Cross border payment processor Flywire (NASDAQ: FLYW) beat analyst expectations in Q4 FY2022 quarter, with revenue up 42.1% year on year to $73.1 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $88 million at the midpoint, 10.8% above what analysts were expecting. Flywire made a GAAP loss of $1.13 million, improving on its loss of $11.3 million, in the same quarter last year.
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Flywire (FLYW) Q4 FY2022 Highlights:
- Revenue: $73.1 million vs analyst estimates of $65.5 million (11.5% beat)
- EPS: -$0.01 vs analyst estimates of -$0.12 ($0.11 beat)
- Revenue guidance for Q1 2023 is $88 million at the midpoint, above analyst estimates of $79.4 million
- Management's revenue guidance for upcoming financial year 2023 is $382.5 million at the midpoint, beating analyst estimates by 10.8% and predicting 32.2% growth (vs 44.8% in FY2022)
- Free cash flow of $30.7 million, up from negative free cash flow of $1.69 million in previous quarter
- Gross Margin (GAAP): 59.5%, down from 62.5% same quarter last year
“Our excellent results in the fourth quarter capped off a tremendous year for Flywire. We continued to execute against our growth strategies, combined with increased demand for our solutions across our education, healthcare, travel and B2B verticals,” said Mike Massaro, CEO of Flywire.
Originally created to process international tuition payments for universities, Flywire (NASDAQ:FLYW) is a cross border payments processor and software platform focusing on complex, high-value transactions like education, healthcare and B2B payments.
Consumers want the ability to make payments whenever and wherever they prefer – and to do so without having to worry about fraud or other security threats. However, building payments infrastructure from scratch is extremely resource-intensive for engineering teams. That drives demand for payments platforms that are easy to integrate into consumer applications and websites.
Sales Growth
As you can see below, Flywire's revenue growth has been impressive over the last two years, growing from quarterly revenue of $33.2 million in Q4 FY2020, to $73.1 million.
And unsurprisingly, this was another great quarter for Flywire with revenue up 42.1% year on year. But the revenue actually decreased by $22.2 million in Q4, compared to $38.7 million increase in Q3 2022. However, Flywire's sales do seem to have a seasonal pattern to them, and since management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.
Guidance for the next quarter indicates Flywire is expecting revenue to grow 36.3% year on year to $88 million, slowing down from the 43.5% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $382.5 million at the midpoint, growing 32.2% compared to 43.9% increase in FY2022.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Flywire's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 59.5% in Q4.
That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.
Key Takeaways from Flywire's Q4 Results
With a market capitalization of $2.67 billion Flywire is among smaller companies, but its more than $349.2 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.
We were impressed by how strongly Flywire outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, we think this was still a strong quarter, that should leave shareholders feeling very positive. The company is up 4.73% on the results and currently trades at $25.9 per share.
Should you invest in Flywire right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.