Flywire Corporation

Greetings and welcome to the Flywire Corporation first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 To introduce your host, Akhil Hollis, VP of SPNA and Investor Relations. Please go ahead.

Thank you and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Ogle, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our first quarter 2023 earnings press release, supplemental presentation, and when filed, form 10-Q can be found at ir.flower.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 and the required disclosures and reconciliations 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 this afternoon. We are excited to share our Q1 2023 results that show strong performance and momentum across the business. In a few minutes, Rob Orgel, our president and COO, as well as Mike Ellis, our CFO, will go into greater detail about our results for the quarter. But I will first share some highlights from our Q1 performance. Revenue-less ancillary services was 89.1 million during the quarter, representing year-over-year growth of 50%, or 57% on a constant currency basis. Adjusted gross profit for the quarter was 59.9 million, an increase of 50% year-over-year. And adjusted EBITDA was 7 million for the quarter, representing a 470 basis point increase in our adjusted EBITDA margin versus Q1 2022. So as you can see, Q1 2023 was a great quarter for Flywire, driven by the efforts of our Flymates all around the world, continuing to execute against our growth strategies while also making progress against our three investment areas that I will provide more updates on now. First, we continue to invest in enhancing and optimizing our go-to-market efforts. with a key focus on high ROI areas. As we have shared before, a key part of our focus go-to-market this year is around accelerating our channel and technology partners across all verticals. When we integrate directly with our partners, it makes the onboarding process and technology implementation faster and more effective for our clients. And it further deepens Flywire's defensible moat As validation of our focus in this area, we are proud to share that Flywire was recently named the 2022 Partner of the Year for Integration Excellence by Ellucian, one of our strategic partners in education and a leading ERP with major market share in North America. Our Ellucian integration is core to how we sell our full suite solution in North America, and we believe this recognition improves our competitive positioning going forward. We also continued enhancing our sales efforts with targeted investments in our globally distributed sales team. For example, after recently focusing travel sales and marketing efforts in South Africa, we signed a number of net new travel clients that include destination management companies, accommodation providers, and tour operators, underscoring our ability to scale up quickly in new geographic regions. Geographic expansion, in addition to other go-to-market efficiencies, helped yield our largest ever revenue quarter to date for our travel sector, with our team bringing in a record number of net new travel clients in Q1. Our second investment area is how we expand our flywire advantage. Part of our long-term vision to power the ecosystems in our core industries of education, healthcare, travel, and B2B. It is hard to believe that our first analyst day was almost a year ago, which is where we initially outlined some of the product and payment innovation happening around payer services and our vision to pursue these TAM expansion opportunities to enhance the lifetime value of our payers and deliver more value to Flywire over time. One of the areas where we are seeing success is in the selection of student health insurance for Australia bound international students. Flywire has implemented our insurance comparison tool as part of the overall payer experience. And in doing so, we deliver added value to multiple stakeholders in the ecosystem, including students and agent partners. Continuous health insurance is mandatory in order to obtain a student visa, and we provide a seamless option as well as choice to the student and family. We also offer this marketplace to our vast network of agent partners. We now have our insurance solution embedded within the Flywire agent portal. As a reminder, agents are an important component of the education ecosystem, and it is common practice for international students to partner with them. In fact, 75% of students being placed in Australia have partnered with an education agent. This is just one example of our proven ability to drive value for multiple stakeholders in our ecosystems. And we are encouraged by the growth and potential of this new solution. And our third key investment area was to strengthen and grow our FlyMate community. In Q1, I had the privilege of traveling around the world to visit clients, partners, and, of course, our incredible flymates. I continue to hear firsthand from our clients and partners that industry expertise, global payment knowledge, and local market support helps us build trust and drive value with our software. During my trip to Edinburgh for our annual Flywire User Conference, I got to spend time with more than 200 representatives from our UK education clients. I was so impressed by our Flymates who bring a unique combination of local experience and technical expertise to better serve our clients. There was great energy at this event. Seeing our clients' commitment to Flywire and our mutual desire to continue to innovate for students and parents gives me a lot of confidence in our expansion efforts in this key market. On my visit to Singapore, I was lucky to be part of the ribbon-cutting ceremony for our new office opening. True to Flywire's philosophy of promoting a hybrid work environment, the new office features thoughtful meeting spaces that encourage collaboration both in person and virtually. Spending time with our expanded team, hearing the multiple languages being spoken and the breadth of countries represented, It was no surprise to me that my visit coincided with the incredible recognition of being named a great place to work in Singapore. And finally, on a trip to Vietnam, I attended a strategic team offsite with our APAC education team. The roles of these flymates at this offsite ran the gamut from sales to implementation to agent partnerships, product, technology, as well as our global payment network. They all shared a common passion for our products and for solving even the most complex payment challenges for our clients and payers. With global mobility returning to post-pandemic levels, this opportunity to meet many new flymates in person, as well as catch up with long-term flymates who have helped build this company, was truly special. I couldn't help but come away feeling reinvigorated by our mission and the team that we have built. In closing, these quarterly results are also supported by positive tailwinds across the industries that we serve, giving us even more confidence in our path ahead. For example, China's move to reopen its borders and resume issuing visas signals an uptick in international student mobility for both our education business and a positive trend for our travel business. According to the China Outbound Research Tourism Institute, Chinese outbound travel is expected to recover to around two-thirds of its 2019 highs and with around 110 million border crossings expected from China. Also in travel, the U.S. Transportation Security Agency screened over 58 million passengers in February alone, continuing the early 2023 trend of travel numbers outperforming pre-pandemic volume at a national level. In B2B, We are encouraged to see the CFOs and other financial professionals focused on streamlining their payment processes. According to our new survey, 87% of respondents would like to offer additional payment methods in an effort to decrease day's sales outstanding. In healthcare, hospitals and health systems continue to choose Flywire in part due to our integrations with the leading EHRs. And according to our latest research, 97% of IT leaders state that tight integration with EHR and a streamlined implementation process are important considerations when you're choosing a technology vendor. This was truly a tremendous start to our year, thanks to our winning strategy, execution in our key investment areas, and tailwinds across the industries that we serve. And I couldn't be more excited to what's ahead this year. I would now like to turn the call over to Rob Orgel, our president and COO, to review some operational highlights from the quarter. Rob?

Thanks, Mike. Good afternoon, everyone. It's been a great quarter, which included impressive growth on the top line while also demonstrating our ability to efficiently scale. On top of our strong revenue and adjusted EBITDA results, we had our largest sales quarter ever with a record number of clients signed. During the quarter, we signed more than 170 new clients, including a record within the travel vertical and one of our largest projected revenue clients ever signed in the education vertical. Q1 NRR remains strong and consistent with our previous reporting. This performance further validates our investment strategy towards efficient growth. As a reminder, our growth strategies include growing with existing clients, adding new clients, expanding our ecosystem through channel partnerships, expanding to new industries, geographies and products, and finally, strategic value-enhancing acquisitions. I will spend a few moments reviewing some recent success stories reflecting these strategies, but we've also added information on our strategy within our supplement and invite you to visit ir.flywire.com to review it. First, an example of how we grew with new clients includes going live with our cross-border payments offering at UCLA for UCLA's main campus. UCLA is a public research university founded in 1881 that takes great pride in bringing together diverse students from around the world. Many of UCLA's over 31,000 undergrad students and over 14,000 graduate students have an international visa status. We are very excited to offer best-in-class software and payments to UCLA's main campus and A-plus service. And that's according to UCLA's payments and compliance manager. And we look forward to building upon our relationship with UCLA going forward. We also added new clients in our healthcare vertical, along with seeing productivity improvements across our sales team. That included an increase of pipeline generated and higher projected deal value signed in the quarter as compared to Q1 2022. An example of a new client go live for the quarter is Mountain Health Network, a West Virginia-based nonprofit health delivery system comprised of hospitals and medical centers across 23 counties in West Virginia, Southern Ohio, and Eastern Kentucky. During the quarter, we went live with Cabell Huntington Hospital, which was named one of America's 100 best hospitals for 2023 by health grades. CHH chose Flywire to improve their patient financial experience by giving patients self-service payment plans and to streamline the back office billing and reconciliation process. With Flywire, Mountain Health is now able to consolidate all visits into one view, one balance, and one payment plan across all patient visits. We look forward to working with Mountain Health Network. In our travel vertical, we saw growth with our existing client base as we benefited from the reopening of the APAC region with clients that we've added over the past few years. Albeit off a very small base, our destination management company revenues in the APAC region grew almost tenfold. We also continued to sign new clients. For example, we went live with Exclusive Travel Group, a New Zealand-based DMC providing luxury travel services across Australia, New Zealand, the South Pacific, and Papua New Guinea. Flywire Software Solutions helped the company receive payments in the same currency as the invoice being sent out to travel clients coming from the US, Canada, UK, and Europe. In our B2B vertical, we continue to leverage and expand the number of capabilities of our key ERP systems integrations. For example, we created an integration with Salesforce for Specialty Coffee Association, or SCA, a global trade association for the coffee industry. SCA implemented Flywire's new invoicing and payment API, which enables SCA to utilize our full invoicing and payment system within their Salesforce instance to send invoice and payment instructions to their customers. Flywire's new API gives businesses like SCA the option to utilize our full invoicing and payment system or send customers a payment request while their existing ERP system manages the invoice. SCA went live with our B2B payment solution during the first quarter and processed a meaningful amount of payment volume with only about a month and a half of being live. We look forward to continuing our work with SCA. Mike already mentioned an example of how we are driving further growth through strategic and value enhancing acquisitions when he referenced the student health insurance comparison platform we acquired with Cohort Go. On top of our earlier efforts to enable Cohort Go's robust pay-in-the-school capability for Flywire's agents, this current effort has enabled distribution expansion while we maintained a sharp focus on supporting and retaining the existing Cohort Go agents that already help students find health insurance. These agents currently using the Cohort Go portal experience will be migrated in stages onto the consolidated Flywire platform during Q2 and Q3. The service, which supports the convenience and needs of both students and the agents serving those students, has helped Flywire grow this exciting aspect of our payer services, which we called out as one of our investment areas at last year's Analyst Day. In the current economic climate, we are also being diligent on all types of expenses. We are carefully pacing our hiring in line with our plan and we added less than 50% of annualized run rate expense and new personnel in Q1 versus the year ago period. We feel good about the high value roles and strong talent that we are adding to the business as we continue to balance growth and profitability initiatives. The ability to pace our hiring while still delivering the kind of strong business growth we showed in Q1 is rooted in our ongoing efficiency initiatives. For example, the AI chatbot we discussed last quarter has already enabled us to handle nearly 20% of all payer inquiries during the quarter using the chatbot self-service capabilities, allowing our client support team to demonstrate operating leverage and increase their focus on more complex support cases. We are in the midst of automation, streamlining efforts, and adding high ROI tools in a number of areas, including client onboarding, KYC, transaction monitoring, and our cash management team, all as part of our preparation for handling even larger volumes of clients, transactions, and payment volume with increasing efficiency. These are busy and exciting times at Flywire. I would now like to turn the call over to Mike Ellis, our CFO.

Mike? Thank you, Rob. Good afternoon, everyone. Today, I'll provide an overview of our excellent results for the first quarter, and we'll then discuss our outlook for full year in Q2 2023. Revenue-less ancillary services was $89.1 million in Q1, representing a 50% growth rate compared to Q1 2022. On a constant currency basis, our revenue-less ancillary services growth rate for Q1 2023 was 57%. As expected, we experienced a revenue headwind of approximately $4 million due to the strength of the U.S. dollar compared to the GDP in euro during Q1 2023 versus Q1 2022. Foreign exchange fluctuations since our Q1 guidance, which was based on exchange rates at December 31, 2022, did not significantly impact our Q1 revenue performance. Our revenue growth rate was driven predominantly by an increase in total payment volume, particularly due to strong growth from our international cross-border payment volumes and our education and travel verticals. With respect to payment volumes, we processed $5.7 billion during Q1 2023, which represented an increase of 36% from the $4.2 billion processed during Q1 2022. Specifically, transaction revenue with ancillary services increased 57% compared to Q1 2022, driven by a 50% increase in transaction payment volume. Platform and usage-based fee revenue increased 20% compared to Q1 2022, driven by a platform and usage-based payment volume, as well as non-payment volume-related increases in SAS-based and other platform and usage-based fees. We generated $59.9 million in adjusted gross profit during the quarter, representing a 50% increase compared to the $40.0 million earned during Q1 2022. Specifically, our adjusted gross margin was 67.2% for Q1 2023, down just 30 basis points from the 67.5% reported as adjusted for Q1 2022. The strength of our adjusted gross margin during Q1 2023 was driven primarily by higher margin revenue from our cohort GO acquisition, including the payer services activity mentioned by Rob and Mike, and settlement gains on foreign exchange transactions. Regarding settlement gains, we do hedge our exposure to changes in foreign exchange rates while settling transactions. But while these gains helped our adjusted gross profits, we also saw offsetting losses on our hedges so it was close to neutral to adjusted EBITDA. Overall, these favorable adjusted gross margin impacts were offset by payment method mix shift to credit cards driven by the strength of our travel vertical. We continue to expect adjusted gross margins to decline 1% to 1.5% for the full year of 2023 relative to full year 2022 due to increasing credit card usage related to the growth of our travel vertical. Moving on to operating expenses. Technology and development expenses were $14.5 million for Q1 2023, an increase of 32% over the $11.0 million incurred during Q1 2022. The increase was primarily the result of adding flymates to our engineering and technology teams during 2022, which drove increases in employee-related costs, including stock-based compensation consistent with our 2022 investment plans. Selling and marketing expenses were $24.4 million for Q1 2023, an increase of 39% over the $17.6 million incurred during Q1 of 2022. This increase was driven by adding flymates to our sales and marketing teams via direct hiring and our acquisition of Cohort Go, primarily during 2022, which drove increases in employee-related costs, including stock-based compensation. In addition, we incurred more costs associated with third-party commissions as a result of our revenue growth during Q1 2023 compared to Q1 2022. General and administrative expenses were $28.1 million during Q1 2023, an increase of 49% over the $18.8 million incurred during Q1 2022. This year-over-year increase was predominantly due to adding climates to our general and administrative teams, which drove increases in employer-related costs, including stock-based compensation. In addition, we incurred more costs associated with operating as a public company, including the initial year cost associated with, number one, implementing the requirements of Section 404B of Sarbanes-Oxley, and number two, our expedited Form 10-K filing as a large accelerated filer. Excluding these items, which had an outsized impact during Q1 relative to what we expect for the remainder of this year, our G&A increased by 33%. Adjusted EBITDA for the quarter was $7.0 million, an increase of $5.1 million over the $1.9 million reported for Q1 2022. Our adjusted EBITDA margin increased over 470 basis points in Q1 2023 compared to Q1 2022 due to strong adjusted gross profit growth and some expense deferral into later quarters. With respect to capitalization as of March 31, 2023, we had $327.1 million in cash and cash equivalents and no long-term debt. As of March 31, 2023, we had 110.6 million shares of common stock outstanding, which is slightly different from the weighted average shares outstanding used to calculate net loss per share due to the timing of shares issued during the quarter. Moving on to guidance, which is based on foreign exchange rates as of March 31st, 2023. For full year 2023, based on our results for the first quarter and current trends, we now expect revenue-less ancillary services to be in the range of $360 million to $370 million, representing a year-over-year growth rate of 37% at the midpoint. This also represents an increase of $6.5 million when compared to the midpoint of our previously provided full year 2023 guidance. We expect to deliver full year 2023 adjusted EBITDA in the range of 30 million to 36 million. This represents an increase of 2.0 million at the midpoint of our previously provided guidance. We are not increasing our full year guidance by the full beat due to expenses that were originally planned to be incurred during the first quarter, which are now expected to be incurred throughout the remainder of this year. At the midpoint of our full year 2023 guidance range, we would expect to generate approximately an incremental 340 basis point improvement in adjusted EBITDA margin, a slight increase from our previous guidance. For Q2 2023, revenue-less ancillary services is expected to be in the range of $71 million to $75 million, which represents a year-over-year revenue growth rate of 41% at the midpoint as we enter our seasonally lowest quarter of the year. Due to the strong results heading into Q2, we now expect Q2 adjusted EBITDA to be in the range of negative 5 million to negative 3 million, which at the midpoint represents a 2.1 million year-over-year improvement compared to our reported adjusted EBITDA for Q2 2022. Our Q2 expectations for negative adjusted EBITDA reflects the revenue seasonality and the cost structure of our business. At the midpoint of our guidance, our adjusted EBITDA margin represents an increase of 640 basis points year-over-year. We were very pleased with how the business performed during the first quarter, providing evidence of the resiliency of the verticals in which we operate. With that, I'd like to turn the call over to the operator for questions. Operator.

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. First question, Bob Napoli with William Blair. Please go ahead.

Thank you. Thanks for the question. Good afternoon. Nice results. Good to see. I mean, 170 new clients added. I think that's a record for you guys. Given the macro seems to be choppier, there's certainly a lot more concern broadly between banks and just broad macro concern. Mike, what are you seeing, Rob, as far as your business and response from clients? It doesn't seem like you're noticing any slowdown.

Yeah, this is Mike. Hey, Bob, thanks for the question. I just highlight, again, we're solving a lot of problems that exist for our clients in the back office, right? The core tenant of our value prop of software and payments coming together, it resonates. And I think when people are being asked to do more with less, which I think so many of our clients are being asked to do that, looking at software solutions like ours that bring with it payment optimization, that That usually hits the mark for them. So I think it's a combination of that isn't changing in our clients' world, in our prospects' world, and we're also spending a lot investing in go-to-market, right? Increasing our team size, focused on efficiencies, as we said in some of the prepared remarks earlier. That, I think, is where you're seeing that growth come from, and we're pretty excited about it.

Thank you. And what's surprising you? Where are you exceeding your expectations? And what areas of your business may you have some incremental concerns? Obviously, the overall business is doing very, very well.

You want that one, Rob? Sure. Greetings, Bob. The business really performed well across all the verticals. So one of the things that I would say was particularly gratifying was seeing good activity across each of the verticals. We did call out that it was a particularly strong quarter for travel, right? So in that count is a significant number of client wins across travel. You know, they do tend to be our smaller size clients relative to the other verticals. So I want to keep all of this sort of in proportion. But a great quarter across geographies, meaning success around the world, across the verticals, and delivering what was a record projected ARR signing across the the aggregate of all those customer wins.

Great.

Thank you. Appreciate it.

Next question, John Davis with Raymond James. Please go ahead.

Hey, good afternoon, guys. Mike, a couple quarters ago you had mentioned that international students were running, call it, 85% of pre-COVID levels. Just curious kind of where we stand today with China reopening, if you have any kind of ballpark idea versus pre-COVID.

Yeah, hey, JD. You know, it continues to trend back positive. You know, we had mentioned some of those, you know, traveler numbers coming out of China and, frankly, even just Asia opening up in general. And so, you know, we're encouraged by it. But, you know, I would highlight those comments I made were also referencing how we plan for the year, which is kind of that rolling recovery, right? So, you know, we expect, you know, students to show up in markets like Australia and Canada and the U.S. They all have different timing throughout the year. and we expect some combination of 23 and 24 to get back to pre-pandemic levels. So not assuming any type of snapback to that number, just a steady recovery to pre-pandemic levels. And then I'd remind you of that decade, two-decade set of stats that shows that international student growth number around low single digits, low mid-single-digit growth. And I think once you get past that pre-pandemic level, level, you'll see a kind of return to that kind of growth trajectory.

Okay, that's helpful. And then, Mike, maybe just an update on WPM. Obviously, when you announced the deal, the volume opportunity was pretty exciting. So just curious, where are we on converting WPM schools or customers onto the Flywire platform from a payment processing perspective? And just maybe a broader update on the WPM acquisitions.

So things are going very well. Rob jumping in here, JD. So, you know, I think we're really pleased with the progress. You know, the first step was signing on clients and having them understand and adopt the value proposition that we were presenting. That's gone very, very well. We've shared some of those numbers in past calls. Now it's about getting those clients live with optimized implementations and making sure that we are ready for, you know, for the increased peaks that happen later in the year. Certainly Mike mentioned in his comment, he and I were both in Edinburgh for the conference, and I think we feel really good about the position we have with these clients and their belief that we will provide a great solution for them and the work that we're doing to do that. So I think what, you know, we go into the busier part of the year very bullish that the volumes will be there that we had anticipated. You know, last year was good, and I think we think this year will be better.

Okay, one last quick one for Mike Ellis. obviously very impressive EBITDA margin expansion in one Q, also guiding to some nice, or I guess better margins in two Q, but it would kind of imply more muted in the back half, maybe 100 basis points of expansion in the back half of the year. So maybe just a couple things that are weighing on it, anything that we should be thinking about from a margin expansion in the back half of the year.

Hi, J.D., and you're making reference to adjusted gross margin or the adjusted EBITDA margin?

Sorry, adjusted EBITDA margin.

Yeah, so we're really pleased with the flow-through that we saw during Q1, and we are guiding to even better than last year flow-through for Q2. I still think we're early on in the quarters of 2023, and you also have some impact as it relates to the cohort go acquisition that will get lapped in the latter part of July. And those things all taken into consideration, JD, is where we're coming out as it relates to our adjusted EBITDA, but we're really pleased with the results so far in Q1 and what we're seeing early on in Q2, which is why we're increasing our full-year adjusted EBITDA margin to that 340 basis points up from just above 300 when we first provided guidance.

All right. Appreciate all the color, guys. Thanks.

Thanks, JD.

Next question, Jason Kufferberg with Bank of America. Please go ahead.

Good afternoon, everyone. This is Tyler DuPont on for Jason. Thanks for taking the questions. So first, I just want to start off with, like, 1Q REVs seem to be pretty strong, and the updated 2023 revenue estimates appear quite healthy. So I guess I was just wondering sort of what segments or geographies are seeing more substantial outsized performance and driving that growth. I know you mentioned APAC Travel has seen some pretty nice recovery off COVID lows. But, for example, is the European luxury travel market still robust as well, despite the choppy macro? And I guess jumping off that point, I'd be curious to know if your macro assumptions have changed in any way when looking at full-year guidance?

Thanks for the question. I'd call out a couple areas. If you look at education in the U.S., also into the U.S., the numbers were quite strong. In addition to that, we don't talk a lot about this, but non-higher education. So if you remember just the return of K-12 boarding schools, language programs, those have come in quite strong. And prior years, right, those were not the things to come back first. As the age of the student goes down, your willingness to send them halfway across the world was not there in prior years due to the pandemic. And we're starting to see strong, you know, recovery and performance of those subsectors of education. which is important to note. And then I just highlight travel. Whether you look at the comments from this call or the prior call, we're seeing the opening of Asia, both from a traveler outbound and a destination. Our clients are now receiving travelers from all over the world at levels that they haven't seen since the pandemic. I was fortunate myself to visit one and use one of our clients in Vietnam, on a recent trip to Vietnam, and you're hearing anecdotally just people moving around the world more, and that's benefiting us.

Okay, great. I appreciate that. And then just as a follow-up, it looks like the updated guidance implies around an additional 40 basis points of adjusted EBITDA margin upside for 2023, if you look at the midpoint. Where within the business do you expect to see the majority of that upside, and what has surprised you, if anything, there?

This is Mike Ellis. Thanks for the question. You know, I think the continued performance of the business as it relates to our revenue growth rate and the adjusted gross profit growth rate is really what's driving our incremental adjusted EBITDA margin. And I think in connection with that, it's a very disciplined approach around our cost structure and ensuring that we're phasing our hiring properly. We're looking at investments from an ROI perspective in order to ensure that we can deliver that incremental 340 basis points for the full year.

Okay, great. Thank you very much.

Next question, Darren Peller with Wolf Research. Please go ahead.

Hey, guys. Nice job on the quarter. I just want to touch first on going back to NRR and just same-store sales and how you're executing in each of the verticals with your existing customers to obviously continue to land and expand strategy that you guys have done so well. Maybe a quick update on what's been succeeding in the last few months versus what we've seen, obviously, particularly in the education vertical. But if there's more room there, if you can kind of deconstruct the growth between that same store, land and expand, and some of the new business coming on, new customers. Thanks.

Yeah, Darren, I can try to step in and start that one. So like I said in my comment, NRR, totally consistent, is actually probably slightly up for the quarter. But as you know, we like to – frame that in terms of the three-year average and so on. When you look at it on that basis, it was very steady with what we previously shared on prior calls. If you look at it and start looking at it by the verticals, again, very consistent performance. If you look in education, it's the same drivers that have been driving us before. If you look in the U.S., for example, still the biggest client market. what you'd see is continued success in that domestic education push. Those clients, you know, not only are we adding clients, but the clients are growing nicely. If you look at the U.S. cross-border, it grew strongly, as Mike was saying. So those are clients, many of whom have been with us for many years, and just the strength in sort of the international student numbers and the cross-border are all helping support that cohort growth that you heard us talk about in the past, where You know, clients continue to grow year over year, even those that have been with us for a good long time. We do have new product initiatives as well, but I think really it's the strength of Landon Expand and all of its flavors that's helping us in education. If you move to travel, you know, we are benefiting in travel from a group of clients that are seeing this outsized growth that Mike just talked about a second ago. So those are also helping feed NRR. You know, B2B is less mature and healthcare, you know, the NRR there isn't as strong, but it's something that we're working on as we continue to expand with clients. And, you know, we do see good growth in a bunch of existing clients, you know, not as strong a contributor to overall NRR, but that overall NRR has been great. Okay. Thanks.

Guys, just a quick follow-up. I just want to make sure I understand the cohort goal contribution for the quarter, if there's any dollar amount you can give us just as a reminder. But more importantly, I mean, it's obviously an area that should be succeeding pretty well now, and I know you called it out. So maybe just revisit the strength there, whether it's the regional exposure or it's just the reopening in some of those regions, what it really does provide for you now and in the future again.

Yeah, sure, Darren. I'll start and then hand it to Mike for a bit more clarity on the numbers. So, well, Cohort Go, really, if you remember, are kind of pillars of inorganic, you know, what helps us accelerate in an industry or a region being pillar number one, number two being delivering new capability that we think we can use to drive NRR or enhance our offering. And really, Cohort hits pillar one and number two for us, right, where It gave us not only a presence in, you know, further presence in Asia Pacific and Australia, it also gave us capabilities around agent capabilities to make payments to additional schools that we're not yet contracted with, as we mentioned in the last call, and also payer services, which I mentioned on this call, specifically around international student insurance, right? And so that's really tied to that expanding of that flywire advantage. So see those as areas in which fit into the strategy we talked about on Investor Day, but help accelerate that. with capabilities and our teams now kind of being one. So that hopefully frames the kind of capabilities, both from a payer perspective, payer services, as well as our ability to make payments through the agent solution to schools that are not yet working with Flywire yet. Those are the two functional capabilities we got through that acquisition, and we're investing behind those. I'll let Mike double-click on the growth.

Sure. Consistent with what we said at the beginning of the year with respect to guidance on the inorganic business, and just so we're clear, the only inorganic impact for 2023 will be the cohort go business, and that is consistent. So we do expect, you know, to contribute about three percentage or low single-digit percentages to our overall growth rate for the full year. Okay.

Thank you, guys.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Next question comes from Ken Sechowski with Anonymous Research. Please go ahead.

Hey, good evening, everyone. Thanks for taking my questions here. And congrats on the Ellucian partnership. That's great to see. And maybe I can just ask about that. Just, you know, can you expand on that partnership a bit more? I mean, how much does that help you on the domestic side? versus cross-border or international, I guess, within education. Isn't it an exclusive arrangement? Because I know, you know, TouchNet has worked with them in the past. So any thoughts there would be great. And I guess any thoughts on how that partnership changes growth rate in the education business?

Hey, Ken, this is Mike. You know, we're really excited about it. I mean, you know, to get that level of, you know, endorsement through Ellucian and that award and also just, you know, the participation level we had at their annual event this year was really just next level for us. And they are a big player. I mean, obviously in the United States, but also, you know, someone that we can partner with in different parts of the world as well. And remember, as you kind of said, we're kind of a new kid on the block in the domestic game here in the United States. And so getting that level of endorsement, that kind of detailed integration that clients can leverage, it really gives us great exposure to getting people to migrate off legacy platforms onto Flywire's full suite offering here in the United States. So we're super excited about it. We have had a relationship with them for a while, but I'd say that relationship's definitely gone to the next level. It's not an exclusive relationship, so just to clear up that point that you made, but we feel really well positioned there that with that level of integration that we have, which we think is kind of best in class, you know, really is going to put us as a competitive differentiator for the years ahead. Okay.

Thanks, Mike. And maybe just as my follow-up, I wanted to ask about the adjusted revenue growth guidance throughout the year. When we try to adjust for the acquisitions that were mentioned previously, it looks like you're baking in some softer growth throughout the year with adjusted revenue going from, say, high 40s on an organic FX neutral growth basis down to maybe mid 30s and 2Q and then, I guess, high 20s in second half of the year. And I guess I'm just curious, how much of that is just conservatism just based off of it being early in the year versus something that you're seeing in the trends and the data.

I suggest that you have to remember the seasonality of the business. And again, we grew up in education. So Q3 in absolute dollars is a very large quarter relative to the other quarters. So the growth rate that you would find in Q3 will naturally, even though it brings on a lot of absolute dollar growth, that growth rate is going to be lower. It doesn't mean that we have less confidence in our business in the second half of the year. But, you know, there is still macro concerns in the environment that we operate in, but we're really pleased with the resiliency of the verticals in which we operate. And we believe that our growth rate and the incremental adjusted EBITDA that we're guiding to is appropriate given the backdrop of macroeconomic concerns in light of the resiliency of our verticals. Okay. All right. Thanks, Mike. Appreciate it.

Next question, Dan Perlin with RBC. Please go ahead.

Thanks, guys. I just had a question around travel in particular. You've won a ton of new business there, and I appreciate that maybe the sizing of those are not quite as big as maybe some others, but I would appreciate maybe a little bit of an update in terms of how we need to be thinking about the implementation pipeline rollout, both in terms of kind of throughout the year and maybe even if it sets up into next and then Kind of secondarily, can you just remind us again, kind of the financial mechanics here with travel growing so much faster and the credit card usage? Just want to make sure we're on the same page in terms of your commentary on gross profit.

Rob here, I'll start with just sort of that implementation part, and then Mike, I'll hand off to you for the sort of implications of travel growth on the overall picture. So, you know, we did sign a great number of clients, travel and in the other verticals, so I'll touch on all of it. The, you know, the travel implementations are really quite quick indeed, right? We've talked about it in the past as being measured in a small number of weeks. And so we expect these to go quickly. That's been our track record. And we see a very fast path to monetization for those. So we think that continues true even with the upsized number of wins. And really, we're seeing the other verticals continue to implement well. I know there's been some talk out there of that being less so, but in our case, we continue to see good progress against implementations across the other verticals as well.

Yeah, with respect to the adjusted gross margin, as you know, that similar to monetization rate, our adjusted gross margin to some extent is an output based on what our client payers choose to pay with. And the accounting of a credit card transaction, you just have a fee over a cost, and that just results in a lower adjusted gross margin as it relates to those transactions. but our spreads across all of our transaction types have remained stable over the last number of reported quarters. So we're very pleased with that consistency of the spread that we're able to charge. What you find is that as that travel and B2B segment grow, you'll have more credit card utilizations, which just carry a lower adjusted gross margin, but really good, excellent unit economics in driving adjusted gross profit dollars, which is really what we're focused on.

Yeah, and the only thing I'd add to that is as you see more software come through, that may offset in some quarters, and you'll see growth in B2B and travel that will pull that adjusted gross margin down, but that's kind of the puts and takes of that dynamic.

Yeah, those are high-quality problems. Just a quick one on the student health insurance. I thought if I heard right, you're calling out just kind of one market for doing that at this point. I just wanted to know, How do you think about leveraging that across all these other opportunities you got from an international student perspective?

Yeah, it's a great call out. You know, we're really excited on obviously, you know, the success we've had rolling that out more broadly to students and agents with the combination of cohort and Flywire's software now offering that capability. And that's our primary focus is that market. You know, you have A huge amount, it's a requirement in Australia, and you have a huge amount of students driven through the agent channel, 75% or more use an agent to go study in Australia. And so that's our kind of short-term focus, but you're exactly right. There's different needs in the top four, top five destination markets around international student health insurance. Now, there's different requirements in different markets, different providers or capabilities, but you're exactly right to point out that we have the capability in that point between payment and the agent relationship to really kind of put that offering, we think, in a really compelling location. So, you know, I would say you're right to call it out. There is opportunity there. Our short-term focus is on Australia, and we'll, of course, be researching and working hard on seeing where else we could take that.

That's great. Thank you so much.

Next question, Tinjin Wang with J.P. Morgan. Please go ahead.

Great. Thanks. Really great results here. I know the travel piece has been highlighted, really strong winds. Just, I'm curious, just your ability or confidence in refilling the pipeline and the backlog here. Just, I guess it's a pull forward question. If you saw some of that, or is there still ample opportunity here to sort of sustain the momentum?

Yeah. Hey, Kenjin. Uh, thanks for the question. Um, you know, really confident. I mean, our travel team's doing a great job. Uh, you know, we're scaling that team, uh, in a very thoughtful way. I think I made the comment in prior call that, you know, Australia, New Zealand is a market where we didn't actually even have a flymate dedicated to travel for us. And now being able to add more flymates there to help drive pipeline. We mentioned some of the South Africa expansion efforts. So think of it as kind of going deeper into the subsectors. Think about expanding, potentially finding new areas of certain types of tourism that we're able to add to a given subsector, and then opening up new geographies, right? You know, I think you can assume that our team knows that playbook, as you've seen us kind of roll it out across different industries, you know, that geographic expansion, and, you know, the travel team knows they need a lot of levers to growth to keep maintaining that, and I think you can assume they're pulling a lot of those levers now.

Okay, no, glad to hear it. I mean, just my follow-up on I know we've talked about this before, but I figured I'd ask again, just given now that we've seen the results with all the banking turmoil going on. Just curious what, you know, of course, operationally you guys navigated that well, but is there any impact on demand in any way? And, you know, flight to quality, that kind of thing? I know you're also involved in domestic payment plans and all the complexity around that. So I've been thinking about flight to quality as a theme, and I don't know if you have an opinion on that and how it shapes demand.

Yeah, I mean, for us, you know, we've been fortunate to partner with some of the largest, you know, global financial institutions in the world, and that's how our client, you know, funds are moved through those accounts. So, again, for us, you know, unlike probably a lot of others that, you know, maybe leverage smaller regional banks for money movement, that's never really been what Flywire has done, just partially because of the global – nature of our business, right? You need banks that have that kind of global footprint, and a lot of the regional ones don't. And then as it comes to demand, really no shift or no change in demand, you know, we're seeing from clients. They're not kind of slowing down their decision-making. If anything, the fact that we're processing payments with those large global financial institutions is a positive for us in this type of environment.

Yeah, well done, guys. Thank you.

We have a follow-up from Bob Napoli with William Blair. Please go ahead.

Thank you. Appreciate it. Just curious on, you know, the travel vertical, you know, and just broadly, you know, the wins that you have, has there been any change in your win rate? And how much of the business, like in travel, I mean, a vertical that's really jumping is white space versus – you know, takeaways and who are you, you know, what is in place with the customers before you win that business.

Yeah, hey, Bob. So typically we're replacing kind of a local maybe card acquirer that's in the mix, and then maybe our client in travel is seeing a lot or some bank transfers and wires kind of coming in that they're having to manually deal with. So that's typically what we're replacing. And when you think of us coming in with software that provides value to them and the ability to process payments from all over the world, That value proposition compared to someone that can just accept a certain type of payment method and doesn't deliver the software is obviously quite compelling. I would also just highlight our teams really know these industries. They know the types of challenges that exist, the product and tech team. to enhance that product is adding features that matter to those travel clients. And that helps with that flywheel. And then I just also, you know, underscore our customer service model, our client service model is very different than probably a traditional acquirer, right? They're actually picking up the phone. It's one of the things we hear so often from our travel clients. They're picking up the phone and getting a real person. And so, you know, if they have a question, if they're trying to use a new feature, if they're wondering how to handle a unique situation or want to enhance their offering, they can really reach out and actually talk to someone on our client service team. And that's a real big differentiator. Oftentimes, these types of clients don't get that type of kind of white glove service from other providers that are kind of going with more of a volume-based model.

Thanks. It's very helpful.

I think you had one comment about, is it white space? I mean, I think when it comes to geographic expansion in subsectors, I think it definitely, we have a lot of confidence there, right? Our team's proven the ability to come up with new subsectors, finding new types of tour groups, all the tour categories, maybe I should say. And then in addition to that, we have a playbook to open up new geographies for clients within these sectors. So we feel really good about opening up new ways to sell and grow pipeline.

Understood very well on the customer service, the targeted Salesforce, knowledgeable Salesforce. How about on the software side? What is unique about your software that is allowing you to win these businesses? Any simple example would be helpful.

Yeah, really, it's a combination of a couple good things we've got here, Bob. So this is Rob speaking. So obviously one of the core capabilities of the company is around doing integrations, and one of the things we've done is integrate into a lot of the systems that are familiar inside the travel space. That allows us to do specialized functionality that makes sense in travel. So, for example, you've probably had the experience, you book a trip, there's a schedule of payments that gets created, right? You pay a certain amount at booking, a certain amount maybe three months before the trip and more as you get close to the trip. That's all kind of functionality that we enable for our clients to be able to roll out simply. And that allows sort of the collection of the full sum for that trip to just be way more administratively easy for them to manage. And so that's an example where it's functionality. There's the dimensions about the global payment network that are really very differentiated, right, the ability to take payment from so many countries. And so when you combine sort of the service with the functionality, sorry, the final point being our full invoice engine, right? So for many of these clients, they will rely on our software to be sort of their platform for doing invoicing. So they don't have to do that if they've got something of their own, but a great many do take advantage of that invoicing. And, of course, once you're using our platform, you're using our invoicing, you've got that integration that I described, reconciliation gets way simpler for those clients.

Thank you. Really appreciate it.

Thank you. We have a follow-up from Ken Sochowski with Anonymous Research. Please go ahead.

Hey, guys. Thanks for picking up again here. Can you just provide some color on the lay of the land on the domestic education side? I mean, who are the big players there? And I'm just curious who you're taking a share from in that business.

Yeah, hey, Ken. So the way the U.S. market has really evolved in domestic payments, there's really been three players that have played in that market. There's a division of global payments that plays in there. It's called TouchNet. It's a loan servicing company that has a payments division called Nelnet. And then there's historically been a business previously called HireOne and CashNet. which has been bought by private equity and owned by private equity. So those three players had really kind of started that domestic payment market in the United States. And those players had limited exposure outside the United States. And so, again, that's why there's kind of a difference between the U.S. market and then the rest of the world. where, as we mentioned before, we're seeing a lot of success bringing kind of our full offering all around the world. And so when it comes to the U.S., it's really typically one of those incumbents that has a client, and as it either goes out to bid or as we get the Flywire brand and the full capabilities known by those clients, that's where we're pulling business from and feel really good about our competitive position. Obviously, the Ellucian partnership helps us a lot there, but we compete really well, and our team is set up to compete, and we like to compete.

And maybe just one more if I can sneak it in. I think I heard some of the comments on the settlement gains, and there was some offset for those in the quarter. But just in terms of FX volatility, I think we're facing some harder comps kind of year over year. Does that impact your business? And I guess is there any way to size that maybe in the second half if it does impact your business at all?

Yeah, this is Mike Ellis. So what we did was we provided guidance as of March 31st, 2023. And if you look at the impacts for FX as it relates to the currencies in which we operate, comparing 1231.22 versus 331.23, they weren't really significant changes that would... result in a change to our full-year revenue guidance at this time. You certainly saw some improvements in April, but we did not adjust our guidance based on monthly trends. We actually want to wait and see what the full quarter looks like because it's anyone's guess, it's a good guess as it relates to what will happen in the currency markets. So no further changes or impacts as it relates to FX improvements or deteriorations that may have occurred during post-331.

That's helpful, Mike. I guess I was focused a little bit more just on the FX volatility. Are you guys, I guess, benefiting anyway from just currencies kind of moving around and taking advantage of spreads and just the kind of the harder comps that we're growing over just on a year-over-year basis in the coming quarters.

So from an operational standpoint, we do get the benefit and sometimes the negative impact as it relates to currency swings from the initiation of a payment to when we settle. What I did mention in Q1 is that we did see the weakening of the U.S. dollar occur during some of those windows of time, predominantly in January. That allows us to buy dollars less expensive, so therefore we can recognize those gains. Whether or not we see those in the future is not something that we guide or change our guidance for. But I will tell you that our hedging strategy, which is basically an insurance model that we put in place, offset those improvements at the adjusted gross profit line and really making it neutral to our adjusted EBITDA generation. All right. Thank you.

There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines and thank you for your participation.