Okay, great. Welcome, everyone, to the UBS Global Technology and AI Conference. This morning we are very pleased to have with us the CFO of Flywire, Cosmin Pitigoi. So, to Cosmin and to Masha, we want to thank you both for making the trip here to be with us in Arizona.
Thank you. It's been a great conference, and love the weather here just coming from the East Coast right now. It's a nice break.
Excellent. Well, we're glad to have you. All right. The way we'll go through this today, we have a great set of questions. We're gonna start around some of the key verticals, really focusing on education and travel. We'll then touch on maybe some of the more near-recent trends that the business is seeing. We'll talk a little bit about the payments network, both from a strategy perspective and from a monetization or net take rate perspective. We'll touch on a little bit the SFS offering. We'll touch on NRR, and then a few additional more kinda financial and acquisition capital allocation type questions, and that'll probably take us through the 30 minutes. So with that, in the spirit of making the most important thing the most important thing, education, big part of the business.
You've seen strong revenue growth, maybe absent some of the Canadian-related, government changes and whatnot. So maybe with that context, you could talk a little bit about what's happening with the overall education business, and then more specifically digging into your kind of initial thoughts that you've given on Canada in 2025.
Yeah, so education is sort of our largest vertical right now. It's kind of our origin story. Started with an, you know, international student paying their bill at a U.S. university, cross-border. So that's kind of our original start, and education remains sort of our, you know, largest vertical. What we've seen in the last year, you know, plus, and what we're still seeing now this year, and a little bit into next year is this focus on immigration, obviously, from a lot of the governments that have been having, you know, a lot of, sort of, you know, it seems like the whole world is having elections this year. So a lot of immigration talk, and Canada in particular, I think has taken a very aggressive stance, in, you know, in terms of pushing back on immigration.
So, and that's where we've seen this pattern, which is extreme versus almost every other country we're seeing, you know, any kind of movement in that area. So in Canada, just to sort of break that down a little bit, 'cause that was about a, you know, $30 million headwind for us this year from Canada alone. So even growing at, you know, sort of in the mid-20s plus, like we have in our guidance, that is despite this, you know, $30 million headwind in the year. And what we've guided for next year for Canada, given some of these dynamics, is basically roughly flat revenue. And so let me walk through the dynamics there. So on the one hand, you know, we continue to add clients. We continue to ramp up new clients, cross-sell in Canada.
That is good solid growth that the team is continuing to build, despite some of the challenges that the educational institutions are having there. Now, offsetting that is this sort of immigration focus where there's two dynamics. There's the supply and there's the demand side dynamic that you've heard. So the supply side is the caps that they've put on international students. That was, you know, clarified earlier and actually is a positive. At least I think everyone now knows what the caps are, so that's, you know, we're not guessing at what that is. That was part of the challenge coming into the year is, you know, what is Canada going to put as caps? From the supply side, that's known, and that puts some level of pressure. The problem is now there's a demand side kinda challenge.
So some of the, whether it's the policies around, you know, students being able to work, so the postgraduate work visa program, or some of the India. Those of you who follow politics, India, Canada diplomatic relations are kind of in, you know, tensions right now. That's putting pressure on the demand side of sort of students wanting to go to Canada, especially from India, which is an important corridor. So if you balance those two out, we felt prudent as far as looking at revenue for next year, say, "Look, you're gonna have these pressures both on the supply and demand side, you know, in terms of students going to Canada right now." But offsetting that, we have, again, you know, the team is doing a great job, you know, adding new clients, ramping new products and capabilities in the market.
So those two things sort of offset at the moment.
Excellent. Thank you, Cosmin. And then if there's a minor comment that you might wanna make just around any potential implications in the U.S. given the recent election outcome.
Yeah, so that also was sort of an overhang on sort of what's gonna happen in the U.S. Now we have clarity, at least, so we've actually heard the incoming administration talk positively, especially about students being able to study after, which is actually an important decision for students: "Can I work in the country where I'm studying?" So we've heard the incoming administration make positive comments about allowing students, you know, to stay. So that's one. Two, obviously, the focus has been on illegal immigration. So this is obviously not the case for students for the most part. And then third, like we know, as a country, we need tech talent and incoming administration.
Obviously, I had a lot of support from the Silicon Valley and the tech, kind of industry, so I think that will also be another positive as we look at U.S. So as you look at Canada being under pressure, I think there's an opportunity for us, you know, we as you know, we have our agent network that helps place a lot of these students to, you know, some of the students who maybe didn't go to Canada could go to U.S. or the U.K., could go to other countries, and start to diversify further away from those areas where they may not be welcome.
Okay. Thank you so much, Cosmin. Let's move on a little bit to the travel vertical. So recently you've highlighted a little bit of upmarket momentum, some larger ARR clients. Maybe you could talk a little bit about what you're doing in that specific vertical that's helping you win against more of the sort of vertical agnostic or horizontal type competitors?
Yeah, so travel is now our second largest vertical. We've mentioned earlier this year that it was growing over 50%, so very strong growth, significant capabilities, and very low percent TAM. So the TAM for luxury travel is what is our focus, is about $500 billion, and we're approaching it in a very sort of disciplined subvertical view. So we have the sort of, you know, think of destination management companies or travel operators that kinda help manage luxury travel. We have capabilities that if you think of a cross-border payment, large payment, and usually sort of operationally complex or vertical specific, those are kinda the three kind of areas where we differentiate.
So the example I give, 'cause, you know, luxury travel may not be something again, I have maybe four kids, so I don't necessarily afford a lot of luxury travel, but it's an opportunity for us because if you think of the folks who travel, usually it's a group of, you know, as you know, a group of people, and they need to sort of split up the payment, and we're able to allow them to do that in a, you know, in the local currency. If you want to, for example, pay 20% when you actually, you know, book the trip, 60% when you actually just before you go on the trip, and the rest later, we're able to split all those payments.
It's something that the incumbents do from a competitive standpoint, usually competing with, you know, somebody in the back office doing all this work manually. So there's a natural fit for the value that we're providing versus kind of the existing incumbents. We've seen good progress there, and we've now added the ocean experience as yet another subvertical, and that's also another $16 billion market. For us, again, travel's been growing well. We continue seeing a lot of opportunity there in the future.
Okay. Thank you. All right, so we hit on education. We hit on travel. Why don't we just give an opportunity here if there are any trends you've seen, now that we're a little bit deeper into the quarter, maybe across some of the other verticals and just the business overall?
Yeah, I mean, look, maybe I'll mention a little bit on the healthcare side, and then FX in general for us, which is, which is a big topic. So on healthcare, you've heard us talk about healthcare is, you know, has been through a sort of a, you know, turnaround and improvement in the business. We've now seen the first quarter of growth this last, this last quarter, and we're starting to see some of that pay off, as we look ahead. You know, healthcare, we feel, should start to kinda come back to growth. And then more of a broader comment, you know, we're obviously, we have almost 65%-70% of our, our business is outside the U.S., in terms of revenue. So that is basically an impact from an FX perspective. You've heard us talk about FX in the past.
So if you look at this quarter with the dollar being down, or being up basically versus every other currency, our main four currencies are basically the main markets, right? It's Canada, it's Europe, the pound, and the Aussie dollar. We guide with the last day of the quarter from prior quarter, so ninth, you know, September 30th. So we have about $3 million-$4 million of headwinds now from FX, as probably any other global companies feeling right now coming off the election, with the dollar strengthening. So that's probably one of the dynamics that we've seen kind of intra-quarter, which is mostly well understood, but I think in the past it was, you know, perhaps a surprise. So wanna make sure that people keep that in mind that we are a very global company.
We benefit from that too.
Excellent. Thank you for clarifying that. We appreciate it. Let's move on to the next topic, which is the global payments network that you've built out. So many, many years of building out this network with relationships with banks and acquirers and local payment methods. Maybe just talk about from a strategy perspective, why is that so difficult, how differentiated it is, those types of topics?
Yeah, so if you hear, you know, Mike, our CEO talk about the origin story, we actually did try to initially partner with many folks, you know, as we went through new countries, partner with payment partners locally. And what we found is that most can actually pay out but not receive payments locally. And so we started building out this network, as you said, sort of over, you know, well over a decade, and we've been building out, you know, 200-plus countries, 2,000 corridors, and the capabilities to receive payments in the local, you know, in the local currencies and in any kind of way you wanna pay. I think the benefit that we have as a software provider is that we're agnostic to how people wanna pay.
So we wanted to build this payment network that allows you to get paid in with any way in any currency locally. So it's one of the things that, it actually resonates really well, not just with the education providers but with whether it's travel vertical, or the, many of some of the B2B smaller verticals that we're building now. It resonates with those companies, the ability to actually receive payments locally. And so right now we, you know, obviously we take, you know, any kinda cards, and we take, sort of, you know, ACH payments, obviously, and any other payments, local payments providers. The way to think about that from a 'cause we get the question on spreads all the time and margins, we are basically agnostic to how you pay. We make money on all those payments.
Obviously, on a credit card payment, gonna have a smaller spread, a smaller margin, if you will, versus an ACH payment. But overall, we make money on all those. And that's, you know, when we talk about the, you know, any kind of pressure, or trends in margins and spreads, it's because of usually a mixed dynamic where sort of the, for example, the B2B or travel vertical where people tend to pay with a credit card tend to have lower gross margins versus, you know, an education cross-border, kind of, growth. And that's where you see that mix that we talk about in terms of gross margin pressure.
Thank you. Yes, I think the topic of the gross margin aspect is. I'm glad you brought it up. I also think it's one that's becoming more well understood, but the credit card aspect. But I think one from the spread perspective that is maybe less understood or a question we get often is around, for domestic payments. So if we think about the spread earned on cross-border, kinda regardless of the payment method, just that net spread, in other words, gross profit dollars divided by volume, how can we think about the delta directionally for the domestic payments volumes that you're doing for U.S. educational institutions?
Yeah, I think it's probably best to look at it on a gross margin basis because if you think of some of our new products, so we continue innovating based on what clients are telling us. And we heard things like, "Hey, you know, for a student who's not paying to bill themselves, maybe the employer's paying or somebody else is paying on their behalf." We, you know, we did a third-party product, or the 529 product. 529 product's actually a good one, or even the payment plan. But the 529 is the most extreme example where we, you know, you would pay $5 for a, you, know, $ 10,000-$20,000 tuition payment to go through. Now, that sounds like a very low monetization rate, but that $5 cost us, you know, it's de minimis for us to actually process.
So from a gross margin perspective, that $5 is actually very high gross margin, even though the spread is obviously lower. You know, that's why for me, I think the gross margin and gross profit dollar growth is as important of a metric that I look at as sort of the top line in that monetization rate. And the other thing to keep in mind is you know, the split of transaction versus platform revenue. So our transaction revenue is mostly kinda driven, is tied into that TPV, even though it has that dynamic of kind of mix. The platform revenue is mostly software revenue.
So that's where you have the payment plans and other kind of, those types of dynamics that, they're probably not as helpful to look at our monetization spread rate, but it's really helpful to look on a gross margin percent. Yeah.
Perfect. All right. Thank you, Cosmin. We appreciate that. Let's move on to the next topic, which is SFS, so student financial software. You talked about this business as a revenue multiplier for Flywire, so multiple revenue streams. There's some license or SaaS revenue, the payment plan revenue, volume-based revenue. Maybe just talk a little bit about this business and or offering and the momentum that you're seeing.
Yeah, so SFS, or think of it as our domestic offering, is one that, you know, we've built, again, just based on feedback from our clients when, you know, we used to process their cross-border, and they said, "Well, why don't you help me with the rest of the payments, and the rest of my capabilities, especially in education clients?" So it's a little bit different in U.S. versus international. So if I split that out in the U.S., actually in our last earnings supplement, if you look at it, we talked about the fact that we've got about 1,000 clients that have this kinda cross-border in the U.S. capability that we've built. And of those, there's almost maybe almost 10% that have this full stack, kind of offering with SFS.
And we've been able to obviously show that we can continue winning in that domestic business. And that's a huge opportunity for us 'cause obviously if you on.ly have 10% of the business there, we can three to five X the business just based on not adding a single new client to just doing that cross-sell motion in the U.S. Then internationally, it's a little bit different 'cause there we did not start with just cross-border. There we kinda go in with what we call our One-Door kind of approach, which is sort of you go in with the full domestic and cross-border offering. You start with one campus, and then you expand to other campuses or other parts of the educational institution, which then creates that NRR dynamic that we talk about.
And so again, we continue innovating around all of these and is helping us to kind of continue expanding. But that's one of our, again, our most exciting, and the reason why education's probably even though it's been around for a long time, it's still growing quite well. You can see, and especially internationally, a really strong growth there.
All right. Well, that's a perfect segue into the NRR discussion. So, some of the Canadian headwinds that you mentioned earlier remains really strong at that kinda 120, 120-plus kinda range for education. Maybe just talk about the various factors that you have that are driving that, whether it being the student population growing or just pricing of the tuition and the room and board and some of the expanded relationships and so on and so forth.
Yeah, so the way I normally broke down NRR, as I've started, I started here, just, you know, earlier this year, and I come from a sort of a background of looking at same-store sales. So NRR is basically that for us. But if you start with kind of what is, you know, outside of our control to some extent and sort of organic secular growth, it's a couple of things. One is, as you mentioned, is that student international growth, which, if you look at the external data that's kind of available out there, it's around opendoorsdata.org, I think, is the organization that provides that data over 70-plus years. And it's been in that sort of low to mid-single-digit growth for the longest time. Now, there are certain countries like Canada that have been a bit above that.
Others are a little bit below, like the U.S. But generally, you know, we've seen pretty stable growth in students now the last couple of years. Again, some have been higher, like Canada. So that's, call it, you know, roughly, you know, mid-single-digit, or just below. Then you have, again, tuition. Tuition tends to continue going up as much as some of us with kids would prefer not to. Tuition continues growing, you know, roughly similar to inflation. So you end up with this sort of mid-single-digit plus, growth that is just secular growth, in that business very long-term. There's, you know, dislocations here and there, but overall that's one component of the 120, and the rest of it is two things.
One is we continue that land and expand motion that I talked about, where you start with one campus, or you start with one product, you expand to others, or you integrate with the client initially, and then they, they expand beyond that. So that's the majority of it. The third part, which is probably little or less known, is the fact that you have these very long-standing relationships, very low churn in this because we're integrated, you know, in terms with, you know, as a software provider, which makes it harder to replace than if you were just a, a button or something, you know, some of a simple kind of payment. Because we're software, our churn is, is sort of in the low, low single digits. So very high retention, which then makes a very small negative against that sort of overall bigger positive.
and that's why the 120, and this year excluding Canada, 120 has been pretty consistent over time as we have this kind of dynamic that plays out quite well over many years.
All right. Thank you for tackling that one. Let's move on to operating leverage. So maybe you could just call out some of the areas where you think there might be some outsized area for leverage and then also giving you room to make some investments that will support your future growth.
Yeah, thank you. I think the way to think about our obviously our OpEx, you have GNA product and sales and marketing right now as we break it out. Within GNA right now, you do have some components like client services and other costs that are more volume-driven. But I would say the biggest area of opportunity for us as far as getting margin leverage is in that GNA area. Product would be the second. And then even in sales and marketing, I think there's opportunities to continue. Again, we don't need to add a salesperson every time. You know, we now have some critical mass in some of these markets, so we're able to continue growing. And some of the drivers look, I mean, in GNA, as you can imagine, a lot of our costs are people costs.
So we're improving on our data on automation, and so we're able to reduce the cost there, which is why we feel comfortable saying that we're going to be a Rule of 40 company going forward as that margin, that this year, EBITDA margin is around 16%. You know, we've basically said, "Look, we're gonna keep adding around 300 basis points." We said three basis points-600 basis points. But even at the low end of that, 16% becomes 19% and so forth into the future. So that's one of the it's one of the reasons is because we see that opportunity to continue getting leverage, not just G&A, but also in product and other areas.
Okay, great. Let's move on to another lever for growth, which is acquisitions. So you've done many over the time as a public company since 2021. So just to name a few, WPM, Cohort Go, StudyLink, and then also there was Invoiced withi.n B2B. So maybe just talk a little bit about the criteria and strategy that you use as a company for evaluating M&A and where you should do it.
Yeah, the team's been incredibly disciplined around adding, you know, capabilities. And the way we've looked at it is sort of two or three areas. So first off is existing verticals where we can build on the existing vertical capability or existing geography, so continuing to build that. So you've seen us do things like WPM in the U.K. in education or Cohort Go in Australia, around insurance. StudyLink, again, in terms of helping that agent network, you know, again, the agent network, which, you know, we talk a little bit about it, but it's a very powerful sort of partner partnership of ours that allows us to place students.
So as you think about an agent network using the StudyLink software that we bought is able to much more quickly, you know, if the student's not able to go to Canada, go any other country and be able to process that. And so it's been these software acquisitions that build capabilities to tie into the payments software. So that's those are sort of the areas, I guess. And then in terms of the criteria that we look at, again, quite disciplined. We look at, you know, hopefully, you know, businesses that don't, you know, we obviously don't dilute our growth too much. We have, you know, very high growth, high margins. So we look at growth rate, we look at margins, we look at the culture fit, and then certainly the technology, making sure that it's a good technology fit.
And then, you know, valuation obviously is key. And so that's where, you know, we've looked at, you know, deals of all sizes. And we're open to kind of any opportunities. But that's one area where we're spending a lot of time right now. We're continuing to focus on, you know, finding good deals there and adding that, again, that software that connects into the payment side.
Okay, thank you, Cosmin. I think we should wrap with a little bit here on capital allocation strategy. And I wanna make sure we leave some time at the end for some closing comments. But in terms of capital allocation, so at the recent quarter, we started to see some of the execution towards the $150 million of share repurchase, that program that you put in place. Maybe just update us on your thoughts on capital allocation.
Yeah, so our priorities as far as capital allocation are sort of threefold. One is organic investments. So we continue investing organically as you've seen us. So, to your question earlier, you know, we'll look for any opportunities to continue to gain share and actually tying into the Invoiced point. The Invoiced business that we purchased this year actually had pretty solid gross margins and good margins in particular. But you know, I've told the team invest, invest what we need to make sure that it's integrated and that we can start to cross-sell that to B2B clients, and so we'll continue investing organically wherever we see an opportunity to continue growing the business. Second is M&A. So we'll continue to do this strategic M&A acquisitions. And so we'll look at opportunities across the board.
Like I said, we'll be thoughtful in our approach, but we'll continue to look at those. Then the third is the buyback, which we've put in place. Clearly we saw the market sort of, you know, dislocation of our value sort of middle of the year and felt that that's, you know, we didn't feel that that was the right valuation for us. So we've stepped in and we'll continue to step in. You know, again, it's opportunistically so. But as I look ahead, I think it's an opportunity for us. You know, it's $150 million. But it's an opportunity to look at dilution and other factors. So as we become profitable next year, we have an opportunity to also look at sort of on a per-share basis, ensuring that we manage dilution going forward.
So that's another angle, as we think about using the buyback and our capital is to make sure that we provide that stability, in terms of and predictability of our earnings, over time, for people too. Again, as you look at revenue and maybe harder to predict exactly what countries are gonna do at integration, we feel quite good about the kind of margin profile going forward.
All right, excellent. With just a little bit of time here left, maybe we should just I wanna hand it over to you if there are any other general or closing comments that you'd like to make to the audience or the investment community?
Yeah, look, I think we get a lot of questions about Canada. As much as I love talking about that, I think I see it as an opportunity. As an immigrant myself, I've born in Romania, you know, grew up in South Africa, most of the U.S. I think this is a temporary dislocation. I, you know, I think there will always be demand for international students, and it'll be demand from the international students to go study somewhere, and there'll be most of developed markets don't have the level of talent that those kind of other markets can provide. So I feel again quite fortunate, and I think, you know, we have a huge opportunity in front of us to lean into this, and take share, even despite some of the challenges.
I'm excited about what we can do in terms of building these capabilities, and exit, you know, out of this kind of temporary kind of pressure with whether it's Canada or others. Again, even this quarter, we've said we're growing at 26%. If you actually take out the inorganic and FX neutral, which we'll start to actually guide FX neutral next year, you'll, you know, we're sort of in the low 20s, growth rate exiting the year. But we feel, you know, that's with, again, this $30 million pressure from Canada. So still very, very strong growth despite all this. And I feel really good, again, about the capabilities that we've built. And look, the margin profile, we don't talk enough about it. And the fact that we'll be profitable, I think, is a huge opportunity.
And we'll continue investing where we see, you know, especially where we see dislocations. So even in the countries where people look at a challenge, we look at it as a definite opportunity for us to step in. So whether it's Canada itself to help, you know, Canadian educational institutions, which are going to be under a lot of pressure, we can step in with the products and capabilities that we've built. But look, I mean, we're agnostic where students end up going. So actually we can help place students wherever they're going to go. So if they decide to go in other markets, we're happy to help them. And so I see it as an opportunity for us to grow and to gain share, especially when things are under pressure. So I'm quite excited about that.
You know, I appreciate the opportunity to come here today and speak to all of you.
Cosmin, thank you. On behalf of everyone at UBS, I wanna thank you again for making the trip. And also Masha, new Head of Investor Relations for joining as well here in Arizona. So thank you for being here.
Thank you.