Q4 2022 Flywire Corp Earnings Call

Speaker 1: The.

Speaker 2: Greetings and welcome to the Flywheel Corporation fourth quarter 2022 earnings conference call.

Speaker 2: At this time, all participants are in a listen only mode.

Speaker 2: A brief question and answer session will follow the formal presentation.

Speaker 2: If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Akhil Hollis. Please go ahead.

Speaker 3: Thank you and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Orgel, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our fourth quarter and fiscal year 2022 earnings press release, supplemental presentation.

Speaker 3: and when filed, associated annual report on Form 10-K can be found at ir.flywire.com. During the call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements.

Speaker 3: We will also be discussing certain non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks regarding these forward-looking statements that could cause actual results to differ materially, risk factors associated with our business, and required disclosures related to non-GAAP financial measures.

Speaker 3: 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 Masato. Thank you Akil and thank you to everyone that is joining us today. We are pleased to share our Q4 and fiscal year 2022 results here with you all today.

Speaker 4: These results continue to show strong performance across the business. We are also eager to share our business priorities and financial outlook for 2023 as well during this call. In a few minutes, Rob Orgel, our president and COO, as well as Mike Ellis, our CFO , will go into greater detail about our results during the quarter. But first, I will start with a few financial highlights.

Speaker 4: First, let's start with the fourth quarter. Revenue less ancillary services with $67.4 million, representing year-over-year growth of 47%.

Speaker 4: or 57% on a constant currency basis. Adjusted gross profit for the quarter was $44.5 million, an increase of 40% year over year. And adjusted EBITDA was $1 million for the quarter. As our Q4 results now cap off another great year for Flatwire, I want to take a few moments to talk about some of the things we were able to achieve in fiscal year 2022.

Speaker 4: a truly exceptional year for Flywire. Starting with our fiscal year 2022 financial highlight, Flywire revenue-less ancillary services grew by 47%, or 55% on a constant currency basis. Our adjusted gross profit grew 40%, and our adjusted EBITDA was $14.9 million, despite the amount of revenue that was spent in the financial year 2020. Our adjusted gross profit grew 40%,

Speaker 4: our record investment year. In FY 2022, we also added more than 590 clients across all verticals and now serve more than 3100 globally.

Speaker 4: We moved more than $18 billion around the world. We saw significant growth in our travel vertical, more than tripling revenue of this business.

Speaker 4: And we completed the acquisition of cohort GO and continued to successfully integrate the WPM business, finishing the year with over 40 clients for our combined solution. These great achievements are in addition to significant progress in our three key investment areas for 2022. First, we continue to enhance our go-to-market efforts with a key focus on sales effectiveness.

Speaker 4: client delivery capacity, an efficient digital acquisition. In Q4, we saw more than 100% year on your increase in pipeline creation by our global sales team. We continue to see strong ROI of our investment in our digital marketing efforts, with more than 65% year over your increase in marketing source deals in our travel vertical alone.

Speaker 4: Our strong track record of LTV to CAC combined with our proven unit economics continue to give us confidence in our go-to-market investments. Second, we continue to expand our Flywire advantage, part of our long-term vision to power the ecosystems in our core industries of education, healthcare, travel, and B2B payments.

Speaker 4: As an example, following our acquisition of cohort Go and July last year, we have delivered new features and migrated the first wave of agent partners into the flywire platform. We have leveraged cohort Go as a PANY school capability.

Speaker 4: to allow Flywire agents the ability to pay a much broader set of educational institutions, as they are no longer limited to sending tuition payments to only Flywire contracted schools. Educational agents, international students, and client institutions all benefit from these investments, driving growth and further delivery of value to multiple stakeholders in the ecosystem. And our third key investment area was to strengthen and grow our flymaking.

Speaker 4: Flyware is committed to providing Flymates a place where they can build their careers of a lifetime. You see this reflected in the ways in which we invest in them and their career growth. We expanded and invested in our employee resource groups, which provide spaces for Flymates to come together, connect around shared interests, and foster meaningful conversation.

Speaker 4: We strengthened our internal mobility program called One Fly Wire that focuses on upskilling and providing new opportunities for growth, as well as training and education for our people managers.

Speaker 4: Flymates attest that these experiences provide them with incredible growth opportunities, both personally and professionally. We are thrilled to continue to be recognized for our award-winning culture, including recently where Flywire was named.

Speaker 4: of Best Workplace in Financial Services by Fortune Magazine, and a Top Place to Work by the Boston Globe. A lot of this is detailed in our inaugural Environmental, Social, and Governance Report, which was released in December of 2022. Whether through the work of our charitable foundation or through the community service trips our FlyMate embark on, we believe that being a force for good can be linked to generating growth and long-term value. We look forward to evolving our ESG efforts in 2023 and beyond. We truly had a fantastic 2020.

Speaker 4: functionality and network capabilities while controlling costs in other areas like consolidating tools and vendor management. This is an important balance we continue to aim to strike.

Speaker 4: and proves that we can deliver more value to clients and payers with efficient deployment of our resources. We are proud of what we have accomplished, but we are also excited for what is ahead for Flywire. As we look at 2023, we remain focused on investing in go-to-market, expanding our Flywire advantage, and expanding our supply chain.

Speaker 4: we can deliver more value to clients and payers with efficient deployment of our resources. We are proud of what we have accomplished, but we are also excited for what is ahead for Flywire. As we look at 2023, we remain focused on investing in go-to-market, expanding our Flywire advantage, and strengthening and growing our flymate community.

Speaker 4: First, we are working to optimize our go-to-market motion to improve the effectiveness of our sales and relationship management teams and accomplish more with our recent investments. To enable this, we plan to continue to enhance our capabilities of our sales, relationship management, marketing, and revenue operations function. We continue to refine our delivery capacity and follow through on our digital acquisition strategy. A key part of our focused go-to-market this year will be around accelerating our channel and technology partners across all verticals. We have over 80 technology integrations across our business and our ability to integrate directly with our partners makes the onboarding process and technology implementation faster and more efficient for our clients, further enhancing our defensible mode in the industries that we serve. For example, our channel strategy in healthcare with Epic and Cerner.

Speaker 4: two of the largest EHRs in the industry, enables us to embed deeper into the workflows of our clients, making us stickier within our accounts while also helping us accelerate new wins. This is a winning model for us, and we expect to see similar trends play out across other verticals. As for expanding our Flywire advantage, we remain focused on product and payment innovation to power the vertical ecosystems in the industries that we serve. We have talked already about the success in our initiatives, within education agents, paying non-Flywire clients. We are also excited about the progress we are making in the 529 savings plan market. Flywire is now able to streamline and digitize the payment process for tuition payments from 529 plans.

Speaker 4: Even if the recipient is not a flywire client. And we are making great progress in payer services, bringing new solutions to market that provide benefit to the various stakeholders in our ecosystems. These payer services are adjacent, tan expansion opportunities, and we believe they can enhance the lifetime value of our payer and deliver value for flywire over time. Lastly, we will continue to be focused on strengthening growing our primary community. We will continue to provide our globally distributed climate for resources they need to succeed. We will continue to support and develop top talent while finding opportunities to streamline internal processes.

Speaker 4: helping Flywire scale across all disciplines. Our Flymates have always excelled in execution. It is one of our core values. And they deserve the opportunity to be freed up from unnecessary and cumbersome tasks. We are in a strong position to keep investing in our Flymates, and particularly around the areas of learning and development, well-being, and diversity, equity, and inclusion.

Speaker 4: I now wanted to spend a few minutes reviewing the trends we are seeing across our verticals and geographies, which is giving us even more confidence in our plan for the year and for the long term. Across higher education, where we benefit from a geographically diversified business, we are continuing to see positive student mobility trends across the world. For example, according to the Australian government, Australia has issued more than 120,000 visas to international students since borders reopen.

Speaker 4: And student visa grants from January to September 2022 were the highest ever, while working holiday visas also surpassed 2019 levels. Additionally, according to the 2022 Open Doors Report on International Education Exchange, the United States saw an increase of 80% year over year in new international and student enrollment in the 2021-2022 academic year, a return to pre-pandemic levels. Overall, we remain optimistic about international education and confident in our ability to keep winning clients and delivering value to students and families around the world. In healthcare, we continue to see hospitals and health systems prioritizing their revenue cycle management.

Speaker 4: as the patient financial crisis accelerates. And according to our recent report, 90% of healthcare CIOs surveyed say patient collection is a key metric their job performance is measured against. We are continuing to expand our software capabilities to help address these market challenges and enable these hospital executives to meet their goals. In travel, there continues to be strong momentum in the subsectors we support. Our clients consisting of travel operators, destination management companies and accommodation.

Speaker 4: and expect to see strong growth from clients in Southeast Asia, as well as continued growth in travelers from China and Japan.

Speaker 4: And lastly in B2B, our largest market size opportunity, we are seeing success with our go-to-market efforts in ability to support major enterprise software systems like Netsweed and Salesforce. As finance professionals continue to view their ERP as their single source of truth, we believe we have a major opportunity to help them augment their ERP deployment when it comes to receiving payments. In a recent survey we conducted a global finance professional. We found that as company scale, they have challenges collecting global payments within their ERP systems. These challenges include invoicing and local languages and acceptance of multiple currencies.

Speaker 4: negatively impacting their DSL. Importantly, 89% of those surveyed said they think they could save money if more of the cross-border receivables process was integrated into their ERP system. This is exactly the use case that Flywire is able to address. In closing, I cannot be more proud of the progress we made in all areas in 2022. In more excited for your head, I would now like to turn the call over to Rob Orgel, our president, COO, to review some operational highlights from the quarter. Rob? Thanks, Mike. Good afternoon, everyone. Our strong results this year reflect continued execution of our growth strategies, caring forward, what was an excellent 2022 of execution and delivering results.

Speaker 4: After a significant investment year in 2022, we are working to scale our business efficiently as we move through 2023. We will focus on leveraging the incredible talent added to the company last year in this year's effort.

Speaker 4: In terms of the core business, we will focus our teams on revenue growth and efficiency initiatives across our business. In terms of our innovation areas, such as strategic payables and payer services, we're focusing on advancing revenue generation from these areas. There will be some hiring in 2023, but it is expected to be narrowly focused on areas of greatest need and highest return on spend. All in, the run rate spend added in 2023 is expected to be at least 60%.

Speaker 4: for continued growth and improved efficiency in 2024. Turning to the business performance in Q4 and 2022, we continued to see good results in two important metrics of our go-to-market performance.

Speaker 4: First, we grew existing clients with our NIRR continuing for a full year 2022 at 124% supported by client-vide growth and expansions and despite the offsetting impact from the FX headwinds we faced in 2022. In terms of new clients, we added over 145 new clients in the quarter, continuing our strong quarter by quarter performance through 2022. A highlight of how we plan to continue this success.

Speaker 4: I'd like to highlight our 2023 strategic direction for our four verticals, share some of the exemplary 2022 successes, and then in a few minutes, mention other operational achievements that are important to our overall efficiency and scalability. Starting today with education. In 2023, we will continue to drive growth in our core markets as well as targeted newer markets.

Speaker 4: We plan to continue to focus on moving as much of our client's total payment flows as possible, both international and domestic. That strategy, including continued success with our full-sweet solution, is core to our strong NRR and simultaneously drives client loyalty and satisfaction. We will invest to improve our global payment network with carefully selected international and domestic payment capability improvements.

Speaker 4: This strategy around managing domestic and international flows has worked for us in many of our most important global markets and our teams are focused on its continued success. Second, we are focusing on effective collaboration and great integrations with partners like Ellucian and Tribal as well as many others. Finally, we are continuing to focus on excellence in execution in key payer markets like India and China where our work with agents and pay-in-the-school capabilities are proving very effective. Finally, we will continue our efforts to drive commercialization of our strategic payables as described back on our Spring Analyst Day. St. Louis University exemplifies our continued growth with existing U.S. clients. SLU, founded over 200 years ago, is one of the nation's oldest Catholic universities and home to over 13,000 students. Flywire originally signed SLU in 2015 to support their cross-border students.

Speaker 4: However, after years of growing with them as a client, we have recently expanded our product offerings by launching our full suite comprehensive receivable solution. This will help provide flexible extended payment options to families as well as help facilitate repayment options for students who have fallen behind. We are also building our client base in newer markets. For example, we recently leveraged our integration with adapt IP, a leading South Africa based software provider for the higher education sector to sign the University of Johannesburg. This is a public university in South Africa with a student population of greater than 50,000 of which over 3,000 are international students from 80 plus countries. Y-wire is supporting the University of Johannesburg with our cross border payment solution. Overall, we remain excited about the opportunities to expand in South Africa.

Speaker 4: solution. Our agent solutions platform enables agents to have a single place to track all of their students tuition payments, regardless of the school being a current Flywire client or not. Additionally, we are on track with integrating cohort goes insurance cross sell platform into Flywire agent platform for the beginning of the second quarter of 2023. Adding another cross sell dimension to the acquisition.

Speaker 4: all in line with our original integration plan. With regard to WPM, we have passed the 12-month mark since the acquisition. We signed eight new schools during the fourth quarter for a total of 41 at the end of the year, and eight schools went live on the integrated WPM and Flywire solution during the fourth quarter. This includes Sheffield University, which has over 11,000 international students, and went live with Flywire's international and domestic card solution within the WPM integrated payment platform. Moving on to healthcare, our healthcare vertical enjoyed many successes in 2022, including delivering incredible results for our clients.

Speaker 4: and also use 2022 to position itself for what should be an even better 2023. We signed over 15 new clients and expanded services with 22 existing clients during the year. We expanded in a variety of ways, which include bringing on new hospital facilities and cross-selling additional products.

Speaker 4: We are seeing momentum in our pipeline driven by implementing our go-to-market approach and creating dedicated teams to sell into Cerner and Epic ecosystems. Our partnership with Cerner supports our ongoing expansion with Munson Healthcare.

Speaker 4: Munson is Northern Michigan's largest and leading healthcare system serving the region's 540,000 residents. Through the water track record of facilitating increased collections through our digital self-service strategy across 30 plus Munson practices, we are now slated to integrate 44 incremental practices at Munson Central Business Office.

Speaker 4: In another example, Advent Health, a faith-based nonprofit health system, had quartered in Florida with an integrated network expanding 46 hospital campuses across nine states, leveraged our expanded integration into FX EHR system as they went through a system consolidation process going from multiple EHRs to consolidating on F. FlyWire's ability to integrate with multiple EHR systems help Advent operate in a hybrid environment during the transition process.

Speaker 4: We look forward to continuing our work with AdSense. In our travel vertical, we are going from strength to strength. Following seasonally high volume from European destination management companies over the summer, we enjoyed record-setting revenue in the Asia Pacific region in Q4 as the region reopened post-pandemic. Our travel revenue in the Asia Pacific region in Q4 2022 alone exceeded 80% of our revenue for Q4 2021 for all of our travel vertical combined. This is driven by our strong client acquisitions in Asia, some of which we highlighted on our prior call. Our software integrations with leading online travel booking and reservation systems such as RoomBoss, Beds24, and WooCommerce.

Speaker 4: enable many of our APAC customers on board in a self-service manner with minimal consultation required. Our past investments in building out software integrations of leading regional systems of record at the travel vertical help us efficiently acquire new clients across the geographies. Highlighting our success with enterprise clients, we were able to leverage our partnership with the American Resort Development Association as well as our partnership with SPI software to sign Zivo Windom. Zivo Windom has been developing and managing eight resorts in the Dominican Republic, Mexico, and the Bahamas for over 35 years.

Speaker 4: We are also pleased with the growth of our B2B vertical. We are expanding our integrations with leading ERP systems of record to drive higher adoption of our invoicing and AR collection solutions. For example, last week we announced our recently completed integration with FRAN Connect, a market leading franchise management software provider for over 1,500 brands looking to grow their business both domestically and internationally. Flywire is the preferred payments provider on the FRAN Connect platform.

Speaker 4: Grant Connect is expected to expand Flywire's B2B payment platform through its marketplace to enable franchisers to easily collect royalties and fees from franchisees in different currencies around the world. An example of a restaurant franchise client we are working with is Dickey's Barbecue Pit, the world's largest barbecue concept. Dickey's was founded in 1941 and is headquartered in Dallas, Texas, with over 550 locations across the United States and 8 other countries, including Brazil, Japan, and Singapore.

Speaker 4: Tickies continues its international push, having announced plans to develop 65 new locations in Canada and 40 new locations in the Philippines. Jim Perkins, executive vice president of International Development Support at Tickies, had just to say about the relationship with flywire. My experience with global warming as before flywire was characterized by payments being a number of days late, being hit with hidden fees, and managing a difficult reconciliation process. Working with an incorporating flywire is the payment option has been a productivity improvement for my partners, as well as a clear path to timely and financial clarity for all involved.

Speaker 4: effort towards efficiency and scale. One example of our recent progress is that we launched the first instance of our AI chatbot for our customer support function at the end of the fourth quarter.

Speaker 4: Our overarching goal with the launch is to significantly reduce the assisted payer interaction volume of our high quality payer support. We'll be adding more API-enabled support to the chatbot as this automation enables our customer support team to achieve faster inquiry resolution, scale efficiently, and focus their time and attention on more complex client needs. This is just one of many areas where we are aiming to use automation and analytics.

Speaker 5: Mike?

Speaker 4: Thank you, Ralph. Good afternoon, everyone. Today, I will provide a quick recap of a great 2022 and an overview of our excellent results for the fourth quarter. I will then discuss our outlook for full year 2023 and Q1 2023. As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP for the most directly comparable.

Speaker 3: Typically, on a constant dollar basis, our growth rate would have been 55%, representing a full year 2022 FX headwind of approximately 14.2 million.

Speaker 3: In addition, despite our record investment here, we generated a just a deep of 14.9 million, essentially right at the midpoint of our revised full-year buy-dend, but well above the full-year buy-dend that's the start of 2022. Moving on to our Q4 2022 results. Revenue and left-and-cillary services was $57.4 million, representing a 47% growth rate compared to Q4 2021.

Speaker 3: FX headwinds also meaningfully reduced our revenue and revenue growth rate during Q4 2022. Specifically, on a constant currency basis, our revenue growth rate for Q4 2022 would be at a equivalent 57%, representing an FX headwind of approximately 4.6 million during

Speaker 3: However, compared to our guidance provided in November 2022 for Q4 2022, FX changes resulted in a tailwind of over 1.0 million. Our revenue growth rate was driven predominantly by an increase in total payment volume, particularly due to strong growth from our international cross-border payment volumes and our educational travel verticals. We processed $4.1 billion in total payment volume during Q4 2022, which was an increase of 29% from the $3.1 billion.

Speaker 3: we processed during Q4 2021. Specifically, transaction revenue-less ancillary services increased 49% compared to Q4 2021, driven by a 34% increase in transaction payment volume. Platform and usage-based fee revenue increased 35% compared to Q4 2021, driven by a 10% increase in platform and usage-based payment volume, as well as non-payment volume-related increases in SaaS-based and other platform and usage-based fees. Moving on to adjusted gross profit, I'd like to start by outlining a change in our methodology for reporting on adjusted gross profit and adjusted gross margin, and note two one-time items that impacted Q4 in the full year 2022.

Speaker 3: We have revised our methodology for calculating adjusted growth profit and the result of adjusted gross margin to add back depreciation and amortization costs included in cost of revenue. We believe adding back these non-cash items enhances the understanding of the company's operating performance and enables more meaningful period-to-period comparisons.

Speaker 3: The two one-time items recorded during Q4 are first, accelerated amortization of a specific healthcare technology asset as we consolidate platforms, and second, a one-time charge in Q4 that related to a delayed and disputed invoice from a payment partner. During Q4 2022, based on the revised methodology, we generated $44.5 million in adjusted gross profit representing a 40% increase compared to the $31.8 million reported for Q4 2021. The gross margin was 66.0% for Q4 2022 compared to 69.3% for Q4 2021.

Speaker 3: during previous quarter earnings falls, the decrease in adjusted growth margin during Q4 2022 was primarily due to the growth of our travel and B2B verticals.

Speaker 3: Credit cards are especially popular in the traveling B2B verticals, and these verticals' strong growth in the quarter led to higher overall credit card mix. These transactions have good unit economics but lower adjusted growth margins that reflect their higher monetization offset by higher processing costs.

Speaker 3: The impact of the one-time items under the previous methodology was a reduction of approximately 220 basis points related to accelerated amortization and a reduction of approximately 45 basis points from the delayed and disputed invoice from the payment partner. The accelerated amortization gets excluded from the revised methodology.

Speaker 3: Two things I would reiterate. Number one, we prioritized adjusted growth profit generation growth over a resultant adjusted gross margin. And number two, our spreads have remained relatively consistent and stable over the last seven reported quarters. Finally, under either method, we delivered an adjusted gross margin for the year within the adjusted gross margin range we provided during our analyst day during May of 2022.

Speaker 3: Number one, we prioritized the Justice Growth Profit Generate and Growth over results in the Justice Growth margin. And number two, our spread to remain relatively consistent and stable over the last seven reported quarters. Finally, under either method, we delivered an adjusted growth margin for the year within the Justice Growth margin range. We provided during our analyst day during May of 2022, moving on to operating expenses.

Speaker 3: Technology and development expenses were 12.7 million for Q4 2022 and increased to 40% over the 9.1 million incurred during Q4 2021. The increase was primarily the result of adding flymates to our engineering and technology team since Q4 2021, which drove increases in employee-related costs, including stock waste compensation, consistent with our plans going into the year that we would be investing in this area. Selling and marketing expenses were 20.3 million for Q4 2022 and increased to 28% over the 15.9 million incurred during Q4 2021. This increase was driven by adding flymates via direct hiring and our two acquisitions since Q4 2021 into our sales and market, which drove increases in employee-related costs, including stock-based compensation. In addition, we incurred more costs associated with third-party commission as a result of our revenue growth during Q4 2021. General and administrative expenses were 19.9 million during Q4 2021 and increased to 14% over the 17.5 million incurred during Q4 2021. This increase was driven by adding flymates across these functions, which include cost associated with our client and payer service teams, resulting in increased in employee-related costs, including stock-based compensation. In addition, we incurred more costs associated with stock compliance.

Speaker 3: as well as other costs associated with operating with the public company. Adjusted EBITDA for the quarter was 1.0 million, an increase of 2.7 million over the negative 1.7 million reported for Q4 2021. Our adjusted EBITDA margin increased over 500 basis points in Q4 2022 compared to Q4 2021, with a strong adjusted gross profit growth offset by increased operating expenses as discussed previously. Moving on to the balance sheet. With respect to capitalization as of December 31st, 2022, we had 349 million in cash and cash equivalents and no long-term debt. As of December 31st, 2022, we had 109.3 million shares of common stock outstanding, which is slightly different from the weighted average shares outstanding used to calculate net loss per share due to the timing of shares issued during the quarter. One last item on 2022, while we plan to get our 10K filing out tomorrow, it turns out a little more time is needed to complete the required SOX 404B documentation process for our first year as a large, accelerated filer.

Speaker 3: If we were not subject to SOCKS 404B, we would have filed on time. Therefore, we will be filing for the standard 15-day extension and expect to file on Form 10-K within this 15-day extension period. Moving on to guidance for 2023. We expect revenue-less ancillary services to be in the range of $353 million to $354 million for full year 2023, representing a 34% revenue growth rate at the midpoint. Our full year 2023 expectations reflect an organic revenue growth rate of 31% with the annualization of Cohort Go, representing the remainder. This guidance is based on foreign exchange rates as of 12-31-2022. With respect to adjusted EBITDA margins, we expect to deliver a 300 base point increase during full year 2023 compared to the reported adjusted EBITDA margin for 2022, in spite of expected continued FX headwinds.

Speaker 3: Adjusted EBITDA is expected to be in the range of 28 million to 34 million. We expect 2023 to be a year in which we show scale while at the same time investing in sales and marketing and other key roles as we continue to deliver strong revenue growth across the verticals more free operate. For Q1 20023, revenue-leaf-ancelary services is expected to be in the range of 81 million to 85 million, which represents a year over year revenue growth rate of 40 percent at the midpoint. This guidance is based on foreign exchange rates as of 1231-20022. With respect to what Jeff and EBITDA, we expect Q1-Adjusted EBITDA to be in the range of 3 to 5 million, which at the midpoint represents a 2.1 million year over year increase compared to our reported adjusted EBITDA for Q1 20022. At the midpoint, our EGES EBITDA market.

Speaker 3: approximately 4.8%, which represents an expansion of 158 basis points year over year compared to Q1 2022. We expect to deliver a justly but not margin expansion in each quarter of 2023. However, due to the seasonality of our business, a justly but not margin expansion will vary by quarter, but are forecasting a 300 base point increase for the full year of 2023. In conclusion, we executed very well and are pleased with our financial results for 2022. We are optimistic about our expected 2023 results due to the resiliency of our verticals and the strong underlying economics of our business. With that, I would like to turn the call over to the operator for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation turn will indicate your line is in the question queue.

Speaker 4: You might press star and then two, if you'd like to remove your question from the queue. For participants using speak equipment, it might be necessary to pick up your handset before pressing the star keys. One moment please, while we post questions. The first question is from Van Pullen of RBC Capital Markets. Please go ahead. Thanks. Good evening, guys. I wanted to, I do want to point out the drill down a little bit on the guidance for the moment. You know, in the range that you guys gave, what kind of assumptions are you making in terms of expectations from a macro perspective? And then how much is kind of predicated off of, I guess, just what we might consider to be kind of like non-sticklical growth from net new clients. You know, and things of that nature that are rolling on the system where you have good visibility today relative to just kind of the volume basis. Thanks. Hey, Dan. Thanks for the question. This is Mike.

Speaker 6: live and then it is clearly critical that our model will be get these kinds live, right? That's how you actually realize that revenue. So that's a big focus and obviously an assumption baked into the model for 23. And then you can also look at our pipeline numbers that we shared on the call earlier, where we're actually seeing pretty good growth in that pipeline, right? Again, leading to...

Speaker 6: confidence in 2023 client signs. And there isn't a huge part of revenue in a given year, as you're aware, that comes from net new client wins in that year. But that's another good indicator that helps in our model assumptions for growth. You know, to just cover a couple other assumptions, FX rates, our assumption is at 1231.

Speaker 6: That's kind of consistent for us as we've been dealing with all types of recovery from the pandemic. And so you can expect our modeling for 2023 to assume the similar kind of approach. We're not really assuming anything kind of extreme or massive change in the world, whether positive or negative. Obviously that could have some downside or upside to the range, but obviously something we can't really predict.

Speaker 6: And the last comment I guess I'd make on just assumptions and how we modeled for the year, the thing that probably makes us most proud about the business that we have is that we have these multiple levers for growth. And quarter after quarter you've seen us, whether it's industry growth, whether it's product expansion, whether it's a geography that we've added or expanded, those levers that we have give us a lot of confidence as we look at our modeling for the year. But hopefully that gives you a little context as to what the assumptions are in the model and how we're looking at 23. Yeah, no, that's fantastic. Just a quick follow up on…

Speaker 4: kind of the concept of expanding the flywire advantage. You mentioned a few times here, kind of your ability to effectuate payments, but yet not have them as kind of flywire, I guess, payment clients yet for schools. And I think you mentioned cohort go, and then you also mentioned the context of 529 savings plans. So my question I guess is that sounds like it's becoming a little bit of a...

Speaker 4: A bigger opportunity for you. I'm just wondering how do you envision that building over time is your expectation that you're going to convert those over directly to fly wire payments within your network. Is that just purpose built to build a much bigger funnel for your opportunities going forward? Thank you.

Speaker 6: Yeah, sure thing. Mike, again, you're exactly right. One of the things we noticed, not only in the agents business, including the Cohort Go acquisition, but also the Flywire agent relationships we had prior to Cohort Go and in the 529 aspect, when we look at enabling the broader vertical ecosystems in education, it's those connection points that people find really important. Every here and there for it.

Speaker 6: If you think of agents helping a student or a family make a payment and then also that flow back of potential commission dollars, that's an interesting part of an ecosystem. By being able to deliver a solution that not only streamlines the payments to our existing clients that we already have, but also sits there and says, hey, we've enabled this now where you can actually make these payments and we can help streamline them into other institutions we're not yet working with. That actually gives us an opportunity to revisit that conversation with those institutions we're not yet working with. Already have a proven track record of being able to turn some of those into clients and we'll continue to use that as a lever. The 529 is just another great example of that. As you look at the problem we solved, think of our position. We can now go to not only

Speaker 7: 2023, relative to 2022.

Speaker 6: You want that one, Rob? Sure, I can jump in here. Hi, Jason. NRR has been something that we've shared in every call now since we started. We've given you the annual figures, and you can see that the figures for this year, once again, are coming in in the range that we've been sharing, and we've been guiding as part of that three-year average. We expect that there are all the levers available to us to continue in that vein very much going forward. When you look at geographic expansion, new product adoption, the ecosystem...

Speaker 6: Willis University that I quoted earlier, that's a client that many years later chooses to do a major expansion with us and that will be a client for which we'll see improved revenue opportunity. So NetNet expecting to see things very much in the spirit and that all is a main contributor to the growth algorithm for the company. Yeah, the only thing I would add, this is Mike Ellis, is that don't forget that the FX headwinds that we experienced during...

Speaker 3: This is my gala. So we have not guided on a free cash flow basis, but I can tell you that from a free cash flow standpoint, some of the areas where we have capitalized costs. Most simply, you think of the build out of offices or computer equipment for our flymates. In addition to that, think of capitalized R&D development costs associated with internal e-software.

Speaker 3: And then also in accordance with generally accepted accounting principles some of the capitalized sales commissions which get amortized It's something Jason that I'm happy to consider in the future Relative to disclosing what free cash flows would potentially look like for the business.

Speaker 4: Okay, but no like big items pending that are worthwhile calling out? No, okay great. Thank you guys Hey, Jason The next question is from Ashwin Chebaka of city, please go ahead A

Speaker 3: I wanted to ask about the range of outlook that you provided. What combination of factors might drive the lower part of the range versus the upper part of the range? In terms of just specifically the upper part.

Speaker 3: given you do have kind of a tendency to do better. Are there factors that are kind of external, such as signing of new clients, M&A, things like that, that are embedded there? Or is it all...

Speaker 6: and organic and powering through the Denarara and such. Ash, when it's Mike. So I go back and highlight a bit. We have pretty good confidence in the range that we put out there, obviously, because of the NRR, because of the new client signs we had record last year. And then on top of that being the strong pipeline numbers that we just reported.

Speaker 6: And so from that is really where we get the confidence in the organic elements of it. Obviously, we're not making any big assumptions around inorganic moves. There's some lagging of the cohort numbers and that will obviously hit mostly Q1 and Q2, but it'd be a relatively small component of the growth. And when you really look at where could outperformance come, I'll highlight a couple of areas. I mentioned that rolling recovery.

Speaker 6: I think it's the right thing to do as we model this business. You saw us do it in 21. You saw us do it in 22 as the world was recovering in different regions and different industries at different times. We've made those similar assumptions. Again, if you see the APAC region, not only from a destination perspective for travel, which 23 is really the first opportunity for that region to come back as a tourist destination, didn't really happen in 22. That's a good example of where that could happen faster than we think and potentially provide some upside.

Speaker 6: similar in student numbers, right? Good indications from places like Australia and some of the traveling coming out of China, but at the same time we've made assumptions that has that as kind of a rolling recovery through the year. And so we encourage people to really just remember the cyclicality of the business. And you could see outperformance in obviously travel and the international student side, and B2B for that matter, really seeing some great traction in the pipeline build in B2B. So that's what I'd highlight as potential areas there. Got it. And in terms of this EVDA margin, you're obviously getting to...

Speaker 3: close to a single digit setting at the middle of the range if I'm not mistaken. The, um, that kind of on track with what you said, what you said before. But, but underlying that if you could talk about the key areas of investment that you're continuing to make, what are those areas? Maybe if you could potentially even size size that those investments in, you know, are those kind of would you consider those discretionary and you're doing them because you can.

Speaker 6: can they be turned off, should macro get worse, things like that. You could comment on that. Flexibility. Yeah, I'll step in here and start. This is Rob. What I outlined in my comments was a plan for the year that involves significantly less hiring, significantly less investment than in 2022, but at the same time continue to selectively add people where they are most valuable to the business. That will take primary form in terms of continuing to invest and go to market. We have this incredible opportunity in front of us and we want to continue to invest in that. We need to add sales reps to cover.

Speaker 6: puts people in the most important spots. And again, with sort of more than 60% less in your expense against a company that's 55% bigger in constant dollar terms, we do hope that what you're seeing in this is an impressive step towards scale and efficiency that is built into this plan.

Speaker 4: But if we think about it, obviously you made significant investment since 2022 and some of those kind of lap you hired throughout the year. So as we kind of go into 24, you know, all of us equal, can we see a step up in kind of the marching expansion, you know, obviously the midpoint's three hundred. Basins points this year, but just trying to thank me. If we go back to the analyst day, you guys talk about three to six hundred basis points a year.

Speaker 6: appreciate the 300 this year, but just trying to think about how we see the cadence going forward. So any comments there will be helpful. Yeah, JD, thanks for the question. So obviously we're not quite ready to talk about 2024 yet in terms of specific numbers, but you're right in calling out that as we look at this year's plan, we had a significant amount of annualization expense of the investments that we made last year that roll into this year. And obviously that all factors into the plan that we presented to you and the guidance that we've given today.

Speaker 6: If you look at the effect of this year's hiring on 2024, it will be significantly lower. And so in terms of sort of that base that rolls, it'll roll way less into next year. Now, where we choose to go with that, we'll update you on a little bit later in the year, because obviously we've got to lay out our 2024 plan for you when the time is right. But yeah, we understand your point around how essentially there's a lot of OpEx efficiency opportunity that comes from us hiring this year.

Speaker 4: Okay, that's helpful. And then, you know, I think yesterday we got China's student visa update for January , and I think it was up pretty significantly, I think 150% over last year. Obviously there were some Omicron issues, and China is obviously reopening. But, Mike Massaro, any comments on China reopening, what the impact is, kind of what you've seen quarter to date? Obviously the 1Q guide is strong. I'm just curious kind of what you're seeing out of China. Yeah, I mean, JD, we continue to be quite encouraged. I mean, we're seeing healthy revenue growth on China outbound volumes.

Speaker 6: I'd also say there's a lot of positive anecdotal statements. You're seeing internal travel numbers inside China get stronger. You're seeing flight numbers start to return. You're seeing a lot of good indicators. Again, I think we made the right assumption with this kind of rolling recovery. Remember, there's cyclicality to when students will start in Australia versus when they start in the UK and Europe and the United States. They don't all show up at the same time all the same times around the world. There's that cyclicality that's important to understand.

Speaker 6: have clients. So we feel really good with the transfer seeing. Again, you get to see how the year plays out and we're not expecting any significant change or expecting this rolling recovery. The next question is from Bob Napoli of William Bley. Please go ahead. Thank you. And good afternoon. Just let him follow up on the pipeline.

Speaker 6: the mix of the pipeline versus the year ago. I did miss the numbers you had at the beginning, but there's just any color on how that mix, you know, what the size of the pipeline is. And that these seem significant changes in the mix, say, from a year ago by vertical. Yeah, I bought a small start with this and others can jump in if they're like, so pipeline overall growth numbers, super healthy. You heard Mike talk about the Q4 over Q4.

Speaker 6: trend of the strength of Flywire's global business. So EMEA has been particularly strong for us. I'd say it has distinguished itself in terms of sort of quantity of deals and AR. The US obviously is also a major market for us continuing to see lots of deals across the verticals. I feel good about the ARR that we are signing on as well as the expansion of the pipelines across each of the verticals.

Speaker 6: So overall, I think sort of the last metric of that ilk just to try to kind of give you the whole picture. Their Bob is, you know, when we look at the deal sizes, the deal sizes remain very healthy as well. We're actually seeing expanding deal sizes by our forecast, ARR methodologies. And so we feel good about about that dynamic that we're seeing in the market as well. Bob, oh, this is my co-working I'd add. It's just great work by marketing and demand gen as well to fill the top of the funnel. That's another area that we get quite excited about, you know, as some of the comments earlier were about, you know.

Speaker 6: we compete well as folks probably know we compete in the verticals not really across verticals against many players and so we feel like our investments to go to market have been good you know if anything we feel like we're competing you know as good if not better than we have and continue to invest in that

Speaker 6: You know, we had mentioned, you mentioned churn. We had mentioned previously that we will be lapping some of the churn from healthcare, from last Q4. And so you'll feel good to be there, but it is in general low overall. Not a lot of revenue concentration as we've talked about as well in the business at any given one client. So the next question is from Darren Piller of Wolf Research. Keith, do I hit? Thanks, guys. A couple of quick ones. Just one is on the margin outlook and the opportunities there. I know that you're.

Speaker 8: you obviously are within that three to 600 basis point range and you talked about there potentially even before this being a little on the lower end just as you annualize all the hiring you did. So what's the structural, like when we think about the annualizing impact, what's the structural profitability improvement that you see occurring in this year had it not been just for annualizing? And then I guess more importantly, your commitment to letting that profitability trend continue as well as obviously seeing not just on an adjusted earnings basis but paying attention to stock comp and paying attention to a little bit more pure operating income. Hey, it's Mike Ellis here. So essentially most of our cost does come from the carryover impact of the investment year.

Speaker 3: have an impact, you have incremental revenue share agreements and commissions associated with the delivery of revenue performance and then just your regular standard inflationary impacts.

Speaker 8: All right, just one quick follow-up and probably more for Mike or Rob, but either one is fine. I guess when we think about the opportunity and the integration of some of the deals, basically whether it's WPM or Core or Go and what it's done for the business so far in terms of your expectations for 23. And I know putting aside just the pure inorganic benefit, but I'm really referring to the value that you want toles if, to and large in regards to the Manipulation of those negative effects from that understanding more of an

Speaker 6: the revenue synergy opportunities to it. Just maybe you could touch on what's embedded, if anything, in there and how it's coming along. Thanks a lot, guys. Yeah, hey, Darren. So this is Mike again. I would say those two deals were not deals, as you kind of highlighted, we did for the inorganic ad benefit. They were strategic deals that fit kind of our three pillars.

Speaker 6: UK conference here in the next week or so, which is a great event and we'll see a lot of those clients and talk a lot about how we're rolling out that integrated solution. Really excited about that, but couldn't be happier with how we ended the year with the number of clients signed on to that integrated solution. The combined team in the UK is doing a great job.

Speaker 6: working through that with the clients really coming together as a team so it couldn't be happy with their. You know, shifting to cohort, obviously a little less time, you know, July or so since that deal. So we talked on this call about our first step in the technology integration between the two platforms and getting all the kind of agent activity on one single platform. We talked about the pay and e-school capability that accelerates our ability to make more payouts. Those are all revenue increasing revenue synergies for us. And then, you know, we also kind of gave out a bit of a nugget around pay or services as well and just the fact that that ties into expanding that flywire advantage.

Speaker 6: And cohorts really a cornerstone of that, and accelerating that across our entire payer base is another exciting part for 2023. So, you know, feel really good about it. Teams are really coming together well. You know, couldn't be happier with how those deals went down in the integrations. The last question is from Tynchen Wang of Jetty Morgan. He's got a head. Okay, thanks so much for another call getting long.

Speaker 4: Good to talk to you guys. Just on the building on Bob's question around pipeline and ARR, I'm just curious, 23, should we expect it to come more from upsells versus new client? I'm asking, but I heard Robby say deal sizes are up. So I wonder if we could see any risk of sales cycles or implementation cycles lengthening as we're also hearing, you know, enterprises, I'm sure schools, thinking the same thing around being more careful around their spend. So just trying to understand those things are playable. If that makes sense. Yeah. Yeah, Tingin, let me see if I can try to sort of organize the pieces of the puzzle here.

Speaker 6: And then there's the new customer piece. And that new customer piece is the smallest of the three in our overall sort of growth formula. And so we're always paying attention to that. There has been, I think, general consistency around the sort of the patterns, especially around education, travel.

Speaker 6: So there is absolutely sort of that possibility there, but again, inside the diversified business of everything we've got, that's really just sort of a piece of the puzzle, but not, I guess I'd say, a determinative piece of the puzzle. So overall, we feel good about sort of the growth model that we've got here, and we'll tackle where we run into a little harder deployment here and there, but don't think that's the, you know, don't look at that as sort of the major stressor of the year. No, that's perfect. Thanks for going through that. Just my quick follow-up, and I'll let you guys go.

Speaker 3: Transactional revenue grows outpacing our platform and usage-based revenue growth. And we do expect transactional to outpace in the 2023 year, but both growing nicely, but to a lesser extent. So as a result, we believe that adjusted gross margins will decline in 2023, but at a much lower percentage, somewhere in the 1 to 1.5 percent range is probably the right number to think about. And then the final thing I would just add relative to adjusted gross.

Speaker 6: back over to Mark and Sarah for any closing comments. Please go ahead, sir. I know we're a little bit over, but I just want to thank everybody for taking the time and spending time with us here and appreciate all the work going into learning more about flywire. Thanks very much. This concludes today's teleconference.

Speaker 1: And that.

Speaker 1: I have.

Speaker 2: Greetings and welcome to the FlyWire Corporation fourth quarter 2022 earnings conference call.

Speaker 2: At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Akil Hollis. Please go ahead.

Speaker 3: Thank you and good afternoon. With me on today's call are Mike Massaro, Chief Executive Officer, Rob Urgel, President and Chief Operating Officer, and Mike Ellis, Chief Financial Officer. Our fourth quarter and fiscal year 2022 earnings press release, supplemental presentation, and when filed, associated annual report on Form 10-K can be found at ir.flywire.com.

Speaker 3: 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 to FB following some more information on the risks regarding these forward-looking statements. We will be discussing certain non- GAAP financial measures.

Speaker 3: that could cause actual results to differ materially, risk factors associated with our business, and required disclosures related to non-GAAP financial measures. This call is being webcast live and will be available for replay on our website. I would now like to turn the call over to Mike Mosala. Thank you, Akil, and thank you to everyone that is joining us today. We are pleased to share our Q4 and Fiscal Year 2022 results here with you all today. These results continue to show strong performance across the business.

Speaker 6: We are also eager to share our business priorities and financial outlook for 2023 as well during this call. In a few minutes, Rob Orgol, our president and TLO, as well as Mike Ellis, our CFO , will go into greater detail about our results during the quarter. We are also eager to share our financial outlook for 2020 as well.

Speaker 6: But first, I will start with a few financial highlights. First, let's start with the fourth quarter. Revenue less ancillary services with $67.4 million.

Speaker 6: representing year-over-year growth of 47% or 57% on a constant currency basis. Adjusted gross profit for the quarter was $44.5 million, an increase of 40% year-over-year.

Speaker 6: And adjusted EBITDA was $1 million for the quarter. As our Q4 results now cap off another great year for Flywire, I want to take a few moments to talk about some of the things we were able to achieve in fiscal year 2022, the truly exceptional year for Flywire.

Speaker 6: Starting with our fiscal year 2022 financial highlight, Flywire Revenue West Ancillary Services grew by 47%, or 55% on a constant currency basis. Our adjusted gross profit grew 40%, and our adjusted EBITDA was 14.9 million, despite our record investment year.

Speaker 6: In FY 2022, we also added more than 590 clients across all verticals and now serve more than 3,100 globally.

Speaker 6: We moved more than $18 billion around the world who saw significant growth in our travel vertical more than tripling the revenue of this business. And we completed the acquisition of cohort GO and continued to successfully integrate the WPM business, finishing the year with over 40 clients for our combined solution.

Speaker 6: These great achievements are in addition to significant progress in our three key investment areas for 2022. First, we continue to enhance our go-to-market efforts with a key focus on sales effectiveness, client delivery capacity, and efficient digital acquisition.

Speaker 6: In Q4, we saw more than 100% year-on-year increase in pipeline creation by our global sales team and continue to see strong ROI of our investment in our digital marketing efforts with more than 65% year-over-year increase in marketing sourced deals in our travel vertical alone. Our strong track record of LTV to CAC combined with our proven unit economics.

Speaker 6: continue to give us confidence in our go-to-market investments. Second, we continue to expand our Flywire Advantage, part of our long-term vision to power the ecosystems in our core industries of education, healthcare, travel, and B2B payments.

Speaker 6: As an example, following our acquisition of Cohort Go in July of last year, we have delivered new features and migrated the first wave of agent partners into the Flywire platform.

Speaker 6: We've leveraged Cohort Go's pay-and-ease school capability to allow Flywire agents the ability to pay a much broader set of educational institutions as they are no longer limited to sending tuition payments to only Flywire contracted schools.

Speaker 6: Educational agents, international students, and client institutions all benefit from these investments. Driving growth and further delivery of value to multiple stakeholders in the ecosystem.

Speaker 6: And our third key investment area was to strengthen and grow our FlyMate community. Flywire is committed to providing FlyMates a place where they can build their careers of a lifetime.

Speaker 6: And you see this reflected in the ways in which we invest in them and their career growth. We expanded and invested in our employee resource groups, which provide spaces for Flymates to come together, connect around shared interests, and foster meaningful conversation.

Speaker 6: We strengthened our internal mobility program called One Fly Wire that focuses on upskilling and providing new opportunities for growth, as well as training and education for our people managers.

Speaker 6: Flymates attest that these experiences provide them with incredible growth opportunities, both personally and professionally. We are thrilled to continue to be recognized for our award-winning culture, including recently where Flywire was named Best Workplace in Financial Services by Fortune magazine.

Speaker 6: and a top place to work by the Boston Globe. A lot of this is detailed in our inaugural Environmental, Social, and Governance Report, which was released in December of 2022. Whether through the work of our charitable foundation or through the community service trips our FlyMate Embark on, we believe that being a force for good can be linked to generating growth and long-term value.

Speaker 6: We look forward to evolving our ESG efforts in 2023 and beyond. We truly had a fantastic 2022 and our team is quite proud of what we have accomplished. We've demonstrated that we can execute against our multiple growth levers to accelerate our practice.

Speaker 6: and have a proven track record of growing with existing clients, growing with new clients, expanding our partner ecosystem, scaling into new geographies, and pursuing and integrating value enhancing acquisitions.

Speaker 6: We also demonstrated our ability to be laser focused on efficiency, investing in high potential ROI areas like targeted sales, new software functionality, and network capabilities, while controlling costs in other areas like consolidating tools and vendor management. This is an important balance we continue to aim to strike.

Speaker 6: and proves that we can deliver more value to clients and payers with efficient deployment of our resources. We are proud of what we have accomplished, but we are also excited for what is ahead for Flywire. As we look at 2023, we remain focused on investing in go-to-market, expanding our Flywire advantage, and strengthening and growing our FlyMate community.

Speaker 6: First, we are working to optimize our go-to-market motion to improve the effectiveness of our sales and relationship management teams and accomplish more with our recent investments. To enable this, we plan to continue to enhance our capabilities of our sales, relationship management, marketing, and revenue operations functions. We continue to refine our delivery capacity and follow through on our digital acquisition strategy.

Speaker 6: A key part of our focused go-to-market this year will be around accelerate our channel to technology partners across all verticals. We have over 80 technology integrations across our business and our ability to integrate directly with our partners. It makes the onboarding process and technology implementation faster, more efficient for our clients. Further enhancing our defensible mode in the industries that we serve.

Speaker 6: For example, our channel strategy and healthcare with Epic Insider to have the largest EHRs in the industry, enables us to embed deeper into the workflows of our clients. Making us stick here within our accounts will also help us accelerate new wins.

Speaker 6: This is a winning model for us and we expect to see similar trends play out across other As for expanding our flywire advantage, we remain focused on product and payment innovation to power the vertical ecosystems in the industries that we serve.

Speaker 6: We have talked already about the success in our initiatives within education agents, paying non-flywire clients. We are also excited about the progress we are making in the 529 savings plan market. Flywire is now able to streamline and digitize the payment process for tuition payments from 529 plans. Even if the recipient is not a flywire client.

Speaker 6: And we are making great progress in payer services, bringing new solutions to market that provide benefit to the various stakeholders in our ecosystems. These payer services are adjacent to hand expansion opportunities and we believe they can enhance the lifetime value of our payer and deliver value for Flywire over time.

Speaker 6: Lastly, we will continue to be focused on strengthening growing our climate community. We will continue to provide our globally distributed climate for resources they need to succeed. We will continue to support and develop top talent while finding opportunities to streamline internal processes, helping flywire scale across all disciplines.

Speaker 6: Our Flymates have always excelled in execution. It is one of our core values. And they deserve the opportunity to be freed up from unnecessary and cumbersome tasks. We are in a strong position to keep investing in our Flymates, particularly around the areas of learning and development, well-being, and diversity, equity, and inclusion. I now wanted to spend a few minutes reviewing the trends we are seeing in the future.

Speaker 6: across our verticals and geographies, which is giving us even more confidence in our plan for the year and for the long term. Across higher education, where we benefit from a geographically diversified business, we are continuing to see positive student mobility trends across the world. For example,

Speaker 6: According to the Australian government, Australia has issued more than 120,000 visas to international students since borders reopened. And student visa grants from January to September 2022 were the highest ever, while working holiday visas also surpassed 2019 levels.

Speaker 6: Additionally, according to the 2022 Open Doors report on international education exchange, the United States saw an increase of 80% year over year in new international student enrollment in the 2021-2022 academic year, a return to pre-pandemic levels. Overall, we remain optimistic about international education.

Speaker 6: and confident in our ability to keep winning clients and delivering value to students and families around the world. In health care, we continue to see hospitals and health systems prioritizing their revenue cycle management as the patient financial crisis accelerates. And according to our recent report, 90% of health care CIOs surveyed.

Speaker 6: say patient collection is a key metric. Their job performance is measured against. We are continuing to expand our software capabilities to help address these market challenges and enable these hospital executives to meet their goals. We are continuing to expand our software capabilities to help address these market challenges and enable these

Speaker 6: In travel, there continues to be strong momentum in the sub-sectors we support. Our clients, consisting of travel operators, destination management companies, and accommodations providers, benefit from outsized demand from travelers for luxury travel experiences. According to our annual travel survey, more than 80% of luxury travelers surveyed.

Speaker 6: said they're spending more on travel in 2023 compared with what they spent in 2022. And 84% say their vacation this year would be longer than those they took last year. We are also very encouraged about Asia's reopening over the prior few months and expect to see strong growth from clients in Southeast Asia, as well as continued growth in travelers from China and Japan.

Speaker 6: And lastly in B2B, our largest market size opportunity, we are seeing success with our go-to-market efforts in ability to support major enterprise software systems like Netsweed and Salesforce. As finance professionals continue to view their ERP as their single source of truth, we believe we have a major opportunity to help them augment their ERP deployment when it comes to receiving payments. In a recent survey we conducted a global finance professional. We found that as company scale.

Speaker 6: they have challenges collecting global payments within their ERP systems. These challenges include invoicing in local languages and acceptance of multiple currencies, negatively impacting their DSO. Importantly, 89% of those surveyed said they think they could save money if more of the cross-border receivables process was integrated into their ERP system. This is exactly the use case that Flywire is able to address.

Speaker 6: In closing, I cannot be more proud of the progress we made in all areas in 2022 and more excited for the year ahead. I would now like to turn the call over to Rob Orgel, our president and COO, to review some operational highlights from the quarter. Rob? Thanks, Mike. Good afternoon, everyone. Our strong results this year reflect continued execution of our growth strategies, turning forward what was an excellent 2022 of execution and delivering results.

Speaker 6: We are focusing on advancing revenue generation from these areas.

Speaker 6: There will be some hiring in 2023, but it is expected to be narrowly focused on areas of greatest need and highest return on spend. All in, the run rate spend added in 2023 is expected to be at least 60% less than last year's expansion. C predetermined bankruptcy will remain urgent because the governments, banks, securities and debts spoilers must stop

Speaker 6: and that is into a much larger underlying business given the over 55% currency neutral growth in 2022 that Mike referenced in his opening up. As you will see further when we get to the guidance discussion, our strong underlying business and a focused and disciplined plan for 2023 position us for our forecasted adjusted EBITDA improvements in 2023.

Speaker 6: and also for continued growth and improved efficiency in 2024. Turning to the business performance in Q4 and 2022, we continued to see good results in two important metrics of our go-to-market performance. First, we grew existing clients with our NRR continuing for a full year 2022 at a...

Speaker 6: our strong quarter by quarter performance through 2022.

Speaker 6: To highlight how we plan to continue this success, I'd like to highlight our 2023 strategic direction for our four verticals, share some of the exemplary 2022 successes, and then in a few minutes mention other operational achievements that are important to our overall efficiency and scalability. Starting today with education. In 2023, we will continue to drive growth in our core markets as well as...

Speaker 6: to improve our global payment network with carefully selected international and domestic payment capability improvements. This strategy around managing domestic and international flows has worked for us in many of our most important global markets and our teams are focused on its continued success. Second, we are focusing on effective collaboration and great integrations with partners like Ellucian and Tran1.

Speaker 6: of our strategic payables as described back on our spring analyst day. St. Louis University exemplifies our continued growth with existing U.S. clients. SLU, founded over 200 years ago, is one of the nation's oldest Catholic universities and home to over 13,000 students. Flywire originally signed SLU in 2015 to support their cross-border students.

Speaker 6: However, after years of growing with them as a client, we have recently expanded our product offerings by launching our full-sweet comprehensive receivable solution. This will help provide flexible extended payment options to families, as well as help facilitate repayment options for students who have fallen behind. We are also building our client-based enumerates.

Speaker 6: For example, we recently leveraged our integration with the DAPDIP of leading South African-based software provider for the higher education sector to sign the University of Jelhanisburg. This is a public university in South Africa with a student population of greater than 50,000 of which over 3,000 are international students from 80 plus countries. The DAPDIP is a public university in South Africa.

Speaker 6: Y-wire is supporting the University of Johannesburg with our cross-border payment solution. Overall, we remain excited about the opportunities to expand in South Africa, which has over 25 public universities and over 40 private universities, hosting over 45,000 international students per year.

Speaker 6: In terms of our most recent acquisition, we have efficiently integrated cohort go into our education vertical. Co-Cort Go brought us the ability to pay over 2,400 incremental schools globally, and since the acquisition, education agents and fly wires existing networks have paid over 450 non-fly wire schools.

Speaker 6: We are working to grow our paid school capabilities and look forward to welcoming an expanded set of institutions into our ecosystem in 2023. This in turn is our education sales team building a strong pipeline of new potential clients for our international cross-order and domestic education solutions. Our agent solutions platform enables agents to have a single place.

Speaker 6: to mention to the acquisition, all in line with our original integration plan. With regard to WPM, we have passed the 12-month mark since the acquisition.

Speaker 6: We signed eight new schools during the fourth quarter for a total of 41 at the end of the year and eight schools went live on the integrated WPM and Flywire solution during the fourth quarter.

Speaker 6: This includes Sheffield University, which has over 11,000 international students and went live with flywire's international and domestic card solution within the WPM Integrated Payment platform. Moving on to healthcare, our healthcare vertical enjoyed many successes in 2022, including delivering incredible results for our clients.

Speaker 6: and also used 2022 to position itself for what should be an even better 2023. We signed over 15 new clients and expanded services with 22 existing clients during the year. We expanded in a variety of ways, which include bringing on new hospital facilities and cross-selling additional products.

Speaker 6: We are seeing momentum in our pipeline driven by implementing our go-to-market approach and creating dedicated teams to sell into Cerner and Epic ecosystems. Our partnership with Cerner supports our ongoing expansion with Munson Healthcare. Munson is Northern Michigan's largest and leading healthcare system serving the region's 540,000 residents.

Speaker 6: Due to our track record of facilitating increased collections through our digital self-service strategy across 30-plus Munson practices, we are now slated to integrate 44 incremental practices at Munson's central business office. To give another example, AdventHealth, a faith-based nonprofit healthcare system headquartered in Florida with an integrated network spanning 46 hospital campuses across nine states, and

Speaker 6: The leveraged our expanded integration into FX EHR system as they went through a system consolidation process going from multiple EHRs to consolidating on F. FlyWire's ability to integrate with multiple EHR systems to help Admin operate in a hybrid environment during the transition process. We look forward to continuing our work with Admin.

Speaker 6: We have leveraged our expanded integration into EPIC's EHR system as they went through a system consolidation process going from multiple EHRs to consolidating on EPIC. Flywire's ability to integrate with multiple EHR systems help admin operate in a hybrid environment during the transition process. We look forward to continuing our work with admin. In our travel vertical, we are going from strength to strength.

Speaker 6: Following seasonally high volume from European destination management companies over the summer, we enjoyed record-setting revenue in the Asia Pacific region in Q4 as the region reopened post-pandemic. Our travel revenue in the Asia Pacific region in Q4 2022 alone exceeded 80% of our revenue for Q4 2021 for all of our travel vertical combined. This is driven by our strong client acquisitions in Asia, some of which we highlighted on our prior call. Our software integrations with leading online travel booking and reservation systems such as RoomBoss, Beds24, and WooCommerce enable many of our APAC customers to onboard in a self-service manner with minimal consultation required.

Speaker 6: Our past investments in building out software integrations with leading regional systems of record and travel vertical help us efficiently acquire new clients across geographies. Highlighting our success with enterprise clients, we are able to leverage our partnership with the American Resort Development Association as well as our partnership with SPI software assigned Viva Windham. Viva Windham has been developing and managing eight resorts in the Dominican Republic, Mexico, and the Bahamas for over 35 years.

Speaker 6: We are also pleased with the growth of our B2B vertical. We are expanding our integrations with leading ERP systems of record to drive higher adoption of our invoicing and AR collection solutions. For example, last week we announced our recently completed integration with FRAN Connect, a market leading franchise management software provider for over 1,500 brands looking to grow their business both domestically and internationally. Flywire is the preferred payments provider on the FRAN Connect platform.

Speaker 6: Grant Connect is expected to expand Flywire's B2B payment platform through its marketplace to enable franchisers to easily collect royalties and fees from franchisees in different currencies around the world. An example of a restaurant franchise client we are working with is Dickies Barbecue Pit, the world's largest barbecue concept. Dickies was founded in 1941 and is headquartered in Dallas, Texas, with over 550 locations across the United States and eight other countries, including Brazil, Japan, and Singapore.

Speaker 6: Dickey's continues its international push, having announced plans to develop 65 new locations in Canada and 40 new locations in the Philippines. Jim Perkins, Executive Vice President of International Development Support at Dickey's, had this to say about the relationship with Flywire. My experience with global remittances before Flywire was characterized by payments being a number of days late.

Speaker 6: expansion efforts. We also continue to strengthen our channel partnership strategy in our B2B vertical.

Speaker 6: We announced a partnership with Huntington Bank last quarter, the 15th largest bank in the U.S. with $178 billion in assets and nearly $6 billion in annual revenue.

Speaker 6: Based in Columbus, Ohio, Huntington has thousands of clients throughout the Midwest, Southeast, and we will work with Huntington to find ways for fly-wire to serve them. Stepping out of our verticals and moving to highlight our effort towards efficiency and scale, one example of our recent progress is that we launched the first instance of our AI chat thought for our customer support function at the end of the fourth quarter.

Speaker 6: Our overarching goal with the launch is to significantly reduce the assisted payer interaction volume of our high quality payer support. We'll be adding more API enabled support to the chatbot as this automation enables our customer support team to achieve faster inquiry resolution, scale efficiently, and focus their time and attention on more complex client needs. This is just one of many areas where we are aiming to use automation and analytics to drive more efficiency in the business. Overall, you can see we had a strong year and another very active quarter.

Speaker 6: with FlyWars Global Team of Lime made doing great work across our verticals and across the company to end the year. I would now like to turn the call over to Mike Ellis, our CFO , to review our results for the fourth quarter in full year, as well as our guidance for Q1 and 2020 series.

Speaker 3: Thank you, Rob. Good afternoon, everyone. Today, I will provide a quick recap of a great 2022 and an overview of our excellent results for the fourth quarter. I will then discuss our outlook for full year 2023 and Q1 2023. As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure. For full year 2022, we reported revenue-less ancillary services of $267.1 million.

Speaker 3: representing an increase of 86.0 million in absolute terms and a 47 percent growth rate. Foreign exchange headwinds meaningfully reduced our revenue and revenue growth rate during 2022. Specifically, on a constant dollar basis, our growth rate would have been 55 percent, representing a full year 2022 FX headwind of approximately 14.2 million. In addition, despite our record investment year, we generated adjusted EBITDA of 14.9 million, essentially,

Speaker 3: Specifically, on a constant currency basis, our revenue growth rate for Q4 2022 would have been 57%, representing an FX headwind of approximately 4.6 million during the quarter. However, compared to our guidance provided in November 2022 for Q4 2022, FX changes resulted in a tailwind of over 1.5 million.

Speaker 3: increase of 29% from the $3.1 billion we processed during Q4 2021.

Speaker 3: Specifically, transaction revenue-less ancillary services increased 49% compared to Q4 2021, driven by a 34% increase in transaction payment volume. Platform and usage-based fee revenue increased 35% compared to Q4 2021, driven by a 10% increase in platform and usage-based payment volume.

Speaker 3: as well as non-payment volume related increases in SaaS-based and other platforming usage-based keys. Moving on to adjusted gross profit, I'd like to start by outlining the change in our methodology for reporting on adjusted gross profit and adjusted gross margin and note two one-time items that impacted Q4 in the full year 2022. We have revised our methodology for calculating adjusted gross profit and the result of adjusted gross margin to add back depreciation and amortization costs included in cost of revenue.

Speaker 3: We believe adding back these non-catch items enhances the understanding of the company's operating performance and enables more meaningful period-to-period comparisons. The two one-time items recorded during 2-4 are, first, accelerated amortization of a specific healthcare technology asset as we consolidate platforms, and second, a one-time charge in 2-4 that related to a delayed and disputed invoice from a payment partner.

Speaker 3: During Q4 2022, based on the revised methodology, we generated $44.5 million in adjusted gross profit, representing a 40% increase compared to the $31.8 million reported for Q4 2021. Adjusted gross margin was 66.0% for Q4 2022 compared to 69.3% for Q4 2021, representing a decline of approximately 325 basis points.

Speaker 3: Under the previous methodology, adjusted gross profit was $41.5 million for Q4 2022, representing an increase of $10.8 million, or 35%, from $30.7 million reported for Q4 2021. Adjusted gross margins were 61.6% and 66.9% for Q4 2022 and 2021, respectively, representing a decrease of approximately 530 basis points year over year.

Speaker 3: As we have stated during previous quarter earnings falls, the decrease in adjusted growth margin during two for 2022 was primarily due to the growth of our travel and B2B verticals. Credit cards are especially popular in the travel and B2B verticals, and these verticals strong growth in the quarter led to higher overall credit card mix.

Speaker 3: These transactions have good unit economics but lower adjusted gross margins that reflect their higher monetization offset by higher proxy costs. The impact of the one-time items under the previous methodology was a reduction of approximately 220 basis points related to accelerated amortization and a reduction of approximately 45 basis points from the delayed and disputed invoice from the payment partner. The accelerated amortization gets excluded in the revised methodology. Two things I would reiterate. Number one, we prioritize adjusted gross profit generation growth over resultant adjusted growth.

Speaker 3: of adding slime makes to our engineering and technology team since Q4 2021, which drove increases in employee related costs, including stock based compensation consistent with our plans going into the year that we would be investing in this area. Selling and marketing expenses were 20.3 million for Q4 2022, an increase of 28% over the 15.9 million incurred during...

Speaker 3: results of our revenue growth during Q4 3002 compared to Q4 3001. General and administrative expenses were 19.9 million during Q4 3002 and increased 14% over the 17.5 million incurred during Q4 3002.

Speaker 3: This increase was driven by adding flymates across these functions, which include costs associated with our client and payer service teams, resulting in an increase in employee-related costs, including stock-based compensation. In addition, we incurred more costs associated with soccer compliance, as well as other costs associated with operations at the public company. The custody picked off of the quarter was 1.0 million.

Speaker 3: an increase of $2.7 million over the negative $1.7 million reported for Q4 2021. Our adjusted EBITDA margin increased over 500 basis points in Q4 2022 compared to Q4 2021, with a strong adjusted gross profit growth offset by increased operating expenses as discussed previously.

Speaker 3: Moving on to the balance sheet. With respect to capitalization as December 31, 2022, we had 349 million cash and cash equivalent and no long-term debt. As December 31, 2022, we had 109.3 million shares of comments about outstanding, which is slightly different.

Speaker 3: from the weighted average shares outstanding used to calculate net loss per share due to the timing of shares issued during the quarter. One last item on 2022, while we plan to get our 10k filing out tomorrow it turns out a little more time is needed to complete the required SOX 404b documentation process for our first year as a large accelerated pilot.

Speaker 3: If we were not subject to SOCK 404B, we would have filed on time. Therefore, we will be filing for the standard 15-day extension and expect to file on Form 10-K within this 15-day extension period. Moving on to guidance for 2023. We expect revenue-less ancillary services to be in the range of $353 million to $354 million for full year 2023, representing a 34% revenue growth rate at the midpoint.

Speaker 3: Our full year 2023 expectations reflect an organic revenue growth rate of 31% with the annualization of cohort go representing the remainder. This guidance is based on foreign exchange rates as of 1231-2022. With respect to adjusted EBITDA margins, we expect to deliver a 300 base point increase during full year 2023 compared to the reported adjusted EBITDA margin for 2022 in spite of expected continued FX headwinds. Adjusted EBITDA is expected to be in the range of $28 million to $34 million.

Speaker 3: We expect 2023 to be a year in which we show scale, while at the same time investing in sales and marketing and other key roles as we continue to deliver strong revenue growth across the verticals which we operate. For Q1 2023, revenue-less ancillary services is expected to be in the range of $81 million to $85 million, which represents a year-over-year revenue growth rate of 40% at the midpoint. This guidance is based on foreign exchange rates as of 12-31-2022. Join us at www. embodied White House join us at www. of of of ofSorry.com

Speaker 3: With respect to adjusted EBITDA, we expect Q1 adjusted EBITDA to be in the range of 3 to 5 million, which at the midpoint represents a 2.1 million year-over-year increase compared to our reported adjusted EBITDA for Q1 2022. At the midpoint, our adjusted EBITDA margin approximates 4.8%, which represents an expansion of 158 basis points year-over-year compared to Q1 2022. We expect to deliver adjusted EBITDA margin expansion in each quarter of 2023. However, due to the seasonality of our business...

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Speaker 4: perspective and then how much is kind of predicated off of I guess just

Speaker 4: What we might consider to be non-cyclical growth from net new clients and things of that nature that are rolling on the system where you have good visibility today relative to just kind of the volume based business.

Speaker 6: Hey Dan, thanks for the question. This is Mike. Obviously, we operate in markets that we believe traditionally have been quite resilient in kind of economic uncertainty or downturns. Our modeling for this year obviously assumes these industries will continue to be resilient. People may remember we do our model builds kind of bottoms up. It starts with that strong net revenue retention number.

Speaker 6: That's the existing client number, as you mentioned, have good visibility kind of into those numbers and that strong client ads that we have there and how we can grow that revenue. And we obviously kind of add on top of that NRR. So you can look at the supplement material. There's a great NRR diagram in there as well. And then kind of look at where we finished FY22 for new client signs. Another kind of record year for us, so that's another good indicator. So NRR plus new clients going live.

Speaker 6: There isn't a huge part of revenue in a given year, as you're aware, that comes from net new client wins in that year. But that's another good indicator that helps in our model assumptions for growth. To just cover a couple other assumptions, FX rates, our assumption is 1231.22 rate stability and...

Speaker 6: That will do what it does and will continue to be very transparent in that regard. Our assumptions around APAC travelers and students, we said prior that we've kind of assumed this rolling recovery throughout 2023. That's kind of consistent for us as we've been dealing with all types of recovery from the pandemic. And so you can expect our modeling for 2023 to assume the similar kind of approach. We're not really assuming there's anything kind of extreme or massive change in the world, whether positive or negative.

Speaker 6: Obviously, that could have some downside or upside to the range, but obviously something we can't really predict. The last comment I guess I'd make on just assumptions and how we modeled for the year, the thing that probably makes us most proud about the business that we have is that we have these multiple levers for growth. Year after quarter you've seen us whether it's

Speaker 6: whether it's product expansion, whether it's a geography that we've added or expanded. Those levers that we have give us a lot of confidence as we look at our modeling for the year. Hopefully that gives you a little context as to what the assumptions are in the model and how we're looking at 23. Yeah, that's fantastic. Just a quick follow-up on the concept of expanding the Flywire Advantage. You mentioned a few times here your ability to

Speaker 4: to effectuate payments but yet not have them as kind of Flywire, I guess, payment clients yet for schools. And I think you mentioned Cohort Go and then you also mentioned the context of 529 savings plan. So my question, I guess, is that sounds like it's becoming a little bit of a bigger opportunity for you? I'm just wondering how do you envision that building over time is your expectation that you're gonna convert those over directly to Flywire payments within your network? And is that just like purpose built to build a much bigger funnel for your opportunities going forward? Thank you.

Speaker 6: potential commission dollars, that's an interesting part of an ecosystem, right? And so by being able to deliver a solution that not only streamlines the payments to our existing clients that we already have, but also sits there and says, hey, we've enabled this now where you can actually make these payments and we can help streamline them into other institutions we're not yet working with. That actually gives us an opportunity to revisit that conversation with those.

Speaker 6: those institutions we're not yet working with. So already have a proven track record of being able to turn some of those into clients, and we'll continue to use that as a lever. And the 529 is just another great example of that, right? Like as you look at the problem we solved, right? Think of our position. We can now go to not only our clients, but even institutions that haven't yet decided to work with us and say, we've solved this, right, and we're already helping drive value with our solution. Because, about a year ago, people struggled with investing together and asked, why don't we answer these questions? And a couple of people that fell into the Hamilton-Hicksphaex regime, the

Speaker 6: And they can come to us and say, geez, I bet they could do more. So it's a great lever to fill that top of the funnel and just a way in which we look at the ecosystems and expanding our focus on them. The next question is from Jason Gutzberg of Bank of America. Just go ahead. Thanks, guys. Good afternoon. Maybe just starting, I wanted to actually come back to that chart, Mike, that you referenced in the deck. I thought that was pretty helpful on the NRR side. I mean, how should we think about the potential for the NRR in the business?

Speaker 6: in 2023 relative to 2022? Do you want to go on, Rob? Sure, I can jump in here. Hi, Jason. So NRR has been something that we have shared in every call now since we started. We have given you the annual figures and you can see that the figures for this year are once again coming in in the range that we have been sharing and we have been guiding as part of that three-year average. We expect that there are all the levers available to us to continue in that vein very much going forward.

Speaker 6: more and more for them and you know examples like st. Louis University that I quoted earlier That's a client that you know many years later chooses to do a major expansion with us And that will be a client for which we'll see You know improved revenue opportunity so net net expecting to see Things very much in the spirit and that all you know is a is a main contributor to the group

Speaker 7: Okay, that makes sense. And just any comments around pre-cash flow expectations for 2023?

Speaker 3: Hi, this is Mike Gella. So, we have not guided on a free cash flow basis, but I can tell you that from a free cash flow standpoint, some of the areas where we have capitalized cost. Most simply, you think of the build out of offices or computer equipment for our flymates. In addition to that, think of capitalized R&D development costs associated with internal software.

Speaker 3: And then also in accordance with generally accepted accounting principles some of the capitalized sales commissions which get amortized It's something Jason that I'm happy to consider in the future Relative to disclosing what free cash flows would potentially look like for the business Okay, but no like big items pending that are worthwhile calling out No. Okay. Great. Thank you guys

Speaker 3: with the accounting principles, some of the capitalized sales commissions which get amortized. It is something that I am happy to consider in the future relative to disclosing what free cash flows would potentially look like for the business. No big items pending that are worthwhile calling out? No. Great. Thank you, guys. Thank you, Jason.

Speaker 3: The next question is from Ashwin of Citi. Please go ahead. Hey, this is Ashwin. Congratulations. I wanted to ask about the range of outlook that you provided. What combination of factors might drive the lower part of the range versus the upper part of the range in terms of just specifically the upper part given you do have kind of a tendency to do better? Is the ranking showing reality?

Speaker 6: Are there factors that are kind of external, such as timing of new clients, M&A, things like that that are embedded there? Or is it all organic and powering through with NRR and such? Hey, Ashwin. It's Mike. So I go back and highlight a bit. We have a pretty good confidence in the range that we put out there, obviously because of the NRR, because of the new client signs we had record last year, and then on top of that being—

Speaker 6: I mentioned that rolling recovery, and I think it's the right thing to do as we model this business. You saw us do it in 21. You saw us do it in 22 as the world was recovering in different regions and different industries at different times. We've made those similar assumptions. Again, if you see the APAC region, not only from a destination perspective for travel, but 23 is really the first.

Speaker 6: opportunity for that region to come back as a tourist destination, right, didn't really happen in 22. So that's a good example of where that could happen, you know, faster than we think and potentially provide some upside. Similar in student numbers, right, good indications from places like Australia and some of the traveling coming out of China. But at the same time we've made assumptions that that has that as kind of a rolling recovery through the year. And so we encourage people to really just remember the cyclicality of the business. And you know, you could see outperformance in obviously travel and the international student side and B2B for that matter really seeing some growth in the industry.

Speaker 3: What are those areas, maybe if you could potentially even size those investments? Would you consider those discretionary and you're doing them because you can? Can they be turned off? Should macro get worse? Things like that. You could comment on that flexibility. Yeah, Ashwin, I'll step in here and start....

Speaker 6: In terms of continuing to invest and go to market, we have this incredible opportunity in front of us and we want to continue to invest in that. We need to add sales reps to cover expanding quota and ARR expectations that we need to fulfill. So that's a pretty significant challenge. And then there's very carefully placed roles that are important to us as we scale the company.

Speaker 6: But what you see overall is restraint in adding people and restraint in non-personnel expense that is also built into our plan. And obviously if the world is a very different place than the one we're planning on, we do have the ability to alter our plan. But the plan that we have is one that we think puts people in the most important spots. And again with more than 60% less in-year expense.

Speaker 6: against a company that's 55% bigger in constant dollar terms. We do hope that what you're seeing in this is an impressive step towards scale and efficiency that is built into this plan.

Speaker 9: Thank you guys. Actually, Rob wanted to follow up on that a little bit. Or Mike too, but if we think about it, obviously you made significant investments in 2022 and some of those kind of laps you hired throughout the year. So as we kind of go into 24, you know, all else equals, can we see a step up in kind of the March expansion? Obviously the midpoint is 300 basis points this year, but just

Speaker 6: I'm trying to think, if we go back to analyst day, you guys talked about 300 to 600 basis points a year. I appreciate the 300 this year, but just trying to think about how we see the cadence going forward. Any comments there would be helpful. Yeah, JD, thanks for the question. Obviously, we're not quite ready to talk about 2024 yet in terms of specific numbers, but you're right in calling out that as we look at this year's plan, we had a significant amount of annualization expense of the investments that we made last year that roll into this year and obviously that all factors into the plan that we presented to you and the guidance that we've given today.

Speaker 6: If you look at the effect of this year's hiring on 2024, it will be significantly lower. In terms of that base that rolls, it will roll way less in the next year. Where we choose to go with that, we will update you on a little bit later in the year. Obviously, we have to lay out our 2024 plan for you when the time is right. We understand your point around how essentially there is a lot of Opex efficiency opportunity that comes from us hiring this year. That is helpful. I think yesterday we got China's student visa update for January .

Speaker 6: significantly, I think 150% over last year. Obviously there's some omicron issues and China's obviously reopening. But Mike Massaro, any comments on China reopening, what the impact is, kind of what you've seen, quarter to date, obviously the one Q guys is strong, but just curious kind of what you're seeing out of China specifically. Yeah, I mean, JD, we continue to be quite encouraged. I mean, we're seeing healthy revenue growth on China outbound volumes. I'd also say there's a lot of positive anecdotal statements. You're seeing internal travel numbers inside China get stronger. You're seeing flight numbers start to return. You're seeing a lot of good indicators. And so again, I think we made the right assumption with this kind of rolling recovery. Remember there's...

Speaker 6: There's cyclicality to when students will start in Australia versus when they start in the UK and Europe and the United States. They don't all show up at the same time all the same times around the world. There's that cyclicality that's important to understand and we take that of course into our model. I'd also just highlight the impacts potentially for our travel business. It's very positive as well.

Speaker 6: Now you have Asia as a destination market, but you also have the travelers that were oftentimes heavily restricted leaving Asia also hitting the other destinations where we have clients. We feel really good with the trends we are seeing. Again you get to see how the year plays out and we are not expecting any significant change. We are expecting this rolling recovery. The next question is from Bob Napoli of William Blake. Please go ahead.

Speaker 6: numbers super healthy you heard Mike talk about the q4 over q4 100% growth 70% growth for the sort of the full year as compared to prior and so we feel really good that our investments in that sales team are yielding pipeline expansion and improvement and so as it speaks to the verticals and the geographies

Speaker 6: We are seeing a continued trend of the strength of Flywire's global business. So EMEA has been particularly strong for us. I'd say it has distinguished itself in terms of sort of the quantity of deals and ARR. The U.S. obviously is also a major market for us, continuing to see lots of deals across the verticals, feel good about the ARR that we are signing on, as well as the expansion of the pipelines across each of the verticals. So overall, I think sort of the last metric of that ilk, just to try to kind of give you the whole picture there, Bob, is when we look at the deal sizes, the deal sizes remain very healthy as well. We are actually seeing expanding deal sizes by our forecast ARR.

Speaker 6: on turn, I mean, as you're getting much bigger and lapping, I mean, you probably get some turn.

Speaker 6: But just anything on that. Yeah. Yeah Bob. This is Mike. You know no big shift in competitive dynamics You know we feel like we compete well as folks probably know we compete in the verticals not really across verticals against many players And so you know we feel like our investments to go to market have been good You know if anything we feel like we're competing You know as good if not better than we have and continue to invest in that

Speaker 6: You know, we had mentioned, you mentioned churn, we had mentioned previously that we will be lapping some of the churn from healthcare from last Q4. And so, you know, feel good to be there, but it is, you know, in general low overall. Not a lot of revenue concentration as we've talked about as well in the business at any given one client. The next question is from Darren Pillar of Wolf Research. Please go ahead.

Speaker 8: Thanks guys. A couple of quick ones. One is on the margin outlook and the opportunities there. I know that you obviously are within that 3 to 600 basis point range and you talked about there potentially even before this being a little on the lower end just as you annualize all the hiring you did. So what's the structural, when we think about the annualizing impact, what's the structural profitability improvement that you see occurring in this year had it not been just for annualizing? And then I guess more importantly,

Speaker 8: your commitment to letting that profitability trend continue as well as obviously seeing, not just on an adjusted earnings basis, but paying attention to stock comp and paying attention to a little bit more pure operating income. Mike Yellis here. Essentially, most of our cost does come from the carryover impact of the investment year that we've had in 2022. And then you have what we're planning on 2023 doing, but essentially it's the investment in our people. Really, as Rob indicated, that go-to-market strategy and to a lesser extent our engineering and technical teams to drive product enhancements.

Speaker 3: really trying to just wrap the entire Flywire advantage in delivering to our clients. So that's where the most of the investment comes in in 2022 and carries over into 23. Other than that, it really comes down to a normal operating cost business where you have your normal salary increases will have an impact, you have incremental revenue share agreements and commissions associated with the delivery of revenue performance.

Speaker 8: and then just your regular standard inflationary impacts. All right. Just one quick follow up, and probably more for Mike or Rob, but either one is fine. I guess when we think about the opportunity and the integration of some of the, basically whether it's WPM or Core or Go and what it's done for the business so far in terms of your expectations for 23. And I know, putting aside just the pure inorganic benefit, but I'm really referring to the revenue synergy opportunities to it. Just maybe you could touch on what's embedded, if anything, in there and how it's coming along. Thanks a lot, guys.

Speaker 6: Mike, again. I would say those two deals were not deals, as you kind of highlighted, we did for the inorganic ad benefit. They were strategic deals that fit kind of our three pillars we've talked about before, and as we've highlighted, are critical to future multi-year synergy, really. First, just starting in order, WPM, 40-plus clients signed for the integrated solution. This year is about getting those clients live. I'm sure people will say, aren't you going to sign more? I'm sure we'll sign more. We're heading off to our big UK conference here in the next week or so.

Speaker 6: between the two platforms and getting all the kind of agent activity on one single platform. We talked about the pay any school capability that accelerates our ability to make more payouts. Those are all revenue increasing revenue synergies for us. And then you know we also kind of gave out a bit of a nugget around payer services as well and just the fact that that ties into expanding that Flywire advantage.

Speaker 6: And cohort's really a cornerstone of that. And accelerating that across our entire payer base is another exciting part for 2023. So, feel really good about it. Teams are really coming together well. Couldn't be happier with how those deals went down with the integrations.

Speaker 4: The last question is from Teng-Hsuan Wang of J.P. Morgan. Please go ahead. Thanks so much. I know the call is getting long and good to talk to you guys. Just on the building on Bob's question around pipeline and ARR, I'm just curious, 23, should we expect it to come more from upsells versus new clients? I'm asking because I heard Bobbie say deal sizes are up.

Speaker 4: So I wonder if we could see any risk of sales cycles or implementation cycles lengthening as we're also hearing enterprises, I'm sure schools, thinking the same thing around being more careful around their spend. So just trying to understand the interplay of all of that, if that makes sense. Yeah, Tingin, let me see if I can try to sort of organize the pieces of the puzzle here. Remember our growth algorithm, right? You're, I know, well versed in it, but sort of that NRR is not really sort of subject to so much to the kinds of dynamics you just described, right? That is largely a function of our ongoing relationship.

Speaker 6: sort of the patterns, especially around education, travel. We have very fast deployments around travel. Those, as we said before, tend to range in a couple weeks. I think the two areas where you're right, we have true enterprise class deployments in healthcare. They're hard, and we have seen occasions where those go longer than we expect. So.

Speaker 6: we'll tackle where we run into a little harder deployment here and there, but don't think that's the you know, don't look at that as sort of the major stressor of the year.

Speaker 3: Thanks for going through that. Just my quick follow up and I'll let you guys go. Just on the gross margin fund, I know there's always put in intake for that. Can you just walk us through what maybe the quarter and the full year what we might expect there?

Speaker 3: Sure, it's Mike Ellis here. Essentially, just as you've always heard me say, we're really focused on driving adjusted gross profit dollars, but I will tell you that the reduction that we experienced in 2022 predominantly due to the transactional revenue growth outpacing our platform and usage based revenue growth, and we do expect transactional to outpace in the 2023 year, but both growing nicely, but to a lesser extent. So, as a result,

Speaker 3: we believe that adjusted gross margins will decline in 2023, but at a much lower percentage, somewhere in the one to one and a half percent range is probably the right number to think about. And then the final thing I would just add relative to adjusted gross margins is just remember that there's seasonality within that, right? So during Q3, a big educational quarter, big cross border. So as a result, you'll see the higher adjusted gross margins during the latter part of 2023. We have reached the end of the question and answer session. I would like to turn the floor back over to Michael Cera for any closing comments. Please go ahead, sir.

Speaker 10: I know we're a little bit over, but I just want to thank everybody for taking the time and spending time with us here and appreciate all the work going into learning more about Flywire. Thanks very much. This concludes today's teleconference. Thank you for joining us. You may now disconnect your lines. blood.