QuinStreet, Inc. (NASDAQ:QNST) Q3 2024 Earnings Call Transcript

QuinStreet, Inc. (NASDAQ:QNST) Q3 2024 Earnings Call Transcript May 8, 2024

QuinStreet, Inc. misses on earnings expectations. Reported EPS is $-0.12799 EPS, expectations were $0.07. QNST isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Robert Amparo: Thank you, operator. And thank you, everyone, for joining us as we report QuinStreet’s fiscal third quarter 2024 financial results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing.

Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today’s earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir.

Doug Valenti: Thank you, Rob. Welcome, everyone. Company revenue grew about 40% sequentially in fiscal Q3, fueled by a significant positive inflection in auto insurance carrier spending, as we had forecast. The ramp of auto insurance carrier spending continued through Q3 and has extended into the current quarter, fiscal Q4. Auto insurance carrier activity and spending are broad-based and continue to be supported by reports of good carrier results. We expect the ramp of auto insurance spending to continue in coming quarters as carriers expand their product and market footprints and are enabled by increased rates and improved profitability. Overall, we expect auto insurance revenue to grow for the foreseeable future as the fundamental shift of budgets to digital and performance marketing reasserts itself as the dominant long-term trend.

Adjusted EBITDA jumped to almost $8 million in FYQ3 due to the leverage from the higher revenue. We expect adjusted EBITDA margin and dollars to continue to grow as revenue continues to ramp. Turning to our outlook for the current quarter, or fiscal Q4, we expect revenue to be between $180 million and $190 million, a quarterly record revenue for QuinStreet and implying year-over-year growth of over 40% at the midpoint of the range. We expect adjusted EBITDA to be between $10 million and $11 million, implying year-over-year growth of over 400%. Our fiscal year 2025 begins this July 1. I would point out that the annual run rate of our fiscal Q4 revenue outlook already implies growth of 20% or more over full fiscal year 2024. We are excited about the size of our market opportunities, about the resilience we have demonstrated in our business, about our plans and initiatives to keep growing revenue and profits into the future, and of course, about our continued strong financial position.

With that, I will turn the call over to Greg.

Greg Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another solid quarter for QuinnStreet. Total revenue was $168.6 million. Adjusted net income was $3.4 million, or $0.06 cents per share. And adjusted EBITDA was $7.9 million. The significant positive inflection in auto insurance client spending has indeed begun. In fiscal Q3, we saw auto insurance revenue continue to ramp throughout the quarter. That said, we are still in the early innings of the re-ramp of auto insurance and continue to expect growth for many quarters ahead. Looking at revenue by client vertical, our financial services client vertical represented 67% of Q3 revenue in those $112 million. Our home services client vertical represented 32% of Q3 revenue and was $54 million, a record quarter for that business.

Other revenue was the remaining $2.4 million of Q3 revenue. Turning to the balance sheet. We closed the quarter with $40 million of cash and equivalents and no bank debt. A more normalized view ending cash balance would be approximately $48 million. We received a payment of approximately $8.5 million two days after quarter end. Moving to our outlook. For fiscal Q4, our June quarter. We expect revenue to be between $180 million and $190 million and adjusted EBITDA to be between $10 million and $11 million. As Doug pointed out, the annual run rate of our fiscal Q4 revenue outlook already implies revenue growth of 20% or more over full fiscal year 2024. We also expect adjusted EBITDA to continue to expand faster than revenue. In closing, our outlook on the business has never been brighter.

We expect a record revenue quarter in fiscal Q4 and further margin expansion. We remain well positioned to benefit from the re-ramp of auto insurance client spending and are seeing continued momentum in our noninsurance client verticals. We expect strong total company revenue growth and adjusted EBITDA expansion driven by our diversified portfolio of client verticals. With that, I’ll turn it over to the operator for Q&A.

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from the line of John Campbell from Stephens. Please go ahead.

Q – John Campbell: Hi, guys. Good afternoon.

A –Doug Valenti: Hi, John

Q – John Campbell: So over the last year, you guys have talked to getting back eventually the 10% EBITDA margins, I guess, as the insurance channel just normalizes, I mean you kind of rebuild the top line scale. I’m not asking you to really pinpoint exactly when all that comes together. But just based on the fixed cost base you guys have now what your — the plans you have to grow it from here. I’m hoping you guys can maybe outline the level or the degree of revenue you need to get back to this kind of low double-digit EBITDA margins?

A –Doug Valenti: Sure . I’d say — hard to pinpoint the exact level of revenue, John, because it depends so much on the mix. As you can see, we’ll get up into the mid- to high single digits in terms of percentage next quarter. And we have a lot of growth beyond that that we can — we could see coming given the demand — that we’re seeing and the initiatives that we have. So again, I’m having a hard time giving you the exact number because in terms of revenue, but it’s not too far off, if that’s helpful. I would say it’s likely to be in — very likely to hit next year, next fiscal year is my opinion, but we’ll have to wait and see what the mix looks like and the planning and the forecast. And of course, we’ll give you a more precise view of that in our next call as we look out to fiscal 2025.

Q – John Campbell: Okay. That’s totally fair. And then, Doug, if you take your guidance, the high end, which you guys have pretty consistently outpaced your high end of your guidance, I mean that puts you well above consensus for next year. Obviously, that’s annualizing that on a kind of an early cycle or early stage of the cycle recovery for insurance. And I think it’s helpful for investors to maybe kind of size up where we’re at as far as that recovery is like you guys mentioned early that can be defined in a couple of different ways, but maybe if you can start off with like the progression in month-to-month increases. I don’t know if you want to get granular to the percent increase, but just maybe broadly the acceleration throughout the month, whether that’s continued in April. And then as you look out past couple of years, where we are coming today versus past prior peaks?

A –Doug Valenti: No, it’s a great question. We did see growth throughout the quarter. February was bigger than January, March is bigger than February. April was bigger than March. We expect May to be bigger than April and June to be only because it has fewer days than it pretty consistent with maybe a little bit higher. And then we — as we look out, we’ve done the early looks at our forecasting over next year. Despite historic seasonality, we expect next fiscal year that we will have sequential growth every quarter. So every quarter will be higher than the quarter before, despite the fact that, as you know, we often have seasonality in both the December and June quarters. So we will overcome — we will be a lot better than seasonality this quarter over last quarter and then we expect that to continue throughout next year.

So it’s a pretty relentless ramp. We have extraordinary activity and demand from the clients and we are all ramping our media and to recover and you regrow it out of the more dormant period we’ve been through as fast as we can. So just a lot of vectors going up into the right. And so the notion of annualizing the fourth quarter just to kind of give you what we are perceived to be a floor, we have a lot more coming not just enough to ensure certainly in our insurance which I know is what you’re asking about, but a lot more coming from the other businesses as well next fiscal year on. I think there was another part of your question though in terms of where we are that they are in terms of the ranking revamp to the previous peaks maybe as part of which I think part of your question, we’re about around 60% impact and from where we bottomed to the previous peak.

So that also gives you a sense for why we are so bullish about what’s coming in the future. And by the way despite that we grew — we’ve now listen to the calls from the other folks in our space of course and we grew much faster in auto insurance sequentially than anybody else. We are well over 100% and we in our forecast is embedded the assumption that again we’ve looked at we’ve listened to the others and looked at their numbers. We will once again grow much faster in auto insurance than they will the exit in the current or our fiscal Q4 or calendar Q2. So we’re doing very well with the ramp and there’s a lot more to come here to hear.

Q – John Campbell: Great to hear. Thanks for all the color. Really appreciate it.

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

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

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