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Operator: Greetings, and welcome to the Flywire Corporation First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Akil Hollis, VP of FP&A and Investor Relations. Please go ahead.

Akil Hollis: Thank you, and good afternoon. With me on today’s call are Mike Massaro, Chief Executive Officer; Robert Orgel, President and Chief Operating Officer; and Mike Ellis, Chief Financial Officer. Our first quarter 2023 earnings press release, supplemental presentation and when filed, Form 10-Q can be found at ir.fir.com. During the call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. We will also be discussing certain non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks regarding these forward-looking statements that could cause actual results to differ materially and the required disclosures and reconciliations 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 Massaro.

Mike Massaro: Thank you, Akil, and thank you to everyone that is joining us this afternoon. We are excited to share our Q1 2023 results that show strong performance and momentum across the business. 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 for the quarter, but I will first share some highlights from our Q1 performance. Revenue less ancillary services was $89.1 million during the quarter, representing year-over-year growth of 50% or 57% on a constant currency basis. Adjusted gross profit for the quarter was $59.9 million, an increase of 50% year-over-year. And adjusted EBITDA was $7 million for the quarter, representing a 470 basis point increase in our adjusted EBITDA margin versus Q1 2022.

So as you can see, Q1 2023 was a great quarter for Flywire, driven by the efforts of our fly mates all around the world, continuing to execute against our growth strategies while also making progress against our 3 investment areas that I will provide more updates on now. First, we continue to invest in enhancing and optimizing our go-to-market efforts with a key focus on high ROI areas. As we have shared before, a key part of our focused go-to-market this year is around accelerating our channel and technology partners across all verticals. When we integrate directly with our partners, it makes the onboarding process and technology implementation faster and more effective for our clients. And it further deepens Flywire defensible moat. As validation of our focus in this area, we are proud to share that Flywire was recently named the 2022 Partner of the Year for integration excellence by Illusion, one of our strategic partners in education and a leading ERP with major market share in North America.

Our Lucian integration is core to how we sell our full suite solution in North America, and we believe this recognition improves our competitive positioning going forward. We also continued enhancing our sales efforts with targeted investments in our globally distributed sales team. For example, after recently focusing travel sales and marketing efforts in South Africa, we signed a number of net new travel clients that include destination management companies, accommodation providers and tour operators, underscoring our ability to scale up quickly in new geographic regions. Geographic expansion in addition to other go-to-market efficiencies helped yield our largest ever revenue quarter to date for our travel sector, with our team bringing in a record number of net new travel clients in Q1.

Our second investment area is how we expand our Flywire advantage. Out of our long-term vision to power the ecosystems in our core industries of education, health care, travel and B2B. It is hard to believe that our first Analyst Day was almost a year ago, which is where we initially outlined some of the product and payment innovation happening around payer services and our vision to pursue these TAM expansion opportunities to enhance the lifetime value of our payers and deliver more value to Flywire over time. One of the areas where we are seeing success is in the selection of student health insurance for Australia bound international students. Flywire implemented our insurance comparison tool as part of the overall payer experience. And in doing so, we deliver added value to multiple stakeholders in the ecosystem, including students and agent partners.

Continuous health insurance is mandatory in order to obtain a student visa, and we provide a seamless option as well as choice to the student and family. We also offer this marketplace to our vast network of agent partners. We now have our insurance solution embedded within the Flywire agent portal. As a reminder, agents are an important component of the education ecosystem, and it is common practice for international students to partner with them. In fact, 75% of students being placed in Australia have partnered with an education agent. This is just one example of our proven ability to drive value from multiple stakeholders in our ecosystems, and we are encouraged by the growth and potential of this new solution. And our third key investment area was to strengthen and grow our Fly mate community.

In Q1, I had the privilege of traveling around the world to visit clients, partners and of course, our incredible FlyMates. I continue to hear firsthand from our clients and partners that industry expertise, global payment knowledge and local market support helps us build trust and drive value with our software. During my trip to Edinburgh for our annual Flywire User Conference, I got to spend time with more than 200 representatives from our U.K. education clients. I was so impressed by our FlyMates who bring a unique combination of local experience and technical expertise to better serve our clients. There was great energy at this event, seeing our clients’ commitment to Flywire and our mutual desire to continue to innovate for students and parents gives me a lot of confidence in our expansion efforts in this key market.

On my visit to Singapore, I was lucky to be part of the ribbon-cutting ceremony for our new office opening. Sure to Flywire’s philosophy of promoting a hybrid work environment. The new office features thoughtful meeting spaces that encourage collaboration, both in person and virtually. Spending time with our expanded team, hearing the multiple languages being spoken in the breadth of countries represented, it was no surprise to me that my visit coincided with the incredible recognition of being named a great place to work in Singapore. And finally, on a trip to Vietnam, I intended a strategic team offsite with our APAC education team. The roles of these FlyMates at this offsite ran the gamut from sales to implementation to agent partnerships, product, technology as well as our global payment network.

They all shared a common passion for our products and for solving even the most complex payment challenges for our clients and payers. With global mobility returning to post-pandemic levels, this opportunity to meet many new FlyMates in person as well as catch up with long-term FlyMates who have helped build this company was truly special. I couldn’t help but come away feeling reinvigorated by our mission and the team that we have built. In closing, these quarterly results are also supported by positive tailwinds across the industries that we serve, giving us even more confidence in our path ahead. For example, China has moved to reopen its borders and resume issuing Visas signals an uptick in international student mobility for both our education business and a positive trend for our travel business.

According to the China outbound Research Tourism Institute, Chinese outbound travel is expected to recover to around 2/3 of its 2019 highs and with around 110 million border crossings expected from China. Also in travel, the U.S. Transportation Security Agency screened over 58 million passengers in February alone, continuing the early 2023 trend of travel numbers outperforming pre-pandemic volume at a national level. In B2B, we are encouraged to see the CFOs and other financial professionals focused on streamlining their payment processes. According to our new survey, 87% of respondents would like to offer additional payment methods in an effort to decrease days’ sales outstanding. In health care, hospitals and health systems continue to choose Flywire in part due to our integrations with the leading EHRs. And according to our latest research, 97% of IT leaders state that tight integration with EHR and a streamlined implementation process are important considerations when you’re choosing a technology vendor.

This was truly a tremendous start to our year, thanks to our winning strategy, execution in our key investment areas and tailwinds across the industries that we serve, and I couldn’t be more excited to what’s ahead this year. 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?

Robert Orgel: Thanks, Mike. Good afternoon, everyone. It’s been a great quarter, which included impressive growth on the top line while also demonstrating our ability to efficiently scale. On top of our strong revenue and adjusted EBITDA results, we had our largest sales quarter ever with a record number of clients signed. During the quarter, we signed more than 170 new clients, including a record within the travel vertical and one of our largest projected revenue clients ever signed in the education vertical. Q1 NRR remained strong and consistent with our previous reporting. This performance further validates our investment strategy towards efficient growth. As a reminder, our growth strategies include growing with existing clients, adding new clients, expanding our ecosystem through channel partnerships, expanding to new industries, geographies and products; and finally, strategic value-enhancing acquisitions.

I will spend a few moments reviewing some recent success stories reflecting these strategies, but we’ve also added information on our strategy within our supplement and invite you to visit ir.flywire.com to review it. First, an example of how we grew with new clients includes going live with our cross-border payments offering at UCLA for UCLA’s main campus. UCLA is a public research university founded in 1881 that takes great pride in bringing together diverse students from around the world. Many of UCLA’s over 31,000 undergrad students and over 14,000 graduate students have an international visa status. We are very excited to offer best-in-class software and payments to UCLA’s main campus and A+ service, and that’s according to UCLA’s payments and compliance manager, and we look forward to building upon our relationship with UCLA going forward.

We also added new clients in our health care vertical, along with seeing productivity improvements across our sales team. That included an increase of pipeline generated and higher projected deal value signed in the quarter as compared to Q1 2022. An example of a new client go-live for the quarter is Mountain Health Network, a West Virginia-based nonprofit health delivery system comprised of hospitals and medical centers across 23 counties in West Virginia, Southern Ohio and Eastern Kentucky. During the quarter, we went live with Cabell Huntington Hospital, which was named one of America’s 100 Best Hospitals for 2023 by health grades. CHH chose Flywire to improve their patient financial experience by giving patients self-service payment plans and to streamline the back office billing and reconciliation process.

With Flywire, Mountain Health is now able to consolidate all visits into one view, on balance and on payment plan across all patient visits. We look forward to working with Mountain Health Network. In our travel vertical, we saw growth with our existing client base as we benefited from the reopening of the APAC region with clients that we’ve added over the past few years, albeit off a very small base, our destination management company revenues in the APAC region grew almost tenfold. We also continue to sign new clients. For example, we went live with exclusive Travel Group, a New Zealand-based DMC providing luxury travel services across Australia, New Zealand, the South Pacific and Papua New Guinea. Flywire Software Solutions helped the company receive payments in the same currency as the invoice being sent out to travel clients coming from the U.S., Canada, the U.K. and Europe.

In our B2B vertical, we continue to leverage and expand the number of capabilities of our key ERP systems integrations. For example, we created an integration with Salesforce for Specialty Coffee Association, or SCA, a global trade association for the coffee industry. SCA implemented Flywire new invoicing and payment API, which enables SCA to utilize our full invoicing and payment system within their sales force instance to send invoice and payment instructions to their customers. Flywire new API gives businesses like SCA, the option to utilize our full invoicing and payment system or send customers a payment request while their existing ERP system manages the invoice. FCA went live with our B2B payment solution during the first quarter and processed a meaningful amount of payments volume with only about 1.5 months of being live.

We look forward to continuing our work with SCA. Mike already mentioned an example of how we are driving further growth through strategic and value-enhancing acquisitions, when you referenced the student health insurance comparison platform we acquired with Cohort Go. On top of our earlier efforts to enable Cohort Go’s robust pay-in-school capability for Flywire agents. This current effort has enabled distribution expansion, while we maintained a sharp focus on supporting and retaining the existing Cohort Go agents that already help students find health insurance. These agents currently using the Cohort Go portal experience will be migrated in stages on the consolidated Flywire platform during Q2 and Q3. The service, which supports the convenience and needs of both students and the agents serving those students has helped Supply wire grow this exciting aspect of our payer services, which we called out as one of our investment areas at last year’s Analyst Day.

In the current economic climate, we are also being diligent on all types of expenses. We are carefully pacing our hiring in line with our plan, and we added less than 50% of annualized run rate expense and new personnel in Q1 versus the year ago period. We feel good about the high-value roles and strong talent that we are adding to the business as we continue to balance growth and profitability initiatives. The ability to pace our hiring while still delivering the kind of strong business growth we showed in Q1, is rooted in our ongoing efficiency initiatives. For example, the AI chat bot we discussed last quarter has already enabled us to handle nearly 20% of all payer inquiries during the quarter using the chat bot self-service capabilities allowing our client support team to demonstrate operating leverage and increase their focus on more complex support cases.

We are in the midst of automation, streamlining efforts and adding high ROI tools in a number of areas, including client onboarding, KYC, transaction monitoring and our cash management team, all as part of our preparation for handling even larger volumes of clients, transactions and payment volume with increasing efficiency. These are busy and exciting times at Flywire. I would now like to turn the call over to Mike Ellis, our CFO. Mike?

Mike Ellis: Thank you, Rob. Good afternoon, everyone. Today, I’ll provide an overview of our excellent results for the first quarter, and we’ll then discuss our outlook for full year and Q2 2023. Revenue less ancillary services was $89.1 million in Q1, representing a 50% growth rate compared to Q1 2022. On a constant currency basis, our revenue less ancillary services growth rate for Q1 2023 was 57%. As expected, we experienced a revenue headwind of approximately $4 million due to the strength of the U.S. dollar compared to the GBP and Euro during Q1 2023 versus Q1 2022. Foreign exchange fluctuations since our Q1 guidance, which was based on exchange rates at December 31, 2022, did not significantly impact our Q1 revenue performance.

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 in our education and travel verticals. With respect to payment volumes, we processed $5.7 billion during Q1 2023, which represented an increase of 36% from the $4.2 billion processed during Q1 2022. Specifically, transaction revenue with ancillary services increased 57% compared to Q1 2022, driven by a 50% increase in transaction payment volume. Platform and usage Phase II revenue increased 20% compared to Q1 2022, driven by a 14% increase in platform and usage-based payment volume as well as nonpayment volume-related increases in SaaS-based and other platform and usage-based fees.

We generated $59.9 million in adjusted gross profit during the quarter, representing a 50% increase compared to the $40.0 million earned during Q1 2022. Specifically, our adjusted gross margin was 67.2% for Q1 2023, down just 30 basis points from the 67.5% reported as adjusted for Q1 2022. The strength of our adjusted gross margin during Q1 2023 was driven primarily by higher-margin revenue from our Cohort Go acquisition, including the payer services activity mentioned by Rob and Mike and settlement gains on foreign exchange transactions. Regarding settlement gains, we do hedge our exposure to changes in foreign exchange rates while settling transactions. While these gains helped our adjusted gross profit, we also saw offsetting losses on our hedges, so it was close to neutral to adjusted EBITDA.

Overall, these favorable adjusted gross margin impacts were offset by payment method mix shift to credit cards driven by the strength of our travel vertical. We continue to expect adjusted gross margins to decline 1% to 1.5% for the full year of 2023 relative to full year 2022 due to increasing credit card usage related to the growth of our travel vertical. Moving on to operating expenses. Technology and development expenses were $14.5 million for Q1 2023, an increase of 32% over the $11.0 million incurred during Q1 2022. The increase was primarily the result of adding slimes to our engineering and technology teams during 2022, which drove increases in employee-related costs, including stock-based compensation, consistent with our 2022 investment plans.

Selling and marketing expenses were $24.4 million for Q1 2023, an increase of 39% over the $17.6 million incurred during Q1 of 2022. This increase was driven by adding fly makes to our sales and marketing teams via direct hiring and our acquisition of Cohort Go primarily during 2022, which drove increases in employee-related costs, including stock-based compensation. In addition, we incurred more costs associated with third-party commissions as a result of our revenue growth during Q1 2023 compared to Q1 2022. General and administrative expenses were $28.1 million during Q1 2023, an increase of 49% over the $18.8 million incurred during Q1 2022. This year-over-year increase was predominantly due to adding fly makes to our general and administrative teams, which drove increases in employee-related costs, including stock-based compensation.

In addition, we incurred more costs associated with operating as a public company, including the initial year cost associated with number one, implementing the requirements of Section 404 of Sarbanes-Oxley and number two, our expedited Form 10-K filing as a large accelerated filer. Excluding these items, which had an outsized impact during Q1 relative to what we expect for the remainder of this year, our G&A increased by 33%. Adjusted EBITDA for the quarter was $7.0 million, an increase of $5.1 million over the $1.9 million reported for Q1 2022. Our adjusted EBITDA margin increased over 470 basis points in Q1 2023 compared to Q1 2022 due to strong adjusted gross profit growth and some expense deferrals into later quarters. With respect to capitalization as of March 31, 2023, we had $327.1 million in cash and cash equivalents and no long-term debt.

As of March 31, 2023, we had 110.6 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. Moving on to guidance, which is based on foreign exchange rates as of March 31, 2023. For full year 2023, based on our results for the first quarter and current trends, we now expect revenue less ancillary services to be in the range of $360 million to $370 million, representing a year-over-year growth rate of 37% at the midpoint. This also represents an increase of $6.5 million when compared to the midpoint of our previously provided full year 2023 guidance. We expect to deliver full year 2023 adjusted EBITDA in the range of $30 million to $36 million.

This represents an increase of $2.0 million at the midpoint of our previously provided guidance. We are not increasing our full year guidance by the whole beat due to expenses that were originally planned to be incurred during the first quarter, which are now expected to be incurred throughout the remainder of this year. At the midpoint of our full year 2023 guidance range, we would expect to generate approximately an incremental 340 basis point improvement in adjusted EBITDA margin, a slight increase from our previous guidance. For Q2 2023, revenue less ancillary services is expected to be in the range of $71 million to $75 million, which represents a year-over-year revenue growth rate of 41% at the midpoint as we enter our seasonally lowest quarter of the year.

Due to the strong results heading into Q2, we now expect Q2 adjusted EBITDA to be in the range of negative $5 million to negative $3 million, which at the midpoint represents a $2.1 million year-over-year improvement compared to our reported adjusted EBITDA for Q2 2022. Our Q2 expectations for negative adjusted EBITDA reflects the revenue seasonality and the cost structure of our business. At the midpoint of our guidance, our adjusted EBITDA margin represents an increase of 640 basis points year-over-year. We were very pleased with how the business performed during the first quarter, providing evidence of the resiliency of the verticals in which we operate. With that, I’d like to turn the call over to the operator for questions. Operator?

Operator: [Operator Instructions] First question, Bob Napoli with William Blair.

Operator: Next question, John Davis with Raymond James.

Operator: Next question, Jason Cufferburg with Bank of America.

Operator: Next question, Darrin Peller with Wolfe Research.

Operator: [Operator Instructions] Next question comes from Ken Suchoski with Autonomous Research.

Operator: Next question Dan Perlin with RBC.

Operator: Next question, Tien-Tsin Huang with JPMorgan.

Operator: We have a follow-up from Bob Napoli with William Blair.

Operator: We have a follow-up from Ken Suchoski with Autonomous Research.

Operator: There are no further questions at this time. This concludes today’s teleconference. You may disconnect your lines, and thank you for your participation.