Q3 2024 Flywire Corp Earnings Call
And when filed, Form 10-Q can be found at ir.flywire.com.
During the call, we'll discuss inserting forward-looking information.
Actual results could differ maturely from those contemplated by this forward-looking statement.
We'll 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 and require disclosures and reconciliations related to non-GAAP financial measures.
Unless otherwise stated, all references on this call to revenue, cost of revenue, gross profit and gross margins, sales and marketing expense, technology and development expense, and general administrative expense are on a non-GAAP basis.
Speaker Change: This call is being webcast live and will be available for replay on our website. I would now like to turn the call over to Mike Massaro.
Mike Massaro: Thank you, Masha, and thank you to everyone that is joining us today. Before we go into details about the quarter, I want to provide some context on what we've accomplished as a public company and how we are looking towards the future.
Mike Massaro: Since our IPO in 2021, we have doubled the business in terms of revenue and surpassed the revenue, gross profit, and adjusted EBITDA margin objectives we had set at the time of our IPO.
Mike Massaro: We plan to double the revenue yet again over the next several years while improving profitability and the cash flow generation of the company.
Mike Massaro: We expect to accomplish this through a combination of business improvements we have already made and the investments we are making. We now have 4,000 plus loyal clients in 50 countries across numerous verticals and subverticals with great revenue diversification.
Mike Massaro: And we have more than 1,300 Flymates focused on execution in building high-performance teams.
Mike Massaro: We have powerful sales and customer success engines in each industry we serve, and we have a robust global payments infrastructure.
Mike Massaro: that was able to support the nearly 2x total payment volume spike in Q3 compared to the average volume process during the first two quarters of this year.
Mike Massaro: Our combination of next-gen payments platform, proprietary global payment network, and vertical-specific software create a powerful value proposition, further strengthened by our efficient go-to-market engine and existing client relationships.
Mike Massaro: I am very proud of our team's product capabilities and our ability to prioritize investments to further optimize our cost structure and deliver more value to our clients, their payers, and to our shareholders.
Mike Massaro: Our core business is operating well because we are focusing on the things we can control.
Mike Massaro: We are deepening our relationships and seeing revenue growth at existing clients.
Mike Massaro: We are reducing the small amount of client churn we have. We are expanding our value proposition, and we are managing both gross margins and our operating costs to further deliver to the bottom line.
Mike Massaro: We are landing more clients in every vertical around the world. Education continues to prosper well. We see strong growth in travel and B2B. And our healthcare business returned to modest revenue growth during the quarter as well.
Mike Massaro: As well as we're doing, we continue to face a well understood macro dynamic in our education business, specifically related to limits on foreign students imposed by the Canadian government with potential future actions by the Australian government.
Mike Massaro: These have put pressure on our revenue growth rate over the last number of quarters despite very strong execution by our team.
Mike Massaro: Even in the face of these headwinds, Flywire continues to grow at scale, helping our clients digitize large and complex payments all over the world.
Mike Massaro: Revenue less ancillary services was $151.4 million, an increase of 29.6% year-over-year. Adjusted gross profit for the quarter was $101.9 million, an increase of 27.2% year-over-year.
Mike Massaro: Adjusted EBITDA was 42.2 million for the quarter, increasing by 14.7 million year over year, and adjusted EBITDA margin expanded by nearly 429 basis points year over year, with strong free cashflow conversion.
Mike Massaro: As a result of our strong growth combined with meaningful operating leverage, Flywire has been and expects to continue to be a Rule of Forty company.
Mike Massaro: We are proud and we have built a durable business where we have been able to drive solid revenue growth, gain market share, expand our total addressable market, and deliver innovative solutions to the industries we serve.
Mike Massaro: As we look ahead, our goal is to continue to balance strong top-line growth with margin expansion and deliver strong cash flows and gap net income profitability.
Mike Massaro: With that, I will now share some progress we made in Q3 against our three-pronged strategy of optimizing our go-to-market capabilities, expanding our flywire advantage, and strengthening our flymate community.
Thank you for watching!
Mike Massaro: First on our go-to-market capabilities. We believe we have a data-driven and disciplined approach to how we optimize revenue growth and efficiency across sales, marketing, and customer success.
Mike Massaro: We prioritize high ROI marketing activities, ensuring our investments directly support revenue growth across our verticals.
Mike Massaro: All of this rigor helps drive strong revenue growth, logo retention, pipeline development, and new client signings. And at the same time, a reduction in average deal cycle time.
Mike Massaro: This approach strengthens our confidence in scaling strategic investments across sales and marketing within diverse verticals and regions.
Mike Massaro: By testing and optimizing initiatives in one market and expanding proven successes into another, while adapting only for the essential local operating requirements, we have a proven playbook that helps us optimize our impact and ensure efficient growth across geographies.
Mike Massaro: Last quarter, we held our inaugural client conference in the United States, modeled on the success of our conference in the UK.
Mike Massaro: We brought together more than 100 colleges and universities, reinforcing the significant ROI our full suite solution is delivering to institutions who use it to manage billing, one-time payments, payment plans, and past-due collections.
Mike Massaro: This event further highlighted the growth potential within our existing clients who are already using our cross-border solution and are increasingly focused on the value we can deliver from our full-suite domestic offering.
Mike Massaro: The focused efforts of our teams to integrate and cross-seller offerings are yielding substantial results in the U.S. market, which Rob will detail shortly.
and many more. Thank you. Thank you.
Speaker Change: In addition to our go-to-market investments, we've also made great progress expanding our flywire advantage.
Speaker Change: We remain focused on delivering product and payment innovation to power the vertical ecosystems in which we operate.
Speaker Change: In Q3, we enabled $11 billion in total payment volume across multiple payment types.
Speaker Change: including local bank transfers, credit and debit cards, and alternative payment methods. The majority of our payment volume is not card related and is completed over our global payment network, a significant differentiator for Flywire.
Speaker Change: Ultimately, we want to allow payers to use any and all payment options available to them in any country, allow them to transparently choose the one that they want, and provide it to them with great value informed by cost,
Speaker Change: speed, reliability, and trust. We want this transaction to complete over our global network in the most efficient and effective way possible, and do so at healthy margins for Flywire.
Speaker Change: Here are just some of the ways we strengthen our global payment network and payment acceptance capabilities this quarter in the APAC region specifically.
Speaker Change: We went live with our second banking partner in Vietnam, Vietnam International Bank, VIB, which augments our existing bank transfer offering and expands our presence in Vietnam, our fifth largest payer market by FX money moved.
Speaker Change: The integration provides a fully digital payment experience for payers, and our API integration with VIB increases payment processing and delivery speeds.
Speaker Change: Crossing over to Singapore, we further enhanced our payment capabilities and are working with a leading university client to roll out dynamic QR codes and instant local currency bank transfers through PayNow.
Speaker Change: These types of local banking partnerships alongside our enhancements to payment acceptance capabilities further strengthens our global banking network and solidifies our competitive moat for processing large complex payments both internationally and domestically.
[inaudible]
Speaker Change: And finally, we continue to focus on strengthening and growing our flymate community. Our culture is underpinned by our commitment to building high-performance teams. We believe a cornerstone of our success is equipping our flymates with the right tools, training, and other resources necessary to build their careers of a lifetime here at Flywire.
Speaker Change: Lastly, our thoughts go out to our flymates based in Valencia, Spain, as they deal with the impacts of the historic flooding that took place just about a week ago.
Speaker Change: While we have had minimal business impact from the effects of the natural disaster, we continue to work directly with our flymates in the region to identify emerging needs and provide support to the local community as they recover.
Speaker Change: I continue to be inspired each day by the efforts of Flymates all over the world that dedicate their time and resources to serving others and supporting their local communities.
Speaker Change: In closing, I am pleased with the results we delivered in the third quarter. Performing well in spite of the headwinds from Canada underscores the resilience of our business, the ingenuity of our people, and execution of our unique strategy across industries and geographies.
Speaker Change: I would now like to turn the call over to Rob Orgel to review some operational highlights from the quarter. Rob?
Rob Orgel: Thanks, Mike. It was another strong border of growth and adjusted EBITDA performance for the company. We have added more than 200 clients across all four core verticals, with new clients in the travel vertical modestly outnumbering those added in education.
Rob Orgel: Healthcare returned to growth for Q3 compared to last year's Q3 and we continued to focus on go-to-market scale and efficiency in Q3 and saw year-over-year improvements in both pipeline creation and average deal length across the business.
Rob Orgel: This quarter's results were driven by the continued execution of our five strategic growth pillars, which include growth with existing clients, new client wins, expansion to new industries, geographies, and products, and finally growth from our strategic value-enhancing acquisitions.
Rob Orgel: Let me show how these pillars work to cross our verticals. I'll start with education, our largest vertical.
Rob Orgel: As most of you know, Q3 has typically been our seasonally largest quarter, tied to it being the peak tuition period in the U.S., U.K., and several other major student education markets.
Rob Orgel: This Q3 included strength across multiple geographies, products, and education subsectors, and also showed resilience in the face of several notable pressures tied to visa and immigration policy shifts.
Rob Orgel: Most notably, the U.K. was a major growth market, and the strength in the U.K. came from a broad range of source countries. Our U.S. and U.K. growth, combined with growth in many emerging destination markets,
all reflect the increasing diversity of our client base.
Rob Orgel: increased resilience to changes in student country preferences and the impact of our agent and overall growth strategy. To go even further into the underlying strength of the business, in our UK higher education segment, revenue growth accelerated this quarter on a year-over-year basis.
Rob Orgel: Note that approximately a third of the UK education revenue added year-over-year was driven by new customers and roughly the other two-thirds coming from existing clients, showing our ability to drive revenue with existing and new clients.
Rob Orgel: A few examples here would include recent go-lives with clients such as University of Manchester and deeper ERP integrations that help drive share gains with existing clients such as City University of London.
Rob Orgel: Our product has been shown to deliver strong ROI to universities and is highly differentiated in the market, helping sustain a strong win rate and higher share gains.
Rob Orgel: In our U.S. education segment, nearly a thousand institutions in the U.S. rely on Flywire to streamline the cross-border tuition payment experience for their international students.
Rob Orgel: Flywire's full suite solution, including our domestic tuition payment platform, addresses some of the most challenging issues in domestic payments, such as managing dynamic payment plans and past due collections, which are important components of our full suite solution.
Rob Orgel: This quarter we went live with one of the largest private accredited art and design schools in the nation.
Rob Orgel: We initially signed with this institution back in 2014 for our cross-border payments processing solution and went live with our full suite student financial services solution during this quarter to help automate back-office reconciliation efforts that previously required a lot of manual efforts by staff.
Rob Orgel: Overall, we continue to see a long runway of existing cross-border only clients to add to our domestic payment offerings.
Rob Orgel: With that, I'll pivot towards our Canadian and Australian education market segments.
Rob Orgel: Canada remains a very challenging international student market for both Canadian higher education institutions and for Flywire. Recent developments don't suggest a prompt recovery in international student growth in Canada.
Rob Orgel: Canada and India continue to have tense political dialogue and Canada is continuing down the path of restrictive immigration policies.
Rob Orgel: It is hard to predict how many of the available seats within the CAPS will actually get filled by international students and in which periods.
Speaker Change: So, we are taking a long view on Canada and continue to work hard to serve existing clients, expand our client footprint by winning more Canadian institutions, and expand our product footprint in that market.
Speaker Change: In the absence of better news that builds demonstrated momentum with student volumes, we are preparing for 2025 revenue in Canada to be relatively flat with 2024.
Speaker Change: There are headlines about caps and immigration policy emerging from Australia as well.
Speaker Change: Australia education is a smaller market for us compared to Canadian education.
Speaker Change: Overall, Australian education is a high single-digit percentage of our revenue, which includes our legacy higher education cross-border revenue and revenue related to our acquisitions of StudyLink and Cohoco.
Speaker Change: Yet, we are seeing early moderation in the revenue growth rate, and we are watching Australian developments closely. We will provide guidance for our expectations for 2025 next quarter.
Now, moving on to travel.
Speaker Change: We have the travel vertical expertise, client support know-how, and integrations into commonly used travel-specific ERP systems of record that allow us to win against or replace both local and regional payment processors, as well as some of our larger vertical agnostic competitors in the space.
Speaker Change: During the quarter, several of the new clients signed came from Flywire replacing direct competitors in the travel vertical.
Speaker Change: For example, we signed Ansova Travel, a luxury travel provider based in Ho Chi Minh City, Vietnam, that creates customized journeys through Vietnam, Cambodia, Laos, and Thailand.
Speaker Change: And Sova chose to replace their prior payments provider with Flywire due to our travel vertical expertise and dedicated client support team. Since going live during the quarter, the client has exceeded our expectations around platform utilization, and we look forward to continuing to support their growth.
Speaker Change: We are also seeing momentum moving upmarket in terms of signing larger projected ARR clients.
Speaker Change: For example, this quarter we signed Karma Group, a luxury accommodations provider with over 40 properties across Asia and Europe that was attracted by Flywire's efficient flows, strong ERP integrations, cross-border network, and split payment functionality.
Speaker Change: Flywire is starting to get brand recognition and referrals in this luxury accommodation sub-vertical.
Speaker Change: Overall, we read excited about the opportunities in the travel vertical. We are still in the early innings of our growth journey.
Speaker Change: In healthcare, I'll highlight the return to modest year-over-year revenue growth this quarter, thanks to both new clients and deepening partner relationships.
Speaker Change: We expanded our relationship with our client, Banner Health, to manage payments across the health system's extensive footprint of over 30 sites.
Speaker Change: To help Banner provide an improved patient experience and a consolidated billing experience among other operational benefits, we work together on a new integrated solution called Banner One that brings some of their affiliated partner practices onto the Flywire platform.
Speaker Change: This allows Banner patients to view and pay more of their bills associated with their care in one place, which previously required separate logins.
Speaker Change: Prior to this new initiative, Banner has already seen a 38% reduction in bad debt expense as a percentage of net revenue since going live with Flywire's solution.
Speaker Change: Finally, moving to our B2B vertical, this quarter we saw organic revenue growth well above the corporate average on a year-over-year basis, albeit off of a smaller base compared to our other verticals.
Speaker Change: Our strategy involves a focus on sub-verticals, believing that this focus and subject matter expertise that comes with it can help us expand and win faster in the sub-verticals.
Speaker Change: We continue to have great traction within the insurance sub-vertical of B2B from a combination of in-person events, digital acquisition, and direct sales outreach.
Speaker Change: For example, this quarter we brought on new clients including Redbridge, an insurance, reinsurance, and consulting services provider focused on Latin America and the Caribbean.
Speaker Change: Through a single integration, Redbridge utilizes Flywire to offer dozens of local payment options to their members and agents, while significantly reducing manual work throughout the billing and collections process.
Speaker Change: This collaboration strengthens Flywire's insurance market positioning while paving the way for expanded use cases with RegBridge across their insurance business segments.
Speaker Change: We also saw integration progress following last quarter's acquisition of invoiced.
Speaker Change: We have introduced a fully integrated software and payment solution to clients and prospects, and we are able to sell software, payments, or the integrated software and payment solution.
Speaker Change: We have our first client live and transacting on the joint solution and we have built an active pipeline of more than 50 businesses that we expect to start to close in the coming months.
Speaker Change: I will now turn the call over to Cosmin to provide an update on our financial performance this quarter.
Cosmin: Thank you, Rob, and good afternoon, everyone. First, I'd like to thank our clients, partners, and employees for helping us deliver another strong quarter. Today, I'll provide an overview of our results for the third quarter and then discuss our outlook for Q4 and the fiscal year.
Cosmin: We beat the high end of our revenue range and our adjusted EBITDA guidance and are raising our full year revenue and adjusted EBITDA margins expectations despite the external macro headwind.
Cosmin: At the midpoint, we are a Rule of 40 company as defined as revenue-less ancillary services growth plus adjusted EBITDA margin.
Turning to our performance this quarter, starting with revenue.
Cosmin: Revenue Less Auxiliary Services was $151.4 million in Q3, representing a 29.6% year-over-year growth rate, despite a high single-digit percentage point headwind related to our Canadian higher education business.
Cosmin: Q3 revenue came in above expectations, beating our midpoint, driven primarily by two factors. First, the education vertical was stronger compared to our expectations during the peak tuition season, in particular from a strong UK performance.
Cosmin: As noted before, while we try to anticipate the timing of Q3 versus Q4 in tuition payments, there are small shifts in seasonality every year, with this year seeing a stronger than expected Q3 timing.
Cosmin: Second, FX rates created a tailwind of approximately two and a half million dollars during the quarter as the U.S. dollar continued to weaken versus the six thirty spot rates.
We continue to see strong volume growth.
with total payment volumes during the quarter reaching $11 billion.
nearly double the average TPV of the prior two quarters.
Cosmin: and growing 24% year-over-year, driven by a strong education peak season, reflecting the strength and scale of our platform and operational capabilities.
Cosmin: From a modernization standpoint, our spreads have remained relatively consistent and in line with the last several reporting quarters.
Cosmin: Looking at the two components of our revenue, transaction revenue is primarily based on fees as a percent of transaction value, while platform and other revenues consist largely of fees earned from software subscription and usage-based fees.
Cosmin: Starting with transaction revenue, we saw a 28.9% year-over-year increase driven by a 32% increase in transaction related payment volume, primarily in our international education sub vertical as well as our travel vertical.
Cosmin: Platform and other revenues increased 34.8% year-over-year, primarily driven by the platform fees that do not carry payment volumes.
Cosmin: specifically revenue associated with the contribution from study link of 1.8 million and invoice acquisition of 0.9 million.
Cosmin: Platform related payment volumes of 2.2 billion were up 1% year-over-year as some of our platform revenues include software revenues that do not have associated TPV volumes.
Cosmin: Adjusted gross profit increased to $101.9 million during the quarter, up 27.2% year-over-year.
Cosmin: adjusted gross profit margin was 67.3% for Q3 2024, which is a decline of about 130 basis points compared to Q3 2023.
Cosmin: Business mix continues to put downward pressure with travel and B2B growing faster with the more prevalent use of credit cards partially offset by stronger trends across our main education corridors and continued payment costs optimization.
Cosmin: Note that FX shifts that occur during settlement of transactions, such as the negative impact this quarter, are largely offset by FX hedges which are booked in OPEX, resulting in a mitigated impact on adjusted EBITDA.
Cosmin: Adjusted EBITDA was $2.2 million above the midpoint of our guide and grew to $42.2 million for the quarter compared to $27.5 million in Q3 2023. Adjusted EBITDA margin was up 429 bps year-over-year.
Cosmin: Let me unpack how we balance driving top-line growth with long-term productivity and incremental margins by optimizing all of our operations and support functions.
Cosmin: We're looking at OPEX both as a percent of revenue, less ancillary services, and percent of adjusted gross profit, both in the quarter but also of the trailing 12 months to account for seasonality, and setting long-term best-in-class productivity targets across our key metrics.
Cosmin: First, starting with sales and marketing spend of $27 million in Q3, represented 17.8% of revenue and 26.5% of gross profit, improving by 160 bps and 184 bps year-over-year, respectively.
Cosmin: We continue to invest in our go-to-market capabilities, especially across travel and B2B verticals, whilst at the same time streamlining our go-to-market functions to improve our LTV to CAC metrics.
Cosmin: Second, G&A spend of $21.3 million in Q3 represented 14.1% of revenue and 20.9% of gross profit, improving by 323 bps and 432 bps year-over-year, respectively.
Cosmin: Finally, our technology and development spend of $11.9 million in Q3.
Cosmin: represented 7.9% of revenue and 11.7% of gross profit, respectively improving by 70 bps and 81 bps year-over-year as we continue to gain scale in our platform and engineering productivity.
Cosmin: To close out the income statement, NQ3 gap net income was $38.9 million, improving year-over-year by approximately $28.3 million.
Cosmin: Q3 includes an income tax benefit of approximately $8.3 million based on full-year tax estimates and amid single-digit millions FX gains on intercompany balances, which we don't expect to recur in Q4.
Cosmin: Our balance sheet remains strong. We ended the quarter with $721.5 million of cash, cash equivalents, and investments with no outstanding debt.
Cosmin: Turning to capital allocation, we continued generating strong cash flows in the third quarter and repurchased 1.3 million shares for roughly $23 million, inclusive of commissions, under our share repurchase program.
Cosmin: We also utilize 45 million dollars net of cash required for the acquisition of invoiced.
Cosmin: Our capital allocation priorities remain the same. We'll continue investing organically, seeking strategic acquisitions, and execute our buyback opportunistically to take advantage of short-term dislocations in our equity value as we focus on executing and building long-term value for our shareholders.
Moving on to guidance.
Cosmin: For full year 2024, we're flowing through the Q3 beat and holding Q4 in line with prior midpoint of guidance across revenue and adjusted EBITDA.
Cosmin: On an FX neutral basis across the second half.
Cosmin: Were approximately in line with our prior revenue guidance midpoint.
Cosmin: For full year 2024, we expect revenue to be in the range of $479 million to $485 million based on spot foreign exchange rates as of September 32024.
Cosmin: This represents a year over year growth rate of approximately 26% at the midpoint.
Cosmin: For 2024, we're raising the low end of our full year adjusted EBITA in the range of 76 million to $80 million at the midpoint. Our full year 2024 guidance, we expect to generate approximately 520 basis points of adjusted EBITDA margin improvement on a year over year basis.
Cosmin: The improvement reflects opex efficiencies and cost discipline across the team.
Cosmin: Allowing us to look ahead towards sustained GAAP net income profitability as we exit into next year.
John.
John: Shifting to Q4 2020 for revenue and adjusted EBITDA remain approximately in line with our prior midpoint of guidance.
John: Revenue is expected to be in the range of 118 million to $124 million.
John: A few puts and takes as guidance context for Q4.
John: This includes a benefit of approximately $2 million, mostly from the Invoiced acquisition.
John: And very low single digit million dollars FX tailwind year over year.
John: And as noted we did see a stronger Q3 seasonality versus expectations across second half 2024.
John: We expect Q4 adjusted EBITDA to be in the range of $15 million to $19 million, implying about a 600 bps margin increase at the midpoint on a year over year basis.
John: In closing, we are agile and disciplined in terms of managing our costs, we remain optimistic about our product differentiation the diversity of our business model profitable growth opportunities across all our verticals and our ability to deliver significant shareholder value as Mike said our ambition.
John: It remains to double the size of our revenue over the next several years continuing to be a rule of 40 company with strong cash flow generation, while pivoting to sustaining GAAP net income profitability.
Speaker Change: I'll now turn it back over to the operator for questions operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys and if you would like to withdraw. Your question you May Press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question today will come from Darrin Peller with Wolfe Research you May go ahead with your question.
Speaker Change: Hey, guys. Thanks.
Thank you maybe just start off with first of all the customer adds continue to trend well and so maybe if you could help us understand the 200 plus adds breaking it down by sub category verticals Youre seeing traction, whether it's travel or education. So.
Speaker Change: And obviously, just reminding us what's driving those new adds.
Then maybe just a little more color on the subsegment strengths you know.
Speaker Change: Again, obviously the nuances on the government impacts from Australia, Canada, but putting that aside I mean, how the growth is really trajectory.
Speaker Change: Ending in the education side would be helpful.
Speaker Change: Yes, guys.
Speaker Change: Yes, Darren I can jump in and start with that so let me start with your point on the customers and then talk a little bit more broadly about the verticals. So as you called out once again another quarter with over 200 net new additions for each of the past couple of calls Ive outlined whether it was EUR travel that came out on the top of the numbers have been relatively close for a sequence of quarters.
Speaker Change: This time travel came out slightly above <unk>, but if you look in both of them. We saw the kind of diversity that we like across the client wins, so focusing first on the travel.
Speaker Change: They were across our sub segments.
Speaker Change: And nicely distributed if you look in <unk> they were distributed across our sub segments, but also very are.
Speaker Change: Broadly distributed geographically right wins in the Americas wins in Europe and wins across the Asia Pacific region Healthcare is always a much smaller number of deals but positive deals there and we didn't call out in my comments that <unk> wins were actually up notably over Q3 in the prior year. So overall the other question you often ask us.
Speaker Change: Our average <unk> per deal was down just a bit so but still feeling good about where we are on our progress for the year. If you add up the progress over the last couple of quarters plus these results for Q3. So if you look at that that was the.
Speaker Change: Customer count.
Speaker Change: And a little bit of analysis. There if you want to talk about the verticals again felt good about our vertical progress so education growing right in line with the company average if you look at <unk> to be growing meaningfully above the company average on an organic basis and even more if you take into account the.
Speaker Change: Contribution from Invoiced, if you look in the travel business again, continuing to grow very nicely.
And happy to call out health care as having a return to growth, albeit modest growth we're happy.
Speaker Change: To see that result.
Speaker Change: That's encouraging to hear especially on the healthcare side I appreciate that and just thinking about the opportunities and what you see in the order of a regulatory landscape standpoint, I mean anything you can help us with understanding in terms of incremental risks or you think we have a pretty good handle on where things are now from what we saw in the last couple of quarters already just not anything new I guess on your side.
Yeah, I mean, I'll sort of hit the high points of some of my comments.
Speaker Change: The two countries that this is a conversation about a predominantly Canada and Australia in Canada. What we've seen is that there is both a.
Speaker Change: Political stress associated with the largest corridor, there, which is the India to Canada corridor.
Speaker Change: As well as the Canadian.
Speaker Change: Adrian government continuing to basically hold the tone of a relatively firm policy there that would limit limit students so well you.
Speaker Change: The high point of what I called out there are the key point I should say is that the effect of all that has been meaningful demand destruction in terms of the.
Speaker Change: Number of students that are applying and therefore, having the chance to go against that cap.
Speaker Change: If you look what it means for US we continue to execute very well in Canada in terms of new client acquisition in terms of land and expand like all of our usual thing is continue to work and so you can think of that relatively flat is being the product of continuing to expand with new and land new clients, but in an environment, where you sort of think of that.
Speaker Change: Same store sales as having the potential to still be negatively impacted by this demand destruction. When we compare what we anticipate for next year versus the current year.
Speaker Change: And Australia just to cover that look it's a very different thing right.
Speaker Change: Canada, frankly, it's down to sort of high single digit percentage of revenue. So it's not the size business I would remind you that when we talked about this a year ago, but if you look at Australia, It's a mid to high single.
A single digit percentage of our revenue, but but the climate. There is is not nearly as challenging as what I. Just described for Canada. So we've overall assumed that there'll be a moderation of the growth rate. There. So it was well above the corporate average this year, we assume that it'll go to at or below.
Mike Massaro: Though the corporate average next year, but continue overall to be a growth market for us and Darren. This is Mike I'll just jump in and I'll cover the U S is I know Theres a.
Speaker Change: A lot of water.
Speaker Change: Question is probably coming out around the just the U S. Administrative change you know I think there had been positive comments.
Speaker Change: Time to continue to watch what policy could evolve, but there's been positive comments around supporting legal immigration potentially even green card ownership for international students, which would be a positive.
Speaker Change: The U S is the number one market and as you look at places like Canada, and Australia, potentially being restrictive I think the U S as an opportunity.
Speaker Change: To grow and obviously, we're going to watch that market closely as well just in the global.
Speaker Change: No.
Speaker Change: Numbers of international students.
Speaker Change: Alright very helpful guys. Thank you.
Speaker Change: And our next question will come from John Davis with Raymond James. Please go ahead.
Speaker Change: Hey, good afternoon guys.
Speaker Change: I just wanted to put together two of your comments in the release and in the prepared remarks hard when you talked about continuing to be a rule of 40 company.
Mike Massaro: And then Mike I think you said and we expect to double the business over the next several years.
Speaker Change: Given margin guidance. This year is about 16% and what your midterm targets are that we can pay it on margins probably being in the 20% range.
Speaker Change: Next year or so.
Speaker Change: So I think.
Speaker Change: Doubling the business over the next.
Speaker Change: Call. It three years like kind of mid Twenty's growth, but just any comments on how we should think about the growth out of the business from here understanding you've got some some headlines from Australia.
Speaker Change: Yes.
Speaker Change: Yeah, So I'll start and I'll, probably jump in and talk a little bit about just how people should think about the framework.
Speaker Change: Obviously, we think we've put up some pretty good numbers. So far for this year I mean near 26% growth, that's with a $30 million headwind that was unexpected.
Speaker Change: Obviously really strong record of expanding margins continued year upon year for us.
Speaker Change: And so you know I think anybody can kind of add what that headwind is into our number and see where our growth rate would have been would have been also even better than what we're doing here, but we're doing that with a with a pretty significant headwind.
Speaker Change: We mentioned in some of the comments and Rob mentioned just in his last answer there's no snapback, we're expecting coming from Canada.
Speaker Change: It is likely to improve over time. So obviously, we're not guiding 25, yet, but I think people should consider us a rule of 40 company.
Speaker Change: With increasing EBITDA margin expansion as you said within our prior range.
Speaker Change: What caused maybe unpack a little more of the framework.
Speaker Change: Yes. Thanks.
Speaker Change: Thanks, JD, so the way to think about.
Speaker Change: As we look at next year first as I said and I'll look long term rule of 40 and continuing to drive strong revenue growth I think as you look at this year in particular.
Speaker Change: The good starting point and I think of let me start with revenue and then I'll double click into margins a little bit like you said right. So revenue is up 26% at the midpoint in Q4 very similar to the full year.
Speaker Change: And as I've said in my remarks about roughly two points of that is from inorganic growth.
Speaker Change: And I'll call. It another low sort of single digit is from FX. Obviously in Q4, that's a little bit more <unk> seen FX moving around quite a bit I still plan to start guiding with FX neutral next year.
Speaker Change: But net net when you look at the combination of that.
Speaker Change: Sort of on an FX neutral organic basis, we're in we're in the low low twenty's, there plus but again really strong growth for the year. Then as you look at next in terms of margin margin. This year just to clarify the adjusted EBITDA margin of 16%.
Speaker Change: And we've said historically that we're going to grow three to 600 bps.
Speaker Change: You look into next year, we feel comfortable as usual kind of starting.
Speaker Change: The low end of that.
Speaker Change: And ensuring that we continue investing as I've said in many different areas for us so overall.
Speaker Change: Feel good about the rule of 40, obviously, we're well in that even this year with the eight point headwind and so as we exit the quarter look we're not giving 2025 guidance right now.
Speaker Change: But we're going to get through sort of the December peak season and.
Speaker Change: We'll see how it kind of plays out as we do our usual planning cycle, but feel really really good about kind of where we are as the business.
Speaker Change: Despite all of these pressures the team is executing at a sort of admirable pay so very excited about the future.
Speaker Change: Okay, Great and then just as a quick follow up Mike a little bit on capital allocation. Obviously, you have six $700 million of cash on the balance sheet.
Speaker Change: So maybe talk a little about the United pipeline. How are you guys thinking about M&A versus buyback and kind of given where the stocks trading.
Speaker Change: Yeah, sure and even following up to your other question. Obviously M&A is an accelerant to what we just talked about as well as you look forward and not something we're including in that in those numbers. So.
Speaker Change:
Speaker Change: If you look at just capital allocation I mean, we put $70 million into investment in Q3, right between invoice plus the buyback program and again, we feel like we're in a unique position to be able to invest in our business still significantly.
Speaker Change: You need to evaluate and potentially.
Speaker Change: Potentially execute M&A.
Speaker Change: And then be aggressive.
Speaker Change: With our buyback and so again, the M&A pillars still hold true for us.
Speaker Change: How do we accelerate existing industry solutions, we're in how do we find additional solutions that we think can help drive <unk> further in existing client relationship and up sells.
Speaker Change: Potentially where to expand into new industries or.
Geographies.
Speaker Change: The challenging part is you've got to find a company that doesn't take you off your technology vision doesn't take you off your growth and your profitability.
Speaker Change: Trajectory.
Speaker Change: Did that culturally fits in that actually has some level of logic in a way it wants to be valued and you have to be able to execute all that when it comes to M&A. So we think we're in a great spot for it.
Speaker Change: Having pulled off the invoice acquisition, which continues to go well in Q3, having done 23 plus million dollars of buyback.
Speaker Change: And we're in a good position to be able to continue to do all three of those things.
Speaker Change: Okay.
Speaker Change: And our next question will come from Tim <unk> with UBS. Please go ahead.
Speaker Change: Thanks, everyone.
Speaker Change: Pat on us on for Tim Thanks for taking the question I heard the prepared remarks on the strike from the UK education vertical which is definitely encouraging wanted to revisit the WPM acquisition briefly could you maybe just update us on where you are in terms of implementation to the air with the roughly 170 University or college clients.
Speaker Change: The last we heard was around 55 clients as of Q2 2023, and then just as a follow up just most of the opportunities out there that remains on the domestic education payments side.
Speaker Change: Outside of growing with existing customers.
Rob Orgel: Yeah. This is Rob I'll start and others may chime in so I think it's important to understand sort of what what WPM data what WAM didn't do right. So W. P. M was helpful for us in terms of its ability to help us establish relationships with more institutions, but the business itself was essentially a relatively flat revenue business all over the <unk>.
Rob Orgel: Growth has come from implementing fly wire capabilities inside a set of institutions there and as we described all along that was an evolutionary path, where we expected we would start with the ability to do cross border. We would move from there to being able to increasingly do domestic and it's gone exactly.
Rob Orgel: <unk> as we would've expected in that regard with the opportunity for us to keep going right. So we've we've increasingly picked up domestic we are implementing what we call sort of our one door strategy of trying to move more and more of the payment volume for each of these schools and continuing to bring new software capabilities for imply wire into the market.
Rob Orgel: So that's the that is the sort of dynamic that has generated the positive results in the U K. So we're certainly increasing our footprint my comment was that <unk> of the growth in this past quarter.
Rob Orgel: Quarter that two thirds of it came from growing with existing clients one third from new clients and we believe we've got lots of new clients to go and lots of growth to continue to achieve within the installed base.
Speaker Change: Hi, Chris.
Speaker Change: And our next question will come from Nate <unk> with Deutsche Bank. Please go ahead.
Speaker Change: Hi, guys. Thanks for the question cognizant awful lot rebuilding about focusing on things like free cash flow above the ability.
Speaker Change: Part of the remarks, you mentioned sort of sustained GAAP net income goal.
Speaker Change: I know, it's early days, but maybe you could give us some thoughts on how youre thinking about disclosures of our guidance across these metrics.
Speaker Change: By then kind of following up on J D. Question earlier, you know if I think back to 2022 Investor day.
Speaker Change: Gross target I don't know if you.
Speaker Change: Iterations.
Speaker Change: Getting an update on where you see normalized growth, particularly given all the moving pieces in the business in Canada, and Australia et cetera, just to help us all along.
Speaker Change: The growth profile from here.
Speaker Change: Okay, Let me start with your first.
Speaker Change: Two questions on free cash flow and profitability and now I'll pass it.
Mike Massaro: Back to Mike on the last part so so.
Mike Massaro: So starting with the free cash flow profitability as you can see still a strong performance in Q3.
Speaker Change: And even for this year you know obviously after a strong Q3, we feel we feel like we're on track to get to that net GAAP.
Speaker Change: Net income on GAAP profitability as we go into next year and the way to think about that as you've heard us talk about we're not just obviously still growing revenue.
Speaker Change: At a solid pace with growing gross profit, but underneath that we're looking as you can see each each and every line item on our opex and managing that.
Speaker Change: As you know, we've always done sort of with great discipline and applying even more rigor as we look at the metrics there.
Speaker Change: As you look at adjusted EBITDA, although it down to free cash flow and.
Speaker Change: Net income we also are looking at stock based comp for example, which is kind of the other big line item between those two and that's again another metric where as we passed the four year anniversary of our IPO and again looking at that as a percent of revenue.
Speaker Change: We've been already sort of where in the range kind of over our peers are kind of in the middle maybe even better depending on how you look at it as far as stock based comp as a percent of revenue and as we look ahead, certainly as we pass the IPO.
Speaker Change: You're going to sort of anniversary next year, we expect that percent to start to moderate and start to come down. So again, we are managing all those components.
Speaker Change: Well too, so then which gives us that confidence around the GAAP net income profitability going forward, so and onto a wrap up on your question on disclosures again, Youll see us started a bit this quarter, but youll see us much more provide those those kind of breakdowns of what what those are and the forecast behind those including time.
Speaker Change: Back to free cash flow and GAAP net income so, but you'll feel good kind of where the year is exiting there and as we look ahead, yeah, just just on the.
Speaker Change: FY 'twenty five and looking forward, obviously not guiding to the for next year yet.
Speaker Change: But you should obviously, we've been looking at this year and there is no there is no snapback or expecting for a place like Canada.
Speaker Change: It kind of come back right. So that in itself takes you off that 30% number as we've been clear about all year.
And I think as we look forward you can expect that to kind of improve over time from obviously the big reduction down.
Speaker Change: In a market like Canada.
Speaker Change: And again, we think we think we're building a pretty great company here with strong rule of 40 growth.
Speaker Change: Profitability in and Thats.
Speaker Change: That's what we expect for the future.
Speaker Change: That's great color guys.
Speaker Change: My follow up maybe we can talk about the education business from a higher picture perspective, obviously, so much time spent discussing Canada, and Australia, and obviously a ton of focus on the U S and UK given the size of those markets, but I think Rob in his prepared remarks talked about this great. Good emerging destination. So maybe you could take a step back and talk about some of the.
Speaker Change: Areas, whether you're currently in and or areas of our international expansion in the future that you're excited about that maybe you could help accelerate growth rates as we think about fly wires profile in the education business over the medium to long term, whether thats Europe Latam anywhere else you're excited about.
Speaker Change: Yeah happy to take that so in fact really welcomed the question because we talk so much about these couple of countries, but in fact, the education is a very global opportunity and we are a very globally capable company with the ability to grow in many places. So we don't talk about the individual countries of Europe, so much because individually they they.
Speaker Change: Don't rank as high on the table, but collectively that's a major market and an opportunity where we play very well if you look in Latin America, we've called out in prior comments in particular, our interest in Mexico.
Speaker Change: We believe that's a substantial market and believe we are building and delivering the right capabilities to continue to grow there and across APAC, where whether it's Japan I guess, we've talked a bit about Australia, but a number of the other markets. There are all meaningful opportunities for us to continue and again its the cross border capabilities, it's the domestic capable.
Speaker Change: And some of our emerging products as well.
Speaker Change: So Europe I appreciate it.
Speaker Change: And our next question will come from Andrew Baum with Wells Fargo. Please go ahead.
Speaker Change: Hey, Thanks for taking my question, you mentioned that third quarter benefited from more of the agitation volumes falling into the quarter versus fourth quarter of last year and I know some of that was timing around around the weekend. So we get a sense of the size of that impact on what was in versus out versus the previous 40 Guide and then.
Speaker Change: My follow up would be on the student financial software I think that the deck. It really lays it out and how you have this holistic approach and could you kind of compare and contrast, the monitor monetization opportunity for institutions that are adopting student financial software versus those that aren't.
Mike Massaro: Yeah. So this is Mike I'll jump in so you can think of it as low single digit millions.
Mike Massaro: It's kind of that one $1 million or so kind of around that area that is on that on that kind of crossover line remember Q3 to Q4, you just had bill debates that are out on that.
Speaker Change: On that period of time right. So that's.
Speaker Change: $1 million to $2 million is kind of this line that can cross into Q3 and Q4 just based on the bill due dates are out whether people are paying early or.
Speaker Change: <unk> paying.
Speaker Change: Later for those bills. That's the same dynamic that exists for Q4 into Q1 right and so as you go back and think of Kosmos comments around the second half, it's really important to understand when we talk about that second half you don't always know exactly how thats going to fall into Q3, or Q4 and that same dynamic exists for <unk>.
Speaker Change: Q4, Q1, right and so we do our best assumption based on how we see those due dates coming out at our clients, but we don't control when people pay and we don't control the build to date.
Speaker Change: Four.
Speaker Change: For those quarters.
Speaker Change: And I can jump in and talk a little bit about sort of the student.
Speaker Change: <unk> software so.
The reason why we get excited about that opportunity as it is a revenue multiplier for most of the schools, where we'd get deployed someone who deploys that full sss suite is going to <unk>.
Sign up with us and the combination of revenue streams for US is sort of license SaaS style license revenue plus payment plan revenue associated with the payment plans that students choose to set up a plus there's a volume of card activity associated with those that choose to pay with card. So all those are revenues.
Speaker Change: Dreams for US all of those at healthy margins and that's why we are so eager to continue our land and expand where we.
Speaker Change: Get more clients to sign up for that full suite I would remind you that we're relatively lowly penetrated in our install base. So at sort of you know.
Speaker Change: Single digit percentage penetrated in that installed base, there's a lot of opportunity to grow and felt really good about the momentum and the activity I guess, even the vibe at our fly fusion event, where we did our first.
Speaker Change: <unk> customer event here in the U S, bringing together a whole range of clients, where they could hear more about our capabilities and really get that picture of everything we could do for them.
Speaker Change: Really interesting opportunity thanks, guys.
Speaker Change: And our next question will come from James Fawcett with Morgan Stanley. Please go ahead.
James Fawcett: Thank you very much and sorry, if you've already addressed some of this can jumping around but wanted to ask in terms of.
Speaker Change: Your N.
Speaker Change: And.
Speaker Change: Retention is that's obviously a massive component of growth, even though I'm a lot of time, so it doesn't get the attention on versus some of the other drivers can you just talk about like.
Speaker Change: What the.
Speaker Change: How we should think about the composition of that.
Speaker Change: Revenue retention metric right now and then how we should be anticipating that should evolve over the you know 2025 and beyond long term I think that's one of the things that we get a lot of questions from investors on is just the durability of that growth.
Speaker Change: Yes, let me jump in there and Mike May jump in AR at the end here. So let me take the second part first James which was just to talk about sort of where we are on <unk> and then I'll come back to sort of the components of it and the durability of those dynamics.
Speaker Change: No.
Speaker Change: I think this on these calls you all have been quite accustomed to I was talking about N or are in the range in which <unk> is falling.
Speaker Change: And as landing and what.
Speaker Change: But we are happy to say is like if you take out Canada and all the effects of Canada that we've talked about already on the call and for all the rest of the business continues to perform sort of inside that historical range. So just a bit over 120% that we've called out on many previous calls and so if you take into account, Canada, which one we share.
Speaker Change: Future <unk> and do some of our usual reporting youll see that will taken effect on the overall corporate <unk> it would have to given the effects.
Speaker Change: Taking place in Canada, and that will that will bring it down but the drivers of NRI remain as strong as ever. So if we didn't have sort of this particular effect associated with Canada, you point to the drivers of NR and we'd say first there's everything we do sort of around adoption and utilization in best practices within existing clients.
Speaker Change: That continues to be one of the primary elements of the activity, that's driven by our agent investment in network and all of those dimensions.
Speaker Change: Dimensions continue to perform very well for us and we believe will continue going forward second dimension was everything we do around sort of product expansion as part of our land and expand I just talked about.
Speaker Change: The domestic we do that across all our verticals hospitals do the things like banner one schools do the things like the Art Institute that I referenced earlier in the comment so that product expansion has always been and we expect will continue to be the second key driver of NR and the third piece is expanding with the profile.
Speaker Change: All of our customers. So it is frequently the case across each of our verticals that you win some portion of their business before you get the chance to win all of it so imagine be to be giving us one or a few subsidiaries or corridors before they give us even more of their opportunity similar concept across the other verticals and we believe that is.
Speaker Change: Very much the continuing dynamics for fly wire as well so all the underlying strengths and dynamics of our NR are there.
Speaker Change: And we expect they'll persist healthily going forward.
Speaker Change: That's great and then.
Speaker Change: Just wanted to just on the point around agents I mean, that's something that we're hearing that a lot of schools themselves are increasing direct engagement with et cetera.
Speaker Change: How does that impact if at all your using of that channel to try to drive growth or is that something that it makes sense to collaborate with the.
Speaker Change: The schools and their increased engagement with agents or is it just better left to be run in parallel.
Mike Massaro: Yeah, Hey, Jason it's Mike.
Speaker Change: There's a great opportunity for us I mean, if you think of what Rob had talked about around the study link asset as well as what we've done with agents and payment processing.
Speaker Change: It's a huge opportunity when it comes to how we're engaging our clients as we said back in the study linked acquisition timeframe.
Speaker Change: We don't think its limits are in Australia, and there is other geographies in which that product will help schools better connect to the agent community and helped drive more student awareness to their university and we think that's going to be a growing need in the market. So we're excited to have those assets and already doing it now.
Mike Massaro: That's great. Thanks, a lot Mike.
Speaker Change: We have time for one more question and that will come from Andrew Schmidt with Citigroup. Please go ahead.
Andrew Schmidt: Hey, guys. Thanks for taking my questions and good Cvs stability and growth here.
Andrew Schmidt: Maybe you could just go back to Sfas, one it was really good to see the stat broken out here.
Andrew Schmidt: You can just talk about whether you're seeing a higher attach rate on new wins in education, that'd be great and then going back to the base and obviously big opportunity.
Andrew Schmidt: Maybe talk about just how the sales motion there has evolved and if this opportunity to just accelerate.
Andrew Schmidt: The growth and the penetration there thanks, so much.
Andrew Schmidt: Yes.
Yeah. So this is Rob as I mentioned in one of my comments, we are seeing some acceleration in the pace of those wins are and we're also doing things to try to further that acceleration right. So we have made changes in our go to market team. We feel very good about some of the talent that we have brought in including sales leadership for that U S EU off.
Andrew Schmidt: Opportunity of course, we feel good about our leadership in other markets as well.
Andrew Schmidt: And the second thing there is efforts like the fly fusion event are meaningful in terms of getting people to understand the opportunity I think there are for many and understanding of what we do but this was a chance to really present those capabilities way more clearly to an audience that can influence the pace of wins. So we feel we're doing.
Andrew Schmidt: Doing a lot in that go to market set of motions to increase the pace there and continue to believe that we absolutely have the best platform and technology out there and so our job and our intention is to go out and make sure people get that and.
Andrew Schmidt: And sign on the floor.
Andrew Schmidt: Yeah.
Speaker Change: Got it. Thank you so much Rob and then maybe just going back to Australia I appreciate the comments on expecting moderation in growth.
Speaker Change: Just a finer point on that does that assume that caps go into place in Australia or does it assume the status quo and then obviously a big offset.
You guys have leveraged over time is increasing penetration is still seems like theres a lot of opportunity down there to continue to drive that so maybe just.
Speaker Change: The what the assumptions are behind.
Speaker Change: The moderate growth and then ability to improve the penetration on the other side any details around those items would be great. Thank you so much.
Speaker Change: Yeah. Good good good points both of them so as things stand currently in Australia.
Speaker Change: The proposal has not been formally formally approved.
Speaker Change: We're working under the assumption that they will move forward with the regulations as proposed <unk> that sort of that there will be some implication or impact of the the way those regulations are being put forward. So that's sort of the underlying assumption there, but youre right. The other thing about Australia as it is a big opportunity.
Speaker Change: For us to continue to grow so there's our.
Speaker Change: Traditional cross border business. There is the ability to present study link and we also have the capabilities that we acquired via cohort go all of those are opportunities to continue to look for places where we can grow the business study link is a great platform very popular in Australia and with Kantar.
Continuing growth opportunities, there and on sort of core fly wire lots of schools still to sign up.
Speaker Change: That's super helpful. Thank you so much.
Speaker Change: And we actually do have a little bit more time to take another question and that will come from Chris Kennedy with William Blair. Please go ahead.
Speaker Change: Great. Thanks for squeezing me in here can you just talk a little bit more about the health care vertical some growth and just talk about the what you guys have done to improve that.
Sir Thank you.
Rob Orgel: Hi, I think just one comment to me as well to Rob speaking.
Rob Orgel: We were really pleased to be able to see the health care business returned to growth. The thing that was great about it was that we continued to pleased clients serve them well drive ROI and get the opportunity to grow the client's banner one that we talked about on the call being a perfect example.
Rob Orgel: There are others that are bringing us more of their facilities and more opportunities to keep growing with them second piece was adding new clients also successful in that now we don't want to kind of call. This too too much in the sense that we're also indicating hey. This is a business that as we are continue to improve will be a growth business, but a mall.
Rob Orgel: Growth relative to the overall fly wire business, but we feel really good about some of the motions that we have in market and feel good about our team and our.
Rob Orgel: Im grateful to see the second half growth.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: Yeah.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you Roland.
Speaker Change: And that concludes our question and answer session. In addition to today's call. We want to thank you for attending today's presentation and you may now disconnect your lines.
Speaker Change: Goodbye.