Good day, and welcome to QuinStreet's Fiscal Third Quarter 2024 Financial Results Conference Call. Today's conference is being recorded. Following prepared remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Senior Director of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Thank you, operator. And thank you, everyone, for joining us as we report QuinStreet's fiscal third quarter 2024 financial results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may 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 in our recent SEC filings, including our most recent 8-K filing made today and 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 is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir.

Thank you, Rob. Welcome, everyone. Company revenue grew about 40% sequentially in fiscal Q3, fueled by a significant positive inflection in auto insurance carrier spending, as we had forecast. The ramp of auto insurance carrier spending continued through Q3 and has extended into the current quarter, fiscal Q4. Auto insurance carrier activity and spending are broad-based and continue to be supported by reports of good carrier results. We expect the ramp of auto insurance spending to continue in coming quarters as carriers expand their product and market footprints and are enabled by increased rates and improved profitability. Overall, we expect auto insurance revenue to grow for the foreseeable future as the fundamental shift of budgets to digital and performance marketing reasserts itself as the dominant long-term trend. Adjusted EBITDA jumped to almost $8 million in FYQ3 due to the leverage from the higher revenue. We expect adjusted EBITDA margin and dollars to continue to grow as revenue continues to ramp. Turning to our outlook for the current quarter, or fiscal Q4, we expect revenue to be between $180 million and $190 million, a quarterly record revenue for QuinStreet and implying year-over-year growth of over 40% at the midpoint of the range. We expect adjusted EBITDA to be between $10 million and $11 million, implying year-over-year growth of over 400%. Our fiscal year 2025 begins this July 1. I would point out that the annual run rate of our fiscal Q4 revenue outlook already implies growth of 20% or more over full fiscal year 2024. We are excited about the size of our market opportunities, about the resilience we have demonstrated in our business, about our plans and initiatives to keep growing revenue and profits into the future, and of course, about our continued strong financial position. With that, I will turn the call over to Greg.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another solid quarter for QuinnStreet. Total revenue was $168.6 million. Adjusted net income was $3.4 million, or $0.06 cents per share. And adjusted EBITDA was $7.9 million. The significant positive inflection in auto insurance client spending has indeed begun. In fiscal Q3, we saw auto insurance revenue continue to ramp throughout the quarter. That said, we are still in the early innings of the re-ramp of auto insurance and continue to expect growth for many quarters ahead. Looking at revenue by client vertical, our financial services client vertical represented 67% of Q3 revenue in those $112 million. Our home services client vertical represented 32% of Q3 revenue and was $54 million, a record quarter for that business. Other revenue was the remaining $2.4 million of Q3 revenue. Turning to the balance sheet. We closed the quarter with $40 million of cash and equivalents and no bank debt. A more normalized view ending cash balance would be approximately $48 million. We received a payment of approximately $8.5 million two days after quarter end. Moving to our outlook. For fiscal Q4, our June quarter. We expect revenue to be between $180 million and $190 million and adjusted EBITDA to be between $10 million and $11 million. As Doug pointed out, the annual run rate of our fiscal Q4 revenue outlook already implies revenue growth of 20% or more over full fiscal year 2024. We also expect adjusted EBITDA to continue to expand faster than revenue. In closing, our outlook on the business has never been brighter. We expect a record revenue quarter in fiscal Q4 and further margin expansion. We remain well positioned to benefit from the re-ramp of auto insurance client spending and are seeing continued momentum in our noninsurance client verticals. We expect strong total company revenue growth and adjusted EBITDA expansion driven by our diversified portfolio of client verticals. With that, I'll turn it over to the operator for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from the line of John Campbell from Stephens. Please go ahead. Q – John Campbell: Hi, guys. Good afternoon. A –Doug Valenti: Hi, John Q – John Campbell: So over the last year, you guys have talked to getting back eventually the 10% EBITDA margins, I guess, as the insurance channel just normalizes, I mean you kind of rebuild the top line scale. I'm not asking you to really pinpoint exactly when all that comes together. But just based on the fixed cost base you guys have now what your -- the plans you have to grow it from here. I'm hoping you guys can maybe outline the level or the degree of revenue you need to get back to this kind of low double-digit EBITDA margins? A –Doug Valenti: Sure . I'd say -- hard to pinpoint the exact level of revenue, John, because it depends so much on the mix. As you can see, we'll get up into the mid- to high single digits in terms of percentage next quarter. And we have a lot of growth beyond that that we can -- we could see coming given the demand -- that we're seeing and the initiatives that we have. So again, I’m having a hard time giving you the exact number because in terms of revenue, but it's not too far off, if that's helpful. I would say it's likely to be in -- very likely to hit next year, next fiscal year is my opinion, but we'll have to wait and see what the mix looks like and the planning and the forecast. And of course, we'll give you a more precise view of that in our next…

Your next question is from the line of Jim Goss from Barrington. Please go ahead.

Thank you. This is Pat on for Jim. I'm just wondering with the improved trajectory in insurance spending I'm just wondering, if you could provide an update on the development of additional efforts within insurance such as QRP and getting that back into a growth stage.

Yes, good question, Pat. QRP was obviously went kind of dormant during the insurance downturn. We've talked about that just wasn't any product for the agencies. The agencies were cut -- had to cut way back because they didn't have product. So the re-ramp and rescaling are getting back on track to scale QRP is going to lag the overall market coming back for those reasons because the agencies now have to get product and they still don't have a full footprint product and they have to restaff and retool and get geared back up. So just a natural lag to it before I think we'll start seeing a return to a strong ramp there. That said, we have two big clients of QRP going live ones already live with a pilot that will be ramping over coming months and another will be going -- getting live with their pilot and reramp starting in June and they are two of the biggest players in the industry and certainly our two biggest clients in terms of their of scale in the channel or in the industry. So we expect that we will get will return will get back on track. We'll get back on the ramp. It's been delayed obviously that's going to lag a little bit, but we're excited and we're as excited as we've ever been about that product and what it represents the future for the future of the channel. And we're super excited to have two big clients beginning their activities again in a pretty earnest way on beginning in June.

Okay. And sort of building off of the prior question on EBITDA and margins. I'm just wondering if you're seeing anything in terms of media costs or talent retention that kind of limit some of the flow through versus historical trends?

No, not really. It's again -- as I told John it's really going to depend on the mix that -- we're still fully staffed in our insurance because we want to take full advantage of that. That industry coming back which I indicated was going to give you the numbers on and we're doing versus others. We are taking full advantage, but we're only 60% back. And then you've got a different mix of different code in the other businesses. So there's nothing structural or fundamental that would indicate that we're not going to have all the top line leverage that we would have had historically and that we had you would expect from us.

Okay. Just the last one for me. Within home services, when you launch a new service availability, is there any sort of like ramp-up like start-up cost of that for reaching sort of like an initial level of profitability? And just how some of those services may differing consumer or customer profile.

And it's a great observation slash question. Yes is the answer. And so we manage that mix pretty carefully. But when you begin to build out a new trade on your initially quite inefficient from a media standpoint because you just don't have coverage and that's more the case in home services and is another -- our other client verticals because HomeServices is such a fragmented industry. And so we have to be kind of step-by-step build up the client coverage get more media and then get more client coverage and get more media. But it does create some inefficiencies for the period of time where we're in the ramp because we don't have full coverage, yes. So that is that's part of the formula farm. We still do quite well in terms of our media margin and home services. But it absolutely is the case that when we're in new trades, they have less media efficiency than the more mature trades. But we manage that and balance that and still maintain very good, strong media margins in home services.

Okay. Thank you.

Thank you.

Your next question is from the line of Zach Cummins from B. Riley Securities. Please go ahead.

Hi. Good afternoon. I apologize. I was late joining the call, hopping on from another one. But Doug, could you go into any sort of impact that you saw in the home services vertical in the current quarter? And what are your expectations for what we should be assuming for a sustainable growth rate on that side of the business moving forward?

Sure. First of all, last quarter was a record revenue quarter in home services. We expect another record revenue quarter in home services this quarter. We will return once again to double-digit year-over-year growth again this quarter, fiscal Q4. And we will grow home services in the fiscal year, double-digit over last year. So long way of saying we still have the same outlook we've always had, which is we think home services gives us a scale and we have the opportunities and the initiatives to grow in double-digits on average. Of course, last quarter was 7% year-over-year in the quarter. For as far as we can see into the future, it is a massive, massive business opportunity. I think we just sliced it again at $69 billion of addressable market. And we are running now $200 and something million and have a lot of wind at our backs and a lot of demand and a lot of opportunities, really more of making sure we're focusing on the right things and the right ways at the right time than it is any lack of opportunity or capabilities to deliver against that opportunity. So we love that opportunity. We love that business. We love what we have in terms of product footprint and where we're going with it. And we think double-digits is the right expectation for many, many years to come.

Understood. And just one question for Greg. In terms of free cash flow generation, how should we be thinking about that as you start to hit the up cycle in auto insurance? What's your typical conversion from adjusted EBITDA to free cash flow? And how are you thinking about putting excess cash to use since your balance sheet is already pretty strong?

C Yeah, it's a great question. If you look at it, the general model is the bulk of our adjusted EBITDA, less CapEx drops to free cash flow or normalized free cash flow. As you can see, depending on your working capital and your receivables, we could be, like this quarter, we collected $8.5 million two days after the quarter end, which we typically would have gotten before the quarter. But typically if you look at our adjusted EBITDA, less CapEx is what drops to free cash flow. So if you look at our CapEx right now, it's going to run anywhere I would say a good model to look at is, $11 to $15 million a year. So that's kind of how I think about the conversion of EBITDA to cash flow.

Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.

Thank you, Zach.

Your next question is from the line of Mark Hagen from Lake Street Capital Markets. Please go ahead.

Hi. Thank you for taking my question. I'm just kind of curious if you're seeing any impact on the, let's call it higher for longer rate environment than some of the other financial services business, call it maybe ex-auto insurance and maybe even home services as well?

I think it's a mixed bag really, Mark. Higher for longer is not a bad thing for home services. We believe an industry report suggests that consumers are spending more on their existing home. And so I'm kind of vertical by vertical. And credit cards, higher for longer is not a bad thing. Our core credit cards consumer is a prime consumer in our mix. And so those consumers are in very good shape. And the higher interest rates for longer, I assume the banks are making a lot of money on the outstanding balances. They have a lot of money to continue marketing. And in personal loans, we have seen that the higher for longer is having an effect on the demand for and the underwriting models of the lenders. And so I think we've talked about this in past quarters, but we've seen less demand for lending, but more demand for other credit solutions. And we are the strongest in the industry at other credit solutions. And we, once again this past quarter, way outperformed the results reported by everybody else that we know in our industry in that business. And it doesn't really affect much in our insurance except that to the extent that it puts pressure on consumers at the low end, which it does, we see increased shopping for auto insurance. And that continues to be a dynamic we are seeing. There's a J.D. Powers puts out a report. They just put out their most recent report on insurance shopping habits a couple weeks ago. And it was the highest level of shopping behavior by consumers for auto insurance they'd ever seen in their history of their report. Not surprising given how far and fast, their rates have come up on insurance. And so I guess net overall, pretty good for QuinStreet's profile.

Fair enough. Thank you guys.

Thank you.

Your next question is from the line of Jason Kreyer from Craig-Hallum. Please go ahead.

Great. Thank you. This is Cal Bartyzal on for Jason. Just to start kind of as this as autos kind of picked up actually just kind of speak to any pockets where spend has yet to return and how these eventually coming back. That expectation contributes to confidence in this being a long duration tailwind of auto resurgence?

And we've got a lot of data points on. First of all, we now have more -- last year was pretty concentrated ramp from mainly the biggest player in the channel and they were under 60%-something I think of auto insurance revenue in the third quarter and we're reporting mid to high 90s combined ratios. This year on that same client as well under 50% of revenue, although still very strong. And it's really because we have more other clients, other carriers now spending over $1 million a month with us than we've had in the history of the company. I mean we've got a much broader footprint with much bigger spend from log -- and not more carriers fund. And so -- and that -- and then we have activity-wise every one of those carriers is asking for a lot more than we can actually deliver right now. So, we're running more -- working on the other side of the market ramp -- media ramp that we are the client demand ramp at this point because our -- the breadth of our relationships, the breadth of the demand, breadth of our products, and again as I said, the demand for those clients. So, -- and then you have the combined ratio reporting. Combined ratio is being reported this year. R&D, E&O in the mid-80s to low 90s, which again lower is better than what you thought combined ratios insurance. And that's from all the significant players who make -- who report their with their combined ratio results publicly. So, you've got better fundamental underlying economics, broader footprint with more clients with more demand from all those clients and higher spending from other clients and big indications smaller clients for coming quarters and years. So, we really don't have any indications of anything but not just sustainability, but acceleration of the ramp going forward.

Perfect. Thank you. And then it just looks like you guys have been broadening out the home services offering recently with some new verticals. Can you just kind of talk to the ambition for vertical expansion there in home services and what opportunities you're seeing in broadening out this offering?

We were in maybe 14 or 15 verticals with some level of presence. We think we can be in dozens. I can't be more precise than that because sooner we have hypotheses about which we can be and we don't really know until we start doing more work and analysis and actually start doing some testing. Of the 14 or so -- and I think so but more than that actually if you count everything that we're in now only two or at any reasonable scale. I wouldn't go into those even mature. One of them I think represents 40% of total services revenue or something in that vicinity. So, we're actually relatively constant. It happens to be the one we've been in the longest on really in a meaningful way. And so those two vectors are going to continue to continue to be getting into more trades. But right now we're more focused on scaling the trades we're already in and that scaling is a matter of focusing our efforts and initiatives and teams as well as on in our growth getting signing more clients getting more media that can be efficient with that client and that client base then going sign more. But still more clients are getting more median kind of working our way up that with we've got to work both sides of the market as we talked about earlier comments and I think it was Pat that asked the question that there is a sequencing and then iterating aspect to that as you kind of work your way up to media efficiency. Now we don't have any concerns about being able to do that. It just is something that does take some time. So I wonder if you want to have as many a lot of trades going on at once so you can know you're going to have different ones have different stages to every different growth rates and profitability. We think we're pretty good at that.

All right. Very helpful. Thank you.

You bet.

[Operator Instructions] Your next question is from the line of Chris Sakai from Singular Research. Please go ahead.

Hi, Doug and Greg. I just got one question on looks like back in last quarter you had 2024 revenue growth about 5% to 15%, but now you're guiding for Q4 revenue of $180 million to $190 million which puts the year of revenue growth there about 2.5% to 4.5%. So I want to know I mean what what's going on why is there a somewhat of a guide lower now for the year revenue growth. Please help me understand. Thanks.

Yes. Hey, Chris. I think on a couple of things, but we're pretty pleased with the ramp first of all loan. We just drew as fast as we did sequentially 40% and over 100% non-insurance. And we had a record quarter in home services. We had a record quarter in non-insurance and we had a record and we're going to have a record total company revenue quarter -- this quarter Q4. We're -- and by the way have another record quarter in home services in Q4 as well and another record quarter non-insurance in Q4. So we're firing on all cylinders. On that said as we have as we indicated last couple of quarters the exact pace of the ramp at interest is really hard to predict because the demand and activity there is just extraordinary, but the ability to convert that demand and in a very complicated dynamic system and channel is less predictive was we tried to continue to give you guys the full range and I would say that -- and we also don't feel the need given how well we're performing to get way out over our skis. So I'd say that the upper end of the current range gets to the bottom end of the annual. And maybe we'll see if the slope the slope actually looks like and if we do -- how we do from there. But I wouldn't read anything into that at all? I think what I would remember is we're already pacing at 20%-plus faster growth for next year than we are this year. And we've got a lot to build on that. We'll probably do much better than that. And now the record quarter in numbers I just gave in our different businesses where it gives you a full indication of just how well everything. But I wouldn't -- I would not read anything more than that into that number.

Okay. Thanks for that.

You bet.

Ladies and gentlemen, there are no further questions at this time. Thank you everyone for taking the time to join in QuinStreet's Earnings Call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.