Thank you, Jenny, and thank you to everyone joining us as we report QuinStreet’s First Quarter Fiscal Year 2022 Financial Results. Joining me 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 they're 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-K filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements.

Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures are included in today's 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..

Thank you, Hayden, and welcome, everyone. We continue to demonstrate the power of our footprint and advantages and FY Q1 and to separate ourselves through our performance. No one else in our markets has our breadth and depth of advantages and capabilities for long-term success.

We expect the trend of strong, absolute and relative performance to continue. As we ramp for the full effects of our long-term investments in product, technology and market initiatives, our markets are growing and we believe we are gaining share in every one of them.

All of our client verticals grew at least double digit rates year-over-year in fiscal Q1 including auto insurance. We are raising our outlook for full fiscal year 2022. We now expect revenue to be between $650 million and $670 million and adjusted EBITDA to be between $65 million and $67 million.

The raise is driven by one, specific indications from auto insurance clients of budget increases in the January to June period, two, stronger than expected momentum in our credit driven client verticals, and three, the acceleration of growth initiatives across the business, including QRP.

Our full year outlook fully reflects the expected impact on auto insurance marketing budgets from increased claim costs, including from Hurricane Ida whose losses were significantly greater than expected.

For the December quarter, our fiscal Q2, we expect revenue to be between $130 million and $135 million and adjusted EBITDA to be between $7 million and $8 million. The Q2 outlook reflects normal seasonality and the short-term effects of higher claim costs on auto insurance prime budgets in calendar year 2021.

Our Q2 and full year outlook also fully reflect the expected continued effects from the pandemic on our markets and operations and on those of our clients and partners. And finally our Q2 and full year outlook fully reflect expected effects from privacy changes to Apple iOS from which we expect little impact.

We do little to no cookie or tracking driven ad targeting. With that, I'll turn the call over to Greg..

Thank you, Doug. Hello, and thanks to everyone for joining us today. Q1 started off the new fiscal year on strong footing, as we grew revenue to a record $159.6 million representing 15% year-over-year growth. Revenue grew 25% year-over-year excluding divested businesses. GAAP net income was $3.1 million or $0.06 per share.

Adjusted net income was $9.4 million or $0.17 per share. Adjusted EBITDA was $13.4 million. Looking at revenue by client vertical, our financial services client vertical represented 74% of Q1 revenue and grew 25% year-over-year to $117.9 million. Within financial services, all of our businesses grew at double digit rates or more in the quarter.

Our home services client vertical represented 25% of Q1 revenue and grew 20% year-over-year to $40 million. As a reminder, we left the Modernize acquisition on July 1. We expect the strong double digit organic growth trajectory and home services to continue throughout the rest of FY 2022, including in the December quarter.

Other revenue, which consists primarily a performance marketing agency and technology services was the remaining $1.7 million of Q1 revenue. Turning to the balance sheet. We closed the quarter with $105.9 million of cash and equivalents. During the quarter, we generated $5.8 million of operating cash flow and $11.4 million of normalized free cash flow.

As a reminder, most of our adjusted EBITDA drops the normalized free cash flow due to the low capital requirements of our business model. Looking back, Q1 with highly representative of how we view our new footprint and the long-term vision for QuinStreet.

All of our client verticals deliver double digit revenue growth or more and represent massive market opportunities for QuinStreet. Our competence and our growth initiatives has never been stronger. And we believe that we are better positioned to compete and execute against those opportunities than at any time in company history.

With that, I'll turn the call over to the operator for Q&A..

Thank you. [Operator Instructions] And we will go first to John Campbell of Stephens Inc..

Hey guys. Good afternoon and congrats on great results..

Thank you, John..

Sure. I mean, I think considering the backdrop and obviously what some of your peers have reported, I think there was a lot of hand wringing going into the results, so great execution by you guys. But Doug, you highlighted that these results help you kind of separate yourself from the pack.

I couldn't agree more with that statement, but maybe if you could unpack that a little bit more, so maybe what stood out as this significant advantages, and then you guys had outgrown peers by a healthy margin in recent quarters. There's been stretches obviously in the past where you may be trailed.

So if you think about those advantages, was anything particularly kind of enhanced by the backdrop, working in your favor or do you view these just kind of growing structural advantages?.

Yes. Great points and questions. Most of the times when we traveled in the past, we were pulling along the education boat anchor as you would call. So getting that out of the mix is super helpful to kind of clarify how well we actually are doing in the core verticals that don't have big structural industry problems, as you know.

I – we are saying advantages across the board, but we believe, and I think it's showing in our results that we have the best products to both match and serve consumers that also match and serve our clients, the marketers in the industry. We've talked about those for years, we've invested in those. They matter and they're working.

We have the best broadest mix and we have the ability to integrate any client and to match pretty much any consumer in the way they want to be matched. That matters a lot. We believe we have the best technologies in the industry for segmenting, for right pricing based on performance or optimizing.

The best algorithms for optimizing and the best data analytics, we've top of the data analytics. We think we have the best data experience. We've been doing this for 22 years. We started out as a company that said, what need to say this data and use it along with our client's performance to drive results. And I think we've built up the best data base.

And I think we have the best and most sophisticated team and technologies are raid against that data for analytics and optimization, which really matter in a marketplace technology. We believe we have the deepest integration and the deepest relationships, decreased integrations and relationships with the biggest clients.

I don't think there's any doubt about that. And it shows in the multiple projects that we're working on with them to continuously not only allow them to perform better in our marketplaces, but to add new business opportunities. And we have a number of those rolling out to market.

Only one of which was really talked a lot about, which is QRP, which will be done in conjunction with the big carrier clients in partnership with them. And we believe that we have the deepest integrations and the best relationships for the big media partners.

Again, a long, long list of initiatives to continue to help them strengthen their position in the market to better engage consumers, better optimize the results for those consumers, and then optimize the results for themselves.

And as you know, in our business model, we have been investing in these, all of these areas, which we call growth initiatives are subset of the growth initiatives for years.

And we've talked about them over and over and over again, and the compound effects that experience and those investments and that execution are really coming together and inflecting for us in a lot of ways and a lot of different parts of the business..

That's a great answer, very thorough, I appreciate that. And then on the guidance, Greg, I just want to make sure I kind of understand that. I mean, obviously the full year, very impressive raise.

So you guys expecting, it sounds like from client indications, do you feel very good about the first half of the upcoming calendar year, but the guidance for the next quarter, it looks like it steps down a little bit and then you've got the ramp and acceleration.

So I guess on the guidance for this next quarter is it more of a continuation? I mean, I guess when you're exiting this last quarter, was there a slowdown at spin you're expecting that to kind of continue to the quarter, you're just being conservative there or does it require ramp? Did you drop pretty sharply? I just – kind of give us any kind of indications of movements within the quarter?.

Yes. I would tell you John two things on the Q2 guidance, the first one is always reflects normal, typical seasonality that we see, which is going to be about down 10% or so sequentially.

What we saw later in the quarter was really the impact of Hurricane Ida on auto insurance client budgets, which are putting pressure from that standpoint in the December quarter. And again, we feel that that's short-term pressure. We have very specific budget indications of big budgets coming in the June or the January through June time period.

So we feel very good about the overall outlook for the year, but the Q2 outlook is a combination of typical seasonality that you see, which is going to be at about 10% down sequentially as well as loss ratio impact on auto insurance carrier budgets..

Okay. That's very helpful. Thank you, guys..

Hey, John, and I would just probably lost you, but just to, I didn't answer part of your question, it relates to the guide and when you asked about the backdrop and whether or not it was helping or hurting us.

And the performance marketing industry generally when things get soft like they did in the last part of last quarter, and they are for this quarter, generally for auto insurers. The worst mix is in the lowest quality get cut first, always.

And so we do know from our clients that we have been cut the least, and we have been told by all of them, and we know for a bunch of them just from the numbers that we have gained share as well, we have been cut some and you can see it in the guide that we expect to lose somewhere in the neighborhood of $10 million next quarter in revenue from the impact of auto insurance client budgets, relative to where we might be in a normal 10% down scenario.

That's – and then it gives us lose – we lose a little bit of EBITDA leverage on that. It's really a very, very moderate impact relative to what you've heard from a number of the other industry participants.

And that's because when again, when things get tough, these clients, but the worst first, and they keep the best and they cut it the least, and we have sort of the backdrop in many ways is an advantage to us. Relatively speaking, obviously we don't like losing to spend this quarter.

But we do – what we do have from the clients is assurances of having been cut by the lowest amount, having picked up share, and a very aggressive budget starting in the June period – January period.

It's important to understand that the loss ratios for these major carriers who are our big clients reset on January 1, calendar year, new fiscal year new loss ratio calculations. So Ida, which was a Hurricane that had a lot worse losses than most.

And I think it's at least in the top five, might be in the top two of all time, largely because not just because it hit the post hard and that's tragic for those folks where it got hit, but because it then worked its way to the Northeast, which is the most populated area to country and sat there and flooded automobiles and our clients cover that.

And so very, very high loss ratios for a hurricane and for a storm any type.

But again, isolated through calendar year 2021 for the purposes of our budgets and our clients budgets, and a reset happens on January 1st and our big clients are already talking to us and we are already in the planning stages with them on how we're going to meet those budgets, starting January 1.

And all of the big clients budgets are not only up sequentially January 1, but they're up pretty significantly year-over-year to January quarter. So that's what gives us the competence is deep relationships, ongoing conversations and actual planning with our clients of how we're going to meet their demand January 1..

Thank you, Doug..

And we'll go to our next question from Jason Kreyer of Craig-Hallum..

Hey, this is Bailey on for Jason. Thank you guys for taking my question..

Hey Bailey..

And congratulations on the great quarter..

Thank you..

Just wanted to touch a little bit on QRP, I know, with a more choppy backdrop for auto insurance is just kind of wondering, what do you think the impact will be if any, on the continued rollout there [indiscernible].

Yes that's a great question. We're so early in the rollout that we really expect little to no impact from the loss ratio issues that we're going to experienced or that we've experienced late last quarter and this quarter. It's – the pipeline is stronger than ever. The market is bigger than we thought.

We now have clients past integration and testing stages and into the ramp stages. And those ramps are going very well. So we're better able to begin to project. We were very conservative in our QRP estimates and the outlook that we gave last call, which of course was our first outlook for the fiscal year.

So we're generally conservative anyway, but we were very conservative for QRP because again, a new business still in the early stages, I would say that while we have pretty substantially increased our expectations for QRP in a revised outlook, it is still at the low end of the range that we actually think we're going to hit.

So we're still being conservative. But we're also add – it would add pretty substantially because as I said, we have a lot more real market data from clients that are now actually ramping and into that. And we were able to now begin to project and watch lines and curves.

And we also have a couple of very big client projects that have been accelerated that we expect to be executed by mid-January. So that they can hit the insurance shopping season, auto insurance shopping season, which kind of starts in mid to late January and runs in through the spring.

The carriers really want to hit that hard including a couple of our biggest in fact, I think our two biggest QRP projects and clients, I want to be up and running post scale for that January shopping season. So just a lot of good stuff going on in QRP.

And we have pretty meaningfully increased our expectations and the outlook, but only to the lower end of the band that we actually believe, we're going to get to. But again, it's a newer business, so we're more conservative and I think that's appropriate for everybody to understand and appropriate for us to do..

That's great color and great to hear, appreciate that. If I could just squeeze one more in there. I was wondering if you guys might be able to frame the recovery and loans and credit card, whether or not how you expect that to progress with consumer, the volatility we've been seeing in the rest of the market. I appreciate it..

Yes, those we call them, we call personal loans and credit cards or credit driven verticals. As you know and pretty big businesses. There are third and fourth biggest businesses, I think after insurance and home services and together, they about doubled year-over-year in the quarter and continue to have a lot of tailwinds. The consumer is healthy.

The creditor is healthy. They are the credit card business is leading a little bit which is what you would expect consumers in good financial shape, but begin to spend, begin to increase your activity levels, which we're seeing, other credit cards get used more and they shop more for more credit cards and that cycle begins.

And so credit cards is a little bit ahead of personal loans. And what typically happens is then they build up credit card debt and it's followed by a cycle of looking for personal loans to consolidate and pay down often and lower the rates on that credit card debt, which we haven't really gotten much into that cycle yet.

So we see the indications from our clients and from consumer activity are that a credit card is likely to continue to grow at a high rate. And we are beginning to see, and we have extraordinary activity amongst the personal loans clients, as they are geared up and waiting for their part of the cycle to pick up more steam.

And we're fairly early in that. So our expectation and the actual results have been quite strong and we feel very good about our position those businesses and those markets. We feel very good about good trajectory of those markets..

Well, that's good to hear. Thanks again. Congrats..

Thank you, Bailey..

We will hear next from Jim Goss of Barrington Research..

Hi, this is Pat on for Jim. The better question on the auto insurance vertical, I was just wondering in prior, I guess prior to periods, when you've had issues with the loss ratio driving reduction in budgets.

What was sort of like the timeframe of that kind of recovering and I guess, is there any sort of issue potentially with I guess supply chains or anything like that that could cause it to take a little bit longer or anything else that could shorten that just in terms of better understanding of pricing as policy?.

Yes. Between us and the predecessor company that we acquired when we got into auto insurance market. We've got about 22 years of experience in the auto insurance market. And so we've seen a lot of cycles and most of them similar to what I've described, we'll reset in January at a relatively short term.

If you have an event driven issue like we just have. And so what the clients you tell me relative to next year into January is very consistent with an event driven in a given year is that issue. There have been times. And the biggest time is really, I think is 2016 where took longer.

And that was when there was structural issues with the clients underwriting models, which we do not have today. And the clients are very comfortable with their underwriting models. They're very comfort with their pricing.

They just had an event that costs more than everybody thought it was going to cost, and therefore they have less money to spend on marketing because I spend more money on those claims in 2020 and in calendar year 2021. But in 2016 it was a structural thing.

And that was a little bit more difficult for them to work through because what was happening was they were seeing higher incident rates that had crept up on them due to distracted driving and people – more and more people with their cell phones in their cars, or their smart phones in their cars and doing stuff in their cars, they shouldn't be doing when they're supposed to be driving.

And that kind of broke through is a major issue that had fundamentally changed underwriting models and consumer incident rates. And that was combined with higher repair costs, which had also kind of crept up on them, which as you got more and more cars into the market with smart bumper technologies.

They were used to be a fender bender became a $5,000 repair, $3,000 repair because you had other sensors in the bumpers that had not been in cars before. So that cycle was longer that was took as I recall, somewhere around a year to work itself out, but it was very fundamental.

They had to rework the underwriting models, rework their profitability models, rework their risk models, reprice their policies and get those all approved. We're not in that cycle. We're in the – there was an event last year that costs more than they thought. The underwriting models are fine.

Their pricing is fine and existed a little bit more reflective of general trends rather, and gradual trends or the one time things. And they fully expect and is consistent with past behavior that they would be on based on that type of an issue come back very strong in January.

So very consistent with what we know to be the case, what the rationale is and what we've seen in previous cycles..

Okay. Thank you..

You bet..

And we'll move to our next question from Max Michaelis of Lake Street Capital Markets..

Hey guys, this is Max on for Eric. Congrats on the quarter..

Thanks, Matt..

My first question related to any change, have you seen any change in your ability to acquire high converting media?.

No..

Okay..

Not any more than that, I mean, we're always seeing changes in the high quality medium market.

But we are not having any issues, acquiring high quality media to meet our plans and our outlook and our objectives is nothing unusual, I guess there's always stuff going on, but nothing meeting clear, unusual relative to the consistent historic general trends..

Okay. And then if I could just squeeze a couple more in.

My second one's related more to a model, have you guys noticed any CapEx inflation, regarding to more talent acquisition well as more travel and entertainment expenses?.

No. Go ahead, Greg..

I wouldn't say anything material. No. From a operating experience perspective, I would tell you, as we get into the back half of the year, you do have slightly seasonably higher operating expenses just because things like on January 1 payroll taxes reset. And so they are at a higher rate earlier on in the year.

And we also have some regulatory work we do because we're a junior end. So we do a little more regulatory work on the back half of the year. So seasonally we're slightly higher in the back half than we were on the first half, but we're not seeing anything major from current events..

All right. Thanks guys..

[Indiscernible] is every year. So it's not – there's nothing unique about or knew about it..

Okay. Thank you guys. And then just my last one, then I'll jump back into the queue here.

Are you guys seeing at this time, any near-term M&A opportunities?.

Where we are constantly looking, we looked really hard at a couple this past quarter that I really liked. One that gave us some new capabilities and media. That one they decided not to do anything looks, like we're going to have a partnership there, which is good. But I wouldn't mind owning them to.

Another one that was an extension of one of our verticals of business would have added more scale and a lot of synergies with one of our businesses that one, two decided not to do anything. They took a little bit more private equity and they're going to do some stuff on their own work.

We're continuing discussions, and we'll continue to talk to both of them, but we will continue to look at and there are always going to be and you've seen us do it, consolidation acquisition opportunities, which are created in performance marketing. We will continue to be active.

And – but we're also continue to have a very high bar, but we did not do any this past quarter, any size, I can't remember any real small ones or not, but sometimes do will scrape up some little ones too.

But I don't recall us doing any of those, but we did – we are looking, we are seeing some, we didn't get any done last quarter, but you should expect us to continue to be actively looking and active when we find something as good as they am on a Modernize type acquisitions that we've made historically..

All right, thanks guys. Congrats on the quarter..

Thank you..

And we'll hear next from Chris Sakai of Singular Research..

Hi, Doug and Greg. Just the question….

Hey, Chris..

In your opinion, what's driving the increase in auto insurance marketing budgets?.

In general?.

Yes..

In the January to June period or just overall, generally over time?.

In this last period..

The increase in the last period for us was combination of for more budget penetration, and greater share of wallet for us with the number of the larger clients, as we've continued to roll out with them.

Mostly a lot of the analytics programs that we worked with them on to help them best segment optimize and right price the consumer in the marketplace along with some new initiatives that expand our media footprint, a couple of which are in partnership with specific clients that we're quite excited about.

And then when we do that, we also pick up more budget for those media initiatives. So comment is more general budget increases in penetration of budgets and share increases to us for the programs that we're running with them. And then a new projects and initiatives with them.

And of course in the longer run, those also will be compounding as well as the just general shift of budgets to online and online to performance and from performance to us, because that's where usually the last stop, where there's more sophisticated big budgets..

Okay. Great.

And then as far as the – are you guys looking to go into any new verticals?.

We are adding contiguously in the verticals we're in. So for example, an insurance where auto and home are of course our biggest.

We are aggressively expanding in life health and some of the – even smaller ones like pet motorcycle RV, and home insurance – home services, excuse me, you've heard me say before we're in four or five of our verticals are kind of at pretty good scale, we're in another call. And those are earlier stage and we're expanding those.

And we think we can be in dozens at least. And I used to say a 100, I think that's still the right number. But say dozens for the kind of scale I'm talking about over time. So and those are trades like a windows would be a trade or a sub vertical, doors, bathroom remodeling, kitchen remodeling. Those are the solar home security.

Those would what I would call so, taking all those and ramping them out. So we're continuing to enter new verticals, in-home services or trades is what we call them in home services. We're entering new verticals in our banking vertical.

We have expanded beyond traditional source of funds, accounts like deposits accounts and to money market accounts, investment accounts, retirement accounts, advisory accounts, and FinTech and beyond. So we've dramatically expanded that footprint and are entering depending on how you call, what you decide, what you want to call a vertical.

We call the whole vertical banking, but within banking. So at the highest level, we're not adding any new major vertical headings beyond insurance on services, credit cards, personal loans, banking.

I think I mentioned personal loans but within them, we are expanding pretty aggressively into new segments and of them expanding their footprint and of course getting a lot deeper in them. So we have plenty of growth capacity to keep working on for.

I'd say that we could feast off what we've got – the footprint we've got now, and the way in the expansion opportunities we have, because I haven't even talked about the broadened product offerings in those verticals, like QRP and insurance. And we have a couple very much like QRP right behind QRP.

We haven't started talking about that apply to a couple of our other verticals coming as well. So we could feast off of that for at least the next decade and grow really, really well for so. The answer is kind of a no and yes, no but yes. No more big ones right now, but yes, because we're filling out the ones we were in..

Okay, great. Well, thanks..

Thank you, Chris..

[Operator Instructions] And with no other questions in the queue, that does concludes today's question-and-answer session. The replay for this call will be available as 7:00 p.m. Central Time today. To access the replay, please dial 888-203-1112. And the confirmation code to reference is 5800057. This concludes today's call.

Thank you for your participation. You may now disconnect..