Flywire's (NASDAQ:FLYW) Q3 Sales Top Estimates But Stock Drops 14.4%

Radek Strnad /
2023/11/07 4:23 pm EST

Cross border payment processor Flywire (NASDAQ: FLYW) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue up 29.5% year on year to $123.3 million. Guidance for next quarter's revenue was also optimistic at $94 million at the midpoint, 6.9% above analysts' estimates. Turning to EPS, Flywire made a GAAP profit of $0.08 per share, improving from its loss of $0.04 per share in the same quarter last year.

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Flywire (FLYW) Q3 FY2023 Highlights:

  • Revenue: $123.3 million vs analyst estimates of $119.9 million (2.9% beat)
  • EPS: $0.08 vs analyst expectations of $0.09 (14.7% miss)
  • Revenue Guidance for Q4 2023 is $94 million at the midpoint, above analyst estimates of $87.9 million
  • Free Cash Flow of $44.9 million is up from -$5 million in the previous quarter
  • Gross Margin (GAAP): 65.2%, down from 66.1% in the same quarter last year
  • Announced the acquisition of StudyLink, a provider of international student admissions, application, and agent management software in Australia.

"We are pleased with our third quarter results, where we generated our highest quarter of revenue and adjusted EBITDA, ever,” 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.

Payments Software

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 $67.8 million in Q3 FY2021 to $123.3 million this quarter.

Flywire Total Revenue

This quarter, Flywire's quarterly revenue was once again up a very solid 29.5% year on year. On top of that, its revenue increased $38.5 million quarter on quarter, a strong improvement from the $9.5 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Flywire is expecting revenue to grow 28.7% year on year to $94 million, slowing down from the 42.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 22.6% over the next 12 months before the earnings results announcement.

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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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 65.2% in Q3.

Flywire Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.65 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Flywire's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

Key Takeaways from Flywire's Q3 Results

Sporting a market capitalization of $3.3 billion, Flywire is among smaller companies, but its more than $638.2 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by Flywire's strong gross margin improvement this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. Investors were likely expecting more, however, and the stock is down 14.4% after reporting, trading at $23.69 per share.

Flywire may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.