Good day, and welcome to QuinStreet’s Fiscal First Quarter 2025 Financial Results Conference Call. Today’s conference is being recorded. Following the prepared remarks there will be a Q&A 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 first quarter 2025 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. Fiscal year 2025 first quarter revenue grew 125% year-over-year and 41% sequentially. Adjusted EBITDA jumped to over $20 million in the quarter. The strong results were driven by the broad-based ramp of auto insurance carrier budgets and by our expanded client, media and product footprints. Auto Insurance revenue grew 664% year-over-year to a record level in the quarter. Total Financial Services revenue grew 192% and Home Services revenue grew 32%. The outlook for Auto Insurance going forward remains strong. Carriers continue to report good results overall and from our channel. We are focused on increasing and optimizing media supply to meet surging carrier demand. Those efforts should eventually further expand margins. Turning to our outlook for fiscal Q2, we expect revenue to be between $235 million to $245 million and adjusted EBITDA to be between $17.5 million to $18.5 million. Though it is still early, we are raising our full fiscal year 2025 outlook. Full fiscal year revenue now expected to be about $1 billion. Full fiscal year adjusted EBITDA is expected to be between $75 million to $80 million. We will continue to update our outlook as warranted as the fiscal year progresses. Finally, we know FCC changes to TCPA rules scheduled to go into effect in January are an area of investor interest. Most importantly, we have been preparing and testing implementation of the new rules for almost a year, and we have included in our outlook the expected impact from them. We expect the impact to occur mainly during the period over which we, clients and the industry transition and adapt to the new rules, most likely over a number of quarters. Beyond the period of transition to the new rules, we expect the changes to be a strong, long-term positive for the channel and for QuinStreet. They will accelerate the long-term trend of industry rationalization and consolidation to the best, most capable companies. They will improve consumer experience and participation in the channel, increasing the speed and size of the development of our market, and they will significantly increase client sales efficiency and productivity from our channel, further accelerating and growing the development of our market. We expect QuinStreet to disproportionately benefit from all of those positive effects. With that, I'll turn the call over to Greg.

Thank you, Doug. Hello and thanks to everyone for joining us today. Fiscal Q1 was another record revenue quarter for QuinStreet as all of our client verticals delivered strong year-over-year revenue growth. We delivered record revenue in Insurance, record revenue in Home Services and record revenue in Non-insurance Financial Services, which includes which includes personal loans, credit cards and banking. For the September quarter, total revenue was $279.2 million, adjusted net income was $12.5 million or $0.22 per share, and adjusted EBITDA was $20.3 million. Looking to revenue by client vertical. Our Financial Services client vertical represented 76% of Q1 revenue and grew 192% year-over-year, to $210.9 million. The record performance was largely driven by Auto Insurance, which grew 664% year-over-year. Non-insurance Financial Services businesses grew 18% combined. Our Home Services client vertical represented 23% of Q1 revenue and grew 32% year-over-year to a record $65.1 million. Other revenue was the remaining $3.3 million of Q1 revenue. Turning to the balance sheet. We closed the quarter with $25 million of cash and equivalents and no bank debt. A more normalized view of our ending cash balance would be approximately $47 million. We've received payments of approximately $22 million, just one day after quarter end. As we look ahead into Q2, I'd like to remind everyone of the seasonality characteristics of our business, as I do every year at this time. The December quarter, our fiscal second quarter typically declined sequentially. This is due to reduced client staffing and budgets during the holidays and end-of-year period, a tighter media market and changes in consumer shopping behavior. This trend generally reverses in January. Moving to our outlook. For fiscal Q2, our December quarter, we expect revenue to be between $235 million and $245 million and adjusted EBITDA to be between $17.5 million and $18.5 million. As Doug already mentioned, we are raising our full fiscal year 2025 outlook. We now expect revenue to be between $975 million and $1.025 billion and adjusted EBITDA to be between $75 million and $80 million. With that, I'll turn it over to the operator for Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of John Campbell from Stephens. Please go ahead.

I want to maybe start on insurance. Obviously, really good results there. If my math is right, I'm thinking you guys might have almost doubled up your past fiscal 1Q peak for insurance. Is that right?

That would be a great question. Is that right, Greg?

I don't have that answer. You're asking if we doubled our previous Q1 peak? Sorry, John. I got to be honest, I don't have that, but I wouldn't be surprised.

I'm thinking that's probably the case. And then, maybe if you could help out with phasing. I don't know if you've got this by close to you, but the insurance growth just sequentially and then what that typical seasonal drop off is just seasonally into 2Q?

Yes. Quarter-over-quarter, John, we grow our Insurance business over 80% sequentially. Typically what you're going to see in the second quarter is about a 10% sequential decline. That's kind of the normal seasonality in the business and really not just Insurance, but across all our client verticals.

And have you kind of factored in somewhat typical seasonality or are you expecting continuation of strength?

Yes. We have definitely factored in seasonality. That's the biggest when you look at the decline from the Q2 guide to what we just delivered in Q1. Again, we're not hearing right now anything about a slowdown. We're super bullish. We're super positive on what we're hearing from the carriers themselves. But yes, we do have seasonality assumed in there.

And then last question for me, just looking at the full year guidance, just the balance, I guess, the back half of the year more so, if I assume kind of a continuation of the insurance you saw in 1Q, at least just for the back half, I think it might be implying that the core business might be down year-over-year. I know you've talked about some of the one-to-one the rule changes, potentially providing some degree of an impact and you factored that in the guidance. So maybe if you could just kind of talk to the phasing of guidance in the back half of the year, whether you're expecting more of a slowdown in insurance rather than the front half or if it's more of a core business?

Yes. I think as we looked at the full year and the back half, John, there's been a big ramp obviously in insurance, and we're excited about how much we've been able to raise. But, we want to -- as we settle out the ramp and we optimize media and clients optimize budgets, we want to kind of see where all that settles out. Greg said and I would repeat, the carriers are not indicating any kind of slowdown. But, this is again, this has been a pretty big ramp. We'd like to make sure that we leave ourselves a little bit of room as things shake out and if they shake out from again optimizing media and optimizing budget standpoint. Also, of course, there is the FCC -- there are the FCC changes that will have some impact, some disruption on the industry, not all of that just direct on QuinStreet, but to the ecosystem and we don't know exactly what that will mean in some places. We've done our best to estimate that based on testing and real data, but we'd rather keep a relatively conservative defensive posture, as it comes to the FCC transition period. I'd repeat that, I think after the transition period, I think this is an extraordinarily good thing for the channel. We wouldn't necessarily have chosen to be regulated into it, or to do the regulations exactly this way, but it will have all the positive effects I talked about. And then we have the election, which is likely to have some type of disruption. We don't know exactly what. Again, we'd prefer to maintain a relatively defensive and conservative posture relative to that. So I would say, there's a lot in it, but those would be the main factors for why you don't see necessarily our typical seasonal trends in the back half in our current guide, which again is our current outlook, which is again pretty early in the year.

Your next question is from the line of Jason Kreyer from Craig Hallum. Your line is now open.

Just so the insurance business obviously kicking into a new gear here. What's changed over the last quarter? Are you seeing more carriers participating in the market, or is this just kind of the same participants with opening up greater allocations of budget?

It is a much broader footprint of clients spending at much greater scale, is how I would characterize it, Jason. We do have there are some clients that are key leaders in the channel and they always have been. But I would say that, the thing that is most impressive about the current market, and we've been working on this for a long time, so I don't think it's just an industry thing, but I think there's some of it's particular to us and maybe one of our other competitors is the breadth and the breadth of scale. We are seeing clients that have made huge strides in how they think about digital and performance and how they are more analytic and how they're better measuring performance, and how they're integrated and cycling closely with us to optimize. So I think, we're just at a next stage of development of this channel that was obviously postponed for a while during the hard market in insurance. And I think it's indicative of continued up until the right as we've always said, because this is the best place, if you're a carrier and P&C, this is the by far the best channel to spend in terms of efficiency and productivity of your budget.

When you talk about increasing media supply, just wondering if you can parse out what that means for your own-and-operated properties versus increasing media supply at some of the partnerships and what the opportunity is, if you -- what the margin opportunity is as you scale that up?

Yes, and it's both. We have to increase -- we have a lot of partnerships that had gone relatively dormant and had spent their time and resources elsewhere during the hard market that are gearing back up, of course, and those are an important part of growing supply to meet demand. And by the way, that will help margin too, because the demand from the carriers shot up so quickly that, it outstripped supply so that the media that was there got bid up and got more expensive probably than it needs to be in the long run. So the supply side, including partnerships, is important. Now on the owned-and-operated side, we do have a lot of things going on as well. And you're right, they're largely focused on improving margins. We're ramping some very important campaigns that are some of our highest margin very aggressively right now on the paid side, particularly paid SEM. We are working on a broadening and bigger scaling to multiple size of our campaigns on the O&O side and SEM on a bunch of our properties. We made an acquisition a year or so ago of a company that has helped us have a better presence in, display native and social, which is an area, a huge part of the ecosystem that we really haven't had a big presence in because of the relatively-low intent of those consumers. But we looked for this company like this for a long time and found one that had really figured out how to siphon or filter out the intent based consumers in an economic way in those channels. And that company, since we acquired them just again, I think it was last March, has more than doubled the revenue and more than tripled in margin and is coming in at margins that are highly-accretive to our current margins. So the growth of that channel and that company is going to be an important part of what we're doing. So we have a lot going on and we are keenly focused on getting the supply up, generally speaking, and getting the supply up in a way that's going to allow us to increase margins specifically for QuinStreet.

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

Thanks for taking my questions and congrats on the strong start to your fiscal '25 . Doug, I wanted to shift directions and ask a little more about Home Services. I mean, can you talk about what really drove the strong growth we saw here in Q1? And really what are the expectations for Home Services especially as you go through the TCPA changes here in the coming months?

Sure. I'd say that the strong growth is just indicative of what we've said for a while, which is, there's a -- this is a huge market opportunity for us. We're early into it, and we just made better progress on our big initiatives, and we're going to keep making better progress on those big initiatives. And we have some very big growth initiatives in Home Services that represent massive improvements and expansion of our footprint for the business. TCPA is going to have its most direct effect on our Home Services business because of it being more of a lead business. I think we're extraordinarily well positioned against that. We have though included in our outlook, a more modest outlook for Home Services in the back half than we would if there were not going to be new rules at TCPA. And so, we want to, again, maintain a fairly conservative, defensive profile against that, particularly the transition period there. But we have worked very hard on making sure that, we test new flows, test how we get consumers to opt-in, test how we match to optimize against that, to work with clients to make sure, they understand the new rules and how to position themselves for the new rules to work on pricing, because we and clients both expect that an opt-in consumer lead is going to convert at a higher rate, which means that, that's going to be more valuable. So a lot of the effects of the new rules will be offset by higher value and higher pricing, which we have now cycled through the vast majority of our clients to have those discussions and to prepare for that. And let me give you a little bit of -- a little data on that, which is…

And my one follow-up is geared towards Greg. You addressed it within your comments, but just in terms of the free cash flow in this quarter, it seems like it was just some collections that pushed into your Q2. Can you talk about how would you pushed into your Q2. Can you talk about how we should think about free cash flow generation? And should this be kind of a one quarter flip that normalizes here on that side of it?

Yes. Zach, it really was the timing of payments. We got a couple of large payments in, which we typically would have received within the quarter. They literally came in on October 1st. So that's where we're at with the cash balance. I do say, it was pretty impressive. We've over doubled the business and we're able to fund that growth in the business with our existing cash. I would expect us, as we start moving forward to get back into cash generation mode, given the increase in profitability in the business. But it was a steep ramp and that requires quite a bit of working capital and we were able to do that with our existing cash.

Your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.

Yes. I wanted to get into the carrier, I guess, precision regarding their spend versus LTV. You've often talked about Progressive as being very analytically oriented. But let me start there. What percent of revenue in Q1 was progressive?

Yes, Eric. This is Greg. Our largest client, they were 20% of revenue.

And then the other carriers, are they getting more like progressive in that kind of real time evaluation of spend versus LTV, or is it just coming so fast, got to get everybody's competing and there's less concern about LTV?

I would say, it's much more the former. We're seeing, as I said before, much more sophistication amongst the carriers that are scaling in how they spend in the performance channel and how they analyze their spend. I would say, they're all moving on a curve that's analytic perfection in the upper right. They're all moving well up that curve. I would say, nobody is perfect yet, but the scaling has really come from folks getting better at being more analytic, not from any other phenomenon. It's a good, good trend from our perspective. The more sophisticated, the better as far as we're concerned.

And then, given the upward revision to the adjusted EBITDA for the year, I think, I had written in my notes from last call or maybe it was a follow-up call that you were anticipating about $15 million or so of CapEx. So is that CapEx number relatively unchanged? And then, can we just use -- do the simple math on a midpoint adjusted EBITDA back off the free CapEx to get to a free cash flow estimate for '25?

Yes. I think, Eric, that's a pretty good estimate. There's no change in terms of what we expect to spend on CapEx.

Next question is from the line of Chris Sakai from Singular Research. Please go ahead.

Just had a question on, I mean, Greg, this amazing growth on the record, Auto Insurance revenue, are you facing -- would you be possibly facing any headwinds to that as far as scaling? I know that, I mean, 664% growth is pretty amazing. So can you give me any color there as far as QuinStreet's ability to withstand growth like that?

That's a good question, Chris. We don't expect -- we'll lap this year and it won't be growing at 664% something percent anymore. But I think it will continue to grow at certainly strong double-digits rates, on average from here and we're more than capable of continuing to scale, to where we are now, certainly. We'll catch up a little bit on media optimization to get our margins up a little bit more and to get re-optimized, and we're perfectly capable and well-positioned to do that, but certainly capable of continuing to grow from this new level at strong rates going forward.

And you mentioned potentially the election coming up. How is that going to potentially have an effect on revenue and auto assurance?

We don't know. There is the concept of consumer distraction depending on what goes on post election. It's just not a it's not like we took a number off of it for it or that we know exactly what it's going to be. But I would say that, again, we would prefer to maintain a relatively conservative and defensive profile against that backdrop, just like we would against, given everything re-optimized in the insurance side budget and media wise, and of course, the FCC, TCPA thing. So it's just in the mix of things that we when we step back and say, do we feel like being more aggressive or more conservative right now? It's one of the things in the mix that caused us to say, we prefer to be a little bit more conservative right now.

Your next question comes from the line of Patrick Sholl from Barrington Research. Please go ahead.

I just had a kind of another question around the election. I was just wondering if there's like -- if there's still sort of some states that are not necessarily appropriately allowing insurance rates to meet profitable levels and just if any of that might get resolved post election?

It's a good question, Patrick. I don't know the answer to that. I would say that, I haven't read anything from the industry that implies that any particular election outcome in any particular states likely to have a big impact there. For example, California is the biggest state that has that issue. They only allow carriers to increase rates at a certain pace and obviously the costs have way outpaced that. A lot of carriers are just not active in California. I think that only gets resolved unfortunately with time. They can take maybe maximum rate each year for a while and eventually catch up, but it's going to take based on back of the envelope calculations, a couple to few more years at this rate. Whether or not there'll be any action in California in the legislature, there's no indication that California -- there's going to be any kind of change in the party leadership in California after the election. So if there are going to be any changes, it's going to be driven by a change of heart of the current officials, not the change of officials, it seems to me. Otherwise, again, I don't know of any other places. I haven't read of any other places where there'll be a big impact. I can say that, most, though not all, California being the outlier and most of the other states, the carriers are back active in there. Again, there are some other exceptions, but they're not big states at this point.

And then, maybe just can you talk about like the impact of the expected trajectory of interest rates on some of the other verticals, whether home services or the credit driven ones, if you think that could be something of a tailwind for those segments?

I think so. I mean, I think the only place it won't be a tailwind is our banking business, where demand for CDs or the CD offerings is down because banks don't want to lock in CDs, while rates are going down. We still have very strong demand and we're still growing at a good rate in that business and other products. But I think it will help credit cards, because their rates will go down and credit cards will be more affordable, because a lot of consumers do of course keep a balance on those credit cards. Personal loans have helped a lot. Our Head of Personal Loans just got back from a major conference of lenders and he said, it's the most positive tone and specific indications from lenders he has heard in a few years, as the rates are coming down to make their products more affordable and most of them have now recapitalized and gotten access to new capital. And so, we're seeing a resurgence of demand from lenders in personal loans. And then, of course, we already have pretty strong demand, decent strong demand there. We've been doing -- well outperforming the market there, including in our debt management and credit management side of the business, which have been helping consumers as rates have been high. Those two businesses are probably most directly affected. There's not a big effect in Home Services, although, we have a lending product that we're rolling out there that we're excited about, which will help consumers finance more projects, which will really help to expand and accelerate that market even more. It doesn't have a big effect generally speaking, in insurance. So I think that's kind of the delay of the land from it. And I'd say net net probably, neither here nor there, kind of not way up, not way down.

[Operator Instructions] There are no further questions at this time. Thank you everyone for taking the time to join QueenStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's conference call. Thank you everyone. You may now disconnect.