Greetings ladies and gentlemen and welcome to Flywire Corporation's Second Quarter of 2022 Earnings Call. All participants are currently in listen-only mode. A question-and-answer session will take place after the formal presentation. This conference is being recorded. I will now hand over the call to your host, Akil Hollis, Vice President of Investor Relations and FP&A. Thank you.

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

Thank you, Akil. And thank you to everyone that is joining us today. We are excited to share our Q2, 2022 results with all of you, and provide more insights on the future of Flywire. We saw strong performance in the second quarter, and in a few minutes Rob Orgel, our President and COO, as well as Mike Ellis, our CFO, will go into greater detail about our operating and financial performance during the quarter, but first, I will start with a few financial highlights. As you will see from our results, we continued to have success in penetrating the significant total addressable market that our education, healthcare, travel and B2B verticals represent. Total payment volume for the quarter increased 49% compared to Q2, 2021. Revenue, less ancillary services was $51.5 million, representing a year-over-year revenue growth of 56%, even despite increasing FX headwinds. Adjusted gross profit was $33.2 million in Q2, an increase of 48% year-over-year. Adjusted EBITDA was negative $6.1 million, which was better than internal expectations, driven primarily by stronger revenue growth. Today, we’ll be raising our full year 2022 financial guidance for both revenue, less ancillary services and adjusted EBITDA, which Mike Ellis will share details on later in this call. I am quite proud of the great results we are sharing this quarter, especially at how the business continues to navigate these exceptional macroeconomic times. Of course, none of this would be possible without our amazing FlyMates. And I’d like to take the moment to thank them for all their incredible efforts. I’ll now move on to discuss our industry verticals and trends. While none of us can predict the future, based on the historical, current and expected trends, we believe Flywire is well positioned for continued growth across our verticals. Education and healthcare have historically been resilient during recessions and economic downturns. Travel, particularly luxury travel, continues to be strong, supported by pent-up demand from the pandemic, and with more businesses focused on digitizing and streamlining global accounts receivable, we expect to see increased demand for solutions like ours in the B2B sector. Let’s take a closer look at trends, starting with education. Education has remained strong, even during recessionary periods. With the National Bureau of Economic Research reporting that college and university attendance levels increased even during the Great Recession. Education today is still in the midst of a post-COVID recovery, as the international student enrollment volumes normalize and travel restrictions are removed. According to the Institute of International Education’s 2021 Open Doors report, total international students as a percentage of total U.S. campus enrollment, averaged 5.4% pre-COVID in the 2019-2020 academic year, versus just 4.6% in the 2020-2021 academic year, leaving room for still further recovery. Additionally, after suffering steep losses in new international student enrollments in 2020 and 2021, U.S. Colleges and Universities are reporting increasing numbers of international student applications for the upcoming academic year. In fact, new research from the Educational Consultancy, ICEF reported that 65% of U.S. Universities surveyed this spring said international applications have increased. This is compared to just 43% in the same period last year. Shifting to trends in healthcare, we believe that our healthcare solutions are more relevant than ever. Given that the healthcare industry continues to be durable, as the services provided are often nondiscretionary in nature. We’ve seen the healthcare organizations that use Flywire are able to better engage patients, through multiple and preferred digital channels, throughout the entirety of the healthcare payment experience. They can reduce bad debt write-offs and meaningfully increase revenue collections. By offering Flywire’s payment plans and solutions to their patients, our clients are able to increase affordability of care they provide through our omni-channel engagement software and provide further transparency to their patients. According to a study prepared for Flywire by Forrester Consulting, Flywire’s healthcare clients can see a 29% increase in revenue and collections from our solutions. Looking at travel, American Express recently stated that the travel industry has rebounded, post-pandemic at a faster and stronger rate than anyone expected, and we strongly agree. According to the U.S. Travel Association, for the first time since the start of the pandemic, travel spending in April 2022 was 3% above 2019 levels. Approximately 28% of surveyed travelers plan to spend significantly more this summer compared to their summer 2019 travel budgets, despite higher prices. Again these trends, and our strong growth in travel, continue to validate the large and growing opportunity we have with our solutions. As for our B2B vertical, we continued to work with many businesses to automate their accounts receivable and enhance their order to cash workflows. We are seeing particular success in businesses who already have international clients, and with those looking to expand globally because our solutions eliminate many operational challenges related to international invoicing and payments, while also improving the customer’s experience. According to a recent survey from Globalization Partners, 83% of CFOs feel their long-term plans will focus on expansion into new countries, despite mounting concerns around rising wages and inflation. To conclude on the trends we are seeing across our verticals, while the global economy may be uncertain, we continue to feel confident about the opportunity ahead of us here at Flywire. Next, I wanted to spend a few minutes providing an update on the investment areas that we outlined at the beginning of the year and during our recent Analyst Day event in May. Flywire has had a successful investment track record. Our approach of taking a long-term view, but also ensuring clear prioritization based on expected ROI, has helped us grow this business while establishing multiple deep and strategic notes. We are able to enter new verticals, leveraging our core platform, expand our geographic footprint and effectively acquire and integrate organizations that further Flywire’s mission and accelerate our performance. We believe it is strategically important to keep investing in our Flywire Advantage, which is made up of our next generation payment platform, our proprietary global payment network and our vertical-specific software. Earlier this year, we laid out that 2022 will be a record year of investment for Flywire, as we accelerated key initiatives in multiple areas of the company. At our Analyst Day, we shared more details of these investments, which include increasing our go-to-market team, further geographic expansion and investing in our product and payment innovation teams. Let me first start with expanding our go-to-market. Our goal is to capture the significant total addressable market and opportunities that you’ve heard us talk about. We are investing in two main areas. First, more FlyMates in sales and relationship management; and second, optimizing our digital acquisition capabilities. We have prioritized our hiring around go-to-market roles this year, and are very pleased with the amazing talent we’ve brought into the company so far. We’ve also improved the way we onboard our new go-to-market FlyMates to be more efficient and effective. This has generated a significant improvement in sales rep ramp time, and a nearly 2x increase in pipeline value when comparing the first half of 2022 versus the same period of 2021. In addition, with just a modest year-over-year increase in our digital acquisition investment, we are already seeing impressive returns in sales pipeline generation, new clients signed ARR. Next, I’ll move to geographic expansion. Flywire is truly a global company. We believe there continues to be unique opportunities to expand globally to serve our clients and their customers. Almost two thirds of our Q2, 2022 ARR signed was outside of North America, and through the end of Q2, we have more than doubled the number of FlyMates across India, China, Australia and Latin America compared to the same time last year. We believe our proven ability to hire talent around the world maximizes our local market understanding and improves our ability to service our customers. This is a major differentiator for Flywire. And finally, I’ll cover our investment in product and payment innovation, where we are focused on creating even more value for our clients, their customers and the broader industries that we serve. This quarter, we continued to expand our payment network and improve payment experiences around the world, from adding a new local method in Colombia as part of our Lat-Am expansion to improving the payment experiences in India by streamlining acquired regulatory forms and enhancing local payment acceptance in Europe through the expansion of direct-debit capabilities. Our strategy is to continue to solve complexity for our clients, ultimately expanding our Flywire advantage to power these vertical ecosystems. In closing, as many of you are aware, we recently announced the acquisition of Cohort Go, which fits into our core M&A pillars we have discussed many times with all of you. Cohort Go is an international education payments provider that brings additional students, education agents and essential student services to Flywire’s growing payment ecosystem. This deal also deepens our commitment to product and payment innovation and helps us further invest in Asia Pacific, a key near-term geographic focus for Flywire. We are thrilled to welcome over 50 new FlyMates from Cohort Go into our Flywire community. We’re excited to have their expertise and capabilities as we expand Flywire’s strength even further in education. While Cohort Go’s revenue is relatively small compared to Flywire’s overall revenue, Mike Ellis will share updated guidance for the full year, which incorporates the expected incremental impact of this acquisition. Additionally, I’d like to mention that the integration of WPM continues to go well, and we are seeing great momentum with our education clients in the U.K. who are adopting our solutions. With that, I’d like to turn the call over to Rob Orgel, our President and COO, to share updates on our operating results and growth initiatives during the second quarter. Rob.

Thanks, Mike. And good afternoon, everyone. Our strong results this quarter reflect continued execution of our growth strategies. We saw strength in bringing on new clients with the addition of over 140 new clients in the quarter. This brings our client count to over 2,800, and consistent with our recent quarters, we also had success in getting more payments and payment share by cross-selling to existing clients. I’d like to highlight some of our successes across the verticals. Starting today with travel. We continued to see strength in travel, especially in our European clients. As of the end of the second quarter, our EMEA destination management clients have delivered revenue in the first two quarters above our full year expectations for that segment. We continue to see strong new client growth as well as contribution from clients we acquired since the start of the COVID-19 pandemic. In the quarter, we formed a relationship with Travel Connect, which is the parent company of our existing client, Nordic Visitor. They chose to expand their relationship with Flywire based on the quality of service and cost savings for them and their traveling customers, which they saw from our initial deployment. Travel Connect owns six luxury travel brands, which includes five destination management companies and one accommodation provider. We signed an agreement with Travel Connect that will allow us to offer Flywire payments and software services through all of their entities. In the Asia Pacific region, we also saw a meaningful recovery in our clients’ business activity. In June 2022 alone, our APAC travel clients used our solutions to move more money than was moved by Flywire in the region during the entirety of 2021 in this segment. Our APAC clients have also indicated that they are starting to receive deposits for travel bookings for the last three months of 2022 and also into 2023. We added AYA Niseko, a luxury accommodation provider in Japan. AYA Niseko chose Flywire as its payment platform because of our strong integration with RoomBoss property management system and Flywire’s ability to process not just card payments, but also handle more complex international bank transfers. Prior to using Flywire, AYA Niseko had separate solutions to collect payments depending on the payment methods involved. With Flywire’s single integrated receivable solution, AYA Niseko can now pay lower card payment fees, offer more payment options to their guests and tightly integrate their payments, collection with their core property management software. On to healthcare. We added several new clients in the quarter. We continued to focus on building our omni-channel patient engagement capabilities to help our healthcare clients increase plan sign-ups and payment dollars. The client benefits of using Flywire are real. Over a sample of six of our healthcare clients, our clients saw immediate increases of 49% in plan sign-ups and a 13% increase in patient payment dollars within three months of launching omni-channel engagement after implementing Flywire’s solutions. We signed one of the nation’s leading health systems with over 40 hospitals and will partner with them to leverage our full suite of services to simplify their patient payment experience, improve their digital self-service, increase collections and lower costs through reducing placements to collections agencies. After a competitive sales process, Flywire was chosen due to our deep integration with MEDITECH and Epic EHR systems. These integrations are critical for hospitals already using these systems, and when combined with the strength of our digital engagement and payments model, helps drive patient self-service, reduce placement costs and increase cash collections. We continue to innovate with our health systems to drive digital engagement and payment throughout the patient life cycle. For example, one of our existing healthcare clients, Banner Health, which is based in Phoenix, Arizona and serves over 6.5 million patients has created an application to provide their patients with a digital self-service check-in process. This allows the patient to check-in for their scheduled visit, complete any pre-visit forms, review or complete insurance information and make payment for their portion of the visit, all in a self-service fashion. Flywire integrated our healthcare payments experience into this new application to provide a cohesive experience for Banner Health’s patients at every payment touch point from pre to post-service. Flywire is delighted to continue to partner with Banner to provide the best financial experience for their patients. Overall, our healthcare team worked hard through Q2 and into this quarter, resulting in a strong period for deployments, and we are excited for the opportunity to deliver results for a number of new clients. Moving on to education. In addition to the recent Cohort Go acquisition Mike mentioned earlier, we continue to see strong performance across segments and geographies. In particular, we saw exceptional results from our cross-border education segment as we outperformed in the United Kingdom and Canada and non-higher education segments rebounded stronger and faster than we anticipated. Helped by our focus on the K through 12 education sub-segment and our partnership with TRUE North, we signed five new Canadian K through 12 district school boards during the quarter, with the expectation there is additional opportunity going forward. For example, we signed one of the top five largest district school boards in Ontario, with more than 100,000 total students across 200 plus elementary and secondary schools in the region, creating an excellent cross-border opportunity for Flywire across these district school boards as they enroll international students. Here in the US, the University of Rhode Island went live in April with our full CRS System offering. URI is the flagship, public research university in the State of Rhode Island with over 18,000 undergraduate and graduate students, representing 48 and 76 countries. URI is processing all domestic and cross-border tuition payments through Flywire. We also expanded our relationship with the University of Chicago, ranked Number 6 in the U.S. News & World Report’s 2022 Best National University rankings with over 17,000 undergraduate and graduate students. U-Chicago added our A/R Collect and international payment plan product offerings. We look forward to continuing to build our relationships with both URI and University of Chicago. We also announced a new strategic partnership with Universitas XXI, a student management system focused on servicing higher education customers throughout Spain. This partnership aligns with Flywire’s commitment to expanding further into markets. Our payments integration allows Flywire to be the payment option at any point in the end-to-end student life cycle from initial application through tuition. Universitas XXI has a very strong reputation in Spain and has been a successful referral source for our field reps in the Spanish higher education market. Our integration with Universitas XXI supports a complete one-door payment strategy, which includes domestic payment flows for all clients in Spain. One final update on our education vertical, since the WPM acquisition closed, we have signed agreements with more than 20 UK-based universities to process international payments through an existing WPM pathway. The first customer go-live happened in June, more have gone live in July, and we are anticipating several others to go live throughout the third quarter. Finally, in our B2B segment, we continued to grow our customer base and to expand with the existing customers in this emerging segment. This quarter marked the largest signed ARR quarter for the B2B segment to date, with revenue from our B2B clients generating a strong triple-digit growth rate versus the same period in 2021. For example, Export Diesel is a global supplier of diesel fuel injection components. Export Diesel came to us via referral from our Bank of America partnership. This was one of many successful referrals from Bank of America this quarter as the partnership continues to scale. Export Diesel will be utilizing our invoicing software to automate the reconciliation process, and we look forward to helping them in these efforts. We are very pleased with the activity generated by our investments in channel partnerships. We continue to deepen our automation capabilities and expand our partner ecosystem. During the quarter, we have enhanced the Flywire NetSuite integration by building in multiple invoice payment and prepayment capabilities. These features allow customers to easily access a snapshot of open balances while digitizing the NetSuite payment experience and reconciliation process. We are seeing that these powerful B2B features are being used across clients in different industries and regions. Finally, we continue to make great progress across our operations, including strengthening our global payment network as well as driving internal operational efficiency by leveraging technology to provide great services to our clients and their customers. Also, given the economic climate, we are being mindful about discretionary spending and being thoughtful in the pacing of our hiring. We are focused on what we expect will drive long-term results. Overall, you can see we had another very active quarter with Flywire’s global team of FlyMates doing great work across our verticals and across the company. I would now like to turn the call over to Mike Ellis, our CFO, to review our results for the second quarter and guidance for the remainder of the year. Mike.

Thank you, Rob. Good afternoon, everyone. Today, I will be discussing our non-GAAP financial metrics for our second quarter of 2022, including revenue less ancillary services, adjusted gross profit, adjusted gross margin, and adjusted EBITDA. For our financial results prepared in accordance with U.S. generally accepted accounting principles, please read the preliminary and unaudited financial statements included within our earnings release and the unaudited financial statements that will be included in our quarterly report on Form 10-Q when filed with the SEC. Revenue less ancillary services for Q2, 2022 was $51.5 million, representing a 56% increase compared to Q2, 2021. Our revenue growth rate was driven by an increase in total payment volume, particularly due to strong performance from our international cross-border payment volumes in our education and travel verticals. We processed $2.9 billion in total payment volume during Q2, 2022, which was an increase of 49% from the $1.9 billion we processed during Q2, 2021. Specifically, transaction revenue increased 72% compared to Q2, 2021, driven by a 63% increase in transaction payment volume. Platform and usage-based fee revenue increased 14% compared to Q2, 2021, driven by a 24% increase in platform and usage-based payment volume, with the platform revenue growth still being partially offset by the loss of a client in the healthcare vertical last year, which was discussed during our prior calls and is not yet fully lapped. As mentioned by Rob a few minutes ago, we expect recently onboarded new healthcare clients to contribute to platform and usage-based fee revenue growth in the second half of the year. Moving on to adjusted gross profit, we generated $33.2 million in adjusted gross profit in Q2, 2022, representing a 48% increase compared to Q2, 2021. That resulted in an adjusted gross margin of 64.5%, which was lower compared to Q2, 2021 due to shifts in revenue and payment method mix, similar to those discussed on our Q1, 2022 earnings call. Specifically, our transaction revenue continued to outpace our platform and usage-based fee revenue, and we saw a payment method shift towards credit cards due to the growth within our travel vertical and domestic transactions within our education vertical. Overall, our Q2, 2022 net spread on transaction volumes remained stable compared to Q1, 2021. However, due to the outperformance of our credit card-heavy travel vertical and domestic transactions within our education vertical, we expect adjusted gross margins for the full year 2022 in the middle to lower end of the full range of 65% to 70% shared at Analyst Day. As we have previously discussed, our business and payment method mix drives our adjusted gross margin, and we remain focused on our many opportunities to add value for our clients and to drive gross profit. We were particularly pleased with our revenue, volume, and adjusted gross profit growth considering the foreign exchange headwinds we faced as the US dollar strengthened against the British pound, the euro, and the Canadian dollar. These FX headwinds reduced our revenue in nominal terms compared to Q2, 2021 from transactions in which we settled in British pounds, euros, and Canadian dollars. Moving on to operating expenses, technology and development expenses were $13.2 million for Q2, 2022, representing an increase of 91% over the $6.9 million incurred during Q2, 2021. We continued with our strategic investments within our technology and development teams as we added 120 new FlyMates over the past year. The cost of these new FlyMates, combined with higher stock-based compensation and amortization expense associated with acquired intangible assets, accounted for the majority of the increase in our technology and development expenses. Selling and marketing expenses were $18.9 million for Q2, 2022, an increase of 73% over the $10.9 million incurred during Q2, 2021. Selling and marketing is another area of strategic investment, and this increase was due to a number of factors. First, personnel costs increased due to our hiring efforts over the past year, where we added over 110 new FlyMates within our sales, marketing, and product teams. Second, based on our strong revenue growth, sales commissions also contributed to our increase in selling and marketing expenses. Third, we continued to invest in our global marketing initiatives to drive client acquisition and payer engagement, and finally, we saw increases in stock-based compensation expense and higher travel costs for client visits and FlyMate collaboration. General and administrative expenses were $20.0 million during Q2, 2022, an increase of 47% over the $13.6 million incurred during Q2, 2021. The primary factors driving the increase were: Number 1, our hiring activities, where we increased the number of FlyMates by over 45%; Number 2, higher stock-based compensation expense; and Number 3, incremental costs associated with operating as a public company, which consisted primarily of insurance costs and professional fees. Adjusted EBITDA for the quarter was negative $6.1 million, which was better than our expectations for Q2, 2022, due to stronger than expected revenue and adjusted gross profit as well as personnel cost savings as we based our hiring. Adjusted EBITDA decreased $6.0 million compared to the negative $0.1 million we generated during Q2, 2021. The year-over-year decrease in adjusted EBITDA was the result of our hiring during the past year as well as increased costs from operating as a public company and travel-related costs. With respect to capitalization, as of June 30, 2022 we had $360.6 million in cash and cash equivalents and $25.9 million in long-term debt. As of June 30, 2022, we had 107.9 million shares of common stock outstanding, which was higher than the weighted average shares outstanding used to calculate net loss per share for Q2, 2022 due to the timing of our IPO. Moving on to guidance for full year 2022. We are raising our guidance for revenue less ancillary services to be in the range of $260 million to $269 million, which results in an annual revenue growth rate of 46% at the midpoint. Our full year 2022 expectations reflect an increase in our organic revenue expectations even in the face of current FX headwinds, plus revenue from our recently announced acquisitions of WPM and Cohort Go. Further movements in exchange rates representing additional FX headwinds could impact our revenue and adjusted EBITDA expectations for the remainder of 2022. With respect to adjusted EBITDA, we are raising our full year 2022 guidance to be in the range of $13 million to $17 million, reflecting our current view of our continued growth and execution in the business alongside the continuation of our previously announced growth and investment plans. With respect to guidance for Q3, 2022. Revenue less ancillary services is expected to be in the range of $87 million to $90 million, which represents a year-over-year revenue growth rate of 42% at the midpoint as we enter our historically highest revenue and adjusted EBITDA quarter. We currently expect to generate positive adjusted EBITDA in both Q3 and Q4 of 2022. In conclusion, we are pleased with our Q2, 2022 financial results and overall business performance, and we continue to look forward to the rest of 2022. With that, I’d like to turn the call over to the operator for questions.

Thank you, sir. The first question comes from Bob Napoli of William Blair.

Hi! Thank you. Good afternoon! Nice job on the quarter, good results. So just would like to get some clarification on the upside versus your guidance. How much of that came organically versus any other contribution? Maybe give some color on the contribution of Cohort Go, WPM, you know so if you could just unpack the upside if you would.

Sure, thanks Bob. I’m going to let Mike Ellis handle it.

Hey Bob! Thanks for the question. So essentially we increased our annual revenue guidance by approximately $11.5 million. The breakdown of that comes from $5 million from our Q2 revenue outperformance, the remaining comes from $5.5 million from contributions from the recent acquisition of Cohort Go, and again, that represents about 5.5 months of the year given the acquisition closed in the middle of July. And then the final amount is another $1 million from expected continued strong organic revenue growth, offset by continued FX headwinds. And just with respect to Cohort Go, I just want to highlight that there have been some inquiries around their revenue projections that have been seen in some publications that happened or that were published prior to our acquisition, and we wanted to kind of avoid confusion around those numbers. But for clarity, any forecast that you might have seen prior to our acquisition in the press were in fact in Australian dollars. And number two, those forecasts were from a private company, and they were projections made at the beginning of their full year. So just for clarity purposes, to give you a little bit of a sense of how we unpack the revenue and what we’ve included. But certainly, an organic beat that we expect and that’s why we raised our guidance, which is included in there.

Great, thank you. And then this has been a very high investment year for the company and you’ve had very good momentum in the business. What should we expect as we go into 2023 on investment as – I mean I would imagine that the investment levels as relative to revenue may moderate some. Can you keep the momentum growing in the business with some moderation in the investment levels versus this year?

Bob, this is Rob, and I’ll jump in and take that one, but thanks for that question and I can tell just from the way you phrased it that your understanding very much matches our expectations for how things will unfold going forward. So we called out that this was a significant investment year for the company, both across go-to-market as well as R&D. We’re excited about those investments and I’d remind everyone that those are intended to sort of long-term investments with long-term returns. But as we grow the company just as you say, we do see scalability across multiple of our functions and we would expect to see some moderation in that hiring pace as we continue to grow the revenue line.

Great! And the momentum in the business, I guess that’s the big question, is just the top line momentum you know has some moderation of investment levels.

Yes, I’ll just jump in Bob, this is Mike. I would say we feel quite confident in the business where we’re sitting. You know as Mike said, not only to beat but to raise organically as well. There’s obviously an uncertain world out there, but we feel really good with the trends we’re seeing. I talked about it in a number of points I made earlier and I think we feel really good about where that leads us for the future, but we’ll continue to make good investments that we think have good returns, and continue to grow the business when we can, but do so with that financial mindset that we talked about at length over the last year.

The next question comes from Dan Perlin of RBC Capital Markets.

Thanks. Good evening and a great quarter. I just wanted to get clarity on the commentary around gross profit. I think you had said 65% to 70%, and then I think you were just kind of trying to clarify that you are going to be towards the mid to lower end of that range. So first, was that, I just wanted to clarify that. And then secondly, if that’s the case, maybe just remind us again why the material ramp, how confident you are in that – the second half of the year relative to the first half?

Yes, thanks Dan. So yes, that’s what we were thinking that the annual range will come in to the mid to the lower part of that range and it really comes down to the outperformance that we’ve seen across our travel verticals and our domestic transactions within our education vertical. That’s been an excellent revenue driver and excellent adjusted gross profit driver for the business. We do expect adjusted gross margins to come in higher in the second half of the year due to the cross-border education business, and as a result of the payment methods typically selected for those larger payments, we do get to enjoy higher adjusted gross margins towards the higher end of that range for that quarter, and we would expect that Q4 would be similar to Q1 and Q2 in numbers, rounding out to around that mid to low end of the range as communicated.

Okay, no, that’s super helpful. And then just a quick follow-up, in the education vertical, you were talking about the Canadian market, you signed five new district school boards, K-12. I’m just wondering – I oftentimes just think mostly of you in terms of universities and such. But in that example, it sounds like you’re making some really good inroads into the K-12 space. So I’m just wondering, are there investments that you’re making in that? Is that just a couple of examples you’re just trying to pull out specifically for this quarter or are there some real initiatives that you put behind it and you’re starting to see some good outcomes. Thank you.

So Dan, this is Rob. I’m happy to start this one off. You know I think we’ve always wanted to make sure people understood the breadth and the diversity of the education space, right? We’ve always talked about that diversity as not being just higher ed, but higher ed plus vocational, plus K-12, plus language schools, plus summer programs and other categories as well. We’ve also described it as a very global business, so there is that diversity and breadth that is part of the strength of the business. Now we do have as part of this go-to-market investment that I described for you earlier, initiatives against a number of these segments that are intended to allow us to accelerate. One in particular was to be able to do more around that sort of K-12 segment. It’s been a business of ours for some time, but by putting some more energy against it, looking to the opportunity to accelerate it, and I’d tell you that we’ve enjoyed success on that, not just in Canada, but in other parts of the world as well.

That’s great. Thank you.

Thanks Dan.

The next question comes from Andrew Bauch of SMBC Nikko.

Hey guys! A nice set of results here. I wanted to unpack one of the comments you had on the call Mike, that the pipeline that you see today is at 2x, where we were last year. So if you could just help us kind of dimensionalize where that is, I’d assume the bulk of it’s in education, but is there opportunities in the domestic side? Are you cross-selling at a higher rate or any way that we can kind of unpack that?

Yes, I would say that – you know I would say that growth is happening across all verticals, so that would be the first comment I would make. I would think that’s also coming from land and expand, which is the domestic strategy that we’ve highlighted numerous times, where we’re going from just doing cross-border services to expanding into more of our product offering in the education vertical; it’s also coming from there. And then I would just also highlight the mention I had earlier as well about pipeline strength and signs coming from overseas in the business from an ARR perspective. You know it’s truly a global business. It’s getting more and more global. As Rob said, it’s also diverse as you get into the industries and the subsectors within those industries, and so I would say all those factors are leading to that exceptional increase to pipeline and super excited about it for the future.

Yes, it’s a pretty exciting opportunity to have that level of visibility. And my follow-up was, I think you said you signed 20 of the WPM clients in the U.K. throughout the quarter or thus far through what, 8 or so months. But is this the kind of pace we can assume as far as the penetration of WPM? I think they have over 170 clients if I’m not mistaken. But just trying to understand if this is what we can kind of expect for that initiative?

Yes, you know I would say we’re super happy with obviously the success we’ve had. You know so I wouldn’t say that this is either massively ahead of pace or anything behind. I think it’s above our expectations, but I wouldn’t say it’s massively likely to accelerate or slow down. Our goal is to really get out there, continue to tell the story to these clients. They all ultimately need to make their own decision as to when it’s the right time to have the integrated offering. But the more case studies we get out there, the more clients that are talking about this integration, I think it’s going to lead to more and more of those U.K. clients seeing the benefit of the integrated solution, and the team is just doing a great job communicating that value to customers. So super excited about the results, you know beat our projections as to what we were thinking internally, but I think it’s a reasonable pace to continue, but nothing we’re putting in stone.

Got it. I appreciate the color and a nice set of results here.

Thanks again.

The next question comes from Darrin Peller of Wolfe Research.

Hey guys! Nice job today. When we look at the land and expand versus the new clients you’re adding, if you could just help us understand a little more of what you’re seeing there, and then maybe to add on to that, on a vertical-by-vertical basis, are you seeing any evidence and any change in behavior? It just doesn’t sound like there’s any macro changes, but any color would be great on specifically travel, but anything else you are seeing would be great.

You want that one Rob?

Sure, I can start off. So Darrin, you’ve heard us describe sort of land and expand has been pretty fundamental to our strategy. You heard us talk a lot about NRR and LTV to CAC. What I would tell you is that we continue to execute very successfully against that playbook. You know we’re not doing sort of quarter-by-quarter disclosure on NRR, but I can tell you that the NRR is coming in. It came in very strong for the quarter, once again above our three-year average and so we continue to do things like the case study that I described for this announcement for URI, similarly for University of Chicago. Both of those are pre-existing clients in other areas where they’ve chosen to expand their opportunity with us or their use of our solutions, so that’s sort of a big part of the Flywire playbook. We continue to do very well with that. Of course, I also mentioned a bunch of net new clients, so we’re continuing to sign up new clients very well and I also mentioned the 140-plus new clients for the quarter. So overall, land and expand, as well as net new clients continues to happen. You are asking in particular about travel and I think the context there or the highlights there are that travel is – obviously, it was particularly strong for us in the quarter. We called that out in our earlier comments. That would translate into both NRR for existing clients, very, very strong in the travel vertical, as well as being very pleased with the pace at which we are getting travel clients live and they are generating good revenue for us and payment volumes that are associated with that revenue.

Yes, the only thing I’d add on there Darrin is just you know if you look at travel, you know really encouraged. I mean we talked a lot at the Analyst Day about how we see opportunities for these vertical ecosystems and to do more for clients. I would say we feel even stronger about that opportunity in places like travel and then if there was a call out for travel, definitely, the team did an amazing job in Europe in particular, right? That definitely kind of came back and came back strong from a travel perspective as a trend.

Alright, that’s helpful. Thanks guys. Can we just revisit for a minute the deals you guys did, both of them actually. In terms of the magnitude of what you can see or the execution you can do on synergies on the top line synergies potentially? Maybe just each one of them would be great to hear more about. I know WPM has opportunities on the volume side shifting over, but I think there’s opportunities on both and I’d love to hear a little more if you can.

Yes, sure. So you know again, I’ll kind of remind folks what we had said at WPM. WPM was a business that was very much a platform and usage-based revenue. It was also a business that I would say was not run for high growth, right, but focused on clients and engagement of those clients and driving value. So the opportunity we see obviously as we’ve talked about before is monetizing that payment volume and we’ve said that we see multiple billions of dollars of payment volume sitting within that opportunity. And so again, that’s going to materialize over not only ‘22, but ‘23, ‘24 as we get the integrated solution live and as you start to see the full year effect of that volume come through, right. And so really great results with the number of clients who have signed up for that integrated solution, but those are going to get live and you’re going to see the full year effect, which is all great indications for medium and long-term growth at Flywire. On Cohort, again Mike I think was pretty clear as to what to expect through the end of this year. And again, I think if you can make the assumption that we believe both, that is an accretive business for us both on top line and bottom line like we said in the announcement, you know we feel really good about driving synergies there. We’re not doing these deals to cut; we’re doing these deals to grow and invest, right? That’s the type of businesses that we like and so it’s really around growth for us. And the other thing I’d highlight, Cohort is really around not only Asia Pacific but also those educational agents. We talked about that trend quite a lot at Analyst Day. It’s a major trend inside the education sector and so our education team and business coming together with the Cohort team, really put into it kind of an unmatched class in our opinion on the opportunity ahead of us. And so again, I think that’s going to all materialize over the medium and long term as well. Hopefully that helps.

That’s great. It does. I know – just to sneak one in, the FX impact expectations now versus prior, if you could just remind us real quick.

Sure. Mike, do you want that?

Sure. So as we disclosed in our most recent press release, we do have some FX headwinds predominantly around a couple of currencies. We’ve built that into our guidance for the full year and we’re talking about single to mid millions relative to the FX headwinds that we’re seeing for the full year, and that breaks up by quarter, relatively not material in Q1 at all and we’re just managing it. But our guidance does in fact assume that the existing currency conversions with these currencies remain stable, where they are today over the remaining period of 2022.

Yes, and I’ll highlight Darrin, obviously with those FX headwinds, if you didn’t have those, you would have seen even higher growth than was reported this quarter. So hopefully, that helps clear that up.

Yeah, absolutely. Thanks guys. I appreciate it.

Thank you. The next question comes from Ashwin Shirvaikar of Citi.

Thank you. Hey Mike, Rob, Mike! Good quarter here. Congratulations!

Thanks Ashwin.

Let me start – Hey! Let me start with maybe 3Q versus 4Q EBITDA. You know the last couple of years the 3Q EBITDA margin has been sort of in the 27%, 28% range. I know you mentioned a couple of moving parts there, you know including the upper part of the range for gross margins. Would the 27%, 28% range for EBITDA be kind of what one should expect? And I think the broader question there is, obviously that would imply that 3Q EBITDA contribution is greater than sort of full year contribution. Is that a pattern one should expect would dissipate, say in the next couple of years as we think of quarterly contribution?

This is Mike Ellis. So just to level set, I believe the 2021 adjusted EBITDA margin was closer to the 12% to 13% range. And what we’ve shared at Analyst Day, you know our initial guidance for 2022 was right around the 5% range for adjusted EBITDA, and we indicated that we think and feel confident based on our revenue profile and growth profile that we could add roughly 3% to 4% per year up until getting to a higher adjusted EBITDA percentage. We would expect at least in the short term that the revenue composition and the adjusted EBITDA composition that you’ve seen seasonally, historically, would continue on in the short term. We are – we did provide some level of guidance as it related to adjusted EBITDA that they will both be positive in Q3 and Q4, but I’d urge you to look at the seasonality that we’ve seen historically in Q3 and Q4 to level set those for your own modeling.

Okay, okay. No, I was just wondering with some of these acquisitions and mix changes with travel and B2B and so on and so forth growing, if that was going to change. The other question I had was payment method mix. Could you remind us sort of what it is today and how you would expect that to maybe evolve over time? I know that does have a bearing on where adjusted gross profit lands.

Yes, one thing I’d say on payment method mix, so we talked before, if you look at our broad set of volume, the vast majority of volume being bank transfer. So again that’s the history of the education business and the large sum of the transactions on that side of the business. What does happen throughout the year is you see different average transaction sizes, you also see different payment method mix by vertical, right? So you really have to be looking at that vertical mix for revenue and the payment mix that’s almost inherent in the transaction sizes and/or the industries, sometimes even the geographies that those payments are coming from. So again, the vast majority of transactions via bank methods, again, higher gross margin methods. But again, depending on that type of average transaction value, you could see a different mix of cards or even just the inherent choice of the payer will change the mix of cards or payment method, bank transfers or third-party payment methods within a given industry.

Yes, the only thing I would add – this is Mike Ellis, is that we’re really committed to driving adjusted gross profit growth. We’ll let the adjusted gross margin come where it is because we’re very confident in the unit economics across our payment methods and our payment types. But as Mike said, as payment method mix shift as well as you’ve seen in the prior two quarters, revenue from transactions really outpacing our platform and usage-based fee revenue, which is also a driver of this adjusted gross margin number that might be from the mid to the low end of the range for the full year. But still really healthy adjusted gross profit growth, which we’re very proud of.

If I can ask a quick clarification on that platform versus transaction, I was assuming some of that at least was a recovery from COVID trends, where transactions might have been lower. Is that fair?

Ashwin, I’m not sure I’m totally following that one. Can you just sort of ask us that one more time in terms of the trend that you’re trying to inquire about?

Yes, you know as Mike mentioned there, the transaction revenue growth has outpaced platform and usage growth by quite a bit, and I was assuming that at least one of the contributors to that was probably sort of a COVID recovery if you will, and I just wanted to confirm if that was true.

Ashwin, I think our view of this is that there’s obviously COVID dynamics that are coming into place in different geographies and different verticals. But overall, what you’re seeing here is just a strong recovery across all of our business units, right? You’re seeing that transaction volume grow across education, across travel, across B2B as well. So while we’re early in some of those segments, they are all growing very nicely. And perhaps there’s some interplay of COVID there, but it’s also a function of new client signings, our land and expand, all the things we’re doing to continue to grow the business in all of those clients.

Yes, I would just add Ashwin, you remember full year effect as well right. So when you end up seeing transaction volume growth, you may have only gotten a certain amount of transactions from a given account that was signed a year prior, right? So relatively low impact on in-year revenue, but also that’s driving transaction growth over time as well.

Understood. Got it guys. Thank you.

The next question comes from John Davis of Raymond James.

Good afternoon, everyone. Mike, you mentioned in your remarks that there is still some recovery to be expected in education. The figures you provided suggest there could be a 15% increase related to school attendance that hasn't materialized yet. Do you anticipate that most of this recovery will occur in the third quarter of this school year? I believe it will take several years, and if that's the case, it implies that your net revenue retention might exceed what it was in 2018 and 2019. Do you think there is still potential for recovery in the education sector?

Hey JD! I think you’re thinking about it the right way. We’ve always said and a lot of you have heard us say it a long time. we’ve always felt this is rolling recovery, right, and I think we even said into 2023, and that continues to play out as true, And to give you some more context on that, think within education right. You know universities in places like Australia and New Zealand didn’t fully recover just based on border policies; Japan was very similar. Certain parts of Southeast Asia, you also have countries, obviously Chinese students who may they had some pretty severe lockdowns that were a part of China. You have boarding schools and language programs which were hit harder inside education globally, just because people weren’t willing to take the risk of cross-border travel for maybe a young teenager or for a short-term class. So those are really a lot of the areas where we think there’s definitely going to be some carry through into ‘23. You know I think your assumptions on that size in my prepared remarks is right on. That will hit NRR, and I think it will help continue to drive really solid NRR numbers, but you know don’t think there’s a guaranteed snapback in Q3 or Q4. We think that’s going to roll into 2023 just based on the geographic peaks within a lot of these markets.

Okay, that’s super helpful. And then maybe one for Mike Ellis, just kind of circling back to some of the comments you made at Investor Day. If we look at – you guys outlined some kind of 300 to 600 basis points of annual margin expansion, but you guys were very clear at the beginning of this year that you kind of had a onetime step-up in some incremental investment. So is it fair to think as we kind of look out into ‘23, that you’re not going to have those repeat, therefore, I guess all else equal, you would see margin expansion kind of outsized in ‘23 from an EBITDA and profitability perspective or anything else that I’m not thinking about, but trying to foot those kind of onetime step-up in expenses and how should we think about the margin trajectory going forward?

Yes, I’m happy to take that. Thanks for the question. So, you know as we talked about during the Analyst Day, we’re very confident in being able to share that 3% to 6% per year type increase of adjusted EBITDA is what we’re signing up for. And from the standpoint of the investment year, we certainly made a significant investment coming out of COVID towards the end of ’21, which we’re feeling the full year impact in ‘22. I think both Rob and I shared roughly about a $50 million investment year, which we’re continually evaluating for ROI and ensuring that the ROI is there in every dollar that we deploy. It’s a very balanced and disciplined approach. We want to be really good stewards of shareholder capital. And I think when you think about moving into 2023, listen, we’re going to have some SOX compliance and implementation fees that are onetime related in 2022, which may carry over in ‘23, but we’re always looking for scaling and efficiencies within our business and we’ll continue to do that to drive long-term adjusted EBITDA.

Okay, I appreciate all the color. Thanks guys.

The next question comes from Joel Riechers of Trust Securities.

Hi Guys! This is Joel Riechers on for Andrew Jeffrey. I just had a question about Cohort Go, the acquisition. I was wondering if that’s a bit of a one-off or do you think that there’s a little bit more room for M&A in a fragmented market like education payments?

Yes, I appreciate the question. This is Mike. So I would say we’re always – you know we continue to have three – always looking for deals that we think fits our core strategy and thesis. You know M&A pillars we’ve talked about before. What can help accelerate an industry or geography, what can help drive NRR, give us additional capabilities or potentially a third pillar, expand into a new geography or a new industry. Those pillars remain the same. Obviously, our first two deals as a public company have been education-related. We’ll continue to look in all verticals. I don’t have in all honesty, a preference as to one industry or vertical over another. At the same time, we’re kind of picky. You know we want to find great culture fits and both Cohort Go and WPM were companies that we had known for a long time, we had tracked for a long time, we felt there was great opportunity to drive that next level of growth together and so I would expect us to do something similar, look for a great company, not only culture but technology and market opportunity. That’s really where we look for inorganic. And I would just highlight, you know we feel really good about our organic path ahead, right? So we don’t sit here saying, we need to do inorganic moves to keep growing this business, but we have the cash position to be able to do it.

That’s awesome, thank you. And then just a quick follow-up, are you guys able to provide any color as to what demand looks like for software solutions in healthcare for something like repayment plans and just whether or not you view that as structural or cyclical demand?

Yes, so the healthcare vertical continues to be a good one for us. We had a good Q2 in terms of ARR signings in Q2. I think the environment has become even more focusing for healthcare clients, because of both the sort of the financial pressures that they face, as well as the affordability and financial pressures that their patients face. So our software, you know one of its key benefits from the hospital perspective is that it is helping drive a higher collection rate and lower cost internally. You know they are having the same challenges hiring that lots of folks are, and they have a real imperative to try to automate and reduce costs. As you heard from my comments, we help drive self-service, we help drive patient satisfaction and very importantly, we ultimately help drive more collections. So as the climate remains challenging for healthcare providers in general, I think there’s – you know that’s a dynamic that makes our software even more valuable for them and so we continue to move forward well. We’re especially proud of the results that we deliver in the healthcare space. The ROI of what we do is really, really strong.

Thank you so much guys. And again, congrats on the quarter!

I appreciate that.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Mark Massaro for closing remarks.

I appreciate everyone’s time listening to our Q2, 2022 earnings call, and I’m sure we’ll be talking to many of you quite soon. Thanks very much.

Thank you. Ladies and gentlemen, that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.