Good day, and welcome to QuinStreet's Fiscal Second Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. Following 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, Mr. Robert Amparo. Thank you. You may begin.

Thank you, operator. and thank you, everyone, for joining us as we report QuinStreet's Fiscal Second Quarter 2025 Financial Results. Joining us on the call today, our 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. We delivered record revenue again in fiscal Q2, defined typical seasonality, driven by the unprecedented surge and broadening of auto insurance client demand. Revenue in other client verticals also continued to perform well, growing 15% year-over-year in the quarter. Adjusted EBITDA remains strong as profitability continued benefit from operating leverage. We expect adjusted EBITDA margin to expand further from here as we continue to optimize media efficiencies and client results in auto insurance, and as we progress a range of other revenue growth and margin expansion initiatives. We also expect strong demand in auto insurance to continue and continued strong growth in our noninsurance client verticals. Turning to our outlook. We expect fiscal Q3 revenue to be between $265 million and $275 million and Q3 adjusted EBITDA to be between $19.5 million and $20 million. We are once again raising our outlook for full fiscal year 2025. We now expect full fiscal year revenue to be about $1.085 billion and adjusted EBITDA to be about $82.5 million. Finally, we previously discussed FCC changes to TCPA regulations expected to go into effect in January. Those regulations were stayed by the courts just prior to going into effect and they are not likely to be reinstated. There may be replacement regulations regarding consumer contact rates, but we believe that they would be less disruptive than those that were stayed and more consistent with QuinStreet's current approach. With that, I'll turn the call over to Greg.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q2 was another record revenue quarter for QuinStreet, significantly outpacing typical sequential seasonality. As Doug mentioned, the strength was mainly due to the continued unprecedented ramp of auto insurance client demand. Though our noninsurance businesses also maintained strong momentum and grew double digits. For the December quarter, total revenue grew 130% year-over-year and was $282.6 million. Adjusted net income was $11.9 million or $0.20 per share, and adjusted EBITDA was $19.4 million. Looking at revenue by client vertical. Our Financial Services client vertical represented 78% of Q2 revenue and grew 208% year-over-year to $219.9 million. The record performance was largely driven by auto insurance, which grew 615% year-over-year. Our Home Services client vertical represented 21% of Q2 revenue and grew 21% year-over-year to $59.6 million. Other revenue was the remaining $3.1 million of Q2 revenue. Turning to the balance sheet. We closed the quarter with $58 million of cash and equivalents and no bank debt. Moving to our outlook. For fiscal Q3, our March quarter. We expect revenue to be between $265 million and $275 million and adjusted EBITDA to be between $19.5 million and $20 million. As Doug already mentioned, we are again raising our full fiscal year 2025 outlook. We now expect revenue to be between $1.065 billion and $1.105 billion and adjusted EBITDA to be between $80 million and $85 million. I'd like to note that our full fiscal year outlook implies strong sequential margin expansion in the June quarter, our fiscal Q4. As we continue to optimize media efficiencies and client results in auto insurance and as we make progress on a number of growth initiatives. Moving forward, between media and client optimizations, favorable mix shifts as auto insurance growth rates normalize, growing new higher-margin opportunities and ongoing productivity improvements, we believe that we are getting within reach of our target 10% adjusted EBITDA margin. With that, I'll turn it over to the operator for Q&A.

[Operator Instructions]. And your first question comes from the line of John Campbell from Stephens Inc.

Congrats on a great quarter.

Thank you, John.

I want to start off. I called one of your large customers. The earnings call today pretty upbeat. I mean, they talked a lot about ramping up growth just across the board, but mainly in auto. This is also one of the largest national carriers that's also kind of running at throttle from a national exposure standpoint. I know there's a handful of your customers that are kind of in a similar situation. So it's great to see you guys put up record results against that backdrop. So I'm kind of curious about your ability to maintain the momentum. I'm hoping, Doug, maybe you could talk to or provide some color around maybe the capacity that's out there, kind of what remains is some of these carriers start to open more and more states and kind of what you're seeing in the channel as you go week-to-week, month-to-month.

Yes. No, sure, John. It's a great question. We see a lot of capacity in front of us. We have broadened the client base pretty dramatically over the past year or so, and we now have a record number of carriers spending 7 figures plus a month with us. And most of those carriers do not have all the exposure they want in the channel and are not putting nearly as much budget into digital as they should if you look at ratios of eyeballs and shopping habits in this channel versus other channels. So if you can find the capacity that our clients have budget-wise, with the potential they have to spend more to be more efficient and more aligned with consumer activity. We see a lot of upside from here. We think we're going to consolidate in this new higher base and be able to grow good, strong double digits from here for as long as we can see. We're also opening up whole new dimensions of insurance in terms of addressable markets. We're in a relatively small part of the overall market. We're highly leveraged to direct carriers. We will and are adding and growing very rapidly our exposure to agent-driven carriers, which is almost the other half of the addressable market, and we are very under indexed there. And we are rapidly pursuing other areas of insurance, including business insurance, which is yet again another half of the overall market -- the overall market and our estimates. So a lot of capacity in the current footprint with existing clients, where we have great relationships and are working with them to optimize and spend better and a lot of capacity in other areas that we have opened up new initiatives and have begun to serve and are in the process of beginning to scale. So a lot of opportunity in insurance for a long, long time to come in our estimation.

Okay. That's great to hear. And then maybe on the gross margin -- or I'm sorry, on overall just EBITDA margin. I think you guys are -- pretty accurately depicted the channel just kind of being a mismatch of over demand and undersupply. And I think you've talked to maybe that being somewhat of a transitory issue where it will correct itself over time as some of your media partners shifted up funnels and just basically change their media sources. So I'm curious as you kind of unpack your guidance on FY 4Q, it looks like you're looking for about 9% margin at the midpoint. So above what expectation that would be a lot of year-over-year margin expansion. So it would be a great outcome. So I'm curious about how much of that is kind of that dynamic, the channel kind of correcting itself versus more of the self-help and some of the other initiatives you're working on?

Yes. A couple of things. The margins last quarter were a little lower than we might have expected if we had a normalized mix, but we had a very heavy mix of auto insurance. And to your point, we had a heavy mix of auto insurance that wasn't yet optimized because the surge has been so rapid that we're working as hard as we can, but we can't quite catch it yet in terms of optimizing. When we optimize there's definitely media out there that hasn't been properly segment. It hasn't been properly matched to the right client, hasn't been properly priced to its performance and hasn't been properly priced in terms of what we should be buying it for. So -- and we're working on that every day and making progress, and that's what we do for a living. So a lot of it will be that dynamic, John, the one that the exact dynamic you talked about. But there are a lot of other things going on, a lot of growth in the other verticals and other businesses and products where we have significantly higher margins and a lot of work being done to improve just structurally our margins by opening up new media sources and building ones that we know we can scale that are higher margin than the current media sources we have in building capacity. There were really under-indexed in, for example, social display native areas that we know we can be bigger and we have seen others have some success, and we're growing those very rapidly through our Aqua Vida Media acquisition, which has gone extraordinarily well. So a lot of moving parts, but much of it to do with what you alluded to, but then other things that we work on day-to-day initiative-wise and/or growth-wise to expand the margin. And that's what will -- you'll see that this quarter where we're expecting EBITDA margins to be higher than they were last quarter. And you'll see that again -- I mean, you'll see that in the fourth quarter and a little bit as we get even more momentum on those activities and more progress on those activities. And again, a pretty significant jump we expect in the fourth quarter over the third quarter. But I would, again, point out we're also expecting this quarter over last quarter. So progress across the board.

And your next question comes from the line of Jason Kreyer from Craig-Hallum.

Great job, guys. I just wanted to ask about TCPA. My understanding is that a lot of carriers requested TCPA compliance even before that deadline was put in place. So curious if anything -- any notable takeaways kind of in this period of time that it seems like the industry was operating under TCPA compliance. And then the work that you did leading up to TCPA, I'm wondering if there's any learnings there that you think you can apply to the business going forward to make things more efficient?

That's a great question. It was -- we were getting ready for TCPA for over a year. We knew it was coming. We're very wired into the FCC and want to be. We want to be -- know what they're thinking and making sure we're ahead of those things. And so we did an awful lot of work. And I think we did learn a lot. We tested an enormous number of approaches to matching in communications and contact with consumers. And despite the fact that the regulation did not go into effect, we will improve a lot of areas based on that feedback and that testing. It was disruptive in many ways because we still had to prepare for it. And to your point, Jason, many clients required us to implement early. Just to make sure it was working. I'm not being critical, it's made sense. If you're going to have to comply, you ought to test it early before the actual due date. And so we had -- I think we would have done even in the quarter had we not had to go through that disruption which certainly wasn't as big as it would have been if we had fully implemented across the board, but it was not insignificant. And it was a distraction, quite frankly, from a lot of other activities. So I would say that, yes, we did learn a lot. We will roll those into continuing to improve. As you know, I said when I talked about their regulations before, I said they would be a short-term disruption, but they would likely accelerate long-term trends to make the channel a better, safer, more participatory place for consumers. And for clients and I think those long-term trends will continue to go forward. And we've learned yet more about how to push those long-term trends, and we will benefit -- QuinStreet will disproportionately benefit from those long-term trends. And we get to do that now without the short-term, non-insignificant disruption that would have occurred if everybody would have been forced to convert right away and adapt, which in this ecosystem would have been -- it would have been disruption. We're disruptive. So it's -- we're happy we went through it. We've learned a lot. We still will take the lead on making sure this is a great channel, a compliant channel, a safe channel for our clients and for consumers. And we get to do that now without the -- with having had a little disruption between having to prepare for it, but not the big disruption of having to actually fully implement.

Appreciate that, Doug. I wanted to piggyback off of John's question just on margins and what you're seeing there. We've talked for a few quarters now about this supply constraint or the media constraint that exists. Can you give any more detail on like, are there any indications that that's starting to open up or the factors that you can do to -- and I think, again, you're alluding to that in the Q4 guide, but is there any more color on what other industry participants are doing that could give us more supply in the market?

Sure. We have seen a number of media companies broadly defined because media companies come in all shapes and sizes. They could be folks with databases with permission e-mails as well as folks that publish materials and content. Shift there -- we have seen them pretty aggressively shift their activity and their focus back to auto insurance. And that takes a little while to ramp. But we definitely are seeing results from that increased supply from that, increased activity and opportunities from that. And we ourselves has shifted a lot of our own activities on the owned and operated side back to auto insurance to grow our own campaigns in all media, digital and are seeing a lot of great results and very strong growth there. So I don't think that we should expect that in the foreseeable future, there will be a big gap between demand and supply anymore. I think that supply is catching up but it was tough there for a few quarters because the surge was so rapid and so massive that it was kind of impossible to not outstrip everyone's ability to kind of ramp back up their media activities. But I don't think that's going to be a big constraint for over the next few quarters. I think we're almost caught up, frankly, and I think we'll stay caught up. I think that there's -- I don't think there's a big miss -- big structural mismatch we're going to have to be dealing with.

And your next question comes from the line of Zach Cummins from B. Riley Securities.

I just wanted to piggyback off of Jason's question on TCPA. I mean, first, can you comment on any potential impact, especially on the margin side that you had around implementation ahead of the planned date for FCC's one-to-one consent rule. And I know in your prior guidance that you issued in Q1, you baked in some headwind to home services as a result of this implementation. Just curious if you're now assuming a higher growth rate for home services, especially as we go into the second half of your fiscal year?

Yes, Zach. We are expecting that the home services performance will be better in the back half of the fiscal year than it would have been had we implemented the new TCPA changes. And that is one of the factors baked into our guidance in the back half. It was -- in terms of commenting on the work, we worked on it for a year, and we've worked on it hard. So I would say that what I was pleased with was the exceptional work that all the teams did, our marketplace team, our engineering team, in particular, our home services team, getting ready for the changes. And so I think the impact would have been less severe than we feared because of that great work and because we weren't as far off of the new rules as a lot of other people are in terms of how we operate. And I mean, we've always limited match rates, always being the last 10 to 15 years. And there are even people who refer to limiting match rates as kind of the QuinStreet approach because we believe that it matters. And we know there's a sweet spot in terms of consumer engagement, consumer response rates and how many times you match them. Most consumers do want multiple options, by the way. So matching them more than once it's usually a consumer preferred thing but they probably don't want to be contacted or to be matched to more than about 5, and the sweet spot seems to be about 3. So I think we proved that once again through all the testing, and we'll continue to be disciplined as we have been for a very long time on that front so that we get the best combination of consumer engagement and conversion for our clients and best experience for those consumers.

Understood. That's helpful. And my one follow-up question is really around auto insurance. Nice to hear the broad-based strength that you're seeing amongst carriers. I was just curious if you could go a little bit deeper in terms of the contribution you're seeing from maybe your top one or 2 carriers versus maybe how you expect that to evolve throughout calendar 2025 as a broader base of carriers should have profitability metrics to spend more money to acquire customers.

We have a couple of clients that are significantly bigger in terms of their spend than the rest are just further along and we're closer to them. But I would say that -- and I -- and Greg may be able to give you some numbers, but I would characterize it kind of qualitatively that I have never seen more carriers, significant carriers. I'm not talking about anybody small because although there are a bunch of those, too. But more of the big carriers, more engaged in digital in a very productive smart way than I am seeing right now. It's -- I don't think it's an exaggeration to call it dramatically different than it was going into COVID. I think that the capabilities, the focus, the willingness and ability to engage on a digital level, analytically with us to get the kind of results you can get if you do that, which are, by the way, spectacularly better than other channels or not doing it analytically or well in this channel. It's a dramatic improvement and a dramatic increase in the number of carriers that are capable and want to be better at it and are working hard at being better at it. Obviously, there are a couple that lead the pack and have led the pack for a long time, and it's going to be tough to catch them. But the -- but you -- we are seeing a lot more smart activity in the broader carrier group than we've ever seen, and it's not surprising. This channel is incredibly efficient. But it's very different. You have to have a different skill set to win in this channel and it's taken a while for a number of companies to -- and still taking a while for everybody to build those capabilities because it's hard. But we are seeing -- I would say, again, I'll keep using the word dramatic progress from where we were just a few years ago.

Next question comes from the line of Patrick Sholl from Barrington Research.

Congrats again on the strong results. I had a question on the other financial services verticals. I was wondering if you could talk about the -- just to clarify, the 15% growth that you talked about, was that the other financial service verticals? Or is that just all other revenue categories, including home services?

That was all noninsurance client verticals was the 15%. And Greg, I don't know if you have any of the other numbers that you wanted to share?

Yes, I would say that's exactly it. It was all financial services -- or I'm sorry, all total business ex insurance grew 15%. Our noninsurance financial services businesses delivered year-over-year growth itself. I would tell you, good year-over-year growth. The only place that where we did see really good performance, but we had a very tough comp was against credit cards. So very happy with our performance of credit cards in the quarter, but it was closer to flat this quarter, just given the comp from last year, but pretty robust growth across the business.

Okay. And then -- sorry, go ahead.

No, that's right, Pat. I was just going to reinforce that. But I would say that we are very happy with the performance of the other businesses. We don't give out the numbers for every one of the verticals, but the 15% was again on noninsurance, which would include home services.

Okay. And then you talked about going after more insurance agent-driven business. I was just wondering if you could talk about the margin profile of that side of the market versus kind of the direct side?

Sure. We would expect that it will be as good or better. I don't know that it will be dramatically better as we scale because the media market gets pretty efficient at scale. But we do believe that what will help us margin-wise is it can largely be incremental yield on existing media. And any time you can -- because there are consumers that really do want to work with an agent for a good reason. And we have not -- we've been very under represent -- we've underrepresented that part of the market. So consumers that come through our flows haven't had as much of an opportunity to engage with an agent in a productive way. And so therefore, wouldn't convert. So I think it will be additive to margin for a long time. And eventually, the margins will be similar, maybe a little bit better overall than the current market as we get to more maturity and scale. I think that's years out. But initially, as well -- I think it will be a higher margin component because of the fact that, again, much of it will be yield on existing media, which is theoretically almost pure margin.

And your next question comes from the line of Chris Sakai from Singular Research.

You talked about your potentially entering business insurance. Can you talk about the margins there?

Sure, Chris. It's -- there -- it's early. And so we don't know exactly where those commercial and business insurance margins to settle out. We're still early in the process of -- we have all the -- we have now a critical mass of the clients that cover the most important segments as clients, and we are now building our media. And so it's too early to say. So I would project the margins will probably be somewhere near our averages in the 30-ish -- 25 to 30-ish percent range as we get to any reasonable scale. They're not there yet because we're still early, and we're still building that media profile. The good news is those -- much of the -- not like I said, about agent-driven demand. There are a lot of customers in our current flows to mass that business or commercial insurance. And so therefore, they haven't been converting or because we didn't have it in our offers. And we'll be able to convert them now because we have the demand, and we've hooked up the pipes, if you will, to the folks that can serve them. So there'll be a lot of that early on, not like I said, they would be in -- for agents -- and then over time, as we scale it, probably something close to our average is what I would expect until we get to really big scale at which point we might be more where auto insurance is because we get a really big scale, you can still market that market. And again, that's years out. But then that market gets a little more mature, the media margins come down some, but the contribution margins stay healthy because you get so much efficiency out of the other operating lines is kind of the way to think about the evolution of the margin in these verticals.

Okay. And one other question I had was -- we've seen pretty volatile swings with insurance. I mean, just a year ago to now, it's been pretty volatile. And we're on the upside now. Can you help me understand, is this something regular or normal insurance? Or are we seeing some change? Or could -- is there going to be potentially a downswing again?

Yes. It's a great question, obviously. I think and industry experts and carriers have said, what happened in the prior downswing was unprecedented. There's never been a period of such a hard market in insurance and it was driven by what we've talked about, right, coming out of COVID you had supply constraints, which drove up cost. You had inflation, which drove up costs. You had higher incident rates amongst consumers as they got back to driving, not because they were driving more, but because they were distracted more because they were using their cell phones even more. And so the cell phone usage had continued to grow, but they haven't been driving so much during COVID. As we came out of COVID, they started driving and they were using telephones, oh, they had more accidents. And so you had a very unique combination driven by a very unique pandemic, which we haven't seen the likes of which ever, I guess, unless you go back to the flu epidemic early in the last century. So I have -- everything that we know about insurance and what we've been told by our clients and industry experts says that the downswing, which was dramatic was very unique and highly unlikely. There will be -- there have been and there will be times when it -- there's less dramatic ups and downs in insurance driven by things like weather and the severity of weather in any particular year. We've seen those over the past 20 years that we've been in, we and the predecessor company we acquired have been in insurance. But those are very manageable. Obviously, we made the last one manageable. We never went cash from our operating profit negative or EBITDA negative. But we said while we were going to, we said we're going to continue to invest through this cycle because we know it's coming back. And when it comes back, we want to be ready to take full advantage of it. And we did that. So it was not a great time to go through, but at least we knew it was temporary, and we're now benefiting from doing the right thing during the downturn to be ready for the other side. And I think -- so a long way of saying it's not going to be as volatile as it has been the last couple of years. It's going to probably come back to a pretty normal up and to the right curve that has some variability in it but very manageable variability over time. And it's likely going to be that way for at least the rest of my career and probably decades if you look at the long-term curve back behind the COVID issue.

And your next question is from the line of Eric Martinuzzi from Lake Street.

Yes, Doug, with the rate the new administration tariffs are definitely on the table. And I was just curious to know -- the auto carrier rates are tied to the pace of the replacement parts. And many of those parts are important to the U.S. We've kicked the can 30 days on Mexico and Canada, but we haven't China. Have you had any conversations with auto carriers regarding the potential kind of return of inflation due to tariffs?

Yes, we've heard nothing from clients on that. That's a good question, obviously. We have not heard that being a concern or an issue from clients when speaking with us. Your guess and anybody's guess is as good as anybody else's in terms of when, whether how we get -- we actually get tariffs but we have not heard that as something that people are planning around or worried about, at least in their conversations with us and as they talk to us about what they're looking to do with us over the next quarters. So no, not something we've heard.

Okay. If we go to a pessimistic scenario where tariffs are -- do go into effect, would there be -- is the assumption that there would be requested by carriers would be going back to the states for a rerating process?

Yes, probably. Although they're in very good shape right now, as you probably know, the loss ratios are coming in and profit, which is a key profitability measure for these carriers coming in very strong. And so they have good pricing now, but they've also opened up the channels of communication opportunity to get pricing when they need it from the States, even California, is beginning to make it easier for carriers to actually raise their rates based on their costs because the states have learned that it's just economics. If you want your citizens, to be able to get insurance, insurance carriers have to be able to rate economically. And so I think if there's one of the good things that maybe came out of the past few years is a lot of lessons learned on the parts of everyone, but hopefully, including anybody that makes rate decisions or regulates rate decisions because it's as long as the carriers are doing it based on real economics and obviously, inflation of any kind would be real economics. And you kind of have to let them do it or they'll not be able to serve your citizens. So I think that, that to direct answer your question, yes, I think they would -- again, I'm not an expert in this. You can ask the industry, but my guess is, yes, they'd be able to go back and get rate.

[Operator Instructions] And there are no further questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.