QNST - NASDAQ

Good day, and welcome to QuinStreet's fiscal second quarter 2026 Financial Results Conference Call. Today's conference is being recorded. Following prepared remarks, there will be a Q&A session. Please press 0 for the operator. At this time, I would like to turn the conference over to Vice President 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 second quarter 2026 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 Q2 was another productive and successful quarter. We exceeded our outlook for both revenue and adjusted EBITDA. And even more importantly, we continue to make good progress on needle-moving initiatives across the business. We see the setup for continued long-term revenue growth and margin performance as better than ever. Auto insurance demand remained strong again in fiscal Q2, with sequential performance besting historical seasonality trends. We continue to expect further significant growth in auto insurance revenue and margin in coming quarters and years due to strong client and marketplace fundamentals, and to our rapidly expanding product market and media footprints. Home services continue to grow at double-digit rates and is now running at close to $300 million per year in revenue, between $400 million and $500 million per year with the addition of Homebody. Our outlook for that business, what we believe to be our largest addressable market, remains strongly positive short and long term. I just mentioned Homebody. Subsequent to quarter end, and as previously announced, we completed the acquisition of Homebody, adding unique new product media and clients to home services. Homebody has mastered the technology and execution of auction-driven exclusive leads, a product in high demand by large segments of the home services client market and one that we did not yet have. Also, their focus and success building big scale campaigns in social and native channels brings vast new sources of media helping us meet fast-growing client demand. We expect Homebody to extend our long history of successful M&A. Most recently, that history includes Modernize Home Services and Aquavita Media. Modernize is now the core business of our home services client vertical, where our revenue has grown about 150% since the acquisition in 2020. Aquavita Media is now our core social native and display media platform. Those channels have grown about 300% in revenue just since the acquisition in 2024. We were even more excited about the potential for Homebody than we were about these highly successful transactions. Our total addressable market opportunity is enormous and growing. And we continue to deliberately, contiguously, and successfully expand our footprint. We still estimate that we are less than 10% penetrated in our current addressable market footprint. We are also focused on continuing to adapt aggressively and successfully to changes in our markets and ecosystem. Most prominently, our progress applying AI across the business and thriving in a more AI-driven ecosystem has already been strong, and we are continuing to increase those efforts. We expect AI to lead to increased opportunities in our already big and fast-growing markets. And we expect to disproportionately benefit from AI due to our structured proprietary integrations and data and to our long history of successfully applying AI as a competitive advantage. Overall, we expect total company revenue growth and margin expansion in coming quarters and years. We continue to expect full fiscal year revenue, excluding Homebody, to grow at least 10% and full fiscal year adjusted EBITDA, excluding Homebody, to grow at least 20%. Both consistent with our previous outlook. We also expect to achieve our next milestone margin goal to reach 10% quarterly adjusted EBITDA margin in this fiscal year, even excluding Homebody. Said another way, our core business remains strong, and Homebody is purely additive and accretive to our previous outlook. Turning now to our new outlook, which, of course, includes Homebody. We expect total revenue in fiscal Q3 between $330 million and $340 million and total adjusted EBITDA to be between $26.5 million and $30.5 million. We expect total revenue in full fiscal year 2026, which, as a reminder, ends in June, should be between $1.25 and $1.3 billion. The total full fiscal year adjusted EBITDA to be between $110 and $115 million. With that, the call will be Greg.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q2 was another productive and successful quarter, as Doug noted. It was the second consecutive quarter of record revenue for QuinStreet and what is typically our seasonally lowest revenue quarter. The strong performance was driven by impressive execution across our verticals. For the December, total revenue was $287.8 million. Adjusted net income was $14 million or $0.24 per share, and adjusted EBITDA was $21 million. Looking at revenue by client vertical, our financial services client vertical represented 75% of Q2 revenue and declined 1% year over year to $216.8 million. Auto insurance momentum continued in the quarter, growing 6% sequentially versus the September, significantly outpacing typical seasonality. From a year-over-year standpoint, we were down 2% as we were comping against an unprecedented surge of insurance carrier spending in the year-ago period. Noninsurance financial services, which includes personal loans, credit cards, and banking, grew 10% year over year. Our home services client vertical represented 25% of Q2 revenue and grew 13% year over year to $71 million. Turning to the balance sheet, we closed the quarter with $107 million of cash and equivalents and no bank debt. Moving to the tax front, our provision this quarter includes a one-time benefit of $48 million related to the reversal of our valuation allowance against our deferred tax assets that we established in fiscal year 2023. We expect to return to a three-year cumulative position by the end of this fiscal year. So this entry was required by GAAP. To be clear, this one-time benefit is a non-cash item and is excluded from non-GAAP results. Moving on from our Q2 results, I'd like to spend some time discussing our recent acquisition of Homebody and our capital allocation priorities. Starting with Homebody, Homebody expands our product, media, and client footprints for growth at scale. And what we believe is our largest addressable market, home services. While our home services vertical has been growing at a compound annual growth rate of over 15%, even combined with Homebody, we serve less than 1% of a massive market that we estimate spends more than $70 billion on marketing. We closed the acquisition of Homebody about a month ago in early January. As a reminder, the terms of the acquisition include $115 million of closing. We funded this amount with $45 million of cash from our balance sheet and $70 million drawn from our new $150 million revolver credit facility. In terms of the acquisition, also include $75 million in post-close payments payable equally over four years. As previously communicated, when we announced the acquisition, we expect Homebody to generate $30 million or more of adjusted EBITDA in the first twelve months after closing. And although early in our integration of Homebody, we are working on capturing synergies to drive that number even higher. Overall, QuinStreet remains in a strong financial position. And we expect to generate strong cash flows in the coming quarters. We continue to have a rigorously disciplined approach to capital allocation and will continue to prioritize one, investing in new products and initiatives for future growth and margin expansion, two, accretive acquisitions, and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. Overall, our long-term outlook has never been better. We expect strong revenue growth and margin expansion to continue in coming quarters and years. With our near-term next milestone goal, still to reach 10% quarterly adjusted EBITDA margin, in this fiscal year. Even excluding the expected accretive impact of Homebody. As a reminder, we have three key levers to expand EBITDA margin. One, growing and optimizing new higher margin media capacity to meet auto insurance market demand. Two, growing higher margin products and businesses in insurance and in non-insurance client verticals to represent a higher percentage of our overall business mix, and three, capturing operating leverage from top-line growth through scale and from efficiency and productivity initiatives. In other words, growing revenue and media margin dollars significantly faster than operating expenses. Turning to our outlook, which includes Homebody, we expect total revenue in fiscal Q3 to be between $330 and $340 million and total adjusted EBITDA to be between $26.5 million and $30.5 million. We expect total full fiscal year 2026 revenue to be between $1.25 billion and $1.3 billion in total full fiscal year adjusted EBITDA to be between $110 million and $115 million. With that, I'll turn it over to the operator for Q&A.

Thank you. Ladies and gentlemen, we will now open for questions. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from

Yes. Congrats on a strong quarter, Doug and Greg. Doug, I just wanted to start off asking about just AI in particular. I know that's been a big worry in the market here in recent weeks. But first, can you talk about the traffic trends you've been seeing with your platform in recent months? Have you seen any meaningful changes in terms of channel or overall traffic volumes? And then second, I know you touched on this a little bit in your script, but can you just speak to how QuinStreet can position itself to navigate the changes in the landscape as AI becomes more prevalent?

Yes,

Absolutely. Thank you so much for the color, Doug. I'll keep it to just one more follow-up question. In terms of auto insurance trends, nice to see the sequential increase here in what is seasonally a slower quarter on the auto insurance side. As we lap into calendar year '26, I mean, can you give us a sense of just the appetite and spending trends you've been hearing from your clients? I know premiums are likely to moderate, but it seems like profitability is in a great spot for many of these carriers. So just curious to hear conversations and trends you've been seeing across your auto insurance carrier base.

Sure. Very strong engagement, very strong interest, a lot of focus on the channel, a lot of focus on how to do better and eventually bigger in the channel. On the other side, you know, there's been an unprecedented surge in their spend overall and certainly in the channel over the past year or so, and they're still digesting that. And they're kind of reaching, you know, kind of on this new plateau. They're scoring incrementally, but not growing at high rates from here. While they sort out how that worked for them and what they wanna do to optimize further and what risks lie ahead, including, you know, having enough and by the way, you're right. Their economics are in great shape. Their financials are in great shape. So they have great capacity. But I you know, based on what we observe, it appears that they're weighing that against you know, are there places where they should now be reducing rates? What are gonna be the eventual full effects of tariffs? And many other factors. So I would say that strong engagement, very stable, incremental growth, I'd say that returning to a more normalized growth rate, which we would consider to be between 10-20% year over year, is probably on the not too distant horizon as long as there's not some big externality impact from something that nobody expects. But you know, these guys these the carriers are extraordinarily sophisticated. They're balancing a lot of different things. They're adapting as they go. I know there's been some concern out there about rates and what happened in New York, people fearing that there'd be impact on rates. That's just normal course for the auto insurance industry. This is the stuff that goes on all the time. You know, different states having different points of view about the rates and where they are. And these companies, our clients, these sophisticated auto insurance carriers are extraordinarily adept at adapting and adjusting and navigating and moving forward. So we don't see any of that as being a material risk to what we're likely to see from them going forward.

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

Thank you, Scott. Your next question comes from Jason Kreyer of Craig Hallum. Please go ahead.

Great. Thank you. So just wanted to touch on Homebuzz and kind of the cross-sell opportunity there. Specifically on the media side of things, I think Homebody opens up a lot more reach in terms of media. Maybe if you can just talk a little bit about what that cross-sell can look like.

You bet, Jason. It's a great question. And that's probably the most exciting part of the Homebody combination. We are really despite the great success of Acovidia, which kind of our toe in the water, and what is the place where there's the most tumor traffic on the Internet, which is the combination of social display and native. We are kinda nowhere. In that overall ecosystem because the traffic is quite different in terms of its intent than the search ecosystem that we have grown up in and that we are so good at. And so what Homebody does is it brings demonstrated ability to build these campaigns at scale in that biggest media footprint on the Internet. They already do a $140-ish million in revenue. They're all in that media. And they do it very successfully in terms of client results and very successfully in terms of economic. And so they figured that out. And so we could have continued to spend a lot of money figuring it out and climbing that learning curve ourselves. But, you know, we were able to acquire Homebody on very attractive terms and in a way that gives us that access and that capability immediately so we can now scale it rather than continue to work our way up that scale learning curve. And the cross-sell there is enormously important because if you look at our home services business today, our GM there just recently said to every client wants more. Every client. And so that's the demand side of the market if you will. The supply side is media. And so having now the ability to scale dramatically in a very predictable expert way that Homebody brings us. In that media ecosystem to continue to feed the growing demand for digital performance marketing from our growing footprint of home services clients is enormous. It's just I can't say enough about how exciting and what a big deal that is for us. So that and then the other side of it is I indicated in my prepared remarks, prepared remarks, is they also have a unique product that works great in their ecosystem, but also works in our ecosystem, which is this auction-based exclusively. A product that's fairly complex and in this technology and implementation and execution. It's their core it is their only product, basically. And so taking that product and selling that into our client footprint is also a big opportunity. So both are big, but if you made me pick one, I'd pick the media side like you appropriately pointed out. That's a big deal.

Wonderful. I'm gonna pivot on the follow-up here. So the last couple of quarters, Doug, you've highlighted some R&D initiatives that you think can drive accelerated growth, drive improved profitability. I think embedded in there are things like QRP, things like finance March. I know you have others in there. Curious, you know, how are these tracking, and when do you think these initiatives can get to the point of scale where they become more noticeable to fundamentals?

That's a great question. You named a couple of them. Others include new media and auto insurance to meet demand at a higher margin and expanding our insurance footprint into places other than just auto insurance clicks, which would include leads, calls, and selling more into the agent-driven models. We historically were dominated in our insurance business for clicks to direct carriers. Great carriers like Progressive and Allstate, GEICO and pretty much all the major carriers. But that's only half the market in terms of marketing spend. The other half is on the agent-driven carriers. And that's a place that we're spending a lot of time and money and that comes to us because of our abilities, at very attractive margins. In a place that we're you know, we see hundreds and hundreds of millions of dollars of new revenue opportunity, and we're up to about a $100 million revenue run rate there now. So we're getting that one to pretty good scale, but there's a heck of a lot more to come. And then there's the whole commercial or small business side, which has enormous demand from our clients and represents if you look at overall demand from, you know, insurance to consumers and then insurance to or PNC, if you will, for consumers and insurance to small businesses. That kinda and half of the overall market. So, you know, we're currently concentrating about a quarter of the overall addressable market. Still a lot of opportunity in that quarter. But we're expanding our footprint into another one of the quarters, which is the agent-driven side of cons PNC, and then the other half, which is the SMB and consumer. So we're further along in the agent-driven PNC, but we are making good progress on the SMB and commercial side, and we have a lot of runway in front of us. So those are also components of that. So I would say that some already at good scale. Leads and calls into PNC consumer agent-driven is, you know, like I said, running $100 million a year or so. And very strong performance there. Others are getting to better scale three and QRP. Are both growing very rapidly. And together will represent north of $10 million. Well north of $10 million in revenue high margin high variable margin revenue. This fiscal year we're getting near the tail end of our heavy lift in R&D spending for those products. And really much more into the scale and profitability era for those products. And so and I could probably name five or six or seven other initiatives in the various businesses across the company, including owned and operated media auto insurance owned and operated media. For credit cards, which are two areas that we've spent a lot of money developing, and we're, yeah, we're much further up those learning curves both in terms of scale, but it's also in terms of profitability than we were, you know, a couple months ago, let alone six, twelve months ago. Yeah. So big initiatives across the business. I think in terms of the answer, in terms of when you're gonna see their effects, you're seeing the effects now. You know, we have forecast a pretty significant increase in our adjusted EBITDA margin this quarter and next quarter. And Greg alluded to the various components of what's driving that. You know, one being new capacity, better margin media and auto insurance, O&O media, auto insurance. And other media, higher margin media in auto insurance. Another one being growing these new niche new higher margin initiatives in businesses, some of which I just talked about. And the third leg being just leverage from greater scale on a slower growing semi-fixed cost base. So you are going you have seen it. Lately. As we've ramped adjusted EBITDA margin back up after the effects of the initial surge in auto insurance and you're going to see a discord, the existing current quarter, and you're gonna see it grow significantly and incrementally yet again in fiscal Q4. Because, again, we've said, listen. We fully expect that we're going to hit that 10% adjusted EBITDA margin number from the 7.3% we just did last quarter. In this fiscal year, on a quarterly basis, even without Homebody, and Homebody's accretive to that. So, you know, those are kinda some of the moving parts, and, hopefully, that gives you a good view of it.

Yeah. Really good color in that answer. Thank you, Doug. Appreciate it.

Thank you, Jason.

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

Yes. The growth rate on the home services business, kind of a legacy side here. The last couple of quarters has been about mid-teens. What is Homebody growing at a similar rate?

Homebody's been growing at a little bit faster rate lately. So, you know, net net, Eric, we still as we've said before, we expect the average compound growth rate of our home services business going forward to be between 15-20%.

Okay. And then the as I looked at the kind of implied math for Q4 based on the Q3 guide, least in MIMO, I've got a little bit more of a hockey stick in Q4 than I had as I'm revising the model. Just wondering if there was any abnormal seasonality either in the legacy business or in the Homebody acquired business as you look out to Q3 and Q4.

That's a good catch. And in fact, there is seasonality in the home service business, both our legacy business as well as in Homebody, and a pretty significant seasonality. The March, one of the weakest quarters not surprising. Right? There's snow and ice everywhere, so people aren't doing a lot of gutter replacements or things like that. But and then the activity grows pretty dramatically, and the two strongest quarters are the June and the September quarter. And so you're dominantly, what you're seeing there, Eric, is that effect. From a now combined, as I indicated earlier, home services business that represents between $400 and $500 million for total revenue. So pretty significant seasonality. Weak quarter, marked weakest quarter one of the two weakest quarters, December and March quarters. And then you're seeing the June quarter, which is our fiscal Q4 being one it's which is historically the strongest quarter in the home services industry. So that's the impact or effect you're seeing.

Got it. Thanks for taking my questions.

You bet.

Reminder, if you wish to ask a question please press 1. Your next question comes from Patrick Sholl of Barrington. Please go ahead.

On the other financial service verticals, I think you mentioned that those were up year over year. I think you had talked about kind of, like, just a difficult comp in credit cards and the last quarter. So can you maybe just sort of like just talk about environment for those services right now just in the current macro environment?

Sure, Pat. I would say the environment is good, not great. We still have tons of growth opportunity even in a good or less than good environment because we're still pretty early in and relatively small in our footprint and all of those. Those businesses are what we generically call personal loans. Should probably more specifically internally, we refer to it as financial solutions. Because it includes not just personal loans, but HELOC, debt settlement, credit repair, and a lot of other services to consumers. So still early in our overall growth planning and strategy there. Those markets are in pretty good shape. Unfortunately, debt settlement and credit repair have been in pretty strong demand. Over the past number of quarters and are likely to and look like they're just getting stronger. As the consumer cohort faces more and more pressure. The personal loans business is solid. And doing better. Most of the lenders have been opening up their demand and their filters. And then we have the other newer components there, like I said, HELOC and others. That we are super early in but are showing very good signs. So I would say it's a good environment. It's not a great environment because there is some concern among clients that the consumer or at least the working consumer is under a lot of stress. Again, that's not bad for some of what we offer, like debt settlement. In terms of and just to get to a couple of the other pieces of credit cards, we serve premium consumers pretty much only. We're dominant in the high-end credit cards, the travel points credit cards. So that business is in great shape. There's a ton of competition among the banks as you probably know if you've been exposed to any media. We're trying to sign up customers for their premium travel credit cards. There's a lot of money in that. A lot of interest in that. There's been a little bit of concern lately about the notion of somebody trying to impose a 10% limit on credit card interest. What we've heard from the industry and from the clients is that that is extraordinarily unlikely. And the clients are not behaving as if that is going to happen. So they're not changing their appetite, their spending habits. We have the unique position of being one of only a couple of companies that can run third-party media networks for all the major credit card issuers. We're very good at that. That's a great competitive advantage and a great opportunity. We are aggressively building on top of that a lot of owned and operated media, which has been something we've been investing in and that we're super excited about continuing to scale in that market. And our clients only want more from us. It's another one of those verticals where the only complaint we typically get from a client is we need more from you. We want more. So we're aggressively working to build that out, into a good appetite. And then the banking side was kind of the smallest of the three of those pieces. Which is where we really deal with source of funds accounts. A CD savings, high yield savings, more and more brokerage accounts. We're just super early. The demand is strong. We're not seeing, you know, macro effect wise, we're not seeing anything that I think is notable given how early we are in our penetration a massive market opportunity. We're super early. It's a very, very good business for us. And I think we feel like we're, you know, we're gonna continue to do well. Though we've seen a little bit of there's been some clients that have kinda been in the CD market. You know, every time there's a big threat of interest rates coming down faster than anybody expected, you'll see them pull back a little bit because they don't wanna commit to CD consumers. The rates are gonna come down immediately. And so there's been a little bit of choppiness but I would say I wouldn't say enough that I would call any kind of big macro effect. I would say that it's just kind of part of the volatility we're seeing generally in the current economy some associated with what I might say is what I might call unpredictable government intervention.

Okay. And then maybe just, like, a couple questions related to AI. Just maybe with all the capital being committed to AI investments, are you seeing, like, any difficulty in attracting or retaining talent? And then you kinda talked about, like, just the sources of traffic. Are you seeing specifically you highlighted the Google search results and the incorporation of AI there. Can just maybe sort of talk about, like, if you're seeing, like, any change in if what you're seeing a little bit more detail on what you're seeing on the traffic patterns of whether coming from SEO versus your partners and your other sources there. Thank you.

Yeah. Sure. We are not seeing a loss of or difficulty recruiting. I would point out, and this is an interesting fact, that the chief strategy officer at OpenAI is a former QuinStreet employee. For you know, if anybody wants to understand how QuinStreet is integrated into the overall market. But no, we're not seeing problems attracting or retaining talent. Anywhere in the company, let alone in our tech group and our AI group. There's a lot of good talent out there, and we have a lot of projects. So we're able to keep those folks and attract those folks. In terms of Google traffic, more and more traffic does come from SEM, which is paid traffic. Around GEO searches, you know, generative engine optimization searches. And we're very, very successful in the SCM component. We always have been, and we're only getting more opportunities to do that at greater scale. In the current Google format. And we are seeing pretty good progress in GEO. We don't have much by way of SEO. It's never you know, we deemphasized that years ago. And so, our SEO is actually fairly stable, not declining any of significant rates, but it's not material anyway. So it's again, it's not something that we made the decision a number of years ago not to focus on it because we needed Google did not want people to focus on it. They want to they wanna build partnerships with folks like us where we pay for media. They don't really they're not that interested in sending us free traffic. So, again, we made that strategic decision a long time ago. It's not a significant component of either our traffic nor really of our third-party media. And that transition has happened over a number of years. So yeah, the mix is yeah. The mix has shifted to more SEM around AI-based searches and that's good. You know, we again, we see that as providing us with even more opportunity to be even more targeted. And segmented in our spend, and we're very, very good.

Okay. Thank you.

Thank you, Pat.