Ladies and gentlemen, the program is about to begin. Reminder that you can submit questions at any time via the Ask Questions tab on the webcast page. At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.
Thank you, everybody, for joining us in the next session of day two of our virtual payment symposium. I'm Jason Kupferberg, the Payments Processors and IT Services Analyst here at Bank of America. We are very pleased to have with us Flywire. We have COO Rob Orgel with us. Rob is traveling in far corners of the world right now, so we really appreciate the effort to join us for the session today. Thank you, Rob, for your time.
Thanks, thanks so much for including us. Greetings to everyone from APAC.
I wanted to just start with the requisite top-of-mind question. Any connections Flywire has through banking partnerships or otherwise to any of the turmoil in the regional bank sector right now?
Yeah, sure. Happy to start there. O bviously when news was breaking, you know, we were certainly caught up in all of the sort of stress and energy that was all of a sudden sort of upon all of us. W e were a client of Silicon Valley Bank. I can detail that a bit more. As news broke, sort of the first thing was sort of what's our situation? First thing was that we were quick to be able to be very clear with our client base that no client funds were ever held with SVB. That was not part of our global payment network, which is obviously a core part of our business. We were able to reassure clients very, very quickly.
W e did have other accounts there, that we had operating accounts at SVB as a longtime partner of ours. We were comfortable that there was never any sort of threat to the standard BAU operation of the business. We were perfectly comfortable that we were able to just sort of keep going business as usual. The thing that did get people's attention, perhaps about us is there was a report that was put out in all of that referenced an attachment in our 10-K. It was a previous SVB credit line, and in that credit line, there were some requirements around fund holding inside SVB. Turned out that agreement is one that was long since superseded, right?
That was a pre-IPO agreement that was updated at the time of the IPO with a lending syndicate led by Citi, of which SVB was a participant. That one didn't have any of those same requirements anyway. Some of the stuff that was out there wasn't, really wasn't quite accurate in terms of how it described our exposure. Anyways, just to wrap it all up, sort of business as usual for us, there was never any client fund exposure to it. We were able to direct clients to route funds to a different holding account just to make sure where they were remitting funds to Flywire as opposed to sort of student or other client-related funds, that those funds directed to Flywire would go to other other accounts of ours.
Okay. The preexisting operating accounts you had at SVB, have you moved those to other banks or?
I mean, we continue to have some operating accounts there, but just, t hat's a matter of convenience for us. All sort of very carefully managed and measured in terms of what we're comfortable with.
Small dollars, insured, all of that. Yeah.
Yeah.
Okay.
Exactly.
Okay, good. Good, good. Well, thanks for covering that. I guess one of the interesting aspects of Flywire's business model is that it really is a classic sort of mashup of software and payments. I guess when you think about the value proposition that Flywire brings to customers and what makes you unique, is it more the software? Is it more the payments? If you had to kind of pick one versus the other, and I don't know, maybe the answer or the view there varies based on the different verticals you guys operate in.
Yeah. You know, Jason, this is like being asked which of your kids do you love the most, right? You know, being asked to pick one. I think actually I'll reframe the question 'cause it's really how we think about it differently at Flywire. We've talked about what is the Flywire advantage. It really is the combination of three things, or in fact, even four things that are the uniqueness of us. It's not really the, you know, you really can't break it out into was it the software or was it the payment? I say that because, what we have at our core is a payment platform.
I mean, that's a pretty distinctive payment platform because unlike maybe a standard credit card processor or somebody of that ilk, it's handling all range of payment instrument type, right? It's bank transfers, it's credit card, it's alternate payment types, PayPal, Venmo, Alipay, from around the world. It's doing foreign exchange transactions, exchange settlement. It's, you know, handling recurring payment plans, all kinds of things that are very distinctive to our business. That's the core. On top of that, we built a proprietary global payment network, right? 10 years of hard work around the world. Like I said, I'm here in APAC right now.
I'm meeting with members of our global payment team, understanding the subtleties and all the things it takes to continue to run this world-class payment capability that really features the payment methods that matter around the world. That's really a very distinctive capability that adds a lot of value to our clients who are looking to us, again, not just to process a simple credit card. It's they want money from Nigeria, they want money from Vietnam, China, Korea, all around the world. As you think about all these markets, that's an important part of it. The third piece being the vertical specific software that we have. Again, this is where enormous value is driven, right?
For healthcare-In contrast to a company that might just accept a payment, we're creating a platform that is really creating full digital payment experiences, right? That might be in the form, for example, of a payment plan for somebody whose capacity to pay doesn't allow them to pay all of their bill in one go, right? We might be taking a $1,000 charge, actually understanding that payer's capacity to pay and offering based on the business rules of that hospital, based on the balance sheet of that hospital, whatever they're willing to allow us to offer, but maybe 10x $100 to equal that $1,000. That's enormous value driven by software, right? That's that is truly software drives value in payments, the key thesis of the company.
It was based on those first two, right? It was based on the core payment platform. It was based on the proprietary payment network, then the software on top of it. Then the final piece is we have very expert teams, right? When we're in a healthcare client to continue that example, our team is going to consist of experienced healthcare domain experts, right? Veterans of that industry that are able to talk revenue cycle management. They're able to talk patient affordability, HIPAA, all the things that are sort of key concepts in the healthcare domain, which differ from travel, differ from education and B2B are our other key verticals.
You know, certainly what I think is truly distinctive about us is there just aren't a lot of companies out there that have real software DNA and real payments DNA. Like, that's a rare blend. Most companies are lean heavily to one and don't have much of the other, and that's our distinctiveness.
Then wrapping the domain expertise around all of it. Makes sense. Let's go a little deeper into the verticals. We'll start with education, obviously, by far your biggest call it 65% or so of the business. Maybe if you can just take us through sort of a typical sales process when you win a new customer, the value proposition that you're pitching there and talk about the kind of technology that Flywire is typically displacing when you, when you win a new educational institution.
Yeah, I'm happy to do that. Just for context, for those that may not be so familiar with us, the one thing I'd wanna do before getting into sort of the value prop is just make sure people understand the education landscape as Flywire sees it. There's really two dimensions that are bigger than most people might think. I'm gonna get to U.S. domestic higher ed in just a second here. That's really only a part of our business, right? It's a very global business, clients in the education vertical in 30+ countries, students all around the world. Really, you need to think of it as students going from everywhere to everywhere. You know, into Asia, out of Asia, into Latin America, out of Latin America.
We really have clients going, you know, in the education vertical, students going from everywhere to everywhere. Second dimension, again, just to give people a sense for the scope of the opportunity and the TAM, is that it's way more than higher education, right? Certainly, higher ed is the biggest single segment or sub-segment. Think about vocational schools, language schools, summer programs. K-12 is a another great segment for us. If you take that global dimension and all those sub-segments, it really is a big market that we get to go address.
As you think about, sorry, as I get to your question, Jason, and really try to answer sort of what's the value prop, I'll pick the example of a U.S. school, and I'll pick the example of a U.S. school that becomes a comprehensive client of Flywire's full solution suite. We've announced a whole bunch of these recently in our earnings calls. We've, you know, announced marquee clients, Texas A&M, Stanford, UConn, SLU, whole bunch of great ones. They're all slightly varied in just how it works. The value prop starts really with two core elements. The first part is that schools wanna create great user experiences for their students and the families.
The benefit that modern technology and a modern sort of cloud technology stack brings is that you can really offer way better experiences. You can create these experiences where it feels as seamless and effective as, like, a good e-commerce experience. Rather than feeling like you traveled back a decade or two on the internet, you feel like you're going through a modern experience. Which version of a payment plan are you interested in? Which way would you like to pay? You know, promptly receive sort of receipts, slick UI, all those things. Like, that's first part of the value proposition is being able to offer exactly what they wanna offer in a seamless experience out to their consumer, meaning the student or the family.
Second part of it is really around a cost savings and efficiency piece, right? It is certainly true across the education landscape that these schools feel very pressed in terms of sort of their administrative cost and trying to manage their cost lines very carefully. What we enable them to do is really streamline their back office tremendously. Rather than sort of the old school model of payments show up one at a time. Somebody in the school has to figure out how to reconcile incoming international wires, domestic payments, pick up the phone to set up a payment plan. We take a lot of that noise out of the system.
This Flywire proposition of one solution provider, you know, one payment each day, a reconciliation file that reconciles to the penny every single time, payment plans that don't require picking up the phone and figuring out how to serve the needs of a student, all of that is a incredible efficiency benefit for the school and something that they greatly value. Final piece of this is it's not just about sort of that straightforward money. What, what occupies schools is all the other stuff that goes on on campus, right? We have products like an eStore, that can handle all of the digital experiences on campus. Schools like Texas A&M, completely self-sufficient on our eStore. They've set up hundreds of them.
We don't talk to them every time they set up a new one, but they're able to be self-sufficient in meeting needs on campus. We have a product called AR Collect. That's to help them deal with students that may be in arrears on their payments and helping manage that whole sort of collection experience and portfolio in a way better, way friendlier, and way more effective way than the alternatives. You've got this sort of this full suite with multiple capabilities, and it's that suite of capabilities that really is what would displace the legacy capabilities they have.
Originally, the education business was particularly cross-border oriented. Clearly, that's where a lot of complexity exists, and you guys certainly specialize in, you know, complex higher dollar payments. Would love to just get your latest take on how enrollment trends, you know, kind of cross-border enrollment trends, let's call it, have been trending as we've come out of the pandemic. Have you seen a full normalization? Obviously, China reopening is a little bit of a more recent development. You know, are you seeing any tailwind there? It sounds like they're finally getting around to reissuing some visas as well over there.
Yeah. You know, the trends are all looking pretty good, right? You know, we're always got sort of our fingers on the pulse of just what's happening around the world. You know, there are key markets, more than just China, right? You've got China, India, Korea, Vietnam. Again, if you're really focusing on the global market that we address, you're also paying close attention to, you know, what are the student populations that are headed to Australia, who's headed to Japan. So all of these are markets of ours where there really are many-
Mm-hmm
Many different sets of dynamics that all come into play. Your macro question was, what are we seeing overall? You know, I think we see pockets that really made a lot of progress returning to health, perhaps even returning to pre-pandemic levels already, right? U.S. higher ed, while maybe not quite at pre-pandemic levels, has certainly had a strong comeback. If you look at Australia, like this is the first year after several years where there's sort of a significant bounce back towards normalcy. There were some stats put out on Australia that show that market has really opened up very meaningfully. Yet there are also places that I think, you know, you're just not quite yet gonna see normalcy in terms of the levels of student travel, right?
If you think about language schools, they've, you know, really, even last year, still very, very far cry from where they would be in a normal environment. We're just now, and you mentioned, Jason, sort of the relaxing of a lot of rules in China. I think we're just now getting to the point where, you know, it feels like a reasonable decision for somebody to send their child to the U.K. or Canada or somewhere else in Europe, perhaps, to have one of these kinds of international experiences. We're very bullish. Like we think things are trending in the right direction on all these macro trends.
We think 2023 is still a bit of a rolling recovery year for some of those segments of EDU, while really quite healthy in some of the other mainstream ones. You know, we're happy to see things like just last week, I think China relaxed what was the last of the tourist restrictions on visas for inbound travel into China. While that isn't directly affecting sort of our business, it does have indirect effects like the number of flights that are gonna be in and out of China, making it easy and normal for people to travel, making it more comfortable and confident that somebody overseas can easily get back if they wanna get back. All of these are kind of macro normalcy trends that we like.
Sure. For sure. I know you've seen a good deal of success over time at cross-selling domestic payments for EDU clients to the existing base of customers who originally used you for cross-border primarily. What, you know, what inning are we in in terms of that cross-sell opportunity? What are the challenges that you might sometimes encounter when you're trying to execute that cross-sell and capture the domestic piece?
Yep. Again, there's a little bit of a global spin to this, but I'll focus on the U.S. since I think that's, Jason, what you were mostly interested in. For those who aren't very familiar with the company or the story of our domestic expansion, sort of we've had a really good experience and track record with what we call land and expand. The early history of the company was primarily around serving clients in this cross-border international student use case, to where we developed our good name, developed relationships and a footprint. It wasn't until several years later, really only a couple years ago, that we really put our focus into being able to provide domestic, right? These schools had said to us, "We like your solution.
We like your software so much for cross-border. Why don't you just move all the money? That brought us into this domestic solution and payment plans and this whole new area of complexity that we now serve. We're in the super early innings of this, right? If you look at across our client base, it's still single-digit percent penetrated with the domestic opportunity here in the U.S. You know, it's, you know, a great increment to revenue when we're able to convert a client from cross-border to domestic. It's obviously great when we're able to sign up a new client to do both domestic and cross-border all from day one. We're very comfortable with land and expand. Land and expand has been a great pattern for us.
The only final comment I'd make about the domestic piece is that, again, don't think of domestic as being a U.S.-only question for us, right? We're doing domestic in the U.K. We're doing it in Canada, increasingly across continental Europe, Japan. We've got domestic capabilities in key markets of Latin America. Our proposition around the world is increasingly we can move all the money for you, as an educational institution. As you move around the world, frankly, it's even easier to bring that proposition because the sort of software capabilities integrated with payment as you move around the world, really, you know, there's just nothing like what we've got out there.
Is it also becoming more common for you to sell domestic and cross-border upfront as a bundle per se to a new customer as opposed to, you know, land and expand?
Yeah. Internationally, that's quite a standard proposition, right?
Okay.
You know, if you look at markets, Switzerland, Italy, you know, sort of picture continental Europe, like that is a much more common kind of a move for us. In the U.S., you're almost always having to figure out, you know, you're displacing something, and so you have to sort of align the timing. Sometimes that means you take on domestic and international all at once. That was the case with UConn, one of the clients we announced on a recent earnings call. If you look at a couple of the other ones announced on earnings calls, they tended to be the land and expand model.
I see.
Meaning that they started with cross-border and then some number of years later, added the domestic.
Yep. Yep. I know on the earnings call, you guys had talked about investing more in the go-to-market strategy, enhancing sales, relationship management teams. Maybe you can just, you know, elaborate on that and how you guys measure success of that initiative over time. Is the goal here kind of more to just, you know, increase top of funnel and make the pipeline bigger versus, you know, trying to boost the win rates? Or is it a combination of all the above?
Yeah. We you know, last year was a pretty significant investment year around the company. We had called out that we were investing in go-to-market as well as R&D and other things.
Yeah.
We did, you know, significantly expand that sales team really across each of the verticals. We, when we talk about go-to-market, like there are, you know, traditional quota-carrying sales reps, you can think about us as further penetrating our existing markets, but also taking those sales reps and putting them in promising new markets that we see a lot of potential in. Probably compared to many other companies, our investment in relationship managers is likely more notable than you might see in some other places. Really that's because what we've seen as a company is that we are very good at this land and expand.
The RM sort of relationship building, sort of establishing that trust and domain expertise, that our RMs are such a critical part of, like that's really been the thing that helps drive land and expand. One of the things we do talk about a lot is NRR in the company and the strength of our NRR. We do see the NRR as a product, not just of the sales team, obviously, but the RM team. I think your question was, you know, how are you thinking about measurement? The, you know, probably the two ways of measuring are, one, in that NRR, and secondly, looking at sort of traditional, you know, revenue operations, sales ops kind of metrics like pipeline growth, ARR, average deal size.
Some of the details that we've shared there, are that we did see 70% growth year-over-year in 2022 versus 2021 in terms of what that sort of aggregate pipeline value was. We love that kind of growth. Q4 was, I think, even stronger with about 100% growth in that pipeline value. We see other dynamics that we like average deal sizes going up across the majority of the verticals, right? We see, you know, not only are we winning deals, if you look at our deals announced per quarter, it's been, you know, really solid last couple quarters in the sort of 140 to 145+ range. That in combination with knowing that those deals are, if anything, getting bigger, not smaller than our average, all to us says, it's a really healthy sales dynamic for the sales team.
That's all good color. Your second-largest vertical is healthcare, another big, juicy market with lots of complexity and large dollar payments and some interesting dynamics. You know, I would love to just hear you articulate the strategy there. You know, partnerships, integrations, you've been talking a fair amount about that in recent quarters. How do you feel like the strategy in the healthcare vertical has evolved over time?
Yeah. Yep. I mean, healthcare, you called it out, Jason. It is sort of the most enterprise-like of our businesses. We, in particular, focus on serving and have had great success serving sort of large integrated health networks, right? We have 4 of the top 10 largest, 80+ hospital groups. That number's actually probably grown a bit. You know, we are there to provide them with a robust digital patient payment experience, right? We're helping the hospitals get paid for that portion of patient responsibility, for, you know, typically after insurance has paid its portion. For these hospitals, it's a really big deal, right? The value proposition and the strategy is take this increasing AR portion of a hospital's financial picture and make sure that they are able to effectively collect on that.
They've got this challenge, right? They need to collect the money. It's a really important part of their P&L, and they've got to think like a business in some sense. At the same time, they wanna provide a great patient experience. They don't want to present a bill to somebody that presents an affordability problem for that. Where our software comes in is provide this robust set of capabilities that lets them solve for that. It's again, a great user experience, and it provides a solution to the problem of affordability for patients. The thing that we've been distinctively capable at is, as you pointed out, the integrations into the systems that are integral to the operating of these hospitals.
Cerner, Epic, MEDITECH, those are three of the biggest names, but there are many others. There are hospitals that'll have one system for their hospital portion, different systems for their physician network. One of the things we've been able to do is come in, address that complexity, simplify it from a patient perspective, right? I can see one bill per month for my whole family, and that's a very powerful improvement over the experience many of us have had, where you get bill after bill, you know, coming from different portions of the hospital. That's the value proposition. The integrations are with, like I said, Cerner and Epic being two especially notable ones. For Cerner, they've been a great partner. They are their sorta go-to-market answer for this digital patient payment experience.
We've got a great integration. We've got great coordination between our two companies, very appreciative of what we do with them, and it's been very effective. Epic, obviously very influential player in the market. We also have a ton of our biggest clients that are on the Epic platform, either in part or in whole. We have these Epic integrations that are available in what's called the App Orchard, but their version of the App Store. That's very important to our clients and our prospects 'cause it means that our stuff, they can see it works, not just from the fact that it's, you know, in use in many of their peer institutions, but it's also available via the Epic App Orchard.
We really, you know, work very closely with hospitals that are on those and other networks, and it is a business that we're looking forward to having a good 2023.
Is there an opportunity to take the healthcare solutions outside the U.S.? If so, which countries might make the most sense to kinda start with there?
It's a supernatural question, given the global payment network and the healthcare expertise. It is an existing piece of the business inside Flywire. I'd call out that the healthcare business is mostly really disproportionately a domestic business. We have a whole list of great, you know, clients that are using us, some for both the domestic and international, some for just the international. It is something that we think may have even more resonance outside the U.S. going forward. I would tell you the real focus of the healthcare team is here in the U.S.
Okay. Okay. Understood. Yeah, presumably it also gets a little messy in different countries with different types of healthcare systems and, just kinda different set of complexities, so.
We do have clients outside the U.S., and we are moving healthcare money cross-border and not just into the U.S. Like, it is there. I just wouldn't wanna kinda, you know, pre-present it as being a more important of the business than it is today. Although again, we remain interested in it as an opportunity. It's not, definitely not something we've taken our eyes off of.
Okay. Well, I also wanted to talk about travel. You have some unique focuses within the travel industry. Tell us a little bit about the areas of travel that Flywire has had particular success at penetrating, and then to the extent that you see other kind of, I guess I'll call them subverticals within travel that are really on your radar for 2023 and beyond.
Yep. We have a great travel business. We called out on the latest earnings call that business had tripled last year relative to the year prior. Obviously last year was a special year in terms of a return to traveling as the pandemic eased, at least in many parts of the world. you know, our travel business is performing great. It's growing at a fantastic pace. Very exciting part of our business. And where we focus is on sort of the high-end, sort of luxury experiential kind of travel. Really it's three segments. We have luxury tour operators for that. you know, picture heli skiing, you know, mountain bike adventure, safari, all kinds of great travel operator experiences.
Secondly, we have a segment around accommodations, and so we support a whole range of accommodations providers. Think of sort of medium-term, short-term, vacation club, kind of accommodations opportunities. The third segment, in some ways less familiar to folks, is called destination management companies, DMCs. If you've organized a trip, you know, pick your favorite cool destination, you wanna go to Croatia, you wanna go to Spain, you might end up working with a company based in that region, and they'll help put together a great trip for you, right? They'll help you plan, pick the hotels, pick the activities. Unlike...
They may well work in combination with a U.S.-based or locally-based sort of travel agent, but really it's the DMC that's putting your trip together. That's been a great segment for us. The thing that distinguishes it, you know, we'll never be the provider of choice for JetBlue, you know, jetblue.com, united.com. You know, they need a great high volume credit card platform and that's not where we distinguish ourselves. If you're in a business where, hey, this one's characterized by, we have some business rules, right? You're gonna make an X percent deposit 45 days before your trip. You're gonna pay another portion maybe 30 days before the trip. You pay the final portion. This is, again, another example of software drives value in payments.
Somebody who's good at that high volume thing, probably not gonna be good at the kind of utility, you know, an invoicing engine that we provide in travel. A sort of split payment type capability that we provide in travel. That's where our, again, software drives value and payments takes on a slightly different look. Again, that's where we really distinguish ourselves and find this great set of segments that are really, you know, they're really big, and we're distinctively good at chasing.
Do you feel like there's enough TAM to chase within those three sub-verticals or are there other ones that are on your roadmap as well?
We see opportunity everywhere, right? You know, we have whole continents where we've started to line up clients, and we don't have any people, right? We don't have anybody focusing on, you know, sales or relationship management in big parts of the world that have, you know, very fertile travel businesses. Lots of opportunity in that sense. You're also right, Jason, you know, it doesn't mean we've stopped looking for additional segments, right? Like, you know, even things like the whole golf industry, right? Like, you know, that's a sort of, you know, fertile territory. Tours, you know, the whole tour industry. Like, you know, we tend to focus on sort of individual and family travel. There's a whole sort of tour segment out there. There's much more in accommodation.
There's much more as you look around the world of, you know, interesting operator activities. The nice thing about the travel business is that it's incredibly fast-moving. You know, the sales cycle is shorter, the implementation cycle is super short, measured in days or a couple weeks, typically. Not quite the complexity you'd see, for example, in healthcare. You know, what we love about it is, you know, when you find a new segment, you can go chase it hard, and you may find that you can sign up, a whole slew of clients rather quickly.
Yeah. Pretty fragmented, right? You get a lot of shots on goal, I suppose.
That's right.
Is it more, I guess, how cross-border centric is your travel business?
Certainly, the segments that we look at, like in many things, you know, one of the distinctive identifiers of a good opportunity for us is that it does have a cross-border element to it. Now, it doesn't have to be that big an element. It doesn't have to be all of it.
Right.
Oftentimes, that is where we will distinguish ourselves in the eyes of a potential client. That's where we can drive, you know, really tremendously beneficial economics for them. So, you do see that our business skews certainly, to having a lot of cross-border, in that travel business. Just to be clear, the value proposition in travel is, in all the countries where we have the full domestic capability, is we'll do everything for you.
Okay. Yep. Understood. Your fourth kinda mega vertical is B2B. Not necessarily huge today from a revenue standpoint, but you guys talked at the Analyst Day last year about a pretty big TAM. Maybe to start there for those who might be less familiar, maybe talk about the TAM and maybe just some key use cases for Flywire's platform within B2B. I at least feel like that might be the area of the business that maybe is, you know, least understood by the investment community.
Well, I agree with you, Jason. I think people who sort of have a notion of B2B payments oftentimes have a pretty different understanding just 'cause of where a lot of the attention or noise is. In the B2B payment landscape. just to be real clear, you know, we, our proposition is around we help our clients get paid, right?
We help them collect the money. Whereas a lot of what you hear in the B2B payment space is about the AP side, how to pay the bill, we believe that the strategic side to play on is the receivable side. I often make the comment, I don't know the CFO that's been promoted because they were really good at paying the bills. On the other hand, I know CFOs whose success and failure is very much tied to whether they're good at collecting the money. Our solution is entirely oriented on helping drive automation in the back office, drive down DSOs.
Help drive AR, and even help expand business by providing international capabilities way more flexibly than might be the case i f they had to go do all this work themselves, right? Go figure out how to, you know, establish an entity in Brazil so that they can start getting a bank account in Brazil so they can accept payment in Brazil. They could do all that. It will be a year at it. You can sign up with Flywire, and we will help you collect in Brazil, and a whole bunch of other places, obviously, around the world. The value proposition is, we help you get paid. We look for clients that are sort of in this $100 million-$2 billion range as being our sweet spot. We've enjoyed the most success in sub-segments or segments of that $12 trillion TAM, total TAM.
We've enjoyed that success in technology-related companies, picture software, SaaS-type companies, manufacturing-type companies. We keep finding new segments as well, right? We're enjoying success in things like insurance. We just announced a partnership with a company called FranConnect. FranConnect is a software and technology platform for the franchise industry. For those of you who know franchises, obviously the franchisor is collecting funds from the franchisees around the world, and FranConnect is one of the main platforms to power all that, and we are now the payment partner integrated into FranConnect. We announced an example of a restaurant franchise where, you know, they're gonna be collecting the franchise fees from around the world, and they'll be using Flywire to do it.
Whether it's a software company collecting its, you know, SaaS-type software fees, manufacturing company like Export Diesel that we announced, you know, which is obviously sort of in the parts, you know, manufacturing-type category, insurance, you know, franchises. Like it's really about being great at a couple things. It's important to be great at the integrations into the systems that matter.
Being great at integrating to NetSuite, YeePay, a whole set of other partners that we have that are kinda key systems of record, ERP-type systems, that are sort of the predominant systems of record in that landscape, and then being able to go out and help them get their money, right? Bringing it in from all around the world, again, goes right back to that Flywire proposition. A single solution provider that can bring them card, bank transfer, alternate payment, and ultimately provide them one payment a day that reconciles to the penny. Of course, in B2B, you start adding B2B functionality, right?
you know, you don't have any other verticals, a use case like, I might actually have 10 invoices that are payable to a company, but I only wanna pay three of them today. how do I basically, you know, select those three, make a payment against those three, perhaps have to add a comment because I'm short paying one of the three, and I want all of that information to be understood, in a simple, single interaction, not start a big back and forth in emails and all that. that's an example to your question of a B2B use case on the receivable side that Flywire would be great. that's the kind of thing we're doing in the market.
Yeah, it's interesting. It's almost like, I know you guys call B2B one of your verticals, but it's almost like a horizontal solution that cuts across different verticals. I mean, you laid out some of those examples in software and insurance and the franchise space, right? It's, it's kinda unique in that, in that regard, compared to your lines of business.
Yeah. We're learning there's an awful lot we can do just by being good at B2B, generally. The kinds of payment instruments. That businesses wanna use, being received by companies that use the kinds of software systems that businesses, you know, all use. That is a big part of it. You also learn, you know, that there can be very specific things that you do for certain kinds of businesses, right? That just sort of the functionality that matters that's specific to that sub-segment, that's perfect Flywire, right? That's the perfect thing for Flywire to be able to build into our software. It's just the right amount of complexity that means other people can't do it very well.
Yeah. What do you see there? I mean, like you said, most of the players that a lot of people are familiar with are more on the AP side. Who else do you see on the AR side?
There's not a lot of folks who are doing just what we're doing, right? I mean, the predominant solution that's out there is a bank-provided lockbox. You know, a bank-provided set of wire instructions –
Yeah.
For money coming in. You know, there are other players targeting the AR side. It is, comparatively speaking, way more greenfield, you know, where the real, you know, either challenge or opportunity is just getting people to understand there is a technology-driven way to do way better than sort of what has been the predominant method for a long time now.
I wanted to come back to, we touched a little earlier on just the net revenue retention and how robust that is in Flywire's business. I think you were 124% last year. How should we kinda think generally about the components of your NRR? You know, is this kind of level that we saw last year, I mean, is that sustainable, or was that kind of significantly inflated because of, you know, travel recovery, for example?
Yeah. I mean, if you look at that 124%, the way folks often kinda think about us as, hey, sort of what's a three-year blended, you know, NRR just because you wanna take out some of the noise of COVID, perhaps, and things like that. Whatever three-year window you pick, you see that sort of that 124% is in the range. If you look in our last earnings supplement, you'll see we put out a bunch of data on cohorts, and you can see how our even really quite old cohorts, 2017 and prior, 2018 and so on, all still continue to grow very well. That NRR is sort of foundational to the Flywire story, right?
When we talk about ourselves as aiming to be a 30% plus compound annual grower, foundational to that is this NRR. That NRR of 124, frankly, was in a year where we did have a bunch of sort of FX headwinds, and that 124, you know, would have been higher but for the FX headwinds that we encountered. We still like, you know, we like the number in that range and think that's sort of the right way to think about NRR for us. Getting to your question, driven, you know, really by a couple things, right? They all are a version of land and expand, but there are a couple key flavors. A very typical thing for us is to, you know, win a portion of someone's business. I described that hospital.
You know, we win the hospitals, and then later we win, the physician group, or we won part of the hospitals, but not all .
We started with post-service, but in healthcare, there's pre-service, point of service, and post-service. With everything going on in healthcare, with transparency being a big part of the healthcare mandate for institutions right now, pre-service becomes a real opportunity for them also to help provide affordability type solutions. So that's an example of land and expand based on sort of two things. One was more footprint, and the other one was more product, right? There's education examples of more product, there's B2B example of more product. We're either expanding our footprint, we're expanding our product, and sometimes we're expanding our geography, right? There's one of our bigger travel clients started with us only in Europe, right?
They kinda tested it with European properties, loved it, rolled it out then to all of their Americas properties. That's another dimension of expansion. The final piece, of course, is when we're expanding our payment network, you're just adding more nodes to the network, right? Some of the markets may not seem as big 'cause we've got a lot of the big ones onto the network. When you improve a capability, you make it easier in another country to put more volume on the network, that's something that then has sort of a, an effect across our verticals, right? It may help the travel business and the education business, maybe the B2B business as well. Those are all dimensions of this strong NRR and how it grows.
Let's maybe wrap up on margins. You guys laid out kinda some intermediate margin targets at last year's analyst day, and then some longer term. 10%-20%, I think you were looking at the subsequent 2-4 years, and then kinda 25% or so, you know, longer term, let's call it.
Yeah.
It seems like based on the 2023 guide, you'll be getting close to the, you know, the lower bound of that medium term margin guidance this year in all likelihood. I guess, you know, then there's, you know, a little bit of a, you know, more of a gap to get to that long-term target. Just generally speaking, what are the drivers that kinda get you there over time as you guys see it?
What we laid out in our investor day, in that sort of push to 10 and ultimately to 25+% EBITDA margin, was that we would aim for 3%-6% margin expansion per year. What we laid out for this year in the guidance was right around that 300 number. You know, part of that was just the path that we're on, right? You know, we're able to expand that margin because, you know, we've got strong revenue growth built into the business. There's increased scale in a whole bunch of our line items as we grow the business. We had called out in...
Were my comments in the last earnings call, that, we were going from what was a big investment year into a year that was really oriented on profitable growth. We're gonna hire still, we're gonna invest in the business still, but at a far lower rate than we had in prior years. With that, we sort of earmarked the 3%. What we'll see going into 2024, though, is that we have a way lower sort of cost overhang, you know, annualization effect going into 2024 than we did coming into 2023, given how much we had expanded the team in 2022. We'll have a lot of flexibility going into 2024.
Not gonna sort of predict or call anything now, but, you know, understand that we'll be able to make decisions heading into 2024 about sort of what is the comfortable and best level of investment, but knowing that we'll have a lot more flexibility on how much we wanna try to add to that EBITDA margin next year.
Excellent. Excellent. Well, Rob, we are out of time, which is probably a relief to you, considering how late it is where you are. Thank you very much again for joining us remotely. Thanks to everyone who participated. Our next session will start at 11:15 A.M. Eastern time with the firm. Thanks, everybody. Take care.
Jason, thanks so much.
Nice travels.
Appreciate it.
Okay. Take care.
See you.
Thanks, Rob. Bye.