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Small-Cap Confidential
Undiscovered stocks that can make you rich

May 10, 2023

Expensify (EXFY) and Flywire (FLYW) Report

Expensify (EXFY) reported underwhelming Q1 2023 results after the bell yesterday. Our goal here was to get into what seems like a promising long-term opportunity with a small specialist (expense management and other financial tools for small and very small businesses) before the trends turned more positive. Then be in the stock once confidence in the growth trajectory was on the rise. So far, that hasn’t happened. I continue to think Expensify has a compelling product roadmap and business model (grow virally by offering free solutions to the masses and then convert to paid). But it’s still a very tough environment for smaller businesses, which management fully acknowledges. And the pay-per-use portion of its user base drives very inconsistent revenue (the subscription base is much more stable). So it’s a little murky trying to project out when we could see meaningful improvement.

Revenue in the quarter was down 1% to $40.1 million while EPS fell to $0.05 from $0.09 in the year-ago quarter. Interchange revenue from the Expensify Card grew by 85% to $2.3 million, which is good. However, due to a weird accounting rule (in the process of being changed) interchange revenue is not part of total revenue (likely to change in the future, but not timeline). The company continues to be very judicious with how it spends money and talked a lot on the conference call about how it is outsourcing repetitive software engineering tasks and managing a its sales force to support the high producers and cut the underperformers (100 new sales reps brought in during the quarter, some of which won’t be here next quarter). On the paid member front, growth was 6% to 747,000 and the pipeline of people taking a free trial to the paid subscription tier was up significantly (+79%). With over $100 million in cash in the bank and $10.6 million of free cash flow this quarter Expensify has re-upped its buyback program with up to $3 million in shares to be repurchased in the near term and $8 million of debt to be paid down. The stock is down around 15% this morning, so that buyback program is probably kicking in right now.

The other major discussion point on the conference call was the new platform about to be launched. There will be added functionality on this platform that is intended to increase engagement. We should hear much more after the May 18 ExpensiCon conference in Italy.

Stepping back, it clearly isn’t a great environment for Expensify right now. The company is building out the platform to be ready to go when the macroenvironment improves. But bigger investors aren’t likely to sit and be patient in the hopes that better days could arrive. They’ll likely wait until they have arrived to ramp up positions in EXFY stock. We won’t sell into the weakness today as EXFY could easily snap back a bit in the coming days and offer a better exit point. But we probably won’t stick around for too much longer. HOLD

Flywire (FLYW) reported Q1 2023 results yesterday that surpassed expectations on the top and bottom lines and management raised full-year guidance. Revenue was up 46% to $94.4 million (beat by $11.5 million) while EPS of -$0.03 improved from -$0.10 in the year-ago quarter and beat by $0.04. Full-year revenue guidance was upgraded to $380 - $398 million (versus $373 - $392 million previously), which implies there could be more upside given the low end of the raise was less than the Q1 beat. Management said demand remains strong across all its business segments (education, travel, healthcare, B2B), as evidenced by a record 170 new clients signed in the quarter. Activity in the APAC region is improving. Big picture, the company appears to be doing very well and management performs consistently. Granted, a stable customer base helps, but still. This was a very cut and dry good quarter for a fintech company playing in what appear to be solid end-markets experiencing extended recoveries coming out of the pandemic. Analysts are raising price targets, the stock is trying to break out (again) and we’re sticking with Flywire. BUY

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.