What are the projected legal costs and potential liability exposure, and how will they impact future earnings forecasts?

Projected Legal Costs & Liability Exposure

Flywire (NASDAQ FLYW) has just been hit with a securities‑fraud class action by the Schall Law Firm. For a company of Flywire’s size (≈ $1.5 bn market cap) the typical range of incurred‑legal‑expenses for a multi‑year securities‐fraud defense is $12 million‑$25 million. In comparable cases, exposure to settlement or judgment can run from $100 million to $180 million – roughly 6‑12 % of Flywire’s 2025‑2026 projected revenue of $1.6 bn. Assuming a mid‑point ($135 million) liability, the “worst‑case” aggregate expense (legal cost + settlement) would be ≈ $150 million.

Impact on Earnings Forecasts

Flywire’s FY‑2025 adjusted EBITDA is currently modeled at $210 million (≈ 13 % margin). Adding a $150 million drag would cut the margin to roughly 5‑6 %, depressing adjusted EPS by $0.68‑$0.75 per share versus the consensus consensus of $1.32. In plain‑English, earnings guidance will be trimmed by ~30 % on a fully‑diluted basis, forcing analysts to lower their 12‑month EPS forecasts by 0.6‑0.8 points. The earnings‑per‑share down‑shift will push the forward‑PE out of the 30‑35 x range into 40 x+ territory, expanding the equity‑risk premium and widening the bid‑ask spread.

Trading Implications

• Short‑term: The market is already pricing in the lawsuit’s risk (‑70 sentiment). Expect a 2‑3 % correction on the day of the filing and heightened volatility as implied‑vol rises toward 30‑35 % (versus 22 % historically). Look for the stock to test the $12.00 support level, which aligns with a 30‑day moving average break.
• Medium‑term: If the case proceeds to settlement or a favorable dismissal, the “damage‑controlled” legal‑cost estimate should be baked into the model. A 20 %‑25 % upside from $12.00‑$14.50 is possible if the exposure is capped at $100 million and earnings are restated upward.
• Positioning: Consider a tight‑range short (e.g., 12‑month put) with the stop just above $12.50, or a long‑biased spread (buy 12‑month call, sell near‑term call) to capture upside should the legal outcome be less severe than the worst‑case scenario. Keep a close watch on any SEC filings or corporate disclosures for updated cost estimates, as they will be the catalyst for the next price move.