QUINSTREET INC

Previous 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.

Current wording

Our financial services client vertical represented 78% and 77% of net revenue for the three and six months ended December 31, 2024, and 58% of net revenue for both the three and six months ended December 31, 2023. Our home services client vertical represented 21% and 22% of net revenue for the three and six months ended December 31, 2024, and 40% of net revenue for both the three and six months ended December 31, 2023. Other revenue, which primarily includes performance marketing agency and technology services, represented 1% of net revenue for both the three and six months ended December 31, 2024 and 2% of net revenue for both the three and six months ended December 31, 2023. We generated the majority of our revenue from sales to clients in the United States.

Previous 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.

Current wording

Two clients in our financial services client vertical accounted for 23% and 18% of our net revenue for the three months ended December 31, 2024, and 21% and 16% of our net revenue for the six months ended December 31, 2024. No client accounted for 10% or more of our net revenue for both the three and six months ended December 31, 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 have in the past 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 our financial results depend on the performance of the auto insurance industry, which may be affected by macroeconomic conditions, extreme-weather related events and supply chain events existing or occurring from time to time. Specifically, starting in the first half of fiscal 2022, inflation, weather-related and supply chain events led to increases in insurance industry loss ratios, which resulted in our auto insurance industry clients decreasing their advertising spending, which had an adverse effect on our business. Beginning in calendar 2024, the auto insurance industry began to benefit from rate increases and product optimizations which allowed increased advertising spending which resulted in increases in our revenues and reduction to quarterly net losses. Beginning fiscal 2025, excluding charges associated with the increase in the fair value of the contingent consideration for the AquaVida acquisition due to greater than expected performance, we would have reported a return to net income.

Previous wording

One of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us. In order to grow our business, we must be able to find, develop, or acquire and retain quality targeted media on a cost-effective basis. Consolidation of media sources, changes in search engine algorithms and increased competition for available media has, during some periods, limited and may continue to limit our ability to generate revenue at acceptable margins. To offset this impact, we have developed new sources of media, including entering into strategic partnerships with other marketing and media companies and acquisitions. Such partnerships include takeovers of performance marketing functions for large web media properties; backend monetization of unmatched traffic for clients with large media buys; and white label products for other performance marketing companies. We have also focused on growing our revenue from call center, email, mobile and social media traffic sources.

Current wording

One of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us. In order to grow our business, we must be able to find, develop, or acquire and retain quality targeted media on a cost-effective basis. Consolidation of media sources, changes in search engine algorithms and increased competition for available media has, during some periods, limited and may continue to limit our ability to generate revenue at acceptable margins. To offset this impact, we have developed new sources of media, including entering into strategic partnerships with other marketing and media companies and acquisitions. Such partnerships include takeovers of performance marketing functions for large web media properties; backend monetization of unmatched traffic for clients with large media buys; and white label products for other performance marketing companies. We have also focused on growing our revenue from call center, native, email, mobile and social media traffic sources.

Previous 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.

Current wording

Net revenue increased by $159.9 million, or 130%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023. Revenue from our financial services client vertical increased by $148.6 million, or 208%, primarily due to an increase in revenue in our insurance business, which increased by $146.3 million, or 492%, attributable to higher demand from a broad base of carrier clients. Revenue from our home services client vertical increased by $10.2 million, or 21%, 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 $3.1 million of revenue for the three months ended December 31, 2024, as compared to $2.0 million of revenue for the three months ended December 31, 2023.

Previous wording

The increase in gross profit margin was attributable to a decrease in compensation cost and depreciation as percentage of revenue, offset by increases in media and marketing costs as a percentage of revenue due to a higher mix of our financial services client vertical.

Current wording

Cost of revenue increased by $140.0 million, or 121%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily driven by increased media and marketing costs of $136.0 million due to higher revenue volumes, increased personnel costs of $2.8 million mainly attributable to increased annual salary and increased stock-based compensation expense. Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 9% and 6% for the three months ended December 31, 2024, and 2023. The increase in gross profit margin was attributable to a decrease in personnel cost and depreciation as percentage of net revenue, offset by a higher mix of revenue from our financial services client vertical which had a higher media cost as a percentage of revenue.

Previous wording

Cost of revenue increased by $134.5 million, or 116%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by increased media and marketing costs of $131.9 million due to higher revenue volumes, increased personnel costs of $1.2 million mainly attributable to increased stock-based compensation expense, and increased depreciation expense of $1.0 million primarily due to additional capitalization of internally developed software.

Current wording

Cost of revenue increased by $274.6 million, or 118%, for the six months ended December 31, 2024 compared to the six months ended December 31, 2023, primarily driven by increased media and marketing costs of $267.9 million due to higher revenue volumes, increased personnel costs of $4.1 million mainly attributable to increased annual salary and increased stock-based compensation expense, and increased depreciation expense of $1.5 million primarily due to additional capitalization of internally developed software. Gross profit margin was 10% and 6% for the six months ended December 31, 2024 and 2023. The increase in gross profit margin was attributable to a decrease in personnel cost and depreciation as percentage of net revenue, offset by a higher mix of revenue from our financial services client vertical which had a higher media cost as a percentage of revenue.

Previous 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.

Current wording

Sales and marketing expenses increased by $1.8 million, or 53%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to increased personnel cost of $1.7 million due to higher average headcount, increased annual employee compensation expense and increased stock-based compensation expense.

Previous 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.

Current wording

General and administrative expenses increased by $6.7 million, or 88%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to an adjustment to the fair value of contingent consideration of $5.0 million in the second quarter of fiscal year 2025, increased stock-based compensation expense of $0.9 million as a result of an increase in the share price.

Previous 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.

Current wording

The Company recorded a benefit from income taxes of $45 thousand and $94 thousand for the three and six months ended December 2024, and a provision for income taxes of $0.3 million and $1.0 million for the three and six months ended December 31, 2023.

Previous 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.

Current wording

As of December 31, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $57.8 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 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.

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 and six months ended December 31, 2024. As of December 31, 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, 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.

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 provided by operating activities was $25.0 million for the six months ended December 31, 2024, compared to cash used in operating activities of $8.6 million for the six months ended December 31, 2023.

Previous 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.

Current wording

Cash provided by operating activities for the six months ended December 31, 2024 consisted of a net loss of $2.9 million and a net decrease in cash from changes in working capital of $14.9 million, offset by non-cash adjustments of $42.8 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $17.5 million, depreciation and amortization expense of $12.7 million, change in the fair value of contingent consideration of $11.2 million, and provision for sales return and doubtful accounts receivable of $1.8 million. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $40.4 million and an increase in prepaid expenses and other assets of $4.3 million, offset by an increase in accrued liabilities of $22.5 million and an increase in accounts payable of $7.2 million. The increases in accounts receivable, and accrued liabilities and accounts payable were primarily due to higher revenue levels for the six months ended December 31, 2024 as compared to the six months ended December 31, 2023, and timing of receipts and payments.

Previous 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.

Current wording

Cash used in operating activities for the six months ended December 31, 2023 consisted of a net loss of $22.1 million and a net decrease in cash from changes in working capital of $9.2 million, offset by non-cash adjustments of $22.5 million. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $7.4 million and a decrease in accounts payable of $4.7 million, offset by a decrease in prepaid expenses and other assets of $2.0 million. The increase in accounts receivable, and decrease of prepaid expenses and other assets was primarily due to timing of receipts and payments. The decrease in accounts payable was primarily due to lower revenue levels in the two months ended December 31, 2023 as compared to the two months ended December 31, 2022, which led to lower media costs in December 31, 2023. The non-cash adjustments primarily consisted of stock-based compensation expense of $11.3 million, and depreciation and amortization expense of $11.1 million.

Previous 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.

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 $5.4 million for the six months ended December 31, 2024, compared to $9.4 million for the six months ended December 31, 2023.

Previous 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.

Current wording

Cash used in investing activities in the six months ended December 31, 2024 was primarily due to internal software development costs and capital expenditures of $5.4 million.

Previous 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.

Current wording

Cash used in investing activities in the six months ended December 31, 2023 was primarily due to internal software development costs and capital expenditures of $9.4 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. 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.

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 $12.3 million for the six months ended December 31, 2024, compared to $10.2 million for the six months ended December 31, 2023.

Previous 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.

Current wording

Cash used in financing activities in the six months ended December 31, 2024 was due to payment of withholding taxes related to the release of restricted stock, net of share settlement of $8.5 million and payment of post-closing payments and contingent consideration related to acquisitions of $5.1 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan of $1.2 million.

Previous 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.

Current wording

Cash used in financing activities in the six months ended December 31, 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $6.2 million, payment of withholding taxes related to the release of restricted stock, net of share settlement of $3.3 million, and repurchases of common stock of $2.3 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $1.7 million.