Flywire Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial amounts below are in U.S. dollars; millions unless stated otherwise. Comparisons are with the corresponding 2021 period.
Business context
Flywire provides global payments and vertical-specific software, principally to education and healthcare clients, with newer travel and business-to-business offerings. Management attributed growth to higher payment volumes, client activity, reopened economies and international travel, as well as acquisitions.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $95.2 | $67.8 | $216.3 | $149.8 |
| Total payment volume | $7.0 billion | $5.3 billion | $14.0 billion | $10.1 billion |
| GAAP gross margin | 64.4% | 65.8% | 61.7% | 63.2% |
| Adjusted gross margin | 69.0% | 71.9% | 66.8% | 70.0% |
| Operating income (loss) | $3.7 | $11.1 | $(20.8) | $(2.9) |
| Net income (loss) | $(4.3) | $10.0 | $(38.2) | $(16.8) |
| Adjusted EBITDA | $18.2 | $17.6 | $13.9 | $24.6 |
| Operating cash flow | Not separately stated | Not separately stated | $(27.7) | $24.8 |
- Q3 revenue increased 40.4%; payment volume increased approximately 33%. Nine-month revenue increased 44.4%; payment volume increased approximately 39%.
- Transaction revenue rose 45.5% in Q3 and 52.7% year to date. Platform and usage-based fee revenue rose 22.3% and 21.7%, respectively.
- Q3 operating income fell despite revenue growth, as total costs and operating expenses rose 61.6% to $91.6 million. The nine-month operating loss widened to $20.8 million.
- Q3 net loss included $6.2 million of net other expense, primarily foreign-currency remeasurement losses of $7.5 million, partly offset by $1.2 million of interest income. Nine-month foreign-currency remeasurement losses were $15.1 million.
- Management reported that a stronger U.S. dollar reduced Q3 2022 revenue by more than $5 million compared with the Q3 2021 period on a constant-currency basis.
Liquidity, debt and material changes
- At September 30, cash and cash equivalents were $349.2 million, restricted cash was $2.0 million, current assets were $423.1 million and current liabilities were $122.9 million. Cash, cash equivalents and restricted cash decreased $38.1 million over the first nine months.
- Long-term debt was $25.9 million at quarter-end, under a $50.0 million revolving credit facility; $24.1 million remained available at September 30. The company reported covenant compliance.
- On October 28, 2022, after quarter-end, Flywire repaid the $25.9 million outstanding balance and retained access to the $50.0 million facility.
- Investing cash outflow was $22.6 million in the first nine months, including $16.9 million for the Cohort Go acquisition. Financing cash flow was $0.6 million, compared with $324.7 million in 2021, when IPO proceeds were received.
- Q3 2022 included Cohort Go revenue of $5.1 million since its July acquisition. Management attributed $3.1 million of the Q3 increase in platform revenue to the WPM and Cohort Go acquisitions; their combined contribution to nine-month platform revenue growth was $6.4 million.
Outlook, commentary and risks
- The filing provides no specific forward revenue, earnings or margin guidance. Management expects continued near-term losses and says future profitability is not assured. It plans to keep investing in technology, sales and marketing, international expansion and public-company infrastructure, while adjusting spending as needed.
- Management said existing cash was expected to support working capital and material cash needs for at least the next 12 months.
- Key stated risks include foreign-exchange exposure, seasonal and variable payment volumes, competition and pricing pressure, dependence on payment and banking partners, cybersecurity and fraud, and regulatory, licensing, privacy and compliance requirements.
- Management reported no material impact from inflation or the Russia-Ukraine conflict on results to date, but noted potential future effects, including macroeconomic, hiring and cybersecurity risks. COVID-19-related travel and visa constraints, particularly affecting students from China, may also affect growth.
- Flywire acquired Cohort Go for estimated consideration of $32.8 million before acquired cash, including contingent consideration; purchase accounting remained preliminary. The filing reported no pending legal matter expected to have a material adverse effect.
- Disclosure controls were assessed as effective at the reasonable-assurance level. The company expected to become a large accelerated filer and cease being an emerging growth company at year-end 2022, increasing reporting and accounting-standard requirements.
Investor verification points
- Track whether payment-volume growth converts to revenue and whether gross and adjusted gross margins recover from year-ago levels.
- Assess operating-expense growth, stock-based compensation and the gap between adjusted EBITDA and GAAP earnings.
- Review the drivers and potential recurrence of foreign-currency losses, including the company’s hedging exposure and reported revenue effects.
- Confirm the impact and integration progress of Cohort Go and WPM, including contingent payments and acquisition-related costs.
- Verify post-quarter debt repayment, remaining revolver availability and liquidity needs alongside negative year-to-date operating cash flow.
- Monitor international education demand, seasonality, partner concentration, regulatory compliance and cybersecurity risks.