Flywire Corporation (FLYW) Earnings Call Transcript & Summary

Ladies and gentlemen, the program is about to begin. [Operator Instructions] 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 2 of our Virtual Payment Symposium. I'm Jason Kupferberg, the Payments Processors and IT Services Analyst here at Bank of America, and we are very pleased to have with us, Flywire. We have COO, Rob Orgel, with us. And Rob is traveling in four 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 so much for including us and 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?

Yes, sure. Happy to start there. So obviously, when news was breaking, 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. We were a client of Silicon Valley Bank. I can detail that a bit more. So 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 at SVB. That was not part of our global payment network, which is, obviously, a core part of our business. So we were able to reassure clients very, very quickly. We did have other accounts there that we had operating accounts at SVB as a long-time partner of ours, but 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, that referenced an attachment in our 10-K. It was previous SVB credit line. And in that credit line, there were some requirements around fund holding inside SVB. It turned out that agreement is one that was long since superseded, right?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, but of which SVB was a participant, but that one didn't have any of those same requirements. So any way, so some of the stuff that was out there wasn't -- really wasn't quite accurate in terms of how it described our exposure. So anyways, just to wrap it all up, sort of business as usual for us. There was never any client fund exposure to it. And 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 accounts of ours.

Okay. So the pre-existing 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 that's a matter of convenience for us, but I'll sort of very carefully managed and measured in terms of what we're comfortable with.

Small dollars, insured, all of that.

Exactly.

Good, good, good. Well, thanks for covering that. So I guess one of the interesting aspects of Flywire's business model is that it really is classic sort of mash type of software and payments. And I guess when you think about the value proposition that Flywire brings to customers and what makes you unique. Is it more of 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?

Yes. Jason, this is like being asked, which of your kids do love the most, right? And being asked to pick one? So I think, actually, I'll reframe the question because it's really how we think about it differently at Flywire. So we've talked about what is the Flywire Advantage? And it really is the combination of three things or in fact, even four things that are the uniqueness of us. And so it's not really the -- you really can't break it out into, was it the software or was it the payment? And I say that because what we have at our core is a payment platform. So 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 going foreign exchange transactions, exchange settlement, it's handling recurring payment plans, all kinds of things that are very distinctive to our business. So that's the core. And then on top of that, we built a proprietary global payment network, right? So 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. And 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, they want money from Nigeria, they want money from Vietnam, China, Korea, all around the world. And so as you think about all these markets, that's an important part of it. And then the third piece being the vertical-specific software that we have. And again, this is where enormous value is driven, right? So 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? And 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? So 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 10 x 100 to equal that 1,000. So that's enormous value driven by software, right? That is truly software drives value and payments, the key thesis of the company. But it was based on those first two, right? It was based on the core payment platform, it was based on the proprietary payment network and then the software on top of it. And then the final piece is we have very expert teams, right? And so when we're in a healthcare client to continue that example, our team is going to consist of experienced health care 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 health care domain, which differ from travel, differ from education and B2B or other key verticals. So certainly, I'm 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.

And then wrapping the domain expertise around all of it, yes, makes sense. So let's go a little deeper into the verticals. We'll start with education, obviously, by far of 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 win a new educational institution.

Yes, I'm happy to do that. Just for context, for those that may not be so familiar with us, the one thing I'd want to do before getting into sort of the value prop is just make sure people understand the education landscape as Flywire sees it. And there's really two dimensions that are bigger than most people might think. I'm going to get to U.S. domestic higher ed in just a second here, but that's really only a part of our business, right? So it's a very global business, clients in the education vertical in 30-plus countries. Students all around the world, really, you need to think of it as students going from everywhere to everywhere, into Asia, out of Asia, into Latin America, out of Latin America. We really have clients going 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 in the TAM is that it's way more than higher education, right? Certainly, higher ed is the biggest single segment or subsegment. But think about vocational schools, language schools, summer programs, K-12 is another great segment for us. And so if you take that global dimension and all those subsegments, it really is a big market that we get to go address. Now 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. So we've announced a whole bunch of these recently in our earnings calls. We've announced marquee clients, Texas A&M, Stanford, UConn, S.L.U., a whole bunch of great ones. And they're all slightly varied in just how it works, but the value prop starts really with two core elements. The first part is that schools want to create great user experiences for their students and the families. And the benefit that modern technology and a modern sort of cloud technology stack brings is that you can really offer way better experiences. And so you can create these experiences where it feels as seamless and effective as like a good e-commerce experience. So 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? 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 want to offer in a seamless experience out to their consumer meaning the student or the family. Second part of it is really around the cost savings and efficiency piece, right? So 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. And what we enable them to do is really streamline their back office tremendously. So 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 and this Flywire proposition of one solution provider, 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 an 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 occupies schools is all the other stuff that goes on campus, right? And so we have products like an e-store and so that can handle all of the digital experiences on campus. Schools like Texas A&M, completely self-sufficient on our e-store. 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 A/R 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. So you've got the 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 complex, higher dollar payments. Would love to just get your latest take on how enrollment trends, 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. So are you seeing any tailwind there? It sounds like they're finally getting around to reissuing some visas as well over there.

Yes. So the trends are all looking pretty good, right? We're always got sort of our fingers on the pulse of just what's happening around the world. There are key markets more than just China, right? You've got China, India, Korea, Vietnam. And again, if you're really focusing on the global market that we address, you're also paying close attention to what are the student populations that are headed to Australia, who's headed to Japan? And so all of these are markets of ours where there really are many different sets of dynamics that all come into play. But your macro question was, what are we seeing overall? And 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, that market is really opened up very meaningfully. And yes, there are also places that I think you're just not quite yet going to see normalcy in terms of the levels of student travel, right? If you think about language schools, they've really -- even last year, still very, very far cry from where they would be in a normal environment. And 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 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. So 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. And 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. And so while that isn't directly affecting sort of our business. It does have indirect effects like the number of flights that are going to 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 want to get back. All of these are kind of macro normalcy trends that we like.

Sure, for sure. And 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. So what inning are we in, in terms of that cross-sell opportunity? And then what are the challenges that you might sometimes encounter when you're trying to execute that cross-sell and capture the domestic piece?

Yes. So again, there's a little bit of a global spend to this, but I'll focus on the U.S. since I think that's Jason, what you were mostly interested in. So 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. And so the early history of the company was primarily around serving clients in this cross-border international student use case. It's where we developed our good name, developed relationships and a footprint and it wasn't until several years later, really only a couple of years ago that we really put our focus into being able to provide domestic, right? These schools had sent to us, we like your solution. We like your software so much for cross-border why don't you just move all the money, and that brought us into this domestic solution and payment plans and this whole new area of complexity that we now serve. So we're in the super early innings of this, right? If you look at it across our client base, it's still single-digit percent penetrated with the domestic opportunity here in the U.S. And so it's 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 1. But we're very comfortable with land and expand. Land and expand has been a great pattern for us. And so 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. And so our proposition around the world is increasingly we can move all the money for you as an educational institution. And as you move around the world, frankly, it's even easier to bring that proposition because the sort of software capability is integrated with payment as you move around the world, really, 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 land and expand?

Yes. So internationally, that's quite a standard proposition, right? If you look at markets Switzerland, Italy, 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're displacing something and so you have to sort of align the timing. And 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. But if you look at a couple of the other ones announced on earnings calls, they tended to be the land and expand model meaning that they started with cross-border and then some number of years later added the domestic.

Yes. Yes. 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 elaborate on that and how do you guys measure success of that initiative over time? Is the goal here kind of more to just increase top of funnel and make the pipeline bigger versus trying to boost the win rates? Or is it a combination of all the above?

Yes. So we -- 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. So we did significantly expand that sales team really across each of the verticals. And we -- when we talk about go-to-market like there are 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. But probably compared to many other companies, our investment in relationship managers is likely more notable than you might see in some other places. And really, that's because what we've seen as a company is that we are very good at this land and expand and 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. And so one of the things we do talk about a lot is NRR in the company and the strength of our NRR. And so we do see the NRR as a product, not just of the sales team, obviously, but the RM team. When you -- so I think your question was, how are you thinking about measurement? And so the -- probably the two ways of measuring are, one, in that NRR. And secondly, looking at sort of traditional revenue operations, sales ops kind of metrics like pipeline, pipeline growth, ARR, average deal size. Some of the details that we've shared there are that we did see a 70% growth year-over-year in 2022 versus 2021, in terms of what that sort of aggregate pipeline value was. So we love that kind of growth. Q4 was, I think, even stronger with about 100% growth in that pipeline value. And we see other dynamics that we like, like average deal sizes going up across the majority of the verticals, right? So we see not only are we winning deals, if you look at our deals announced per quarter. It's been really solid last couple of quarters in sort of 140 to 145 plus range. And that, in combination with knowing that those deals are, if anything, getting bigger, not smaller than our average, all to us as it's a really healthy sales dynamic for the sales team.

Yes, for sure. No, 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. So I would love to just hear you articulate the strategy there, 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?

Yes. 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? So we have 4 of the top 10 largest 80-plus hospital groups. That number has actually probably grown a bit. And so we are there to provide them with a robust digital patient payment experience, right? So we're helping the hospitals get paid for that portion of patient responsibility for typically after insurance has paid its portion. And for these hospitals, it's a really big deal, right? So 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. So 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. And at the same time, they want to provide a great patient experience. They don't want to present a bill to somebody that presents an affordability problem for that. So 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. And 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. So Cerner, Epic, MEDITECH, those are three of the biggest names, but there are many others. There are hospitals that will have one system for their hospital portion, different systems for their physician network. And 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 coming from different portions of the hospital. So 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 our -- we are there sort of 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 being 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 the -- in what's let's call the App Orchard, but their version of the app store. And that's very important to our clients and our prospects because it means that our stuff they can see it works not just from the fact that it's in use in many of their peer institutions, but it's also available via the Epic App Orchard. So we really 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 health care solutions outside the U.S.? And if so, which countries might make the most sense to kind of start with there?

Yes. It's a supernatural question, given the global payment network and the health care expertise. And in fact, 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, but we have a whole list of great clients that are using us, some for both the domestic and international, some for just the international. And it is something that we think may have even more resonance outside the U.S. going forward, but I would tell you the real focus of the health care team is here in the U.S.

Okay. Okay. Understood. Presumably, it also gets a little messy in different countries with different types of healthcare systems and just kind of a different set of complexities.

We do have clients outside the U.S. I mean we are moving health care money cross-border and not just into the U.S. Like it is there. I just wouldn't want to kind of presented 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. Okay. Well, I also wanted to talk about travel. You have some unique focuses within the travel industry. So 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 sub-verticals within travel that are really on your radar for 2023 and beyond.

Yes. So we have a great travel business. We called out on the latest earnings call that, 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. And so 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. So really, it's three segments. We have luxury tour operators for that picture heli-skiing. Mountain bike adventure, safari all kinds of sort 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. And then the third segment, in some ways less familiar to folks, is called destination management companies, DMCs. And if you've organized a trip, pick your favorite cool destination, you want to go to Croatia, you want to 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. But unlike -- and they may well work in combination with the U.S.-based or locally based sort of travel agent. But really, it's the DMC that's putting your trip together, and that's been a great segment for us. Again, the thing that distinguishes it, we'll never be the provider of choice for JetBlue, jetblue.com, united.com. They need a great high-volume credit card platform, and that's not where we distinguish ourselves. But if you're in a business where, hey, this one is characterized by, we have some business rules, right? You are going to make an x percent deposit, 45 days before your trip, you're going to pay another portion, maybe 30 days before the trip you pay the final portion. This is again another example of software drives value and payments. And somebody who's good at that high volume thing, probably not going to be good at the kind of utility and invoicing engine that we provide in travel sort of split payment type capability that we provide in travel. And so that's where our, again, software drives value and payments takes on a slightly different look. But again, that's where we really distinguish ourselves and find this great set of segments that are 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? We still -- 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 sales or relationship management in big parts of the world that have very fertile travel businesses. And so lots of opportunity in that sense. But you're also right, Jason. It doesn't mean we've stopped looking for additional segments, right? Like even things like the whole golf industry, that's a sort of fertile territory tours, the whole tour industry, like 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 an accommodation. There's much more as you look around the world of interesting operator activities and the nice thing about the travel business is that it's incredibly fast moving. And so you -- the sales cycle is shorter. The implementation cycle is super short, measured in days or a couple of weeks typically not quite the complexity you'd see, for example, in healthcare. And so what we love about it is when you find the new segment, you can go chase it hard and you may find that you can sign up a whole slew of clients rather quickly.

Yes, pretty fragmented, right? So you get a lot of shots on goal, I suppose. Were -- I guess, how cross-border-centric is the -- is your travel business?

So certainly, the segments that we look at like in many things, one of the distinctive identifiers of 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. But oftentimes, that is where we will distinguish ourselves in the eyes of a potential client. That's where we can drive really tremendously beneficial economics for them. And so you do see that our business skews certainly to having a lot of cross-border in that travel business. But just to be clear, the value proposition in travel in all the countries where we have the full domestic capability because we'll do everything for you.

Okay. Yes. Understood. So your fourth kind of 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. So 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 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 because of where a lot of the attention or noise is to get the B2B payment landscape. So just of be real clear, we -- our competition is largest around. We help our clients get paid. We help them collect the money. So whereas a lot of what you hear in B2B payment space is about the AP side, how to pay the bill. We believe that the strategic side to play is the receivable side. Now if I make the comment, I don't know the CFO that's been promoted because they're really good at paying the bill. On the other hand, I know CFOs whose success and failure is very [indiscernible] whether they're good at collecting the money. And 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. So way more flexibly than might be the case if they had to go do all this work themselves, like go figure out how to establish entity in Brazil so that they can start getting [indiscernible] so they can accept payment in Brazil. [indiscernible] spend a year at it, or 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. So the value proposition is we help you get paid. We look for clients that are sort of in this $100 million to $2 billion range as being our sweet spot. We've enjoyed the most success in subsegments 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. And 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. So FranConnect is a software and technology platform for the franchise industry. For those of you who know franchises, obviously, they're collecting -- 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. So we announced an example of a restaurant franchise where they're going to be collecting the franchise fees from around the world, and they'll be using Flywire to do it. So whether it's a software company, collecting its SaaS-type software fees, manufacturing company, like export diesel that we announced, which is, obviously, sort of in the parts manufacturing type category, insurance franchises like it's really about being great at a couple of things. It's great about -- it's important to be great at the integrations into the systems that matter. So being great at integrating the NetSuite, YayPay, a whole set of other partners that we have that are kind of 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? So 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. And of course, in B2B, you start adding B2B functionality, right? So you don't have in the other verticals, a use case like I might actually have 10 invoices that are payable to a company, but I only want to pay three of them today. And so how do I basically select those three, make a payment against those three. Perhaps I have to add a comment because I'm short paying 1 of the 3, and I want all of that information to be understood in a simple, single interaction, not start a bit back and forth in e-mails and all that. And 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.

Yes, it's interesting. It's almost like -- I know you guys call B2B to be 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? So it's kind of unique in that regard compared to your other lines of business.

Yes. 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 want to use, being received by companies that use the kinds of software systems that businesses all use and that is a big part of it, but you also learn that there can be very specific things that you do for certain kinds of businesses, right, that just sort of the functionality that matters specific to that subsegment. And 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.

Yes. 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, a bank provided set of wire instructions for money coming in. There are other players targeting the AR side, but it is, comparatively speaking, a way more greenfield where the real 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 kind of think generally about the components of your NRR. Is this kind of a level that we saw last year? I mean, is that sustainable? Or was that kind of significantly inflated because of travel recovery, for example?

Yes. I mean if you look at that 124%, the way folks often kind of think about it says, hey, sort of what's a 3-year blended NRR just because you want to take out some of the noise of COVID perhaps and things like that. But almost how -- whatever 3-year window you pick, you see that sort of that 124% is in the range. If you look at 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, very well. And so 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. And that NRR 124%, frankly, was in a year where we did get a bunch of sort of FX headwinds and that 124% would have been higher, but for the FX headwinds that we encountered. But we still like -- we like the number in that range and I think that's sort of the right way to think about NRR for us. And getting to your question, driven really by a couple of things, right? They all are a version of land and expand, but there are a couple of key flavors. So a very typical thing for us is to win a portion of someone's business. I described that hospital. We win the hospitals and then later we win the physician group or we won part of the hospitals, but not all or we started with post service. But in healthcare, there's pre-service, point of service and post service. And with everything going on in health care, 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? So there's education examples of more product, there's B2B example of more product. And so 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 kind of tested it with European properties, loved it and rolled it out then to all of their Americas properties. And so that's another dimension of expansion. And 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 because we've got a lot of the big ones onto the network. But when you improve a capability, make it easier in another country to put more volume on the network that's something that then has sort of an effect across our verticals, right? It may help the travel business and the education business, maybe the B2B business as well. So those are all dimensions of this strong NRR and how it grows.

Let's maybe wrap up on margins. You guys laid out kind of some intermediate margin targets at last year's Analyst Day and then some longer term. So 10% to 20%, I think you were looking at over the subsequent 2 to 4 years and then kind of 25% or so longer term, let's call it. So it seems like based on the 2023 guide, you'll be getting close to the lower bound of that medium-term margin guidance this year in all likelihood. I guess then there's a little bit of -- more of a gap to get to that long-term target. Just generally speaking, what are the drivers that kind of get you there over time as you guys see it?

Yes. So what we laid out in our Investor Day in that sort of push to 10 and ultimately to 25-plus percent EBITDA margin was that we would aim for 3% to 6% margin expansion per year. So what we laid out for this year in the guidance was right around that 300 number. And part of that was just the path that we're on, right? So we're able to expand that margin because 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, and this was 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. So we're going to hire still, we're going to invest in the business still, but at a far lower rate than we had in prior years. And 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 annualization effect going into 2024 than we did coming into 2023 given how much we had expanded the team in 2022. So we'll have a lot of flexibility going into 2024. Not going to sort of predict or call anything now, but 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 want to 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, but thank you very much again for joining us remotely. Thanks to everyone who participated. And our next session will start at 11:15 Eastern Time with the firm. So thanks, everybody.

Jason, thanks so much. Appreciate it.

Take care. Bye.