Q2 2022 Flywire Corp Earnings Call

August 9, 2022

[music].

Greetings, ladies and gentlemen, and welcome to <unk> Corporation's second quarter of 2022 earnings call.

At this time, all participants are in listen only mode.

The question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the countries that you host nikhil.

Oh, it's incident industry patients and if P. Eight.

Thank you.

Thank you and good afternoon.

With me on today's call are Mark Massaro, Chief Executive Officer, Bob Udell, President and Chief operating Officer, and Mike Ellis Chief Financial Officer.

Our second quarter 2020 earnings press release supplemental presentation, and when filed associated quarterly report on Form 10-Q can be found I already got Blackwater Dot com.

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

Actual results could differ materially from those contemplated by these forward looking statements.

We will also be discussing certain non-GAAP financial measures.

Please refer to our press release and SEC filings for more information on the risks, but in these forward looking statements that could cause actual results to differ materially risks.

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 on our website.

Oliver like myself.

Thank you Akhil. Thank you to everyone that is joining us today.

We're excited to share our Q2 2022 results with all of you and provide more insights on the future and flatware.

We saw strong performance in the second quarter in a few minutes, Rob Oracle, our president and CFO as well as Mike Ellis, Our CFO will go into greater detail about our operating and financial performance during the quarter.

But first I will start with a few financial highlights as you'll see from our results. We continue to have success in penetrating the significant total addressable market that our education health care travel <unk> verticals represent.

Total payment volume for the quarter increased 49% compared to Q2 2021.

Revenue less ancillary services.

Was $51 5 million represented a year over year revenue growth of 56%, even despite increasing FX headwinds.

Adjusted gross profit was $33 2 million in Q2, an increase of 48% year over year.

Adjusted EBITA was negative $6 1 million, which was better than internal expectations, driven primarily by stronger revenue growth.

Today, we will be raising our full year 2020 to financial guidance for both revenue less ancillary services and adjusted EBIDTA, which Mike Ellis will share details on later in this call.

I am quite proud of the great results, we are sharing this quarter, especially at how the business continues to navigate these exceptional macroeconomic times.

Of course, none of this would be possible without our amazing flyways, but I'd like to take a moment to thank them for all their incredible efforts.

I'll now move on to discuss our industry verticals and trends well.

While none of us can predict the future based on the historical current and expected trends, we believe fly where is well positioned for continued growth across our verticals.

Education and health care have historically been resilient during recessions in economic downturns.

<unk>, particularly luxury travel continues to be strong supported by pent up demand from the pandemic.

And with more businesses focused on digitizing and streamlining global accounts receivable, we expect to see increased demand for solutions like ours in the <unk> sector.

Let's take a closer look at trends starting with education.

Education has remained strong even during recessionary periods.

With the National Bureau of economic research reporting that college and University attendance levels increased even during the great recession.

Education today is still in the midst of a post COVID-19 recovery as the international student enrollment volumes normalize and travel restrictions are removed.

According to the Institute of International Education's 2021 open doors report.

<unk> international students as a percentage of total U S campus enrollments averaged five 4% pre COVID-19 in the 2019 2020 academic year.

Versus just four 6% in the 2000 22021 academic year, leaving room for still further recovery.

Additionally, after suffering steep losses in new international student enrollments in 2020 in 2021 U S colleges and universities are reporting increasing numbers of the international student applications for the upcoming academic year in fact, new research from the educational consultancy ISF reported that 65.

Percent of U S universities survey this spring.

International applications have increased this is compared to just 43% in the same period last year.

Shifting to trends in health care, we believe that our health care solutions are more relevant than ever given that the health care industry continues to be durable as the services provided are often non discretionary in nature.

We've seen that health care organizations, who use fly wire are able to better engage patients through multiple and preferred digital channels throughout the entirety of the health care payment experience.

They can reduce bad debt write offs and meaningfully increase revenue collections.

By offering fly wires payment plans and solutions to their patients or clients are able to increase affordability of care. They provide through our omnichannel engagement software and provide further transparency to their patients.

Two a study prepared for fly wire by Forrester consulting flowers health care clients can see a 29% increase in revenue collections from our solutions.

Looking at travel American Express recently stated that the travel industry has rebounded post pandemic faster and stronger rate than anyone expected.

Strongly agree.

According to the U S travel Association for the first time since the start of the pandemic travel spending in April 2022 was 3% above 2019 levels approximately 28% of surveyed travelers plan to spend significantly more this summer compared to their summer 2019 travel budget despite higher prices.

Again, these trends and our strong growth in travel continues to validate the large and growing opportunity we have with our solutions.

As for our BTB vertical we continue to work with many businesses to automate their accounts receivable and enhance their order to cash workflows.

We're seeing particular success and businesses, who already have international clients with those looking to expand globally, because our solutions eliminate many operational challenges related to international invoicing and payments, while also improving the customer's experience.

According to a recent survey from globalization partners, 83% of Cfo's feel their long term plans, we will focus on expansion into new countries. Despite mounting concerns around rising wages and inflation.

To conclude on the trends, we are seeing across our verticals, while the global economy may be uncertain. We continue to feel confident about the opportunity ahead of us here at fly wire.

Next I wanted to spend a few minutes, providing an update on the investment areas that we outlined at the beginning of the year and during our recent analyst day event in May.

Fly virus had successful investment track record our approach of taking long term views, but also ensuring clear prioritization based on expected ROI has helped us grow this business, while establishing multiple deep and strategic moats.

We were able to enter new verticals, leveraging our core platform expand our geographic footprint and effectively acquire and integrate organizations that further fly wires mission and accelerate our performance.

We believe it is strategically important to keep investing in our flywheel advantage, which is made up of our next generation payment platform, our proprietary global payment network and our vertical specific software.

Earlier this year, we laid out that 2022 will be a record year of investment for fly wire as we accelerated key initiatives in multiple areas of the company.

At our analyst day, we shared more detail.

These investments which include increasing our go to market team.

Further geographic expansion and investing in our product and payment innovation teams.

Let me first start with expanding our go to market.

Our goal is to capture the significant total addressable market and opportunities that you've heard us talk about we are investing in two main areas.

First more fly made in sales and relationship management and second optimizing our digital acquisition capabilities.

We've prioritized our hiring around go to market Rolls. This year and are very pleased with the amazing talent. We've brought into the company. So far we've also improved the way we onboard our new go to market climate to be more efficient and effective.

This has generated a significant improvement in sales rep ramp time, nearly two X increase in pipeline value when comparing the first half of 2022 versus the same period of 2021.

In addition, with just a modest year over year increase in our digital acquisition investment we are already seeing impressive returns and sales pipeline generation new clients signed they are.

Next I'll move to geographic expansion fly where it is truly a global company. We believe there continues to be unique opportunities to expand globally.

To serve our clients and their customers.

Almost two thirds of our Q2 2022, <unk> signed with outside of North America.

Through the end of Q2, we have more than doubled the number of flights across India, China, Australia, and Latin America.

<unk> to the same time last year, we believe our proven ability to hire talent around the world maximizes, our local market understanding and improves our ability to service our customers.

This is a major differentiator for fly wire.

And finally I'll cover our investment in product and payment innovation, where we are focused on creating even more value for our clients there.

Their customers and the broader industries that we serve.

This quarter, we continued to expand our payment network and improved payment experiences around the world.

<unk>, a new local method in Colombia, as part of our Latam expansion to improving the payment experiences in India by streamlining of required regulatory forums to enhancing local payment acceptance in Europe through the expansion of direct debit capabilities. Our strategy is to continue to solve complexity for our clients Ulta.

<unk> expanding our flywheel advantage to power these vertical ecosystems.

In closing as many of you are aware, we recently announced the acquisition of cohort go which fits into our core M&A pillars. We've discussed many times with all of your.

Cohort goes in international education payments provider that it brings additional students education.

Education agents and essential student services to flowers growing payment ecosystem.

Deal also deepens, our commitment to product and payment innovation and helps us further invest in Asia Pacific Our key near term geographic focus for flour. We are thrilled to welcome over 50, new flying through cohort go into our fly wire community. We're excited to have their expertise and capabilities as we expand fly wire strength even.

Further in education.

While cohort goes revenue was relatively small compared to flowers overall revenue, Mike Ellis will share an updated guidance for the full year, which incorporates the expected incremental impact of this acquisition.

Additionally, I'd like to mention that the integration of W. P. M continues to go well, we are seeing great momentum with our education clients in the U K, who are adopting our solutions.

With that I'd like to turn the call over to Rob Oracle, our President and C. O L to share updates on our operating results and growth initiatives during the second quarter Rob.

Thanks, Mike and good afternoon, everyone. Our strong results. This quarter reflect continued execution of our growth strategies, we saw strength in bringing on new clients with the addition of over 140, new clients in the quarter. This brings our client count to over 2800 <unk>.

Consistent with our recent quarters. We also had success in getting more payments and payment share by cross selling to existing clients I'd like to highlight some of our successes across the verticals.

Starting today with travel we continue to see strength in travel, especially in our European clients.

As of the end of the second quarter, our EMEA destination management clients have delivered revenue in the first two quarters above our full year expectations for that segment. We continue to see strong new client growth as well as contribution from clients. We acquired since the start of the COVID-19 pandemic.

In the quarter, we formed a relationship with travel connect which is the parent company of our existing client Nordic visitor gate.

They chose to expand their relationship with fly wire based on the quality of service and cost savings for them and they're traveling customers, which they saw from our initial deployment travel connect on six luxury travel brands, which includes five destination management companies and one accommodation provider, we signed an agreement with travel connect.

How us to offer fly wire payments and software services through all of their entities.

In the Asia Pacific Region, We also saw a meaningful recovery in our clients' business activity.

In June 2022 alone our APAC travel clients use our solutions to move more money than was moved by fly wire in the region. During the entirety of 2021 in this segment. Our APAC clients have also indicated that they are starting to receive deposits for travel bookings for the last three months of 2022 and also into 2020.

Three.

We added I am just echo a luxury accommodation provider in Japan.

And a second chose fly wire as its payment platform because of our strong integration with Rome buses property management system and <unk> ability to process not just card payments, but also handle more complex international bank transfers.

I already using fly wire I hadn't had separate solutions to collect payments depending on the payment methods involved with lie wire single integrated receivable solution Ians EKO can now pay a lower card payment fees offer more payment options to their guests and tightly integrate their payment collection with their core property management soft.

Sure.

On the health care we.

We added several new clients in the quarter, we continue to focus on building, our omnichannel patient engagement capabilities to help our health care clients increased planned sign ups and payment dollars.

The client benefits of using fly wire are real.

Over a sample of six of our health care clients, our clients saw immediate increase of 49% and planned sign ups and a 13% increase in patient payment dollars within three months of launching omnichannel engagement after implementing <unk> solutions.

We signed one of the nation's leading health systems with over 40 hospitals, and we'll partner with them to leverage our full suite of services to simplify their patient payment experience improve their digital self service increased collections and lower costs through reducing placement to collections agencies.

After a competitive sales process fly wire was chosen due to our deep integration with Meditech and epic EHR systems.

These integrations are critical for hospitals already using these systems and when combined with the strength of our digital engagement and payments model helps drive patient self service reduce placement costs and increased cash collections.

We continue to innovate with our health systems to drive digital engagement and payment throughout the patient lifecycle. For example, one of our existing healthcare clients banner health, which is based in Phoenix, Arizona and serves over $6 5 million patients.

Created an application to provide their patients with a digital self service check in process.

This allows the patient to check in for their scheduled visit complete any pre visit forms review, our complete insurance information and make payment for their portion of the visit all in a self service fashion.

Fly wire integrated our health care payments experience into this new application to provide a cohesive experience for banner helps patients and every payment touch point from pre to post service flyby.

My wife is delighted to continue to part with banner to provide the best financial experience for their patients.

Overall, our healthcare team worked hard through Q2 and into this quarter, resulting in a strong period for deployment and we are excited for the opportunity to deliver results for a number of new clients.

Moving on to Education. In addition to the recent cohort go acquisition, Mike mentioned earlier, we continued to see strong performance across segments and geographies in particular, we saw exceptional results from our cross border Education segment, as we outperformed in the United Kingdom, and Canada, and non higher education segments rebound.

Stronger and faster than we anticipated.

Helped by our focus on the K through 12 education sub segment and our partnership with true North We signed five new Canadian K through 12 District school boards during the quarter with the expectation there is additional opportunity going forward. For example, we signed one of the top five largest district school boards in Ontario with more than one <unk>.

<unk> thousand total students across 200, plus elementary and secondary schools in the region, creating an excellent cross border opportunity for fly wire across these district school boards as they enroll international students.

Here in the U S. The University of Rhode Island went live in April with our full Crs system offering you are right is the flagship public research University in the state of Rhode Island with over 18000 undergraduate and graduate students representing 48 states in 76 countries.

<unk> is processing, all domestic and cross border tuition payments through fly wire.

We also expanded our relationship with the University of Chicago ranked number six in the U S News and World reports 2022, best National University rankings with over 17000 undergraduate and graduate students.

Chicago added our AAR collect and international payment planned product offerings, we look forward to continuing to build our relationships with both <unk> and University of Chicago.

We also announced a new strategic partnership with University of <unk>, a student management system focused on servicing higher education customers throughout Spain. This partnership aligns with fly wires commitment to expanding further into markets.

Our payments integration allows fly wire to be the payment option at any point in the end to end student lifecycle from initial application through tuition.

University of Das spending has a very strong reputation in Spain and has been a successful referral source for our field reps in the Spanish higher education market.

Our integration with University of <unk> supports a complete one door payment strategy, which includes domestic payment flows for all clients in Spain.

One final update on our education vertical since the W. P. M acquisition closed we have signed agreements with more than 20, UK based universities to process international payments through an existing wpn pathway.

First customer go live happened in June more of non life in July and we are anticipating several others to go live throughout the third quarter.

Finally in our <unk> segment, we continued to grow our customer base and to expand with existing customers. In this emerging segment. This quarter marked the largest signed a quarter for the <unk> segment to date with revenue from our <unk> clients generating a strong triple digit growth rate versus the same period in 2021.

For example, export diesel is a global supplier of diesel fuel injection components X.

Export diesel came to us via a referral from our bank of America partnership. This was one of many successful referrals from bank of America. This quarter ship as the partnership continues to scale.

Export diesel will be utilizing our invoicing software to automate their reconciliation process and we look forward to helping them. In these efforts. We are very pleased with the activity generated by our investments in channel partnerships.

We continue to deepen our automation capabilities and expand our partner ecosystem during the quarter, we have enhanced the fly wired net suite integration by building in multiple invoice payment and prepayment capabilities. These features allow customers to easily access a snapshot of open balances while digitizing the netsuite paint.

Experience and reconciliation process.

We are seeing that these powerful <unk> features are being used across clients in different industries and regions.

Finally, we continued to make great progress across our operations, including strengthening our global payment network as well as driving internal operational efficiency by leveraging technology to provide great services to our clients and their customers.

Also given the economic climate, we are being mindful on discretionary spending and being thoughtful in the pacing of our hiring we are focused on what we expect will drive long term results.

Overall, you can see we had another very active quarter with fly wires global team offline eights doing great work across our verticals and across the company.

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

Thank you Rob good afternoon, everyone.

I'll be discussing our non-GAAP financial metrics for our second quarter of 2022, including revenue less ancillary services.

Adjusted gross profit adjusted gross margin and adjusted EBITDA.

Our financial results prepared in accordance with U S. Generally accepted accounting principles. Please read the preliminary and unaudited financial statements included within our earnings release and the unaudited financial statements that will be included in our quarterly report on Form 10-Q, when filed with the SEC.

Revenue less ancillary services for Q2, 2022 was $51 5 million, representing a 56% increase compared to Q2 2021.

Our revenue growth rate was driven by an increase in total payment volume, particularly due to strong performance from our international cross border payment volumes in our education and travel verticals.

We processed $2 9 billion and total payment volume during Q2, 2022, which was an increase of 49% from the $1 9 billion, we processed during Q2 2021.

Specifically transaction revenue increased 72% compared to Q2 2021, driven by a 63% increase in transaction payments volume.

And usage based fee revenue increased 14% compared to Q2 2021, driven by a 24% increase in platform and usage based payment volume with the platform revenue growth still being partially offset by the loss of a client and healthcare vertical last year, which was discussed during our prior calls and is not yet fully lapped as men.

And by Rob a few minutes ago, we expect recently on boarded new health care clients to contribute to platform and usage base fee revenue growth in the second half of the year.

Moving on to adjusted gross profit, we generated $33 2 million and adjusted gross profit in Q2, 2022, representing a 48% increase compared to Q2 2021 that.

That resulted in an adjusted gross margin of 64, 5%, which was lower compared to Q2 2021 due to shifts in revenue and payment method mix similar to those discussed on our Q1 2022 earnings call specifically our transaction revenue continued to outpace our platform and usage based fee revenue and we saw a payment method.

Shift towards credit cards, the growth within our travel vertical and domestic transactions within our education vertical.

Overall, our Q2 2022 net spread on transaction volumes remained stable compared to Q1 2021, however, due to the outperformance of our credit card heavy travel vertical and domestic transactions within our education vertical we expect adjusted gross margins for full year 2022 in the middle to lower end of that.

<unk> range of 65% to 70% shared at analyst day, as we have previously discussed our business and payment method mix drives our adjusted gross margin and we remain focused on our many opportunities to add value for our clients and to drive gross profit.

We were particularly pleased with our revenue volume and adjusted gross profit growth considering the foreign exchange headwinds, we faced at the U S dollar strengthened against the British pound and Euro and the Canadian dollar. These FX headwinds reduced our revenue in nominal terms compared to Q2 2021 from transactions in which we settled in British pounds euros and Canadian.

Yeah.

Moving onto operating expenses technology and development expenses were $13 2 million for Q2, 2022, representing an increase of 91% over the $6 9 million incurred during Q2 2021, we.

We continued with our strategic investments within our technology and development teams as we added 120, new flying rates over the past year. The cost of these new findings combined with higher stock based compensation and amortization expense associated with acquired intangible assets accounted for the majority of the increase in our technology and development expenses.

Selling and marketing expenses were $18 9 million for Q2 2022, an increase of 73% over the $10 9 million incurred during Q2 2021 selling.

Selling and marketing is another area of strategic investment and this increase was due to a number of factors first personnel cost increased due to our hiring efforts over the past year, where we added over 110 and fly inmates within our sales marketing and product teams second based on our strong revenue growth sales commissions also contributed to our increase in selling and marketing expenses.

Third we continue to invest in our global marketing initiatives to drive client acquisition and payer engagement and finally, we saw increases in stock based compensation expense and higher travel costs for client visits and fly made collaborations.

General and administrative expenses were 20.0 million during Q2 2022, an increase of 47% over the $13 6 million incurred during Q2 2021.

Primary factors driving the increase were number one our hiring activities, where we increased the number of <unk> by about 45%.

To higher stock based compensation expense and number three incremental costs associated with operating as a public company, which consisted primarily of insurance cost and professional fees.

Adjusted EBITDA for the quarter was negative $6 1 million, which was better than our expectations for Q2 2022.

Due to stronger than expected revenue and adjusted gross profit as well as personnel cost savings as we paced our hiring adjusted.

Adjusted EBITDA decreased $6 1 million compared to the negative 0.1 million we generated during Q2 2021 the year over year decrease in adjusted EBITDA was the result of our higher than during the past year as well as increased cost from operating as a public company and travel related costs.

With respect to capitalization as of June 32022, we got $366 million in cash and cash equivalents and $25 9 million in long term debt.

As of June 32022, we had $107 9 million shares of common stock outstanding which was higher than the weighted average shares outstanding used to calculate net loss per share for Q2 2022, the timing of our IPO.

Moving onto guidance for full year 2022.

We are raising our guidance for revenue less ancillary services to be in the range of $260 million to $269 million, which resulted in annual revenue growth rate of 46% at the midpoint.

Our full year 2022 expectations reflect an increase in our organic revenue expectations, even in the face of current FX headwinds plus revenue from our recently announced acquisitions of WPM and cohort go.

Movements in exchange rates, representing additional FX headwind could impact our revenue and adjusted EBITDA expectations for the remainder of 2022 with respect to adjusted EBITDA. We are raising our full year 2022 guidance to be in the range of $13 million to $17 million, reflecting our current view about continued growth and execution in the business alongside.

Continuation of our previously announced growth in investment plans.

With respect to guidance for Q3, 2022 revenue less ancillary services is expected to be in the range of 87 million to $90 million, which represents a year over year revenue growth rate of 42% at the midpoint as we enter our historically highest revenue and adjusted EBITDA quarter. We currently expect to generate positive adjusted EBITDA in both Q3.

And Q4 of 2022 in conclusion, we are pleased with our Q2 2022 financial results and overall business performance and we continue to look forward to the rest of 2022 with that I'd like to turn the call over to the operator for questions operator.

Thank you very much Sir ladies.

Ladies and gentlemen at this time, we'll be conducting a question and answer session.

If you would like answer Christian piece was talking to one how do you kind of on key pad.

Commission plan indicate that Johan <unk> in the question queue.

You May please talk to talk to remove yourself from the question queue.

Call participants are making use of speaking equipment.

May be necessary to pick up your handset before pressing the star keys.

In the interest of time the answer to please limit yourselves to one question and one follow up.

Of course amendment will be brief.

I'll be calling for questions.

Thank you Chris.

Question comes from.

Bob Napoli of William Blair.

Hi, Thank you good afternoon nice job on the quarter.

Good results.

So I just would.

We'd like to get some clarification on the upside versus your guidance how much of that came organically.

As you know, it's a contribution maybe give some color on the contribution of cohorts go WPM.

So if you could just.

Unpack the upside if you would.

Sure. Thanks, Paul I'm sure Thanks, Bob Mike Alexander.

Thanks for the question. So essentially we increased our annual revenue guidance by approximately $11 5 million.

The breakdown of that comes from $5 million from our Q2 revenue outperformance.

Remaining comes from $5 5 million from contributions from the recent acquisition of corporate go.

That represents about five five months of the year given the acquisition closed in the Middle of July and then the final amount is another $1 million from expected continued strong organic revenue growth offset by continued FX headwinds.

Just with respect to cohort go I just want to highlight that there's been some inquiries around their revenue projections that had been seen in some publications that happened.

That were published prior to our acquisition and if we wanted to kind of avoid confusion around those numbers, but for clarity any forecast that you might've seen prior to acquisition in the press were in fact in Australia.

And then number two those forecasts were from a private company and they were projections made at the beginning of their full year. So just for clarity purposes to give you a little bit of sense of how.

How we unpack the revenue and what we've included but certainly inorganic beat that we expect and.

And that's why we raised our guidance, which is included in there.

Great. Thank you and then.

This has been a very high investment year.

For the company and <unk> had very good momentum in the business now what should we expect as we go into 2023 on investment as I mean, I would imagine that the investment levels.

Relative to revenue may moderate some can you keep the momentum growing in the business.

With some moderation in it and the investment levels versus this year.

Yeah.

Bob. This is this is robin I'll jump in and take that one but thanks for that question and I can tell just from the way you phrased it that your understanding.

Understanding very much matches, our expectations for how things will unfold going forward. So we've called out that this was a significant investment year for the company both across go to market as well as R&D.

We're excited about those investments.

Everyone knows are intended to sort of long term investments with long term return.

But as we grow the company just as you say, we do see scalability across multiple of our functions and we would expect to see some moderation in that hiring pace.

We continue to grow the revenue line.

Yeah.

Great and the momentum in the business I guess, that's the Big question is just the top line momentum.

No as you know.

Some of that moderation of investment levels.

Yeah, I'll just jump it Bob this is Mike.

I would say, we feel quite quite confident in the business, where we're sitting as Mike said, not only the beat but arrays organically as well.

Obviously, an uncertain world out there, but we feel really good with the trends, we're seeing I talked about it.

In a number of points I made earlier.

And I think we feel really good about where that where that leads us for out years, but.

But we will continue to make good investments that we think have good returns continue to grow the business. When we can but do so with that financial mindset that we talked about at length over the last year.

Thank you.

The next question comes from Dan Perlin, RBC capital markets.

Thanks, Good evening and great quarter, I I, just wanted to get clarity on the commentary around gross profit.

I think you had said 65% to 70% and then I think you were just kind of trying to clarify that.

We're gonna be towards the mid to lower end of that range. So first is that I just want to clarify that and then secondly, if that's the case.

Maybe you can just remind us again why the material ramp how confident you are in that the second half of the year relative to the first half.

Yes, Thanks, Dan.

So yes, that's what we were thinking that the annual range will come in to the mid to the lower part of that range and it really comes down to the outperformance that we've seen across our travel verticals and our domestic transactions within our education vertical that has been an excellent revenue driver and excellent adjusted gross profit driver for the business, we do expect.

Adjusted gross margins to come in higher in the second half of the year due to the cross border education business and as a result of the payment methods typically selected for those larger payments, we do get to enjoy higher adjusted gross margins towards the higher end of that range for that quarter, and we would expect that.

Q4 would be similar to Q1, and Q2 and numbers rounding out to around that.

Mid to low end of the range as communicated.

Okay No that's super helpful and then just.

A quick follow up.

The education vertical you you were talking about the.

Market, you signed five New District school boards in K 12, but I'm just I'm just wondering.

Sometimes just take mostly have you in terms of our universities and such but in that in that example, it sounds like youre, making some really good inroads into the CAGR 12 space.

So I'm just wondering are there other investments that you're making in that is that just a couple of examples are just trying to pull out specifically for this quarter or are there some.

Real initiatives that you put behind it and you're starting to see some some good outcomes. Thank you.

So Dan this is Rob I'm happy to start this one off.

I think we've always wanted to make sure people understood the breadth and the diversity of the education space right. We've always talked about that diversity is not being just higher Ed, but higher Ed plus vocational plus K through 12, plus language schools plus summer programs and other categories as well. We've also described it as a very global business. So there is that diversity.

And Brett that debt as part of the strength of the business now we do have as part of this go to market investment that I described for you earlier initiatives against a number of these segments that are intended to allow us to accelerate one in particular was to be able to do more around that sort of K through 12 segment, that's been a business of ours for some time, but by putting some.

More energy against that looking to the opportunity to accelerate it and I would tell you that we've enjoyed success on that not just in Canada, but in other parts of the world as well.

That's great. Thank you.

Thanks, Tim.

Yeah.

The next question comes from Andrew <unk> of <unk>.

<unk> Nikko.

Hey, guys nice set of results here wanted to unpack one of the comments you had on the call Mike.

The pipeline that you see today is <unk>, where we were last year. So if you could just help us kind of Dimensionalize, where that is I would assume the bulk of its an education, but is there opportunities in the domestic side are you cross selling at a higher rate or any way that you can kind of unpack that.

Yeah.

Yes, I would say.

I'd say that growth is happening across all verticals. So that'd be the first comment I would make.

That's also coming from land and expand which is the domestic strategy that we've highlighted numerous times.

We're going from just doing cross border services to expanding into more of our product offering in the education vertical. It's also coming from there and then I would just also highlight the.

As I mentioned I had earlier as well about pipeline strengthen signs coming from overseas in the business from an IRR perspective.

He is truly a global business, it's getting more and more global as Rob said, it's also diverse as you get into the industries and the Subsectors within those industries.

I would say all of those factors are leading to that exceptional increase the pipeline and super excited about it for the future.

Yeah, it's a pretty exciting opportunity to have that that level of visibility and my follow up was.

You said you signed 20 of the WPM clients in the U K.

Throughout the quarter or thus far through through what eight months. So months, but is this the kind of pace, we can assume as far as the penetration of WPM I think they have over 175, if I'm not mistaken, but just trying to understand.

This is what we can kind of expect for for that initiatives.

Yes, I would say.

Super Happy with obviously the success we've had.

So I wouldn't say that this is either.

Absolutely ahead of pace or.

<unk>.

Or anything behind that.

Above our expectations, but I wouldn't say, it's massively likely to accelerate or slow down our goal is to really get out there continue to tell the story to these clients.

Ultimately need to make their own decision as to when it's the right time to have the integrated offering but the more key studies, we get out there the more clients that are talking about this integration I think it's going to lead to more and more.

Of those U K clients seeing the benefit of the integrated solution and the team is just doing a great job communicating that value to customers. So super excited about the results.

Our projections as to what we were thinking internally.

But I think it's a reasonable pace to continue but not nothing we're putting in stone.

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

Thanks again.

The next question comes from Karen Pent up.

Research.

Hey, guys nice job today.

When we look at the land and expand and versus the new clients are adding if you could just help us understand a little more of what Youre seeing there and then maybe to add on to that on a vertical by vertical basis.

Are you or are you seeing any evidence that any change in behavior.

Isn't it sound like there's any macro changes but.

Any color would be great on specifically travel, but anything else, you're saying would be great.

Yes.

Sure.

I'll start off so.

Darren you've heard us describe sort of land and expand as being pretty fundamental to our strategy you've heard us talk a lot about NR and LTV to CAC, what I would tell you is that we continue to execute very successfully against that playbook, we're not doing sort of quarter by quarter disclosure on NR, but I can tell you that the MLR is coming in Cana.

<unk> came in very strong for the quarter once again above our three year average.

Average.

And so we continue to do things like the case study that I described for this announcement for <unk>. Similarly for the University of Chicago, both of those are pre existing clients in other areas, where they've chosen to expand their.

There are opportunity with us or their use of our solutions. So that's sort of a big part of the flywheel of our playbook. We continue to do very well at that of course I also mentioned a bunch of net new clients. So we're continuing to sign up new clients very well and I also mentioned the 140 plus.

Yeah.

New clients for the quarter, so overall land and expand as well as net new clients continues to happen Youre, asking particular about travel and.

The context there the highlights there are the travel is obviously was particularly strong for us in the quarter, we called that out in our earlier comments that.

And that would translate into both NR for existing clients very very strong in the travel vertical as well as being very pleased with the pace, which we're getting travel clients live and they are generating.

Good revenue for us in payment volumes that are associated with that revenue yeah. The only thing I'd add on there Darrin. It's Justine if you look at travel.

Really encouraged I mean, we talked a lot at analyst day about how do we see opportunities for these vertical ecosystems to do more for clients.

I would say, we feel even stronger about that opportunity in places like travel.

And then if there was a callout for travel definitely the team did an amazing job.

In Europe in particular, right, that's definitely kind of came back.

Came back strong from a travel perspective as a trend.

Alright. That's helpful. Thanks, guys can we just revisit permitted the deals you guys did both of them actually in terms of the magnitude of what you can see the execution you can do on synergies on the top line synergies potentially.

Each one of them would be great to hear more about I know WPM has opportunities on the volume side shifting over but I think there is opportunities on both and I'd love to hear a little more if you can.

Yeah sure so.

Again ill kind of remind folks what we had said at WPM WPM was a business that was very much platform and usage based revenue.

It was also a business that.

I'd say it was.

Was not run for high growth rate, but focus on clients and engage with those clients and driving value. So the opportunity. We see obviously as we've talked about before is monetizing that payment volume and we've said that we.

We see multiple billions of dollars of payment volume sitting within that opportunity and so again thats going to materialize over not only 22 to 'twenty three 'twenty four as we get the integrated solution live and as you start to see the full year effect of that volume come through right and so.

Really great results as the number of clients, who have signed up for that integrated solution, but there's gotta get live you're going to see the full year effect, which is all great indications.

Indications for for medium long term.

So that's why we're on cohort again, Mike I think it was pretty clear as to what to expect through the end of this year and again I think if you.

If you can make the assumption that.

We believe both that is.

And accretive business for us bolt on topline and Bottomline like we said in the announcement, we feel really good about driving synergies there we're not doing these deals.

2222 card, we're doing these deals to grow and invest right. That's the type of businesses.

We like.

Round, it's really about growth for us.

The other thing I'd highlight cohort is really around not only Asia Pacific, but also those educational agents, we talked about that trend quite quite a lot at analyst day, It's a major trend inside the education sector, and so our education team and business coming together with the cohort.

Sure.

Unmatched class in our opinion on the opportunity ahead of us and so again I think that's gonna all materialize over.

The medium long term as well.

That's great.

It does vary I know just to sneak one in and the FX impact expectations now versus prior if you could just remind us real quick I don't know I don't want to hear it before.

Right.

Sure Mike.

Sure so as we disclosed in our most recent.

Press release, we do have some FX headwinds predominantly around a couple of currencies, we built that into our guidance for.

For the full year, and we're talking about single to mid <unk>.

Relative to the FX headwinds that we're seeing for the full year.

And that breaks up by quarter relatively not material.

In Q1 at.

At all and we're just managing it but our guidance does in fact assume that.

The existing.

Currency conversions with these currencies remain stable, where there are where they are today over the remaining period of 2022.

Karen obviously with those FX headwinds if you didn't have those you would've seen even higher growth.

And then was reported this quarter, so hopefully that helps clear lineup.

Yeah, absolutely. Thanks, guys appreciate it.

Thank you.

Shouldn't come from Ashwin sure if I caught.

<unk>.

Thank you.

Mike.

Look quarter here.

Congratulations.

Okay.

Let me start.

Let me start with maybe TQ versus Q.

EBITDA.

Last couple of years.

<unk> EBITDA margin has been sort of in that 27, 28% range.

I know you mentioned a couple of moving parts there.

Including the upper part of the range for.

For gross margins.

What would be would be 27, 28% range for EBITDA be.

B kind of what one should expect and I think the broader question. There is obviously debt.

No.

That would imply that Q E.

EBITDA contribution is greater than sort of a full year contribution is that a pattern one should expect would dissipate.

The next couple of years.

Think of quarterly contribution.

Hi, This is Mike so just to level set I believe that 2021, adjusted EBITDA margin was closer to the 12% 13% range.

And what we shared at analyst day, our initial guidance for 2022 was right around the 5% range for adjusted EBITDA and we indicated that we think can feel confident based on our revenue profile and growth profile that we could add roughly 3% to 4% per year.

Up until getting to a higher adjusted EBITDA.

EBITDA percentage we were.

Would expect at least in the short term that the revenue composition in the adjusted EBITDA composition that you have seen seasonally historically, we'd continue on in the short term.

We did provide some level of guidance as it related to adjusted EBITDA that they will both be positive in Q3, and Q4, but I'd urge you to look at the seasonality that we've seen historically in Q3 and Q4 two to level set those for your own modeling.

Okay. Okay. Now I was just wondering with some of these acquisitions.

And Mitch.

Mix changes.

The travel.

Travel and B to B and so on so forth growing if that was going to going to change.

The other question I had was payment method mix could you remind us sort of what it is today and how you would expect that to.

Maybe evolve over time, I know that does have a basket betting on us.

Adjusted gross profit.

Yes, one thing I'd say on payment method mix. So we've talked before if you look at our broad set of volume the vast majority of volume being bank transfer again thats the history of the education business.

And the large some of the transactions on that side of the business.

It does happen throughout the year as you see different average transaction sizes, you also see different.

Payment method mix by vertical right. So you really have to be looking at that vertical mix for revenue and <unk>.

The payment mix thats almost inherent in the transaction sizes <unk> the industry's sometimes even the geographies that those payments are coming from so again.

Majority of transactions via bank methods again higher higher gross margin methods.

But again, depending on that type of trend the average transaction value you could see a different mix of cards or even just the inherent choice at the payer will change the mix of.

Cards or payment method bank transfers or third party payment methods.

In a given industry.

Yeah. The only thing I would add this is Mike Ehlers is that we're really committed to driving adjusted gross profit growth.

We will let the adjusted gross margin come where it is because we're very confident in the unit economics across our payment methods.

And our payment types, but as Mike said.

Ads payment method mix shift as well as you've seen in the prior two quarters.

Revenue from transactions really outpacing our platform and usage based fee revenue, which is also a driver of this.

This is mark adjusted gross margin number that might be from the mid to the low end of the range for the full year, but still really healthy adjusted gross profit growth, which we're very proud of.

Right.

I can ask a quick clarification on that platform versus transaction I was assuming some of that at least was a decoding from.

Oh come from Covid.

Hum.

Transmit transactions might have been lower.

Okay.

Ashwin I'm not sure I'm totally following that one can you just sort of ask that one more time in terms of the trend that you are trying to inquire about.

Yeah.

As Mike mentioned there are.

The <unk> transaction.

Revenue growth has outpaced.

Back home.

By quite a bit.

I was assuming that Eddie.

One of the contributors to that was probably sort of a COVID-19 recovery, if yoga or I just wanted to confirm that was true.

I think our view of this is that Theres, obviously, COVID-19 dynamics that are coming into place in different different geographies and different verticals, but overall, what youre seeing here is just a strong recovery across all of our business units right Youre seeing that transaction volume grow across education across travel.

Across <unk> as well so while we're early in some of those segments. They are all growing very nicely and.

Perhaps there is some interplay of COVID-19 there, but it's also a function of new client signings, our land and expand all of the things we're doing to continue to grow the business.

All of those clients.

Ashwin you remember a full year effect as well right. So when you when you end up seeing transaction volume growth you may have only gotten a certain amount of transactions from a given account that was signed ear. Prior right. So relatively low impact on in year revenue, but also that's driving transaction growth over time as well.

Understood.

Thank you.

The next question comes from John Davis of Raymond James.

Hey, Good afternoon, guys, Mike you made some comments in your prepared remarks.

<unk> kind of Theres still some some education recovery to come I think the numbers you gave would imply like a 15 or so percent health kind of uplift still.

That's not there from education as far as kind of students attending school. So first of all would you expect most of that to come in the third quarter kind of this school year.

Or do you think it's going to take multi years and if so does that.

Meaning you would probably have.

There are a number that is above kind of if you go back to 2018 2019 do you still kind of have some recovery juice and education.

Yeah, a J D I think.

Thinking about it the right way, we've always said.

You've heard us say it a long time, we've always felt this is rolling recovery right in and I think we even said into 2023 and that continues to play out is true and to give you. Some more context on that think within education right.

Universities in places like Australia, New Zealand.

It didnt fully recover.

Just based on border policies, Japan was very similar.

Certain parts of Southeast Asia, you also have countries, obviously Chinese students and they had some pretty severe lockdowns that were part of China.

Boarding schools in language programs, which were hit harder inside.

Inside education globally, just because people weren't willing to take the risk of cross border travel for maybe.

Young teenager or for short term class. So those are really a lot of the areas, where we think there is definitely going to be some carry through into 'twenty three.

I think I think your assumptions on that size in my prepared remarks is right on that will hit <unk>.

And I think it will help continue to drive really saw it in our numbers but.

I don't think Theres, a guaranteed snapback in Q3 or Q4, we think that's going to roll into.

2023, just based on the geographic peaks within a lot of these markets.

Okay. That's super helpful. And then maybe one for Mike Ellis, just kind of circling back to some of the comments you made.

At Investor Day.

We look at you guys outlined some kind of three to 600 basis points of annual margin expansion, but you guys were very clear at the beginning of this year.

A one time step up and some incremental.

It'll investment so is it fair to think as we kind of look out to 'twenty three that youre not going to have those repeat therefore.

Yes.

All equal you would see margin expansion kind of outsized in 'twenty three from an EBITDA and profitability perspective, or anything else that I've got not thinking about but trying to put those kind of onetime step up in expenses and how should we think about the margin trajectory going forward.

Yes, I'm happy to take that thanks for the question. So as we talked about during the analyst day, we're very confident in being able to share that 3% to 6% per year type of increase of adjusted EBITDA is what we are.

Turning up for <unk>.

And from the standpoint of the investment year, we certainly made a significant investment coming out of Covid towards the end of 'twenty, one which were feeling the full year impact in 'twenty two.

Thank both Rob and I shared roughly about a $50 million investment year.

Sure.

Continually evaluating for ROI and ensuring that the rois there on every dollar that we deploy.

A very balanced and disciplined approach, we want to be really good stewards of shareholder capital.

I think when you think about moving into 2023 listen we're going to have some sox compliance and implementation fees that are one time related in 2022, which may carryover in 'twenty three but we're always looking for scaling and efficiencies within our business and we'll continue to do that to drive long term adjusted EBITDA.

Okay. Appreciate the color thanks, guys.

The next question comes from the Challenge of Trust Securities.

Hi, guys. This is Joe <unk> on for Andrew Jeffrey.

I had a question about cohort go the acquisition I was wondering if thats a bit of a one off or do you think that there is a little bit more room for M&A in a fragmented market like education payments.

Yes I appreciate the question. This is Mike So I would say we're always we continue to have three always looking for deals that we think fit our core strategy and thesis.

The pillars, we've talked about before what can help accelerated industry or geography, what can help drive NRI gives us additional capabilities or potentially third pillar expanding to a new geography or new industry. Those pillars remain the same.

Our first two deals.

As a public company have been education related.

Continue to look into all verticals.

I don't I don't have in all honesty, a preference as to.

One industry or vertical over another at the same time, we're kind of picky.

We want to find great culture fits in both cohorts, though in WPM were companies that we have known for a long time, we had tracked for a long time, we felt there was great opportunity.

To drive that.

That next level of growth together.

So I would expect us to do something.

Look for look for a great company, not only culture, but technology and market opportunity.

That's really where we look for inorganic.

Highlight we feel really good about our organic.

Path ahead, right. So we don't sit here, saying, we need to do inorganic moves to keep growing this business, but we have the cash position to be able to do it.

That's awesome. Thank you and then just a quick follow up are you guys able to provide any color as to what demand looks like for software solutions in health care for something like repayment plans.

And just whether or not you view that as structural or cyclical demand.

Yes, so the health the health care vertical continues to be a good one for US we had a good Q2 in terms of IRR signings in Q2.

I think the environment has become even more focusing for health care clients because of both sort of the financial pressures that they face as well as the affordability of financial pressures that their patients face. So our software one of its key benefits from the hospital perspective.

Is that it is helping drive a higher collection rate and lower cost internally, they're having the same challenges hiring that lots of folks are and they have a real imperative to try to automate and reduce cost as you heard from my comments, we help drive self service, we helped drive patient satisfaction and very importantly, we ultimately helped drive more collections.

So as the climate remains challenging for health care providers in general I think there is.

Uh huh.

That's a dynamic that makes our software even more valuable for them.

And so we continue to move forward well.

We're especially.

Proud of the results that we deliver in the health care space. The ROI of what we do is really really strong.

Thank you so much guys and again congrats on the quarter.

Appreciate that.

Our next question comes from Ken Sakowski of Autonomous research.

Hey, good evening, everyone nice job here. Thanks for taking my questions I wanted to dig into the platform and and usage based fees. It looks like those adjusted revenues for the down quarter over quarter.

Can you just talk about what's driving the revenue lower in that line is it is it FX or something else and I think you mentioned that there were some recently on boarded health care clients that will contribute to second half platform revenues could.

Could you just give us a little detail on those wins.

How did those come about and how much you expect those wants to contribute to revenue in the second half.

Hi, Rob here I'll start and then I'll hand off to Mike just in a second to go into the numbers. So.

Just to highlight the comment that I made we have had multiple deployments in the recent period that we look forward to serving those clients well and we look forward to the revenue contribution that those will create for us.

There was this single client that we referred to is having a meaningful effect that we mentioned way back in the back part of last year and so we had called that out back then and remind folks that that still has a.

Ongoing effect in the platform revenue line until we lap that which will happen later this year.

Okay, Alright, great and then I guess, just as my follow up Yeah, China, I guess, it's coming up a lot more in conversations can you just talk about your exposure.

Two to China, or whether by number of students originating from China or revenue from Chinese students and then obviously, there's a lot of unknowns with this but maybe you could talk about the risks are.

Due to the business or maybe the diversity of the business from a high level, if China and U S tensions increase.

Yes, Ken.

Alan This is Mike I would say.

Couple of things to remember fly where he has got obviously, China impact really would impact our education business as opposed to other industries or verticals, but.

Specifically cross border education flows obviously.

The thing I would call out as flowers get clients in over 32 countries right. So it isn't really about whether students.

Come to one country or another but really do they end up in a in a place where fly we're servicing those customers. So we have seen geopolitical tensions before.

If anything continues to escalate there or any change in travel policies.

Our expectation is students from China will go somewhere they are not going to not go and study abroad.

You look at the last two decades of trends of international students studying abroad. There has been a really consistent minus the pandemic, there's been a really concern.

Systems.

Both rate of students studying abroad, and if you look at that number it's still a relatively small number when you look at global students.

So we feel really good about general trends around international students.

One of the interesting dynamics is also India has become the number one.

We have origination for students studying abroad and.

And so again.

I think has a positive impact certain.

Policies travel policies I think some of the.

Covid dynamics in China.

Can impact that but students are going to go abroad. They may end up in Australia demanded but new Zealand, if theyre geopolitical tension, but that's why we have a good footprint for fly why are all around the world. So.

Some exposure there in our education cross border business, but again, we think it's we think it's relatively mitigated based on students still wanting to travel and study.

Okay, all right. Thanks, Mike I appreciate the thoughts on the congrats on the results.

Thanks, Ken.

The final question comes from Jeff Cantwell of Oh.

Okay.

Hey, Thanks, and congrats on the results I wanted to follow up on some of the wins that you announced over the past year interested if you could give us an update.

<unk>, particularly with you know, Texas, A&M and Stanford and view commentary can you talk about as far as how that's progressing.

Would expect you know for some of these more noteworthy once you guys have announced over the past 12 months or so thanks very much.

Yes, Hi, Geoff Rob here I'll take that so obviously, we're very excited about the domestic business. We're very excited about each of the client wins that we've announced on the last series of calls right. So we've talked about Texas A&M, we've talked about Stanford University of Connecticut.

Call MRI and University of Chicago.

We also talked about great wins internationally folks like MMU that we've discussed as well in our prior calls.

So.

The.

Performance of the schools is going really really well I mean at some level. The best news is that those clients are just happy content working with our solution and getting the benefits that we expected and planned to deliver for them and so for US that's exactly what we want because these are word of mouth industries, where when people hear that youre doing well.

Well for their colleagues at a school that much more inclined to want to work with you themselves. So our job number one is just to do a great job delivering on behalf of these clients and with that we continue to see the pipeline grow and the number of opportunities grow.

And that's the playbook, we're executing against yes, Jeff the only thing I'd add this is Mike is just our implementation teams have been doing a great job.

Really scaling with the growth of our business and really this is a global implementation team across all our industries.

So that team not only treating their clients great. Once we sign them on but getting them live and as Rob said driving that value. So you'll feel really good in our ability to do more of that and have a great implementation team are behind us.

Okay, great. Thanks, very much guys and congrats on the results.

Thank you I appreciate it.

Thank you ladies and gentlemen, we have reached the end of the question and answer session I will not turn the call over to Mark Messner for closing remarks.

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

Thank you Lady.

Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.

Goodbye.

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Greetings, ladies and gentlemen, and welcome to <unk>.

<unk> Corporation second quarter of 2020 earnings call.

At this time all part.

Disciplines are in 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.

As a reminder, this conference is being recorded.

I would now like to turn the conference over Q host Johannes.

Visitant industrial nations and FBA.

50.

Thank you.

Thank you and good afternoon.

With me on today's call are Mike Massaro, Chief Executive Officer, Rob <unk>, President and Chief operating Officer, and Mike Ellis Chief Financial Officer.

Our second quarter 2022 earnings press release supplemental presentation, and when filed associated quarterly report on Form 10-Q can be found at IR of that flatline Dot com.

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

Actual results could differ materially from those contemplated by these forward looking statements.

We will also be discussing certain non-GAAP financial measures.

Please refer to our press release.

Filings for more information on the risks regarding these forward looking statements that could cause actual results to differ materially risks.

Risk factors associated with our business and required disclosures related to non-GAAP financial measures.

This call is being webcast live and will be.

Available for replay on our website I would now like to turn the call over to Mike Michelle.

Thank you Mikael and thank you to everyone that is joining us today.

We're excited to share our Q2 2022 results with all of you and provide more insights on the future of <unk>.

We saw strong performance in the second quarter in a few minutes, Rob Oracle, our president and COO as well as Mike Ellis, Our CFO will go into greater detail about our operating and financial performance during the quarter.

But first I will start with a few financial highlights.

As you will see from our results. We continue to have success in penetrating the significant total addressable market that our education healthcare travel <unk> verticals represent.

Total payment volume for the quarter increased 49% compared to Q2 2021.

Revenue less ancillary services.

Was $51 5 million represented year over year revenue growth of 56%, even despite increasing FX headwinds.

Adjusted gross profit was $33 2 million in Q2, an increase of 48% year over year.

Adjusted EBITDA was negative $6 1 million, which was better than internal expectations, driven primarily by stronger revenue growth.

Today, we will be raising our full year 2020 to financial guidance for both revenue less ancillary services and adjusted EBITA, which Mike Ellis will share details on later in this call.

I am quite proud of the great results, we are sharing this quarter, especially at how the business continues to navigate these exceptional macroeconomic times.

Of course, none of this would be possible without our amazing <unk> and I'd like to take a moment to thank them for all their incredible efforts.

I'll now move on to discuss our industry verticals and trends.

While none of us can predict the future based on the historical current and expected trends. We believe flowers is well positioned for continued growth across our verticals.

Education and health care have historically been resilient during recessions that economic downturn.

<unk>, particularly luxury travel continues to be strong supported by pent up demand from the pandemic.

And with more business is focused on digitizing and streamlining global accounts receivable, we expect to see increased demand for solutions like ours in the <unk> sector.

Let's take a closer look at trends starting with education.

Education has remained strong even during recessionary periods.

With the National Bureau of economic research reporting that college and University attendance levels increased even during the great recession.

Education today is still in the midst of a post COVID-19 recovery as the international student enrollment volumes normalize and travel restrictions are removed.

According to the Institute of International Education's 2021 opened doors report.

Total international students as a percentage of total U S campus enrollment average five 4% pre COVID-19 in the 2019 2020 academic year.

Versus just four 6% in the 2000 22021 academic year, leaving room for still further recovery.

Additionally, after suffering steep losses in new international student enrollment in 2020 in 2021 U S colleges and universities are reporting increasing numbers of the international student applications for the upcoming academic year in fact, new research from the educational consultancy ISF reported 65.

5% of U S University survey this spring.

International applications have increased this is compared to just 43% in the same period last year.

Shifting to trends in health care, we believe that our health care solutions are more relevant than ever given that the healthcare industry continues to be durable as the services provided are often non discretionary in nature.

We have seen that health care organizations, who use fly wire are able to better engage patients through multiple and preferred digital channels throughout the entirety of the health care payment experience.

They can reduce bad debt write offs and meaningfully increase revenue collections.

Two a study prepared for fly wire by Forrester consulting flowers health care clients could see a 29% increase in revenue collections from our solutions.

Looking at travel American Express recently stated that the travel industry has rebounded post pandemic faster and stronger rate than anyone expected.

Strongly agree.

According to the U S travel Association for the first time since the start of the pandemic travel spending in April 2022 was 3% above 2019 levels approximately 28% of survey travelers plan to spend significantly more this summer compared to their summer 2019 travel budget despite higher prices.

Again, these trends and our strong growth in travel continues to validate the large and growing opportunity we have with our solutions.

As for our BTB vertical we continue to work with many businesses to automate their accounts receivable and enhance their order to cash workflows.

According to a recent survey from globalization partners, 83% of CFO feel their long term plans, we will focus on expansion into new countries. Despite market concerns around rising wages and inflation.

To conclude on the trends, we're seeing across our verticals, while the global economy may be uncertain. We continue to feel confident about the opportunity ahead of us here at fly wire.

Next I wanted to spend a few minutes, providing an update on the investment areas that we outlined at the beginning of the year and during our recent analyst day of that today.

<unk> had successful investment track record our approach of taking a long term view, but also ensuring clear prioritization based on expected ROI has helped us grow this business, while establishing multiple deep and strategic moats.

Earlier this year, we laid out that 2022 will be a record year of investment for fly wire as we accelerated key initiatives in multiple areas of the company.

At our analyst day, we shared more detail.

These investments which include increasing our go to market team.

Further geographic expansion and investing in our product and payment innovation teams.

Let me first start with expanding our go to market.

Our goal is to capture the significant total addressable market and opportunities that you've heard us talk about we are investing in two main areas.

First more finite and sales and relationship management.

Optimizing our digital acquisition capabilities.

We have prioritized our hiring around go to market Rolls. This year and are very pleased with the amazing talent. We've brought into the company. So far we've also improved the way we onboard our new go to market climate to be more efficient and effective.

This has generated a significant improvement in sales rep ramp time, nearly two X increase in pipeline value when comparing the first half of 2022 versus the same period of 2021.

In addition, with just a modest year over year increase in our digital acquisition investment we are already seeing impressive returns and sales pipeline generation new client <unk>.

Next I'll move to geographic expansion.

<unk> is truly a global company. We believe there continues to be unique opportunities to expand globally.

To serve our clients and their customers.

Almost two thirds of our Q2 2022, <unk> signed with outside of North America.

And through the end of Q2, we have more than doubled the number of flights across India, China, Australia, and Latin America.

Compared to the same time last year.

We believe our proven ability to hire talent around the world maximizes, our local market understanding and improves our ability to service our customers.

This is a major differentiator for <unk>.

And finally I'll cover our investment in product and payment innovation, where we are focused on creating even more value for our clients there.

Their customers and the broader industries that we serve.

This quarter, we continued to expand our payment network and improved payment experiences around the world.

<unk>, a new local method in Colombia as part of our Latam expansion.

Two improving the payment experiences in India by streamlining of required regulatory forums to enhancing local payment acceptance in Europe through the expansion of direct debit capabilities. Our strategy is to continue to solve complexity for our clients ultimately expanding our flywheel advantage to power these vertical.

Yeah.

In closing as many of you are aware, we recently announced the acquisition of cohort go which fits into our core M&A pillars. We've discussed many times with all of you.

Cohort go within the international education payments provider that brings additional students.

Education agents and essential student services to flowers growing payment ecosystem.

Deal also deepens, our commitment to product and payment innovation and helps us further invest in Asia Pacific Our key near term geographic focus for Flagler. We are thrilled to welcome over 50, new Flatmates from cohort go into our fly wire community. We're excited to have their expertise and capabilities as we expand fly wire strength even.

Further in education.

While cohort goes revenue was relatively small compared to <unk> overall revenue.

<unk> will share an updated guidance for the full year, which incorporates the expected incremental impact of this acquisition.

Additionally, I'd like to mention that the integration of WPM continues to go well, we are seeing great momentum with our education clients in the UK, who are adopting our solutions.

With that I'd like to turn the call over to Rob <unk>, our president and COO to share updates on our operating results and growth initiatives during the second quarter Rob.

And consistent with our recent quarters. We also had success in getting more payments and payments share by cross selling to existing clients I'd like to highlight some of our successes across the verticals.

Starting today with travel we continue to see strength in travel, especially in our European clients.

In the quarter, we formed a relationship with travel connect which is the parent company of our existing client Nordic visitor.

They chose to expand their relationship with <unk> based on the quality of service and cost savings for them and Theyre traveling customers, which they saw from our initial deployment travel connect on six luxury travel brands, which includes five destination management companies and one accommodation provider, we signed an agreement with travel connect.

Allow us to offer fly wire payments and software services through all of their entities.

In the Asia Pacific Region, We also saw a meaningful recovery in our clients' business activity.

Three.

We added <unk>, a luxury accommodation provider in Japan.

<unk> chose <unk> as its payment platform because of our strong integration with Rome buses property management system and <unk> ability to process not just card payments, but also handle more complex international bank transfers.

Prior to using fly wire <unk> had separate solutions to collect payments depending on the payment methods involved.

With <unk> single integrated receivable solution <unk> can now pay lower card payment fees offer more payment options to their guests and tightly integrate their payment collection with their core property management software.

On the health care.

The client benefits of using fly wire are real.

And lower costs through reducing placement to collections agencies.

After a competitive sales process fly wireless chosen due to our deep integration with Meditech and epic EHR systems.

Created an application to provide their patients with a digital self service check in process.

This allows the patient to check in for their scheduled visits complete any previous forms review, our complete insurance information and make payment for their portion of the visit all in a self service fashion.

<unk> integrated our health care payments experience into this new application to provide a cohesive experience for banner helps patients and every payment touch point from pre to post service flyby.

<unk> is delighted to continue to partner with banner to provide the best financial experience for their patients.

Rebounded stronger and faster than we anticipated.

By our focus on the K through 12 education sub segment and our partnership with true North We signed five new Canadian K through 12 District school boards during the quarter with the expectation there is additional opportunity going forward. For example, we signed one of the top five largest district school boards in Ontario with more than one <unk>.

Here in the U S.

The University of Rhode Island went live in April with our full Crs system offering.

<unk> is the flagship public research University in the state of Rhode Island with over 18000 undergraduate and graduate students representing 48 states in 76 countries.

<unk> is processing, all domestic and cross border tuition payments through fly wire.

Chicago added our AAR collect and international payment planned product offerings.

Look forward to continuing to build our relationships with both <unk> and University of Chicago.

We also announced a new strategic partnership with University of <unk> <unk>, a student management system focused on servicing higher education customers throughout Spain.

This partnership aligns with fly wires commitment to expanding further into markets.

Our payments integration allows <unk> to be the payment option at any point in the end to end student lifecycle from initial application through tuition.

University of Das spending has a very strong reputation in Spain and has been a successful referral source for our field reps in the Spanish higher education market, our integration with University of <unk> supports a complete one door payment strategy, which includes domestic payment flows for all clients in Spain.

One final update on our education vertical.

Since the <unk> acquisition closed we have signed agreements with more than 20, UK based universities to process international payments through an existing wpn pathway the.

The first customer go lives happen in June more of non live in July and we are anticipating several others to go live throughout the third quarter.

For example, export diesel is a global supplier of diesel fuel injection components.

Export diesel came to us via a referral from our bank of America partnership. This was one of many successful referrals from bank of America. This quarter ship as the partnership continues to scale.

Experienced and reconciliation process.

We are seeing that these powerful <unk> features are being used across clients in different industries and regions.

Finally, we continue to make great progress across our operations, including strengthening our global payment network as well as driving internal operational efficiency by leveraging technology to provide great services to our clients and their customers.

Also given the economic climate, we are being mindful on discretionary spending and being thoughtful in the pacing of our hiring we have.

We're focused on what we expect will drive long term results.

Overall, you can see we had another very active quarter with fly wires global team of <unk> doing great work across our verticals and across the company.

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

Thank you Rob good afternoon, everyone.

Today I'll be discussing our non-GAAP financial metrics for our second quarter of 2022, including revenue less ancillary services.

Adjusted gross profit adjusted gross margin and adjusted EBITDA.

Revenue like the ancillary services for Q2, 2022 was $51 5 million, representing a 56% increase compared to Q2 2021.

We processed $2 9 billion and total payment volume during Q2, 2022, which was an increase of 49% from the $1 9 billion, we processed during Q2 2021.

Specifically transaction revenue increased 72% compared to Q2 2021, driven by a 63% increase in transaction payments volume.

Second by Rob a few minutes ago, we expect recently on boarded new health care clients to contribute to platform and usage base fee revenue growth in the second half of the year.

Moving on to adjusted gross profit, we generated $33 2 million and adjusted gross profit in Q2, 2022, representing a 48% increase compared to Q2 2021 that.

That resulted in an adjusted gross margin of 64, 5%, which was lower compared to Q2 2021 due to shifts in revenue and payment method mix similar to those discussed on our Q1 2022 earnings call.

Specifically, our transaction revenue continued to outpace our platform and usage base fee revenue and we saw a payment method shift towards credit cards. The <unk>.

Growth within our travel vertical and domestic transactions within our education vertical overall, our Q2 2022 net spread on transaction volumes remained stable compared to Q1 2021, however, due to the outperformance of our credit card heavy travel vertical and domestic transactions within our education vertical we expect.

Adjusted gross margins for full year 2022 in the middle to lower end of the full range of 65% to 70% share to analyst day as we have previously discussed our business and payment method mix drives our adjusted gross margin and we remain focused on our many opportunities to add value for our clients and to drive gross profit.

We were particularly pleased with our revenue volume and adjusted gross profit growth considering the foreign exchange headwinds, we faced at the U S dollar strengthened against the British pound the euro and the Canadian dollar. These FX headwinds reduced our revenue in nominal terms compared to Q2 2021 from transactions in which we settled in British pounds euros and <unk>.

Adrian.

Moving onto operating expenses technology and development expenses were $13 2 million for Q2, 2022, representing an increase of 91% over the $6 9 million incurred during Q2 2021.

We continued with our strategic investments within our technology and development teams as we added 120, new flying rates over the past year. The cost of these new <unk> combined with higher stock based compensation and amortization expense associated with acquired intangible assets accounted for the majority of the increase in our technology and development expenses.

Selling and marketing expenses were $18 9 million for Q2 2022, an increase of 73% over the $10 9 million incurred during Q2 2021.

General and administrative expenses were 20.0 million during Q2 2022, an increase of 47% over the $13 6 million incurred during Q2 2021.

Primary factors driving the increase were number one our hiring activities, where we increased the number of flying rates by about 45% number to higher stock based compensation expense and number three incremental costs associated with operating as a public company, which consisted primarily of insurance cost and professional fees.

Adjusted EBITDA for the quarter was negative $6 1 million, which was better than our expectations for Q2 2022.

Due to stronger than expected revenue and adjusted gross profit as well as personnel cost savings as we paced our hiring.

Adjusted EBITDA decreased $6 4 million compared to the negative <unk> 1 million, we generated during Q2 2021 the year over year decrease in adjusted EBITDA was the result of our higher than during the past year as well as increased cost from operating as a public company and travel related costs.

Yeah.

With respect to capitalization as of June 32022, we got $366 million in cash and cash equivalents and $25 9 million in long term debt.

Moving onto guidance for full year 2022.

We are raising our guidance for revenue less ancillary services to be in the range of $260 million to $269 million, which resulted in an annual revenue growth rate of 46% at the midpoint.

Further movements in exchange rates, representing additional FX headwind could impact our revenue and adjusted EBITDA expectations for the remainder of 2022.

With respect to adjusted EBITDA, we are raising our full year 2022 guidance to be in the range of $13 million to $17 million, reflecting our current view about continued growth and execution in the business alongside continuation of our previously announced growth in investment clients.

Thank you very much Sir ladies and gentlemen at this time well be conducting a question and answer session.

Hossa Christian piece with talking to run.

On key pad.

Confirmation plan indicate that you're not using the question queue.

You May please talk to if you talk to remove yourself from the question queue.

Call participants, making use of speaking equipment it may be necessary to pick up your handset before.

Christine This is <unk>.

The interest of time the answer please limit yourselves to one question and one follow up.

Of course, the amendment will be brief.

On the call for questions.

Thank you.

This shouldn't come from.

Bob Napoli of William Blair.

Hi, Thank you good afternoon nice job on the quarter.

Good results.

So I guess.

We'd like to get some clarification on the upside versus your guidance how much of that came organically versus any other contribution maybe give some color on the contribution of cohort go WPM.

So if you could just.

Unpack the upside if you would.

Sure. Thanks, Paul sure. Thanks, Bob I'm going to let Mike Alexander Hey, Bob. Thanks for the question. So essentially we increased our annual revenue guidance by approximately $11 5 million.

The breakdown of that comes from $5 million from our Q2 revenue outperformance.

Remaining comes from $5 5 million from contributions from the recent acquisition of corporate go and again that represents about five five months of the year given the acquisition closed in the Middle of July and then the final amount is another $1 million from expected continued strong organic revenue growth offset by.

<unk> continued FX headwinds.

Just with respect to cohort go I just want to highlight that there's been some inquiries around their revenue projections that had been seen in some publications that happened.

How we unpack the revenue and what we've included but certainly inorganic beat that we expect.

And that's why we raised our guidance, which is included in there.

Great. Thank you and then.

This has been a very high investment year.

The company and you'd have very good momentum in the business now what should we expect as we go into 2023 on investment as well.

Imagine that the investment levels relative.

Relative to revenue may moderate some can you keep the momentum growing in the business.

With some moderation in the investment levels versus this year.

Bob. This is this is robin I'll jump in and take that one but thanks for that question and I can tell just from the way you phrased it that you're doing.

We're excited about those investments.

Everyone knows are intended to sort of long term investments with long term return.

But as we grow the company just as you say, we do see scalability across multiple of our functions and we would expect to see some moderation in that hiring pace.

We continue to grow the revenue line.

Yeah.

Great and the momentum in the business I guess, that's the Big question is just the top line momentum.

As you know.

Some of that moderation of investment levels.

Yeah, I'll just jump in Bob This is Mike.

I would say, we feel quite quite confident in the business, where we're sitting as Mike said not only.

But arrays organically as well.

There is obviously an uncertain world out there, but we feel really good with the trends, we're seeing I talked about it.

In a number of points I made earlier.

And I think we feel really good about where that where that leads us for out years, but.

But we will continue to make good investments that we think have good returns.

We continue to grow the business when we can but do so with that financial mindset that we talked about at length over the last year.

Thank you.

The next question comes from Dan Perlin, RBC capital markets.

Thanks, Good evening and great quarter.

Wanted to get clarity on the commentary around gross profit.

I think you had said 65% to 70% and then I think you were just kind of trying to clarify that.

Towards the mid to lower end of that range. So first is that I just want to clarify that and then secondly, if that's the case.

Maybe you can just remind us again why the material ramp how confident you are in that the second half of the year relative to the first half.

Yes, Thanks, Dan.

Yes, that's what we were thinking that the annual range will come in to the mid to the lower part of that range and it really comes down to the outperformance that we've seen across our travel verticals and our <unk>.

Domestic transactions within our education vertical.

It's been an excellent revenue driver and excellent adjusted gross profit driver for the business. We do expect adjusted gross margins to come in higher in the second half of the year due to the cross border education business and as a result of the payment methods typically selected for those larger payments, we do get to <unk>.

Higher adjusted gross margins towards the higher end of that range for that quarter, and we would expect that Q4 would be similar to Q1, and Q2 and numbers rounding out to around that.

Mid to low end of the range as communicated.

Okay No that's super helpful and then just.

A quick follow up in the education vertical you were talking about.

The Canadian market, you signed five New District school boards, and K 12, I'm just I'm just wondering.

And I oftentimes just think mostly view in terms of universities and such but in that in that example, it sounds like youre, making some really good inroads into the CAGR 12 space.

So I'm just wondering are there other investments that you're making and that is that just a couple of examples of just trying to pull out specifically for this quarter or are there some real initiatives that you've put behind it and you're starting to see some some good outcomes. Thank you.

So Dan this is Rob I'm happy to start this one off.

Other categories as well. We've also described it as a very global business. So there is that diversity.

Net debt as part of the strength of the business now we do have as part of this go to market investment that I described for you earlier initiatives against a number of these segments that are intended to allow us to accelerate one in particular was to be able to do more around that sort of K through 12 segment. That's been a business of ours for some time, but by putting some more energy again.

Looking to the opportunity to accelerate it and I would tell you that we've enjoyed success on that not just in Canada, but in other parts of the world as well.

That's great. Thank you.

Thanks, Dan.

The next question comes from Andrew <unk>.

NBC Nico.

Hey, guys nice set of results here wanted to unpack one of the comments you had on the call Mike that the pipeline that you see today is <unk>, where we were last year. So if you could just help us kind of Dimensionalize, where that is I would assume the bulk of its an education, but is there opportunities in domestic side are you cross selling.

Higher rate or any way that we can kind of unpack that.

Yes, I would say.

I would say that growth is happening across all verticals. So that'd be the first comment I would make.

That's also coming from land and expand which is the domestic strategy that we've highlighted numerous times.

Going from just doing cross border services to expanding into more of our product offering in the education vertical. It's also coming from there and then I would just also highlight the.

<unk> mentioned I had earlier as well about pipeline strengthen signs coming from overseas in the business from an IRR perspective.

It's truly a global business, it's getting more and more global as Rob said, it's also diverse as you get into the industries and the Subsectors within those industries.

I would say all of those factors are leading to that exceptional increase the pipeline and super excited about it for the future.

Yes, it's a pretty exciting opportunity to have that that level of visibility and my follow up was.

You said you signed 20 of the WPM clients in the U K.

Throughout the quarter or thus far through the H.

Each month, so months, but is this the kind of pace, we can assume as far as the penetration of <unk> I think they have over 175, if I'm not mistaken, but just trying to understand if this is what we can kind of expect for for that initiatives.

Yes, I would say where we are.

Super Happy with obviously the success we've had.

So I wouldn't say that this is either massively ahead of pace or you know.

Or anything behind I think it's above our expectations, but I wouldn't say, it's massively likely to accelerate or slow down.

Our goal is to really get out there continue to tell the story to these clients. They all ultimately need to make their own decision as to when it's the right time to have the integrated offering but the more key studies, we get out there the more clients that are talking about this integration I think it's going to lead to more and more of.

Of those U K clients seeing the benefit of the integrated solution and the team is just doing a great job communicating that value to customers. So super excited about the results.

Beat our projections as to what we were thinking internally.

But I think it's a reasonable pace to continue but not nothing we're putting in stone.

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

Thanks again.

The next question comes from Karen <unk>.

Research.

Hey, guys nice job today.

Are you are you seeing any evidence that any change in behavior.

It sounded like there is any macro changes but.

Any color would be great on specifically travel, but anything else you are seeing would be great.

Sure sure.

I'll start off so.

Darren you've heard us describe sort of land and expand as being pretty fundamental to our strategy you've heard us talk a lot about <unk> and LTV to CAC, what I would tell you is that we continue to execute very successfully against that playbook, we're not doing sort of quarter by quarter disclosure on NR, but I can tell you that the MLR is coming in came.

It came in very strong for the quarter once again above our our three year average and so we continue to do things like the <unk>.

This study that I described for this announcement for <unk>. Similarly for the University of Chicago, both of those are pre existing clients in other areas, where they've chosen to expand their.

The opportunity with us or their use of our solutions. So that's sort of a big part of the ply why our playbook. We continue to do very well with that of course I also mentioned a bunch of net new clients. So we're continuing to sign up new clients very well and I also mentioned the 140 plus.

Sure.

New clients for the quarter, so overall land and expand as well as net new clients continues to happen Youre, asking particular about travel and.

The context there the highlights there are the travel is obviously was particularly strong for us in the quarter, we called that out in our earlier comments that.

That would translate into both NR for existing clients very very strong in the travel vertical as well as being very pleased with the pace, which we're getting travel clients live and they are generating.

Good revenue for us in payment volumes that are associated with that revenue yeah. The only thing I'd add on there Darrin. It's Justine if you look at travel.

Really encouraged I mean, we talked a lot of analyst day about how do we see opportunities for these vertical ecosystems to do more for clients.

I would say, we feel even stronger about that opportunity in places like travel.

And then.

If there was a callout for travel definitely the team did an amazing job.

In Europe in particular, right, that's definitely kind of came back.

Came back strong from a travel perspective as a trend.

Alright. That's helpful. Thanks, guys can we just revisit for a minute. The deals you guys did both of them actually in terms of the magnitude of what you can see the execution you can do on synergies on the top line synergies potentially.

Yes sure so.

Again ill kind of remind folks what we had said at WPM WPM was a business that was very much platform and usage based revenue.

He was also a business that I would say it was.

We've not run for high growth rate, but focus on clients and engage with those clients and driving value. So the opportunity. We see obviously as we've talked about before is monetizing that payment volume and we've said that we.

Really great results with the number of clients, who have signed up for that integrated solution, but there's gotta get line, you're going to see the full year effect, which is all great indications for medium long term.

Thats why were on cohort again, Mike I think it was pretty clear as to what to expect through the end of this year and again I think if you.

If you can make the assumption that.

We believe both that is.

Creative business for us bolt on topline and Bottomline like we said in the announcement, we feel really good about driving synergies there we're not doing these deals.

222 to cut we're doing these deals to grow and invest right. That's the type of businesses that.

That we like.

So.

Round, it's really about growth for us.

And the other thing I would highlight cohort is really around not only Asia Pacific, but also those educational agents, we talked about that trend quite quite a lot at analyst day, It's a major trend inside the education sector, and so our education team and business coming together with the cohort team really strict incident.

Unmatched class in our opinion on the opportunity ahead of us and so again, I think thats going to all materialize over the.

The medium long term as well.

That's great.

It does vary I know just to sneak one in and the FX impact expectations now versus prior if you could just remind us real quick I don't know what Eric before.

Right.

Sure sure so as we disclosed in our most recent.

Press release, we do have some FX headwinds predominantly around a couple of currencies, we built that into our guidance.

For the full year.

We're talking about single to mid <unk>.

Relative to the FX headwinds that we're seeing for the full year.

And that breaks up by quarter relatively not material in.

In Q1.

At all and we're just managing it but our guidance does it affect assume that the existing.

Currency conversions with these currencies remain stable, where there are where they are today over the remaining period of 2022.

Darren obviously with those FX headwinds if you didn't have those you would've seen even higher growth.

And then was reported this quarter, so hopefully that helps clear yes.

Yes, absolutely thanks, guys appreciate it.

Thank you the next.

<unk> come from Ashwin sure if I caught.

<unk>.

Thank you.

Mike.

Look quarter here.

Congratulations.

Okay.

Let me start.

Let me start with maybe TQ versus four Q.

EBITDA.

Last couple of years.

EBITDA margin has been sort of in that 27, 28% range.

I know you've mentioned a couple of moving parts there.

Including the upper part of the range or.

For gross margins.

What would be would be 27, 28% range for EBITDA be.

Kind of what one should expect and I think the broader question. There is obviously debt.

You bet.

Imply that Q E.

EBITDA contribution is greater than sort of a full year contribution is that a pattern one should expect would dissipate.

Next couple of years.

Think of quarterly contribution.

Hi, This is Mike Ellis, so just to level set I believe that 2021, adjusted EBITDA margin was closer to the 12% 13% range.

Up until getting to a higher adjusted EBITDA percentage, we would expect at least in the short term that the revenue composition in the adjusted EBITDA composition that you have seen seasonally historically, we'd continue on in the short term. We are we did provide some level of guidance as it related to adjusted EBITDA that they will both be positive in Q3 and Q.

But I would urge you to look at the seasonality that we've seen historically in Q3 and Q4 two to level set those for your own modeling.

Okay. Okay. Now I was just wondering with some of these acquisitions.

<unk>.

And mixed.

Mix changes.

Okay.

<unk> and <unk> and so on so forth growing if that was going to going to change.

The other question I had was payment method mix could you remind us sort of what it is today and.

Now you would expect that to.

Maybe evolve over time, I know that does have a bad betting on.

Adjusted gross profit lens.

Yes, one thing I'd say on payment method mix as we've talked before if you look at our broad set of volume the vast majority of volume being bank transfers again thats the history of the education business.

And the large some of the transactions on that side of the business.

What does happen throughout the year as you see different average transaction sizes, you also see different payment.

Payment method mix by vertical right. So you really have to be looking at that vertical mix for revenue and.

The payment mix thats, almost inherent in the transaction sizes and or the industry's sometimes even the geographies that those payments are coming from so again.

Vast majority of transactions via bank methods again.

Higher gross margin methods.

But again, depending on that type of trend average transaction value you could see a different mix of cards or even just the inherent choice at the payer.

<unk> changed the mix of.

Cards or payment method bank transfers or third party payment methods.

Within a given illustrate.

Yes, the only thing I would add this is Mike Ehlers is that we're really committed to driving adjusted gross profit growth.

We will let the adjusted gross margin come where it is because we're very confident in the unit economics across our payment methods.

And our payment types, but as Mike said.

Ads payment method mix shift as well as you've seen in the prior two quarters.

Revenue from transactions really outpacing our platform a usage based fee revenue, which was also a driver of this.

This mark adjusted gross margin number that might be from the mid to the low end of the range for the full year, but still really healthy adjusted gross profit growth, which we're very proud of.

Right.

You can ask a quick clarification on that platform versus transaction I always assuming some of that at least was a recovery from.

Hum.

Colgate.

Transfer transactions might have been lower.

Okay.

Ashwin I'm not sure I'm totally following that one can you just sort of ask that one more time in terms of the trend that you're trying to inquire about.

Yeah.

As Mike mentioned there are.

The transaction.

Revenue growth.

Outpaced that.

<unk> com.

By quite a bit.

I was assuming that actually.

One of the contributors to that was probably sort of a COVID-19 recovery. If you will there I just wanted to confirm that that's true.

Ashwin I think our view of this is that Theres, obviously, COVID-19 dynamics that are coming into place in different different geographies and different verticals, but overall, what youre seeing here is just a strong recovery across all of our business units right Youre seeing that transaction volume grow across education across travel.

Across <unk> as well so while we're early in some of those segments. They are all growing very nicely and.

Perhaps there is some interplay of Cobra there, but it's also a function of new client signings, our land and expand all of the things we're doing to continue to grow the business.

All of those clients.

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

Understood got it.

Thank you.

Okay.

Question comes from John Davis of Raymond James.

Hey, Good afternoon, guys, Mike you made some comments in your prepared remarks.

There is still some some education recovery to call I think the numbers you gave would imply like a 15 or so percent of kind of uplift still.

That's not there from education as far as its kind of students attending school. So first of all would you expect most of that to come in the third quarter kind of this school year.

Or do you think it's going to take multi years and if so does that.

Meaning you would probably have.

<unk> number that is above kind of if you go back to 2018 2019, do you still kind of have some recovery juice and education.

Yeah, a J D I think.

Thinking about it the right way, we've always said and you've heard us say it a long time. We've always felt this is rolling recovery right in and I think we even said into 2023 and that continues to play out is true and to give you. Some more context on that think within education right.

Universities in places like Australia, New Zealand.

Didnt fully recover.

Just based on border policies, Japan was very similar.

And parts of Southeast Asia, you also have countries, obviously Chinese students and they had some pretty severe lockdowns that were part of China, you have boarding schools in language programs, which were hit harder inside.

Inside education globally, just because people weren't willing to take the risk of cross border travel for maybe.

Young teenager or for short term class. So those are really a lot of the areas, where we think there is definitely going to be some carry through into 'twenty three.

I think I think your assumptions on that size in my prepared remarks is right on that will hit <unk>.

And I think it will help continue to drive really saw it in our numbers but.

I don't think Theres, a guaranteed snapback in Q3 or Q4, we think that's going to roll into.

2023, just based on the geographic peaks within a lot of these markets.

Okay. That's super helpful. And then maybe one for Mike Ellis, just kind of circling back to some of the comments you made.

At Investor Day.

We look at you guys outlined some kind of three to 600 basis points of annual margin expansion, but you guys were very clear at the beginning of this year, but you kind of had a one time step up.

It's an incremental investment so is it fair to think as we kind of look out into 'twenty three that youre not going to have those repeat therefore.

I guess on it.

All equal you would see margin expansion kind of outsized in 'twenty three from an EBITDA and profitability perspective, or anything else that I've got not thinking about trying to put those kind of onetime step up in expenses and how should we think about the margin trajectory going forward.

Yes, I'm happy to take that thanks for the question. So as we talked about during the analyst day, we're very confident in being able to share that three months to 6% per year type of increase of adjusted EBITDA is what we are.

Signing up for.

And from the standpoint of the investment year, we certainly made a significant investment coming out of Covid towards the end of 'twenty, one which were feeling the full year impact in 'twenty two.

I think both Rob and I shared roughly about a $50 million investment year.

Sure.

Continually evaluating for ROI and ensuring that the ROI is there and every dollar that we deploy.

Very balanced and disciplined approach, we want to be really good stewards of shareholder capital.

And I think when you think about moving into 2023 listen we're going to have some sox compliance.

Implementation fees that are one time related in 2022, which may carryover in 'twenty, three but we're always looking for scaling and efficiencies within our business and we'll continue to do that to drive long term adjusted EBITDA.

Okay. Appreciate the color thanks, guys.

The next question comes from the Challenge of Trust Securities.

Hi, guys. This is Joe <unk> on for Andrew Jeffrey.

Just had a question about cohort go acquisition I was wondering if thats a bit of a one off or do you think that there is a little bit more room for M&A in a fragmented market like education payments.

Yes I appreciate the question. This is Mike So I would say we're always we continue to have three we're always looking for deals that we think fit our core strategy and thesis M&A pillars, we've talked about before what can help accelerated industry or geography, what can help drive NRI give us additional capabilities.

We're potentially third pillar expanding to a new geography or new industry. Those pillars remain the same.

Obviously, our first two deals.

As a public company have been education related.

We'll continue to look into all verticals.

I don't I don't have in all honesty, a preference as to.

One industry or vertical over another at the same time, we're kind of picky, we want to find great culture fits in both cohort go in WPM were companies that we have known for a long time, we had tracked for a long time, we felt there was great opportunity.

To drive that.

That next level of growth together.

And so I would expect us to do something similar.

Similar look for look for a great company, not only culture, but technology and the market opportunity.

That's really where we look for inorganic.

Just highlight we feel really good about our organic path ahead right. So we don't sit here, saying, we need to do inorganic moves to keep growing this business, but we have the cash position to be able to do it.

That's awesome. Thank you and then just a quick follow up are you guys able to provide any color as to what demand looks like for software solutions in healthcare for something like repayment plans.

Whether or not you view that as structural or cyclical demand.

Yes, so the health the health care vertical continues to be a good one for US we had a good Q2 in terms of IRR signings in Q2.

I think the environment has become even more focusing for healthcare clients because of both.

The financial pressures that they face as well as the affordability and financial pressures that their patients face. So our software one of its key benefits from the hospital perspective is that it is helping drive a higher collection rate and lower cost internally, they're having the same challenges hiring that lots of folks are and.

They have a real imperative to try to automate and reduce cost as you heard from my comments, we helped drive self service, we helped drive patient satisfaction and very importantly, we ultimately helped drive more collections. So as the climate remains challenging for health care providers in general I think there is.

That's a dynamic that makes our software even more valuable for them and so we continue to move forward well.

We're especially.

Proud of the results that we deliver in the health care space. The ROI of what we do is really really strong.

Thank you so much guys and again congrats on the quarter.

Appreciate that.

Our next question comes from Ken Sakowski of Autonomous research.

Can you just talk about what's driving the revenue lower on that line is it is it FX or something else and I think you mentioned that there were some recently on boarded healthcare clients that will contribute to second half platform revenues.

Could you just give us a little detail on those wins.

How did those come about and how much you expect those wants to contribute to revenue in the second half.

Hi, Rob here I'll start and then I'll hand off to Mike just in a second to go into the numbers. So.

Yes, just to highlight the comment that I made.

<unk> had multiple deployments in the recent period that we look forward to serving those clients well and we look forward to the revenue contribution that those will create for us.

There was this single client that we referred to is having a meaningful effect that we mentioned way back in the back part of last year and so we had called that out back then.

And remind folks that thats still has an.

An ongoing effect in the platform revenue line until we lap that which will happen later this year.

Okay.

Okay, Alright, great and then.

Just as my follow up.

China, I guess, it's coming up a lot more in conversations can you just talk about your exposure.

Two to China, or whether by number of students originating from China or revenue from Chinese students and then obviously there is a lot of unknowns with this but maybe you could talk about the risks.

To the business or maybe the diversity of the business from a high level, if China and U S tensions increase.

Yes, Ken.

I'll take that one this is Mike I would say.

A couple of things to remember flowers.

Obviously, China impact really would impact our education business as opposed to other industries or verticals, but in.

And specifically cross border education flows obviously.

I would call out as flowers get clients in over 32 countries right. So it isn't really about whether students.

Come to one country or another but really do they end up in a in a place where fly we're servicing those customers. So we have seen geopolitical tensions before.

Anything continues to escalate there or any change in travel policies.

Our expectation is students from China will go somewhere they are not going to not go and study abroad and if you look at the last two decades of trends of international students studying abroad. There has been a really consistent minus the pandemic there's been a really.

Since the system growth rate of students studying abroad, and if you look at that number it's still a relatively small number when you look at global students.

So feel really good about general trends around international students.

One of the interesting dynamics is also India has become the number one.

The country of origination for students studying abroad.

So again.

I think has a positive impact rates certain.

Policies travel policies I think some of the.

Covid dynamics in China.

Can impact that but students are going to go abroad. They may end up in Australia, and New Zealand, if there's geopolitical tension, but thats why we have a good footprint for fly why are all around the world. So.

Some exposure there in our education cross border business, but again, we think it's we think it's relatively mitigated based on students still wanting to travel and study.

Okay, Alright, thanks, Mike I appreciate the thoughts and congrats on the results.

Thanks, Kevin.

The final question comes from Jeff Cantwell of Wells Fargo.

No.

Hey, Thanks, and congrats on the results I wanted to follow up on some of the wins that you announced over the past year interest. If you can give us an update.

<unk>, particularly with you know, Texas.

And Stanford and view commentary can you talk about as far as how that's progressing.

Would expect you know for some of these more noteworthy when you guys look now serve across 12 months or so thanks very much.

Yes, Hi, Geoff Rob here I'll take that so obviously, we're very excited about the domestic business. We're very excited about each of the client wins that we've announced on the last series of calls right. So we talked about Texas A&M, we've talked about Stanford University of Connecticut.

Call, you IRI and University of Chicago.

We also talked about great wins internationally folks like MMU that we've discussed that as well in our prior calls.

So.

The performance.

Performance of these schools is going really really well I mean at some level. The best news is that those clients are just happy content working with our solution and then getting the benefits that we expected and planned to deliver for them and so for US that's exactly what we want because these are word of mouth industries, where when people hear that you are doing well.

For their colleagues at a school, they're that much more inclined to want to work with you themselves. So.

Our job number one is just to do a great job delivering on behalf of these clients and with that we continue to see the pipeline grow and the number of opportunities grow.

And that's the playbook, we're executing against yes, Jeff the only thing I would add this is Mike is just our implementation teams have been doing a great job.

Really scaling with the growth of our business and it really this is a global implementation team across all of our industries.

And so that's not only treating our clients great. Once we signed demand, but getting them live and as Rob said driving that value. So you'll feel really good in our ability to do more of that and have a great implementation team behind us.

Yeah.

Okay, great. Thanks, very much guys and congrats on the results.

Thank you I appreciate it.

Thank you ladies and gentlemen, we have reached the end of the question and answer session.

I'll now turn the call over to Mike Mcferran for closing remarks.

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

Thank you.

Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.

Q2 2022 Flywire Corp Earnings Call

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