Flywire Corporation (NASDAQ: FLYW) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly report. Filed March 29, 2022.
Business context
Flywire provides global payment processing, a proprietary payment network and industry-specific accounts-receivable software, principally for education and healthcare, with newer travel and B2B businesses. It processed payments in more than 240 countries and territories and over 140 currencies. At year-end it served over 2,500 clients. Education remained its largest business; the filing does not provide FY2021 revenue by vertical.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $201.1 million | $131.8 million | +52.6% |
| Total payment volume | $13.2 billion | $7.5 billion | +76.0% |
| Transaction revenue | $148.0 million | $89.6 million | +65.2% |
| Platform and usage-based revenue | $53.1 million | $42.2 million | +25.8% |
| Gross margin | 62.3% | 60.3% | +2.0 percentage points |
| Adjusted gross margin | 69.2% | 69.4% | -0.2 percentage points |
| Operating loss | $13.3 million | $15.8 million | Improved $2.5 million |
| Net loss | $28.1 million | $11.1 million | Loss increased $17.0 million |
| Adjusted EBITDA | $22.8 million | $6.2 million | Increased $16.6 million |
| Cash from operating activities | $17.1 million | $(14.2) million | Improved $31.3 million |
Revenue less ancillary services, a non-GAAP measure, was $181.1 million versus $114.6 million. Adjusted EBITDA and adjusted gross margin are non-GAAP measures and should not be treated as substitutes for GAAP results.
At December 31, 2021, cash and cash equivalents were $385.4 million and restricted cash was $4.0 million. Total assets were $639.8 million, current liabilities $117.5 million, and debt $25.9 million. The company had a $50 million revolving credit facility, with $24.1 million of additional borrowing availability reported. Management stated existing cash was expected to cover working capital and material cash needs for at least 12 months.
Material changes and notable items
- Payment volume and revenue recovered and grew substantially from FY2020, which was affected by COVID-19 disruptions to education and travel. Management reported stronger volumes across regions and annual net dollar-based retention of approximately 140%, compared with approximately 100% in 2020.
- Operating expenses rose 45.3% to $214.4 million, including higher sales and marketing, general and administrative, and technology and development costs. Stock-based compensation increased to $18.9 million from $3.8 million, including $8.4 million related to an employee share sale.
- Net loss widened despite a narrower operating loss, in part because the company recorded $10.8 million of expense from remeasuring preferred-stock warrants before its IPO and recorded $2.2 million of income-tax expense; FY2020 included a $7.2 million tax benefit, including a nonrecurring valuation-allowance release.
- Flywire completed its IPO in May 2021, receiving $263.8 million in net proceeds, and acquired U.K. education software provider WPM in December for purchase consideration of $59.6 million, including $56.1 million cash net of acquired cash. WPM contributed $0.3 million of platform revenue after acquisition. The company also completed the 2020 acquisition of healthcare software provider Simplee.
- The company refinanced its prior term loan with a three-year, $50 million revolving facility in July 2021. It reported covenant compliance at year-end.
- A fourth-quarter correction of immaterial historical direct and indirect tax errors increased FY2021 net loss by $1.0 million. Management concluded the errors and correction were not material to the respective financial statements.
Outlook, risks and contingencies
No specific FY2022 revenue, earnings or margin guidance is provided in the supplied filing text. Management expects to continue investing in product development, sales and marketing, international expansion, infrastructure, compliance and personnel; it cautioned that it expects losses in the short term and may not achieve or sustain profitability.
Principal risks include continued operating losses; dependence on education and cross-border payment activity; COVID-19 and travel-sector disruption; competition and pricing pressure; reliance on banking, payment and software partners; foreign-exchange exposure; cybersecurity and service interruptions; and complex, evolving payments, licensing, AML and privacy regulation. The company held money-transmitter licenses in 41 U.S. jurisdictions and was applying for additional licenses where required. It also disclosed uncertainty around certain state licensing exemptions and substantial potential consequences if regulators determine licenses are required.
Flywire reported no current legal proceedings it considered material. The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls were effective at the reasonable-assurance level; the filing did not include management’s assessment or an auditor attestation on internal control over financial reporting because of the transition period for newly public companies.
Important facts for investors to verify
- Whether the 2021 rebound and 140% net dollar-based retention persist, and how much growth reflects existing clients, new clients, acquisitions and changing payment volumes.
- Whether revenue growth can translate into sustained GAAP profitability, given elevated operating expenses and stock-based compensation.
- Cash availability and cash conversion, including restricted cash, funds receivable from payment partners, and the $25.9 million revolving-facility balance and covenants.
- WPM and Simplee integration, acquisition earn-outs and whether acquired client and revenue expectations are being met.
- Exposure to education and cross-border payment corridors, foreign exchange movements, COVID-related disruption, and regulatory or licensing changes.
- Future internal-control reporting and any material weaknesses, as well as developments in the open IRS audit for tax year 2018.