Flywire Corp (FLYW) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Flywire Corporation's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Masha Kahn, Vice President of Investor Relations. Please go ahead.

Thank you and good afternoon. With us today, I'm Mike Massara, Chief Executive Officer, Rob Orgel, President, Chief Operating Officer, and Kazmin Pitigai, Chief Financial Officer. Our second quarter 2026 earnings press release, supplemental presentation, and when filed, Form 10Q are available at ir.flywire.com. Today's call is being recorded and will be available for replay on our website. During the call, we'll be discussing certain forward-looking information. Actual results could differ maturity from those contemplated by this statement. In addition, unless otherwise indicated, all financial measures discussed on this conference call are non-GAAP financial measures. Please refer to our press release and SDC filings for more information on the risks related to forward-looking statements and the required reconfiliations of non-GAAP financial measures. With that, I'll turn the call over to Mike Matara.

Thank you, Masha, and thank you to those joining us today. We are excited to announce yet another quarter of strong revenue and EBITDA growth, as well as momentum in the business continuing to build. Signed deals are getting bigger, and clients are replacing legacy providers and point solutions to consolidate onto Flywire. We will take you through the quarter in much more detail, but first I want to step back because I want stakeholders to see Flywire the way we do. We continue to deliver solid growth, and the quality of that growth is improving. We are converting incremental dollars of gross profit into durable earnings, expanding our free cash flow, and we believe we are well positioned to continue gaining market share. Let me explain why Flywire's moats and financial model don't just coexist, they compound, each getting stronger as we scale. You know the Flywire model. We go where others are unwilling or unable to go, embedding into complex, mission-critical workflows and solving payment challenges that are larger, more international, and far more difficult than simple checkout transactions. That complexity is our moat, and it deepens on its own. Rising regulation, expanding global flows, and deeper integration requirements are headwinds for simpler competitors and tailwinds for Flywire. Once deployed, we become critical infrastructure, with revenue churn across enterprise clients in education and travel below 1% as of 2025. So today, I also want to put our model into financial terms, what it means for revenue, margins, and cash flow over the next few years. At CEO, I am focused on three core metrics. First, revenue and gross profit dollar growth. On this foundation, we are aiming to achieve $1 billion of annual organic revenue within the next few years. Given the free cash flow this business is expected to generate, acquisitions remain an additional powerful lever. Our diversification engine underpins the path. Growth outside our traditional Big Four education markets continues to outpace the overall business. Differentiated software offerings like SFS driving domestic growth above and beyond Visa trends. Travel continues to perform well, and the payments modernization in our hospitality business is outperforming our expectations. And our smaller verticals, B2B and healthcare, are gaining scale and becoming growth contributors on their own. Second, EBITDA margin progression. We believe a 30% adjusted EBITDA margin is achievable over the next few years, With most of the expansion coming from operating leverage, we can already see in our expense base. The productivity gains from our transformation are real. They are improving both LTV to CAC and our cost to serve, proving that operating expenses can grow well below gross profit growth for longer. Scaling fast, organically, and through acquisitions naturally adds costs and friction across systems, vendors, and processes. We are consolidating that into a leaner foundation purpose built for the next phase of growth and scale. At the center of this is our payment platform investment. We are unifying systems onto a single modern payment architecture. And our digital transformation is re-architecting our internal operating system so that our people and AI agents can seamlessly work side by side to structurally lower our cost to Because these investments fundamentally change how work gets done, the operating leverage they create is durable. And third, multi-year free cash flow and gap earnings growth. Free cash flow generation and capital efficiency are central to long-term shareholder value. We remain highly committed to strong free cash flow conversion alongside continued discipline on stock-based compensation and dilution. Combined with a strong balance sheet, this cash flow generation is a powerful source of strategic flexibility. We can invest organically, repurchase shares, and stay opportunistic on M&A, all from a position of strength and all while growing free cash flow per share. Durable, gross profit growth, compounding earnings, and expanding free cash flow. That is how we intend to build shareholder value. But reaching our $1 billion annual organic revenue target requires high conviction and concentrated investment. Today, we are directing our capital into three core areas. First, gaining share and expanding our software mode. We are actively investing to expand our software and workflow capabilities across all verticals, such as investing in more functionality and integrations for SFS and taking our hospitality software from a historically U.S.-focused business into a global hospitality platform. Second, expanding our payments platform. As our volume scales, we are driving operational discipline to improve unit economics and strengthen our value proposition. Better corridor economics, deeper local banking relationships, and a cost per transaction that is expected to decline as we grow. Third, our digital transformation, a major priority in strengthening internal operations through data architecture investments, AI integration, and systems consolidation. This is designed to drive productivity and long-term operating leverage across the business. Cosbin will walk you through the rigorous financial framework we use to evaluate these organic investments alongside our broader capital allocation and share repurchase strategy. Our ability to confidently execute this capital strategy stems directly from our resilience in the market. Our team continues to deliver in an uncertain macro environment. What matters most is that clients are seeing ROI from consolidating their payment flows on Flywire. Some clients need help to grow, while others are automating to reduce costs. Across all market conditions, that value Flywire delivers speaks for itself, and interest in our solutions continues to grow, both in markets that are under pressure and those that benefit from higher numbers of international students. Let me be direct about the current environment. The macro backdrop remains challenging. We see recent negative trends in UK visas, Australia has raised visa fees again, and regulations in both the US and the UK have become more stringent. Enterprise sales cycles are long, and large healthcare deals like Cleveland Clinic can boost growth one year and create a tough cut the next. But here's what really matters. The Flywire business is vertically diverse, geographically diverse, and has multiple product growth levers. This means we can navigate challenging macro conditions while hitting the framework I just described. We don't need conditions to improve to build a business with $1 billion in an annual organic revenue with 30% margins. And in some ways, the industry pressure works in our favor. When institutions face cost and volume pressure, the case for automating manual payment flows gets stronger, not weaker. When they consider choosing a partner for the future, they look to companies that are innovating, growing, and financially strong. Ultimately, Flywire is succeeding on the strength of our business not because of easy market conditions let me now shift to ai and how it is becoming an enabler for flywire ai increases the value of whoever owns the workflow and the data and we own both this quarter i want to show you how this thesis is playing out in delivering real results not projections about 45 of customer inquiries now resolve automatically without human intervention And with the support platform adopting generative AI across chat, email, and phone, we are targeting over 50% auto resolution rate by the end of the year. More broadly, AI is embedded across Flywire's engineering and product teams with frontier models, shared best practices, strong governance, and autonomous agents handling tasks like code retirement, conflict resolution, bug fixing, and test maintenance. This allows our teams to focus on building new products, making digital transformation a fundamental shift in how work gets done, not just a cost-saving initiative. And AI is transforming our go-to-market as well. Enablement is now always on. AI captures winning tactics from live client conversations and delivers them as continuous coaching, cutting new hire ramp times and scaling the Flywire way without additional management overhead. In closing, none of this happens without our Flymates. We recently completed our company-wide engagement survey called Flyover and the results were strongly positive. Our teams are embracing AI and the productivity it unlocks and they tell us they feel more creative and more energized in their work. Ultimately, transformations succeed when people lean into them. Flymates are doing this, and that kind of organizational momentum is rare. Flywire is a great business with a powerful financial model and an exceptional team, and we are built to keep getting stronger. With that, I will hand it over to Rob to take you through more details on the execution from the quarter. Rob?

Thanks, Mike. Q2 results continue to reinforce the fact that our modern product portfolio is widening our competitive moat, and we are systematically taking share from traditional payment processors and point solution providers across every vertical we serve. We signed over 200 new clients across 45 countries and all verticals the second consecutive quarter at that level. Signed ARR continues to benefit from existing client land and expand, as well as larger average deal sizes. Travel led the new client count, followed by education, and we are very excited about the pace of signings, even as we deliberately move towards larger, more strategic engagements. Last quarter, I laid out three themes defining our business, strategic vendor consolidation, geographic diversification, and software-led monetization. Those weren't one quarter observations. They're structural growth drivers. So today, I want to walk you through how each of these three themes is driving consistent results. Starting with strategic vendor consolidation, our client conversations typically start in the same place. We hear about too many vendors, too many manual workflows, too much payment complexity. And a great many of those conversations and in the same great place. Consolidation onto Flywire. As an example, the University of Liverpool has signed for our SFS platform in the UK, a win that showcases the full value of the suite. Liverpool has everything that makes student finance hard. A large international enrollment paying from dozens of countries, domestic students on plans, parent access requirements, refunds, hardship cases, and more, all running through manual processes and a patchwork of systems. We're consolidating that onto one platform. For students and families, a modern portal with real-time balances, authorized parent access, and self-service payment plans. For the university, a real-time integration with their Unit 4 ERP that will eliminate many hours of manual posting work, reduce merchant fees and give their finance team a unified automated view of student financial activity. We continue to see strong interest in SFS in the UK. In the US, we signed three new SFS deals this quarter with an ARR value double the signings in the same quarter of 2025 and our pipeline continues to build. When an institution is genuinely ready to switch providers, we believe we win those opportunities with SFS far more than our competitors. What's driving these wins is ROI institutions can measure. SFS pays for itself across three dimensions. First, operational efficiency. Automating billing, payment plans, and past due outreach has reduced inbound student contact volume, in some cases by 40%, letting school student finance teams run leaner even as enrollment complexity grows. Second, cash flow. Self-service payment plans have driven roughly 50% higher plan enrollment, with default rates falling from as high as 34% to below 2%. And third, revenue recovery, a solution we pioneered. Our clients have now collected more than 360 million dollars in past due tuition in-house saving over 70 million dollars in agency fees and for many institutions the roi is highly attractive compared to the license fees they pay flywire that is the essence of consolidation one billing to collection platform replacing a billing vendor a payment plan vendor and a collection agency and paying for itself in the process Shifting to experiential travel, our deal sizes are rising as travel groups merge and migrate more of their entities onto flywire rails. Again, consolidation working in our favor. Win rates continue to improve, our brand carries real weight in this market, and the TAM remains largely unpenetrated across golf, hiking, cycling, and many other luxury experiences. The second theme is geographic diversification, and we drove strong growth outside our traditional Big Four markets of the U.S., U.K., Canada, and Australia. We saw education revenue grow outside those markets by over 30% year-over-year in Q2, and approximately two-thirds of the new education clients we signed were in growth markets outside the Big Four. In Europe, international students continue to diversify destination markets, and European universities are responding. Some are introducing more English language programs, and some are charging higher fees. We are particularly happy to see strong share gains in Spain and Switzerland and continued strong momentum in the private K-12 segment. We are positioning Flywire to benefit from trends favoring student and tuition growth in continental Europe. In Asia, we are executing well in markets that are opening up to international students. South Korea and Japan are actively courting international enrollment to help address shrinking domestic workforces. We are winning there. This quarter, we went live with a number of prestigious universities in both countries, and our regional pipeline continues to build. Wrapping up my comments on why we win in global education. In Canada and Australia, where the broader markets remain under policy pressure, our growth is powered by share gains. This quarter, we started processing payments for Sheridan, a major Canadian college where international students make up over 8,000 of roughly 20,000 enrolled. And for Bond University, Australia's first private non-profit university, a prestigious Gold Coast institution with one of the highest international student ratios in the country. Wins like these in constrained markets are the clearest evidence of our share gains. Finally, speaking to our software-led monetization, our software-led approach has been a key catalyst for capturing and monetizing payment volume. It's at the heart of Flywire doing what others can't. Our hospitality software, which is used across over 20,000 properties, streamlines workflows, and where it's combined with our payments offerings, replaces costly and insecure manual card processing with customer-initiated payments such as ACH, card surcharging, and local methods, along with providing enhanced security from capabilities like 3D Secure. The results are striking. Payment fees drop meaningfully, in some cases by more than half, and win rates on disputed transactions more than double. Our ideal hospitality customers are luxury resorts and properties managing high-value stays and complex events. Notable recent wins include contracts with large hotel management groups, such as Peregrine Hospitality, Avion Hospitality, and Marcus Hotels and Resorts, each of which owns or manages a portfolio of hotels and resorts great for our hospitality solutions. Having proven the model in the U.S., we've signed more than 40 locations across Europe and Asia year-to-date, and we believe we are just getting started. In education, as we deepen the software layer around our payments platform, clients are renewing for longer terms and on economics increasingly favorable to us because the software has become embedded in how they operate. We see this dynamic of longer and better terms compounding over time as we continue to deliver for our clients. We're seeing software-led monetization work across our other verticals, too. In healthcare, the patient financial experience platform is now live with payment processing across multiple clients, including additional go-lives in Q2, a good example of software attaching to payment processing. In B2B, we replaced the legacy pattern, invoicing out of the ERP, payments through the bank, and heavily manual workflows with a single invoice to cash platform from Flywire. What is most exciting right now is our velocity and depth of capture. Increasingly, new B2B clients are adopting both our invoice software and payments from day one. This quarter's wins show the breadth of demand. A digital asset management company automating its AR operation, a wealth management firm signing for the full suite of invoice plus payments, and an international insurer collecting premiums globally. All serving finance teams drowning in manual work for whom a unified AR and payments platform is an immediate measurable efficiency gain. Those three themes, consolidation, diversification, software-led monetization, aren't just how Q2 played out. They're how we expect this business to build for years. Kozman will now take you through the strong financial performance this quarter and future outlook. Kozman? Thank you, Rob.

I will cover our financial performance for Q2 2026, discuss our capital allocation philosophy, and provide our updated full-year outlook and additional details behind the longer-term ambitions. Q2 performance trend underscores the resilience of our diversified portfolio, with results coming in ahead of expectations. Total revenue list ancillary services reached $164 million, up over 28% on a spot basis, and 27% FX-neutral growth. Our outperformance versus the midpoint of our guide on an FX-neutral basis was largely driven by our travel segment, which continues to pace ahead of our expectations. This strength was specifically fueled by hospitality payments seeing a strong ramp. Our education revenues were also ahead of expectations. The stronger-than-expected payment processing volumes from healthcare alongside our B2B invoice migration drove an approximately seven-point growth tailwind to payment processing in Q2, ahead of the mid-single-digit impact we guided to. We expect this payment ramp to decelerate in second half as we annualize these revenue streams go live. Transaction revenue was $135.9 million, up 35% year-over-year. This was driven by 43% growth in transaction payment volume with continued contribution from education, both cross-border and domestic, as well as travel. As a reminder, quarter-to-quarter blended yield can vary with mix, especially as domestic payments ramp up. Higher domestic volumes and greater credit card penetration carry different economics than cross-border flows. On a like-for-like basis, pricing remains stable and competitive behavior continues to be disciplined. Our spreads reflect the value we deliver. Compliance, reconciliation, ERP integration, and enterprise-grade infrastructure, not commodity payment processing. Platform and other revenues were $28 million, up 3% year-over-year, primarily driven by growth and hospitality. Adjusted gross profit reached $93 million, increasing 19% year-over-year at spot. Importantly, this 19% gross profit dollar growth is successfully converting into adjusted EBITDA margin expansion, demonstrating real operating leverage. Adjusted EBITDA was $24 million, resulting in a 14.6% margin and expanding approximately 160 bps year-over-year, which was above the upper end of our guide. The strength in adjusted EBITDA reflects gross profit growth and continued operating leverage across every expense category our adjusted gross margin of 56.6 percent was down by approximately 450 basis points margin dynamics are driven by three factors mix fx and temporary large payment processing ramps not competitive fresher this quarter the margin change was primarily driven by approximately 300 basis points from the mixed contribution of higher payment processing revenues from healthcare and B2B that began ramping in the second half of 2025. The balance of the margin change was due to continued vertical mix shifts. Effects on settlement impact in Q2 was $0.7 million on an absolute basis, but we did benefit from a favorable year-over-year comparison given the headwind we experienced in Q2 2025. Excluding the approximately 300 basis points from this ramp activity, our normalized gross margin decline would have been around 150 basis points, which is squarely within our expected normal annual range of 100 to 200 basis point decline. We emphasize that these current ramp dynamics are temporary and will be largely complete by the end of 2026. In Q2, we had a gap net loss of $8 million, improving versus a $12 million loss a year ago. The second quarter is our smallest revenue quarter, with net income and free cash flow generation seasonally depressed and expected to reverse in Q3, and both be strongly positive for the full year. Turning to capital allocation, we are disciplined allocators. Every dollar competes on expected return through an IRR framework that weighs organic investment, share repurchases, and M&A against one another. That is why we repurchase shares aggressively into this location and why organic investment is concentrated in our highest conviction areas and why we remain patient on M&A. Our balance sheet remains strong with approximately $167 million in corporate cash giving us significant financial flexibility to remain opportunistic manage dilution pursue acquisitions while continuing to invest in the business moving to guidance we are raising both revenue and ebitda guidance for the full year 2026. we now expect 21 to 27 percent fx neutral revenue growth with approximately three to four points from payment processing ramps in B2B and healthcare and roughly one and a half points of inorganic contribution as we lab certify. Full year 2026 adjusted gross profit is expected to grow at high teens year over year at spot. We expect approximately 200 to 400 basis points of full year EBITDA margin expansion, reaching approximately 23% at the midpoint. Stock-based compensation remains targeted at approximately 10% of revenue, and we are aiming to reduce our new stock issuance in dollar terms every year. Alongside this, we continue managing growth and net dilution in a disciplined manner, targeting less than 2% dilution this year and less than 3% on an ongoing basis. Furthermore, we maintain our expectations of free cash flow conversion of 70 to 75 percent of adjusted EBITDA and upgrade our expectations for GAAP net income to grow fourfold this year to over $50 million. Our Q2 performance, combined with more upside from payment-related product ramps through remainder of the year leads to upgraded full year 2026 guidance despite our more conscious assumptions around education revenues. Before I walk through the details, let me flag the shape of the growth from here. Several of our newer revenue streams are ramping faster than we planned this year. Payment processing in both B2B and healthcare and certified domestic payment processing, which is accelerating ahead of our expectations. That's a good problem. These investments are converting sooner than we modeled. This has two consequences worth setting up front. First, this accelerated ramp makes 2026 a stronger revenue base, which creates a tougher comparison as we move through the second half and into next year. Separately, and as we assumed coming into the year, we expect UK education revenue growth to slow. That's already baked into our outlook. Second, because these streams carry lower gross margins than our blended average, full-year gross margin decline would be higher than the range we previously discussed. Closer to 350 basis points on a reported basis and closer to 200 if normalized for the current payment ramps in healthcare and B2B. Let me be clear on that second point because it matters. These ramps pressure gross margin, but not EBITDA. The pressure is pure mix. Processing volume carries the lower gross margin rate, but very little incremental optics because it runs over infrastructure and relationships we already have. So every gross profit dollar converts to EBITDA at a high rate. Q3 2026 guidance. Our approach to guidance hasn't changed. prudent, transparent, and data dependent. Visibility into the peak is always relatively limited at this point in the year, so we've talked to agents and to our clients, but we don't take that input at face value. In the U.S., they expect decline, but are more optimistic on average than our assumptions, and we've held to a 30% visa decline. In the UK, we are seeing higher visa rejection rates in Q1, and we've baked that in. In both cases, we weigh what we hear against what we're seeing in our own data, and we've set our assumptions from there. For Q3 2026, we expect FX neutral revenue growth of 16 to 22 percent year-over-year. At current spot rates, we anticipate almost no FX tailwind. Gross profit dollar growth is expected in the low teens range at spot rates, including an estimated one-point headwind from FX1 settlement year-over-year dynamics. Adjusted EBITDA margin is expected to expand by approximately 200 basis points year-over-year at the midpoint of our guidance. One timing dynamic on the Q3 versus Q4 split. A meaningful share of our education volume settles around UK deadlines in early October, right as the Chinese national holidays fall in late September and early October. Payers heading off for the holiday may settle ahead of that deadline, pulling volume that would land in Q4 forward into Q3. That moved roughly two points of growth from Q4 to Q3 last year. That cuts both ways in this year's comparisons. Q3 is lapping a quarter elevated by that pull forward, while Q4 is lapping a base reduced by it. So Q4 year-over-year growth rate will look better than the underlying trend, and Q3 is worse, assuming no repeat of the Chinese payer behavior this year. Holiday timing differs slightly this year, and payer behavior is hard to predict. Either way, the cleaner read is to look at our performance for the second half as a whole. In closing, as we scale toward our $1 billion in revenue and 30% adjusted EBITDA margin goal over the next few years, we're focused on structural operating leverage. Transformation investment peaks in 2027, with material savings expected to come through thereafter. So, we expect operating costs to stay roughly flat beyond that, whilst continuing to invest in strategic priorities. Investments in consolidating platforms, scaling data, AI, systems, and automation are already boosting engineering and sales output, letting us streamline R&D, optimize sales and marketing, and redeploy savings into growth priorities and AI-enabling architecture. Even through this planned peak investment period, we have contained OPEX growth. and we are now targeting approximately 25% adjusted EBITDA margin by 2027. In closing, Q2 demonstrated the durability of our diversified platform and the scalability of our operating model. We are managing for a specific outcome, durable, profitable growth in an environment where top-line growth is normalizing. And here's what gives us confidence. operating leverage compounds independent of the top line cycle so even as revenue growth moderates and we do expect it to the algorithm holds the combination of growth and profitability we deliver stays firmly in the range this business has always targeted that is the promise of our digital transformation margin expansion that holds the scale through the cycle quarter after quarter Along with our flymates embracing our vision, I am very excited about what we're building and how far it lets us scale. I'll now turn it back to the operator for questions. Operator?

As a reminder, if you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again.

Our first question comes from Nate Svensson with Deutsche Bank. hey guys nice results um i think i'll start off just asking about the international visa situation in the u.s i know there's been a lot of proposals and news articles written on on potential new regulations so wondering from your perspective probability of any of these proposals going through and sort of any um i guess concerns that this could create some demand destruction similar to what we saw in other geographies um and then i think more broadly speaking still feels like the 30% visa reduction looks conservative, but I know we're kind of right in the heart of the most important months here for F1 visa issuances. So I'm wondering if you'd give any color that you have either from your end clients or some of the third parties that you work with on what's going on in the U.S.

Hey, Nate, it's Mike. Yeah, I mean, as you mentioned, I'll start and I'll let Cosman talk a little more of the specifics around what's in the guide. You know, obviously, you're seeing various headlines around the world continue. And again, I think that's part of the reason coming off last year, we've kind of taken the prudent approach to how we look at this and looking at it by region and by market. And so, again, a lot of these are exactly what you said. They're statements. They're proposed policies. They're not, you know, kind of approved policies. They're not in place. And historically, we've seen the headlines, you know, oftentimes be a lot worse than the actual end results. And so, you know, again, we're being prudent. Cosmin, I think, has taken that into account in the way in which She looks at different regions in the guide, and I'll let him comment on that.

Yeah, so I think, as you said, Nate, we've always looked at it taking a prudent approach with that 30% decline, and we're about a month into the quarter, so we do have some visibility into the overall trends. As you know, usually U.S. peaks around August, and so we do have some visibility into that, but I feel pretty good that we've taken the right prudent approach. And look, it's a multi-year thing that we look at, you know, so I feel good that we've taken a pretty good approach in terms of being prudent around the U.S. assumptions.

Yep, agreed and appreciate the color. For a follow-up, I wanted to ask on the three new U.S. SFS signings, specifically on the commentary that they came in at double the ARR of the prior year quarter. So I wonder if you could talk about the ARR portion of that specifically and what's kind of driving the strong year-over-year expansion I assume a lot of it is kind of the land and expand strategy that you've talked about before, anything on pricing, and then maybe beyond the recent deal signings, kind of how sustainable do you think the growth in ARR with these SFS wins is going forward?

Yeah, this is Rob. I'll jump in here. Obviously, we're excited about the progress we've made here. You called it outright in what we called out in the comments with the doubling of ARR for those U.S. deals. You know, it's all part of the strategy, right? We are focused on full suite deals. We are focused on enterprise. We are doing what we think is the right things to do to make sure we are putting a very skilled and expert sales team in the field to deliver this kind of enterprise quality deal. And further, I think our name is getting better and better in the market, right, as we've delivered for some of the logos and institutions that you've heard us talk about on previous calls. It's a very connected industry where people talk to each other, and our name is very good out there.

Thanks, Rob.

So in terms of confidence going forward, I feel very good about sort of the second half quality of pipeline and what we expect to see for the rest of the year.

Yeah, makes sense. Congrats again.

Our next question comes from Dan Perlin with RBC Capital Markets.

Thanks. Good results here. I just wanted to ask, Mike, about kind of the mix of what you envision this billion dollars of organic revenue to look like as you think about, you know, education, travel, B2B, health care. Like, how do you think that will change through the course of this, I guess, multi-year strategy? And obviously, Cosman gave some financial implications for this, but I'm just wondering how you think that might look.

Yeah. Hey, Dan. Thanks for the question. You know, I would say, you know, think of the themes that have driven our growth so far, right? I mean, you've seen great growth in, you know, we've called it out in travel and in B2B. Like, we expect those trends to continue. At the same time, you know, the education business continues to perform well. We continue to layer in software there. You know, and, you know, I would say that kind of fits into where we kind of expect it to go, right? Think of more software in education to get continued growth in the travel and B2B segments in particular. And I'd really say it goes there. Obviously, the hospitality expansion internationally is a key part of that that we expect to have a multi-year effect. And so I would say those are kind of the organic levers that we expect to kind of play out. And you may see a slight mid-shift, but I would say it's pretty consistent with what you've seen in the last few years.

Okay, that's great. And then just going back to the geographic diversification here again, you know the education markets that are outside the big four grew 30 percent this quarter there was 40 last quarter it's 30 before that so it's continuing to materially outpace everything and then i heard um like japan and south korea like actively looking for students so i'm just trying to get a sense of how big that market is is um today in terms of its overall mix and obviously that's a positive mix shift in terms of incremental growth that you're not having to deal with so much of the regulatory issues. So just anything around that would be helpful. Thank you.

Yeah, yeah, I can jump in, Rob, here. So I think we've called out previously that sort of that way of segmenting that we're talking about the business is sort of low teams percentage of 2025 revenue. As you called out, we saw 30% growth in that beyond the big four education in this most recent quarter. I made a trip to the region just a little bit ago, and you really feel sort of the opportunity that we have there. I got to visit a number of institutions, got to hear from them the manner in which Flywire really can solve problems that are front and center for them. And so you see them adapting to the interest in those regions of international students to come to them, and you see us adapting our solutions to be able to serve them well.

That's great. Thanks, Rob.

Our next question comes from Madison Sur with Raymond James. hey good afternoon guys appreciate you taking the questions i want to start on the uk obviously it's a key market for you guys comprises about a quarter of revenue i know visa trends have been challenged but can you maybe touch on where you see the most opportunity in the region whether that's domestic cross sell sfs penetration and do you think the region could still grow kind of above company growth rates uh for the year despite some of these visa headwinds uh maybe i'll start just on the assumptions in the guide, and I'll pass it to Rob to talk a bit more.

So, yes, UK, the macro backdrop, clearly softened, so we thought it was obviously prudent to adjust our visa assumptions. And so we're assuming that if you think about it roughly in the last couple of years, you know, we've seen UK visa declines in the, you know, mid-teens, and so we're assuming roughly, you know, a bigger decline than that. However, with that, we're still assuming that, you know, the U.K. remains an important growth driver for us, even though we're assuming deceleration into the second half, you know, from the U.K. because of, again, some of the – many of the levers that we've talked about before. Also because, you know, again, the visa declines are – right now the quarter to date that you've seen is, you know, it's a small sample size. So, you know, feel good from what we've heard from, you know, on the ground, but we're taking a prudent approach. approach. So maybe I'll let Rob talk a little bit about the drivers and the levers we have in the market.

Yeah, in terms of the market opportunity, we feel really good about our positioning in the UK. If you remember from some of my comments on prior calls, we've talked about the desire to sort of move all the money on behalf of our clients and having two main mechanisms or levers that we can use to accomplish that result. So one of the ways we talk about it is the number of clients where we see ourselves moving 90% or more of their money using sort of our internal method, our internal methodology for all that. We previously shared we had approximately 12 in that category. We continue to grow that number. We call that number about 20 now. Second big dimension is growth in SFS footprint inside the country. Obviously, our attach rate is still very low and we're working to build that. And one of the main things we're doing and making very good progress with is increasing the number of integrations that we have into what are the core systems that serve the university community there. And so you've heard us call out, you know, progress with Unit 4, with Oracle. We certainly talk about our work with Tribal. All of that is part of the ability to expand there. And as the U.K. schools see us being successful with their peers, they are that much more inclined to work with us.

Okay, great. And then I want to follow up on the non-Big Four region as well. You know, obviously, it sounds like the near-term focus is more on winning clients, you know, that have a healthy level of international student enrollment, but just as we think about the longer-term opportunity there, do you think you have a similar ability to cross-sell adjacent products into that region? And I'm really just trying to get a sense of, you know, for the non-Big Four specifically, what can drive NRR growth in that region over time?

Hey, Madison, this is Mike. You know, I think if you look at our other offerings in the education suite, we've always had global aspirations for those. And I think we continue to have them. I think, you know, what we see in a lot of international markets is part of a readiness question, right, is, you know, you'll see whether it's the student information systems, you know, whether it's, you know, the partnerships, the integrations needed, you know, oftentimes we're digitizing that payment experience. and that is significant for them. When they think of like a full student account portal and like the software you would see here in the United States or in a major market, they're not quite ready for that yet. So we'll be opportunistic whenever we see those opportunities. But also it's a huge opportunity in the top four markets. So our focus is on that. It's on executing there. But we see opportunity for a lot of our product suite outside of the top four as well, just over that kind of longer term horizon.

Okay, I appreciate you taking the questions.

Our next question comes from Michael Infante with Morgan Stanley.

Yeah, hi, guys. Thanks for taking my question. I wanted to ask a bigger question to contextualize the multi-year SFS opportunity and how you expect unit economics to evolve. You've obviously spoken in the past about SFS being a real multiplier effect to both revenue and gross profit. But at the same time, you know, the mix is obviously shifting more towards domestic volumes, carry structurally lower yields than cross-border. So I'm just curious how you think about, you know, the offsets to that mix shift on a relative basis and how much incremental volume you really think you can capture with SFS and really what it looks like over the next few years as you march towards that billion-dollar revenue target.

Yeah, hey, Michael, it's Mike, and then I'll hand it over to Cosmo to double-click on the number. So, you know, think of it at this level of, you know, the kind of gross margin mix being a positive, right? It is a mix, like you said, of software and domestic, but it still blends to something that, you know, is very good for Flywire and helpful in kind of maintaining strong gross margins. You know, I would also say, you know, think through the dynamic that we mentioned on the call as well around over time we're seeing our economics actually improve in SFS over time, right? And so you're seeing average deal size go up. You're seeing renewals be strong. Those are both things that to us are very, very strong positives. And ultimately, when you get SFS, you get all the volume, right? You are dealing with all the domestic, all the cross-border volume going through one platform. So that is a core part of the strategy. That is how we think we're maximizing value for our clients. And I'll let Cosman double-click on the financial profile.

Yeah, so in terms of the numbers, just one disclosure we have around the size of the business. The domestic business in the U.S. is about a third overall, is what we've said. And think of that in terms of revenue growth as above company average in general. It's been there. Given what you heard from Rob as far as SFS success, we expect that third of the U.S. business to continue growing faster. And that's one of the reasons why we're able to see and guide U.S. education revenue to grow in the low single digits this year, given the pressure on the cross-border side. So, really strong growth there from the domestic side. And, yes, in terms of the gross margin, still very positive. And, again, once you move from cross-border to domestic, you get more of the payment plans. You get softer, as Mike said. So there's a good, still a solid 2 to 3x kind of gross profit dollar increase, which, and again, runs over the same kind of cost rails for us. So as you heard me talk about, that's a strong EBITDA dollar flow through from that because it is on existing clients and existing relationships.

That now makes a ton of sense. And just a quick housekeeping follow-up on Madison's question just on the U.K. revenue growth. I think you guys removed that commentary in the presentation about the UK and EMEA growing at or above company average. I guess, should we be assuming that UK revenue growth is, you know, diluted to the aggregate business this year? And if so, you know, by how much, right? Like the visa expectation was obviously reduced marginally, but, you know, that's obviously, you know, your deepest SFS in domestic payments markets. I'm just trying to contextualize that dynamic. Thank you, guys.

Yeah, so at least the way I think about the U.K. is, you know, decelerates into the second half given these assumptions. And, again, this is us taking a prudent view. We'll still have a lot of the quarter to go, and we'll update you there. But, yes, it is assumed that U.K. would at least exit at a lower rate than the overall company. And then I would just, again, remind you we're taking a prudent approach and second that, you know, we have SFS and other levers there that give us confidence that long-term we'll continue to gain share. And again, you heard some of the stats from Rob around our ability to gain more of those types of 90% full client. So again, it's all in the guide. And again, that's overall taking a prudent approach to the overall guide.

Thanks, Kazmin.

Our next question comes from Chris Kennedy with William Blair.

Yeah, good afternoon. Thanks for taking the question. Cosmin, you mentioned the stronger revenue guidance this year may create a more difficult comp as we get into 2027. I know you're not going to give official guidance, but any way to think about some of the growth dynamics as we get into 2027? Yeah, I think generally, as always, around this time of halfway through the year, you can look at exit rates. I think given some of the dynamics I talked about in terms of timing, I think looking at second half, and so that is sort of a high-teens kind of FX-neutral growth rate, but then if you kind of take out the sort of call it two to three points or call it closer to three points or so of payment processing ramps that I talked about in the second half, you get closer to a kind of normalized for payment ramps of roughly in the mid-teens, And that's kind of how you tie back to also kind of a normalized gross margin decline comment into next year. And then the only thing I would add to that is just remember that this year, Q1 was extremely strong. We had, you know, not obviously with organic and inorganic piece, but then we had, you know, a mid-single-digit tailwind and really strong performance from EDU in Q1. So that's the other component to think about. So hopefully those help kind of, again, still early, and we're not yet guiding into next year, but those comments should help kind of directionally start you for next year. Great. Thanks for that. And then can you give any more color on your K-12 business and kind of compare and contrast that relative to higher ed? Thanks for taking the questions.

Yeah, hey, Chris. Rob here. So K-12 has been a long-term segment for us. It's not a new thing that we talk about pursuing. What has been interesting is that around the world, there are interesting pockets, interesting markets, where we may not previously have pursued that, and we are now going ahead and doing that. It's all part of what you would call under the umbrella of sort of diversifying international mobility, and we are making sure that our sales team is looking out for those opportunities, and we're seeing ourselves winning good ones. Thanks, guys.

Thanks, Chris. The next question comes from Tianzin Wong with J.P. Morgan.

Hey, thanks so much. You went through a lot here. I just wanted to ask on just thinking about your expense space and visibility there, given what you talked about, for example, in your prepared remarks on AI, and then you have the scaling efforts beyond the big four, you're scaling SFS.

I'm just curious, is there any change in your visibility on expenses, especially given AI, inference costs, maybe some of your productivity of people, that kind of thing? yeah thanks engine um yeah we i think you know we've obviously gained quite a bit of you know better visibility into our our optics as as we've you know dug deeper in the last over the last few years as we've gone through a lot of transformation i think think of you know the improvements from the transformation the investments as benefiting sort of three three different components of the business one is just the individual fly mate you know once you hand them a lot of these ai tools i I think everyone is individually more productive. And then functions and enterprise. So functions are becoming more productive. We give you examples all the time around client service. But sales and marketing, risk, operations, payments, I mean certainly the engineering team all have access to the latest kind of LLMs and most of the code is being written through that. So it's a good share of that. And then obviously GNA, we're watching the opportunity to reduce manual work. So all those things are benefiting along the way. And so, you know, we haven't had any surprises as far as OPEX, and so we feel pretty good that, you know, we, again, this year is up kind of in the mid to low single digits. Next year, as you kind of look at the implied, it'll be in the low to mid single digit growth. And then, again, based on what you heard from my prepared remarks, expect it to be relatively flat, and we feel quite good about that just given the visibility and the cost base and the improvements on the transformation side, which really hit on the enterprise-level opportunities for us to be more efficient across the whole enterprise, which is quite unique, I think, for us in terms of the approach to transformation.

That's great, Cosmin. Thanks for that. I think you said, real quick, just on the M&A front, it sounds like you're still being patient there. I'm just curious if that's an appetite thing or resourcing or maybe a valuation-driven patients, any other traditional color.

Yeah, hey, it's Mike. You know, I think, you know, we continue to like to see the organic investment opportunities we have in front of us. You know, I would say from a capital allocation perspective, if there's a chance to buy back our stock, we still think there's some dislocation there. And so think of us as being very active but also knowing we have two deals that we're continuing to integrate and want to make sure they go well. So our team is still paying attention quite well to what's out there in the market and we have to find the right balance of something that fits our strategy, something that is, we believe, good for shareholders and also something that we think is priced at a reasonable rate that makes it interesting and exciting for us. And I think, you know, you still see some of that private-public dislocation evaluation. So being patient, but, again, don't think we're missing out on anything right now.

Okay. Thank you all for the update.

Our next question comes from Jeff Cantwell with Seaport Research.

Hey, thanks, guys. I wanted to ask you about the future $1 billion in revenue and 30% adjusted EBITDA margins. Those numbers both are positive here. So as you think ahead, can you maybe help us out on the timing? I mean, do you see that happening perhaps in two or maybe three years, for example? Just trying to get a feel for that because if current trends hold, it seems like those potentially could happen sooner rather than later. And just to underline what Dan asked about, are there any particular call-outs from a vertical standpoint as you think about the 1 billion target in particular? It seems like certifying core travel will be doing well for a decent amount of time. So I'm curious if that's the reason for the confidence in this 1 billion target. Are you able to talk more about that?

Yeah, thanks. So, yeah, we're obviously very excited about this milestone, and since it's coming closer into our sites as part of our normal sort of planning cycle, think of it as our normal three-year planning cycle, we didn't want to put a date, you know, out there, a specific fiscal year, think of it less as a kind of point in time, more of a, you know, a milestone and moving through it. But, you know, I think one way to think about it is, you know, listen, we've given you also roughly 25% EBITDA margins into next year, so that gives you some level of a stepping stone. And so, you know, I think in terms of the mix, you know, we may get to a sustainable annualized run rate of the revenue or the margin at different points in time around that sort of the three-year planning, whether that's, you know, 12 months around that. You know, we're not too stressed about that. We feel good about this overall number. And, again, remember, you know, it's taken the same approach with this, which is prudent. And it is all organic. So, you know, anything gives us, I think, optionality in the future. And you do the math on the free cash flow. I think it's quite an exciting view from a free cash flow and, you know, a share count perspective, given the dilution targets that we've also kind of set up.

Yeah, and, Jeff, I'll just add this, Mike. You know, I would say, you know, we expect all our verticals to contribute to getting to that milestone. But, you know, if you look at, you know, really some of the stuff we're seeing, adding more software and geographic growth and non-top foreign education being notable. If you look at travel, the combination of the luxury, experiential, and hospitality businesses, you know, both are seeing really good metrics, right? You know, deal size being increased, sales cycles trending faster. You'll feel really good about our ability to layer in additional products, different geographies, sub-segments. into that business. So, you know, feel really good about the path to get there. And we have lots of different growth levers to help us.

Okay. Thanks for all that color. And then my other one was the announcement about Driftwood that you guys highlighted during the quarter. They have brands like Marriott and Hyatt and Hilton under their belt. So I'm curious if you could tell us anything on how that came about, since I thought that was an interesting call out by you guys to talk about it within the hospitality vertical. It also sounded like a land and expand opportunity you guys executed on. So I just wanted to get more details and hear you guys talk about that and maybe anything on what the ramping is that we should be aware of there as far as revenue and volume and so forth.

Yeah, so this is Rob speaking. You know, just a quick reminder of sort of the structure of the industry. You have the major brands. You have hospitality management companies that tend to either own or operate a whole series of hotels. They may operate them under multiple different brand marquees. And then you've got the properties themselves. So Driftwood's a great example of a hospitality management company with a great portfolio of clients. They have worked with us across a whole bunch, and as you saw in the press release, we're doing sign-and-pay authorization and payment across a whole range of their properties. Appreciate that.

Thanks.

We'll conclude today's question-and-answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.