Flywire Corporation (NASDAQ: FLYW) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated financial statements; dollar amounts below are U.S. dollars. Flywire provides global payments and vertical-specific software, with one reportable segment.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $64.6 million | $45.0 million | +43.6% |
| Total payment volume | $4.17 billion | $2.86 billion | +46.0% |
| Gross margin (reported) | 60.1% | 61.3% | -1.2 percentage points |
| Adjusted gross margin (non-GAAP) | 65.5% | 68.7% | -3.2 percentage points |
| Operating loss | $7.1 million | $6.5 million | Loss increased |
| Net loss | $10.1 million | $8.7 million | Loss increased |
| Adjusted EBITDA (non-GAAP) | $1.8 million | $7.0 million | Decreased |
| Operating cash flow | $(17.0) million | $(14.8) million | Use increased |
Transaction revenue was $48.7 million, up 50.3%; platform and usage-based fees were $15.9 million, up 26.2%. WPM, acquired in December 2021, contributed $1.7 million of platform revenue in the quarter. International clients generated 37.2% of revenue, compared with 25.4% a year earlier; the U.K. share rose to 15.3% from 7.6%.
Operating expenses totaled $71.7 million, up 39.2%. Payment-processing costs increased 50.9% to $24.3 million, broadly alongside payment-volume growth. Technology and development expense rose 46.7% to $11.0 million, selling and marketing rose 46.7% to $17.6 million, and general and administrative expense rose 18.2% to $18.8 million. Other expense, net, was $2.3 million, primarily from foreign-currency remeasurement, mainly movements in the British pound against the U.S. dollar.
At March 31, cash and cash equivalents were $365.7 million, with restricted cash of $4.0 million. Current assets were $413.6 million and current liabilities $91.2 million. Long-term debt was $25.9 million; $24.1 million remained available under the $50 million revolving facility. The company reported compliance with facility covenants. Management said existing cash should cover expected working-capital needs and material cash requirements for at least 12 months.
Capital spending was $1.3 million, primarily for internally developed software. Cash, cash equivalents and restricted cash declined $19.6 million during the quarter. The company paid the final $7.8 million of Simplee acquisition contingent consideration during March; no further Simplee contingent consideration is due.
Material changes versus the prior comparable period
- Payment volume and revenue grew strongly, reflecting increased activity across regions and verticals, existing-client usage and new clients; management also cited reopening economies.
- Margins declined despite revenue growth. The company identified payment mix as a factor in margin variability, including higher costs when credit-card usage rises.
- Net loss widened, while adjusted EBITDA fell from $7.0 million to $1.8 million. Stock-based compensation was $5.5 million versus $10.4 million; the prior-year period included $8.4 million related to an employee-share secondary sale.
- Operating cash use increased to $17.0 million. Changes in operating assets and liabilities, including client funds payable and contingent consideration, affected cash flow.
- Foreign revenue became a larger share of total revenue. The company reported a $2.3 million net foreign-currency remeasurement loss, versus $0.4 million a year earlier.
Outlook, management commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management expects continued investment in technology, sales, marketing, international expansion and public-company infrastructure, and expects losses in the short term; it says profitability may not be achieved or sustained. The company expects expenses to increase in absolute dollars, while margins may vary with revenue mix and payment methods.
Management described recovery in payment volumes and revenue as economies reopened, with more international students returning and travel activity improving. It also noted seasonality: historically, revenue has been strongest in the first and third quarters and weakest in the second quarter, partly due to education tuition-payment timing.
- Macroeconomic and geopolitical exposure: The company reported no direct material financial impact from the Russia-Ukraine conflict as of the filing, but cited possible effects on engineering talent, the global economy and cybersecurity. COVID-19 variants and changing travel or education activity remain uncertainties.
- Foreign exchange: Cross-border payments create short-duration currency exposure. The company uses foreign-exchange contracts and internal hedging processes; currency remeasurement nevertheless affected Q1 results.
- Operating and regulatory risks: The filing highlights payment-processing errors, fraud, cybersecurity and data privacy, reliance on banking and payment partners, competition, seasonality, and licensing and compliance requirements across jurisdictions. Flywire’s subsidiary held money-transmitter licenses in 41 U.S. jurisdictions and was applying for additional licenses where required.
- Contingencies and unusual items: No pending legal matters were identified as expected to have a material adverse effect, and no material indemnification claims were known. WPM contingent consideration remains subject to payment-volume, integration and employee-retention conditions through 2024. The company adopted ASC 842 lease accounting on January 1, 2022, recognizing lease right-of-use assets and liabilities.
Management concluded that disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2022; no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether payment-volume growth converts into durable revenue growth and whether gross and adjusted gross margins stabilize or continue to decline.
- How operating cash use evolves relative to the stated 12-month liquidity outlook, including the effect of client-fund timing and acquisition-related payments.
- Revenue and payment-volume mix by geography, vertical, currency and payment method, including the contribution and integration progress of WPM.
- The size and persistence of foreign-exchange impacts, and the effectiveness and cost of hedging as international activity grows.
- Progress toward profitability after accounting for rising operating expenses, stock-based compensation and public-company costs; assess non-GAAP measures alongside GAAP results.
- Compliance with money-transmission licensing, payment-network, privacy and cybersecurity requirements, and any changes in partner concentration or credit exposure.