Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue less ancillary services increased by 26% year over year to $99.9 million.
- Adjusted EBITDA was $5.8 million, showing a significant year-over-year increase of $5.9 million.
- The acquisition of Invoiced is expected to enhance Flywire Corp (FLYW, Financial)'s B2B payments solution with workflow automation software.
- Strong performance in the travel vertical, which grew over 55% year over year for the first half of the year.
- The company announced a $150 million share repurchase program, reflecting confidence in long-term potential and strong liquidity.
Negative Points
- Revenue headwinds from Canadian government actions involving student study permits, impacting growth.
- Lower-than-expected rolling recovery in Canada, creating a mid to high single digits negative impact.
- Health care vertical faced challenges, including client churn and divestitures, impacting growth.
- FX rates created a slight headwind of approximately $140,000 during the quarter.
- Net income reflected a loss of $14 million, although this was an improvement year-over-year.
Q & A Highlights
Q: Mike and Cosmin, just wanted to try and square, pieces in Canada are down about 30%. And I think the updated guide for Canada implies revenue is down 55% to 60%. So just want to understand and kind of square those differences.
A: (Cosmin Pitigoi, CFO) Yes. John, thanks for that question. Yes. So to clarify, if you look at the total numbers versus last year, it is not down that much. I would say it's down closer to 30% if you look at it year-over-year. which you have to remember is the $30 million that we're not referencing is again what we expected this year, and that would have included growth in Canada in a normal year. So what you need to then sort of think about as far as growth would be against that number being down. So year-over-year, I would say you're still in that sort of high 20% or so negative year-over-year, which you can see a little bit even from the supplement that we provided. If you look actually at the slides in the supplement, we try to provide two slides. One on what the assumptions are by a quarter of that $30 million, which is in that mid- to high single digits across every quarter. And then we actually gave you the profile by quarter for Canada. So you can see it -- including last year, so you can see that drop.
Q: Cosmin, as we look at incremental margins, I think last year, they were about 24% first half of this year, 29%. It looks like you're implying based off of the updated EBITDA guide, about 40% incremental margins in the back half of this year. So is that the right way to think about go-forward incremental margins? Or how are you guys thinking about it as you look to drive profitability in the face of slowing growth?
A: (Cosmin Pitigoi, CFO) Yes. Look, as I said, I think the main drivers for margin for us, first, is the gross profit. Second, you've seen us be quite disciplined in terms of cost. And a portion of then the third thing is, us being just more disciplined around how we spend given the headwinds we've faced. Now some of that, as you can see, benefited Q2 that helps into second half. However, as you look at that into next year, obviously, we'll have to look -- some of that is us offsetting some of the headwind. And so we'll have to look at next year. But I would say looking at the total year, probably a better gauge, but we'll have to sort of come back to you into next year as to how we think about -- how to look ahead of that. But again, I think my comments on profitability, I would say that's a big focus for us going forward and continued growth in EBITDA margin in line with above our expectations.
Q: I wanted to ask about Canada as well, but from a slightly different lens. I know the FY24 guidance has been updated, right, to reflect that incremental softness. But can you just speak at all to how we should be thinking about Canada as we look beyond the second half into whether that's in 2025, but just more from a longer-term perspective. I know you guys don't provide guidance or anything on long-term stuff like that. But can you just level set just how we should think about Canada revenue more on a longer term on a go-forward basis?
A: (Robert Orgel, COO) Yeah, this is Rob. I'll jump in here. So we remain very optimistic about Canada on a longer-term basis. So this is sort of a unique year where we had the announcements related to the study permits early in the year. There's continuing sort of uncertainty created on the part of students because of ambiguity around graduate work permit policy. All of that is expected to be clarified this year. I've been in Canada. I spent time with our clients. Their expectation is that those rules will all be clarified. The programs that the schools offer will be tailored based on how that policy evolves, and the additional sort of certainty and confidence that brings will bring Canada sort of back into sort of popularity as a destination. So the long-term view of Canada is that it will continue to be a contributor of growth for us despite the fact that this year is a tough year, as Cosmin just outlined.
Q: In the prepared remarks, I think you mentioned travel becoming the second largest vertical. Can you maybe just discuss the growth trends you're seeing there, sort of what in particular is driving that? And maybe juxtapose that with the trends in health care, which has historically been the second largest. I think you mentioned health care in the second half would return to growth. Just any comments there worth mentioning?
A: (Robert Orgel, COO) Yeah. So thanks for the question. First of all, hopefully, you saw from my comments overall optimism and conviction around the strength of the business overall. So as I went through the verticals, you heard a lot of great things going on based on the great execution of our team. Travel was a perfect example of that. The travel team was winning great deals all around the world. As you've heard in our prior comments, there are really four subsegments for us within the travel vertical. All of which performed very well. Our newest being Ocean Adventure is performing well but our preexisting around accommodations, operators, and DMCs also reporting well. So we continue to view that as a business with a great opportunity ahead of it. Health care is a little different story. Again, we do expect that team's growth in the second half of the year. Overall, health care has had the frustrations for us of kind of multiple steps forward, but offset by multiple steps back. That's similar to the comments I've made on prior calls. We are winning new deals. We are expanding deals. We are seeing success with our integrated financing offering. But those have been offset by challenges in part caused by the Change Healthcare situation, which, although resolving and improving did impact Q2 as well as just continued challenges, one client shrank based on divesting some hospitals and other client turned with modest impact. And so that's the two steps forward, two steps back. Just to conclude, though, a lot of conviction in the platform, and we will expect to see growth in the second half.
Q: I want to ask on the Invoiced acquisition. Really interesting there is the home run opportunity to monetize the payments in their client base. I'm just not sure what their client base looks like or what kind of overlap you might have? What can you tell us there?
A: (Michael Massaro, CEO) Yes. Tien-Tsin, it's Mike. Yes, we're super excited. So it fits right into the pillars. We talked about prior looking for opportunities to accelerate existing verticals we're in, add new capabilities to drive NRR. And this fits right in those first two pillars that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
