Flywire Corp (FLYW) Q2 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Flywire Corporation Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Masha Kahn, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon. With us today are Mike Massaro, Chief Executive Officer; Rob Orgel, President and Chief Operating Officer; and Cosmin Pitigoi, Chief Financial Officer. Our second quarter 2026 earnings press release, supplemental presentation and, when filed, Form 10-Q are available at ir.flywire.com. Today's call is being recorded and will be available for replay on our website. During the call, we'll be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these statements. In addition, unless otherwise indicated, all financial measures discussed on this conference call are non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks related to forward-looking statements and the required reconciliations of non-GAAP financial measures. With that, I'll turn the call over to Mike Massaro.

Thank you, Masha, and thank you to those joining us today. We are excited to announce yet another quarter of strong revenue and EBITDA growth as well as momentum in the business continuing to build. Signed deals are getting bigger and clients are replacing legacy providers and point solutions to consolidate onto Flywire. We will take you through the quarter in much more detail. But first, I want to step back because I want stakeholders to see Flywire the way we do. We continue to deliver solid growth and the quality of that growth is improving. We are converting incremental dollars of gross profit into durable earnings, expanding our free cash flow, and we believe we are well positioned to continue gaining market share. Let me explain why Flywire's moats and financial model don't just coexist. They compound, each getting stronger as we scale. You know the Flywire model. We go where others are unwilling or unable to go, embedding into complex mission-critical workflows and solving payment challenges that are larger, more international and far more difficult than simple checkout transactions. That complexity is our moat, and it deepens on its own. Rising regulation, expanding global flows and deeper integration requirements are headwinds for simpler competitors and tailwinds for Flywire. Once deployed, we become critical infrastructure with revenue churn across enterprise clients in education and travel below 1% as of 2025. So today, I also want to put our model into financial terms, what it means for revenue, margins and cash flow over the next few years. As CEO, I am focused on three core metrics. First, revenue and gross profit dollar growth. On this foundation, we are aiming to achieve $1 billion of annual organic revenue within the next few years. Given the free cash flow this business is expected to generate, acquisitions remain an additional powerful lever. Our diversification engine underpins the path. Growth outside our traditional Big 4 education markets continues to outpace the overall business. Differentiated software offerings like SFS are driving domestic growth above and beyond visa trends. Travel continues to perform well, and the payments monetization in our hospitality business is outperforming our expectations. Our smaller verticals, B2B and health care, are gaining scale and becoming growth contributors on their own. Second, EBITDA margin progression. We believe a 30% adjusted EBITDA margin is achievable over the next few years, with most of the expansion coming from operating leverage we can already see in our expense base. The productivity gains from our transformation are real. They are improving both LTV to CAC and our cost to serve, proving that operating expenses can grow well below gross profit growth for longer. Scaling fast organically and through acquisitions naturally adds costs and friction across systems, vendors and processes. We are consolidating that into a leaner foundation purpose-built for the next phase of growth and scale. At the center of this is our payment platform investment. We are unifying systems onto a single modern payment architecture. Our digital transformation is rearchitecting our internal operating system so that our people and AI agents can seamlessly work side by side to structurally lower our cost to scale. Because these investments fundamentally change how work gets done, the operating leverage they create is durable. Third, multiyear free cash flow and GAAP earnings growth. Free cash flow generation and capital efficiency are central to long-term shareholder value. We remain highly committed to strong free cash flow conversion alongside continued discipline on stock-based compensation and dilution. Combined with a strong balance sheet, this cash flow generation is a powerful source of strategic flexibility. We can invest organically, repurchase shares and stay opportunistic on M&A, all from a position of strength and all while growing free cash flow per share. Durable gross profit growth, compounding earnings and expanding free cash flow. That is how we intend to build shareholder value. But reaching our $1 billion annual organic revenue target requires high conviction and concentrated investment. Today, we are directing our capital into three core areas. First, gaining share and expanding our software moat. We are actively investing to expand our software and workflow capabilities across all verticals, such as investing in more functionality and integrations for SFS and taking our hospitality software from a historically U.S.-focused business into a global hospitality platform. Second, expanding our payments platform. As our volume scales, we are driving operational discipline to improve unit economics and strengthen our value proposition: better corridor economics, deeper local banking relationships and a cost per transaction that is expected to decline as we grow. Third, our digital transformation, a major priority in strengthening internal operations through data architecture investments, AI integration and systems consolidation. This is designed to drive productivity and long-term operating leverage across the business. Cosmin will walk you through the rigorous financial framework we use to evaluate these organic investments alongside our broader capital allocation and share repurchase strategy. Our ability to confidently execute this capital strategy stems directly from our resilience in the market. Our team continues to deliver in an uncertain macro environment. What matters most is that clients are seeing ROI from consolidating their payment flows on Flywire. Some clients need help to grow while others are automating to reduce costs. Across all market conditions, the value Flywire delivers speaks for itself and interest in our solutions continues to grow, both in markets that are under pressure and those that benefit from higher numbers of international students. Let me be direct about the current environment. The macro backdrop remains challenging. We see recent negative trends in U.K. visas. Australia has raised visa fees again, and regulations in both the U.S. and the U.K. have become more stringent. Enterprise sales cycles are long and large health care deals like Cleveland Clinic can boost growth one year and create a tough comp the next. But here's what really matters. The Flywire business is vertically diverse, geographically diverse and has multiple product growth levers. This means we can navigate challenging macro conditions while hitting the framework I just described. We don't need conditions to improve to build a business with $1 billion in annual organic revenue with 30% margins. And in some ways, the industry pressure works in our favor. When institutions face cost and volume pressure, the case for automating manual payment flows gets stronger, not weaker. When they consider choosing a partner for the future, they look to companies that are innovating, growing and financially strong. Ultimately, Flywire is succeeding on the strength of our business, not because of easy market conditions. Let me now shift to AI and how it is becoming an enabler for Flywire. AI increases the value of whoever owns the workflow and the data, and we own both. This quarter, I want to show you how this thesis is playing out in delivering real results, not projections. About 45% of customer inquiries now resolve automatically without human intervention. With the support platform adopting generative AI across chat, e-mail and phone, we are targeting over 50% auto-resolution rate by the end of the year. More broadly, AI is embedded across Flywire's engineering and product teams with frontier models, shared best practices, strong governance and autonomous agents handling tasks like code retirement, conflict resolution, bug fixing and test maintenance. This allows our teams to focus on building new products, making digital transformation a fundamental shift in how work gets done, not just a cost-saving initiative. AI is transforming our go-to-market as well. Enablement is now always on. AI captures winning tactics from live client conversations and delivers them as continuous coaching, cutting new hire ramp times and scaling the Flywire way without additional management overhead. In closing, none of this happens without our Flymates. We recently completed our company-wide engagement survey called Flyover, and the results were strongly positive. Our teams are embracing AI and the productivity it unlocks. They tell us they feel more creative and more energized in their work. Ultimately, transformations succeed when people lean into them. Flymates are doing this. And that kind of organizational momentum is rare. Flywire is a great business with a powerful financial model and an exceptional team, and we are built to keep getting stronger. With that, I will hand it over to Rob to take you through more details on the execution from the quarter.

Thanks, Mike. Q2 results continue to reinforce the fact that our modern product portfolio is widening our competitive moat, and we are systematically taking share from traditional payment processors and point solution providers across every vertical we serve. We signed over 200 new clients across 45 countries and all verticals, the second consecutive quarter at that level. Signed ARR continues to benefit from existing client land and expand as well as larger average deal sizes. Travel led the new client count followed by education, and we are very excited about the pace of signings even as we deliberately move towards larger, more strategic engagements. Last quarter, I laid out three themes defining our business: strategic vendor consolidation, geographic diversification and software-led monetization. Those weren't one quarter observations. They're structural growth drivers. So today, I want to walk you through how each of these three themes is driving consistent results. Starting with strategic vendor consolidation. Our client conversations typically start in the same place. We hear about too many vendors, too many manual workflows, too much payment complexity and a great many of those conversations end in the same great place, consolidation onto Flywire. As an example, the University of Liverpool has signed for our SFS platform in the U.K., a win that showcases the full value of the suite. Liverpool has everything that makes student finance hard: a large international enrollment paying from dozens of countries, domestic students on plans, parent access requirements, refunds, hardship cases and more, all running through manual processes and a patchwork of systems. We're consolidating that onto one platform. For students and families, a modern portal with real-time balances, authorized parent access and self-service payment plans. For the university, a real-time integration with their Unit4 ERP that will eliminate many hours of manual posting work, reduce merchant fees and give their finance team a unified automated view of student financial activity. We continue to see strong interest in SFS in the U.K. In the U.S., we signed three new SFS deals this quarter, with an ARR value double the signings in the same quarter of 2025, and our pipeline continues to build. When an institution is genuinely ready to switch providers, we believe we win those opportunities with SFS far more than our competitors. What's driving these wins is ROI institutions can measure. SFS pays for itself across three dimensions. First, operational efficiency. Automating billing, payment plans and past-due outreach has reduced inbound student contact volume, in some cases, by 40%, letting school student finance teams run leaner, even as enrollment complexity grows. Second, cash flow. Self-service payment plans have driven roughly 50% higher plan enrollment with default rates falling from as high as 34% to below 2%. And third, revenue recovery, a solution we pioneered. Our clients have now collected more than $360 million in past-due tuition in-house, saving over $70 million in agency fees. For many institutions, the ROI is highly attractive compared to the license fees they pay Flywire. That is the essence of consolidation: one billing-to-collection platform replacing a billing vendor, a payment plan vendor and a collection agency and paying for itself in the process. Shifting to experiential travel. Our deal sizes are rising as travel groups merge and migrate more of their entities onto Flywire rails. Again, consolidation working in our favor. Win rates continue to improve. Our brand carries real weight in this market and the TAM remains largely unpenetrated across golf, hiking, cycling and many other luxury experiences. The second theme is geographic diversification, and we drove strong growth outside our traditional Big 4 markets of the U.S., U.K., Canada and Australia. We saw education revenue grow outside those markets by over 30% year-over-year in Q2 and approximately two-thirds of the new education clients we signed were in growth markets outside the Big 4. In Europe, international students continue to diversify destination markets, and European universities are responding. Some are introducing more English language programs and some are charging higher fees. We are particularly happy to see strong share gains in Spain and Switzerland and continued strong momentum in the private K-12 segment. We are positioning Flywire to benefit from trends favoring student and tuition growth in Continental Europe. In Asia, we are executing well in markets that are opening up to international students. South Korea and Japan are actively courting international enrollment to help address shrinking domestic workforces. We are winning there. This quarter, we went live with a number of prestigious universities in both countries, and our regional pipeline continues to build. Wrapping up my comments on why we win in global education. In Canada and Australia, where the broader markets remain under policy pressure, our growth is powered by share gains. This quarter, we started processing payments for Sheridan, a major Canadian college where international students make up over 8,000 of roughly 20,000 enrolled; and for Bond University, Australia's first private nonprofit university, a prestigious Gold Coast institution with one of the highest international student ratios in the country. Wins like these in constrained markets are the clearest evidence of our share gains. Finally, speaking to our software-led monetization, our software-led approach has been a key catalyst for capturing and monetizing payment volume. It's at the heart of Flywire doing what others can't. Our hospitality software, which is used across over 20,000 properties, streamlines workflows and where it's combined with our payments offerings, replaces costly and insecure manual card processing with customer-initiated payments such as ACH, card surcharging and local methods, along with providing enhanced security from capabilities like 3D Secure. The results are striking. Payment fees dropped meaningfully, in some cases, by more than half and win rates on disputed transactions more than double. Our ideal hospitality customers are luxury resorts and properties managing high-value stays and complex events. Notable recent wins include contracts with large hotel management groups such as Peregrine Hospitality, Avion Hospitality and Marcus Hotels & Resorts, each of which owns or manages a portfolio of hotels and resorts well suited for our hospitality solutions. Having proven the model in the U.S., we've signed more than 40 locations across Europe and Asia year-to-date, and we believe we are just getting started. In Education, as we deepen the software layer around our payments platform, clients are renewing for longer terms and on economics increasingly favorable to us because the software has become embedded in how they operate. We see this dynamic of longer and better terms compounding over time as we continue to deliver for our clients. We're seeing software-led monetization work across our other verticals, too. In health care, the patient financial experience platform is now live with payment processing across multiple clients, including additional go-lives in Q2, a good example of software attaching to payment processing. In B2B, we replaced the legacy pattern— invoicing out of the ERP, payments through the bank and heavily manual workflows—with a single invoice-to-cash platform from Flywire. What is most exciting right now is our velocity and depth of capture. Increasingly, new B2B clients are adopting both our invoice software and payments from day one. This quarter's wins show the breadth of demand: a digital asset management company automating its AR operations, a wealth management firm signing for the full suite of invoice plus payments, and an international insurer collecting premiums globally. All serving finance teams drowning in manual work for whom a unified AR and payments platform is an immediate measurable efficiency gain. Those three themes, consolidation, diversification, software-led monetization, aren't just how Q2 played out. They're how we expect this business to build for years. Cosmin will now take you through the strong financial performance this quarter and future outlook.

Thank you, Rob. I will cover our financial performance for Q2 2026, discuss our capital allocation philosophy and provide our updated full year outlook and additional details behind the longer-term ambitions. Q2 performance strength underscores the resilience of our diversified portfolio with results coming in ahead of expectations. Total revenue less ancillary services reached $164 million, up over 28% on a spot basis and 27% FX-neutral growth. Our outperformance versus the midpoint of our guide on an FX-neutral basis was largely driven by our travel segment, which continues to pace ahead of our expectations. This strength was specifically fueled by hospitality payments being a strong ramp. Our education revenues were also ahead of expectations. The stronger-than-expected payment processing volumes from health care alongside our B2B invoice migration drove an approximately 7-point growth tailwind to payment processing in Q2, ahead of the mid-single-digit impact we guided to. We expect this payment ramp to decelerate in the second half as we annualize these revenue streams go live. Transaction revenue was $135.9 million, up 35% year-over-year. This was driven by 43% growth in transaction payment volume with continued contribution from education, both cross-border and domestic as well as travel. As a reminder, quarter-to-quarter blended yield can vary with mix, especially as domestic payments ramp up. Higher domestic volumes and greater credit card penetration carry different economics than cross-border flows. On a like-for-like basis, pricing remains stable and competitive behavior continues to be disciplined. Our spreads reflect the value we deliver: compliance, reconciliation, ERP integrations and enterprise-grade infrastructure, not commodity payment processing. Platform and other revenues were $28 million, up 3% year-over-year, primarily driven by growth in hospitality. Adjusted gross profit reached $93 million, increasing 19% year-over-year at spot. Importantly, this 19% gross profit dollar growth is successfully converting into adjusted EBITDA margin expansion, demonstrating real operating leverage. Adjusted EBITDA was $24 million, resulting in a 14.6% margin and expanding approximately 160 basis points year-over-year, which was above the upper end of our guide. The strength in adjusted EBITDA reflects gross profit growth and continued operating leverage across every expense category. Our adjusted gross margin of 56.6% was down by approximately 450 basis points. Margin dynamics are driven by three factors: mix, FX and temporary large payment processing ramps, not competitive pressure. This quarter, the margin change was primarily driven by approximately 300 basis points from the mix contribution of higher payment processing revenues from health care and B2B that began ramping in the second half of 2025. The balance of the margin change was due to continued vertical mix shifts. FX on settlement impact in Q2 was $0.7 million on an absolute basis, but we did benefit from a favorable year-over-year comparison given the headwind we experienced in Q2 2025. Excluding the approximately 300 basis points from this ramp activity, our normalized gross margin decline would have been around 150 basis points, which is squarely within our expected normal annual range of 100 to 200 basis points. We emphasize that these current ramp dynamics are temporary and will be largely complete by the end of 2026. In Q2, we had a GAAP net loss of $8 million, improving versus a $12 million loss a year ago. The second quarter is our smallest revenue quarter with net income and free cash flow generation seasonally depressed and expected to reverse in Q3 and both be strongly positive for the full year. Turning to capital allocation. We are disciplined allocators. Every dollar competes on expected return through an IRR framework that weighs organic investment, share repurchases and M&A against one another. That is why we repurchased shares aggressively into dislocation and why organic investment is concentrated in our highest conviction areas, and why we remain patient on M&A. Our balance sheet remains strong with approximately $167 million in corporate cash, giving us significant financial flexibility to remain opportunistic, manage dilution, pursue acquisitions while continuing to invest in the business. Moving to guidance. We are raising both revenue and EBITDA guidance for the full year 2026. We now expect 21% to 27% FX-neutral revenue growth with approximately 3 to 4 points from payment processing ramps in B2B and health care, and roughly 1.5 points of inorganic contribution as we lap Sertifi. Full year 2026 adjusted gross profit is expected to grow at high teens year-over-year at spot. We expect approximately 200 to 400 basis points of full year EBITDA margin expansion, reaching approximately 23% at the midpoint. Stock-based compensation remains targeted at approximately 10% of revenue, and we are aiming to reduce our new stock issuance in dollar terms every year. Alongside this, we continue managing gross and net dilution in a disciplined manner, targeting less than 2% dilution this year and less than 3% on an ongoing basis. Furthermore, we maintain our expectations of free cash flow conversion of 70% to 75% of adjusted EBITDA and upgrade our expectations for GAAP net income to grow fourfold this year to over $50 million. Our Q2 performance, combined with more upside from payment-related product ramps through the remainder of the year leads to upgraded full year 2026 guidance despite our more cautious assumptions around education revenues. Before I walk through the details, let me flag the shape of the growth from here. Several of our newer revenue streams are ramping faster than we planned this year: payment processing in both B2B and health care and Sertifi, which is domestic payment processing, is accelerating ahead of our expectations. That's a good problem. These investments are converting sooner than we modeled. This has two consequences worth setting upfront. First, this accelerated ramp makes 2026 a stronger revenue base, which creates a tougher comparison as we move through the second half and into next year. Separately, and as we assumed coming into the year, we expect U.K. education revenue growth to slow. That's already baked into our outlook. Second, because these streams carry lower gross margins than our blended average, full year gross margin decline would be higher than the range we previously discussed, closer to 350 basis points on a reported basis and closer to 200 if normalized for the current payment ramps in health care and B2B. Let me be clear on that second point because it matters. These ramps pressure gross margin, but not EBITDA. The pressure is pure mix. Processing volume carries a lower gross margin rate, but very little incremental OpEx because it runs over infrastructure and relationships we already have. So every gross profit dollar converts to EBITDA at a high rate. Q3 2026 guidance. Our approach to guidance hasn't changed: prudent, transparent and data dependent. Visibility into the peak is always relatively limited at this point in the year. So we've talked to agents and to our clients. But we don't take that input at face value. In the U.S., they expect declines, but are more optimistic on average than our assumptions, and we've held to a 30% visa decline. In the U.K., we are seeing higher visa rejection rates in Q1, and we've baked that in. In both cases, we weigh what we hear against what we're seeing in our own data, and we've set our assumptions from there. For Q3 2026, we expect FX-neutral revenue growth of 16% to 22% year-over-year. At current spot rates, we anticipate almost no FX tailwind. Gross profit dollar growth is expected in the low teens range at spot rates, including an estimated 1 point headwind from FX on settlement year-over-year dynamics. Adjusted EBITDA margin is expected to expand by approximately 200 basis points year-over-year at the midpoint of our guidance. One timing dynamic on the Q3 versus Q4 split. A meaningful share of our education volume settles around U.K. deadlines in early October, right as the Chinese national holidays fall in late September and early October. Payers heading off for the holiday may settle ahead of that deadline, pulling volume that would land in Q4 forward into Q3. That moved roughly 2 points of growth from Q4 to Q3 last year. That cuts both ways in this year's comparisons. Q3 is lapping a quarter elevated by that pull forward, while Q4 is lapping a base reduced by it. So Q4's year-over-year growth rate will look better than the underlying trend and Q3 is worse, assuming no repeat of the Chinese payer behavior this year. Holiday timing differs slightly this year and payer behavior is hard to predict. Either way, the cleaner read is to look at our performance for the second half as a whole. In closing, as we scale towards our $1 billion in revenue and 30% adjusted EBITDA margin goal over the next few years, we're focused on structural operating leverage. Transformation investment peaks in 2027, with material savings expected to come through thereafter. So we expect operating costs to stay roughly flat beyond that whilst continuing to invest in strategic priorities. Investments in consolidating platforms, scaling data, AI, systems and automation are already boosting engineering and sales output, letting us streamline R&D, optimize sales and marketing, and redeploy savings into growth priorities and AI-enabling architecture. Even through this planned peak investment period, we have contained OpEx growth, and we are now targeting approximately 25% adjusted EBITDA margin by 2027. In closing, Q2 demonstrated the durability of our diversified platform and the scalability of our operating model. We are managing for a specific outcome, durable, profitable growth in an environment where top line growth is normalizing. And here's what gives us confidence. Operating leverage compounds independent of the top line cycle. So even as revenue growth moderates, and we do expect it to, the algorithm holds. The combination of growth and profitability we deliver stays firmly in the range this business has always targeted. That is the promise of our digital transformation, margin expansion that holds at scale through the cycle quarter after quarter. Along with our Flymates embracing our vision, I am very excited about what we're building and how far it lets us scale. I'll now turn it back to the operator for questions.

Our first question comes from Nate Svensson with Deutsche Bank.

Nice results. I think I'll start off just asking about the international visa situation in the U.S. I know there's been a lot of proposals and news written on potential new regulations. Wondering from your perspective, probability of any of these proposals going through and any concerns that this could create some demand destruction similar to what we saw in other geographies. And more broadly, it still feels like the 30% visa reduction looks conservative, but I know we're kind of right in the heart of the most important months here for F-1 visa issuances. So wondering if you could give any color that you have either from your end clients or some of the third parties that you work with on what's going on in the U.S.

Nate, it's Mike. Yes, as you mentioned — I'll start and I'll let Cosmin speak to a little more of the specifics around what's in the guide. Obviously, you're seeing various headlines around the world continue. Again, I think that's part of the reason coming off last year, we've taken a prudent approach to how we look at this and we look at it by region and by market. A lot of these are statements or proposed policies. They're not approved policies and they're not in place. Historically, we've seen the headlines often be a lot worse than the actual end results. So again, we're being prudent. Cosmin has taken that into account in the way in which he looks at different regions in the guide, and I'll let him comment on that.

Yes. As you said, Nate, we've always taken a prudent approach to that 30% decline. We're about a month into the quarter, so we do have some visibility into the overall trends. As you know, the U.S. usually peaks around August, and so we do have some visibility into that, but we feel pretty good that we've taken the right prudent approach. It's a multiyear thing that we look at. So I feel good that we've taken a deliberate and prudent approach to the U.S. assumptions.

Yes, agreed. I appreciate the color. For a follow-up, I wanted to ask on the three new U.S. SFS signings, specifically on the commentary that they came in at double the ARR of the prior year quarter. I wonder if you could talk about the ARR portion of that specifically and what's driving the strong year-over-year expansion. I assume a lot of it is the land and expand strategy you've talked about before. Anything on pricing? And then beyond the recent deal signings, how sustainable do you think the growth in ARR with these SFS wins is going forward?

This is Rob. We're excited about the progress we've made here. You called out the doubling of ARR for those U.S. deals. It's part of the strategy. We are focused on full-suite deals and on enterprise. We are putting a skilled and expert sales team in the field to deliver enterprise-quality deals. Further, I think our name is getting better in the market as we've delivered for some of the logos and institutions we've talked about on previous calls. It's a connected industry where people talk to each other, and our name is very good out there. So in terms of confidence going forward, we feel very good about the second-half quality of the pipeline and what we expect to see for the rest of the year.

Our next question comes from Dan Perlin with RBC Capital Markets.

Good results here. I just wanted to ask, Mike, about the mix of what you envision this $1 billion of organic revenue to look like as you think about education, travel, B2B, health care. How do you think that will change through the course of this multiyear strategy? Any vertical callouts?

Dan, thanks for the question. Think of the things that have driven our growth so far. You've seen great growth and we called out travel and B2B; we expect those trends to continue. The education business continues to perform well, and we continue to layer in software there. That fits into where we expect it to go: more software in education, continued growth in travel and B2B in particular. The hospitality expansion internationally is a key part of that and we expect it to have a multiyear effect. You may see a slight mix shift, but it's pretty consistent with what you've seen in the last few years.

Okay. That's great. Going back to the geographic diversification: the education markets outside the Big 4 grew 30% this quarter. It was 40% last quarter and 30% before that. It's materially outpacing everything. You mentioned Japan and South Korea actively looking for students. How big is that market today in terms of mix? That positive mix shift is attractive if you aren't dealing with as much regulatory issues. Any color on that would be helpful.

Dan, we've previously segmented that part of the business as roughly low-teens percentage of 2025 revenue. As you called out, we saw 30% growth outside the Big 4 in this most recent quarter. I made a trip to the region recently and felt the opportunity. I visited institutions and heard how Flywire can solve front-and-center problems for them. You see them adapting to increased international student interest and adapting our solutions to serve them well.

Our next question comes from Madison Suhr with Raymond James.

I wanted to start on the U.K. Obviously, it's a key market for you, comprising about one-quarter of revenue. Visa trends have been challenged, but can you touch on where you see the most opportunity in the region, whether that's domestic cross-sell, SFS penetration? Do you think the region could still grow above company growth rates for the year despite some of these visa headwinds?

I'll start on the assumptions in the guide, and I'll pass it to Rob to talk more about market drivers. U.K. macro backdrop has softened, so we thought it prudent to adjust our visa assumptions. Historically we've seen mid-teens visa declines; we're assuming a bigger decline than that for the guide. That said, we still assume the U.K. remains an important growth driver, even though we assume deceleration into the second half because of the levers we've talked about and because quarter-to-date data is a small sample size. We feel good about what we've heard on the ground but are taking a prudent approach.

In terms of market opportunity, we feel really good about our positioning in the U.K. We previously talked about moving all the money on behalf of our clients and two mechanisms to do that. One measure is the number of clients where we move 90% or more of their money using our internal method. We had approximately 12 in that category previously; that number is about 20 now. The second dimension is growth in SFS footprint inside the country. Our attach rate is still low and we're working to build that. A main thing we're doing is increasing the number of integrations into core systems that serve the university community: Unit4, Oracle, Tribal. As U.K. schools see us succeed with their peers, they are more inclined to work with us.

Okay. For a follow-up on non-Big 4 regions: near-term focus is winning clients with healthy international student enrollment. Over the longer term, do you have similar ability to cross-sell adjacent products into that region? What can drive NRR growth in those markets over time?

Madison, if you look at our other offerings in the education suite, we've always had global aspirations and we continue to have them. In many international markets, readiness is a question: the student information systems, partnerships and integrations needed. Often we're digitizing the payment experience, which is significant for them. When they think about a full student account portal like those in major markets, they may not be ready yet. We'll be opportunistic where we see those opportunities. There's also a huge opportunity in the top 4 markets, so our focus is executing there, but we see long-term opportunity for our product suite outside the top 4 as well.

Our next question comes from Michael Infante with Morgan Stanley.

I wanted to ask a bigger question to contextualize the multiyear SFS opportunity and how you expect the unit economics to evolve. You've spoken about SFS being a multiplier to both revenue and gross profit, but mix is shifting more toward domestic volumes which carry lower yields than cross-border. How do you think about offsets to that mix shift and how much incremental volume you can capture with SFS over the next few years as you march towards the $1 billion revenue target?

Michael, think of gross margin mix as a positive overall. It is a mix of software and domestic, but it still blends to something very good for Flywire and helps maintain strong gross margins. Over time, we're seeing our SFS economics actually improve: average deal size is increasing and renewals are strong. When you get SFS, you get all the volume—domestic and cross-border—through one platform. That is a core part of our strategy to maximize client value.

On the numbers, one disclosure: the domestic business in the U.S. is about one-third of overall revenue. Think of that as above-company-average growth in general. Given what Rob said about SFS success, we expect that one-third of the U.S. business to continue growing faster. That's a reason why we're able to guide U.S. education revenue to grow in the low single digits this year, given pressure on cross-border. The gross margin remains solid: when you move from cross-border to domestic, you get more payment plans and more software. There's still a solid two- to three-times kind of gross profit dollar increase, and that runs over the same cost rails for us. So it's strong EBITDA dollar flow-through because it's on existing clients and existing relationships.

That makes sense. Quick housekeeping on the U.K. revenue growth: I think you removed commentary in the presentation about U.K. and EMEA growing at or above company average. Should we assume U.K. revenue growth is dilutive to the aggregate business this year? The visa expectation was reduced marginally but U.K. is a strong SFS and domestic payments market, so trying to contextualize that dynamic.

We expect the U.K. to decelerate in the second half given our assumptions. We're taking a prudent view and will update as the quarter progresses. Yes, the U.K. is assumed to exit at a lower rate than the overall company, but we have SFS and other levers that give us confidence we will continue to gain share long term. It's all reflected in the guide.

Our next question comes from Cris Kennedy with William Blair.

Cosmin, you mentioned the stronger revenue guidance this year may create a more difficult comp as we get into 2027. Any way to think about some of the growth dynamics as we get into 2027?

As we sit halfway through the year, you can look at exit rates. Given the timing dynamics I discussed, look at the second half as a whole: that's roughly a high-teens FX-neutral growth rate. If you take out roughly two to three points of payment processing ramps I mentioned, normalized for those ramps you'd be closer to mid-teens growth. Also remember Q1 this year was extremely strong and included a mid-single-digit tailwind, which affects comparables. We're not yet giving formal guidance into next year, but those directional comments should help.

Great. Any more color on your K-12 business and how it compares to higher ed?

K-12 has been a long-term segment for us. We're seeing interesting pockets and markets around the world where we've begun pursuing opportunities we may not have previously. It's under the umbrella of diversifying international mobility and our sales team is identifying and winning good opportunities.

Our next question comes from Tien-Tsin Huang with JPMorgan.

You discussed AI and scaling efforts. I'm curious about visibility into the expense base given AI inference costs and productivity changes. Any change in visibility on expenses, and how should we think about OpEx trajectory given AI investments and transformation?

We've gained better visibility into OpEx as we've dug deeper over the last few years through transformation. The improvements from transformation benefit three components: individual Flymate productivity via AI tools, functional productivity across client service, sales, marketing, risk, operations and payments, and G&A where we're reducing manual work. Engineering has access to models that increase output. We haven't had surprises in OpEx. We expect OpEx this year to be up in the mid- to low-single digits, next year implied low- to mid-single digits, and then relatively flat beyond the 2027 transformation peak. We feel quite good about that given visibility into the cost base and the enterprise-level opportunities to be more efficient.

Thanks, Cosmin. On M&A, you said you're being patient. Is that appetite-driven, resourcing-driven, or valuation-driven patience? Any additional color?

Tien-Tsin, we continue to see attractive organic investment opportunities. From a capital allocation perspective, if there's a chance to buy back stock we may act, and we see some dislocation. We're also integrating two recent deals and want those to go well. We're actively monitoring the market but are being patient to find the right strategic fit at reasonable valuations.

Our next question comes from Jeff Cantwell with Seaport Research.

About the $1 billion revenue and 30% adjusted EBITDA targets: can you help with timing? Is this a two- or three-year target? Any vertical callouts for why you're confident? Sertifi and core travel have been doing well; is that part of the reason for confidence?

We're excited about the milestone, but we're not putting a specific fiscal year on it. Think of it within our normal three-year planning cycle. We gave guidance to roughly 25% EBITDA into next year as a stepping stone. The path is in our three-year plan and we see it as a multi-year milestone rather than a single-point-in-time target. The plan is prudent and primarily organic, giving us optionality. From a free cash flow perspective and with disciplined dilution targets, it's an attractive view.

Jeff, I'll add that we expect all verticals to contribute. Increasing software and geographic growth, plus education and travel momentum, are notable. Travel — luxury experiential and hospitality — are seeing increased deal sizes and faster sales cycles. We're confident we can layer in additional products and geographies. We have multiple growth levers.

You highlighted Driftwood during the quarter, which manages brands like Marriott, Hyatt and Hilton. How did that come about? It sounded like a land-and-expand opportunity. Any details on the ramp in revenue or volume we should be aware of?

Jeff, as a reminder of industry structure: you have major brands, hospitality management companies that own or operate clusters of hotels often under multiple brands, and the properties themselves. Driftwood is a hospitality management company with a strong portfolio. They have worked with us across a range of properties. As noted in the press release, we're doing sign and pay authorization and payment across a range of their properties.

We'll conclude today's question-and-answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.