We're excited to have Flywire and Cosmin, who's the CFO at Flywire. We'll go through a list of questions here. If you have a question, you can raise your hand and we can bring a mic up. Cosmin, thanks for coming.
Of course, yeah. Thanks, Brian. Thanks for having me here.
I wanted to start just overall and talk about the pipeline. I think you guys signed over 200 clients in the quarter. How is that pipeline for new client signings? How is that versus historicals? What do you think about it going forward?
Yeah. Obviously, our go-to-market engine has been a strong contributor and will continue to be. I think the way to think about the 200 clients a quarter, because that's been pretty consistent, is we look at it from multiple more dimensions. Obviously, the number of clients is important. Equally, the way to think about it is we're seeing that as diversified across all of our four verticals. It's not coming just from one vertical. Generally, the travel and the education business are the biggest contributors. Overall, we've seen a good diversification across the verticals of those 200 clients in terms of sources and also across geographies. That's point one. Two, I would say we look at ARR, or the size of those deals. What we've seen this year is not just continued seeing the size of the deal going up, but also more strategic.
We'll talk about SFS and domestic. Increasingly, those are more strategic relationships that we're building with those larger clients. Again, that's another dimension of those 200 clients that we look at that's important. Of course, third is the pipeline. We look ahead, and we feel pretty good, again, that the pipeline is pretty healthy and quite diversified across the four different verticals with not just a number of clients, but also continued improvement in the size of those clients from an ARR perspective. Again, feel really good from that perspective in terms of the driver of growth and us continuing to gain share through that lever.
In business, how much of the revenue comes from existing clients versus these new clients that you're signing on in any given year?
Yeah. I mean, we haven't split it. And it's a bit different by verticals. In travel, you would see more of the new kind of clients driving more of the growth. We've given some disclosures in the past of that split. In education, it's a bit more equal because in those verticals like education, you have a long you start with one part of the university, and then you expand. You do have this we would call the land and expand kind of motion that expands an existing client once you actually go live with it. Generally, I'd say it's still a pretty healthy. Now with, obviously, the macro factors impacting kind of our longer-term cohorts, you would have more of the growth coming from these new sales motions, which we feel, again, quite good about.
The team is executing quite well on that part, which is, again, focusing on what we can control in this environment is really important.
Got it. Got it. Can you talk maybe first about the education, your biggest vertical, maybe updated thoughts on demand momentum you're seeing in some of the four countries or the biggest four countries?
Yeah. So look, in terms of just sizing the business a little bit, education still remains our largest kind of vertical. But we are seeing, obviously, good growth and travel now becoming bigger and B2B and health care also. Within education, the top four markets still make up a good sort of large share of the overall education market. However, the non-Big Four are becoming bigger too. We will talk about that later. Within the Big Four, obviously, outside of the macro headwinds, we are seeing good momentum with the SFS or the domestic kind of product. Think of it this way. Obviously, as we think back, the origin story of the company is we are starting with cross-border for education. We have now shifted that perception to really, for most of our clients, to start thinking of us as moving all the money, if you will.
If I was to summarize, it's just moving all the money, being able to move both the domestic and the cross-border in one place. We started with the U.S. In the U.S., we've got about 100 or so, just over 100 clients on the domestic out of the 1,000 or so cross-border clients. We're gaining momentum. This year, we've announced 11 wins in the U.S., which is the largest, actually, in several years. All those are large universities like Penn State and others who are significant size accounts, very strategic. We're seeing demand for a few reasons. One, I think the perception shift, which as our clients have asked us to come help them innovate and grow in terms of the universities that need our software.
What I would also say is that being under pressure, from a budget perspective, a lot of schools, I think everyone knows, obviously, educational institutions are under a lot of budgetary pressure right now. Our software helps simplify that and also helps with, obviously, saving costs, automation, reducing the need for people in the back room to do a lot of efforts. The second thing is modernization. A lot of our schools are looking to modernize, automate their systems. That is the other driver of this. Third, I would say it is also just the overall effort of vendor consolidation. If you are a university and you have us doing your cross-border, someone else, other parts doing the domestic, obviously, bringing all those vendors together saves a lot of cost. Those are some of the drivers we are seeing.
It is obviously a big driver for the U.S. business. As you know, the international side of our U.S. business is under pressure because of the visa numbers. At the same time, we are able to say that U.S. education overall is actually still growing a little bit this year. That is because of the strength of the domestic business offsetting that, which is a smaller part of the business. Domestic was around $30 million last year. Even with that, it is growing so much faster that it is offsetting some of those headwinds from international along with gaining share in international. On the U.K. side, we are starting with the SFS. U.K., we disclosed that now about a quarter of the business is the U.K. EDU business, which is significantly growing faster than the company average. We have started out with four SFS clients.
We're building the capabilities there. Feel good that as you look at the U.K. business, we have the ability to now consolidate bills and present and reconcile bills, which in the U.K. kind of market, there's not a lot—the competition is not as established as in the U.S. Our product there even more kind of stands out overall. Feel good about kind of the long-term domestic there, both U.S. and U.K. Australia and Canada, again, sort of separate kind of discussions. Canada's coming off the Q2. Q2 is obviously kind of the lowest number in terms of visas. We're coming off of that and improving as we exit the year. Still expect to see some pressure there. We're still growing better than the market.
Australia, while it's been under pressure, we're seeing, obviously, very strong growth there too from gaining clients and less than expected macro impact than we thought.
Yeah. Yeah. In that investor presentation, I think it said something like two to three times the uplift in GP from the U.S. and U.K. education relationships that migrate from cross-border only to the full SFS suite. Can you just talk through that profitability bridge?
Yeah, for sure. Look, we wanted to provide a little bit, so actually, if you have not looked at the latest supplement, there is a lot of disclosures there around the SFS product, especially in the U.K., but also in the U.S. Specifically to the modernization, look, as you go from a cross-border only client to processing all of the tuition kind of money, obviously, there are three components to that gross profit dollar pool going up two to three X. First, obviously, the biggest component of it, and you will see it in the slide we provided, is still the processing of the tuition payment. That could be an ACH. That could be a credit card in domestic markets. That will be at a lower gross margin percent, but still gross profit positive. The second component of that is the software itself or payment plans.
Those two have generally higher gross margin, as you can imagine, software. If you're paying $35 or $40 to basically break up your tuition payment into three or four payments, or we're very flexible around that, that is also high margin. That is the second component of that gross profit. The third one that's interesting that maybe people haven't realized is the cross-border component itself. Once you go from cross-border only to managing all the money or sort of domestic, you actually get more of the cross-border volume. It is actually helping capture more of those students that are sort of first year, second, and third year, and fourth, and so on. It helps us capture those because, again, we can optimize our checkout. We can optimize the kind of experience and gain more share even within the cross-border.
When you look at all those combined, obviously, it's very different by each school. The gross profit profile may differ depending on those combinations, including things like collections management and 529 plans and other capabilities that we build onto the basics of kind of billing payments and a sort of end-to-end view. In a cross-border, that all kind of works out to be roughly 2-3X, but again, illustrative as we're starting.
No, that's helpful. The visa immigration policy headwinds are expected to result in, I think, mid-single-digit headwind to revenue growth in fiscal year 2025. Can you talk a little bit about the headwinds you've seen this year? How do you think about it for next year and maybe what a normalized kind of growth rate of the business is in education?
Yeah. Look, obviously, we've navigated some pretty choppy waters the last two years. That's been something that, obviously, we've shown our resilience as a team overall through that time. Let me start with 2025 and then maybe talk a bit about 2026 within that mid-single-digit kind of framework. For 2025, look, we're still growing. If you look full year guidance, excluding Certify FX- neutral, we guided to about a 15% growth rate with a mid-single-digit headwind. Obviously, underlying that, you have to assume that the rest of the business is growing that much faster to be able to offset a mid-single-digit headwind. Obviously, we're continuing to win clients. We're continuing to drive stronger product capabilities and innovation. To some extent, we're able to offset some of that negative impact.
Now, this year in 2025, that mid-single-digit, I would say more of it is coming from Canada. We've talked about that. That remains a component with, to some extent, less U.S. and Australia. The U.K. has actually generally been relatively flat, maybe a little bit positive in terms of visas. U.K. is just itself growing quite fast for us outside of that. As you look into 2026, and again, we haven't given guidance, but just to help folks kind of think about next year, we've said, look, we're going to assume the same kind of mid-single-digit pressure. If you think about it, obviously, that's a relatively large kind of macro headwind to assume.
If I go back to the principles that I've tried to approach guidance this year, which is, one, prudent, two, data dependent, and three, transparent, we're trying to provide some at least starting point around next year. We've said, look, the exit for Q4 is a good way to think about it. That's guided to 14% FX neutral, X Certify as you think about next year. As you unpack all of that, obviously, the rest of the business has to be growing quite fast for us to be able to offset some of the assumed headwinds. What I would say is that we feel pretty good that we've accounted for most scenarios out there. We've tried to take a very prudent approach to the U.S., for example, for next year.
I would say as you think about the mid-single digits, this year was mostly sort of Canada. As we think about next year, it would be, again, some assumption around the U.S. being almost worse than it is today. That is us, again, trying to take a prudent approach around the U.S. and being cautious as we look into next year. We feel that we are trying to change the narrative out there too as people look at headlines. Macro has always been kind of a negative, trying to shift away from that mindset and say, look, we have captured most of those headlines. We continue seeing those headlines kind of playing out.
The hope is that, obviously, as F1 visas maybe start to improve to some of these policies and policies start to kind of lock down and some of the headlines hopefully reduce, then that should help. For now, we feel we've well captured kind of the scenarios, certainly in the U.S., but also in the other three big markets with this mid-single-digit assumption into next year.
Is the best metric to watch just F1 visas?
F1 visas is one. I think second, I would say, again, it's just fewer sort of headlines in general around the uncertainty, I think, is when you have either H1B visa headlines or OPT or other things that are just headlines without necessarily policies. The third would be actual policies in place. Because I think we have to separate what is actual noise and sort of things that are being said in the news versus actual policies being implemented. Then third would be once the policy is implemented, it doesn't always have the impact you think. We have to watch all those things play out. Sometimes there's a headline. Is there a policy that follows the headline? Once you implement the policy, does that actually play out the way you think it is?
We have seen, for example, Canada versus Australia, completely different kind of ways the market actually played out. In Canada, the headline was followed by policy, and the impact was quite negative. In Australia, there was a headline, some policies, but we just have not seen the same negative kind of impact. Even though we have assumed that in our guide, again, very prudently, Australia, and that is, again, another way to think about the kind of mid-single-digit assumption. Our macro assumption in the guide is looking at Australia where the policy and the headlines have actually turned out to be a little bit better in terms of how they play out in the market. Australia may be learning from Canada. Others, they have actually adjusted in some of the caps. They have increased the caps assumptions for next year, which, again, good to see the policy.
In the kind of data-dependent category, I'll wait to see the trends continue over several quarters to improve before we kind of change our view on the outlook. So far, Australia has played out better than we had assumed in our guidance.
No, it has. It has. Is there anything in the policy in the U.S. that we should be watching in particular?
Obviously, the more pressure, one of the reasons students come to the U.S. is to work here. Anything around the H1B visas or OPT or other kind of policies around that are important to understand demand. Ultimately, U.S. is still kind of the destination of choice as far as work opportunities. That is going to, and the number of universities and obviously the educational opportunities here are very unique. For us, we are going to be somewhat agnostic as to where students end up going. In the U.S., I would say, yes, some of those policies. Again, I would say that we have captured most of those kind of negative assumptions into our mid-single-digit assumptions. From that perspective, at least, there should be comfort that we have captured some of the negative.
Hopefully, as it turns out better than we thought, then something like that.
There could be some upside there.
Yeah, potentially. Yeah.
The good news is you're seeing, besides those four markets, people, students need to go somewhere. So you're seeing growth beyond The Big Four. Can you talk a little bit about what you're seeing in other regions?
Yeah. That has been, to some extent, obviously, an exciting development for us because as we talk to our agents, we have this unique relationship with agents who help kind of guide students along this complicated international student journey. They are telling us that students are starting to apply to more destinations. That is a trend that is happening outside maybe the U.S. or just the U.K. or even The Big Four. Outside The Big Four, just to size that market in terms of revenue for us, we have said that the non-Big Four EDU in terms of revenue is about low to mid-teens share over our 2024 revenue, growing above the company average. That was sort of, think of it last year. This year, we are seeing that part of the business growing quite well. A way to frame that is kind of back to your first question.
Out of all the EDU clients that we signed this year, over half or about half are from outside The Big Four. It tells you that obviously there's demand growing, as you can imagine, as some of these other educational institutions outside The Big Four are starting to get more applications. They're going to look for cross-border or U.S. education, sorry, an education software partner. We obviously play well in that role for them. I'll say that is a benefit for us. Again, we're excited about those. Now, there's a tuition difference there. As you can imagine, there's lower tuition in some of those countries. Just to name a few, in Europe, you have Spain, France, Germany as destinations. In APAC, it's Singapore, Japan, Southeast Asia.
Some of those countries will have lower tuition than a U.S. tuition or U.K. tuition, but still very healthy margins in those businesses, strong unit economics, because it will be mostly a cross-border client for us, given that that is the product that we would be selling to them. Feel really good about those. The opportunity to grow with the non-Big Four is certainly a big one for us.
Got it. I want to move to the travel vertical. Can you talk about the growth you're seeing there and what Certify adds to the business portfolio?
Yeah. If you think of our travel business, which next year will be almost a quarter of the business, let's start with Certify. Certify right now is sort of our, call it our hospitality side of the business. The luxury is kind of our legacy. Within Certify, the three synergies that we talked about, which will play out mostly in 2026, the three synergies we talked about, first was the payment monetization, which is our usual M&A sort of playbook where we acquire the software, monetize the payments. That was about a $3 billion volume that we were looking to monetize, the international kind of cross-sell. That was about $100 million of revenue. Third, it was just cross-sell between our legacy luxury business and the Certify hospitality.
are three kind of, I would say, things that we're looking at and showing that we're seeing progress here. These synergies are playing out. First, we're hearing from our clients that that combination of the agreements from Certify, the agreement, the contracting, and the payments, that flow resonates very well. That is an important capability, especially on the payment side. As you think about having payment capabilities in each country, that is something that obviously Certify did not have. We bring that to the table. That is one aspect that we're seeing where it is giving us comfort that the synergies are playing out. Second is this idea of just being able to drive continued integration with the system of record. If you think of some of the players out there, this is one of our unique capabilities. We are integrated into the system of record.
Things like a Peak 15, which is one of the integrations for one of our clients, we are integrated into that system of record. It is not just the agreement and the contract and the payment, but the fact that you can reconcile into your system of record then drives significant operational savings and visibility for them into the end-to-end kind of process. Third, we are seeing, as we talk to our enterprise clients now, like Hilton and Marriott, we are getting validation that this product resonates with these larger clients. Again, our sort of legacy luxury business played mostly with smaller travel clients, but now the validation with enterprise is certainly good to hear. Good overall kind of early visibility into the fact that the synergies are going to start playing out.
I would think of this year, Certify growth is mostly driven by them standalone, and they're growing over 30% year over year. Into next year, some of these synergies start to play out. It is, again, more of a next year kind of dynamic.
No, it looks like a good complement to your business.
Yes, it's a great one, yeah.
What about healthcare? Can you just talk about that business? Obviously, Cleveland Clinic and Cook County Health. How does that flow, the timing of that, and how big of an impact will that have on the vertical's TPV and run rate?
Yeah, we're quite excited about the healthcare vertical this year after sort of several years of transformation. We've improved the sales team and brought in folks who can work with the enterprise side. We've improved the product. The Cleveland Clinic, obviously, it's a marquee large client. We've talked about it as an eight-figure client. Now, if you think of the healthcare vertical being around a $30 million vertical, if you add an eight-figure client, that's a significant growth driver. What we've said for this year is healthcare is growing in the kind of low teens. With an eight-figure client like Cleveland Clinic, we expect next year to accelerate well beyond that. You've got the Endeavor. That's already gone live, and it'll ramp kind of into next year, if you will. Then you have Endeavor, which we also announced.
That's going to go live probably next year and ramp beyond that. Cook County is the third one. We have a sort of a layered kind of new client-driven kind of growth rate. We feel good about that. Again, this is now a combination of capability. Historically, healthcare was mostly software. Now we have the payment processing also in there. That has a lower gross margin, but still gross profit dollar positive. That would show up in the transaction revenue part of our business. We feel good that as you look long term at healthcare, it is no longer going to be a drag on growth. Certainly, next year will obviously be a huge lift from this Cleveland Clinic ramp.
I would say normalized for that, I would still expect it to be less of a drag and now be an actual growth part of the business.
Yeah, I was going to ask, besides those three big wins, what does the pipeline look at for their hospitals?
Yeah, pipeline is great. I think the fact that you have this marquee client and have them talk to other large clients out there. We have a very unique product. Very few other players out there combine the kind of the payment, the billing, the kind of the affordability suite with the other components of our healthcare software. That altogether enables us to have a differentiated product. Having someone like Cleveland Clinic and others out there being reference clients is great for the team and certainly helps the pipeline long term.
I have to ask about AI and what you guys are doing with the GenAI capabilities. Is it more to streamline processes and costs, or can you generate some revenue as well?
I think it's all of the above. I think of AI, by background, I'm sort of a machine learning, data science, data guy. So I've been doing this for almost 20 years now. I think there's exciting opportunities if you look at it the right way. I think of it as it's a different mindset within the company. I'll give you an example. We had an AI hackathon inside the company where every single group, every employee was able to participate and give ideas. To me, AI, it enables us to, first, there's three buckets. It kind of like to the point you're making. One is how do we improve capabilities for our clients?
Whether we have very unique data, which is one of the things that I think building AI capabilities on top of what you can imagine, whether it is the education side with very unique kind of flows across education and integrations in terms of data or luxury travel and hospitality or healthcare and others, you have unique kind of capabilities that you can build and examples that you can build client capabilities on top. Invoiced by it already has the ability to provide machine learning type matching for invoices for clients. Or we have machine learning or matching around payments. All those are client. We have client-focused kind of AI innovation. We have what I would say function-focused AI. Think of customer service as the obvious area where our customer service kind of support is getting a lot of our efficiencies driven by this.
We have in the functional or support areas like finance and analytics, we have chatbots and others that we've built on top of our data architecture. That's an investment area for us. Again, to me, it's more of a mindset. We're driving that across the company and certainly can drive both kind of revenue and business in the future, but also more efficiency inside the company overall.
With the push in real-time payments and Stablecoins, maybe in the future, what does that do for your business?
I mean, in general, we believe it's incremental. If you think of, and we've announced a partnership with BVNK, and we'll talk more about that as we go live. I would think of it as incremental for us because especially in the markets where there's volatile currencies, we have an opportunity maybe using the Stablecoin. We have that in real-time payments. Using the Stablecoin to enter those markets where you may not have normally entered because of the currency volatility. From an economics standpoint, the cost of the Stablecoin is very similar to one of our lower-cost instruments. It doesn't necessarily change the economics for us. Ultimately, we'll provide choice. If our clients want to pay by Stablecoin, we'll have the ability. We'll provide that option. We're building the capabilities to enable that overall.
We will announce more as our partnership with BVNK kind of launches soon here.
How do you think about the margin structure? It sounds like you're expecting a little bit of gross margin pressure, but overall, adjusted EBITDA margins, expansion, and then GAAP margins. How do you think about how that all comes together?
Yeah, look, so historically, our gross margin was sort of declining slightly year over year, mostly because travel and B2B were growing faster. Now with the macro pressures, that's adding a bit of pressure on that side. Also, as I just described, the domestic business or some of the new capabilities in healthcare and others come at a lower gross profit. Having said that, you end up sort of closer to the 200 basis points decline versus the 100-200 that we talked about. Having said that, we've beat margin expectations every year. We feel pretty good that we can continue to drive margin expansion. Growing OPEX below gross profit dollars, and that's driven by kind of every single line item. Sales, marketing, and maybe even R&D. Certainly in G&A, you've seen us see opportunity there to continue to lower that.
I expect us to continue to increase margins and at the same time reduce the stock-based comp impact so that on a GAAP basis, too, we should be able to continue seeing profitability from a net income perspective growing along with GAAP EPS over time. Looking not just at EBITDA, but increasingly all the way down through GAAP EPS and including free cash flow, actually.
Any change in your prioritization of capital allocation, especially with the stock price obviously being down, more buybacks? How do you think about M&A, build, versus?
Yeah, I mean, for now, I would say our focus is on organic investments. So continuing to invest behind travel, Certify integration, or the domestic EDU capability or some of the data architecture and AI investments that we talked about. So kind of continuing to drive investments organically. From a share buyback this year, we've pretty much reinvested most of the free cash flow into buyback, if you look at it that way. We remain pretty aggressive. As long as the stock remains pretty dislocated, we're going to continue to look at that and be opportunistic in terms of the share buyback. Look, from an M&A perspective, of course, we have a pipeline, and we always look at opportunities. For now, we're busy, obviously, with the integration of Certify and Invoice. The focus is on execution there in the short term.
You gave a preliminary outlook for 2026. We talked a little bit about that through the education side. How do we think about the overall outlook that you kind of outlined for 2026 in terms of growth versus 2025 and maybe a normalized kind of overall business for Flywire?
Yeah, look, I mean, what we've tried to do is try to take some of this macro noise by being, again, transparent and data-driven and also very prudent in our outlook. If you look at the last few quarters, we've done better than that macro assumption that we've had. The intent is that we take some of that, a little bit of that uncertainty around the macro impact. Obviously, for this year, to think about the normalized growth rate would be looking at taking out the mid-single-digit impact against the fact that we're still growing in the mid-teens. That's FX- neutral, excluding Certify. As we get into next year, again, similar profile, as we said, related to our Q4 exit.
We feel quite good that the way we've sort of framed this mid-single-digit headwind, it allows us to be more predictable and feel quite comfortable that we've captured some of those risks that are out there. The rest of the business, like we said, it's very disciplined growth, very durable growth. Again, it's highly sort of margin profitable.
Okay, with that, Cosmin. We'll keep it there. Thanks so much.
Thank you.