Flywire Corporation (NASDAQ: FLYW) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Flywire provides global payments and vertical-specific software; it reports as one operating segment. Amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $123.3 million (+29.5%) | $95.2 million | $302.5 million (+39.9%) | $216.3 million |
| Transaction revenue | $104.6 million (+35.7%) | $77.1 million | $247.7 million (+47.9%) | $167.5 million |
| Platform and usage-based revenue | $18.7 million (+3.3%) | $18.1 million | $54.8 million (+12.3%) | $48.8 million |
| Total payment volume | $8.9 billion (+27%) | $7.0 billion | $18.6 billion (+33%) | $14.0 billion |
| Operating income (loss) | $11.9 million | $3.7 million | $(11.5) million | $(20.8) million |
| Net income (loss) | $10.6 million; diluted EPS $0.08 | $(4.3) million; diluted EPS $(0.04) | $(9.9) million; diluted EPS $(0.09) | $(38.2) million; diluted EPS $(0.36) |
| GAAP gross margin | 63.6% | 64.4% | 61.3% | 61.7% |
| Adjusted gross margin | 68.6% | 70.4% | 66.7% | 68.7% |
| Adjusted EBITDA | $27.5 million | $18.2 million | $34.3 million | $13.9 million |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $20.9 million | $(27.7) million |
Q3 growth was led by transaction revenue and increased payment volume; management cited growth across regions and verticals. Payment processing costs rose faster than revenue in both comparison periods, partly due to greater credit-card usage, which carries higher costs. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
Liquidity, debt, and capital
- At September 30, cash and cash equivalents were $638.2 million, versus $349.2 million at December 31, 2022. Current assets were $762.4 million and current liabilities $192.1 million. Restricted cash was zero.
- Cash increased by $287.0 million over the first nine months, primarily reflecting $270.7 million of financing cash flow, including proceeds from the August follow-on offering. The offering raised approximately $260.1 million net of underwriting discounts and other issuance costs.
- No debt was outstanding under the $50 million revolving credit facility; the full commitment remained available. Flywire reported compliance with its covenants.
- Management said existing cash should support working capital and material cash needs for at least 12 months from issuance of the statements. Future capital needs may depend on growth investments and acquisitions.
Changes, outlook, and notable items
- Q3 returned to GAAP operating and net income, compared with a net loss in Q3 2022. For the first nine months, Flywire remained loss-making, although net loss narrowed substantially year over year.
- Interest income increased to $3.8 million in Q3 and $7.7 million year to date, reflecting higher yields and a larger cash balance. Foreign-currency remeasurement losses were $4.2 million in Q3 and $3.5 million year to date.
- No numerical full-year revenue, earnings, or margin guidance is provided in the filing. Management expects to continue incurring losses in the short term and says future profitability is not assured; it expects continued investment in technology, sales, and marketing.
- On November 3, 2023, after quarter-end, Flywire acquired StudyLink, an Australian education software company, for estimated consideration of approximately $38.8 million, including up to $3.9 million contingent consideration.
- Client A filed for Chapter 11 in May. Flywire reported $3.1 million of related net receivables at quarter-end and disclosed that it collected the $2.6 million pre-petition balance on November 2 under a settlement; Client A remained a customer.
- Flywire voluntarily reported payments that geolocation data suggested may have originated in Cuba, Iran, or Syria to OFAC in August 2023. The company said its investigation to date indicated no material loss, but the matter remains under evaluation.
- The CFO was scheduled to transition in 2024. A November 6 agreement provides for service through no later than June 30, 2024 absent mutual extension, and specifies compensation, severance, and equity-vesting terms.
- Management reported no material impact to date from the Israel-Hamas conflict, but warned that disruption to its Tel Aviv engineering hub could affect service or hiring. It also cited foreign-exchange exposure, seasonality, competition, payment-partner concentration, regulatory compliance, and cybersecurity as risks.
Important facts for investors to verify
- Whether payment-volume growth and transaction revenue continue, and how payment-method mix affects processing costs and margins.
- Whether positive quarterly operating results translate into sustained profitability and cash generation; assess stock-based compensation, which was $31.3 million for the first nine months.
- How cash is deployed, including the StudyLink acquisition and any additional acquisitions or investments.
- The outcome and potential consequences of the OFAC review, and any operational effects from geopolitical events or disruptions to payment and banking partners.
- The terms and integration progress of StudyLink, the CFO succession, and dilution from equity issuance and outstanding awards.