Flywire Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results. Flywire provides global payments and vertical-specific software; it reported one operating segment. The company completed its IPO on May 28, 2021.
Financial performance and liquidity
Amounts below are in millions except per-share data and payment volume.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $67.8 | $42.1 | $149.8 | $98.6 |
| Gross margin (GAAP) | 65.8% | 64.4% | 63.2% | 59.7% |
| Net income (loss) | $10.0 | $5.2 | $(16.8) | $(7.1) |
| Adjusted EBITDA (non-GAAP) | $17.6 | $10.2 | $24.6 | $4.4 |
| Total payment volume | $5.27 billion | $2.99 billion | $10.06 billion | $5.71 billion |
- Q3 revenue increased 61.0% year over year; payment volume grew 76.4%. Nine-month revenue rose 51.9% and payment volume rose 76.0%.
- Q3 operating income was $11.1 million, compared with $5.4 million a year earlier. Nine-month operating loss narrowed to $2.9 million from $12.8 million.
- Q3 diluted EPS was $0.08 versus $0.04. Nine-month diluted loss per share was $0.28 versus $0.39.
- Adjusted gross margin, a non-GAAP measure, was 71.9% in Q3 versus 72.8%; for the nine months it was 70.0% versus 69.1%. Transaction revenue grew faster than platform and usage-based revenue in both periods.
- Operating cash flow was $24.8 million for the nine months, versus cash used of $27.6 million in 2020. Investing cash use was $5.3 million, compared with $81.2 million, largely reflecting the prior-year Simplee acquisition. Financing provided $324.7 million, primarily from the IPO.
- At September 30, cash and cash equivalents were $449.1 million, with $4.0 million restricted; current assets were $499.9 million and current liabilities $107.1 million. Management stated existing cash should fund working capital and capital expenditure needs for at least 12 months.
- Debt was $25.9 million under a new $50 million revolving facility, with $24.1 million available. The facility is floating-rate, secured, and subject to financial and other covenants; the company reported compliance at quarter-end.
Material changes and unusual items
- IPO proceeds were reported as $263.8 million net of underwriting discounts and offering costs. Preferred shares converted into common stock upon the IPO, substantially changing the share count and equity structure.
- Nine-month net loss included a $10.8 million noncash increase in the fair value of preferred-stock warrants, which were converted or reclassified in connection with the IPO. Nine-month stock-based compensation was $15.5 million, including $8.4 million tied to a February 2021 secondary share sale involving employee-stockholders.
- Q3 revenue growth reflected higher transaction volumes from existing and new clients. Management also attributed nine-month growth to reopening economies and recovery in payment volumes. Revenue from outside the U.S. increased as a share of total revenue.
- Operating expenses increased year over year, including sales and marketing and general and administrative costs, as the company expanded hiring and incurred public-company expenses. Nine-month expenses also included higher stock compensation and increased intangible amortization related to Simplee.
- The company refinanced its prior term loan in July 2021 with the revolving facility; it incurred $0.4 million of prepayment costs. No business combination was completed in the first nine months of 2021.
Outlook, commentary and risks
- The filing provides no quantified revenue, earnings, or margin guidance. Management expects continued investment in technology, sales and marketing, international expansion, and public-company infrastructure, and warns it may continue to incur losses and may not achieve or sustain profitability.
- Management said payment volumes and revenue recovered during the first nine months of 2021, but COVID-19 and emerging variants, travel and education trends, and economic conditions could affect volumes, client activity, and sales cycles.
- Key risks include competition and pricing pressure; reliance on banking, payment, and technology partners; transaction, fraud, cybersecurity and service-continuity risks; foreign-exchange exposure; and complex payments, money-transmission, privacy, and data-protection regulation.
- The company uses foreign-exchange forwards to mitigate short-term currency exposure. It stated that a 10% exchange-rate or interest-rate movement would not have a material impact based on its September 30, 2021 position.
- No pending legal proceeding was identified as material to the company’s business or financial condition. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Check the filing’s inconsistent figures: the risk-factor narrative states nine-month net loss of $26.8 million and accumulated deficit of $124.6 million, while the financial statements report net loss of $16.8 million and accumulated deficit of $114.6 million.
- Reconcile GAAP earnings with adjusted EBITDA and assess the effects of stock-based compensation, the warrant remeasurement, and other exclusions on recurring profitability.
- Review whether payment-volume growth and margin trends persist, particularly the Q3 decline in adjusted gross margin and the changing mix of transaction versus platform revenue.
- Monitor use of IPO cash, working-capital movements in funds payable to clients, and the floating-rate revolving facility’s balance, availability, and covenant requirements.
- Consider the potential effect of COVID-19-related disruptions, client and payment-partner concentration, regulatory obligations, and the release of IPO lock-up restrictions beginning November 11, 2021.