Flywire Corporation (NASDAQ: FLYW) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Flywire provides a global payments platform, payment network, and vertical-specific software, serving education, healthcare, travel, and business-to-business clients.
Financial performance and liquidity
- Q2 revenue: $37.0 million, up 55.5% from $23.8 million. Transaction revenue rose 117.0% to $24.3 million; platform and usage-based fees were $12.7 million, up 0.8%.
- First-half revenue: $82.0 million, up 45.1% from $56.5 million. Transaction revenue increased 55.3% to $56.7 million; platform and usage-based fees increased 26.5% to $25.3 million.
- Payment volume: Q2 total payment volume was $1.924 billion, up 84.7%; first-half volume was $4.787 billion, up 75.7%. Management attributed growth to higher client usage and transaction activity, including increased volume in Canada.
- Profit and margins: Q2 operating loss improved to $7.6 million from $15.2 million, but net loss increased to $18.1 million from $16.0 million. The Q2 net loss included a $9.8 million noncash charge for the change in fair value of preferred-stock warrants. Reported gross margin was 60.8% versus 49.2%; adjusted gross margin was 68.2% versus 62.9%. First-half net loss was $26.8 million versus $12.3 million, including $10.8 million of warrant fair-value expense and a prior-year $7.4 million income-tax benefit. Adjusted EBITDA was approximately breakeven in Q2 (reported as $0.0 million in the summary table and $(0.1) million in the reconciliation) versus $(7.0) million; first-half adjusted EBITDA was $6.9 million versus $(6.1) million.
- Cash flow: First-half cash used in operating activities was $13.6 million, compared with $40.6 million in 2020. Investing cash use was $3.6 million, compared with $80.7 million, largely reflecting the prior-year Simplee acquisition. Financing provided $324.9 million, primarily from the IPO and preferred-stock issuance.
- Liquidity and debt: At June 30, cash and cash equivalents were $412.0 million, restricted cash was $5.0 million, and total current assets were $457.5 million versus current liabilities of $78.0 million. Long-term debt had a $24.4 million carrying value ($25.0 million principal). The IPO raised $263.8 million net; total assets were $580.1 million and stockholders’ equity was $475.0 million.
Material changes and notable items
- Flywire completed its IPO on May 28, 2021, selling 12.006 million shares at $24 per share. Preferred shares converted into common stock. The increase in shares outstanding and stock-based compensation are relevant when assessing per-share results and dilution.
- Q2 revenue growth was led by transaction revenue and payment volume. First-half growth also reflected a full six months of Simplee revenue; Simplee contributed $10.7 million of Q2 2020 revenue and had been acquired in February 2020.
- First-half operating costs increased 28.5% to $96.0 million, slower than revenue growth. Selling and marketing expense rose 36.5% and general and administrative expense rose 23.9%. First-half stock-based compensation increased to $12.8 million from $1.8 million, including $8.4 million associated with an employee share sale.
- Revenue from clients outside the U.S. represented 37.9% of Q2 revenue, compared with 20.8% a year earlier; Canada was 19.7% and the U.K. 12.0% in Q2 2021.
Outlook, risks, and contingencies
- The filing gives no numerical revenue or earnings guidance. Management expects short-term losses may continue and says future profitability is not assured. It plans continued investment in technology, sales, marketing, international expansion, and new verticals.
- Management describes education and travel as exposed to COVID-19 effects, including travel restrictions, enrollment changes, and delayed payments; healthcare showed strength but may not sustain the same levels. Seasonality is material: management historically sees its strongest revenue in the first and third quarters and weakest in the second.
- On July 29, 2021, Flywire entered a three-year, $50 million secured revolving credit facility, used proceeds to repay the existing $25 million term loan, and incurred $0.4 million in prepayment costs. The new facility has financial and other covenants; noncompliance could accelerate repayment or terminate commitments.
- Principal risks include sustained operating losses, competition and pricing pressure, reliance on banking and payment partners, payment-processing errors and fraud, cybersecurity and data-protection exposure, foreign-exchange fluctuations, and complex payments and money-transmission regulation. COVID-19 remains an uncertainty. The filing reports no pending legal matter expected to have a material adverse effect and no material change in internal control over financial reporting; disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether payment-volume growth converts into durable revenue and improving GAAP margins, particularly as transaction and platform-fee mix changes.
- How much of reported and adjusted results reflects recurring operations versus IPO-related items, warrant remeasurement, stock-based compensation, and acquisition-related costs.
- Cash use, working-capital movements in client funds, and liquidity after the July 2021 refinancing, including compliance with the new credit facility’s covenants.
- Effects of COVID-19, education and travel seasonality, client concentration, payment-partner concentration, and geographic mix on future volumes.
- Potential dilution from outstanding options and equity plans, and the timing and effect of the IPO lock-up expiration.