that we believe Flywire is uniquely positioned to solve. We are applying our existing framework of using software and our global payment network to drive value in payments to solve specific payables use cases for our clients. As for our inorganic investments over the past 12 months, we are very pleased with the muscle that we have developed in identifying, negotiating, and successfully integrating acquisitions over the past 12 months, specifically WPM and Cohort Go businesses. WPM, as you know, enabled us to accelerate expansion in the UK market. Q3 marked our first major new student enrollment period in the UK following the acquisition, and we have over 20 schools live with our initial version of the integrated solution, and roughly as many more signed and still to be deployed. Cohort Go had an agent footprint in multiple important markets, including India and China, an agent technology platform, payment capabilities, and a payer-oriented solution for marketing student health insurance. This acquisition extends our footprint with education agents and accelerates our investment in product and payment innovation for international students. We now have successfully integrated their full pay any school capability into the Flywire platform, offering an expanded universe of over 5,000 institutions to our agent partners. We've also begun to migrate these partners onto a single platform while continuing to work on additional operational and feature improvements to the solution. In closing, after recently returning from traveling to see many FlyMates clients and partners around the world, I remain more excited than ever about the future of Flywire. Seeing our teams in action, is always an incredible experience, and I'm proud of the relationships that our Flymates build with our clients and partners, some spanning over a decade. Growing and strengthening our Flymate community is critical to Flywire's future success. I'm extremely proud of the culture and team we've built, with now more than 950 Flymates around the world who represent more than 40 nationalities and speak over 30 languages. They truly operate as one team, and are the cornerstone of how we continue to deliver exceptional value to our clients, partners, and payers. We are committed to providing our flymates the opportunity to pursue their career of a lifetime. Once again, Flywire has been recognized as one of the leading workplaces in the United States, according to the employee experience platform, Great Place to Work, with 95% of flymates recommending Flywire compared to just 57% of employees at a typical U.S.-based company. The opportunity ahead of us is large, and I could not be more excited about the future. I would now like to turn the call over to Rob Orgel, our president and COO, to review some operational highlights from the quarter.