Flywire Corporation (FLYW) Earnings

Management highlights

### Long-Term Strategic Goals - Reach $1 billion in annual organic revenue within the next few years, driven by existing vertical growth, geographic diversification, and software penetration; acquisitions remain an additional lever for incremental growth. - Achieve a 30% adjusted EBITDA margin over the next few years, driven by durable operating leverage from ongoing digital and platform transformation; target 25% adjusted EBITDA margin by 2027, with transformation investment peaking in 2027 and material cost savings expected thereafter. - Deliver sustained multi-year free cash flow and GAAP earnings growth, target 70-75% free cash flow conversion from adjusted EBITDA, and maintain disciplined net dilution of less than 2% in 2026 and less than 3% ongoing. ### Core Capital Allocation Priorities - Gain market share and expand Flywire's software moat: Invest in expanded functionality and integrations for Student Financial Suite (SFS), and scale hospitality software from a US-focused offering to a global platform. - Expand core payments platform: Improve corridor economics, deepen local banking relationships, and reduce per-transaction costs as volume scales to strengthen unit economics and value proposition. - Advance digital transformation: Invest in data architecture, AI integration, and systems consolidation to structurally lower long-term cost to serve and drive durable productivity gains. - Disciplined evaluation of all allocation options (organic investment, share repurchases, M&A) via an IRR framework; maintain a strong balance sheet for strategic flexibility. ### Q2 2026 Operational Highlights - Signed over 200 new clients across 45 countries and all verticals, marking the second consecutive quarter at this level; average deal sizes continue to increase, driven by larger strategic consolidation engagements. - **Strategic vendor consolidation**: Clients are consolidating fragmented payment workflows onto Flywire's single platform; 3 new US SFS deals signed in Q2 had double the ARR of Q2 2025 signings, and SFS delivers measurable ROI for clients via operational efficiency, improved cash flow, and in-house revenue recovery that saves agency fees. The University of Liverpool (UK) signed a full SFS platform deal to replace fragmented manual systems. - **Geographic diversification**: ~two thirds of new education clients were signed in non-Big Four growth markets; Flywire achieved strong share gains in Spain, Switzerland, and went live with multiple prestigious universities in Japan and South Korea, which are actively courting international student enrollment; share gains continue even in constrained Big Four markets (e.g., Sheridan College in Canada, Bond University in Australia). - **Software-led monetization**: Embedded software drives higher client retention, longer contract terms, improved economics, and captures more payment volume; combining hospitality software and payments cuts processing costs by more than half in some cases and doubles win rates on disputed transactions; in B2B, increasing numbers of new clients adopt both invoice software and payments from day one. ### AI Integration Progress - Generative AI has enabled 45% automatic resolution of customer inquiries, with a target of over 50% by end-2026. - AI is embedded across engineering and product teams, handling routine tasks (code retirement, bug fixing, test maintenance) to free teams for new product development. - AI improves go-to-market productivity by capturing winning sales tactics and delivering continuous coaching, cutting new hire ramp times without additional management overhead.

Guidance

- Management raised full-year 2026 guidance, now expecting 21-27% FX-neutral revenue growth, with ~3-4 percentage points of growth from B2B and healthcare payment processing ramps, ~1.5 percentage points from inorganic contributions; full-year 2026 adjusted gross profit is expected to grow at high teens year-over-year at spot. - Full-year 2026 adjusted EBITDA margin is expected to expand 200-400 bps year-over-year, reaching ~23% at the midpoint; GAAP net income is now expected to grow fourfold to over $50 million for full-year 2026, up from prior expectations. - Free cash flow conversion guidance is maintained at 70-75% of adjusted EBITDA; stock-based compensation is targeted at ~10% of revenue, with a goal of reducing annual new stock issuance in dollar terms. - Full-year 2026 gross margin is expected to decline ~350 bps on a reported basis, or ~200 bps after normalizing for temporary healthcare and B2B ramp dynamics; this mix shift does not pressure EBITDA, as ramping volume runs on existing infrastructure with minimal incremental operating expense. - Q3 2026 expects 16-22% FX-neutral year-over-year revenue growth, with almost no expected FX tailwind; low teens gross profit dollar growth at spot, with a 1 percentage point FX headwind from year-over-year settlement dynamics; adjusted EBITDA margin is expected to expand ~200 bps year-over-year at guidance midpoint. - A timing shift of ~2 percentage points of education volume is expected from Q4 2026 to Q3 2026 if payer behavior repeats last year's pattern driven by overlapping UK enrollment deadlines and Chinese national holidays, meaning Q3 growth will look weaker than the underlying trend and Q4 growth stronger; management recommends evaluating combined second half 2026 performance for a clearer view of underlying trends. - Longer-term, operating costs are expected to stay roughly flat after 2027 as transformation cost savings materialize, even as revenue continues to grow.

Segment performance

Total Q2 2026 revenue reached $164 million, representing 28% year-over-year spot growth and 27% FX-neutral growth, coming in above management expectations. Transaction revenue was $135.9 million, up 35% year-over-year, driven by 43% growth in transaction payment volume, with contributions from both cross-border and domestic education, and travel. Platform and other revenues hit $28 million, up 3% year-over-year, primarily driven by hospitality growth. Adjusted gross profit was $93 million, up 19% year-over-year at spot; adjusted gross margin was 56.6%, down 450 bps year-over-year driven primarily by 300 bps of mix impact from lower-margin ramping healthcare and B2B payment processing, with the remainder from vertical mix shifts, with ramp dynamics expected to be temporary and largely complete by end-2026. Adjusted EBITDA was $24 million (14.6% margin), expanding 160 bps year-over-year and coming in above the upper end of guidance. GAAP net loss improved to $8 million from a $12 million loss in Q2 2025. - Education: Revenue came in above expectations, with 30%+ year-over-year growth in education revenue outside Flywire's traditional 'Big Four' markets (US, UK, Canada, Australia), which represented ~low teens percentage of 2025 education revenue; US domestic education revenue, which makes up ~one third of total US education revenue, is growing above company average. - Travel: Outpaced management expectations, leading overall outperformance versus guidance midpoint; average deal sizes are rising as travel groups consolidate more entities onto Flywire's platform, win rates are improving, and the total addressable market remains largely unpenetrated across luxury experiential subsegments. - Hospitality: Payments growth is ramping strongly, with software deployed across over 20,000 properties; notable recent new client wins include large management groups Peregrine Hospitality, Avion Hospitality, Marcus Hotels and Resorts, and Driftwood Capital, with over 40 new locations signed in Europe and Asia year-to-date following successful US market validation. - Healthcare: Payment processing ramps were stronger than expected, contributing ~7 percentage points of Q2 payment processing growth versus the guided mid-single digit impact, with the patient financial experience platform now live across multiple clients. - B2B: Invoice-to-cash payment migration is growing faster than expected, with increasing new client adoption of both software and payments from launch; recent new clients include a digital asset management firm, a wealth management firm, and a global insurer.

Risks & headwinds

- Challenging macro backdrop, with negative visa trends in the UK, increased visa fees in Australia, and more stringent immigration regulations in both the US and UK that could pressure international student volume and education revenue. - Large one-off healthcare deals can create tough year-over-year comparables in subsequent periods. - Proposed US immigration regulation changes create uncertainty around international student demand, though proposals are not yet finalized. - Accelerated ramping of new lower-margin revenue streams in 2026 creates a higher base and tougher year-over-year comparables for 2027. - UK education revenue is expected to decelerate and grow slower than the overall company in the second half of 2026 due to ongoing visa headwinds, even after accounting for existing cross-sell and SFS growth levers.

Analyst Q&A

• Q: What is the impact of proposed US international student visa regulation changes, and is the 30% visa decline assumption conservative given current trends? /

  A: Management notes all proposed policy changes are not yet finalized, and historical trends show headlines are often worse than final policy outcomes. Flywire maintains a prudent 30% decline assumption for US visas. With roughly one month of Q3 data available and the peak issuance period still coming in August, management feels comfortable with its conservative outlook.

• Q: What is driving the doubling of ARR for new US SFS deals year-over-year, and how sustainable is this growth? /

  A: Growth is driven by a deliberate focus on larger full-suite enterprise deals, deployed via a specialized expert enterprise sales team. Flywire's brand reputation in the education space has strengthened following successful delivery to high-profile existing clients, and the higher ARR trend is supported by a strong quality pipeline for the second half of 2026, making continued growth sustainable.

• Q: How will the vertical mix change as Flywire approaches its $1 billion organic revenue target? /

  A: Management expects continued strong growth from travel (especially luxury experiential travel and international hospitality expansion) and B2B, consistent with recent trends. Education will remain a strong core business, with ongoing software penetration adding growth. Management expects only a slight mix shift from current composition over the multi-year target period.

• Q: How do SFS and growing domestic volume mix impact gross margins, and what is the long-term incremental volume opportunity from SFS? /

  A: While domestic volume and software carry lower yields than cross-border payments, the blended gross margin profile remains very strong for Flywire. SFS actually improves overall economics over time: average deal sizes are rising, renewals are strong, and winning SFS gives Flywire all of the client's domestic and cross-border volume, leading to a 2-3x gross profit dollar increase that runs on existing cost infrastructure, driving strong EBITDA flow-through.