Good day and welcome to the QuinStreet Third Quarter Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Erica Abrams. Please go ahead.

Thank you, Aga. Good morning, ladies and gentlemen. Thank you for joining us today to report QuinStreet's third quarter fiscal year 2018 financial results. Joining me on the call today are Doug Valenti, CEO, and Greg Wong, CFO of QuinStreet. This call is being simultaneously webcast on the Investor Relations section of our website at www.quinstreet.com. Before we get started, I would like to remind you that the following discussion contains forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause the results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 10-Q filings made on February 5, 2018. Forward-looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures are included in today's earnings press release, which is available on our Investor Relations website. With that I will turn the call over to Greg, CFO of QuinStreet. Please go ahead.

Thank you, Erica. Hello and thanks to everyone for joining us today. As you know from our press release, we reported an outstanding third quarter highlighted by all-time record revenues, our return to double-digit adjusted EBITDA margin and the continued generation of strong cash flows. QuinStreet's success continues to be driven by the product and media strategies we have implemented over the past few years. Those strategies provide better matching, transparency and right pricing of media and our recent performance demonstrates that these strategies are working well for consumers, clients and QuinStreet alike. In the third quarter, revenue grew 49% year-over-year to $117.9 million, our fastest growth rate at anywhere near the scale in QuinStreet's 19-year history. Adjusted EBITDA was $11.2 million or 10% of revenue, an increase of 116% year-over-year. Adjusted net income was $8.5 million or $0.16 per share. We generated $10.5 million of normalized free cash flow and closed the third quarter with $47.1 million in cash and equivalents and no debt. Moving to revenue by client vertical, our Financial Services client vertical represented 74% of Q3 revenue and grew 79% year-over-year to $87.1 million. All of our largest businesses in Financial Services had strong growth in the quarter. Clients continue to shift marketing spend to online from offline media. As a shift is occurring QuinStreet is one of the only providers that delivers measurable, sustainable and cost-effective results for our clients at scale, which allows them sustain more aggressively and predictably in the world's largest shopping channel, the Internet. Our Education client vertical represented 17% of Q3 revenue and grew 2% year-over-year to $19.6 million. Trends in Education have improved generally over the last several quarters. Approximately 40% of our Education revenue now comes from not-for-profit or international clients. U.S. for-profit Education was just 10% of total company revenue. Our other client vertical which includes Home Services and B2B technology represented the remaining 9% of Q3 revenue and was flat year-over-year at $11.2 million. Turning to the balance sheet, our balance sheet remained strong and we closed the quarter with $47.1 million in cash and equivalents and no debt. During the quarter we generated $5.7 million of operating cash flow and spent about $700,000 on CapEx. Normalized free cash flow was $10.5 million or 9% of revenue. Most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model. Moving to the outlook, we expect positive momentum across our business to continue and once -- we are once again raising our outlook for the full fiscal year, this time to revenue growth of at least 30%. Adjusted EBITDA margin for the full fiscal year is expected to be at least 8%. With that, I'll turn the call over to Doug.

Thank you, Greg. So growth continued to accelerate in the fiscal third quarter and we continued to expand the margins and cash flow. I wanted to spend some time explaining what is driving our business momentum and describing or reminding in some detail how our business model works. QuinStreet's business momentum is being driven by two main fundamental factors. First, by the shift of marketing dollars to digital media, that's increasingly where the customer prospects are spending their time and beginning their search for a product or service. Within digital media, due to growing sophistication and digital's inherent measurability, there is a shift to performance marketing and we are a leading, trusted, digital media performance marketing platform. The second fundamental factor driving our renewed business momentum is the success of our new products and media strategies. The new products increase our ability to optimize performance marketing programs for clients and the media and to do so even more measurably and transparently. They meaningfully strengthen our already formidable technology competitive advantages. The new media strategies broaden our coverage of digital media sources that contain research and compare consumers. This increases our footprint for growth, diversifies our mix and reduces disruption risks. It is clear from our results that these product and media strategies are working. Clients are achieving their marketing objectives and growing [spend] with us. Consumers are finding the products and services or solutions they need and engaging, matching and converting into customers for our clients and they are doing so, in our case on a voluntary intent driven and off gain basis. We serve some of the biggest companies and brands in the world. These big brand name clients are ever more sophisticated and they are capable of and focused on directly measuring marketing results and on monitoring online…

Ladies and gentleman that concludes our prepared remarks for today. Operator, please open the call for questions.

[Operator Instructions] We will go first to John Campbell at Stephens Inc.

Doug, great job going back to the business, I think that's always helpful to kind of refresh guys on that. But if you guys can maybe unpack the growth in Financial Services, Greg, I think you said all the large offerings did well, I'm sure insurance was the primary driver. But was the -- can you maybe just talk a little bit about the excess growth may be coming out of mortgage and personal loans anything else?

Yeah, John. Actually all of our businesses grew at pretty similar growth rates around the 79% total Financial Services growth. So there wasn't much variation between verticals. We saw strong growth across all of our businesses actually. Yeah, insurance grew slightly faster than the overall average for Financial Services, but only slightly faster and we had a couple of businesses that are actually significant business than Financial Services that grew faster than insurance.

That's great. And then maybe could you -- could you may be decouple how much of that is maybe coming from the new media strategies versus this clients just upping overall spend?

Hard to separate, but I would say both vectors are working. We are seeing an awful lot of client momentum both naturally because of the need to shift to this channel but also a lot of client momentum driven by the fact that we can accommodate them in this channel and we can get even more better results for them. So it's kind of hard to separate them. But certainly both are working for us.

And then one more and I will hop back in the queue. But how much -- not that how much you guys can share at this stage -- but how much was the Progressive lift sequentially and then the remaining lift of insurance how much was that -- was larger clients versus just kind of broader base lift?

You know John, Progressive itself was probably at a similar percentage of revenue that it has been in prior quarters, I think what you saw is yes a very strong quarter for progressive, but we also saw very strong quarter from a bunch of our other large clients that continued to spend and continued to shift spend to us because we deliver sustainable, measurable marketing results for them and they are working and so we are seeing growth across our entire client base pretty much.

I would add to that, the strong growth across the client base, generally and in insurance, in fact, we had our second largest insurance client which is also a very large client with us, grew significantly faster than Progressive did not just year-over-year but sequentially. And so we are seeing acceleration in budgets across the board and Progressive continues to be, and I think we have to name them because their size continues to be an incredibly important client for us. But I think it would be a mistake to assume that that's the only driver of our business momentum.

I think there were -- I think may be 23 or so percent of revs last quarter, is that -- are you seeing a similar percent of total revs or similar percent of overall interest revs?

So that present the total revs.

We will next to Jim Goss at Barrington Research.

Hi this Pat Sholl on for Jim Goss. You guys eluded to sort of your -- the [indiscernible] your traffic was, wondering if you could walk us in a little bit more detail on how you guys were able to identify if it's sort of maybe not the best quality traffic and how you handle that in terms of ads surveying and just basically highlight a little bit more on that?

The first and most importantly that gets audited is by the actual results it generates. We and as I emphasized in my opening remarks, we really are a performance marketing company. So the notion that we would have a lot of traffic on our system that was unproductive for clients is just kind of -- just kind of shows a lack of understanding of how our business model works. We wouldn't get paid for that traffic because what we do for clients is right priced to the results we generate for clients. So most importantly we see it in results that clients report back to us, including we give clients refunds for traffic that comes from sources that we and they have said we don't want in our system and we have that in our contracts of media and they have that in our contracts with us. So we would actually have on an ongoing basis when that slips through, which isn't very often, given we give refunds for that. So that's the first and foremost most important way. We also have a lot of algorithms in place that are testing and looking for these kinds of changes in flows and types of flows and changes in performance on an ongoing basis. That's part of the technology that I talked about in terms of understanding and having an understanding of the channel and we've learned over the years through a lot of fraud detection and qual detection. So even though we could give clients refunds for that traffic, we would rather never give it to them and they never have to deal with it. And so that technology and those filters have gotten better and better over the years and are part of our ongoing technology solution. The -- another…

And on Education as for-profit and international continue to grow, would you ever sort of split those two up to sort of provide -- and maybe provide a little bit more on the trends within each of those two sub-categories in Education?

Yes. I think we will as we get -- as particularly as international gets bigger, I think we certainly would. And I think historically we have sometimes given out those numbers separately. We may do that periodically any way. We are not intending to not show anything there. We have seen good strong growth in our international Education business over the past few years. The period when we haven't seen it in the U.S. for-profit. So we may well do that periodically whether we break it out permanently, separately or not as we have in the past.

But was the international then the primary area of the growth within that sub-sector of Education?

Actually it has been in past quarters over the past year. So but this quarter, it was not. The enrollment cycle in Brazil was actually out of sync this quarter or this past quarter of last year. And so Brazil, I think was actually down year-over-year…

Slightly.

In Education in the quarter slightly and the growth was actually in the -- driven by the U.S. business this quarter.

[Operator Instructions] We'll go back to John Campbell with Stephens Inc.

So I mean obviously insurance has grown in the past for you guys. I think it's one of the lower gross margin businesses for you. But it looks like you are still in pace to grow gross margins about 400 bps or so just this fiscal year. Can you guys talk a little bit about what's kind of driving that underlying leverage and maybe how we should think about the pace of gross margin lift from here?

I'm not sure it's completely accurate that insurance is one of our lower margin gross margin -- lower gross margin businesses. That was the case a couple to few years ago when we were going through the initial implementations of the new products and media strategies, starting in insurance and we did drive down those gross margins pretty significantly in order to get traction and get through that transition as quickly as possible and to make sure we were meeting clients' needs while we were doing it. But today insurance is actually a pretty strong gross margin business for a couple of reasons. First of all, we've gotten the media margins in insurance, despite the fact that we are growing at such high rates and often media margins lag revenue growth a little bit. But we've actually been able to continue to bring the media margins up in insurance to just very close to our averages now, within a couple of points actually of our average now. And so that's our biggest component of course, the cost of services which of course would be helpful to gross margin. The other characteristic of insurance of course it has great scale on a relatively small team, because it is our new product strategy driven primarily much more by technology and with clicks both of which require a lot lower expense level at the -- underneath media costs. And so the team size in insurance relative to the scale of revenue and media margin profits if you will, is quite small. And so -- and I haven't seen the numbers, we have run the numbers for this year doing the planning cycle going into next year now. But you know that combination of effects probably suggests that on the media margin -- on…

And then obviously media margins, the biggest driver of gross margins for you guys. Any sense for kind of like what's the breakout of fixed versus variable costs within gross margin [here] today?

It's probably around 80% variable costs in gross margin.

We'll go next to Stephen Ju at Credit Suisse.

So Doug, stepping back and looking at the bigger picture, it certainly feels like it's been a long road to recovery and it seems like it's pretty much the result of the seeds that you guys have started to sow in the Financial Services vertical, it seems like almost two years ago now. So you touched on this briefly earlier on the international side, but can you talk about some of your emerging verticals and where you are focused today in perhaps allocating engineering resources, as you think about the next few years of growth for the company? Thanks.

I think that we are actually fairly early still in the full implementation of the new products and technologies across all of our Financial Services verticals. Believe it or not, we're still not fully implemented in insurance. It's a long process, because it involves all the clients and all the media over time and getting all that right and getting the optimizations built, as we get it right. And then in fact, the job is never done in the optimization. So I would say that we -- in priority -- in terms of priorities we are pretty well implemented in insurance. But relatively early in most of our other Financial Services verticals and very excited about what we see as the opportunities in those. We are -- I would say over the next few months, you will see us with enough implementation in our two or three other large Financial Services verticals to begin to I think inflect the performance of those businesses pretty significantly. And then we have one of our largest market opportunities where we haven't really done -- at the very front end of the curve of the new products and technology. So I think dramatically, the priorities will continue to be, because of the momentum we're seeing getting the technologies and new products fully implemented across all the Financial Services verticals which represent a big -- our biggest business and a very large footprint of opportunity and continuing to drive scale growth there. That said, we also have our Home Services business, which represents about half of the market opportunity of all -- of Financial Services for us, in terms of market footprint. And we again are in the earliest stages of implementing our new products and technologies there, despite, the fact we've been growing that…

Thank you.

Thank you, Stephen.

And that does conclude the question-and-answer session and today's conference call. To access the replay for today's call please dial toll free 888-203-1112 and use pass code 5951589 and pin number 5410. The replay will begin at 8:00 AM Pacific Time today and run through May 2, 2018. Thank you for your participation. You may now disconnect.