Flywire Corporation

Greetings and welcome to the Flywire Corporation second 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 introduce your host, Akil Hollis. Thank you, Akil. You may begin.

Thank you, and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Urgel, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our second quarter of 2023 earnings press release, supplemental presentation, and when filed, 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 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 Q2 2023 results, which show continued 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 second quarter. Revenue left ancillary services with $79.5 million during the quarter, representing year-over-year growth of 54.4%, or 56.7% on a constant currency basis. Adjusted gross profit for the quarter was $50.5 million, an increase of 46.8% year-over-year. An adjusted EBITDA was negative $0.1 million for the quarter, representing a $6 million increase in our adjusted EBITDA versus Q2 of 2022. Based on this quarter's results and our outlook for the second half of the year, we are also increasing our guidance for 2023, and these details will be shared later in the call. It has been an exciting two years at Flywire since our first public earnings call. as we have continued our track record of efficient growth, making significant progress. We have roughly doubled in revenue on an organic basis. We acquired and successfully integrated two companies. We are driving improved operational efficiency within the organization, and we are also performing well against our financial targets we discussed at our analyst day last year. As you can see, we continue to execute against our growth strategies while also making progress against three key investment areas, which I'll provide an update on now. As a reminder, these investment areas are optimizing our go-to-market efforts, expanding our Flywire advantage with product and payment innovation, and strengthening and growing our Flymate community. In Q2, we continue to optimize our go-to-market efforts, with a key focus on high ROI initiatives. One area in which we have been successful is in the effectiveness of our globally distributed go-to-market teams. As we briefly highlighted last quarter, we have the ability to scale quickly in new geographic regions thanks to strong collaboration between sales, marketing, and relationship management, our efficient digital acquisition, and regional and industry experts. This quarter, that was on full display in our global education vertical. In the Asia-Pacific region, we achieved success signing a number of new clients and partners in Japan, Australia, and South Korea, spanning educational institutions as well as strategic partners and recruitment agents. For example, in Australia, we went live with another of Australia's leading Group of Eight universities. And in the UK, we continue to see strong synergies following our WPM acquisition. cultivating those relationships to grow with our existing clients. We believe our ability to combine high tech with a personal touch is always a winning combination, and our clients appreciate the partnership as we help prepare them for their peak payment season. Finally, I'd be remiss if I didn't mention another record-breaking quarter for travel. where we had our highest revenue quarter to date. Additionally, the global sales and marketing team continued their strong go-to-market partnership, hosting targeted events across four continents, driving net new client signs. We also continued to expand our flywire advantage during the quarter. This is part of our long-term vision to power the ecosystems in our core industries of education, healthcare, travel, and B2B. As a reminder, the Flywire Advantage consists of our next generation payments platform, our vertical specific software, and our proprietary global payment network. Our network is made up of global and regional banking partners, some of the largest card processing companies, as well as alternative payment providers all around the world. It is something that we own and control that we built to scale across geographies and for all transaction sizes. The network is not just there to move the money, we constantly innovate, enhance its capabilities, and add new payment methods for our customers. For example, this quarter we announced our improved partnership with Tencent Financial Technology, Tencent's fintech arm, to expand WeChat Pay, also known as WeChat Pay, as a payment option for Chinese students and families making tuition payments abroad. While Flywire offered this payment method previously, this direct connection to Tencent creates an enhanced experience for payers, which is now fully digital and streamlined, and it eases the reconciliation for institutions. Adding Tencent to our payment network also expands Flywire's footprint across China, one of our largest payer markets. More to sustaining our advantage is our data privacy, security measures, and industry certifications. We have premier security, compliance, and data governance certifications in the industries that we serve, which are key differentiators in the eyes of our clients. We were recognized for this on the global stage when Flywire was recently appointed to the 2023 through 2025 Payment Card Industry Security Standards Council, PCI-SFC Board of Advisors. As representatives of Flywire, our CTO and CIO join the board members from some of the world's most prominent organizations who are coming together to help build more secure payment ecosystems around the world. Now with a seat at the table, Flywire has the unique ability to help shape PCI standards for years to come, empowering us to better prepare ourselves and our clients. This recognition builds on our longstanding relationships with PCI, as our CTO was part of the original team that drafted version 1.0 of the PCI DSS standards. Speaking to our last key investment area, we also continue to strengthen and grow our flymate community. It is difficult to believe that we acquired Cohort Go a little over a year ago, welcoming over 50 new flymates as part of this transaction. Our combined team has seen rapid success with our insurance product growing over 60% on a pro forma basis in accomplishing our key product integration plans. These accomplishments continue to highlight Flywire's proven track record of successful M&A, as well as our ability to foster community and culture following an acquisition. At Flywire, we pursue strategic acquisitions if they can help us achieve one of three primary objectives. First, accelerate our growth in an existing industry or geography. Second, provide additional capabilities that enable us to drive net revenue retention, allowing us to upsell a new capability to an existing client. Or third, help us expand into a new industry, subsector, or geography we are not in yet. Additionally, I firmly believe that in order for it to be successful, one of the most important factors is cultural alignment. Finding a culture that complements our own has been among the top priorities for us in a handful of acquisitions we've done over the past few years, like WPM and Cohort Go. Similar to us, they were client-focused and value-driven organizations, ones that knew how to collaborate and innovate. Like Flywire, WPM and Cohort embraced a global workplace with so many talented teammates across the UK, Australia, India, China, Brazil, and more. These commonalities gave us a great launch pad and were key to helping us exceed the financial goals we set out for ourselves. As another example, our pay any school payment volume, which is primarily volume through educational agents, has grown over 50% since the Cohort Go acquisition on a pro forma basis. You've heard me talk a lot about culture and our approach to treating it as a strategic asset. As Flywire grows, we work hard to make sure we are constantly providing our flymates the opportunity to grow their career while also being part of something bigger than their job. At our most recent company meeting, we rolled out a renewed vision for the next five years tailored to the flymate experience. In addition to financial achievements, our vision outlines what attaining these goals will empower us to commit to as a business for social impact, to learning and growth, to flymate engagement. The vision was met with great excitement from our global flymates, who also recently celebrated being named a most loved workplace. The investments in go-to-market execution, expanding our Flywire advantage, and in strengthening our flymate community are also supported by positive trends across the industries that we serve, giving us even more confidence in the path ahead for Flywire. To highlight just a couple of recent trends, in education, The Australian Department of Education released new data that shows that in April of this year, international student visas increased 27% compared to April of last year, with China and India representing the top two sending countries. This is consistent with global student mobility trends we're tracking. For example, new data from HolonIQ suggests that total direct spending by international students is projected to more than double from pre-pandemic levels to reach $433 billion by 2030. In travel, we continue to see the trend of luxury travelers prioritizing travel over other discretionary spending. The UN's World Tourism Organization estimates that worldwide tourism arrivals this year are expected to reach up to 95% of pre-pandemic levels, up from 63% in 2022. And the latest data from TSA shows that throughput trends were consistently between 95% to 105% compared to 2019 levels, with spikes significantly higher, towards 132% over the July 4th weekend. In closing, I would like to thank our global flymates for helping to deliver another exceptional quarter. We continue to believe we have a winning strategy with a large and expanding opportunity ahead of us, and we are well positioned for 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.

Rob? Thanks, Mike. Good afternoon, everyone. As Mike mentioned, it's been a great start to the year, and we believe we will continue to see robust growth in the second half of 2023. Our sales team delivered great results during the quarter and added over 165 new clients. This capped off a strong first half of the year for the sales team. Q2 NRR also remained strong and above the three-year average discussed in our analyst day. This quarter's success was driven by our continued execution of our five strategic growth pillars. As a reminder, those pillars 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. Starting with growth with existing clients, a first example is our going live with our domestic collection management solution at Wellesley College, the top liberal arts college for women based in Massachusetts. Wellesley has used our cross-border payments offering since 2011. Within just a few months of being live with our domestic collection management solution, Wellesley saw nearly a 20% reduction in past due student tuition balances, while also reducing manual staff efforts through an automated outreach and sign-up process. We are seeing many schools interested in our collection management solution, reflecting their interest in a streamlined process for collecting overdue student tuition bills. Within our travel vertical, I'll highlight FreshTracks Canada, a Canadian tour operator in business for over 20 years and based in Vancouver. We onboarded FreshTracks a year ago to support their cross-border payments and enabled them to accept payments from 31 different countries and 25 different currencies with the ability to scale to over 140 currencies. With our recent integration with FreshTracks instance of Salesforce.com, we are now able to capture all of their payment transaction volumes. Integrating with major systems of record like Salesforce is part of our strategy to work with more enterprise clients in the travel vertical. We also had many new clients go live across the verticals in the quarter, including Tennessee State University, which was founded in 1912 and has over 8,000 enrolled students, including international students from over 40 countries. TSU went live with both our cross-border and domestic education payment offerings at the same time. Flywire solutions are integrated with Ellucian's Banner student information system, and our fast implementation time has enabled TSU to begin offering payment plans for students and families in time for fall 2023 and spring 2024 semesters. We also recently went live with a few group of eight universities in Australia, which Mike mentioned earlier. One of those is the University of Adelaide, which now offers our cross-border solution. Adelaide enrolls nearly 24,000 students, of which approximately 30% are international. We are excited about the traction within the group of eight universities in Australia. Bigger picture, we are making progress in our growth plans with multiple verticals in Australia and are continuing to build our capabilities to broaden and improve our services in that country. In healthcare, we went live with Rogers Behavioral Health. a provider of specialized mental health and addiction treatment services based in Pennsylvania. Rogers is integrated with Cerner's Millennium EHR platform, which provides an enterprise-wide view of patient care. With Flywire's digital self-service payment solution, Rogers has very quickly been able to reduce the number of patient phone calls regarding payments that their staff members had to handle. Since going live in the second quarter, about 95% of online patient payments have been made through Flywire's self-service portal, indicating the user-friendly experience with our platform. We're also pleased to share that patient billing satisfaction has received a high rating of 4.6 out of 5 stars. This progress reflects our commitment to supporting patients and simplifying financial interactions in the health sector. Within our B2B vertical, we recently went live with Synth, a global software leader in digital insights and research technology. Synth was founded in 1998 and has 18 global offices that help over 3,200 companies gather consumer insights. Flywire's solution is integrated with NetSuite and Quadient AR by YePay, helping to streamline disparate accounts receivable processes within the Synth organization. As Quadient's exclusive partner for international receivables and leveraging Flywire's proprietary payment network and recurring billing capabilities, Quadient customers using the offering receive industry-leading visibility from order to payment settlement. This enables them to reduce friction in transaction processing with their customers and to prove their efforts managing key internal finance metrics. Overall, we are very happy with our progress in B2B. We also continued to grow via channel partnerships. In Q2, we announced our partnership with DISCO, a market leader in international recruitment and career development, to optimize the cross-border education payments experience for students studying in Japan. Flywire is DISCO's exclusive payment provider for enrollment and application fees and were integrated directly into their eApply system. DISCO's network of more than 1,000 universities, colleges, and vocational schools represents a great opportunity to present a broadened value proposition and expand our footprint in Japan. Another strategic lever of growth is expansion to new industries, geographies, and products. One way we do this is by continually improving the strength of our global payment network. In addition to the improved partnership with Tencent that Mike mentioned earlier, we recently signed a partnership with the State Bank of India, or SBI, which is the largest public sector bank in India. Flywire is enabling seamless digital payments from India for SBI account holders. This is in addition to similar connections we have established with ICICI and HDFC Bank in India. We also improved our domestic payments capabilities through the addition of Interac, a real-time interbank payments network in Canada. This will help us capture additional payment flows for universities in Canada. We believe there is no substitute for this kind of detailed network work and that this is part of the differentiation of Flywire that delivers real value for our clients and payers. Lastly, as we grow, we remain mindful of our spending and desire to scale. As a company whose costs are primarily personnel, we are thoughtful of who and where we hire new flymates. We also employ a rigorous vendor management process to drive down other costs. This contributed to our adjusted EBITDA outperformance in Q2, and we continue to look for ways to look for process efficiency, streamline tools, and drive cost savings. With that, 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 results for the second quarter, and then I will discuss our outlook for Q3 and the full year. Revenue-less ancillary services was $79.5 million in Q2, representing a 54.4% growth rate compared to Q2 2022. On a constant currency basis, our revenue-less ancillary services growth rate for Q2 2023 would have been 57%. We experienced a revenue headwind of approximately $1.3 million due to the strength of the U.S. dollar compared to the British pound and the Canadian dollar in Q2 2023 compared to Q2 2022. 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 in our education vertical in the United Kingdom, as well as strength from European destination management companies in our travel vertical going into the summer season. With respect to payment volumes, we processed $4.1 billion during Q2 2023, which represented an increase of 43% from the $2.9 billion processed during Q2 2022. Specifically, transaction revenue less ancillary services increased 61% compared to Q2 2022, driven by a 55% increase in transaction payment volumes. platform and usage-based fee revenue increased 27% compared to Q2 2022, driven by an 11% increase in platform and usage-based payment volumes, as well as fees that did not carry associated payment volumes, such as our revenue from student health insurance referral payer services that we discussed on our prior call. We generated 50.5 million in adjusted gross profit during the quarter, representing a 46.8% increase compared to the 34.4 million earned during Q2 2022. Specifically, our adjusted gross margin was 63.5% for Q2 2023, down 330 basis points from the 66.8% for Q2 2022. The year-over-year change in adjusted gross margin was driven primarily by three factors. First, strong growth of our transaction revenue versus our platform revenue, particularly from our travel vertical where credit cards are predominant. And second, settlement losses on foreign exchange transactions. As discussed last quarter, we hedge our exposure to changes in foreign exchange rates while settling transactions. So while these losses lower our adjusted gross profits, we also saw offsetting gains on our hedges within our operating expenses. Those two factors were partially offset by a third factor, which was the contribution and outperformance of our high margin insurance business, as previously mentioned. Our year-to-date change in adjusted gross margin of negative 1.6% was slightly higher than the full year guidance of negative 1% to 1.5% we shared at the beginning of 2023 due to the outperformance of our travel vertical. We expect our travel vertical to continue to outperform for the remainder of 2023 and have reflected this in our full year guidance, which I will share momentarily. As a result, we expect the adjusted gross margin decline for the full year to be greater than the originally anticipated range of 1 to 1.5%. However, We remained confident in our strong unit economics across all payment methods and enjoyed continued stability in our transaction spreads in Q2 in terms of gross profits as a percentage of volume. Moving on to operating expenses, technology and development expenses were $16.0 million for Q2 2023, an increase of 21% over the $13.2 million incurred during Q2 2022. The increase was primarily the result of adding flymates to our engineering and technology teams, which drove increases in employee-related costs, including stock-based compensation, consistent with our investment plans. In addition, we incurred more costs associated with scaling our hosting and software costs to meet increased transaction volumes. Selling and marketing expenses were $27.3 million for Q2 2023, an increase of 44% over the $18.9 million incurred during Q2 of 2022. This increase was mainly driven by investments in go-to-market resources, which drove increases in employee-related costs, including commissions and stock-based compensation. General and administrative expenses were $24.6 million during Q2 2023, an increase of 23% over the $20.0 million incurred during Q2 2022. This year-over-year increase was predominantly due to adding flymates to support our general and administrative teams, which drove increases in employee-related costs, including stock-based compensation. Adjusted EBITDA for the quarter was negative $0.1 million, an improvement of $6.0 million over the negative $6.1 million reported for Q2 2022. With respect to capitalization as of June 30, 2023, we had $328.1 million in cash and cash equivalents, no long-term debt, and 111.8 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 June 30th, 2023. For full year 2023, based on our results for the second quarter and our outlook for the second half of the year, We now expect revenue less ancillary services to be in the range of $372 million to $380 million, representing a year over year growth rate of 41% at the midpoint. Our full year 2023 expectations reflect an increase in our second half revenue expectations on a constant dollar basis, as well as improved FX conditions at the end of June versus the end of March. Further movements in exchange rates could impact results. We expect to deliver full year 2023 adjusted EBITDA in the range of $33 million to $39 million. This represents an increase of $3 million at the midpoint of our previously provided guidance. We are not increasing our full year guidance by the full amount of our Q2 outperformance due to expenses that were originally planned to be incurred during the first half of the year, which are now expected to be incurred throughout the remainder of this year. At the midpoint of our full year 2023 guidance range, we expect to generate approximately an incremental 400 basis point improvement in adjusted EBITDA margin, a slight increase from our previous guidance. For Q3 2023, revenue left ancillary services is expected to be in the range of $116 million to $122 million, which represents a year-over-year revenue growth rate of 34% at the midpoint. which incorporates factors I mentioned with respect to our full-year guidance as well as our lapping the Cohort Go acquisition. Due to the strong results heading into Q3, we now expect Q3 adjusted EBITDA to be in the range of $24 to $28 million, which at the midpoint represents a $7.8 million year-over-year improvement compared to our reported adjusted EBITDA for Q3 2022. We were very pleased with how the business performed during the second quarter, highlighting a strong return on both our organic and strategic investments. In closing, as announced in our press release, I will be leaving Flywire in 2024 after more than eight years. It's been an incredible experience helping build this company and working with this very talented global team. I'm committed to supporting the company through this transition period. I'll now turn it back over to Mike for closing remarks. Mike?

Thanks, Mike. We appreciate everyone joining us today and would like to finish with a thank you to Mike Ellis. It has truly been a pleasure building Flywire Rethym over the past eight years, and I know this business would not be where it is today without his efforts. With that, we will now transition to the Q&A portion of the call. 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.

One moment please while we poll for questions. Thank you.

Our first question comes from Dan Perlin with RBC Capital Markets. Please proceed with your question.

Thanks. Good evening. I wanted to start on the education vertical for a second. And specifically, you know, you called out like Wesley College, Wesley College for domestic based payments. And one of the driving factors, I guess, for that, it sounded like was the 20 percent reduction in past due collections. I'm wondering, as you're continuing to pursue this kind of domestic-based approach into your back book for cross-border, I mean, is that one of the main drivers for universities as they're trying to think about assessing, taking you guys on with the domestic side of the equation as well?

Hey, Dan, this is Rob. I'll step in and start on this one. You know, the strength in our domestic education business is broader than just this domestic collections platform. So first and foremost, our offering centers around the ability to have a fuller solution that enables a full breadth of payments across, you know, the domestic student population. So that's our payment plan capabilities and one-time payments and many of the things you've heard us talk about in the past. The particular solution that we described for Wellesley just now is another part of our suite, part of our student financial software, and that is focused on these overdue tuition payments. That's not the only school that has seen some pretty remarkable results using that platform that they've shared with us in recent months. And so we do see strong interest in the U.S., and we look to enable that offering outside the U.S. as well going forward. So all part of our ability to be strong and domestic here in the U.S., but also enabling some of those capabilities around the world.

Got it. Can I just, with a quick follow-up on kind of adjusted gross margins, Mike, you called out, I think you said declining more than the one to one and a half points for the year. Did you put a finer point on that as you think about maybe the trajectory into the second half, and is there any cadence we need to be mindful of as we think about sequential movements there? Thank you. Sure.

So I would first say that, listen, we're really pleased with the 47% improvement that we showed in adjusted gross profit. And again, the second thing I'll point out is that the spreads in our transactional revenue have been stable. What we're seeing is that the travel out performance is having a small drag on adjusted gross margin, but still really excellent unit economics in driving adjusted gross profit dollars for us. And you don't lose sight of the fact of the 150 basis point impact from the FX loss. So if you exclude that, you're somewhere in that 1.8% range. And that's probably where I probably peg it. But we're pretty confident in our unit economics and our ability to kind of drive our adjusted gross profit dollars. And that's really what we're focused on.

Got it. Thank you for that.

Thank you. Our next question comes from Jason Cooperberg with Bank of America. Please proceed with your question.

Hi, good afternoon, guys. This is Tyler DuPont on for Jason. Thanks for taking the question. I wanted to start by first asking about the upside surprise to revenue during the quarter. When looking at the business, I know 2Q is more of a seasonal low point when it comes to education, but if you could just break out sort of where the growth really came from, for example, was it a quicker ramp up in APAC travel? And when just thinking about the back half of the year, just sort of given the current macro environment, are there any puts and takes there worth considering?

Hey, Tyler.

Appreciate the question. So in short, a couple of the areas that were called out, outperformance throughout education, Asia and EMEA, also for travel. We had talked a lot about... the growth in our EMEA travel business, again, in the recovery of Asia from a travel business perspective. So those were two clear call-outs in the quarter. And again, I think part of what you're seeing as well is also different seasonality, right? As we add different business units, you'll see additional seasonality come from travel that is different than the historic seasonality of our education business which again is typically predominant in Q3. So you're seeing kind of almost a redistribution of that seasonality a bit as we see growth in other verticals. So hopefully that answers your question.

Yeah, it does. I appreciate that. And then just as a follow-up, you know, at first glance, you know, the updated guide looks like revenue was raised by more than the BEAT. EBITDA was raised essentially by the BEAT. I know you mentioned that there's going to be some increased expenses that got moved into the back half of the year. But I was wondering if you could maybe just level set for us what sort of investments the company is planning on implementing in the back half, and then are those incremental or just any update there?

So this is Rob. I can start, and then Ellis, feel free to jump in if you like. You know, we are essentially, you know, performing very well across the business. We see, you know, a bit more hiring that will happen in the second half of the year that's just pushed from Q2. That's a main piece of expense. There's a little bit also in marketing that we'll just hit in the second half versus the first half as we actually lay out the full plans for the year. But you can see that the increments or the adjustments are very modest relative to the plan.

Yeah, I'd only add that, you know, we take a very disciplined approach. And I think as we talked about during Q1, some pacing of our hiring, ensuring we're seeing some macro concerns dissipate over the year. And we're anticipating investing more in the sales and marketing as Robin indicated.

Great. Thanks again, guys. Nice job on the quarter. Thanks.

Thank you. Our next question comes from Ashwin Shiravaker with Citi. Please proceed with your question.

Hey. Congratulations on the results. And Mike, sorry to see you go. I know you're going to be around for a few more quarters, but my appreciation and thank you. The question I have is with regards to, is there a good way to measure penetration of your services? I mean, the broadening out of your footprint, that's something that's proven that you can do. We get a lot of investor questions about what percent of students are actually using flywire instead of other choices and things like that. So any thoughts on how to measure penetration?

So, Ashwin, it's Rob. I'll start this one off.

You know, we've obviously been in this business for a good long time, and we have always had initiatives to continue to drive forward utilization, retention, all the metrics around adoption. And so the first thing I'd do is say, because I think your question is probably focused on sort of that cross-border adoption use case where we continue to drive things that build value around our services to continue to drive it up. The comment we've always heard is that adoption is highest in first year, and then there may be some drop-off in subsequent years. That phenomenon is true, but we actually view that as opportunity, the opportunity for us to continue to get better at providing value and retaining those students for even longer through their educational cycle. So we've got active initiatives around that and really view that as upside. The broader point that I'd make is to remember that the business and the NRR that we deliver is driven on expanding our set of offerings across the university as well. So if you think about the things we're doing, it's not just about the cross-border. We have an incredible opportunity across our business to serve the domestic student populations within our clients as well as the cross-border that's our, you know, sort of our core strength historically. And then even more broadly, taking the example of folks like Wellesley that we just talked about earlier in this call, other product dimensions as well. So when you ask the question about sort of adoption and utilization broadly, we're very early in the cycle with upside across all the dimensions I just mentioned.

And Ashton, just to add to Rob's point, you know, I would say obviously our strategy of Land and Expand is also kind of our end game, right, where, you know, through all that software deployed, you're getting all the payments, right, by having cross-border domestic overdue receivables, right? When you deploy more software, you inherently solve the utilization question as you're being used for all student payments at a given university. So, again, as Rob said, different strategies depending on geography, but ultimately same end goal.

Understood. No, that's very useful. I want to focus maybe on healthcare. Obviously, you guys continue to have incremental signings and more progress in the space, but what we perhaps have not necessarily heard is the type of profusion of signings like we have in, say, travel or or education, and so I kind of wanted to ask about the environment and the desire of those clients and prospects to sign what may or may not be perhaps holding them up, what might be a good longer-term growth rate for healthcare.

Yeah, this is Rob. I'll start here again. First, just to be super clear, we're very positive on our healthcare business. It's long-term prospects, despite what we have to concede is some challenges in the first half of the year. So just to put all this in context, obviously, it's a business with very strong contribution to gross profit. It's got great and very high gross margins. We are signing new clients, as you heard today, with Rogers and growing many existing clients. There are a bunch of other new client signs as well. along with two new customer deployments and a major expansion that have already happened in Q3. At the same time, healthcare isn't a sector that's growing as fast as some of our others, and we haven't enjoyed the level of growth rate that we expected to see in the year. And so that's been on a combination of factors, but ultimately we do believe the second half of the year will see us where all the progress and the hard work that the team is doing, the clients that they're signing, the clients that they're getting live, will bring us back to a healthy growth rate. You know, we are seeing good progress getting signings through our partnership with Cerner. We've had success through other partners and other EHR integrations. And so overall, look, healthcare is a tougher business to sell in, but we remain very bullish on the business.

Thank you very much. Tremendous job. Thanks.

Thank you. Our next question comes from John Davis with Raymond James. Please proceed with your question.

Hey, good afternoon, guys. Mike Ellis, just wanted to touch on gross margins and put a finer point on it. If I understand what you were saying earlier, basically, the lower gross margin is just a function of outperformance and travel. So gross profit dollars are better than expected. It's just mixed and nothing else that's causing the lower gross margin. Just want to confirm that.

Yeah, John, that is true. The one thing I'd add to that is the lapping of the cohort go acquisition that occurs July. I think we just lapped it. So that will also not have that. That did contribute to our adjusted gross margins during the first half of the year.

Okay, great. And then, Rob, I think in your prepared remarks, you called out NRR stronger than kind of the three-year average in the quarter. Just wondered if you could touch on that. Is that just students returning in a post-COVID environment, cross-sell, maybe if you'd call it the couple of factors that are leading to that strong NRR, that'd be helpful.

Sure, JD. So the NRR has been in a pretty narrow range across a series of quarters that's led to a pretty consistent NRR, whether you're looking at one-year or three-year averages. And so it's all been very consistent and built on the same foundation of sort of land and expand that you've heard us talk about before. So what you see there is strength really across education and travel, which probably are driving that NRR the most. B2B is a smaller piece of it and operating at the highest level. Healthcare a bit lower, but all contributing to that overall corporate performance that's staying in that exact range that we talked about. And the underlying drivers of that are really the same as what we've talked about in the past, which is to say, you see us growing cohorts very well over periods. You see us having strength across the geographic channels that you've heard us talk about in the past, and continuing to win placements of expanded software across a range of our clients. So whether it's getting more coverage in a B2B client, whether it's getting more software into a school, all the same building blocks are what's adding up to that NRR in our typical range.

Okay, great. And then one last quick one for Mike Ellis. If I look at the 3Q guide, it implies a little bit less of a sequential step up than in prior years. Maybe how much of that's like travel and some of the other verticals being a bigger contributor versus conservative? Just help us think about the sequential improvement in revenue, kind of 2Q to 3Q.

Yeah, John. So, you know, we're pretty confident in the guidance ranges that we provide, and it's really a function of what we believe is going to happen with respect to our travel vertical, as well as international education. Healthcare, as Rob indicated, it's been a little bit of a drag, but still really excellent economics. And we've kind of built that all into our model. And similar to last year, if you looked at the trend lines as it relates to first half and second half, we typically do see a slower overall growth rate in second half of the year. That's really a function of the really the size and the contribution and the seasonality of our business that we see in Q3 and just to a lesser extent Q4. Okay.

Appreciate it. Thanks, guys.

Thank you. Our next question comes from Bob Napoli with William Blair. Please proceed with your question.

Thank you. And Mike Ellis, thank you for all your help over the years. I appreciate it. I wish you the best. Thank you, Bob. So just competitively, are you seeing your Tencent relationship? I think there is another education company that works with Tencent. Just broadly, are you seeing any changes in the competitive environment? What are you most keeping your eye on competitively?

Hey, Bob. This is Mike. I would say we continue to be – We continue to be very encouraged with how we compete in the markets. As we've said before, we compete within the verticals. We compete with no one across these verticals. So again, it's within a given vertical in which we see competition. And I would say we feel very strong about how we're competing and the innovation we're doing, the accounts we're winning, in new geographies, adding new methods. You mentioned the Tencent. I think it's just further indication that we're an important player in this space and we can get deeper relationships with globally recognized brands like that. I think that's obviously very important. We also mentioned in part of the earnings, the recognition by PCI being added to that council. We think that's a really good indicator. That's not a position that a lot of our competitors have or can hold. That recognition, I think, helps us continue to innovate, be seen as an innovator within the sectors that we're in. And I've said it before, we like to compete. We have a team that is good competing, and we're going to get up every day and do it.

Thank you. And then you called out the insurance business a couple of times, and maybe a little more color on that, and then just in travel, and then I'll get off. Where are you seeing the success in travel? Who are you competing against? What areas of travel – are you having the most success and why are you enabling it? Generally, there's a lot of players in the travel market, but you seem to have a unique position.

Yeah, I think what we're doing is identifying subsectors that have very much kind of been neglected inside the broader travel system. We're not competing for small-dollar e-commerce for travel. We're looking at kind of luxury tours, accommodations, these destination management companies. And those segments have really been forced to kind of select a local regional acquirer to process card payments and then manually deal with bank-related payments or sign up third-party wallets that may be applicable in given countries and have to string together a solution on their own. Oftentimes, those companies don't have extensive IT teams, and so they're kind of putting together kind of a patchwork solution And so what we've done is we've brought our kind of modern technology software invoicing payment capabilities, those payment experiences into these clients that have been able to streamline the back office management of all those vendors. In addition to really deploy a payment experience, that's like an e-commerce experience, but really tailored to those sectors and those large and complex payments. So that's, that's really putting us on a different level than just a, hey, I'm allowing you to accept credit cards. And so, obviously, Flywire has the banking infrastructure, the credit card processing capabilities, and the third-party payment method capabilities, and we're bringing that all together for them. So, you know, traditionally, they're stringing something together, multiple vendors, multiple banks, multiple card processing players, and that's where we're replacing. And I have a question around insurance as well. Yeah. Really, we continue to be very much encouraged. You know, we talked about that a lot as an expanding part of our flywire advantage and kind of looking at what can be done to provide additional value add to the payer. And that's a great example. You know, we had a great agent solution, which targets educational agents. And, you know, the cohort go acquisition had an insurance offering that was part of that. So really bringing that insurance offering to our number of payers, which was obviously significantly larger, and also the number of educational agents. That's really led to a great synergy that we were expecting when we did that deal and are proud to say we continue to see great growth from. So we think we're just getting started when it comes to payer-related services and things we can do to drive additional value. And I think the insurance aspect is just one of them. You can imagine other offerings with our travel business. There's also certain types of additional account creation that could occur with payers. So we think the future is really bright in relation to that offering.

Thank you.

Thank you. Our next question comes from Darren Peller with Wolf Research. Please proceed with your question.

Hey, guys.

Let me just start off quickly on the number of customer ads, which is coming in at pretty healthy, in fact, very strong rates the last two quarters. I think you had 170 and now 165, if I'm not mistaken. That's up somewhere around 20% or 10-20% from the run rate quarterly ads you would have about a year ago already. How much of that is just pure organic strength as you scale out the business versus inorganic and just adding new geographies and contribution from M&A, but Also, any color on, you know, the size of these? Is this small travel businesses, or is it really meaningful universities? Just the mix would be helpful.

Hey, Darren, it's Rob. Good to hear your voice. I'll jump in and start on this one. So, first of all, I'd say it's really all organic. When we talk about the sort of new customer signs at this stage, maybe there's just a few that tie out somewhere in some of the way, but really this is organic strength. This is based on the investments we've made in the sales team expanding our geographic capabilities. You know, the success is really very global and across the verticals. I think the last part of your question was, can you talk a little bit more about sort of the size and profile of the deals? We have looked at that. Yeah. Yeah. Yeah. So, so it is definitely skewed towards travel, but underneath that skew where there was travel, if you looked in the EDU side of things, the actual client size, It was up just slightly. If you looked at the average client size in the travel business, it was down just slightly and blended out to an average client size that was right in line with what we've achieved in recent quarters. So overall, you know, a really good result for our sales team that is working hard and doing well. That's great to hear.

I guess my follow-up would be around really two quick topics that interject. One of them is the M&A side, and I know WPM was being built out and kind of scaled up for third quarter, and so how's the progress been there? And then just the implications of that plus, broadly speaking, the conviction you have and the EBITDA margin trajectory, both from M&A impacts but just pure and simply organically. You guys talked about this year having the impact of anniversary hiring. I know somebody touched on this earlier, but a little more detail on your confidence level of back to the midpoint of that 3% to 6% medium term would be great. And Mike Ellis, by the way, congrats to you and all the best. Thanks again.

Thank you.

First on the even to margins, Mike, I'd say we continue to be confident in that range, that 3% to 6%. You know, obviously, as we get over kind of Q3 and into Q4, we've always said that's going to give us optionality for next year. You know, one thing we want people to hopefully see is, you know, our confidence by increasing, you know, those numbers from this point forward in this year. And so we're going to look at next year as we get into 2024 planning, have a lot of optionality, and hopefully come together with a plan that I think balances growth as well as those EBITDA margin expansion targets that we've that we've shared before. So that was, you know, hopefully that answers that part of the question. The other part of the question, remind me.

I can jump in on the WPMP. So, you know, WPM, you know, continues to progress very well. We've signed additional clients. I believe our client signing count is now north of 55. We are in the you know, heading into what will be the larger peak type season for the UK as well. We've taken advantage of the previous several months to get our implementation work as far along as we can for as many clients as we can. So we feel really good about what will be the contribution from WPM this Q3, which we think will be kind of the first quarter where we have a substantial number of clients that are able to leverage the integration. I would say the work on WPN is not done. We still have opportunities going forward because there'll be chances to take on even more schools. There'll be chances to expand our footprint on the domestic because most of the work that we've done so far has been not entirely but predominantly focused on cross-border. Net-net feel really good about the contribution for Q3, but also feel really good about upside opportunity after Q3.

Thank you.

Our next question comes from with JP Morgan. So sorry.

No need to apologize. All good. How are you guys doing?

First, I want to say appreciation, of course, to Mike Ellis as well. Just wanted to ask on the new payment types. You talked about Interact and some others. I'm just curious, is there greater demand for some of these? RTP networks or lower cost national schemes. I'm just curious if that's a general theme that you're observing and if there are any implications for Flywire.

You know, there are a few different things going on.

Sorry, go ahead, Mike. Thanks for the question. I would say we continue to see positive signs when we add new methods. We're always looking to increase acceptance. As we've said before, Flywire doesn't control how people choose to pay We want to have as many options available as we can to the payers. I would say in general, there's a desire from our clients to have the most convenient ways to pay. And then in addition to always look at cost of acceptance, right, and provide different price points from a cost of acceptance perspective. So as bank transfers become easier or there are certain countries around the world that have systems that make that easier, more digitized, more online, we see an interest in having them. and our clients have an interest in making it as convenient and as easy to pay. So, you know, we don't see it really have any shift from a Flywire perspective, right, you know, from a pricing or spread perspective. We control the costs associated to any method. And, again, if that's a domestic option or a cross-border option, we have different, obviously, ways to monetize those transactions, as folks are quite familiar with.

Cool. thinking about it from a travel perspective, 100% understand travel and card and you're not trying to influence, you know, the consumer's funding choice. But I'm just curious, is there an opportunity to maybe price that business a little bit differently on the travel side or would you be willing to take on more credit exposure maybe with the alternative payment method there if, you know, these trends sort of continue on the travel side? Yeah,

Yeah, I mean, obviously there's a certain aspect that exists inside travel around just usage associated to credit cards. You know, it's how the consumers have traditionally paid for travel experiences. At the same time, you know, we see consumers that want convenience, right? So you can see things like installments become more into a travel business. Again, Flywire is non-interest bearing, right? Clients don't extend interest payments, really just different payment terms. So sometimes different payment terms can kind of invoke different ways to put in a payment method. And again, clients are always looking for ways in which they can provide more value. I think banking rails are critical as you start looking at something we've talked about before around payables and around commission flows in a lot of these industries. And we think having the banking rails and the infrastructure to do that helps on not only the receive side, but on the send side. So I'd expect those types of things to come into the travel business over time, as well as more software, obviously, as we drive more solutions for customers in that segment. I think all of those will help improve our offering to travel clients.

Got it. Okay. Awesome for the watch.

Nice results. Thank you, guys.

Thank you. Our next question comes from Joel Richards with Truist Securities. Please proceed with your question.

Hi, guys. This is Joel. I'm for Andrew Jeffrey. Thanks for taking my questions, and congrats to Mike. Regarding both the healthcare and education components of the domestic business, can you tell us a little bit how you expect those two areas to ramp for the remainder of the year and whether or not we can see any acceleration in organic growth? for the second half of 2023 and into 2024. And then kind of just like in that context, any color around like what greater domestic volume X means for yield and gross margin would be really helpful.

I can start with sort of the trends, and then, Mike, you can maybe talk to the gross margin piece. So, you know, the U.S. domestic education business is growing very nicely, right? It's growing well above the overall company growth rate, which, as you see us announcing today, is a very healthy growth rate. So we expect that to continue and, you know, doing very well with that domestic EDU footprint across the range of solutions we've talked about. You know, healthcare has had a tougher first half of the year, but we do believe with the deployments that are going live now and that have gone live just in the last little bit, that we will see a much healthier growth rate for healthcare business in the second half of the year.

And I would expect the adjusted gross margin profile for the domestic business to be pretty consistent with what we've been reporting in our transactional-based business and probably closer to the overall average. But on the higher end of that average, it's a really good business. And again, the unit economics, regardless of the payment method or the type, are really strong in the business.

All right, awesome. And then it sounds like you also kind of expect the durability of the travel recovery to kind of be sustained for the remainder of the year. You know, how are you guys thinking about potentially tougher comps over the next 12 months for international?

Yeah, you know, I'll take that one. This is Mike. You know, Joel, I think we continue to look at how early we are in the travel sector, right? It's a massive total addressable market. It isn't like when the pandemic hit, we were sitting on a high percentage market share, and this is the recovery play. Obviously, there is some benefit of returning to pre-pandemic level that's happening, but we're signing significant numbers of accounts, and we see a lot of room to run a new client acquisition in these subsegments. I'd also highlight there's geographies. Think of the same playbook we've talked about before. More geographies allow us to drive more NRR. new client ads and new geographies for travel. So there's geographic expansion to expect in travel. There's subsector expansion. There's other subsectors we're looking at expanding into and other use cases inside travel. And then I mentioned earlier the additional products, right? We're still primarily driving one main product into our travel accounts. And so you can imagine we have a number of plans to add additional software, just like we've done in other verticals, and add more value and drive more revenue within those existing accounts. So we feel really good. We're early innings in travel. Obviously, the growth numbers are great, and we think it's going to continue to grow for years to come.

Awesome. Thank you so much.

Thank you. Our next question comes from Charles Navin with Stevens. Please proceed with your questions.

Hi, good afternoon and thank you for taking my question. So with respect to the full year guide increase, you had mentioned that FX would be a bit of a tailwind relative to your previous expectations. Would it be possible to quantify how much of that raise was attributable to the greater than expected FX tailwind? Yeah, sure.

So essentially, you know, when we think about our full year guidance, you know, Mike just talked about all the positive results as it relates to travel and we called out our cross-border education guidelines. You know, the majority of the increase in the guide really comes to those two components, but we do have built into that guidance some FX tailwinds that we do anticipate. Low single-digit millions, if that much, but really it comes down to the fundamentals of the business. Got it.

And just as a quick follow-up, one of the verticals that you didn't really touch on tonight was B2B. So I wanted to get your comments on any notable trends you're seeing there.

Yeah, we're feeling really good about the B2B business. We expect to continue to invest in that. It was one of their strongest quarters ever in terms of ARR. It was a great quarter in terms of revenue. It's still growing from a smaller base, but it's growing at the highest rate in the company, and we expect that to continue to perform really well. Look forward to investing more in that part of the business.

Got it. I appreciate the caller. And, Michael, thank you for everything, and best of luck.

Thank you.

There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you. you Thank you. Greetings and welcome to the Flywire Corporation second 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 introduce your host, Akil Hollis. Thank you, Akil. You may begin.

Thank you, and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Urgel, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our second quarter of 2023 earnings press release, supplemental presentation, and when filed, 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 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 Q2 2023 results, which show continued 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 second quarter. Revenue-less ancillary services with $79.5 million during the quarter, representing year-over-year growth of 54.4%, or 56.7% on a constant currency basis. Adjusted gross profit for the quarter was $50.5 million, an increase of 46.8% year-over-year. An adjusted EBITDA was negative $0.1 million for the quarter, representing a $6 million increase in our adjusted EBITDA versus Q2 of 2022. Based on this quarter's results and our outlook for the second half of the year, we are also increasing our guidance for 2023, and these details will be shared later in the call. It has been an exciting two years at Flywire since our first public earnings call. as we have continued our track record of efficient growth, making significant progress. We have roughly doubled in revenue on an organic basis. We acquired and successfully integrated two companies. We are driving improved operational efficiency within the organization, and we are also performing well against our financial targets we discussed at our Analyst Day last year. As you can see, we continue to execute against our growth strategies while also making progress against three key investment areas, which I'll provide an update on now. As a reminder, these investment areas are optimizing our go-to-market efforts, expanding our Flywire advantage with product and payment innovation, and strengthening and growing our FlyMate community. In Q2, we continue to optimize our go-to-market efforts, with a key focus on high ROI initiatives. One area in which we have been successful is in the effectiveness of our globally distributed go-to-market teams. As we briefly highlighted last quarter, we have the ability to scale quickly in new geographic regions thanks to strong collaboration between sales, marketing, and relationship management, our efficient digital acquisition, and regional and industry experts. This quarter, that was on full display in our global education vertical. In the Asia-Pacific region, we achieved success signing a number of new clients and partners in Japan, Australia, and South Korea, spanning educational institutions as well as strategic partners and recruitment agents. For example, in Australia, we went live with another of Australia's leading Group of Eight universities. And in the UK, we continue to see strong synergies following our WPM acquisition. cultivating those relationships to grow with our existing clients. We believe our ability to combine high tech with a personal touch is always a winning combination, and our clients appreciate the partnership as we help prepare them for their peak payment season. Finally, I'd be remiss if I didn't mention another record-breaking quarter for travel. where we had our highest revenue quarter to date. Additionally, the global sales and marketing team continued their strong go-to-market partnership, hosting targeted events across four continents, driving net new client signs. We also continued to expand our flywire advantage during the quarter. This is part of our long-term vision to power the ecosystems in our core industries of education, healthcare, travel, and B2B. As a reminder, the Flywire Advantage consists of our next generation payments platform, our vertical specific software, and our proprietary global payment network. Our network is made up of global and regional banking partners, some of the largest card processing companies, as well as alternative payment providers all around the world. It is something that we own and control that we built to scale across geographies and for all transaction sizes. The network is not just there to move the money, we constantly innovate, enhance its capabilities, and add new payment methods for our customers. For example, this quarter we announced our improved partnership with Tencent Financial Technology, Tencent's fintech arm, to expand WeChat Pay, also known as WeChat Pay, as a payment option for Chinese students and families making tuition payments abroad. While Flywire offered this payment method previously, this direct connection to Tencent creates an enhanced experience for payers, which is now fully digital and streamlined, and it eases the reconciliation for institutions. Adding Tencent to our payment network also expands Flywire's footprint across China, one of our largest payer markets. More to sustaining our advantage is our data privacy, security measures, and industry certifications. We have premier security, compliance, and data governance certifications in the industries that we serve, which are key differentiators in the eyes of our clients. We were recognized for this on the global stage when Flywire was recently appointed to the 2023 through 2025 Payment Card Industry Security Standards Council, PCI SSC Board of Advisors. As representatives of Flywire, our CTO and CIO join the board members from some of the world's most prominent organizations who are coming together to help build more secure payment ecosystems around the world. Now with a seat at the table, Flywire has the unique ability to help shape PCI standards for years to come, empowering us to better prepare ourselves and our clients. This recognition builds on our longstanding relationships with PCI, as our CTO was part of the original team that drafted version 1.0 of the PCI DSS standards. Speaking to our last key investment area, we also continue to strengthen and grow our flymate community. It is difficult to believe that we acquired Cohort Go a little over a year ago, welcoming over 50 new flymates as part of this transaction. Our combined team has seen rapid success with our insurance product growing over 60% on a pro forma basis in accomplishing our key product integration plans. These accomplishments continue to highlight Flywire's proven track record of successful M&A, as well as our ability to foster community and culture following an acquisition. At Flywire, we pursue strategic acquisitions if they can help us achieve one of three primary objectives. First, accelerate our growth in an existing industry or geography. Second, provide additional capabilities that enable us to drive net revenue retention, allowing us to upsell a new capability to an existing client. Or third, help us expand into a new industry, subsector, or geography we are not in yet. Additionally, I firmly believe that in order for it to be successful, one of the most important factors is cultural alignment. Finding a culture that complements our own has been among the top priorities for us in a handful of acquisitions we've done over the past few years, like WPM and Cohort Go. Similar to us, they were client-focused and value-driven organizations, ones that knew how to collaborate and innovate. Like Flywire, WPM and Cohort embraced a global workplace with so many talented teammates across the UK, Australia, India, China, Brazil, and more. These commonalities gave us a great launch pad and were key to helping us exceed the financial goals we set out for ourselves. As another example, our pay any school payment volume, which is primarily volume through educational agents, has grown over 50% since the Cohort Go acquisition on a pro forma basis. You've heard me talk a lot about culture and our approach to treating it as a strategic asset. As Flywire grows, we work hard to make sure we are constantly providing our flymates the opportunity to grow their career while also being part of something bigger than their job. At our most recent company meeting, we rolled out a renewed vision for the next five years tailored to the flymate experience. In addition to financial achievements, our vision outlines what attaining these goals will empower us to commit to as a business for social impact, to learning and growth, to flymate engagement. The vision was met with great excitement from our global flymates, who also recently celebrated being named a most loved workplace. The investments in go-to-market execution, expanding our Flywire advantage, and in strengthening our flymate community are also supported by positive trends across the industries that we serve, giving us even more confidence in the path ahead for Flywire. To highlight just a couple of recent trends, in education, The Australian Department of Education released new data that shows that in April of this year, international student visas increased 27% compared to April of last year, with China and India representing the top two sending countries. This is consistent with global student mobility trends we're tracking. For example, new data from HolonIQ suggests that total direct spending by international students is projected to more than double from pre-pandemic levels to reach $433 billion by 2030. In travel, we continue to see the trend of luxury travelers prioritizing travel over other discretionary spending. The UN's World Tourism Organization estimates that worldwide tourism arrivals this year are expected to reach up to 95% of pre-pandemic levels, up from 63% in 2022. And the latest data from TSA shows that throughput trends were consistently between 95% to 105% compared to 2019 levels, with spikes significantly higher, towards 132% over the July 4th weekend. In closing, I would like to thank our global flymates for helping to deliver another exceptional quarter. We continue to believe we have a winning strategy with a large and expanding opportunity ahead of us, and we are well positioned for 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.

Rob? Thanks, Mike. Good afternoon, everyone. As Mike mentioned, it's been a great start to the year, and we believe we will continue to see robust growth in the second half of 2023. Our sales team delivered great results during the quarter and added over 165 new clients. This capped off a strong first half of the year for the sales team. Q2 NRR also remained strong and above the three-year average discussed in our analyst day. This quarter's success was driven by our continued execution of our five strategic growth pillars, As a reminder, those pillars 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. Starting with growth with existing clients, a first example is our going live with our domestic collection management solution at Wellesley College, the top liberal arts college for women based in Massachusetts. Wellesley has used our cross-border payments offering since 2011. Within just a few months of being live with our domestic collection management solution, Wellesley saw nearly a 20% reduction in past due student tuition balances, while also reducing manual staff efforts through an automated outreach and sign-up process. We are seeing many schools interested in our collection management solution, reflecting their interest in a streamlined process for collecting overdue student tuition bills. Within our travel vertical, I'll highlight FreshTracks Canada, a Canadian tour operator in business for over 20 years and based in Vancouver. We onboarded FreshTracks a year ago to support their cross-border payments and enabled them to accept payments from 31 different countries and 25 different currencies with the ability to scale to over 140 currencies. With our recent integration with FreshTracks instance of Salesforce.com, we are now able to capture all of their payment transaction volumes. Integrating with major systems of record like Salesforce is part of our strategy to work with more enterprise clients in the travel vertical. We also had many new clients go live across the verticals in the quarter, including Tennessee State University, which was founded in 1912 and has over 8,000 enrolled students, including international students from over 40 countries. TSU went live with both our cross-border and domestic education payment offerings at the same time. Flywire solutions are integrated with Ellucian's Banner student information system, and our fast implementation time has enabled TSU to begin offering payment plans for students and families in time for fall 2023 and spring 2024 semesters. We also recently went live with a few group of eight universities in Australia, which Mike mentioned earlier. One of those is the University of Adelaide, which now offers our cross-border solution. Adelaide enrolls nearly 24,000 students, of which approximately 30% are international. We are excited about the traction within the group of eight universities in Australia. Bigger picture, we are making progress in our growth plans with multiple verticals in Australia and are continuing to build our capabilities to broaden and improve our services in that country. In healthcare, we went live with Rogers Behavioral Health. a provider of specialized mental health and addiction treatment services based in Pennsylvania. Rogers is integrated with Cerner's Millennium EHR platform, which provides an enterprise-wide view of patient care. With Flywire's digital self-service payment solution, Rogers has very quickly been able to reduce the number of patient phone calls regarding payments that their staff members had to handle. Since going live in the second quarter, about 95% of online patient payments have been made through Flywire's self-service portal, indicating the user-friendly experience with our platform. We're also pleased to share that patient billing satisfaction has received a high rating of 4.6 out of 5 stars. This progress reflects our commitment to supporting patients and simplifying financial interactions in the health sector. Within our B2B vertical, we recently went live with Synth, a global software leader in digital insights and research technology. Synth was founded in 1998 and has 18 global offices that help over 3,200 companies gather consumer insights. Flywire's solution is integrated with NetSuite and Quadient AR by YePay, helping to streamline disparate accounts receivable processes within the Synth organization. As Quadient's exclusive partner for international receivables and leveraging Flywire's proprietary payment network and recurring billing capabilities, Quadient customers using the offering receive industry-leading visibility from order to payment settlement. This enables SINT to reduce friction in transaction processing with their customers and to prove their efforts managing key internal finance metrics. Overall, we are very happy with our progress in B2B. We also continued to grow via channel partnerships. In Q2, we announced our partnership with DISCO, a market leader in international recruitment and career development to optimize the cross-border education payments experience for students studying in Japan. Flywire is DISCO's exclusive payment provider for enrollment and application fees, and we're integrated directly into their eApply system. DISCO's network of more than 1,000 universities, colleges, and vocational schools represents a great opportunity to present a broadened value proposition and expand our footprint in Japan. Another strategic lever of growth is expansion to new industries, geographies, and products. One way we do this is by continually improving the strength of our global payment network. In addition to the improved partnership with Tencent that Mike mentioned earlier, we recently signed a partnership with the State Bank of India, or SBI, which is the largest public sector bank in India. Flywire is enabling seamless digital payments from India for SBI account holders. This is in addition to similar connections we have established with ICICI and HDFC Bank in India. We also improved our domestic payments capabilities through the addition of Interact, a real-time interbank payments network in Canada. This will help us capture additional payment flows for universities in Canada. We believe there is no substitute for this kind of detailed network work and that this is part of the differentiation of Flywire that delivers real value for our clients and payers. Lastly, as we grow, we remain mindful of our spending and desire to scale. As a company whose costs are primarily personnel, we are thoughtful of who and where we hire new flymates. We also employ a rigorous vendor management process to drive down other costs. This contributed to our adjusted EBITDA outperformance in Q2, and we continue to look for ways to look for process efficiency, streamline tools, and drive cost savings. With that, 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 results for the second quarter, and then I will discuss our outlook for Q3 and the full year. Revenue-less ancillary services was $79.5 million in Q2, representing a 54.4% growth rate compared to Q2 2022. On a constant currency basis, our revenue-less ancillary services growth rate for Q2 2023 would have been 57%. We experienced a revenue headwind of approximately $1.3 million due to the strength of the U.S. dollar compared to the British pound and the Canadian dollar in Q2 2023 compared to Q2 2022. 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 in our education vertical in the United Kingdom, as well as strength from European destination management companies in our travel vertical going into the summer season. With respect to payment volumes, we processed $4.1 billion during Q2 2023, which represented an increase of 43% from the $2.9 billion processed during Q2 2022. Specifically, transaction revenue less ancillary services increased 61% compared to Q2 2022, driven by a 55% increase in transaction payment volumes. platform and usage-based fee revenue increased 27% compared to Q2 2022, driven by an 11% increase in platform and usage-based payment volumes, as well as fees that did not carry associated payment volumes, such as our revenue from student health insurance referral payer services that we discussed on our prior call. We generated 50.5 million in adjusted gross profit during the quarter, representing a 46.8% increase compared to the 34.4 million earned during Q2 2022. Specifically, our adjusted gross margin was 63.5% for Q2 2023, down 330 basis points from the 66.8% for Q2 2022. The year-over-year change in adjusted gross margin was driven primarily by three factors. First, strong growth of our transaction revenue versus our platform revenue, particularly from our travel vertical where credit cards are predominant. And second, settlement losses on foreign exchange transactions. As discussed last quarter, we hedge our exposure to changes in foreign exchange rates while settling transactions. So while these losses lower our adjusted gross profits, we also saw offsetting gains on our hedges within our operating expenses. Those two factors were partially offset by a third factor, which was the contribution and outperformance of our high margin insurance business, as previously mentioned. Our year-to-date change in adjusted gross margin of negative 1.6% was slightly higher than the full year guidance of negative 1% to 1.5% we shared at the beginning of 2023 due to the outperformance of our travel vertical. We expect our travel vertical to continue to outperform for the remainder of 2023 and have reflected this in our full year guidance, which I will share momentarily. As a result, we expect the adjusted gross margin decline for the full year to be greater than the originally anticipated range of 1 to 1.5%. However, We remained confident in our strong unit economics across all payment methods and enjoyed continued stability in our transaction spreads in Q2 in terms of gross profits as a percentage of volume. Moving on to operating expenses, technology and development expenses were $16.0 million for Q2 2023, an increase of 21% over the $13.2 million incurred during Q2 2022. The increase was primarily the result of adding flymates to our engineering and technology teams, which drove increases in employee-related costs, including stock-based compensation, consistent with our investment plans. In addition, we incurred more costs associated with scaling our hosting and software costs to meet increased transaction volumes. Selling and marketing expenses were $27.3 million for Q2 2023, an increase of 44% over the $18.9 million incurred during Q2 of 2022. This increase was mainly driven by investments in go-to-market resources, which drove increases in employee-related costs, including commissions and stock-based compensation. General and administrative expenses were $24.6 million during Q2 2023, an increase of 23% over the $20.0 million incurred during Q2 2022. This year-over-year increase was predominantly due to adding flymates to support our general and administrative teams, which drove increases in employee-related costs, including stock-based compensation. Adjusted EBITDA for the quarter was negative $0.1 million, an improvement of $6.0 million over the negative $6.1 million reported for Q2 2022. With respect to capitalization as of June 30, 2023, we had $328.1 million in cash and cash equivalents, no long-term debt. and 111.8 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 June 30th, 2023. For full year 2023, based on our results for the second quarter and our outlook for the second half of the year, We now expect revenue less ancillary services to be in the range of $372 million to $380 million, representing a year over year growth rate of 41% at the midpoint. Our full year 2023 expectations reflect an increase in our second half revenue expectations on a cost of dollar basis, as well as improved FX conditions at the end of June versus the end of March. Further movements in exchange rates could impact results. We expect to deliver full year 2023 adjusted EBITDA in the range of $33 million to $39 million. This represents an increase of $3 million at the midpoint of our previously provided guidance. We are not increasing our full year guidance by the full amount of our Q2 outperformance due to expenses that were originally planned to be incurred during the first half of the year, which are now expected to be incurred throughout the remainder of this year. At the midpoint of our full year 2023 guidance range, we expect to generate approximately an incremental 400 basis point improvement in adjusted EBITDA margin, a slight increase from our previous guidance. For Q3 2023, revenue left ancillary services is expected to be in the range of $116 million to $122 million, which represents a year-over-year revenue growth rate of 34% at the midpoint. which incorporates factors I mentioned with respect to our full-year guidance as well as our lapping the Cohort Go acquisition. Due to the strong results heading into Q3, we now expect Q3 adjusted EBITDA to be in the range of $24 to $28 million, which at the midpoint represents a $7.8 million year-over-year improvement compared to our reported adjusted EBITDA for Q3 2022. We were very pleased with how the business performed during the second quarter, highlighting a strong return on both our organic and strategic investments. In closing, as announced in our press release, I will be leaving Flywire in 2024 after more than eight years. It's been an incredible experience helping build this company and working with this very talented global team. I'm committed to supporting the company through this transition period. I'll now turn it back over to Mike for closing remarks. Mike?

Thanks, Mike. We appreciate everyone joining us today and would like to finish with a thank you to Mike Ellis. It has truly been a pleasure building Flywire Rethym over the past eight years, and I know this business would not be where it is today without his efforts. With that, we will now transition to the Q&A portion of the call. 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.

One moment please while we poll for questions. Thank you.

Our first question comes from Dan Perlin with RBC Capital Markets. Please proceed with your question.

Thanks. Good evening. I wanted to start on the education vertical for a second. And specifically, you know, you called out like Wesley College, Wesley College for domestic based payments. And one of the driving factors, I guess, for that, it sounded like was the 20 percent reduction in past due collections. I'm wondering, as you're continuing to pursue this kind of domestic-based approach into your back book for cross-border, I mean, is that one of the main drivers for universities as they're trying to think about assessing, taking you guys on with the domestic side of the equation as well?

Hey, Dan, this is Rob. I'll step in and start on this one. You know, the strength in our domestic education business is broader than just this domestic collections platform. So first and foremost, our offering centers around the ability to have a fuller solution that enables a full breadth of payments across, you know, the domestic student population. So that's our payment plan capabilities and one-time payments and many of the things you've heard us talk about in the past. The particular solution that we described for Wellesley just now is another part of our suite, part of our student financial software, and that is focused on these overdue tuition payments. That's not the only school that has seen some pretty remarkable results using that platform that they've shared with us in recent months. And so we do see strong interest in the U.S., and we look to enable that offering outside the U.S. as well going forward. So all part of our ability to be strong and domestic here in the U.S., but also enabling some of those capabilities around the world.

Got it. Can I just, with a quick follow-up on kind of adjusted gross margins, Mike, you called out, I think you said declining more than the one to one and a half points for the year. Did you put a finer point on that as you think about maybe the trajectory into the second half, and is there any cadence we need to be mindful of as we think about sequential movements there? Thank you. Sure.

So I would first say that, listen, we're really pleased with the 47% improvement that we showed in adjusted gross profit. And again, the second thing I'll point out is that the spreads in our transactional revenue have been stable. What we're seeing is that the travel out performance is having a small drag on adjusted gross margin, but still really excellent unit economics in driving adjusted gross profit dollars for us. And you don't lose sight of the fact of the 150 basis point impact from the FX loss. So if you exclude that, you're somewhere in that 1.8% range. And that's probably where I'd probably peg it. But we're pretty confident in our unit economics and our ability to kind of drive our adjusted gross profit dollars. And that's really what we're focused on.

Got it. Thank you for that.

Thank you. Our next question comes from Jason Cooperberg with Bank of America. Please proceed with your question.

Hi, good afternoon, guys. This is Tyler DuPont on for Jason. Thanks for taking the question. I wanted to start by first asking about the upside surprise to revenue during the quarter. When looking at the business, I know 2Q is more of a seasonal low point when it comes to education, but if you could just break out sort of where the growth really came from, for example, was it a quicker ramp up in APAC travel? And just thinking about the back half of the year, just sort of given the current macro environment, are there any puts and takes there worth considering?

Hey, Tyler.

Appreciate the question. So in short, a couple of the areas that were called out, outperformance throughout education, Asia and EMEA, also for travel. We had talked a lot about the growth in our EMEA travel business, again, and the recovery of Asia from a travel business perspective. So those were two clear call-outs in the quarter. And again, I think part of what you're seeing as well is also different seasonality, right? As we add different business units, you'll see additional seasonality come from travel that is different than the historic seasonality of our education business which again is typically predominant in Q3. So you're seeing kind of almost a redistribution of that seasonality a bit as we see growth in other verticals. So hopefully that answers your question.

Yeah, it does. I appreciate that. And then just as a follow-up, you know, at first glance, you know, the updated guide looks like revenue was raised by more than the BEAT. EBITDA was raised essentially by the BEAT. I know you mentioned that there's going to be some increased expenses that got moved into the back half of the year. But I was wondering if you could maybe just level set for us what sort of investments the company is planning on implementing in the back half, and then are those incremental or just any update there?

So this is Rob. I can start, and then Ellis, feel free to jump in if you like. You know, we are essentially, you know, performing very well across the business. We see, you know, a bit more hiring that will happen in the second half of the year that's just pushed from Q2. That's a main piece of expense. There's a little bit also in marketing that we'll just hit in the second half versus the first half as we actually lay out the full plans for the year. But you can see that the increments or the adjustments are very modest relative to the plan.

Yeah, I'd only add that, you know, we take a very disciplined approach. And I think as we talked about during Q1, some pacing of our hiring, ensuring we're seeing some macro concerns dissipate over the year. And we're anticipating investing more in the sales and marketing, as Rob indicated.

Great. Thanks again, guys. Nice job on the quarter. Thanks.

Thank you. Our next question comes from Ashwin Shirovaker with Citi. Please proceed with your question.

Hey. Congratulations on the results. And Mike, sorry to see you go. I know you're going to be around for a few more quarters, but my appreciation and thank you. The question I have is with regards to is there a good way to measure penetration of your services? I mean, the broadening out of your footprint, that's something that's proven that you can do. We get a lot of investor questions about what percent of students are actually using flywire instead of other choices and things like that. So any thoughts on how to measure penetration?

So, Ashwin, it's Rob. I'll start this one off.

You know, we've obviously been in this business for a good long time, and we have always had initiatives to continue to drive forward utilization, retention, all the metrics around adoption. And so the first thing I'd do is say, Because I think your question is probably focused on sort of that cross border adoption use case where, you know, we continue to drive things that build value around our services to continue to drive it up. You know, the comment we've always heard is that adoption is highest in first year. And then there may be some drop off in subsequent years, you know, that phenomenon is true. But we actually view that as opportunity, right, the opportunity for us to continue to get better at providing value and retaining those students for even longer through their educational cycle. So we've got active initiatives around that and really view that as upside. The broader point that I'd make is to remember that the business and the NRR that we deliver is driven on expanding our set of offerings across the university as well. So if you think about the things we're doing, it's not just about the cross-border. We have an incredible opportunity across our business to serve the domestic student populations within our client's as well as the cross-border that's our, you know, sort of our core strength historically. And then even more broadly, taking the example of folks like Wellesley that we just talked about earlier in this call, other product dimensions as well. So when you ask the question about sort of adoption and utilization broadly, we're very early in the cycle with upside across all the dimensions I just mentioned.

And Ashton, just to add to Rob's point, you know, I would say obviously our strategy of Land and Expand is also kind of our end game, right, where, you know, through all that software deployed, you're getting all the payments, right, by having cross-border domestic overdue receivables, right? When you deploy more software, you inherently solve the utilization question as you're being used for all student payments at a given university. So, again, as Rob said, different strategies depending on geography, but ultimately same end goal.

Understood. Now that's very useful. I want to focus maybe on healthcare. Obviously, you guys continue to have incremental signings and more progress in the space, but what we perhaps have not necessarily heard is the type of profusion of signings like we have in, say, travel or or education, and so I kind of just wanted to ask about the environment and the desire of those clients and prospects to sign what may or may not be perhaps holding them up, what might be a good longer-term growth rate for healthcare.

Yeah, this is Rob. I'll start here again. First, just to be super clear, we're very positive on our healthcare business. It's long-term prospects, despite what we have to concede is some challenges in the first half of the year. So just to put all this in context, obviously, it's a business with very strong contribution to gross profit. It's got great and very high gross margins. We are signing new clients, as you heard today, with Rogers and growing many existing clients. There are a bunch of other new client signs as well. along with two new customer deployments and a major expansion that have already happened in Q3. At the same time, you know, healthcare isn't a sector that's growing as fast as some of our others, and we haven't enjoyed the level of growth rate that we expected to see in the year. And so, you know, that's been on a combination of factors, but ultimately we do believe the second half of the year will see us where all the progress and the hard work that the team is doing, the clients that they're signing, the clients that they're getting live, will bring us back to a healthy growth rate. You know, we are seeing good progress getting signings through our partnership with Cerner. We've had success through other partners and other EHR integrations. And so overall, look, healthcare is a tougher business to sell in, but we remain very bullish on the business.

Thank you very much. Tremendous job. Thanks.

Thank you. Our next question comes from John Davis with Raymond James. Please proceed with your question.

Hey, good afternoon, guys. Mike Ellis, just wanted to touch on gross margins and put a finer point on it. If I understand what you were saying earlier, basically, the lower gross margin is just a function of outperformance and travel. So gross profit dollars are better than expected. It's just mixed and nothing else that's causing the lower gross margin. Just want to confirm that.

Yeah, John, that is true. The one thing I'd add to that is the lapping of the cohort go acquisition that occurs July. I think we just lapped it. So that will also not have that. That did contribute to our adjusted gross margins during the first half of the year.

Okay, great. And then, Rob, I think in your prepared remarks, you called out NRR stronger than kind of the three year average in the quarter. Just wondered if you could touch on that. Is that just students returning in a post COVID environment, cross-sell, maybe if you'd call it the couple of factors that are leading to that strong NRR, that'd be helpful.

Sure, JD. So the NRR has been in a pretty narrow range across a series of quarters that's led to a pretty consistent NRR, whether you're looking at one-year or three-year averages. And so it's all been very consistent and built on the same foundation of sort of land and expand that you've heard us talk about before. So what you see there is strength really across education and travel, which probably are driving that NRR the most. B2B is a smaller piece of it and operating at the highest level. Healthcare a bit lower, but all contributing to that overall corporate performance that's staying in that exact range that we talked about. And the underlying drivers of that are really the same as what we've talked about in the past, which is to say you see us growing cohorts very well over periods. You see us having strength across the geographic channels that you've heard us talk about in the past, and continuing to win placements of expanded software across a range of our clients. So whether it's getting more coverage in a B2B client, whether it's getting more software into a school, all the same building blocks are what's adding up to that NRR in our typical range.

Okay, great. And then one last quick one for Mike Ellis. If I look at the 3Q guide, it implies a little bit less of a sequential step up than in prior years. Maybe how much of that's like travel and some of the other verticals being a bigger contributor versus conservative? Just help us think about the sequential improvement in revenue, kind of 2Q to 3Q.

Yeah, John. So, you know, we're pretty confident in the guidance ranges that we provide, and it's really a function of what we believe is going to happen with respect to our travel vertical, as well as international education. Healthcare, as Rob indicated, it's been a little bit of a drag, but still really excellent economics. And we've kind of built that all into our model. And similar to last year, if you looked at the trend lines as it relates to first half and second half, we typically do see a slower overall growth rate in second half of the year. That's really a function of the really the size and the contribution and the seasonality of our business that we see in Q3 and just to a lesser extent Q4. Okay.

Appreciate it, Tyler. Thanks, guys.

Thank you. Our next question comes from Bob Napoli with William Blair. Please proceed with your question.

Thank you. And Mike Ellis, thank you for all your help over the years. I appreciate it. I wish you the best. Thank you all. So just competitively, are you seeing your Tencent relationship? I think there is another education company that works with Tencent. Just broadly, are you seeing any changes in the competitive environment? What are you most keeping your eye on competitively?

Hey, Bob. This is Mike. I would say we continue to be – We continue to be very encouraged with how we compete in the markets. As we've said before, we compete within the verticals. We compete with no one across these verticals. So, again, it's within a given vertical in which we see competition. And I would say we feel very strong about how we're competing and the innovation we're doing, the accounts we're winning, you know, in new geographies, adding, you know, new methods. You mentioned the Tencent. I think it's just further indication that we're an important player in this space and we can get deeper relationships with globally recognized brands like that. I think that's obviously very important. We also mentioned in part of the earnings, the recognition by PCI being added to that council. We think that's a really good indicator. That's not a position that a lot of our competitors have or can hold. That recognition, I think, helps us continue to innovate, be seen as an innovator within the sectors that we're in. And I've said it before, we like to compete. We have a team that is good competing, and we're going to get up every day and do it.

Thank you. And then you called out the insurance business a couple of times, and maybe a little more color on that, and then just in travel, and then I'll get off. Where are you seeing the success in travel? Who are you competing against? What areas of travel... are you having the most success and why are you enabling it? Generally, there's a lot of players in the travel market, but you seem to have a unique position.

Yeah, I think what we're doing is identifying subsectors that have very much kind of been neglected inside the broader travel system. We're not competing for small-dollar e-commerce for travel. We're looking at kind of luxury tours, accommodations, these destination management companies. And those segments have really been forced to kind of select a local regional acquirer to process card payments and then manually deal with bank-related payments or sign up third-party wallets that may be applicable in given countries and have to string together a solution on their own. Oftentimes, those companies don't have extensive IT teams, and so they're kind of putting together kind of a patchwork solution And so what we've done is we've brought our kind of modern technology software invoicing payment capabilities, those payment experiences into these clients that have been able to streamline the back office management of all those vendors. In addition to really deploy a payment experience, that's like an e-commerce experience, but really tailored to those sectors and those large and complex payments. So that's, that's really putting us on a different level than just a, hey, I'm allowing you to accept credit cards. And so, obviously, Flywire has the banking infrastructure, the credit card processing capabilities, and the third-party payment method capabilities, and we're bringing that all together for them. So, you know, traditionally, they're stringing something together, multiple vendors, multiple banks, multiple card processing players, and that's where we're replacing. And I have a question around insurance as well. Yeah. Really, we continue to be very much encouraged. You know, we talked about that a lot as an expanding part of our flywire advantage and kind of looking at what can be done to provide additional value add to the payer. And that's a great example. You know, we had a great agent solution, which targets educational agents. And, you know, the cohort go acquisition had an insurance offering that was part of that. So really bringing that insurance offering to our number of payers, which was obviously significantly larger, and also the number of educational agents. That's really led to a great synergy that we were expecting when we did that deal and are proud to say we continue to see great growth from. So we think we're just getting started when it comes to payer-related services and things we can do to drive additional value. And I think the insurance aspect is just one of them. You can imagine other offerings with our travel business. There's also certain types of additional account creation that could occur with payers. So we think the future is really bright in relation to that offering.

Thank you.

Thank you. Our next question comes from Darren Peller with Wolf Research. Please proceed with your question.

Hey, guys.

Let me just start off quickly on the number of customer ads, which is coming in at pretty healthy, in fact, very strong rates the last two quarters. I think you had 170 and now 165, if I'm not mistaken. That's up somewhere around 20% or 10-20% from the run rate quarterly ads you would have about a year ago already. How much of that is just pure organic strength as you scale out the business versus inorganic and just adding new geographies and contribution from M&A, but Also, any color on, you know, the size of these? Is this small travel businesses, or is it really meaningful universities? Just the mix would be helpful.

Hey, Darren, it's Rob. Good to hear your voice. I'll jump in and start on this one. So, first of all, I'd say it's really all organic. When we talk about the sort of new customer signs at this stage, maybe there's just a few that tie out somewhere in some of the way, but really this is organic strength. This is based on the investments we've made in the sales team expanding our geographic capabilities. You know, the success is really very global and across the verticals. I think the last part of your question was, can you talk a little bit more about sort of the size and profile of the deals? We have looked at that. Yeah. Yeah. Yeah. So, so it is definitely skewed towards travel, but underneath that skew where there was travel, if you looked in the EDU side of things, the actual client size, It was up just slightly. If you looked at the average client size in the travel business, it was down just slightly and blended out to an average client size that was right in line with what we've achieved in recent quarters. So overall, you know, a really good result for our sales team that is working hard and doing well. That's great to hear.

I guess my follow-up would be around really two quick topics that interject. One of them is the M&A side, and I know WPM was being built out and kind of scaled up for third quarter, and so how's the progress been there? And then just the implications of that plus, broadly speaking, the conviction you have and the EBITDA margin trajectory, both from M&A impacts but just pure and simply organically. You guys talked about this year having the impact of anniversary hirings. I know somebody touched on this earlier, but a little more detail on your confidence level of back to the midpoint of that 3% to 6% medium term would be great. And Mike Ellis, by the way, congrats to you, and all the best. Thanks again. Thank you.

First on the EBITDA margins, Mike, I'd say we continue to be confident in that range, that 3% to 6%. You know, obviously, as we get over kind of Q3 and into Q4, we've always said that's going to give us optionality for next year. You know, one thing we want people to hopefully see is, you know, our confidence by increasing, you know, those numbers from this point forward in this year. And so we're going to look at next year as we get into 2024 planning, have a lot of optionality, and hopefully come together with a plan that I think balances growth as well as those EBITDA margin expansion targets that we've that we've shared before. So that was, you know, hopefully that answers that part of the question. The other part of the question, remind me.

I can jump in on the WPMP. So, you know, WPM, you know, continues to progress very well. We've signed additional clients. I believe our client signing count is now north of 55. We are in the you know, heading into what will be the larger peak type season for the UK as well. We've taken advantage of the previous several months to get our implementation work as far along as we can for as many clients as we can. So we feel really good about what will be the contribution from WPM this Q3, which we think will be kind of the first quarter where we have a substantial number of clients that are able to leverage the integration. I would say the work on WPM is not done. We still have opportunities going forward because there'll be chances to take on even more schools. There'll be chances to expand our footprint on the domestic because most of the work that we've done so far has been not entirely but predominantly focused on cross-border. Net-net feel really good about the contribution for Q3, but also feel really good about upside opportunity after Q3.

Thank you.

Our next question comes from with JP Morgan. So sorry.

No need to apologize. All good. How are you guys doing?

First, I want to say appreciation, of course, to Mike Ellis as well. Just wanted to ask on the new payment types. You talked about Interact and some others. I'm just curious, is there greater demand for some of these? RTP networks or lower cost national schemes. I'm just curious if that's a general theme that you're observing and if there are any implications for Flywire.

You know, there are a few different things going on.

Sorry, go ahead, Mike. Thanks for the question. I would say we continue to see positive signs when we add new methods. We're always looking to increase acceptance. As we've said before, Flywire doesn't control how people choose to pay We want to have as many options available as we can to the payers. I would say in general, there's a desire from our clients to have the most convenient ways to pay. And then in addition to always look at cost of acceptance, right, and provide different price points from a cost of acceptance perspective. So as bank transfers become easier or there are certain countries around the world that have systems that make that easier, more digitized, more online, we see an interest in having them. And our clients have an interest in making it as convenient and as easy to pay. So, you know, we don't see it really have any shift from a flywire perspective, right? You know, from a pricing or spread perspective, we control the costs associated to any method. And, again, if that's a domestic option or a cross-border option, we have different, obviously, ways to monetize those transactions, as folks are quite familiar with.

Cool. thinking about it from a travel perspective, 100% understand travel and card and you're not trying to influence, you know, the consumer's funding choice. But I'm just curious, is there an opportunity to maybe price that business a little bit differently on the travel side or would you be willing to take on more credit exposure maybe with the alternative payment method there if, you know, these trends sort of continue on the travel side? Yeah,

Yeah, I mean, obviously there's a certain aspect that exists inside travel around just usage associated to credit cards. You know, it's how the consumers have traditionally paid for travel experiences. At the same time, you know, we see consumers that want convenience, right? So you can see things like installments become more into a travel business. Again, Flywire is non-interest bearing, right? Clients don't extend interest payments, really just different payment terms. So sometimes different payment terms can kind of invoke different ways to put in a payment method. And again, clients are always looking for ways in which they can provide more value. I think banking rails are critical as you start looking at something we've talked about before around payables and around commission flows in a lot of these industries. And we think having the banking rails and the infrastructure to do that helps on not only the receive side, but on the send side. So I'd expect those types of things to come into the travel business over time, as well as more software, obviously, as we drive more solutions for customers in that segment. I think all of those will help improve our offering to travel clients.

Got it. Okay. Awesome for the watch.

Nice results. Thank you, guys.

Thank you. Our next question comes from Joel Richards with Truist Securities. Please proceed with your question.

Hi, guys. This is Joel. I'm for Andrew Jeffrey. Thanks for taking my questions, and congrats to Mike. Regarding both the healthcare and education components of the domestic business, can you tell us a little bit how you expect those two areas to ramp for the remainder of the year and whether or not we can see any acceleration in organic growth? for the second half of 2023 and into 2024. And then kind of just like in that context, any color around like what greater domestic volume X means for yield and gross margin would be really helpful.

I can start with sort of the trends, and then, Mike, you can maybe talk to the gross margin piece. So, you know, the U.S. domestic education business is growing very nicely, right? It's growing well above the overall company growth rate, which, as you see us announcing today, is a very healthy growth rate. So we expect that to continue and, you know, doing very well with that domestic EDU footprint across the range of solutions we've talked about. You know, healthcare has had a tougher first half of the year, but we do believe with the deployments that are going live now and that have gone live just in the last little bit that we will see a much healthier growth rate for healthcare business in the second half of the year.

And I would expect the adjusted gross margin profile for the domestic business to be pretty consistent with what we've been reporting in our transactional-based business and probably closer to the overall average. But on the higher end of that average, it's a really good business. And again, the unit economics, regardless of the payment method or the type, are really strong in the business.

All right, awesome. And then it sounds like you also kind of expect the durability of the travel recovery to kind of be sustained for the remainder of the year. You know, how are you guys thinking about potentially tougher comps over the next 12 months for international?

Yeah, you know, I'll take that one. This is Mike. You know, Joel, I think we continue to look at how early we are in the travel sector, right? It's a massive total addressable market. It isn't like when the pandemic hit, we were sitting on a high percentage market share, and this is the recovery play. Obviously, there is some benefit of returning to pre-pandemic level that's happening, but we're signing significant numbers of accounts, and we see a lot of room to run a new client acquisition in these subsegments. I'd also highlight there's geographies. Think of the same playbook we've talked about before. More geographies allow us to drive more NRR. new client ads and new geographies for travel. So there's geographic expansion to expect in travel. There's subsector expansion. There's other subsectors we're looking at expanding into and other use cases inside travel. And then I mentioned earlier the additional products, right? We're still primarily driving one main product into our travel accounts. And so you can imagine we have, you know, a number of plans to add additional software, just like we've done in other verticals. and add more value and drive more revenue within those existing accounts. So we feel really good. We're early innings in travel. Obviously, the growth numbers are great, and we think it's going to continue to grow for years to come.

Awesome. Thank you so much.

Thank you. Our next question comes from Charles Navin with Stevens. Please proceed with your questions.

Hi, good afternoon and thank you for taking my question. So with respect to the full year guide increase, you had mentioned that FX would be a bit of a tailwind relative to your previous expectations. Would it be possible to quantify how much of that raise was attributable to the greater than expected FX tailwind? Yeah, sure.

So essentially, you know, when we think about our full year guidance, you know, Mike just talked about all the positive results. and we called out our cross-border education, you know, the majority of the increase in the guide really comes to those two components, but we do have built into that guidance some FX tailwinds that we do anticipate, low single-digit millions, if that much, but really it comes down to the fundamentals of the business. Got it.

And just as a quick follow-up, one of the verticals that you didn't really touch on tonight was B2B. So I wanted to get your comments on any notable trends you're seeing there.

Yeah, we're feeling really good about the B2B business. We expect to continue to invest in that. It was one of their strongest quarters ever in terms of ARR. It was a great quarter in terms of revenue. It's still growing from a smaller base, but it's growing at the highest rate in the company, and we expect that to continue to perform really well. Look forward to investing more in that part of the business.

Got it. I appreciate the caller, and Michael, thank you for everything, and best of luck.

Thank you.

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