Morgan Stanley TMT Conference. Before we get started with Cosmin Pitigoi, CFO of Flywire, my name is James Flossett, one of the senior analysts here at Morgan Stanley. I lead the FinTech research group. Before we start our conversation with Cosmin, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Cosmin, great to have you here for the first time. Maybe for those that aren't familiar with Flywire's business, can you provide a quick overview of the company and the pain points you're solving for your customers?
Of course, yeah. Thanks, James, for having me here. It's been a great, great event, great conference. Let me start with, so Flywire basically operates at the intersection of software and payments, which is quite unique on its own. If you think of sort of the poorly digitized kind of workflows in payments in particular, we solve those issues. If you look at e-commerce or point of sale, those types of workflows, those have gone through a multi-year transformation. We look at those areas that have not been digitized quite as well. Especially around the verticals like education, travel, healthcare, or B2B, where you have large payments that require, we've built a global payment network over 12 years plus. It requires sort of the software to drive that value in payments.
You hear us talk a lot about software driving value in payments. I feel that that is a key component of that global network that we've built with capabilities in all those different verticals. That really is sort of the big differentiating factor. Certainly, we started in education. That was sort of our initial foray. We have since expanded and are quite more diversified, I think, than maybe most people realize in all those areas. Big global company, over 70% of our business is outside the US. Strong growth, good growing margins.
Great. Let's talk about, Cosmin, just recap last year. Maybe we can even just limit it to fourth quarter results and your 2025 outlook. I know there are a lot of moving pieces, both from a geographic and vertical perspective. Given the ongoing regulatory volatility and some of the other things that could impact the business, maybe you can outline for us what you were pleased with and what surprised you last year and how that translated into 2025's initial outlook.
Yeah, a lot in there. I'll say first, last year, one of the things that we had to navigate was a very complicated macro environment. Because part of our business is cross-border and it is education, especially with international students, we saw a pretty big impact from countries like Canada where a restrictive student policy visa kind of impacted us. Even with that, obviously, we still ended the year growing revenue 24%, margins up over 500 basis points. As we exited in Q4, we continued to see some of those pressures, especially in Canada, where we continued to see some of those pressures. Let me talk through some of the things that I guess surprised us and then some of the things that are kind of we're seeing positives there. Canada, all of last year was down around 35% for us.
That caused a pretty big impact both on our revenue, but also on the NRR metric. While we saw exiting Q4, the assumption was that maybe that demand destruction that started sort of early in the year where Canada put caps in place, we obviously have a lot of cross-border business there. The student caps was starting to already sort of destroy demand. The rhetoric kind of from the government was such that you saw demand destruction happening. Exiting the year, that continued. Towards the end of the year, you saw this prepayment sort of program that was in place that would allow students or actually require them to pay upfront a full year of tuition. They canceled that program sort of middle, late in the quarter.
As we're looking at that, which is obviously surprising that you would do that given that the education sector is under distress. As that played out through January and February, that was sort of one surprise, I would say negative surprise that despite all of the pressures in the education sector in Canada, this adds even more pressure. We saw that. It was part of the reason we were behind on revenue in Q4. It is part of the reason why we had to adjust the guide into 2025. Australia, somewhat similar, I guess, in some ways, but different in others. In Australia, the conversations with the government were actually quite positive and balanced.
It seemed like the education sector and the government sort of had agreed that they're not going to put caps in place the same as Canada did. Right at the end of the year, the government decided to put sort of soft caps in place. That starts to then look a little bit like what was happening in Canada, which, again, what I've tried to do as I've taken over last year, I joined about a year ago, actually almost a year ago, taking over the guidance is really shift to a more just proactive approach to guidance, which is look and also more transparent in terms of here's all the assumptions we have in the guide. Taking Canada and Australia last year, every single headline felt like it was a hit, a body blow almost.
Said like, let's put Australia and Canada together, around 15% of our business. Assume both this year will be down about 30%. That alone, obviously, even in a stable environment, would not be pressure on our guide. Decided to assume that in the guide, assume that it seems like these are pressures and other demand destruction will probably continue in those markets. Be transparent about it and sort of explain to the market. Those were some of the negatives. On the positive side, look, I mean, there's visa pressures in the U.S. There's visa pressure in Canada. Still, we saw pretty good growth in the U.S., 13% up despite what looks like F-1 visa pressures there. In the U.S., we're seeing the domestic cross-sale, which you hear us talk a lot about. That is very much resonating.
That is helping still grow. The U.K. is incredibly high growth for us. It has been a great success story. Those are very positive. We have the other verticals. Travel is now our second largest vertical, 13% of the business last year growing over 50%. As you know, we started this travel business sort of just before COVID. Arguably in the middle of COVID, travel may not seem like the best place to be. Our clients appreciate that the optimization of those workflows that we talked about, automation is kind of a key word. That is exactly what our software does. It was great to see the travel business perform so well. To some extent the acquisition that we made was basically investing alongside that strength in the travel business.
Of course, B2B, as you saw it, it's a small part of the business. I think of it as kind of our innovation lab. That was growing almost at 70%. Really great. It's a great area of us to find other industries that look like these sort of poorly digitized workflow industries. Seeing good progress there. You look at it overall, the team was very resilient. We came out of last year even more resilient, more optimized, and obviously continuing to expand margins despite that pressure. Feel good that with the guidance in place, we've at least been very transparent. We're going to get through the macro environment, focus on what we can control and emerge stronger through this. Yeah, it's going to be obviously a bit bumpy in the middle. Feel good about where we're starting the year.
Can I ask you just, and it's an interesting point there on, particularly as it impacted fourth quarter, the lifting of the requirement to pay a full year's tuition upfront. Does that mean that some of that will just naturally fall into 2025 and that you're getting at least some benefit from that? Or how does that work? Or is it not so significant that it moves the needle that much?
I'd say if you look at the 30% decline for Canada this year, just over half of that is from that aspect. You're right. As far as the timing of it, think of it as in terms of that 30% down for the year is probably a bit more in the first half of the year and less as you see some of that shift between. It depends when people end up actually paying. Yeah, it may pay maybe full. Some of it could slip into next year depending on the timing of that one-year tuition.
If I looked at it from a payer's standpoint, and I know that there's changes in tuition and then the effects on top of that. If I looked at it from a payer standpoint, you're really kind of building in kind of 15% ish. You said sort of like half the decline in Canada. Am I thinking about that correctly?
Yeah, just over half is from this timing piece of some of the demand destruction continues. We continue seeing headlines even last week. Now apparently a border agent can stop a student at the border and revoke their visas, which again, it just shows the level of demand destruction there continues. At least this year we've sort of tried to get ahead of some of those things that happened.
Yeah, absolutely. I want to come back on some of those other businesses and forward-looking. I do not want to skip over kind of also last week you announced that you were doing a $330 million acquisition of Certify. Maybe just quickly explain to us what Certify does, talk about how you plan to monetize their volumes, and how long you would expect it will take for monetization yields to come closer to your corporate average.
Yeah, so for those of you not familiar, it's actually we've been watching the two brothers who started the company for a while. We've known them. We've looked at the company. It was a key target for us even as we raised funds a few years ago. We raised capital. It was one of those acquisitions that we knew once it's available that we wanted to be part of it. As I talked about earlier, they are at that intersection of software and payments. They're great at software. They're more kind of US. They're actually entirely US-based pretty much while our travel business is actually international. There is a natural sort of our M&A playbook there. If you're familiar with WPM and others where we take that software capability and then we go after, as you said, like that payment aspect of it. That is hotel, basically.
It's hotel software, hospitality kind of workflows. It's the same sort of billing process where you're trying to ensure that you get paid, you book it into a system of record, you automate that workflow. Think of weddings or other events that are with very large clients. The thing is for them is you look at our business. We're in luxury travel, so smaller operators where we're solving, again, kind of a back-office complexity. These are now the biggest brands in the world as far as hotels. Suddenly we have a very different set of clients that we're able to talk to. The software is something where you obviously have to have an MSA in place and a relationship with these large brands. It's not something that you can build overnight, not a capability and relationships you can build overnight.
They've done really great building that relationship. The way to think about the business is it's about 70% software, 30% payments. They've sort of started down the payments path. We have an opportunity to go further. The gross margins on the business are actually closer to our corporate gross margins, so 60% or so, which is actually higher than our travel business. They have actually pretty healthy EBITDA margins. In terms of revenue, they've been growing kind of faster, more in line with our historical growth. As you look ahead, there's sort of four different synergies that drive that revenue. One is, as you said, it's about $3 billion of payments volume, which they haven't gone after. That's kind of our M&A playbook that we've gone before after. We know there's that opportunity going international. We're able to help them.
That's our workforce, our sort of salesforce in travel is international. They have an immediate kind of go-to-market angle there. That's another $100 million or so. Of course, we can cross-sell now our solution into their existing 20,000 locations. That's another 50. You look at all those, I think the business on its own in terms of revenue can sort of easily more than double over the next few years with, again, solid gross margins and increasing EBITDA. We're quite excited about the business together with our travel business. Next year could be almost a quarter of our revenue. And growing faster, I think. Yeah.
I was just going to, sorry to interrupt you there, Cosmin. I was just going to say, and so your thought is that Certify could contribute what, $35 million, $40 million? Do we remember that correctly?
Yeah, and that's just for the 10 months out of the year. So it's actually more than that if you kind of profile for the full year. Yeah, exactly.
Got it. Got it. Just quickly, and then I want to go back to the core business. What's the M&A pipeline look like in 2025? You guys have always been active, at least evaluators of potential acquisitions. Just give us a sense for what that looks like right now.
Yeah, I mean, obviously we're still our capital allocation priorities is organic investment, M&A, and then buyback. As far as M&A, the pipeline is still there. There's still interesting targets. There's always that. Obviously we're going to be integrating and absorbing this acquisition, focusing on ensuring that we invest and we make it successful. I'd say for now we're sort of focusing on that and then integrating that successfully. Of course, we'll always look at what's best for shareholders. For now, I think this will be our main focus is making sure this is successful.
Got it. Let's dig into some of the different dynamics that are impacting the business on the education side, on the political side. You talked about Canada and Australia. How do you assess what's happening globally, maybe picking out any specific other geographies besides Canada and Australia that are worth paying attention to?
Yeah, I mean, look, in this macro environment, what we've decided and wanted, what you wa
nt to do when you have this much uncertainty is, one, of course, you focus on what you can control. Two, you communicate often. You're as transparent as you can. You're very much data-driven. The other markets, besides Canada and Australia, where we know clearly those are negative, even though we're continuing to retain clients, grow our portfolios there. The other two markets are U.S. and U.K., where let's start with the U.S. In the U.S., for us, what you've heard us in terms of the guidance in the U.S. is, last year the U.S. education market for us or revenue was around 23% of our business, was up 13% despite looking at F-1 visas in the U.S. were down.
Down, right, exactly.
There is a lot of sort of, there is a big negative and then there is a big positive in many of these cases. In the case of the U.S., there is a big sort of 10% down because still a portion of our U.S., a good portion of our U.S. business is still international. We are still adding more domestic cross-sells and the business is doing well. You see going into the year, exiting last year, again, seeing visas down throughout the year, exiting the year, again, seeing new administration. It has been tough to actually pinpoint.
What their priority is, yeah.
Yeah, so you're seeing some negatives, but there's also conflicting, you're seeing some positives. I think H-1B visas is one of the reasons why people come to the U.S., and it's one of the reasons when people ask how do you assess the macro environment. Immigration maybe is hard to assess. The need for international students and the need for tech talent, I think, is a little bit easier to assess because I don't think that's going away. Most of these markets, including the U.S., are not going to produce enough supply of tech talent now or probably for quite a long time. I think the new administration hopefully, I mean, I think understands that demand and putting even the AI sort of focus aside, I think that remains there. U.K., same thing actually. U.K. even more so.
I think U.K. visas were down probably in the mid-teens year over year. We grew multiples faster than our average in the U.K. The EMEA business was up sort of 55% or so. U.K. is a big component of that. That tells you where we have the team, we have the product and the capabilities. We'll see how we can offset some of those. Those are the, I'll separate the sort of dynamic of immigration versus, I think, the need where we think for international students will remain in tech talent.
No, that makes sense. I want to come back to the U.S. and the cross-sell that you mentioned. Let's talk about the U.K. really quickly. Visas were down. You still grew very rapidly there. A couple of questions that we get is, A, if there's no change in U.K. policy, what's your pathway or ability to continue to grow at those rates? How quickly do we reach saturation? Maybe I'll just tag on a second question related to the U.K. Did you build in or how would you contemplate potentially a turn similar to what we've seen in Canada politically, that yes, they brought them down, but if they decide to ratchet down more aggressively in the U.K. for political reasons, how should we think about that?
Yeah, we still think even with Australia sort of following that path, Canada, I think in particular is a bit of a unique case. Not only because I think there are some unique things that happened even sort of in the diplomatic relations with India last year.
Right, right, right.
India being sort of a pretty important channel for Canada. There are some unique aspects about Canada that in general I think are even in Australia. The education sector, I would say, has a stronger voice, and it is an important export. In the U.K., I think we've seen most of the government sort of changes that have already happened. That is a little bit behind. I think they've been a bit more balanced. Yes, there is again immigration sort of narrative that may not be positive, but that seems to be somewhat separate from the fact that the, I guess, knowledge that they need, they need those kind of tech capabilities. Hopefully, we will see there is a new student international policy sort of upcoming in the U.K. So far, they've been a bit more balanced from a kind of allowing a graduate route, for example.
Again, in the U.S., you go to the U.S. to get a visa because you think it would be an H-1B. In the U.K., initially, I think they were going to sort of put pressure on the graduate route. Eventually they turned around. It shows that they're a bit more willing to not go against it. Look, we've been successful there. We have, unlike the U.S. and the U.K., when we go into one of our clients, you go and actually sell the full kind of suite of products. It's not like in the U.S. we start with that old sort of cross-border kind of clients and now we're cross-selling them domestic. In the U.K., it's a full suite of domestic kind of product. We call it a one-door approach, which is a bit different.
Obviously with the addition of WPM a bit ago, it resonates and there's tons of room to grow. The team there is doing great, firing on all cylinders. We have assumed some normalization of growth. I mean, obviously it's a very large business for us. As you can see implied in the guidance, there's some normalization in growth there. I feel that we've kind of assumed some of that visa pressure, but still much faster growth than the average.
Got it. Durability of that growth or durability potential of that growth in the U.K.? You feel like there's still a lot more doors to hit?
Yeah, there's still a lot more doors than the existing doors have, a lot of cross-sell opportunities with other products that we continue kind of innovating around. There's the cross-sell back into the existing is also there. Again, we grew that despite pressure. Hopefully we don't need sort of things to be amazing. We just need them to be stable to some extent to be okay.
Got it. We've been chatting here a little over 20 minutes. I want to see if anybody in the audience has any questions. Raise your hand or your mic. All right. I'll continue on. Let's go back to the US and the cross-sell. Talk a little bit about that cross-sell process and then implementation process. One of the questions that has always occurred to me is that as you get bigger and it seems like every one of these institution sales motions is a little bit different and a little bit customized. Then the implementation similarly. It seems like as the US and your cross-sell gets bigger to maintain those same growth rates, the amount of customization that you're going to have to do both sales and implementation will also grow along with it. Is that right or wrong?
How do you think about addressing that? And where are the best opportunities for cross-sell in the US?
Yeah, maybe first size up the opportunity for those of you who have not heard me say this before. We have about 1,000 or so educational institutions in the U.S. who have our existing sort of original cross-border international student type product. Within those, we have almost 100 who have our domestic product. That has been sort of over the years. Initially, a lot of our international sort of student clients were saying, "Hey, you guys should, why do not you do the domestic side?" We built, a while back, we built a domestic product, and we have been competing with the same two or three kind of incumbents throughout that time. The competition is the same as it has been. That has not really changed.
The things that have changed on our side is what you realize is with the domestic cross-sell, it's more of an enterprise sales motion. You're selling to not just the Bursar office. Now you're talking to the CFO because it's sort of arguably a larger ERP-like sort of implementation, although maybe not quite that complex. That is one part of it. Think of it as more of an enterprise sales motion. What that means is what we've done over the last few years is changed over the sales team. To your point, it's a little bit of a different skill set working with the CFO along with the Bursar office together. That is one part.
On the marketing side and the approach, we've started putting some conferences together because the way you get someone like me or a CFO is to say, "Hey, look, here's some reference clients." And we have a number of large universities that have our domestic product and say, "Look, they've gone through this process successfully and they've benefited from it." You have that. We had a conference last year. We have another one now. All those things are building up into a really good pipeline that we've seen this year. We brought in a new sales leader too there in enterprise sales. Really good progress. Feel good. I was there with the team earlier this year to do the sales kickoff. They're excited. They're pumped. I think the opportunity is there and the clients want the product.
We know that if we, and these are big accounts. Once you win one of these, it's a big one. In terms of the timeline to actually do it, we actually gave an example last year where we had an opportunity where the incumbent actually basically was going to quit on them if they did not renew. We said, "Hey, we can renew in 30 days." We can do this quite quickly if there is kind of the willingness. To some extent, again, you kind of have to be there for the RFP process and be available. That is something that we are kind of working on. It is that enterprise sales motion is kind of going.
Yes, a little bit different than the old version, but it's more in line with kind of how we're thinking of some of the other big clients like healthcare and others. It's a similar kind of approach or it's a bit more of an enterprise sale motion.
Got it. Before we leave the education segment, and I do want to spend a little time on some of the other areas, how should we be thinking about the playbook that you ran with WPM? That seems to have been a really successful acquisition. Maybe touch on the strategic overlaps or at least the tactical approach that you can apply to the Certify integration process.
Yeah, I mean, WPM was the same maybe with Invoiced than now with Certify is that software kind of capability that then allows us to go monetize the payment volume. For us in terms of the WPM acquisition was obviously very successful, helped with kind of the success you saw in the U.K. It just kind of resonates again at that intersection of software and payments that we are kind of it is our kind of now it's our M&A playbook is find the right software. It has some payment volume component to it that is currently not monetized. Kind of applying that same sort of thinking that we did with WPM and others, we continue to kind of execute on that. Feel good that we can follow that same playbook across the board.
Got it, got it, got it. Let's turn to some of these other segments with Flywire that you're continuing to diversify into. If we talk about B2B and travel, how do you think about the OpEx leverage in those businesses versus education? I mean, it would be great to get your thoughts in terms of your expectations for margin evolution, especially with the trimming of headcount that you've done and how this dynamic will affect the corporate margins beyond 2025.
Yeah, no, it's a good question. Lots of components, but maybe I'll start with gross profit, talk about EBITDA margins, and then a little bit on profitability. On gross profit, what you've heard us talk about historically is B2B and travel structurally had lower gross margins because they're mostly credit card funded. The mix of those growing faster continues to be the thing that kind of puts pressure on our gross margins that you hear us talk about over time. Of course, the acquisition of Certify for travel actually improved those gross margins a bit for the travel business, which is good to see. Still, those are going to be faster growing kind of verticals with kind of lower gross margins while education and healthcare tend to have—healthcare is mostly software. It's in our platform revenue. That is higher gross margin.
Again, that's on the gross margin. On the EBITDA margin side, think of the restructuring and the operational review that we have underway as the savings from the restructuring. At least we're going to invest about 10% of that in things like the faster growing parts of the business. Invest in growth, invest in continuing to accelerate growth in the parts of the business that we see the huge potential, not just travel B2B, but certainly EMEA, Asia or agent network and others that we expect to continue to see growth in. It's about half of the, call it mid-teens million savings for the year. We're going to reinvest and still expand EBITDA margins by about 300 basis points there. That's the way to think about it. The other aspect is data.
Data is something that I've taken over in the company, both the CIO organization and the data and IT org reports into me. I now look at all of that and say, "Look, we can be so much more efficient building our data architecture to optimize every single dollar and get into every nook and cranny in the business and optimize every single dollar of investment. If you build the right data architecture, it helps you to do that." That's something that we're investing in also. Profitability, stock-based compensation. Also, you'll see it not just from the restructuring, but in general, I think last year was sort of there is a percent of revenue right at the peak. I expect that to start coming down.
As you think of then EBITDA and certainly GAAP, net income, profitability, expect to continue to see that strengthening going forward. Feel good about, again, profitability, cash flow, and then EBITDA margins from that mix, including with the acquisition of Certify.
Let's ask really quickly. Just remind us where you, so we talked about the inputs, particularly in terms of the revenue growth on 2025. Remind us really quickly where you are from a profitability standpoint, what you're targeting for 2025, and then how we should think about the medium to long-range profit potential of the business.
Yeah, so we exited, actually we exited the year last year profitable on a GAAP net income basis. Expect this year to also be profitable. Obviously, there's a bit less interest income in there, but from a sort of core operating sort of part of the business driving profitability with stock-based comp coming down and growth in our EBITDA margins coming up 300 basis points at the midpoint. Now, historically, we've gone above that. We continue to see a longer path to expanding EBITDA margins. We've said that sort of range that we continue to expect to continue to grow the EBITDA margins. As stock-based comp comes down, you can assume that basically profitability continues to improve just between those two drivers overall. Interest income and interest expense, kind of we'll see where that all lands given the Fed and other dynamics.
From an operating perspective, expect EBITDA margins plus stock-based comp coming down as a % of revenue to continue helping.
Right. In the last couple of minutes here, Cosmin, I just want to try to put a bit of a recap and a bow on it. It is that clearly the political environment as it impacts the education business has been challenging in Canada and Australia particularly. Noise elsewhere, but you're still showing really good growth in these other geographies. You have, in a lot of ways, I feel like the business is transforming very rapidly. You're adding profitability very quickly. You are bringing down stock-based compensation. On top of that, you're continuing to diversify the business. What are the key things that you're focused on or kind of your top three to-dos, if you will, for this year?
Yeah, I mean, we're focused on, as you can imagine, in a complex macro, we're focusing on what we can control. Obviously, that's not just optimizing every dollar. We're looking at sort of every part of the business as an operational portfolio review implies, looking at every part of the business to optimize it, whether it's that, whether it's pricing, whether there's looking at vertical geos and products. Again, everything that we can control, we're going to try to take that comprehensive approach and improve. Expect us to emerge stronger and continuing. We feel we are even more a strategic asset and a strategic business than we were a couple of weeks ago with the acquisition and with the diversification that we have in place.
We feel good that we're going to focus on the business, focus on what we know we can control and emerge out of this stronger. Eventually, things hopefully start to normalize. Again, we don't need them to be great. Just need them to be stable and we'll be doing well.
Yeah, stability allows you to kind of, as you say, get back to doing what you do and focus on what you can control.
Yeah, but in the meantime, feel good about that we will emerge stronger. You never get stronger through easy times. So feel pretty good that the team will emerge stronger and so will the business.
Got it. Cosmin, thank you very much. Appreciate everybody sitting in with us today for Flywire. Have a good afternoon.
Thanks, James.
Thank you.