QUINSTREET INC

Previous wording

We deliver measurable and cost-effective marketing results to our clients, typically in the form of qualified inquiries such as clicks, leads, calls, applications, or customers. Clicks, leads, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them. We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us. To deliver clicks, leads, calls, applications, and customers to our clients, generally we:

Current wording

We deliver measurable and cost-effective marketing results to our clients, typically in the form of qualified inquiries such as clicks, leads, calls, applications, or customers. Clicks, leads, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them. We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us. To deliver clicks, leads, calls, applications, and customers to our clients, generally we:

Previous wording

Our financial services client vertical represented 67% and 62% of net revenue for the three and nine months ended March 31, 2024 and 70% and 68% of net revenue for the three and nine months ended March 31, 2023. Our home services client vertical represented 32% and 37% of net revenue for the three and nine months ended March 31, 2024 and 29% and 31% of net revenue for the three and nine months ended March 31, 2023. Other revenue, which primarily includes performance marketing agency and technology services, represented 1% of net revenue for both three and nine months ended March 31, 2024 and 2023. We generated the majority of our revenue from sales to clients in the United States.

Current wording

Our financial services client vertical represented 76% and 58% of net revenue for the three months ended September 30, 2024 and 2023. Our home services client vertical represented 23% and 40% of net revenue for the three months ended September 30, 2024 and 2023. Other revenue, which primarily includes performance marketing agency and technology services, represented 1% and 2% of net revenue for the three months ended September 30, 2024 and 2023. We generated the majority of our revenue from sales to clients in the United States.

Previous wording

One client in our financial services client vertical accounted for 15% of our net revenue for the three months ended March 31, 2024 and no clients accounted for more than 10% of net revenue for the nine months ended March 31, 2024. The same client accounted for 25% and 23% of net revenue for the three and nine months ended March 31, 2023. No other client accounted for 10% or more of our net revenue for the three and nine months ended March 31, 2024 or 2023.

Current wording

Two clients in our financial services client vertical accounted for 20% and 14% of our net revenue for the three months ended September 30, 2024, and no client accounted for 10% or more of our net revenue for the three months ended September 30, 2023.

Previous wording

In addition, within our financial services client vertical, we derive a significant amount of revenue from auto insurance carriers and the financial results depend on the performance of the auto insurance industry. For example, inflation, weather-related and supply chain events have led to increases in insurance industry loss ratios, which decreased our clients’ advertising spending and thereby had a material adverse effect on our business.

Current wording

In addition, within our financial services client vertical, we derive a significant amount of revenue from auto insurance carriers and the financial results depend on the performance of the auto insurance industry. For example, inflation, weather-related and supply chain events have led to increases in insurance industry loss ratios, which have in the past decreased our clients’ advertising spending and thereby had a material adverse effect on our business.

Previous wording

Our business also benefits from more spending by clients in digital media and performance marketing as digital marketing continues to evolve.

Current wording

All of our businesses also benefit from more spending by clients in digital media and performance marketing as digital marketing continues to evolve.

Previous wording

Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. We have completed several strategic acquisitions in the past, including the acquisitions of BestCompany and AquaVida completed in fiscal year 2024, the acquisitions of Modernize, Mayo Labs and FCE completed in fiscal year 2021, and the acquisitions of AmOne Corp. (“AmOne”), CloudControlMedia, LLC (“CCM”) and MyBankTracker.com, LLC (“MBT”) completed in fiscal year 2019.

Current wording

Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. We have completed several strategic acquisitions in the past, including the acquisitions of BestCompany and AquaVida completed in fiscal year 2024, the acquisitions of Modernize, Mayo Labs, LLC (“Mayo Labs”) and FC Ecosystem, LLC (“FCE”) completed in fiscal year 2021, and the acquisitions of AmOne Corp. (“AmOne”), CCM and MyBankTracker.com, LLC (“MBT”) completed in fiscal year 2019.

Previous wording

Clients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations. The effect of these regulations, or any future regulations, may continue to result in fluctuations in the volume and mix of our business with these clients.

Current wording

Some of our clients have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations. The effect of these regulations, or any future regulations, may continue to result in fluctuations in the volume and mix of our business with these clients.

Previous wording

Product Development. Product development expenses consist primarily of personnel costs, facilities fees and professional services fees related to the development and maintenance of our products and media management platform. We are constraining expenses generally to the extent practicable.

Current wording

Product Development. Product development expenses consist primarily of personnel costs, facilities fees and professional services fees related to the development and maintenance of our products and media management platform.

Previous wording

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, facilities fees and professional services fees. We are constraining expenses generally to the extent practicable.

Current wording

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, facilities fees and professional services fees.

Previous wording

General and Administrative. General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense. We are constraining expenses generally to the extent practicable.

Current wording

General and Administrative. General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense.

Previous wording

Interest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense. Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as of March 31, 2024; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing. Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested. Other expense and income includes impairment of investment, gains and losses on foreign currency exchange, and other non-operating items.

Current wording

Interest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense. Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as of September 30, 2024; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing. Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested. Other (expense) income, net includes gains and losses on foreign currency exchange, and other non-operating items.

Previous wording

Net revenue decreased by $4.1 million, or 2%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Revenue from our financial services client vertical decreased by $8.0 million, or 7%, primarily due to a decrease in revenue in our insurance business associated with decreased spending by certain insurance carriers to address profitability concerns caused by inflation and higher costs to repair and replace vehicles. Revenue from our home services client vertical increased by $3.6 million, or 7%, primarily as a result of increased client budgets and successful execution of growth initiatives. Other revenue, which primarily includes performance marketing agency and technology services, contributed $2.4 million of revenue for the three months ended March 31, 2024, as compared to $2.2 million of revenue for the three months ended March 31, 2023.

Current wording

Net revenue increased by $155.3 million, or 125%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Revenue from our financial services client vertical increased by $138.8 million, or 192%, primarily due to an increase in revenue in our insurance business attributable to higher demand from a broad base of carrier clients, as well as increases in revenue in our credit card and banking businesses due to increased media and client budgets. Revenue from our home services client vertical increased by $15.7 million, or 32%, primarily as a result of increased client budgets and successful execution of growth initiatives. Other revenue, which primarily includes performance marketing agency and technology services, contributed $3.3 million of revenue for the three months ended September 30, 2024, as compared to $2.4 million of revenue for the three months ended September 30, 2023.

Previous wording

General and administrative expenses increased by $1.0 million, or 5%, for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023, primarily due to increased stock-based compensation expense as a result of an increase in the share price.

Current wording

Product development expenses increased by $1.0 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to increased personnel cost of $1.1 million due to higher average headcount, annual salary increase and increased stock-based compensation expense.

Previous wording

Sales and marketing expenses increased by $0.4 million, or 4%, for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023, primarily due to increased personnel costs as a result of higher headcount and increased stock-based compensation expense.

Current wording

Sales and marketing expenses increased by $1.0 million, or 33%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to increased personnel cost of $1.1 million due to higher average headcount, annual salary increase and increased stock-based compensation expense.

Previous wording

General and administrative expenses increased by $1.2 million, or 17%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to increased stock-based compensation expense of $1.0 million as a result of an increase in the share price.

Current wording

General and administrative expenses increased by $10.1 million, or 148%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an adjustment to the fair value of contingent consideration of $6.2 million in the first quarter of fiscal year 2025, increased stock-based compensation expense of $1.6 million as a result of an increase in the share price and increased bad debt expense of $1.3 million.

Previous wording

The Company recorded a benefit from income taxes of $0.6 million and a provision for income taxes of $0.4 million for the three and nine months ended March 31, 2024 and a benefit of $1.1 million and $3.1 million for the three and nine months ended March 31, 2023. Given the recording of the valuation allowance against deferred tax assets in the fourth quarter of 2023, the Company no longer records a benefit for the losses generated in the United States. The tax benefit for the third quarter of 2024 was primarily related to the foreign operations and the tax amortization of goodwill. The tax benefit in the third quarter of 2023 was related to losses of the Company and the foreign operations.

Current wording

The Company recorded a benefit from income taxes of $49 thousand and a provision for income taxes of $0.8 million for the three months ended September 30, 2024 and 2023.

Previous wording

The Company performed an assessment on the likelihood of realizing the benefits of its deferred tax assets. As of March 31, 2024, the Company has concluded that it is not more likely than not that the Company would be able to utilize the majority of the deferred tax assets based on available evidence primarily related to historic losses and projected income. However, if there are favorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not that such deferred tax assets may be realizable and record a material non-cash income tax benefit.

Current wording

As of September 30, 2024, the Company has concluded that it is not more likely than not that the Company would be able to utilize the majority of the deferred tax assets based on available evidence primarily related to historic losses and projected income. However, if there are favorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not that such deferred tax assets may be realizable and record a material non-cash income tax benefit.

Previous wording

As of March 31, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $39.6 million and cash we expect to generate from future operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.

Current wording

As of September 30, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $25.0 million and cash we expect to generate from future operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.

Previous wording

In April 2022, our Board of Directors canceled our prior stock repurchase program that commenced in July 2017 and authorized a new stock repurchase program allowing the repurchase of up to $40.0 million worth of common stock. We repurchased and retired 177,511 shares and 70,107 shares of our common stock at an average price of $8.86 per share and $8.84 per share, at a total cost of $1.6 million and $0.6 million (including a broker commission of $0.03 per share) in the first and second quarter of fiscal year 2024. Repurchases under this program took place in the open market and were made under a Rule 10b5-1 plan. The repurchased shares of common stock were recorded as treasury stock and were accounted for under the cost method. There were no repurchases made during the three months ended March 31, 2024. As of March 31, 2024, approximately $16.8 million remained available for stock repurchases pursuant to the board authorization.

Current wording

In April 2022, our Board of Directors authorized a new stock repurchase program allowing the repurchase of up to $40.0 million worth of common stock. There were no repurchases made during the three months ended September 30, 2024. As of September 30, 2024, approximately $16.8 million remained available for stock repurchases pursuant to the board authorization.

Previous wording

Cash flows from operating activities are primarily the result of our net loss adjusted for depreciation and amortization, impairment of investment, benefit from or provision for sales returns and doubtful accounts receivable, stock-based compensation expense, non-cash lease expense, deferred income taxes, and changes in working capital components.

Current wording

Cash flows from operating activities are primarily the result of our net loss adjusted for depreciation and amortization, change in the fair value of contingent consideration, provision for sales returns and doubtful accounts receivable, stock-based compensation expense, non-cash lease expense, deferred income taxes, and changes in working capital components. Cash used in operating activities was $13.7 million for the three months ended September 30, 2024, compared to $5.0 million for the three months ended September 30, 2023.

Previous wording

Cash used in operating activities for the nine months ended March 31, 2024 consisted of a net loss of $29.2 million, offset by non-cash adjustments of $37.4 million, and a net decrease in cash from changes in working capital of $12.8 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $18.1 million, depreciation and amortization expense of $17.3 million, and impairment of investment of $2.0 million. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $32.6 million, offset by an increase in accrued liabilities of $14.9 million, a decrease in prepaid expenses and other assets of $2.5 million, and an increase in accounts payable of $2.3 million. The increases in accounts receivable and accrued liabilities and accounts payable were primarily due to higher revenue levels for the two months ended March 31, 2024 as compared to two months ended June 30, 2023, and timing of receipts and payments. The decrease in prepaid expenses and other assets was primarily due to higher amortization expense.

Current wording

Cash used in operating activities for the three months ended September 30, 2024 consisted of a net loss of $1.4 million and a net decrease in cash from changes in working capital of $34.3 million, offset by non-cash adjustments of $22.0 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $8.4 million, depreciation and amortization expense of $6.4 million, and provision for sales return and doubtful accounts receivable of $1.5 million. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $63.6 million and an increase in prepaid expenses and other assets of $0.8 million, offset by an increase in accrued liabilities of $17.6 million and an increase in accounts payable of $12.3 million. The increases in accounts receivable, and accrued liabilities and accounts payable were primarily due to higher revenue levels for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, and timing of receipts and payments.

Previous wording

Cash used in operating activities for the nine months ended March 31, 2023 consisted of a net loss of $13.0 million, offset by non-cash adjustments of $26.8 million, and a net decrease in cash from changes in working capital of $19.9 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $16.1 million, depreciation and amortization expense of $14.0 million, and an increase in deferred tax assets of $3.3 million primarily due to benefit from income taxes recorded for the first three quarters of fiscal year 2023. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $25.1 million and an increase in prepaid expenses and other assets of $3.8 million, offset by an increase in accrued liabilities of $10.9 million. The increases in accounts receivable and accrued liabilities were primarily due to higher revenue levels for the two months ended March 31, 2023 as compared to the two months ended June 30, 2022, and the timing of receipts and payments. The increase in prepaid expenses and other assets was primarily due to increased prepayments made to third-party publishers.

Current wording

Cash used in operating activities for the three months ended September 30, 2023 consisted of a net loss of $10.6 million and a net decrease in cash from changes in working capital of $5.2 million, offset by non-cash adjustments of $10.8 million. The changes in working capital accounts were primarily attributable to a decrease in accounts payable of $3.6 million and a decrease in accrued liabilities of $2.5 million. The decrease in accounts payable was primarily due to lower marketing and media costs and lower operating expenses. The decrease in accrued liabilities was primarily due to the payment of fiscal year 2023 incentive compensation. The non-cash adjustments primarily consisted of depreciation and amortization expense of $5.3 million, stock-based compensation expense of $5.3 million.

Previous wording

Cash flows from investing activities generally include capital expenditures, capitalized internal software development costs, and acquisitions from time to time.

Current wording

Cash flows from investing activities generally include capital expenditures, capitalized internal software development costs, and acquisitions from time to time. Cash used in investing activities was $2.6 million for the three months ended September 30, 2024, compared to $5.1 million for the three months ended September 30, 2023.

Previous wording

Cash used in investing activities in the nine months ended March 31, 2023 was primarily due to capital expenditures and internal software development costs of $10.5 million.

Current wording

Cash used in investing activities in the three months ended September 30, 2024 was primarily due to internal software development costs of $2.2 million and capital expenditures of $0.4 million.

Previous wording

Cash used in investing activities in the nine months ended March 31, 2024 was primarily due to internal software development costs of $8.9 million, $4.5 million cash paid at the closing of acquisitions completed in the third quarter of fiscal year 2024, capital expenditures of $4.2 million, and other investing activities of $1.5 million.

Current wording

Cash used in investing activities in the three months ended September 30, 2023 was primarily due to internal software development costs of $3.5 million and capital expenditures of $1.6 million.

Previous wording

Cash flows from financing activities generally include repurchases of common stock, payment of withholding taxes related to the release of restricted stock, net of share settlement, proceeds from the exercise of stock options and issuance of common stock under employee stock purchase plan, and post-closing payments related to business acquisitions.

Current wording

Cash flows from financing activities generally include repurchases of common stock, payment of withholding taxes related to the release of restricted stock, net of share settlement, proceeds from the exercise of stock options and issuance of common stock under employee stock purchase plan, and post-closing payments related to business acquisitions. Cash used in financing activities was $9.2 million for the three months ended September 30, 2024, compared to $7.3 million for the three months ended September 30, 2023.

Previous wording

Cash used in financing activities in the nine months ended March 31, 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $10.4 million, repurchases of common stock of $4.7 million, and payment of withholding taxes related to the release of restricted stock, net of share settlement of $4.7 million, offset by proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan of $3.2 million.

Current wording

Cash used in financing activities in the three months ended September 30, 2024 was due to payment of withholding taxes related to the release of restricted stock, net of share settlement of $5.4 million and payment of post-closing payments and contingent consideration related to acquisitions of $5.1 million, offset by proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan of $1.4 million.

Previous wording

Cash used in financing activities in the nine months ended March 31, 2024 was due to payment of post-closing payments and contingent consideration related to acquisitions of $6.6 million, payment of withholding taxes related to the release of restricted stock, net of share settlement of $4.9 million, and repurchases of common stock of $2.3 million, offset by proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan of $3.3 million.

Current wording

Cash used in financing activities in the three months ended September 30, 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $5.3 million, payment of withholding taxes related to the release of restricted stock, net of share settlement of $2.2 million, and repurchases of common stock of $1.4 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $1.6 million.