Good day and welcome to the QuinStreet Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Erica Abrams. Please go ahead.

Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report QuinStreet's fourth quarter and fiscal year 2020 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 results to differ from our forward-looking statements are discussed under the legal notice section in our Form 8-K filed today with the SEC, including disclosure about the effect of COVID-19 and related restrictions on our business, and are also discussed in more detail under the Risk Factors section in our SEC filings, including our most recent 10-Q filing. 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 press release, which is available on our Investor Relations website. With that, I will turn the call over to Doug, CEO of QuinStreet. Please go ahead.

Thank you, Erica, and thank you all for joining us today. Fiscal Q4 was a successful quarter for QuinStreet. Despite challenges posed by COVID-19's impact on clients, media and operations, we delivered better-than-expected result on both the top and bottom lines, and we made excellent progress on strategic and operating initiatives. We continue to narrow our focus and investment to our biggest and most attractive opportunities. Also, our reorganization has reinvigorated functional excellence and competitive advantage in product and media and with clients and is delivering better, faster progress and results. Overall, we believe that we are now better positioned for long-term growth and performance than at any time in the past decade. Revenue, excluding divested businesses, grew 3% year-over-year in fiscal Q4. Adjusted EBITDA was 7% of revenue. We generated strong cash flow, ending the quarter with over $107 million in cash. Our financial performance during the pandemic is, once again, highlighting the strength of our long-term opportunity and advantages and the resilience and strong cash flow generation characteristics of our business model. Results in the Auto Insurance and Home Services client verticals, our two largest businesses and the core of our focus going forward, were particularly strong in Q4. Auto Insurance revenue grew almost 50% year-over-year and Home Services grew almost 30%. The overperformance in those client verticals was driven by strong client demand, good navigation by our team, including shifting efforts to areas less impacted by the pandemic, and excellent execution and progress on big and important long-term product, media and client initiatives. The strong results in Auto Insurance and Home Services offset weakness in our credit-driven client verticals, personal loans and credit cards, which continue to be negatively impacted our clients' response to the weakening economic and employment environment. Those businesses declined significantly in the quarter…

Thank you, Doug. Hello, and thanks to everyone for joining us today. Q4 wrapped up another record revenue year for QuinStreet, despite significant headwinds in the second half of our fiscal year due to COVID-19. For the fourth quarter, total revenue was $117 million, a decrease of 4% year-over-year. Revenue, excluding divested businesses, grew 3% year-over-year. Adjusted EBITDA was $8.4 million or 7% of revenue. Adjusted net income was $7.4 million or $0.14 per share. Looking at revenue by client vertical. Our Financial Services client vertical represented 76% of Q4 revenue and decreased 3% year-over-year to $88.6 million. During our fiscal fourth quarter, we divested our Mortgage business. Excluding divested businesses, our Financial Services client vertical was about flat year-over-year. Auto Insurance, our largest business, delivered record revenue and grew 47% year-over-year. This growth reflects strong spending from a broad range of major carrier clients and excellent progress on a number of long-term growth initiatives in the quarter. Our credit-driven personal loans and credit cards businesses declined significantly year-over-year as expected due to COVID-19 driven economic and employment conditions. Our Home Services client vertical represented 12% of Q4 revenue and grew 29% year-over-year to $14.4 million, a record quarter for that business. In the quarter, we executed well at shifting our efforts to better performing, less impacted areas of our Home Services business, delivering exceptional revenue growth despite these unprecedented times. On July 1st, just subsequent to our fiscal year-end, we acquired Modernize to add to our scale and capabilities in Home Services. Total consideration was $67.5 million, which included an upfront cash payment of $40 million and notes payable of $27.5 million, which will be paid in equal annual installments over the next five years. Modernize is expected to add $50 million to $60 million to fiscal 2021 revenue…

[Operator Instructions] We'll take our first question from John Campbell with Stephens Incorporated.

Hey guys, good afternoon and congrats on a great quarter.

Thank you, John.

Sure. So really impressive results out of the Auto Insurance business. Just looking across the space, as best as we can see it, I mean you guys pretty handily outpaced your peers. Any sense for what triggered that outperformance? I don't know if it's maybe a relative exposure to carriers over agents or, I don't know, maybe better or less affected media coming out of COVID. Any sense for kind of what drove that outperformance?

And that just speculative, John. We -- the other two folks that have reported publicly, one grew Insurance 1% year-over-year and the other grew Auto Insurance, I think, 30% year-over-year. So our 50% -- 47% growth year-over-year in Auto Insurance, which is by far and away our biggest business, did stand out and I think we're gaining more share of budget faster, clearly. But it's tough to say -- we can talk about what caused our -- it's hard to say relative to the other folks what did or did not cause theirs. As far as ours is concerned, a lot of momentum with the big carriers, as you suggested. We are seeing an acceleration of a shift of budgets to online during this period, not surprising because offline media is less abundant and less productive right now because of the loss of programming and the loss of activity. And so in addition, those carriers are, of course, healthy financially, because the reduced driving has resulted in fewer incidents, which means lower loss ratios. So there's a lot of budget. And consumer activity is high. Consumers are at home, they're online, they're shopping. Unfortunately, a lot of consumers are experiencing financial stress. And when they experience financial stress, they shop to see if they can save money on the things that they have to buy like insurance. And so we're seeing good strong demand from clients and budgets shifting over to online and to us, in particular, for carriers because we tend to be the best-performing platform for the carriers. And we're seeing a lot of consumer shopping. We're hopeful that the inflection and acceleration to budgets online that we're seeing represents a permanent shift or an inflection against what is the permanent or the long-term trend of budget shifting online. We're pretty confident that is the case. And if so, that's really great news, of course. It's it will spur growth in future periods as well. The only other thing I would add is, that we do have a lot of initiatives as we have focused -- refocused on our core businesses. We have a lot of initiatives going on in insurance. And those initiatives did add quite meaningfully in the quarter. New product initiatives, which added millions of dollars in revenue to the quarter, new media initiatives, which similarly added millions of dollars of revenue in the quarter, and also client initiatives, which we're working with those clients to help them as they seek to shift more budget online, working to make sure they can do that as effectively and productively as possible. So, a lot of momentum, and a lot of long-term momentum in our Insurance business for sure.

John, this is Greg. And to be clear, what Doug was referring to in initiatives was he was referring to the core business, not related to QRP.

Okay. Makes sense. And then, just kind of going through the revenue model here and this factoring in the strength from Insurance and Home Services for the quarter, and I'm assuming that Personal Loans and Credit Cards, probably fell somewhere in the tune of like 80% or 90%. Is that about right?

No. I think they were -- Credit Cards was down over 70%. And I think Personal Loans is down about 70%. But Greg, I may be confusing.

That's right. So the combined was about 70% down year-over-year in the quarter. So yes, Personal Loans was down just less than 70% in Credit Cards was down over 70%.

Okay. Got it. And that's, I guess, kind of similar to what we're seeing out there with some of your peers. But on the fiscal year 1Q guidance, if you assume kind of a continuation of the strength coming out of Insurance and Home Services, and then you bake in, obviously, some of the Modernize revenue. I mean, it seems like you're factoring in a pretty much a continuation of stiff pressure and personal loan to credit cards, maybe not to that -- down to that extent, but pretty similar. Is that about right?

Well, we only guided for next quarter or the current quarter. And we're seeing continued significant weakness in Credit Cards and Personal Loans. Though Personal Loans -- our Personal Loans business looks like it probably bottomed in April or May, and we have -- we've made some good progress since. Credit Cards continues to be quite challenged. I mean a lot of the issuers are back in the market, but they're back in the market with either smaller card offerings or extraordinarily tight filters and high qualification standards and/or price reductions. So credit cards are still quite challenged. And we expect it will continue to be for a while, as the banks try to sort out their own balance sheets and try to get comfortable with the pre-implications of the -- of COVID and the economic problems caused by COVID for consumers and consumer credit. So, I would say that we -- and one of the reasons it's hard for us to look out much further than a quarter right now is that that's a very dynamic situation, as you can imagine. So yes, we continue to expect the credit-driven businesses to be pretty weak. We are -- we do feel like they -- Credit Cards is bouncing along the bottom, personal loan has bounced off the bottom. And we'll see if and how their progress continues, and I think it's going to be tied pretty directly to the economy and to employment for the foreseeable future.

Okay. That all makes sense. Thanks guys.

Thanks, John.

Thank you. We'll take our next question from Jason Kreyer with Craig-Hallum.

Hey gentlemen, good afternoon.

Hey, Jason

I'll start out with just the education business.

Jason, please go ahead.

Do you hear me?

I've got you.

We can hear you now.

Okay. Sorry about that. I was asking about Education. Brick-and-mortar education probably not performing well, online education, probably performing well, I mean, can you just walk through the puts and takes in the quarter?

Well, you hit it. The online budgets continue to be pretty strong, not dramatically stronger than they had been, but pretty decently strong. Campus budgets, which have represented as much as about 40% of our education revenue over the past year or two, almost completely went away. And so the team in that business actually did a phenomenal job of working to replace a pretty significant drop in demand from campus based clients, which did represent a pretty significant portion of our revenue in education. But yes, that is the main dynamic, decent though not overly strong online education performance and demand and almost totally gone is the demand for campus education.

Okay. And I joined the call late, so I missed your comments, Doug, so apologies if you addressed this. But just any update on the time line for QRP contribution? Kind of curious if you're happy with the way things are progressing through the pipeline? Or do you have any pipeline updates there?

Sure. We are happy with the way things are progressing through the pipeline. The pipeline got stronger yet again this quarter. We have great momentum with the carriers, with the agencies, agency clients and with our partners. The carriers that are helping us to promote the product into the channel. We feel that the opportunity is every big or bigger than we have communicated previously. We're as excited or more than we've ever been about the opportunity. This will be the first quarter of meaningful revenue for QRP, which is great, and it will be up like 4,000% over last quarter. The bad news is it's still only going to be hundreds of thousands of dollars. So we're early. But it's progressing very well. The outlook and the engagement and the value proposition and how it's catching with the clients continues to go extraordinarily well. We are getting great support from everybody that matters in the channel, including the carriers as they help us promote the product. So, what we don't know is -- what we've never known is exactly what does the ramp curve look like. We just -- and you've heard me say it to your strictly hearing that we just haven't done it before. But as far as doing the things that we can do, which is to work the pipeline, watch the pipeline metrics, see how clients progress through the pipeline, we see that they implement and see that they get active, see that it works for the initial agents in the test and see that they begin to expand it to more agents. And I think we have 2 or 3 of the agency clients now have committed to dates when they're going to expand floor wide. In other words, to all of their agents, which is great because that's what you want. I just want to keep seeing a move. But the movement through the pipeline continues to be very good, and the reaction we're getting continues to be very good. We've had no one drop out of the pipeline. We've had no one say, "hey, this isn't a better product than we're using today." And we have had no one say, "hey, this pricing doesn't make sense for the value proposition you're delivering." So exactly what the ramp looks like as I said, we just don't know, but we'll continue to share progress and the most important aspect of progress this quarter is, hey, we're going to have some -- we're going to have revenue. It's not going to be -- it's not going to change our lives, but it's not the heck of a lot over the last quarter because you could actually see now usage activity. And by the folks that have signed, they gotten implemented. They gotten tested, and they're starting to use it and we're getting paid for.

Perfect. And last one for me. We've talked a little in the past about the credit repair service that -- within your Personal Loans offering. Is that doing anything to help offset the weakness? Or does that play a role in this kind of a market? Or when we start to bounce back a little bit, do you think that can be a more helpful product? Just looking for more color on that.

Yes, absolutely. Absolutely. There's huge demand right now for credit repair and credit management services. And we are seeing that in our Personal Loans business. As you know, the acquisition of M1, one of the things -- one of the several things that acquisition brought to us was better coverage and better abilities to match consumers to high-quality credit repair and debt settlement -- service providers. So absolutely, part of the reason we bounced up after bottoming in April or May in Personal Loans was the demand that we were able to service, increasing -- significantly increase in demand, unfortunately, really for credit repair and debt settlement services. So yes, we've put a lot of focus there. I expect that, that will allow us to continue to grow off the bottom that we saw in the early spring in personal loans, and I expect that, that will continue -- that will be a nice, strong business, offsetting weakness with the lenders in the foreseeable future.

Thank you.

Thank you, Jason.

Thank you. [Operator Instructions] We'll take our next question from Jim Goss with Barrington Research.

Good evening. This is Pat [ph] on for Jim. I was just wondering if you could -- I was just wondering if you could talk a little bit more about the carriers helping to support your rollout of QRP, and maybe just how they've reacted just in terms of how they view your funnel for customers just more generally with that rollout?

The carriers are supportive of QRP and have been from the beginning. They were the ones that really told us that there was an opportunity for this product in the channel. And we work with them to define it and to build it in a way that they and their carriers -- their agency partners thought would be most effective. They continue to support us by acting as a reference for the product by working with us to add more integrations to the product. We have a long -- we already have the most end-to-end integrations with carriers for accurate quoting in the country as far as we know, and I'm pretty sure we know and now we have the deepest pipeline of even more end-to-end integrations, with more carriers and in more states to add to that, and we have a full team in India working on that full time. And we also have carriers committing to use the pre-work in their own organizations because many carriers have cost centers, almost all of them do. And those cost centers very often, if someone doesn't match that carrier's policy or other criteria, some of those -- many of those consumers go unserved. And so a big part of the pipeline, volume-wise, are carriers that have committed to using QRP in their own call centers to satisfy consumers that today get what their terms used in the cost center in the agency business or cost center business dropped on the floor. So we're getting support from a promotion of the -- and support for the product reference for the product. We're getting support in terms of integrations. So we have even more live accurate end-to-end rates. And integrations, integrating support by the carriers actually committing to adopt the product, so across the Board support.

Okay. And then, there's -- I guess, a lot of moving parts on the top line. But what -- I guess, at the midpoint of your Q1 guidance, what would that sort of translate to on a year-over-year growth rate just between the divested and acquired businesses?

Greg, do you have that? I don't have that in front of me. I don't have that in front of me

I don't have that in front of me right now.

Okay. That was all I had. That was great. Exceptional quarter. Great guys.

Thank you, Pat.

Thank you. [Operator Instructions] We'll take our next question from Chris Sakai with Singular Research.

Hi, Doug and Greg.

Hey, Chris.

Hi, I had a question on Modernize. I wanted to see -- in the next quarter, will revenue be sort of recognized from the acquisition? What's the sort of ramp-up time for Modernize?

Yes. We won't report it separately, Chris, because like most of our acquisitions, this is a business that we pretty immediately combined with our existing Home Services business, which, as you know, was running at about $50 million last year. So it will be incorporated into our numbers this quarter, quite clearly since we closed on July 1st, in fact. And will be reported as -- within our Home Services financial results. So that revenue will be in the Home Services numbers and comes pretty directly into the business. We -- as Greg indicated, and I think we indicated, when we announced the acquisition, we expect total revenue for Modernize in the full fiscal year 2021 to be between -- to add between $50 million and $60 million to company revenue, and of course, to Home Services revenue as a component of that. And so, you'll be -- you'll see that this quarter as the first quarter of revenue. The exact number for Modernize this quarter, I don't know in terms of what it might represent, again, because just combined with Home Services. It's what they had, plus what we can add due to the synergies. The synergies will come at an increasing, hopefully, accelerating pace throughout the year. So this quarter will likely be the least impact for Modernize and the lowest incremental revenue for Modernize, but we would expect that subject only to seasonality. That will grow as we get the business fully integrated with our existing business and we execute against quite significant synergies between the two businesses in terms of media efficiencies and client budgets and product improvements.

Okay, great. And then, as far as the acquisition goes, are there -- in this coming quarter, are there going to be any extra sort of acquisition costs? Or was that in this last quarter?

I don't think there are any. Greg, do you -- I mean, am I missing anything? I'm pretty sure that those acquisition costs are all behind us. But Greg, can you add anything to that?

The material, they're all behind us because there will be small pieces coming up, yes, there could be. But no, I expect the bulk of the acquisition costs related to that in the June quarter.

Okay, great. Well, I think it that takes it all for me. So thanks.

Great. Thank you, Chris.

Thank you. This concludes today's call. A replay of the conference will be available by dialing 888-203-1112 or 719-457-0820. The access code is 3216055. Thank you for your participation. You may now disconnect.