Flywire Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; amounts below are in U.S. dollars unless noted.
Business context
Flywire operates a global payments platform and vertical-specific software serving education, healthcare, travel and business-to-business clients. It reported one operating segment. Revenue comes primarily from transaction fees, with the remainder from platform and usage-based fees.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $84.9m | $56.5m | $179.2m | $121.1m |
| Gross profit / gross margin | $48.8m / 57.5% | $33.2m / 58.8% | $107.0m / 59.7% | $72.0m / 59.5% |
| Net loss | $(16.8)m | $(23.8)m | $(20.5)m | $(33.9)m |
| Adjusted EBITDA (non-GAAP) | $(0.1)m | $(6.1)m | $6.8m | $(4.4)m |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $(25.7)m | $(27.6)m |
Q2 payment volume was $4.1bn, up approximately 43%; first-half volume was $9.8bn, up approximately 39%. Q2 transaction revenue increased 60% to $66.8m, while platform and usage-based revenue rose 22% to $18.0m. First-half transaction revenue increased 59% to $143.1m, and platform and usage-based revenue rose 17% to $36.1m.
Adjusted gross margin, a non-GAAP measure, was 63.5% in Q2 versus 66.8%; for the first half it was 65.5% versus 67.2%. Payment processing costs increased faster than Q2 revenue, reflecting higher volume and greater credit-card usage, which carries higher processing costs. Operating loss was $16.8m in Q2 and $23.4m for the first half.
At June 30, cash and cash equivalents were $328.1m, down from $349.2m at year-end. Current assets were $413.7m and current liabilities $131.5m. The company reported no borrowings under its $50m revolving facility, which remained available; it was in compliance with facility covenants. First-half investing cash outflow was $3.5m, mainly software development and equipment.
Changes, outlook and material items
- Revenue growth reflected increased payment volume from existing and new clients and the Cohort Go acquisition. Cohort Go contributed $7.3m of Q2 revenue and $13.3m in the first half.
- Net losses narrowed year over year. Results also benefited from higher interest income and a substantially smaller foreign-currency remeasurement loss in Q2; first-half foreign-currency remeasurement shifted to a gain.
- Management expects continued short-term losses and ongoing investment in product development, sales and marketing, international expansion and infrastructure. No specific financial guidance is provided in the filing text.
- Management says results are seasonal and historically Q2 is the weakest revenue quarter; tuition payment timing, business days, revenue mix and payment methods can cause quarterly volatility. Inflation did not materially affect reported cash flows or results during the period.
- In May, a significant client filed for Chapter 11. Flywire reported $3.8m of net receivables from the client at June 30 and expected it to emerge as a going concern and remain a client; the bankruptcy could affect agreements and recovery of claims.
- After quarter-end, Flywire reported a voluntary submission to OFAC regarding payments that geolocation data indicated may have been initiated from Cuba, Iran or Syria. The company said its investigation to date indicated no material loss, but the matter remained under evaluation.
- The revolving credit facility’s benchmark was amended from LIBOR to SOFR effective June 30. CFO Michael Ellis announced he would transition from the role in 2024, with a successor search planned; he agreed to remain through the transition.
- Key risks include continued operating losses, competition and margin pressure, foreign-exchange exposure, reliance on banking and payment partners, payment and cybersecurity risks, and complex payments, sanctions and privacy regulation. The company disclosed no litigation it believed material to its financial statements.
Important facts for investors to verify
- Whether payment-volume growth converts into durable revenue and margins, particularly as payment-method and geographic mix shift.
- How much of adjusted EBITDA improvement reflects sustainable operating performance versus excluded items; stock-based compensation was $20.0m for the first half.
- Developments in Client A’s Chapter 11 case and recoverability of the $3.8m receivable.
- The outcome and potential consequences of the OFAC review and voluntary submission.
- CFO succession plans, continued cash use, and availability and covenant conditions of the undrawn credit facility.