Q2 2021 Flywire Corp Earnings Call

August 10, 2021

[music].

Greetings and welcome to the fly Wire Corporation second quarter 2021earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

I will now turn the conference over to your host a keelhauling. Thank you you may begin.

Thank you and good afternoon.

With me on today's call on Mark Massaro, Chief Executive Officer, Rob.

Bob Udell, President and Chief operating Officer, and Mike Ellis Chief Financial Officer.

Our second quarter 2021 earnings press release supplemental presentation and associated form 8-K can be found at IR <unk> 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 also will be discussing non-GAAP financial measures.

Please refer to our press release and SEC filings for more information on the risks regarding these forward looking statements risk factors associated with our business and required disclosure related to non-GAAP financial measures.

This call is being webcast live and will be available for replay for 1 month on our website.

I would now like to turn the call over to Mike Mcdonnell.

Thank you for joining us today for our first earnings call as a public company. We are incredibly excited to share with you today, our Q2.2021 results.

Sure, we do that I would like to take a few moments to recognize all of the work that went into building fly wire and our recent listing as a public company on the NASDAQ.

Well. Thanks is due in large part to all of you our investors and shareholders. We would not be here today without the hard work determination and sacrifice of our now nearly 600 flights on.

On our employees all around the world it.

It was truly their efforts with the support of families and friends that made this company possible.

Additionally, I'd like to also thank our amazing clients that have helped to propel fly wire into the public markets. We are proud to serve our education health care travel and business clients and achieve our mission to help them get paid to help their customers pay with these from anywhere in the world.

And some of you joining us here today, maybe new to the fly wire story, our president COO, Rob Oracle and I will spend some time reviewing the amazing opportunity. We have ahead of us here at fly wire the key differentiators that make the fly wire business and technology unique.

Favorable industry dynamics, we are seeing in our end markets we serve today.

And the multiple proven growth levers, we have to help sustain long term growth strategy.

However, since this is a call about our Q2.2021 results. Let me first provide some key financial highlights on a strong quarter. We just completed Q2.2021 revenue came in at $33 million or 77% higher than Q2.2020, we saw on 85% increase in total payment volume as well for the quarter.

Finally, you will see that we improved our adjusted EBITDA significantly to nearly breakeven at negative zero point $1 million for the quarter. These are very strong results and there'll be covered in great detail later on our call by our CFO, Mike Ellis and of course, we'll be happy to answer questions later in the Q&A session.

For those new to the fly wire story I want to highlight our belief that the digitization of payments is inevitable.

<unk> seen it occur in many sectors of the global economy, such as retail and e-commerce, where the ability to purchase items is now seamless and easy.

But the reality is in massive sectors of the economy.

Digitization hasnt happened, yet and payment experiences are fragmented and often difficult for both the payer and the receiver.

And many sectors, including those that fly wire operates in today education health care travel and B to B.

I've almost been left behind by traditional software and payment solutions.

For example in education solving affordability is incredibly important.

He's giving flexibility to students to pay their tuition over time and in the preferred method that day.

Choose today, what may be considered a flexible payments is a rigid plan manually tracked not digital and not in real time.

In healthcare, our lack of digital payment solutions and affordable personalized payment experiences are leading to more and more patients falling behind and hospitals, losing critical revenue.

And travel clients tell us before fly why are they were spending an average of 25 per cent of their work week managing payments and.

And in a recent survey <unk> conducted with over 300, CFO as a global organization.

89% of them said that they lost revenue to time spent on manual accounts receivable processing.

At the end of the day, our clients arent payment experts and they shouldn't have to be and their clients are demanding flexible convenient digital ways to pay similar to how they pay on other aspects of their lives. We believe the next decade will bring a wave of digitization across these industries that we serve and that fly wire is uniquely positioned.

To lead this trend with the unmatched combination of our software and payment functionality.

At <unk>, we're focused on high stakes high value payments and ultimately, helping our clients get paid on helping their customers pay seamlessly and easily from all over the world.

And in order to do that you need software, you'll hear us often say that software drives value on payments and we drive that value with our fly wire advantage, which is the unique combination of payment and software technology.

Which includes our next generation payment platform, our proprietary global payment network there.

Vertical specific software.

Starting first with our payment platform think of this as a horizontal platform that has a series of shared services such as making a bank transfer performing a currency conversion setting up a recurring payment plan.

Checking payment status at much much more our platform is coupled with our proprietary global payment network, which took us over 10 years to build our network, which is focused entirely on the receive side of a transaction.

Allows users the ability to transact on all types of payment methods.

Local bank transfers credit and debit cards third party wallet and alternative payments.

Our network serves more than 240 countries and territories and over 130 currencies on top of the platform and network since industry specific billing payment and reconciliation software that addresses the complex needs and pain points of the industries that we serve.

This software delivers rich payment experiences for our clients customers. These experiences are modern engaging in tailored to specifically handle the industry and geographic complexities that are required.

For example, our software enables a university to provide the ability for students to sign up for a payment plan to pay their tuition when multiple semesters or give the business the ability to embed our cross currency invoicing into their legacy ERP system to ensure that their customers are being invoiced and a familiar.

Convenient manner around the world.

Our fly wire advantage platform network and vertical software is a major differentiator for fly wire as is our proven go to market approach, we pair the Hy tech with a local high touch team of industry experts, we are vertically focused sales marketing and implementation teams that have expertise in the industries and <unk>.

<unk> they serve.

They have spent 10 to 15 years of their career selling and delivering solutions into these industries.

Lastly, our software is deeply integrated into our clients' business processes key systems of record.

Our software embedded between the critical business systems of our clients and their customers highlights how strategic that fly wire relationship is to their business operations.

The industries, we serve today with our solutions are some of the largest in the global economy.

As of quarter end, we now serve more than 2400 clients globally in over 30 countries.

In education, where our business started we serve private and public universities colleges boarding schools language and technical programs all around the world.

We are helping these clients improve how they engage students and families digitizing, how they get paid and streamlining their business processes.

In healthcare, we focus on the market for patient out of pocket spend also referred to as patient responsibility portion of the medical Bill.

Today, we serve more than 80 health care and hospital systems, including 4 of the top 10 health care systems here in the United States ranked by hospital sides, helping.

Helping to improve the patient experience, while simplifying their accounts receivable.

We continue to accelerate growth in our newer verticals as well, including traveling BTB payments.

And now have more than 300 clients in these sectors.

In travel 1 of our focuses is on high end luxury experiences such as Zillow rentals destination vacations and luxury accommodations.

We also serve industry, leading multi day tour operators destination management companies. These travel purchases are large in size, often cross border and have a layer of complexity.

Indeed, BTB payments, we're focused on accounts receivable payments in the manufacturing technology and professional services sectors that have been largely underserved with paper checks and antiquated international wire system.

As mentioned previously the industries, we serve here at fly wire have huge potential to digitize over the coming decade, and there are also many global development, helping to accelerate this trend.

For instance, the Covid pandemic has accelerated the digitization and consumers of health care. We recently completed a study that found that 77% of respondents said that the technology for health care needs to be closer to what they personally use in other areas of their life and 65% plan to use online methods for health.

Payments going forward.

In Education College, and University campuses are seeing a return to normal as major education markets ex student friendly policy position on things like visas and student travel such as Canada offering permanent residency to post graduate internationals.

And as reported by Pie News a recent study by RBC found that candidates population is growing at its fastest rate since the pandemic began with international students being 1 of the primary drivers of candidate overall population growth.

The UK also reported that international student enrollment reached a record high last year growing by 12%. Despite the COVID-19 related disruption and the government there is allowing flexibility with the student visa process, helping international students affected by Covid travel restrictions to begin or continue their studies in the UK with as little disruption.

Option as possible and to remain eligible for post study work opportunities.

And here within the United States, the largest market for international students. The U S Department of state in U S Department of Education recently released joint statement renewing their commitment to international education in the United States signaling the continued importance to the U S economy and growth.

For travel more.

More borders are opening just yesterday, the Canadian borders reopened to fully vaccinated U S. Travelers vendors are accelerating the adoption of digital solutions consumers have more money to pay for travel and there is pent up consumer demand to see the world due to the global pandemic restrictions.

<unk> recently completed a survey of over 800 frequent travelers to the U S, Canada, the UK, Spain and Japan.

70% of them said that they would spend more money on travel in 2022 than they have in the past 5 years and importantly for US, 70% say ease of payment impacts their choice travel agent <unk> tour operator.

Looking at our expansion into BTB payments adoption of our solution continues to accelerate as does the need for digitization of payments in finance automation.

I mentioned earlier, our recent survey found that 55% of Cfos report monthly revenue losses between 4% to 5% due to operational inefficiencies related to their current payment processing system.

And almost a quarter, 23% say that they lose 6% to 10% of revenue.

In addition, 92% said that they could increase global expansion, if they had a better way to handle foreign exchange.

The opportunity that <unk> has in front of US is tremendous we have a <unk>.

<unk> set of capabilities, our payment platform proprietary payment network and vertical specific software and a proven track record of delivering enterprise solutions to help digitize some of the largest sectors of the global economy.

Our amazing team of <unk> has proven over the last decade that they can innovate execute and deliver exceptional client satisfaction with very strong business results.

I would now like to turn the call over to Rob <unk>, our president and COO to review some operational highlights from the second quarter in the context behind our growth strategy Rob.

Thanks, Mike and good afternoon, everyone.

And Mike indicated in his opening comments, we had an excellent Q2 Q2 revenue came in at $33 million.

Or 77% higher than Q2.2020.

The Q2 results reflected continued execution of our growth strategies in our target markets strength across our geographies as well as the favorable COVID-19 recovery trends, Mike just mentioned.

We manage through the pandemic by staying focused on our clients and growth strategies as well as staying attentive to fly water culture and our client adds.

Over the next few minutes I'll provide a very quick refresher on our addressable markets and then focus on some of our notable achievements in Q2.

In terms of our markets, we're already achieving meaningful scale, what we like to say, though that we're just getting started.

<unk> has a tremendous runway for growth as demand for domestic and cross border money movement continues to grow.

If you look at just education health care and travel we estimate the addressable market for our solutions is over $1.7 trillion in global payment volume and.

And when you include our BTB payments operating net adds an incremental 10 trillion.

And volume to our tier.

Together, our market opportunity is nearly 12 trillion dollars.

With our focus on the receivable side and our unique combination of assets. We don't see other current players attacking these opportunities like weekend.

We've prioritized our growth in 5 key areas to further penetrate our markets and we saw strong results in Q2.

Here's some context and some highlights.

The first element of our growth strategy is to grow with existing clients our.

Our strategy is to become an integral part of our clients' business and grow by adding complementary solutions.

Our average annual dollar based net retention rate over the 3 years, including 2018 to 2020 was 118%, indicating that we've historically started each year with reoccurring revenue and growth from our existing clients.

We're pleased to report we've seen a strong return to growth in our NR in this Q2, when comparing against either Q2, 2020 or Q2.2019.

Our clients continue to love fly wire solutions on a global payment network and our technology and they continue to expand their work with us and solving their complex payments challenges.

An example of expanding our services with existing clients is the rollout of our new omni channel engagement capabilities to the health care vertical on.

Our initial clients are seeing great success reporting and over 80% increase in E Mail conversions, which has led to an 11% increase in self service online payments at those clients.

The fly wire health care team has also launched a new user experience in the second quarter.

The patient experience represents a dedicated effort to make health care easier for patients with the expectation that the improvements will deliver positive results for our clients.

With this launch flyway or has seen a 5% to 20% increase in total payment volume for clients using the new user experience.

On the education side, we continued to expand with existing clients.

A notable expansion signed in Q2, with Texas, A&M, which was an existing client previously using fly wire only for cross border payments in Q2, we replaced their incumbent provider for domestic payments and are now the sole provider of all student tuition payments for both domestic and international.

Texas A&M as add on all of <unk> education capabilities within our full suite solution, including E store payment brands sponsored billing and our past due receivables product a collect.

Continuing with notable achievements in education in Q2, we announced the expansion of our full suite solution to Canadian institutions.

We are seeing early success and in Q2 signed 6 deals that were up sells with current cross border clients. Overall Q2 was an excellent quarter of growth and achievement with our existing clients.

The second element of our strategy focuses on continuing to win new clients.

We do this primarily by expanding our sales and marketing efforts net increase brand awareness and highlight the value of our solutions.

In the first half of 2021, we've already added over 200, new clients, including over 100 in the second quarter.

Q2 was 1 of the best quarters in the Companys history in terms of projected <unk> of client signed across all verticals.

We acquire new clients, primarily through a direct model leveraging local and regional team members, who have domain expertise in our verticals.

This deep domain expertise differentiates our sales approach, but also supports our strong long term relationship management, so key strengths of fly wire.

Through Covid.

Also accelerated our digital marketing efforts and expect this trend to continue as our clients continue their own rapid digital adoption.

For education, we had a number of large wins around the globe showcasing the global reach of our education business. These new client wins include major universities from Mexico to Malaysia, Our Swiss boarding School Learning Institute, New Zealand among many many others.

In healthcare, we built on our success in 2020 by signing additional significant hospitals and health networks in the first half of the year. This is on top of multiple expansions at existing clients.

In addition to driving digital adoption and addressing patient affordability challenges <unk> health care platform simplifies the patient financial experience by creating a single bill and single payment plan across multiple accounts and even entities.

<unk> for instance, a large $1.5 billion health system with multiple hospitals and physician practices contracted with fly wire to consolidate their patient building experience for both offline paper statements and online digital interactions.

We're very pleased to be helping them and their goals of reducing cost increasing payments and improving patient satisfaction.

Our 2 emerging verticals b to B and travel also enjoyed many solid wins in the second quarter.

Our <unk> team signed multiple clients for domestic and international <unk> accounts receivable solutions and the travel team saw growth of its key DMC segment.

Following our award winning work with Hilton Grand Vacations are travel team was able to assign a record number of accounts in Q2.2021.

In addition, new travel clients are starting to use guidewire faster than they were a year ago. This speed of implementation is good for us and our clients and reflects the good work done by our engineering and delivery teams to make our platform more robust and flexible and therefore easier and faster to deploy.

In summary, we're adding a lot of new clients and it's across all of our verticals.

Third we are seeing strong results from our channel partnerships and continue to see this ecosystem grow rapidly.

We leveraged endorsements from our channel partners to reach a large network of potential clients.

We are seeing excellent momentum from our technology partners, such as Cerner, where our integrated offering is driving new clients life.

Life Bridge Health, which I mentioned, a few minutes ago is a perfect example.

We are also seeing continued momentum with epic clients supported by our integration student epic App Orchard.

This includes single sign on to my chart, which is being rolled out several new and existing clients and secured checkout, which provides an embedded payment experience in my chart.

In travel we continue to work closely with key integration partners, such as <unk> room boss and after just we see these partnerships growing as the world begins to travel more.

And on the <unk> side, we continue to invest in key channels and partners for growing our client base.

<unk>, a leading provider of automation software look to us to expand their international reach and capabilities by embedding <unk> directly into their solution.

We appreciate the partnership with ebay and the benefits, we will deliver to our do joint clients.

Fourth we grow by expanding to new industries, and new geographies given.

Given the breadth of our payments platform and global network, we can expand into new verticals with minimal investment.

We've done this most recently with our emerging segments in travel and BTB payments.

For new geographies, we are able to leverage our solutions by simply directing our go to market efforts at a specific region and use case we've.

<unk> been able to generate multimillion dollar growth in many new geographies, resulting in great returns for our business.

Earlier this year, we announced the availability of our education solutions to key markets in Latin America, including Brazil, Mexico and Chile.

In Q2, we enhanced our payments capabilities, adding Colombia, Chile, and Peru enhancements.

Latin America represents an exciting opportunity for fly wire is both a source market for schools abroad, and is an increasingly popular destination for international students.

Our global payments team is hard at work on our next set of geographic expansions and enhancements.

Finally, we have a track record of doing successful M&A and we plan to continue to pursue strategic and value enhancing acquisitions.

Our multi pronged growth strategy is designed to build upon the momentum we've already generated while creating new opportunities to drive even greater value for our clients and their customers.

And the bigger picture, we are just at the beginning on what is possible when it comes to leveraging our software to drive value payments.

I would now like to turn the call over to Mike Ellis, Our CFO to review our business model our results for the second quarter and guidance for the remainder of the year Mike.

Mike.

Thank you Rob good afternoon, everyone as Mike and Rob mentioned, our business model is predicated on delivering high stakes high value payments and massive and growing industries today I'll be discussing our non-GAAP financial metrics for our second quarter of 2021, including revenue less ancillary services adjusted gross margin and adjusted EBITDA.

Doug.

Our financial results prepared in accordance with U S. Generally accepted accounting principles. Please read the financial statements included within our earnings release and on form 10-Q, when filed with the SEC to start off I want to define how we generate revenue. We have 2 primary revenue sites. The first revenue tied to transaction revenue transaction revenue represented 77.

Percentage of total revenue loss ancillary services earned during the quarter and consist of payment processing fees, we earn on the payments we process on behalf of our clients, which generated predominantly from cross border activities.

Second revenue type platform and usage base fee revenue platform and you should basically revenue represented 23% of total revenue less ancillary services earned during the quarter and consist of the amounts we earn for the use of our platform.

Our 3 primary elements within this revenue stream number 1 he's earned for a software enabled managed accounts receivable services number 2 amounts pay per the initiation and payments made in connection with payment plans and number 3 SaaS based license fees. This revenue primarily comes from domestic activities.

The key driver of our aggregate revenue less ancillary services is the total payment volume we process.

For additional background I want to point out that our revenue was subject to seasonality through the verticals in which we operate and the timing of when our clients customers process their payments specifically.

Specifically Q3, and Q1 are our strongest quarters, while Q2 is typically our slowest quarter.

With respect to our financial performance, we reported solid financial results for the quarter during.

During the quarter, we generated revenue less ancillary services of 33.0 million, which represented a 77% growth rate compared to the second quarter of 2020, which was driven by an increase in our total payment volume, we processed $1.9 billion and total payment volume during the quarter, an increase of 85% from the 1.

Zero billion reprocess during the second quarter of 2020, we.

We experienced revenue and total payment volume growth across all regions due to COVID-19 pressures easing as well as increased utilization of our solution from existing and new clients.

Looking at our specific revenue streams that I previously described transaction revenue increased to 116% compared to the second quarter of 2020, driven by a 127% increase and transaction payment volume and platform and usage based fee revenue increased 21 per cent compared to the second quarter of 2020 also due to an increase from <unk>.

Platform and usage based payment volume.

Moving on to adjusted gross margin.

Adjusted gross margin was 8.2% per the quarter, which represented an increase of 5.3% in absolute terms compared to the 62, 9% reported for the second quarter of 2020. This.

This increase was driven by 2 factors number 1 a payment method mix shift towards bank transfers and number 2 reduced processing costs as we scale on total payment volume.

Revenue less ancillary services as a percentage of total payment volume was slightly lower due to the shift towards bank transfers, which carry a lower price point compared to other payment methods, but more importantly generate higher gross margins and some other payment methods changes in payment method mix as well as changes in vertical mix payment size.

And currency pairs process may impact the percentage obtained from quarter to quarter, when dividing revenue less ancillary services by total payment volume.

Said another way though.

Those changes are outputs, reflecting the composition of the business in the quarter and that percentage will be impacted by where and how we grow.

Key point is that our platform and proprietary global payments network allows us to support many payment types for several verticals across many currencies that all have good economics for fly wire, we manage our business based on 3 key performance indicators revenue less ancillary services adjusted gross margin and adjusted EBITDA and we are pleased.

With our reported results for the quarter.

Moving on to operating expenses technology.

Technology and development expenses were $6.9 million, an increase of 8% over the $6.4 million incurred during the second quarter of 2020. This.

This increase was the result of our hiring activities. During the trailing 12 months ended June 32021, where we increased the number of employees within our technology and development departments by 10%.

Selling and marketing expenses were $10.9 million, an increase of 35 per cent over the $8.1 billion incurred during the second quarter of 2020 also due to our hiring efforts within these departments and higher compensation costs due to our favorable revenue results.

General and administrative expenses were unchanged at $13.5 million for both the second quarter of 2021 and 2020.

Many factors impacted our general and administrative costs incurred during the quarter, but the primary factors included on hiring activities.

<unk> costs associated with our recent initial public offering and changes in the fair value measurement of our contingent consideration associated with our acquisition of simply.

Moving on to adjusted EBITDA.

Adjusted EBITDA was negative <unk> 1 million for the quarter compared to a negative 7 points here on my end generated during the second quarter of 2020.

This improvement was due to the contribution from our incremental adjusted gross margin driven by the 77% revenue less ancillary services growth rate during the quarter as previously discussed.

Partially offset by increased investments in spending and compensation related costs as we invest in our technology and product teams as well as our sales and marketing teams on initiatives.

Moving to the balance sheet with respect to capitalization as of June 32021, we had $412 million in cash and cash equivalents and $24.4 million on long term debt.

On May 28, 2021, we completed our initial public offering in which we issued and sold 12 points here 1 million shares of common stock at a public offering price of $24 per share, which included $1.6 million shares of common stock issued pursuant to the exercise in full of the over allotment option by our underwriters we received.

$263.8 million in net proceeds after deducting underwriting discounts and commissions of $19.4 million and other operating costs of $4.9 million.

As of June 32021, we had $104.7 million shares issued and outstanding.

Based on our financial results for the second quarter of 2021 and current financial trends, we are providing full year 2021 guidance for revenue loss ancillary services and adjusted EBITDA for.

For the full year 2021 revenue less ancillary services will be in the range of $158 million to $161 million.

This guidance reflects the optimism regarding the strength of our business for both Q3 and Q4 of 2021.

With respect to adjusted EBITDA, we will be on the range of $4 million to $6 million. However, we will continue to invest in the business to drive revenue growth based on the addressable markets. Our solutions can serve and as a result, we do not expect to generate adjusted EBITDA in 2022 or 2023.

With prior quarters. This range assumes no further unforeseen COVID-19 related impacts, which could influence the remainder of 2021.

Summarize we believe we have a scalable business model that puts us on a strong position to continue our success with a clear opportunity for future revenue growth and path towards profitability.

I would now like to turn the call back over to Mike to wrap things up before taking your questions.

Thanks, Mike we.

We believe youre at fly wire that we have a clear and simple value proposition that will continue to help us when we help our clients get paid and help their customers pay with these no matter where they are in the world. We provide best in class execution for high Stakes high value payments, we've an extensible suite of solutions across global and local.

Industries and markets made possible by our fly wire advantage that payment platform, the global network and vertical specific software.

We have a robust and attractive business model with very sticky client relationships.

Finally, our innovative mindset and execution driven culture will continue to guide us and help make fly wire a transformative company.

None of what we do would be possible without our nearly 600 amazing primates. This is a team that is truly innovated over the last decade.

With the team that embodies our values of collaboration ambitious innovation fulfillment execution on.

We anticipate an evolved learning I am proud to lead this team we would like to thank them for all their continued hard work.

With that I'd like to turn the call back over to the operator for questions operator.

Thank you.

We will be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is from the question queue.

Price start to if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing on stacking.

Time constraints, we ask that everyone limit themselves to 1 question and 1 follow up per person 1 moment. Please let me poll for question.

Okay.

Our first question is from Darrin Peller of Wolfe Research. Please state your question.

Hey, Congrats on this guys on the first quarter out of the box and and good results.

Mike and Rob if we think about the sources of upside I mean, I think the results were obviously strong a lot of investors expected strong results from you guys and potential upside, but I think the magnitude was somewhat eye opening in terms of the both the contribution profit just really overall the business on top line.

When we think about that and the major drivers youre seeing that that's really the major points that are pushing that.

What would you say is it same store sales, that's really coming back or is it more the combination of incremental customers flowing through at a faster pace.

And then how much of it is really macro driven versus what's in your control.

Yes, thanks, very much Darren good day, good to hear from you. So I'll take the first part and then maybe Rob can speak a little bit about the cohorts and what was new business and what was kind of year on year client growth, but just in general I mean, it was obviously a great quarter transaction volume saw significant strong growth I think a 127 or so percent.

Revenue of 116%.

I would say big callouts for where that growth came from both the travel sector in the education sector.

And if you can give you a flavor for it.

Canada for instance, and cross border education really outperformed right. So.

1. Good example in travel it was our recent investments in luxury tour, operator, multi day trips and really that coming back.

A bit earlier than expected as well.

And then I'd, just say client acquisition was quite strong in the quarter right. So again gave us really good confidence going forward, but Rob you want to talk a little bit maybe about the split of new business versus existing customer growth, yes. Thanks, Mike.

Darren It was it was really a strong performance across the board. So if you think about our way of segmenting clients and we've talked about cohorts in the past.

If you think about that most established cohort on our 2019 on prior clients. All grew very well. So you would see in that return on the MLR and you heard my comments about the strong NR.

That was the largest single contribution in terms of the allocation of the growth that you saw you also saw a very nice contribution from the 2020 class. So that group also grew very well and contributed meaningfully to the 'twenty to 'twenty..1 period, obviously, we had a nice quarter in terms of new signings as well with 100.

Plus new clients added to the tape during the quarter, obviously those folks get line gist.

Distributed through the quarter or even after so their contribution to the quarter is smaller but the growth really came in all 3 areas.

Alright, so its pretty broad based it sounds like with the existing customers sound extremely strong which is good to hear just 1 quick follow up would be on the guidance you guys gave and actually I'm going to hit on the EBITDA side for a minute because it was interesting to see that it was actually positive for let's call. It 5 million Bucks per like you said 4 to 6.

You are a company that we know is going to invest or reinvest considerably into the business given the opportunities, but here you are guiding to a positive EBITDA number.

So can you just touch on your thought process around that versus what we should be thinking about in terms of your potential for operating leverage and pass through thanks.

Thanks, guys.

Yeah for sure so obviously.

On the business performed quite well and you saw the kind of revenue outpace.

I'd also just highlight the fact that.

As we've said before we've really great industry unit economics, and you see that in the quarter as that flows through into adjusted EBITDA.

As you look forward it gives us frankly more confidence to invest in growth.

The business is there is a great business right and you can see that with the quarter's performance and so.

I would tell you expect us to continue to accelerate right on hiring for US is at record pace, It's continuing right Theres, a big hunt for talent out there and Thats something youre going to see us continue to invest a lot in specifically around product and tech as well as sales and marketing and frankly, I think thats, what the market is going to ask about so.

Thats, where youre going to see US continue to continue to grow and invest again, we want to make sure people have an understanding of where we see opportunities to invest in growth, we'll be making them and it is nice to see quarters like this.

The business economics flow right through.

Understood Alright, thanks, guys.

Thank you Sir.

Our next question is from Tien Tsin Huang of Jpmorgan. Please state your question.

Thank you so much and congrats again on the on your first public call and I'll Echo what Darren said its pretty amazing results here.

I'll ask actually on the cost side, if you don't mind on.

<unk> margin higher than expected I know you mentioned bank transfers and payment method mix helps but just curious if debt is sustainable.

Or if there was anything unusual that maybe we need to consider going forward on second half because with the big magnitude on the revenue and then you're also getting a better gross margin flow through.

That does change our thinking positively obviously just want to make sure we get that right.

Sure. Thanks. This is Mike Allen, that's a great question and I'll kind of just start up by saying the business is seasonal right and you understand that based on what we share with <unk> and <unk>.

Youre right and what I said that the basic improvement in gross margin was essentially the result of some pay of choices that were basically due to bank transfer as being a more preferred method during the quarter predominantly as Mike and Rob talked about the improvement that we saw in our markets in Canada, and EMEA and that's really it.

The majority of the improvement for the adjusted gross margin.

Just like when price points increase over time, whether that's in U S based educations or higher price of travel bank transfers tend to be used more often and we see that happening in Q3 as well so the improvement to the 68% range.

As expected, we do expect our adjusted gross margin to have a level set for the next.

A number of quarters and don't expect any type of major increases, but we do continue to drive efficiencies through our payment network and you see that as well that's the other major component to the improvement and we will continue to drive scale not only through the fact that will increase our payment volume, but we continue to negotiate with our but with our providers.

Riders and you know that we control the network, so we get to control that flow.

We've got opportunity and leverage to drive margins, but we anticipate maybe not such a great.

130 basis points that you should not be thinking about that on a sequential quarter basis improvement.

Understood that's very clear and then my follow up just on the investment side given the strength on the revenue front.

Are you able to spend and hit your hiring targets and lean in from an Opex and.

Investing standpoint, I know more on talent right now it's pretty tough so.

Just curious if youre hitting your budget on the investment side.

Yes on Tianjin I'll jump in here. This is Rob we've expanded significantly already this year, where we've hired well over 100 people into the company already we have in anticipation of continuing to expand significantly with similar growth through the second half of the year.

I think we have a pretty good proposition to share with new prospective slide 8.

A company with a great culture as well as a great opportunity in front of it and so youre right. The war for talent is definitely.

It's a tough game out there, but we do think we play well on it and we are.

Expanding in areas like talent acquisition and that team to be able to make sure that we are sort of out there in all the places that we're hiring and again for US. It is all over the world is across the verticals and so that gives us the chance to look on a lot of places where the talent we need.

To add to what Rob said, we're also seeing talent find US now now that we are in the public markets that have a bigger and bigger stage.

And so really impressed with the talent, we're bringing into the business today and excited for the future. We're happy to compete in this kind of future of work world.

And continue to recruit great playmates.

Good stuff. Thank you guys.

Thank you.

Our next question is from Dan Perlin of RBC capital markets. Please state your question.

Thanks, and let me let me also echo great results always appreciate that right out of the box. It's always helpful for us too so congratulations on.

Relations on that.

1 of the questions I had is we did see a pretty material rebound sequentially in your monetization rate, which I know is maybe not something youre going to be providing specific guidance too, but I definitely want to make sure. We're on the same.

Page when we think about.

Some of the seasonality and mix it goes into driving that into the second half of the year. So is there any call outs in terms of maybe just this rebound in.

Cross border volumes that helped this quarter and maybe some of the expectations that just from a cadence perspective for the back half.

Thanks, Dan I guess the question is when you were making reference to the monetization rate I mean, how you're calculating that I think thats. The first thing that I want to make sure if you're talking about a defined term.

Don't define necessarily a monetization rate what I made reference to was revenue ex ancillary services as a percentage of total payment volume if someone wanted to actually do that calculation. We don't do that the population because it's an important aspect of our business.

But I'm not sure it rebounded.

Looking at it from Q1 to Q2, then yes. There was there was an increase in monetization or what you're referring to is that monetization rates and that was really a function of payment mix. The method of choice like so for instance, Europe like I said the bank transfers will have a lower price point. So therefore.

The lower monetization rate in this case, but you will also have higher gross margins I think the point that you have to look at is when you look at our economic profile, it's really at the adjusted gross margin level and knowing that the.

The closer you get by dividing wherever like ancillary services by total payment volume is going to stay within a pretty.

Regular band depending on the quarter. So if someone's belt, so inclined to do that analysis I would ask you to look on a quarter to.

Previous year's quarter, not sequentially because of the seasonality of the business and I'll just.

Just to add on to what Mike said transaction size right the transaction size.

Tuition bill or what the travel bill could be at a given quarter or month can it can impact right.

As well as different currency pairs right. So when youre dealing with certain types of peaks in different countries are different regions right you have different payment methods with within those regions right that also does then governance. So that's what causes the seasonality in the quarterly seasonality that exist the method and <unk>.

Transactional size.

Okay No that's super helpful and just quickly on my follow up this is more kind of an anecdotal question, but you know as you're having conversations with your existing clients and prospective clients. There's it's clear that you're.

You're putting a lot of excitement in the market and you are generating a lot of demand and you're winning a lot of clients I guess the question is near term.

Wondering what their attitude is around kind of the delta variant in particular around education and cross border.

I know it sounds like some of the borders are opening back up but I would just be interested to hear kind of in real time, maybe what some of those conversations selling thank you congratulations again.

Yeah, I would say.

As we look across our industries right I mean, you look at 2020.

Dealing with the first wave of multiple waves of Covid I would say our clients continue to be quite resilient. They figured out a path surrounded we supported them, especially when it came to billing processes operational.

Back office changes those types of things and again I would say.

They continue to innovate in and figure out ways to keep moving in that environment and I think as.

As much as.

Some of the news on the headlines I think gives us all.

Pretty much everywhere a bit of pause as did not knowing what the future is I think they spent the last 18 months dealing with this pandemic I think we're probably all collectively going to be dealing with the pandemic a bit longer.

And I think.

I think we'll all find a pass through it and so I think it's they're at a point of more living with it from what we're seeing as we all are.

And realizing that this isn't something that you kind of shut the curtain on it's something that you'll likely be dealing with overtime.

But again I would just highlight the signs we saw on Q2, the continuing signs we're seeing already in Q3.

Really encouraged I mean, thats part of the reasonably we put out some guidance for the end of the year. So.

Feeling really good about where things are at and.

And how these industries are reacting to it.

The world right now.

Yes, it's really impressive thank you.

Our next question is from Jason Kupferberg of Bank of America. Please state your question.

Hey, good afternoon, guys great numbers here I just wanted to start with a question on the guidance for the full year on the revenue less ancillary services. It does seem to imply some deceleration just in terms of the second half year over year growth rate relative to the first half year over year growth rate, but I think you'll hear on.

For year comparisons actually ease in the second half versus the first half. So just curious if there's any callouts around that certainly nothing wrong with being conservative, but just wanted to unpack that.

Debt.

So I can jump in here, if you like Jason.

Obviously, we're very bullish on the second half of the year and that's the sort of underlying point of putting out the guidance that we did in terms of understanding sort of that rate of growth and looking at sort of first half versus second half. Please understand that the Q2 comparison against 2020 was the most impacted quarter when you look back.

At last year's quarter. So obviously, we're very pleased with 77% growth. We do know that that was against the most.

The most impacted quarter of last year as you look forward to the Q3 and Q4, obviously those are bigger quarters for us.

And we're very optimistic about the performance for those quarters.

Without necessarily saying that they're going to achieve that same level of growth on a percentage basis.

Okay understood I wanted to hear a little bit more about the international expansion efforts I know you touched a little bit on that.

And some of the efforts in the education vertical there, but maybe if you could just give us a little bit more of a holistic view of what you see on the international expansion front and any milestone, perhaps we should be looking for on that front over the next 2 to 3 quarters.

Yes International is definitely a focus area for us it's a big part of the Tam and it's a great growth opportunity for us.

You know well.

We started off as a U S. Based company, we started off with a U S centric operating with onshore clients on a single product.

Company is a very global company today, but with enormous opportunities to expand on all of these markets.

You sort of think about on a different verticals education, we are expanding significantly in EMEA investing significantly in Canada, Latin America and APAC all of those are growth areas for us where we start with pretty small teams an opportunity to grow those teams and grow the business opportunities in all those regions travel for us.

<unk>, a global opportunity, where we have teams around the world, but still the opportunity to penetrate.

Travel segment way more deeply than we have thus far and we are growing those teams. Similarly, if you look in on our <unk> segment, that's going to take advantage of our opportunity to capture that 10 trillion global Tam that we see out there and that team grew significantly in Q2, and we expect to continue to grow that team for the rest of the year. So.

A big part of the story for US we are a global company today with primates, all over the world and clients all over the world and that theme will be.

Through an increasingly true going forward.

Okay. Good stuff congrats on the results.

Thank you.

Our next question is from Ashwin share share Vica of Citi. Please state your question.

Thank you.

Hey, Mike Mike.

Congratulations.

Congratulations on the quarter.

Good start to public life.

Hi, I wanted to get back to sort of the PQ versus <unk>.

Just looking at debt.

From the perspective of volumes.

So we know the seasonality TQ stronger than <unk>.

As you look at your pipeline.

Do you see perhaps debt seasonality to some extent being overridden by the strength of the pipeline just kind of thinking too.

How long should process the strength of the current results.

Yeah.

I would say you're right in Q3 being the largest quarter I'd say as you look at guidance I mean definitely think through that in relation to kind of guidance given we see we see strength in both quarters.

But Q3 is the larger 1 right. So that's worth noting.

I would say when it comes to client signs.

We really just see a continuation of the great first half client signs and client acquisition metrics really continuing.

And so I think that continues to be our.

A fact that we feel really confident when it comes to.

Where revenue will come in but also where client acquisition will help remember that when you acquire that actual payouts on net acquisition.

On the client is usually in the subsequent year right. So does.

Actually very little impact of net new clients happens within the given year on our business. That's what makes it such a great recurring growth model over time and that NR is driven.

And so it's really important to note that all of these great client signs that we're having this year those will really continue to pay off into 'twenty, 2 and 'twenty 3.

Okay.

Understood understood and 1 question, we get relatively frequently from from investors is with regards to it.

Education and sort of the you know.

It seems like the already very good penetration ex U.

We feel that could cause on global institutions and so on so forth.

Think of the future education opportunity and you've kind of mentioned.

Some of this in the past.

Adding adding new services going after sort of the non Union city.

Market and so on can you talk a little bit about those income.

Rental.

<unk> billing day.

Progress that youre, making perhaps.

Sure no happy to and I'm sure, Rob will probably jump a few things in at the end.

I'd say you still feel like we're in the early innings, even though education was our first offering even when you look at the cross border product signing.

Big University is continuing to see great growth in many of those regions that Rob mentioned earlier around global expansion.

And so I would just highlight that we've been we've been fortunate to again be.

But winning great clients and a who's who of top universities around the world. We've also found as you mentioned those great subsectors right, whether its boarding schools, whether its language programs vocational schools all of those areas really bring us a great and diverse revenue stream and even within the education in.

History.

And then I would just highlight remember the land and expand strategy really important which I'm sure Rob will jump in and talk about but we used to be an education solution provider with 1 product now we have a whole suite of offerings that is allowing us to go back into those universities and really go for all the payment volume really help them digitize.

Digitized campus right doing all the domestic processing and much much more.

I'm sure Rob will probably jump in it.

Yeah.

It's a question we really appreciate it right. So I mentioned in my comments, an example of our land and expand here in the U S, where we talked about Texas A&M University right that for US is a classic case, where we earned our good name in the client based on the work that we were doing around cross border and managed to convert them to a domestic and international client, where we are moving on.

Of that tuition dollars.

We're going to provide great service to Texas A&M, but we're also seeing is a meaningful opportunity for the company, but we're doing that not just in the U S. Right. There are multiple U S. Examples, but we're doing a similar playbook in the U K, where we have multiple examples where we are similarly, taking on the domestic as well as the international processing, we're rolling out on our CRM.

<unk> suite in the U K for multiple institutions. If you look at Canada. Similarly in Canada I mentioned in my comments 6 upsells.

On our existing clients of our expanded capabilities that we've rolled out to Canada in the last year and so Q2 was a good land and expand quarter for Canada as well on top of all that is really sort of the new product capabilities right. So we're in the very earliest days not just of the.

Sort of that Crs platform, but early days of rolling out our collect capabilities around sponsored billing international payment plans elements of our suite that can be rolled out in different order to different clients based on their needs and so for us really a lot of opportunity to continue that land and expand.

Got it got it no. Thank you for all the detail I appreciate it.

Our next question is from Bob Napoli of William Blair. Please state your question.

Alright, Thank you and good afternoon, and congratulations I will add that to the very nice.

Order and start getting.

Great to see thanks, Bob I guess.

Just on the.

The pipeline.

Now the trend in the pipeline and maybe the composition and maybe a little color on the composition or has there been how does the pipeline trended from <unk>.

Prior to the IPO, where you had a really nice pipeline.

How much of that is cross border is there a different mix by.

Geography, and then the clients you're adding how does the size of the IRR of those clients compare to what you've had historically.

Rob I can jump in and start.

With some thoughts on that so we continue to have great pipeline strength seen growth on the pipeline, we shared with you in the past.

Some <unk>.

Directional guidance on just sort of the strength of our pipeline and our <unk> and it continues to be strong. So we sign this year over I'm, sorry, this past quarter over 100 clients.

Replenish those clients and more in the pipeline the values on the pipeline remained strong sort of consistent with our historical averages. They are diverse across the verticals that we have with pipeline strength across each of the verticals as well as across the geographies again, a very global business with a lot of opportunity in the U S.

Non of opportunity outside the U S. So really sort of.

Consistently strong and very pleased with where we stand in the pipeline sets us up very well for the future.

And then maybe I mean you.

Have a very healthy balance sheet right now and.

Very strongly growing business with.

With your M&A, if from an M&A perspective.

Maybe just some color on what you would what's the highest priority.

If you were to have your choice on.

On the M&A front, where would you acquire is it within your current verticals is it a new vertical is that expansion in different geographies and I guess, you can say all of the above right.

Yeah.

Yes.

Take that 1 Bob So I would say, obviously, we're coming off of having done.

A couple of tuck in acquisitions over the years, we could get some muscle we know.

We know well and we are frankly, good at obviously I won't say anything is burning a hole in our pocket or anything right now we're looking for great on.

<unk> for us.

We had a great track record of client retention and employee retention on the acquisitions that we've done but in general things. We would look at would probably be some way to accelerated given industry on market, maybe a geography that we're already in.

On a potential capability that we thought could be expanded or up sold into the existing 2400, plus customer base that we have.

And then lastly, the opportunity.

Obviously exists to enter additional geographies.

But it's.

It's not something that.

Fallout, probably any of those 3 areas.

Great. Thank you I appreciate it.

Our next question is from John Davis of Raymond James.

Thanks, Good afternoon, guys and I'll add my.

Congrats.

Mike maybe just to start off a little bit on Bob's question around M&A, maybe talk a little bit about how you guys look at it from a financial framework perspective have you guys looked into growth accretive deals.

Essentially do something more transformative, but maybe instead of kind of what you would buy maybe focus a little bit on how you guys think it from a financial perspective.

Yes, I would say.

We're definitely.

Looking for things that.

Either either are growing at levels that would be.

<unk> are better than what we're doing.

Or have an ability for us to grow.

So 1 area potentially to be leveraging obviously, our ability to monetize payments on someone else's business that has yet to have a great way to monetize payments right that would still fit even if.

The growth rate of that target potentially wasn't at the level because of the monetization potential.

That definitely falls in the level, but.

There's a lot of businesses out there that don't have.

That compounding growth story like we do that doesn't have that consistent and again, we think thats really important right. So we have to we have to really believe in that story.

We won't ignore transformative deals, but at the same time, we have.

<unk> had a good track record of finding deals that debt again, either fit into an existing industry vertical or geography have great people that don't want to kind of go runaway.

Look at us too to kind of do platform consolidation extensively don't look for us to.

Do a roll up across lots of things right. We want people that want to grow with us that want to build their careers here at fly wire and arent done on their journey, yet and so those are the types of companies on the types of people we look for.

Okay, Great and then Mike you've been pretty explicit that you plan to kind of reinvest upside to the top line and kind of expect breakeven EBITDA for the foreseeable.

All future at least in 'twenty 2 'twenty 3 so on the guests that <unk>, probably beat your own expectations.

And so if I think about where those incremental dollars.

The momentum on the business continues and you end up with a great problem, which is more money to spend.

What are the top priorities that incremental dollar of investment.

Yes.

Inside here is why why are those conversations are just frankly, just so fun I mean, there's opportunity everywhere.

There's probably even flow made on this call listening for.

On a signal to go and do more and expand and there's so many great ideas of new product capabilities to build new markets to enter ways. We can enhance the global network and so I'd say, we're not we're not waiting around for those investments.

We've been looking at how do we accelerate this business and continue to accelerate it we will continue to do so.

I would say some big areas I mean sales marketing client engagement right. There's just that much more we can do based on what Rob said around land and expand how do we get in front of more customers. How do we have more support for those customers and accelerate new markets.

And then I would say product and tech.

<unk> continued to scale, so that we can build and enhance.

Solutions.

And bring new products and capabilities to market faster. So those would be I'd say, the big too big to investment areas.

But again really really excited to have that debt capital to invest and also to just be able to look and say.

This is a good industry, leading unit economics that we have on this business you can see them at work.

But at the same time, we're going to focus on growth.

Okay I appreciate it guys. Thanks.

Our next question is from Jeff Cantwell of Guggenheim.

Hey, guys. Congrats on the results and thanks for taking my question. Thanks, Jeff you touched on this a great great Great day here.

You touched on this earlier can you talk some more about the client adds from the quarter and really the first half.

You know 2400 clients, which continues to increase so my question is you.

What do you think is driving those new wins and how do you feel about your sales team.

As far as how they are performing maybe talk a little bit about the flow rates of what changed.

This year compared to last year any kind of qualitative color you can share customer acquisition your sales force.

<unk> right now would be great.

Thanks.

Yes, we're really pleased with our presence in the market and the ability of our volume rates to represent the company around the world. So as you look at.

On our approach on our approach has always been to hire domain experts and take domain experts and put them with great product in market and then surround them with relationship management and other things that make our clients feel like theyre getting true sort of white glove treatment and top notch.

Technology top notch service so our reputation in the market is very strong from that helps drive the client acquisition that you've seen and thats really true across the verticals, it's true across the geographies.

We benefit significantly from our good name in the market and that's what's helping us.

Continue to drive deeper into existing clients and win new clients.

We're also doing some of this newer programs and marketing effort right. So.

Supporting our sales team with things like we have a fly wire champions program, which is sort of a referral type program, we have partnerships with folks like the ATCA. That's the adventure travel Trade Association.

And we're working with them to help make sure that the flywheel proposition is understood as broadly as possible and so sort of from that digital marketing partner marketing partner acquisition and strategy. All of those are helping support our sales team and then the sales team has been very skilled and effective in the markets.

They're tackling and so all of that together is driving that strong pipeline driving the strong.

Quarterly client additions, we feel really good about where we are with that net debt, we are going to be hiring more of those folks and.

Continuing to expand the team.

Jeff the only thing I'd add to that is just remember the flywheel advantage to write the book.

Platform the network and the vertical software it differentiates us so much from other companies in the market.

Having those things and having experts that know these industries.

It may not sound revolutionary, but within these industries like buying from people, who are experts and have the best technology to deploy as well.

To just solve the problem really goes a long way. So that's the other part debt definitely don't count out when you think of our sales team, they're going to market with something that's quite unique and differentiated.

Okay, that's great color appreciate it.

As a follow up on Jason's question I saw the press release of yours about La Liga business School.

And there's another 1 that you just mentioned about your expansion in Canada. So from the outside it seems like the international opportunities accelerating so in that spirit on.

I was hoping you could talk more about your strategies internationally right now.

What's working and.

And can you share your level of optimism, but should we think of hard here it would be great to hear your thoughts on that thanks very much.

Yeah I'll start on the others can jump in but international has been very successful for us in recent years, and we sort of doubled down on on our investment in international So 1 of the things that we have paid particular attention to is the expansion of capabilities on the global payment network to <unk>.

Make sure that we can take domestic solutions internationally right. So that's the idea that we are doing more than cross border back on moving both the domestic and international money.

For our clients and an increasing number of on our markets. So what you are seeing us being able to do on doing effectively is operating that broader set of capabilities and more.

More markets right. So it started U S UK and Canada, expanding across Europe, adding markets in Latin America, and Asia Pacific and so youre seeing us being able to take a broader proposition out to a broader set of clients.

And with that again that increases our confidence in hiring and expanding the teams internationally and so thats that sort of that positive reinforcing effect as we land.

Key clients in new markets that helps accelerate the ability to land. The next clients on the next clients after that.

And so we are.

True believers in that international investment and the return we're getting on that international investment.

<unk> got our foot pretty hard on the pedal on that international expansion.

Okay, great. Thank you and congrats again on the results.

Thanks, so much.

Our final question is from Ken <unk>.

On this research.

Hi, My continued thanks, Thanks for squeezing me in I know, we're going over but.

Congrats on the IPO and the nice quarter and thanks.

Thanks for taking my question.

I just wanted to ask about your ability to ramp in some of these newer verticals like travel and B to B and maybe even health care I mean, how do you guys think about your competitive advantage in those verticals since there theres somewhat newer verticals I mean, where do you guys think you're differentiated versus competitors.

Yeah, Hey, Ken Thanks for thanks for the kind words, good to hear your voice as well.

I'd say when you look at these industries remember, we're coming into any of our markets with that fly wire advantage rates. So you have the platform of shared services you have the shared network to move the money. It just really take that burden of acceptance away from our clients and just handle all of that complication and then you have the targeted vertical software that's really best in.

Class for the industry right. So that combination really does help differentiate us and it gives us a huge leg up when we entered new industries, such as travel and BTB right, where our time and energy really is spent is around building up the team of experts with that experience within the industry and also building that I think of it as the <unk>.

<unk> to the systems of record debt, we're typically seeing that differ by industry of course right. So in education can be a student information system and healthcare, it's more of the EHR as such as Cerner and epic and such.

In travel Youre going to see it's much more of the bookings platforms like Rob mentioned Wednesday is a good example, or wound baas. Those are great. Examples of integrations that have come up to help our go to market and to reinforce that we are the partner to select in those industries and so when it comes to those new markets, we're starting off well down the road.

With all the capabilities built out around the movement of money on the network and it's really about how do we configure this to deliver value for the customers and their payers and make the experience is great and so that's really where we spend our time and effort and Thats part of the reason our time to revenue. So short as we go into new industries or as we go into new geographies.

Again, it's a pretty we're not starting from scratch.

Yes that makes a lot of sense.

Exciting stuff there.

And then maybe just from my follow up I wanted to ask about your <unk> business. You mentioned your focus on on the side of the market.

Can you maybe talk about where youre seeing the most opportunity I mean is it domestic payments is it more international and I guess when you think about the competitors that you're you're bumping up against I mean, who do you see in the market.

Yes.

Yeah, Ken I'll start with that 1.

Our proposition on the <unk> side is going after things from the receivable side and that already puts us in a relatively unique position right. There is a fair bit of sort of noise on the industry on the on the payable side.

But on the receivable side, we bring a unique set of capabilities as Mike just mentioned and we're very clear in the markets that we're focused on so to answer your question.

<unk>.

The primary sort of momentum in target markets for us on around the segments, we have targeted.

Which on a sort of attacked software manufacturing and professional services segments. We've seen success across all of those and we are looking forward to continuing that investment in those in those areas, where similarly working on the integrations as Mike mentioned sort of the.

The key systems of record that matter in <unk> and <unk>.

On integrations like the 1 we mentioned on the call earlier around <unk> are the kinds of things that are helping generate business.

Our <unk> segment final part of I think what you were asking about there. It is both international and domestic what clients are looking for us to do is solve the problem broadly on the receivable side. So certainly we have a very distinctive capability around international but our capabilities around domestic and international are both going to be very relevant as we.

Solve the receivables challenge in the <unk> segment.

Great great to hear thanks, a lot and congrats again.

Thanks, Kevin.

We have reached the end of the question and answer session I will now turn the call back over to Mark Massaro for closing remarks.

Well thanks, everyone. I appreciate you joining us on spending a little extra time on our first.

Earnings call as a public company, we're super excited about the future ahead, hopefully you heard it here.

Thanks, again to all of the fly day to help execute on an amazing Q2.

Excited to get back on the phone with you very shortly to talk about Q3. Thanks.

Thanks very much.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Goodbye.

[music].

Greetings and welcome to the fly Wire Corporation second quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note this conference is being recorded.

I'll now turn the conference over to your host Aqeel holiday.

You may begin.

Thank you and good afternoon.

With me on today's call on Mark Massaro, Chief Executive Officer.

Bob Udell, President and Chief operating Officer, and Mike Ellis Chief Financial Officer.

Our second quarter 2021 earnings press release supplemental presentation and associated form 8-K can be found at IR <unk> com.

During the call we will be discussing certain forward looking information.

Actual results could differ materially from those contemplated by these private debt.

We also will be discussing non-GAAP financial measures.

Call is being webcast live and will be available for replay for 1 month on our website.

I would now like to turn the call over to Mike Mcdonnell.

Thank you for joining us today for our first earnings call as a public company. We are incredibly excited to share with you today, our Q2.2021 results.

Before we do that I would like to take a few moments to recognize all the work that went into building fly wire and our recent listing as a public company on the NASDAQ.

Well. Thanks is due in large part to all of you our investors and shareholders. We would not be here today without the hard work determination and sacrifice of our now nearly 600 flights are.

<unk> all around the world.

It was truly their efforts with the support of family and friends that made this company possible.

And some of you joining us here today, maybe new to the fly wire story, our president CFO, Rob Oracle and I will spend some time reviewing <unk>.

<unk> opportunity. We have ahead of US curious why why are the key differentiators that make the fly wire business and technology unique the favorable industry dynamics, we are seeing in our end markets we serve today.

And the multiple proven growth levers, we have to help sustain long term growth strategy.

Finally, you will see that we improved our adjusted EBITDA significantly to nearly breakeven at negative zero point $1 million per the quarter. These are very strong results and there'll be covered in great detail later on our call by our CFO, Mike Ellis and of course, we'll be happy to answer questions later in the Q&A session.

For those new to the fly wire story I want to highlight our belief that the digitization of payments is inevitable. We've all seen it occur in many sectors of the global economy, such as retail and e-commerce, where the ability to purchase items is now seamless and easy.

But the reality is in massive sectors of the economy.

Digitization hasn't happened, yet and payment experiences are fragmented and often difficult for both the payer and the receiver.

And many sectors, including those that fly wire operates in today education health care travel and <unk>.

I have almost been left behind by traditional software and payment solutions.

For example in education solving affordability is incredibly important.

He's giving flexibility to students to pay their tuition overtime in the preferred method.

Choose today, what may be considered a flexible payments is a rigid plant manually tracked non digital and not in real time.

In healthcare, our lack of digital payment solutions and affordable personalized payment experiences are leading to more and more patients falling behind and hospitals, losing critical revenue.

And travel clients tell us before why why are they were spending an average of 25% of their work week managing payments and.

And in a recent survey conducted with over 300, CFO as a global organization.

89% of them said that they lost revenue to time spent on manual accounts receivable processing.

At the end of the day, our clients arent payment experts and they shouldnt have to be and their clients are demanding flexible convenient digital ways to pay similar to how they pay and other aspects of their lives. We believe the next decade will bring a wave of digitization across these industries that we serve and that fly wire is uniquely positioned.

To lead this trend with the unmatched combination of our software and payment functionality.

At <unk>, we're focused on high stakes high value payments and ultimately, helping our clients get paid on helping their customers pay seamlessly and easily from all over the world.

Which includes our next generation payment platform, our proprietary global payment network.

Vertical specific software.

Credit and debit cards third party wallet and alternative payment.

This software delivers rich payment experiences for our clients customers. These experiences are modern engaging in tailored to specifically and I'll be industry and geographic complexities that are required.

For example, our software enables a university to provide the ability for students to sign up for a payment plan to pay their tuition when multiple semesters or just the business the ability to embed our cross currency invoicing into their legacy ERP system to ensure that their customers are being invoiced and a familiar inc.

Convenient manner around the world.

They serve.

They have spent 10 to 15 years of their career selling and delivering solutions to these industries.

Lastly, our software is deeply integrated into our clients' business processes and key systems of record, having our software embedded between our critical business systems of our clients and their customers highlights how strategic the fly wire relationship is to their business operations.

The industries, we serve today with our solutions are some of the largest in the global economy.

As of quarter end, we now serve more than 2400 clients globally in over 30 countries.

In education, where our business started we serve private and public universities colleges boarding schools language and technical programs all around the world.

We are helping these clients improve how they engage students and families digitizing, how they get paid and streamlining their business processes.

In healthcare, we focus on the market for patient out of pocket spend also referred to as patient responsibility portion of the medical Bill.

Day, we served more than 80 health care and hospital systems, including 4 of the top 10 health care systems here in the United States ranked by hospital sides, helping.

Helping to improve the patient experience, while simplifying their accounts receivable.

We continue to accelerate growth in our newer verticals as well, including traveling BTB payments.

And now have more than 300 clients in these sectors in travel 1 of our focuses is on high end luxury experiences such as Zillow rentals destination vacation and luxury of combinations.

We also serve industry, leading multi day tour operators destination management companies. These travel purchases are large in size, often cross border and have a layer of complexity.

As mentioned previously the industries, we serve here at fly wire have huge potential to digitize over the coming decade, and there are also on many global development, helping to accelerate this trend.

For instance, the Covid pandemic has accelerated the digitization and consumers Asian of healthcare. We recently completed a study that found that 77% of respondents said that the technology for health care needs to be closer to what they personally use in other areas of their lives from 65% plan to use online methods for health care.

Payments going forward.

In Education College, and University campuses are seeing a return to normal as major education markets ex student friendly policy position on things like visas student travel such as Canada offering permanent residency to post graduate international.

And as reported by Pie News a recent study by RBC found that Canada's population is growing at its fastest rate since the pandemic began with international students being 1 of the primary drivers of candidate overall population growth.

Option as possible and to remain eligible for post study work opportunities.

And share within the United States, the largest market for international students. The U S Department of state in the U S Department of Education recently released joint statement renewing their commitment to international education in the United States signaling the continued importance to the U S economy and growth.

For travel.

<unk> recently completed a survey of over 800 frequent travelers to the U S, Canada, the UK, Spain and Japan.

70% of them said that they would spend more money on travel in 2022 than they have in the past 5 years and importantly for US 70% say the ease of payment impacts their choice travel agent <unk> tour operator.

Looking at our expansion in the BTB payments adoption of our solution continues to accelerate as does the need for digitization of payments in finance automation.

I mentioned earlier, our recent survey found that 55% of Cfos report monthly revenue losses between 4% to 5% due to operational inefficiencies related to their current payment processing system.

And almost a quarter, 23% say that they lose 6% to 10% of revenue.

In addition, 92% said that they could increase global expansion, if they had a better way to handle foreign exchange.

The opportunity to fly wire has in front of US is tremendous we have a unique set of capabilities our payment platform proprietary payment network and vertical specific software and a proven track record of delivering enterprise solutions to help digitize some of the largest sectors of the global economy on.

Our amazing team of <unk> has proven over the last decade that they can innovate execute and deliver exceptional client satisfaction with very strong business results.

I would now like to turn the call over to Rob <unk>, our president and COO to review some operational highlights from the second quarter in the context behind our growth strategy Rob.

Thanks, Mike and good afternoon, everyone.

Mike indicated in his opening comments, we had an excellent Q to.

Q2 revenue came in at $33 million or <unk>, 77% higher than Q2.2020.

The Q2 results reflected continued execution of our growth strategies in our target markets strength across our geographies as well as the favorable COVID-19 recovery trends, Mike just mentioned.

We manage through the pandemic by staying focused on our clients and growth strategies as well as staying attentive to fly wire culture, and our client needs.

Over the next few minutes I'll provide a very quick refresher on our addressable markets and then focus on some of our notable achievements in Q2.

In terms of our markets, we're already achieving meaningful scale, but we like to say, though that we're just getting started.

<unk> has a tremendous runway for growth as demand for domestic and cross border money movement continues to grow.

If you look at just education health care and travel.

We estimate the addressable market for our solutions is over $1.7 trillion.

On global payment volume.

And when you include our <unk> payments offering net adds an incremental 10 trillion in volume to our channel.

Together, our market opportunity is nearly 12 trillion dollars.

With our focus on the receivable side and our unique combination of assets. We don't see other current players attacking these opportunities like we can.

We've prioritized our growth in 5 key areas to further penetrate our markets and we saw strong results in Q2.

Here's some context and some highlights.

The first element of our growth strategy is to grow with existing clients.

Our strategy is to become an integral part of our clients' business and grow by adding complementary solutions.

Our average annual dollar based net retention rate over the 3 years, including 2018 to 2020 with 118%, indicating that we've historically started each year with reoccurring revenue and growth from our existing clients.

We're pleased to report we've seen a strong return to growth in our NRI in this Q2, when comparing against either Q2, 2020 or Q2.2019.

Our clients continue to love fly wire solutions on a global payment network and our technology and they continue to expand their work with us and solving their complex payments challenges.

An example of expanding our services with existing clients is the rollout of our new omni channel engagement capabilities to the health care vertical on.

Our initial clients are seeing great success reporting and over 80% increase in E Mail conversions, which has led to an 11% increase in self service online payments at those clients.

The flywheel on health care team has also launched a new user experience in the second quarter.

The patient experience represents a dedicated effort to make healthcare easier for patients with the expectation that the improvements will deliver positive results for our clients.

With this launch fly wider has seen a 5% to 20% increase in total payment volume for clients using the new user experience.

On the education side, we continued to expand with existing clients.

A notable expansion signed in Q2, with Texas, A&M, which was an existing client previously using fly wire only for cross border payments in Q2 be replaced their incumbent provider for domestic payments and are now the sole provider of all student tuition payments for both domestic and international.

Texas A&M as add on all of <unk> education capabilities within our full suite solution, including E store payment brands sponsored billing and our past due receivables product a collect.

Continuing with notable achievements in education in Q2, we announced the expansion of our full suite solution to Canadian institutions.

We are seeing early success and in Q2 signed 6 deals that were up sells with current cross border clients. Overall Q2 was an excellent quarter of growth and achievement with our existing clients.

The second element of our strategy focuses on continuing to win new clients.

We do this primarily by expanding our sales and marketing efforts net increase brand awareness and highlight the value of our solutions.

In the first half of 2021, we've already added over 200, new clients, including over 100 in the second quarter.

Q2 was 1 of the best quarters in the company's history in terms of projected <unk> of client signed across all verticals.

We acquire new clients, primarily through a direct model leveraging local and regional team members, who have domain expertise in our verticals.

This deep domain expertise differentiates our sales approach, but also supports our strong long term relationship management piece.

Key strengths on fly wire through.

Through Covid.

Also accelerated our digital marketing efforts and expect this trend to continue as our clients continue their own rapid digital adoption.

For education, we had a number of large wins around the globe showcasing the global reach of our education business. These new client wins include major universities from Mexico to Malaysia, Our Swiss boarding school Learning Institute in New Zealand among many many others.

In healthcare, we built on our success in 2020 by signing additional significant hospitals and health networks in the first half of the year.

This is on top of multiple expansions at existing clients.

In addition to driving digital adoption and addressing patient affordability challenges fly wires health care platform simplifies the patient financial experience by creating a single bill and single payment plan across multiple accounts and even entities.

We're very pleased to be helping them and their goals of reducing cost increasing payments and improving patient satisfaction.

Our 2 emerging verticals <unk> and travel also enjoyed many solid wins in the second quarter.

Our <unk> signed multiple clients for domestic and international <unk> accounts receivable solutions and the travel team saw growth of its key DMC segment.

Following on our award winning work with Hilton Grand Vacations are travel team was able to assign a record number of accounts in Q2.2021.

In addition, new travel clients are starting to use flyway or faster than they were a year ago. This speed of implementation is good for us and our clients and reflects the good work done by our engineering and delivery teams to make our platform more robust and flexible and therefore easier and faster to deploy.

In summary, we're adding a lot of new clients and thats across all of our verticals.

Third we are seeing strong results from our channel partnerships and continue to see this ecosystem grow rapidly.

We leveraged endorsements from our channel partners to reach a large network of potential clients.

We are seeing excellent momentum from our technology partners, such as sooner, where our integrated offering is driving new clients.

Bridge Health, which I mentioned a few minutes ago is a perfect example, we are also seeing continued momentum with epic clients supported by our integration student epic App Orchard. This includes single sign on to my chart, which is being rolled out several new and existing clients and secure checkout, which provides an embedded payment.

<unk> in my chart.

In travel we continue to work closely with key integration partners, such as <unk> room Dos and Op Digest, we see these partnerships growing as the world begins to travel more.

And on the <unk> side, we continue to invest in key channels and partners for growing our client base.

<unk>, a leading provider of automation software look to us to expand their international reach and capabilities by embedding flow directly into their solution.

We appreciate the partnership with ebay and the benefits, we will deliver to our new joint clients.

Fourth we grow by expanding to new industries, and new geographies given.

Given the breadth of our payments platform and global network, we can expand into new verticals with minimal investment.

We've done this most recently with our emerging segments in travel and BTB payments.

For new geographies, we are able to leverage our solutions by simply directing our go to market efforts at a specific region and use case.

So you've been able to generate multimillion dollar growth in many new geographies, resulting in great returns for our business.

Earlier this year, we announced the availability of our education solutions to key markets in Latin America, including Brazil, Mexico and Chile.

In Q2, we enhanced our payments capabilities, adding Colombia, Chile, and Peru enhancements.

Latin America represents an exciting opportunity for fly wire is both a source market for schools abroad, and is an increasingly popular destination for international students.

Our global payments team is hard at work on our next set of geographic expansions and enhancements.

Finally, we have a track record of doing successful M&A and we plan to continue to pursue strategic and value enhancing acquisitions.

Our multi pronged growth strategy is designed to build upon momentum we've already generated while creating new opportunities to drive even greater value for our clients and their customers.

In the bigger picture, we are just at the beginning on what is possible when it comes to leveraging our software to drive value and payments.

I would now like to turn the call over to Mike Ellis, Our CFO to review our business model our results for the second quarter and guidance for the remainder of the year Mike.

Mike.

Thank you Rob good afternoon, everyone as Mike and Rob mentioned, our business model is predicated on delivering high stakes high value payments and massive and growth industries today I'll be discussing our non-GAAP financial metrics for our second quarter of 2021, including revenue less ancillary services adjusted gross margin and adjusted EBITDA.

Uh huh.

<unk> financial results prepared in accordance with U S. Generally accepted accounting principles. Please read the financial statements included within our earnings release, and our form 10-Q, when filed with the SEC to start off I want to define how we generate revenue. We have 2 primary revenue sites. The first revenue tied to transaction revenue transaction revenue represented 77.

Percentage of total revenue less ancillary services earned during the quarter and consist of payment processing fees, we earn on the payments we process on behalf of our clients, which generated predominantly from cross border activities.

Second revenue type platform and usage base fee revenue platform on usage base fee revenue represented 23% of total revenue less ancillary services earned during the quarter and consist of the amounts we earn for the use of our platform. There are 3 primary elements within this revenue stream number 1 he's earned for a software enabled managed account.

Receivable services number 2 amounts paid for the initiation and payments made in connection with payment plans and number 3 SaaS based license fees. This revenue primarily comes from domestic activities.

Key driver of our aggregate revenue less ancillary services is the total payment volume we process.

For additional background I want to point out that our revenue was subject to seasonality due to the verticals on which we operate and the timing of when our clients customers process their payments specifically.

Specifically Q3, and Q1 are our strongest quarters, while Q2 is typically our slowest quarter.

With respect to our financial performance, we reported solid financial results for the quarter during.

During the quarter, we generated revenue line ancillary services of 33.0 million, which represented a 77% growth rate compared to the second quarter of 2020, which was driven by an increase in our total payment volume, we processed $1.9 billion and total payment volume during the quarter, an increase of 85% from the 1.

Zero billion reprocess during the second quarter of 2020.

We experienced revenue and total payment volume growth across all regions due to COVID-19 pressures easing as well as increased utilization of our solution from existing and new clients.

Looking at our specific revenue streams that I previously described.

<unk> revenue increased 116% compared to the second quarter of 2020, driven by a 127% increase and transaction payment volume and platform and usage based fee revenue increased 21 per cent compared to the second quarter of 2020 also due to increases in platform and usage based payment volume.

Moving on to adjusted gross margin.

Adjusted gross margin was 8.2% per the quarter, which represented an increase of 5.3% in absolute terms compared to the 62, 9% reported for the second quarter of 2020.

This increase was driven by 2 factors number 1.

Payment method mix shift towards bank transfers and number 2 reduce processing costs as we scale on total payment volume.

And currency pairs process may impact the percentage obtained from quarter to quarter, when dividing revenue less ancillary services by total payment volume.

Said another way though.

Those changes are outputs, reflecting the composition of the business in the quarter and that percentage will be impacted by where and how we grow.

Key point is that our platform and proprietary global payments network allows us to support many payment types for several verticals across many currencies that all have good economics from fly wire, we manage our business based on 3 key performance indicators revenue less ancillary services adjusted gross margin and adjusted EBITDA and we are pleased.

With the reported results for the quarter.

Moving on to operating expenses technology.

Technology and development expenses were $6.9 million, an increase of 8% over the $6.4 million incurred during the second quarter of 2020. This.

This increase was the result of our hiring activities. During the trailing 12 months ended June 32021, where we increase the number of employees within our technology and development departments by 10%.

Selling and marketing expenses were $10.9 million, an increase of 35% over the $8.1 billion incurred during the second quarter of 2020 also due to our hiring efforts within these departments and higher compensation costs due to our favorable revenue results.

General and administrative expenses were unchanged at $13.5 months from both the second quarter of 2021 and 2020 many.

Many factors impacted our general and administrative costs incurred during the quarter, but the primary factors included a hiring activities.

From rental costs associated with our recent initial public offering and changes in the fair value measurement of our contingent consideration associated with our acquisition of simply.

Moving on to adjusted EBITDA.

Adjusted EBITDA was negative <unk> 1 million per the quarter compared to a negative 7 points year on my end generated during the second quarter of 2020. This improvement was due to the contribution from our incremental adjusted gross margin driven by the 77% revenue less ancillary services growth rate during the quarter as previously discussed partially offset.

Net by increased investments in spending and compensation related costs as we invest in our technology and product teams as well as our sales and marketing teams on initiatives.

Moving to the balance sheet with respect to capitalization as of June 32021, we had $412 million in cash and cash equivalents and $24.4 million in long term debt on.

On May 28, 2021, we completed our initial public offering on which we issued and sold 12 points here 1 million shares of common stock at a public offering price of $24 per share, which included $1.6 million shares of common stock issued pursuant to the exercise in full of the over allotment option by our underwriters we received.

$263.8 million in net proceeds after deducting underwriting discounts and commissions of $19.4 million and other operating costs of $4.90 day.

As of June 32021, we had $104.7 million shares issued and outstanding.

Based on on financial results for the second quarter of 2021 and current financial trends, we are providing full year 2021 guidance for revenue line to ancillary services and adjusted EBITDA for.

For the full year 2021 revenue less ancillary services will be in the range of $158 million to $161 million.

This guidance reflects the optimism regarding the strength of our business for both Q3 and Q4 of 2021.

With respect to adjusted EBITDA, we will be on the range of 4.6 million. However, we will continue to invest in the business to drive revenue growth based on the addressable markets our solutions conserve and as a result, we do not expect to generate adjusted EBITDA in 2022 or 2023.

With prior quarters. This range assumes no further unforeseen COVID-19 related impacts, which could influence the remainder of 2021.

Summarize we believe we have a scalable business model that puts us on a strong position to continue our success with a clear opportunity for future revenue growth and path towards profitability.

I would now like to turn the call back over to Mike to wrap things up before taking your questions.

Thanks, Mike we.

We believe <unk> that we have a clear and simple value proposition that will continue to help us when we help our clients get paid and help their customers pay with these no matter where they are in the world. We provide best in class execution for high Stakes high value payments, we've an extensible suite of solutions across global and local.

Industries and markets made possible by our <unk> advantage that payment platform, the global network and vertical specific software.

We have a robust and attractive business model with very sticky client relationships.

Finally, our innovative mindset and execution driven culture will continue to guide us and help make fly wire a transformative company.

None of what we do will be possible without our nearly 600 amazing primates. This is a team that is truly integrated over the last decade.

With the team that embodies our values of collaboration ambitious innovation fulfillment execution on.

We anticipate an evolved learning I am proud to lead this team we would like to thank them for all their continued hard work.

With that I'd like to turn the call back over to the operator for questions operator.

Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is from the question queue.

Price start to if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing on stacking.

Time constraints, we ask that everyone limit themselves to 1 question and 1 follow up per person 1 moment. Please while we poll for questions.

Our first question is from Darrin Peller of Wolfe Research. Please state your question.

Hey, Congrats on those guys on the first quarter out of the box and and good results.

I guess, Mike and Rob if we think about the sources of upside I mean, I think the results were obviously strong a lot of investors expected strong results from you guys and potential upside, but I think the magnitude was somewhat eye opening in terms of the both the contribution profit just really overall the business on top line.

When we think about that and the major drivers youre seeing that that's really the major points that are pushing that.

What would you say is it same store sales, that's really coming back or is it more of a combination of incremental customers flowing through at a faster pace.

And then how much of it is really macro driven versus what's in your control.

Just in general I mean, it was obviously a great quarter transaction volume saw significant strong growth I think 127 or so percent.

Transactional revenue of 116%.

I would say big callouts for where that growth came from both the travel sector in the education sector.

He can give you a flavor for it.

Canada for instance, and cross border education really outperformed right. So.

1 good example in travel.

And investments in luxury tour, operator, multi day trips and really that coming back.

A bit earlier than expected as well.

So Darren it was it was really a strong performance across the board. So if you think about our way of segmenting clients and we've talked about cohorts in the past.

Sort of if you think about that most established cohort on our 2019 on prior clients all grew very well so you'd see in that return on the NRI on you heard my comments about the strong NRI, but that that was the largest single contribution in terms of the allocation of the growth that you saw you also saw a very nice contribution from the 2020.

Class. So that group also grew very well and contributed meaningfully to the 'twenty to 'twenty..1 period, obviously, we had a nice quarter in terms of new signings as well with 100.

Plus new clients added to the tape during the quarter, obviously those folks get line.

Distributed during the quarter or even after so their contribution to the quarter is smaller but the growth really came in all 3 areas.

Alright, so its pretty broad based it sounds like but the existing customers sound extremely strong which is good to hear just 1 quick follow up would be on the guidance you guys gave and actually I'm going to hit on the EBITDA side for a minute because it was interesting to see that it was actually positive let's call. It 5 million Bucks I think you said 4 to 6.

You are a company that we know is going to invest or reinvest considerably into the business given the opportunities, but here you are guiding to a positive EBITDA number.

So can you just touch on your thought process around that versus and what we should be thinking about in terms of your potential for operating leverage on pass through.

Thanks, guys.

Yeah for sure so obviously.

On the business performed quite well and you saw the kind of revenue outpace.

I'd also just highlight the fact that.

As we've said before we've really great industry unit economics, and you see that in the quarter as that flows through into adjusted EBITDA.

As you look forward it gives us frankly more confidence to invest in growth.

The business is there is a great business right and you can see that with the quarter's performance and so.

I would say expect us to continue to accelerate right hiring for US is at record pace, It's continuing right Theres, a big hunt for talent out there and Thats something youre going to see us continue to invest a lot in specifically around product and tech as well as sales and marketing.

And frankly, I think thats, what the market is going to ask about so.

That's where you're going to see us continue to continue to grow and invest again, we want to make sure people have an understanding of where we see opportunities to invest in growth, we will be making them and it is nice to see quarters like this where the business economics flow right through.

Understood Alright, thanks, guys.

Thank you Sir.

Our next question is from Tien Tsin Huang of Jpmorgan. Please state your question.

Thank you so much on the congrats again on the on your first public call.

Echo what Darren said its pretty amazing results here.

I'll ask actually on the cost side, if you don't mind on gross margin higher than expected I know you mentioned bank transfers and payment method mix helps but just curious if debt is sustainable.

Or if there was anything unusual that maybe we need to consider going forward in the second half because with the big magnitude on the revenue and then you're also getting a better gross margin flow through.

That does change our thinking positively obviously, so just want to make sure we get that right.

Sure. Thanks, This is Mike Ellis.

Great question, and I'll kind of just start up by saying the business is seasonal right and you understand that based on what we share with <unk> and you're right in what I said that the basic improvement in gross margin was essentially the result of some pay of choices that were basically due to bank transfer as being a more preferred method during the quarter.

Predominantly it's Mike and Rob talked about the improvement that we saw in our markets in Canada, and EMEA and that's really our the majority of the improvement for the adjusted gross margin.

Just like when price points increase over time, whether that's a U S based educations or higher price travel bank transfers tend to be used more often and we see that happening in Q3 as well so.

The improvement to the 68% range.

As expected, we do expect our adjusted gross margin.

To have a level set for the next.

<unk> quarters, and don't expect any type of major increases, but we do continue to drive efficiencies through our payment network and you see that as well that's the other major component to the improvement.

Continue to drive scale not only through the fact that we will increase our payment volume, but we continue to negotiate with our but with our providers and you know that we control the network. So we get to control that flow. So we've got opportunity and leverage to drive margins, but we anticipate maybe not such a great 530 <unk>.

Basis points that you should not be thinking about that on a sequential quarter basis improvement.

Understood that's very clear and then my follow up just on the investment side given the strength on the revenue front.

Are you able to spend and hit your hiring targets and lean in from an Opex and <unk>.

Investing standpoint, I know more on talent right now it's pretty tough so.

Just curious if youre hitting your budget on the investment side.

Yes on Tinder and I'll jump in here. This is Rob we've expanded significantly already this year, where we've hired well over 100 people into the company already we have in anticipation of continuing to expand significantly with similar growth through the second half of the year.

We.

I think we have a pretty good proposition to share with new prospective slide 8.

A company with a great culture as well as a great opportunity in front of it and so youre right. The war for talent is definitely.

It's a tough game out there, but we do think we play well on it and we are.

Expanding in areas like talent acquisition and that team to be able to make sure that we are sort of out there in all the places that we're hiring and again for US. It is all over the world it's across the verticals and so that gives us the chance to look on a lot of places where the talent, we need yes, and I would just add to what Rob said, we're also seeing talent find US now now that we are.

In the public markets that have a bigger bigger stage.

So really impressed with the talent, we're bringing into the business today and excited for the future. We're happy to compete in this kind of future of work world.

And continue to recruit great playmates.

Good stuff. Thank you guys.

Thanks, Andrew.

Yeah.

Our next question is from Dan Perlin of RBC capital markets. Please state your question.

Thanks, and let me let me also echo great results are always appreciate that right out of the box. It's always helpful for us too so congratulations on.

Relations on that.

Page when we think about.

Some of the seasonality and mix that goes into driving that into the second half of the year. So is there any call outs in terms of maybe just this rebound in.

You know on kind of cross border volumes that helped this quarter and then maybe some of the expectations that just from a cadence perspective for the back half.

<unk> aspect of our business.

Im not sure it rebound you divide if youre looking at it from Q1 to Q2, then yes. There was there was an increase in monetization or what you're referring to is that monetization rates and that was really a function of payment mix. The method of choice like so for instance, Europe like I said the bank transfers will have.

A lower price point, so therefore lower monetization rate in this case, but youll also have higher gross margins I think the point that you have to look at is when you look at our economic profile that is really at the adjusted gross margin level and knowing that the.

The closer you get by dividing revenue on ancillary services by total payment volume is going to stay within a pretty regular band depending on the quarter. So if someone's fell so inclined to do that analysis I would ask you to look on a quarter to.

The previous year's quarter, not sequentially because of the seasonality of the business and I'll just.

Just to add on to what Mike said transaction size right the transaction size.

What a tuition bill or water travel bill could be at a given quarter or month can it can impact right.

<unk>.

You're putting a lot of excitement in the market and you're generating a lot of demand and you're winning a lot of clients. I guess the question is you know near term.

I'm wondering what their attitude is around kind of the delta variant in particular around education and cross border.

It sounds like some of the borders are opening back up but I would just be interested to hear kind of in real time, maybe what some of those conversations selling thanks and congratulations again.

Yes, I would say.

We look across our industry is right I mean, you look at 2020.

Dealing with the first wave of multiple waves of Covid.

I'd say our clients.

Continued to be quite resilient, they figured out the path surrounded we supported them, especially when it came to billing processes operational.

Back office changes those types of things and again I would say.

They continue to innovate in and figure out ways to keep moving in that environment and I think as.

As much as you know.

Some of the news on the headlines I think gives us all.

Pretty much everywhere a bit of pause as did not knowing what the future is I think they've spent the last 18 months dealing with this pandemic I think we're probably all collectively going to be dealing with this pandemic a bit longer.

And I think.

I think we'll all find a path through it and so I think they're at a point of more living with it from what we're seeing as we all are.

And realizing that this isn't something that you kind of shut the curtain on it's something that you'll likely be dealing with overtime.

Again.

Just highlight the signs we saw on Q2, the continuing signs we're seeing already in Q3, we're really encouraged I mean, that's part of the reasonably we put out some guidance for the end of the year. So feeling really good about where things are at and.

How these industries are reacting to debt.

The world right now.

Yes, it's really impressive thank you.

Our next question is from Jason Kupferberg of Bank of America. Please state your question.

For year comparisons actually ease in the second half versus the first half. So just curious if there's any call outs around that certainly nothing wrong with being conservative, but just wanted to unpack that.

Net.

So I can jump in here, if you like Jason.

Obviously, we're very bullish on the second half of the year and Thats, the sort of underlying point of putting out the guidance that we did.

In terms of understanding sort of that rate of growth and looking at sort of first half versus second half. Please understand that the Q2 comparison against 2020 was the most impacted quarter. When you look back at last year's quarter. So obviously, we're very pleased with 77% growth. We do know that that was against the most.

The most impacted quarter of last year as you look forward to the Q3 and Q4, obviously those are bigger quarters for us.

And we were very optimistic about the performance for those quarters.

Without necessarily saying that they're going to achieve that same level of growth on a percentage basis.

Okay understood I wanted to hear a little bit more about the international expansion efforts I know you touched a little bit on Latam and some of the efforts in the education vertical there, but maybe if you could just give us a little bit more of a holistic view of what you see on the international expansion front and any milestone.

Perhaps we should be looking for on that front over the next 2 to 3 quarters.

Yes International is definitely a focus area for us it's a big part of the Tam and it's a great growth opportunity for us.

I know well.

We started off as a U S. Based company, we started off with a U S centric operating with onshore clients on a single product.

Company is a very global company today, but with enormous opportunities to expand on all of these markets.

Do you sort of think about on a different verticals education, we are expanding significantly in EMEA investing significantly in Canada, Latin America and APAC all of those are growth areas for us where we start with pretty small teams an opportunity to grow those teams and grow the business opportunities in all those regions travel per.

Similarly, a global opportunity, where we have teams around the world, but still the opportunity to.

On penetrating the travel segment way more deeply than we have thus far.

We are growing those teams. Similarly, if you look in on our <unk> segment, that's going to take advantage of our opportunity to capture that 10 trillion global Tam that we see out there and that team grew significantly in Q2, and we expect to continue to grow that team for the rest of the year. So international is a big part of the story for us.

We are a global company today with playmates, all over the world and clients all over the world and that theme will be.

Through an increasingly true going forward.

Okay. Good stuff congrats on the results.

Thank you.

Our next question is from Ashwin share share Vica of Citi. Please state your question.

Thank you.

You might cut on Mike.

Congratulations.

Congratulations on the quarter.

Good start public life.

Hi.

Wanted to get back to sort of the PQ versus <unk>.

Just looking at debt from.

From the perspective of volumes.

So we know the seasonality TQ stronger than <unk>.

As you look at your pipeline do.

Do you see perhaps debt seasonality to some extent being overridden by the strength of the pipeline just kind of thinking too.

How long should process the strength of the current results.

Yes.

But Q3 is the larger 1 right. So that's worth noting.

I would say when it comes to client signs.

We really just see a continuation of the great first half.

Client signs and client acquisition metrics really continuing.

So I think that continues to be our.

No.

The fact that we feel really confident when it comes to.

Our revenue will come in but also where client acquisition will help.

Remember that when you acquire that actual payouts on that acquisition.

Client is usually in a subsequent year right. So does.

Actually very little impact of net new clients happens within the given year on our business. That's what makes it such a great recurring growth model over time and that NR is driven.

And so it's really important to note that all of these great client signs that we're having this year those will really continue to pay off into 'twenty, 2 and 'twenty 3.

Okay.

Understood understood and 1 question, we get relatively frequently from from investors is with regards to.

Education and sort of the you know.

It seems like the already very good penetration ex U.

We feel that could cause on global institutions and so on per foot.

Think of the future education opportunity as you've kind of mentioned some.

Because in the past.

Adding new services going after sort of the non Union city.

Marketing so on Covid.

You talk a little bit about those incremental.

Adds a new work Youre doing there.

Progress that youre, making perhaps.

Sure no happy to and I'm sure, Rob will probably jump a few things in at the end.

I would say still feel like we're in the early innings, even though education was our first offering.

Even when you look at the cross border product signing.

Big University is continuing to see great growth in many of those regions that Rob mentioned earlier around global expansion.

And so I would just highlight that we've been we've been fortunate to again be.

On winning great clients, and a who's who of top universities around the world. We've also found as you mentioned those great Subsectors right, where they are its boarding schools, whether its language programs vocational schools all of those areas really bring us a great and diverse.

Our revenue stream and even within the education industry.

And then I would just highlight remember the land and expand strategy really important which I'm sure Rob will jump in to talk about but we used to be an education solution provider with 1 product now we have a whole suite of offerings that is allowing us to go back into those universities and really go for all the payment volume really help them digitize.

Digitized campus right doing all the domestic processing and much much more.

I'm sure Rob will probably jump in it.

Yes.

Moving all of that tuition dollars.

We're going to provide great service to Texas, A&M, but we're also seeing that as a meaningful opportunity for the company, but we're doing that not just in the U S are there multiple U S. Examples, but we're doing a similar playbook in the UK, where we have multiple examples where we are similarly, taking on the domestic as well as the international processing, we're rolling out on our CRM.

Suite in the U K for multiple institutions. If you look at Canada. Similarly in Canada I mentioned in my comments 6 upsells.

Our existing clients of our expanded capabilities that we've rolled out to Canada in the last year and so Q2 was a good land and expand quarter for Canada as well on top of all that is really sort of the new product capabilities right. So we're in the very earliest days not just of the.

Sort of debt Crs platform, but early days of rolling out our collect capabilities around sponsored billing international payment plans elements of our suite that can be rolled out in different order to different clients based on their needs and so for us really a lot of opportunity to continue that land and expand.

Got it got it no. Thank you for all the detail I appreciate it.

Our next question is from Bob Napoli of William Blair. Please state your question.

Alright, Thank you and good afternoon, and congratulations I will add that to the very nice.

Order and start.

Did you hate to see thanks, Bob I guess.

On.

The pipeline.

Now the trend in the pipeline and maybe the composition and maybe a little color on the composition or has there been how is the pipeline trended from.

Prior to the IPO, where you had a really nice pipeline and.

How much of that is cross border is there a different mix by.

Tiago fee and then the clients you're adding how does the size of the IRR of those clients compare to what you've had historically.

Rob I can jump in and start.

With some thoughts on that so we continue to have great pipeline strength seen growth on the pipeline, we shared with you in the past.

From.

Directional guidance on just sort of the strength of our pipeline on our IRR and it continues to be strong so.

<unk> signed this year over I'm, sorry, this past quarter over 100 clients.

Replenish those clients and more in the pipeline.

Values and the pipeline remains strong sort of consistent with our historical averages. They are diverse across the verticals that we have with pipeline strength across each of the verticals as well as across the geographies again on a very global business with a lot of opportunity in the U S and a ton of opportunity outside the U S. So really sort of.

Sure.

Consistently strong and very pleased with where we stand in the pipeline sets us up very well for the future.

And then maybe I mean, you have a very healthy balance sheet right now.

Very strongly growing business.

With your M&A, if from an M&A perspective.

Maybe just some color on.

What you would what's the highest priority.

If you were to have your choice on.

On on the M&A front, where would you acquire is it within your current verticals is it a new vertical is it expansion in different geographies and I guess, you can say all of the above book.

Yeah.

Yes, I'll take that 1 Bob So I would say, obviously, we're coming off of having done.

Couple of tuck in acquisitions over the years, we think it's a muscle we know.

We know well and we are frankly, good at obviously I won't say anything is burning a hole in our pocket or anything right now we're looking for great opportunities for us.

A potential capability that we thought could be expanded or up sold into the existing 2400, plus customer base that we have.

And then lastly, the opportunity.

Obviously exist to enter additional geographies.

It's.

It's not something that would really fall out probably any of those 3 areas.

Thank you I appreciate it.

Our next question is from John Davis of Raymond James.

Thanks, Good afternoon, guys and I'll add my.

Congrats.

Mike maybe just to start off a little bit on Bob's question around M&A, maybe talk a little bit about how you guys look at it from a financial framework perspective, given you guys looking to growth accretive deals.

Potentially do something more transformative, but maybe instead of kind of what you would buy maybe focus a little bit on how you guys think it from a financial perspective.

Yeah, I would say.

We're definitely.

Looking for things that.

Either either are growing at levels that would be consistent or better than what we're doing.

Or have an ability for us to grow so 1 area potentially could be.

Leveraging obviously, our ability to monetize payments on someone else's business that has yet to have a great way to monetize payments right that would still fit even if.

The growth rate of that target potentially wasn't at the level because of the monetization potential.

That definitely falls in the level Budd.

There's a lot of businesses out there that don't have.

That compounding growth story like we do that doesn't have that consistent and again, we think thats really important right. So we have to we have to really believe in that story.

We won't.

<unk> transformative deals, but at the same time.

We've had a good track record of finding deals that debt again, either fit into an existing industry vertical or geography have great people that don't want to kind of go runaway.

Don't look at us too to kind of do platform consolidation extensively don't look for us to.

Okay, Great and then Mike you've been pretty explicit that you plan to kind of reinvest upside to the top line and kind of expect breakeven EBITDA for the foreseeable future at least in 'twenty 2 'twenty 3 so on the guests that <unk>, probably beat your own expectations.

And so if I think about where those incremental dollars if the momentum on the business continues and you end up with a great problem, which is more money to spend.

What are the top priorities that incremental dollar of investment.

Yes.

Side, Here's why why are those conversations are just they're frankly, just so fun I mean, there's opportunity everywhere. So.

There's probably even flow maybe on this call listening for.

Signal to go and do more and expand and there's so many great ideas of new product capabilities to build new markets to enter we can enhance the global network and so I'd say, we're not we're not waiting around for those investments.

Frankly, we've been looking at how do we accelerate this business and continue to accelerate it we will continue to do so.

I would say some big areas I mean sales marketing client engagement right. There's just that much more we can do based on what Rob said around land and expand.

Do we get in front of more customers, how do we have more support for those customers and accelerate new markets and.

And then I would say product and tech.

Continued to scale, so that we can build and enhance our solutions.

<unk> solutions.

And bring new products and capabilities to market faster.

So those would be I'd say, the big too big to investment areas.

But again really really excited to have that capital to invest and also to just be able to look and say.

This is a good industry, leading unit economics that we have on this business you can see them at work.

But at the same time, we're going to focus on growth.

Okay I appreciate it guys. Thanks.

Our next question is from Jeff Cantwell of Guggenheim.

Sure.

Hey, guys. Congrats on the results and thanks for taking my question and share you touched on this or okay, great great to hear you.

You touched on this earlier can you talk some more about the client adds from the quarter and really the first half.

You're now 2400 clients, which continues to increase so my question is yes.

What do you think is driving those new wins and how do you feel about your sales team.

As far as how they are performing maybe talk a little bit about the flow rates of what changed.

This year compared to last year any kind of qualitative color you can share on customer acquisition your sales force.

<unk> right now would be great.

Thanks.

Yes, we're really pleased with our presence in the market and the ability of our flow inmates to represent the company around the world. So as you look.

And our approach on our approach has always been to hire domain experts and take domain experts and put them with great product in market and then surround them with relationship management and other things that make our clients feel like theyre getting true sort of white glove treatment and topnotch.

<unk> top notch service so our reputation in the market is very strong from that helps drive the client acquisition that you've seen and thats really true across the verticals, it's true across the geographies.

We benefit significantly from our good name in the market and that's what's helping us.

Continue to drive deeper into existing clients and win new clients.

We're also moving some of this newer programs and marketing effort right. So.

Supporting our sales team with things like we have a fly wire champions program, which is sort of a referral type program, we have partnerships with folks like the ATCA that's the.

Adventure travel Trade Association.

And we're working with them to help make sure that the flyway or proposition is understood as broadly as possible and so sort of from that digital marketing partner marketing partner acquisition and strategy. All of those are helping support our sales team and then the sales team has been very skilled and effective in the markets that.

We're tackling all of that together is driving that strong pipeline driving the strong.

Quarterly client additions, we feel really good about where we are with that net debt, we are going to be hiring more of those folks and <unk>.

Continuing to expand the team.

Jeff the only thing I'd add to that is just remember the fly wire advantage to write the platform the network and the vertical software it differentiates us so much from other companies in the market.

Those things and having experts that know these industries.

It may not sound revolutionary, but within these industries like buying from people, who are experts and have the best technology to deploy as well.

To just solve the problem really goes a long way. So that's the other part that definitely don't count out when you think of our sales team, they're going to market with something that's quite unique and differentiated.

Yeah.

Okay, that's great color I appreciate it.

As a follow up on Jason's question I saw the press release of yours about La Liga business School.

And there's another 1 that you just mentioned about your expansion in Canada. So from the outside it seems like the international opportunities accelerating them so in that spirit.

I was hoping you could talk more about your strategy internationally right now.

What's working and.

And can you share your level of optimism or if you think of hard here would be great to hear your thoughts on that thanks very much.

Make sure that we can take domestic solutions internationally right. So that's the idea that we are doing more than cross border back on moving both the domestic and international money.

For our clients and an increasing number of on our markets. So what you are seeing us.

Being able to do on doing effectively is operating that broader set of capabilities in more markets right. So I started U S UK and Canada, expanding across Europe, adding markets in Latin America, and Asia Pacific and so youre seeing us being able to take a broader proposition out to a broader set of clients.

And with that I began that increases our confidence in hiring and expanding the teams internationally and so that sort of that positive reinforcing effect as we land.

Key clients in new markets that helps accelerate the ability to land. The next clients on the next clients after that.

And so we are.

True believers in that international investment and the return we're getting on that international investment.

On our foot pretty hard on the pedal on net international expansion.

Okay, great. Thank you and congrats again on the results.

Thanks, so much.

Our final question is from Ken to Chatzky of Autonomous research.

Hi, My continued thanks, Thanks for squeezing me in I know, we're going over but.

Congrats on the IPO and the nice quarter and thanks.

For taking my question.

I just wanted to ask about your ability to ramp in some of these newer verticals like travel and <unk> and maybe even health care I mean, how do you guys think about your competitive advantage in those verticals since there theres somewhat newer verticals I mean, where do you guys think you're differentiated versus competitors.

Yeah, Hey, Ken Thanks for thanks for the kind words, good to hear your voice as well.

I'd say when you look at these industries remember, we're coming into any of our markets with Thats why wire advantage rates. So you have the platform up shared services you have the shared network to move the money and to really take that burden of acceptance away from our clients and just handle all of that complication and then you have the targeted vertical software that's really best in.

And travel Youre going to see it's much more of the bookings platforms like Rob mentioned Wednesday is a good example of room Baas. Those are great. Examples of integrations that have come up to help our go to market and to reinforce that we are the partner to select in those industries and so when it comes to those new markets, we're starting off well down the road.

With all the capabilities built out around the movement of money in the network and it's really about how do we configure this to deliver value for the customers and their payers and make the experience is great and so that's really where we spend our time and effort and Thats part of the reason our time to revenue. So short as we go into new industries or as we go into new geographies.

Again, it's a pretty we're not starting from scratch.

Yes that makes a lot of.

That's exciting stuff there.

And then maybe just from my follow up I wanted to ask about your <unk> business. You mentioned your focus on on the side of the market.

Yes.

Yes, Ken I'll start with that 1.

Our proposition on the BD side is going after things from the receivable side and that already puts us in a relatively unique position.

A fair bit of sort of noise on the industry on the on the payable side, but on the receivable side, we bring a unique set of capabilities as Mike just mentioned and we're very clear in the markets that we're focused on so to answer your question.

The primary sort of momentum in target markets for us on around the segments, we have targeted.

Which on a sort of a tech software manufacturing and professional services segments. We've seen success across all of those and we are looking forward to continuing that investment in those in those areas, where similarly working on the integrations as Mike mentioned sort of.

On the key systems of record that matter and <unk> and.

<unk> integrations like the 1 we mentioned on the call earlier around <unk> are the kinds of things that are helping generate business in our <unk> segment final part of I think what you were asking about there. It is both international and domestic what clients are looking for us to do is solve the problem broadly on the receivable side. So certainly we have a very distinctive.

<unk> around international, but our capabilities around domestic and international are both going to be very relevant as we solve the receivables challenge and the CW segment.

Great great to hear thanks, a lot and congrats again.

Thanks, Kevin.

We have reached the end of the question and answer session I will now turn the call back over to Mark Massaro for closing remarks.

Well thanks, everyone. I appreciate you joining us on spending a little extra time on our first.

Earnings call as a public company, we're super excited about the future ahead, hopefully you heard it here.

Thanks again to all the fly day to help execute on an amazing Q2.

Excited to get back on the phone with you very shortly to talk about Q3. Thanks.

Thanks very much.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day goodbye.

Q2 2021 Flywire Corp Earnings Call

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