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Small-Cap Confidential
Undiscovered stocks that can make you rich

Cabot Small-Cap Confidential Issue: August 4, 2022

The market is getting stronger and higher-growth names are leading the charge.

This month we dig into an overlooked company with a global payments platform that’s helping solve digital payment challenges in complex industries.

Growth is expected to be over 30% for a number of years, and the stock is acting well.


Cabot Small-Cap Confidential Issue: August 4, 2022


The Big Idea
Paying digitally for things you buy online is easy.

Need a jacket for the kids? Shoes for your wife? Toys for yourself?

Search, find, punch a few buttons and your credit card auto fills courtesy of Shopify, Amazon, Apple or Google, click “confirm purchase” and next thing you know there’s a van in your driveway.

I mean really, digital payment technology has made it so easy to separate us from our money that it’s kind of scary.

But these are relatively low-cost items.

It’s a little different when you need to pay a big tuition bill, book a cruise for the family or pay for a major medical procedure. There are more safeguards and more hoops to jump through.

Digital payments for things like education, healthcare and big-ticket travel are not handled by Shop Pay, Amazon Pay, Google Pay or Apple Pay.

These e-commerce payment solutions aren’t designed to handle industry-specific complexities, such as large cross-border payments, HIPPA compliance, other regulations, commissions and complex ERP integrations.

The good news is that things are changing, however. Innovative solutions are hitting the market that give overlooked sectors of the global economy the power to move to digital payments and enjoy all the benefits that come with the switch.

Today we add one of the up-and-coming players to our portfolio.

The Company
Flywire (FLYW) is a small fintech player with industry-specific digital payment solutions for the education, healthcare, travel and business-to-business (B2B) markets.

The company’s solutions make it easier for clients to get paid and for their customers to make secure, efficient electronic payments.

No more static, pain-in-the neck manual and error-prone processes. With Flywire clients get automation tools, dynamic insights and intuitive user interfaces that are industry specific.

The platform can dramatically increase revenue and reduce costs for its customers. And like most digital platforms, new solutions and features are always being added.

This all adds up to better payment/transaction visibility, options for things like payment plans, better accounts receivable/payable management and lower customer support requirements.

Flywire solutions are powered by three core components: (1) a next-gen payments platform, (2) a proprietary global payment network, and (3) industry-specific software.

The company got off the ground about ten years ago in the Boston, MA area and focused on pain points in the complex, high-value market for education-related payments.

In 2016 education still made up 98% of total revenue. But investments in the platform have helped Flywire expand into the healthcare, travel and B2B payment markets.

This year, management expects 79% of revenue will come from education (with international representing the biggest chunk at 47%). As the other verticals grow, education’s share of the total pie will shrink, probably to around 50% in five years.


These are large, complicated and very specialized markets that have been slow to move to digital payments. That makes them ripe for disruption.

The company’s three smallest markets – education, healthcare and travel – are worth about $1.7 trillion, and it’s barely scratched the surface of them. Add in B2B at $10 trillion and you can see that there is a ton of room to grow, if the company executes.


At the end of Q1 2022, customer count topped 2,700 and no client accounts for more than 3% of revenue. Flywire has over 2,000 clients in education, covering 2 million students. It powers 80 healthcare systems, including four of the top 10 in the U.S. Even though the B2B vertical is new, Flywire already has over 420 B2B customers.

This all adds up to more than $13.2 billion in total payment volume last year, when revenue grew by 53% to $201 million.

With net revenue retention of over 120% and factoring in longer-term growth of 30%+, management sees adjusted EBITDA profit margins of 25% or better.

The Platform
Flywire developed a modern platform to solve the complexities of both cross-border and local payments in industries that still do things the “old” way.


At a high level, Flywire’s approach relies on a mix of industry-specific software and a proprietary payment platform in which it owns the network.

Its platform makes it easier to move payments across multiple currencies, payment types and payment options. It doesn’t just take money from one spot and move it to another.

Rather, the platform is fully integrated into client applications and workflows to automate and manage the process from initial invoice delivery through payment settlement and reconciliation. Flywire also offers data and analytics to help clients better understand their customers and offer them things like payment plans.

Owning the network means Flywire controls the funds and can manage the network to give customers a good experience while also achieving cost efficiencies. The company has spent a decade building a network of banks, third-party payment providers, payment networks and digital wallets. It can now accept and settle payments in over 240 countries and 140 currencies. Venmo, PayPal, Alipay, Boleto, etc. are all accepted.


Finally, with vertical-specific software, Flywire can tailor user interfaces and workflows to their clients’ needs. What healthcare providers need is clearly different from what education and travel clients need.

That’s why Flywire tailors its software for each market and has worked so hard to build integrations with the most widely used ERP platforms out there, such as Ellucian, PeopleSoft and Tribal (education), Epic, Cerner and Finvi (healthcare), Tourplan and RoomBoss (travel), and Oracle and Bank of America (B2B).


Growth Initiatives
Ecosystem Integrations and Partnerships Drive Adoption: In Q1 2022 Flywire partnered with Ascensus (education, retirement, healthcare savings plans), Adapt IT (South African software company) and Tribal Group (SIS in EMEA and APAC). Consistently adding integrations and partnerships is key to the growth story.

Grow Sales Team: Flywire is growing its sales-related investments by 50% and service delivery investments by 60%. This is key to the growth story, and management says the pipeline is up two-fold over the last year and win rates are up 60%.

Further Diversify Revenue: While plenty of opportunity remains in education, and the healthcare vertical is growing nicely, Flywire’s early efforts to grow in travel and B2B significantly expand the long-term opportunity.

Acquisitions: Flywire has been adding incremental growth and industry exposure through recent acquisitions that include (so far) Cohort (education), WPM (education) and Simplee (healthcare). Additional acquisitions should be expected.

The Business Model
Flywire generates a considerable amount of business from international payments, but in terms of revenue by geographical market, first-quarter 2022 revenue was largely attributed to the U.S. (63%), the U.K. (15%) and Canada (13%). Breaking revenue down by solution type, 75% came from transactions while the remaining 25% came from the platform and usage-based fees.

The Bottom Line
Flywire grew 2021 revenue by 53% to $201.1 million. Adjusted EPS was -$0.27.

In the first quarter of 2022 revenue grew by 43% to $64.6 million (beat expectations) while EPS was -$0.10 (missed slightly). The EPS miss was the result of higher funding costs (a result of higher credit card usage) hitting gross margin.

Hiring remained strong with new hires up 50% over the last year. Over 130 new clients were added, including 40 in travel. UConn was added in education.

Following the quarter, management raised full-year revenue guidance to a range of $269 - $279 million, or $249 - $257 million when taking out ancillary services (marketing fees from credit card service providers and printing and mailing services). Analysts prefer the revenue less ancillary services line, and the implied growth rate for the full year 2022 is around 40%.

Flywire isn’t profitable and won’t be until 2023 -2024.

Education Exposure: While this remains a strong, large and growing market, and Flywire is diversifying into other markets, it is still, for the time being, largely reliant on the education vertical.

Rapid Growth Means Profitability Comes Later: Investing in growth makes sense for a young company with a large market opportunity, but at some point, Flywire will need to turn on the profit spigot.

Execution, Execution, Execution: A great payments platform is worthless if nobody knows about it or doesn’t get excited to use it. Flywire’s sales team needs to continue to keep the pedal to the floor in terms of getting new clients signed, as well as resigning existing clients. Implementation teams need to execute as well.

Competition and Consolidation: Flywire’s market is fragmented, and the only consistent thing is change. Just one recent example is the acquisition of EVO Payments (EVOP) by Global Payments (GPN). Flywire is both an acquirer of smaller players as well as a potential acquisition target and must keep innovating to remain relevant.

Flywire doesn’t name any specific companies as competitors in its SEC filings. Rather, it states the main competition is legacy payment methods such as traditional bank wires and money transfers, as well as integrated payment providers focused on cross-border payments, B2B payment platforms and other niche players. The reality is this is a very fragmented market with a lot of players.

The Stock
Trading Volume: FLYW trades an average of 1 million shares daily.

Historical Price: FLYW came public at 24 on May 26, 2021, and jumped 46% the first day. It was a little up and down in the first two months but took off last August and ultimately peaked at 57.4 on October 14. From there FLYW went on a five-month slide that saw shares land at 22.4 in mid-March. A small relief rally took the stock back above 30 soon after, but in early May FLYW sold off again, finally landing with a thud at 14.6 on June 16. That looks like a low (we hope). Since then, FLYW has been grinding higher and, now in the mid-20s, is working to reverse the damage from last May and get back above 30, where we could encounter resistance (specifically around 32).

Valuation: FLYW trades with an EV/2023 revenue (less ancillary services) multiple of 6.7. That’s up from this year’s lowest multiple near 4 but well below the multiple in the 9-10 range that seemed more appropriate this past spring.

Buy Range: With earnings coming next week we could see FLYW move a lot. Expect to buy in the mid-20s this week. After earnings we’ll reassess. As has been our strategy throughout most of 2022 we will start with a half-sized position. BUY HALF

The Next Event: Q2 earnings Tuesday, August 9




Updates on Current Recommendations

Stock NameDate BoughtPrice BoughtPrice on 8/3/22ProfitRating
Avalara (AVLR)2/1/194093131%Hold Quarter
CS Disco (LAW)9/2/215728-51%Hold Half
DigitalOcean Holdings (DOCN)6/2/224945-7%Buy Half
Ingles Markets (IMKTA)5/5/2295982%Buy Second Half
Inspire Medical (INSP)10/4/1959218273%Hold
Procept BioRobotics (PRCT)3/3/22254060%Hold Half
Rani Therapeutics (RANI)10/7/21 and 8/28/221412-16%Buy Second Half
Repligen (RGEN)11/2/18 and 12/31/1859240306%Hold
Sprout Social (SPT)9/3/20365961%Hold Half
TransMedics Group (TMDX)7/7/22343916%Buy Half
Xometry (XMTR)1/6/225342-20%Hold

Please email me at with any questions or comments about any of our stocks, or anything else on your mind.

Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying t Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain, and hold on to the rest until another ratings change is issued.

Disclosure: Tyler Laundon owns shares in one or more of the stocks mentioned. He will only buy shares after he has shared his recommendation with Cabot Small-Cap Confidential members and will follow his rating guidelines.

The next Cabot Small-Cap Confidential issue is scheduled for September 1, 2022.

About the Analyst

Tyler Laundon

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.

Tyler’s small-cap portfolios favor a high allocation to stable, high growth companies, upon which he layers strategic purchases of higher risk, event-driven investments. He first began publishing his analysis of small-cap opportunities in 2009. Since 2012, he has led his subscribers into 10 doubles. Between 2012 and September, 2015 his small-cap recommendations generated cumulative returns of over 2,300%, including both winners and losers, and outperformed the Russell 2000 Index by an average of 28% per year.

Prior to joining Cabot, Tyler founded and operated a small business for 15 years. He then worked as a consultant for start-up technology companies, as well as Vermont’s largest health care institution. From 2009 to 2015, he was the chief analyst of growth stocks at Wyatt Investment Research, where his research spanned the full spectrum of the growth stock universe, from micro-cap start-ups to multi-national mega-caps.

Tyler holds a B.S. and MBA from The University of Vermont, where he graduated Valedictorian. He has been a long-time contributor to the Wall Street’s Best Investments, has been quoted by U.S. News & World Report, and has presented investing ideas and strategies for The Money Show and Bloomberg Markets LiveINSIGHTS.