QUINSTREET, INC

Previous wording

own or access targeted media through business arrangements (e.g., revenue sharing arrangements with online publisher partners, large and small) or by purchasing media (e.g., clicks from major search engines);

Current wording

own or access targeted media through business arrangements (e.g., revenue sharing arrangements with online publisher partners, large and small) or by purchasing media (e.g., clicks from major search engines, social media platforms and programmatic/display networks);

Previous wording

through technology and analytics, seek to optimize combination of objectives to satisfy the maximum number of shopping or researching visitors or consumers, deliver on client marketing objectives, effectively compete for online media, and generate a sound financial outcome for us.

Current wording

through technology and analytics, seek to optimize a combination of objectives to satisfy the maximum number of shopping or researching visitors or consumers, deliver on client marketing objectives, effectively compete for online media, and generate a sound financial outcome for us.

Previous wording

Our financial services client vertical represented 75% and 64% of net revenue in fiscal years 2025 and 2024. Our home services client vertical represented 24% and 35% of net revenue in fiscal years 2025 and 2024. Other revenue, which primarily includes our performance marketing agency and technology services, represented 1% of net revenue in fiscal years 2025 and 2024. We generated the majority of our revenue from sales to clients in the United States.

Current wording

Our financial services client vertical represented 69% and 75% of net revenue in fiscal years 2026 and 2025. Our home services client vertical represented 31% and 25% of net revenue in fiscal years 2026 and 2025. We generated the majority of our revenue from sales to clients in the United States.

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, CCM, and MBT completed in fiscal year 2019. For detailed information regarding our acquisitions, refer to Note 6, Acquisitionsto our consolidated financial statements.

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, including the acquisitions of HomeBuddy completed in January 2026, 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, CCM, and MBT completed in fiscal year 2019. For detailed information regarding our recent acquisition, refer to Note 6, Acquisitionsto our consolidated financial statements.

Previous wording

Our business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical. All remaining businesses that are not significant enough for separate reporting are included in other revenue.

Current wording

Our business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical.

Previous wording

Cost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to strategic partners that are directly related to a revenue-generating event and of pay-per-click, or PPC, ad purchases from Internet search companies. We pay these third-party publishers, media owners or managers, strategic partners and Internet search companies on a revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, basis. Personnel costs include salaries, stock-based compensation expense, bonuses, commissions and related taxes, and employee benefit costs. Personnel costs are primarily related to individuals associated with maintaining our servers and websites, our call center operations, our editorial staff, client management, creative team, content, compliance group and media purchasing analysts. Costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software’s estimated useful life.

Current wording

Cost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to strategic partners that are directly related to a revenue-generating event and of pay-per-click, or PPC, ad purchases from Internet search companies. We pay these third-party publishers, media owners or managers, strategic partners and Internet search companies on a revenue-share, a cost-per-lead, or CPL, cost-per-click, or CPC, or cost-per-action, CPA basis. Personnel costs include salaries, stock-based compensation expense, bonuses, commissions and related taxes, and employee benefit costs. Personnel costs are primarily related to individuals associated with maintaining our servers and websites, our call center operations, our editorial staff, client management, creative team, content, compliance group and media purchasing analysts. Costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software’s estimated useful life.

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.

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, bad debt expense, and fair value adjustments to contingent consideration related to the AquaVida acquisition.

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 June 30, 2025; 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 impairment charge for investment in equity securities, 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 interest and fees related to our credit facility, and imputed interest on post-closing payments related to our acquisitions. Borrowings under our credit facility and related interest expense could increase (or decrease) as we continue to implement our acquisition strategy and draw down, or repay on the facility, or if our interest rates increase or decrease due to market factors or our operating performance. 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 impairment charge for investment in equity securities, gains and losses on foreign currency exchange, and other non-operating items.

Previous wording

We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our limited non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.

Current wording

We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.

Previous wording

Net revenue increased by $480.2 million, or 78%, in fiscal year 2025 compared to fiscal year 2024. Revenue from our financial services client vertical increased by $424.6 million, or 108%, primarily due to an increase in revenue in our insurance business, which increased by $414.4 million, or 200%, attributable to higher demand from a broad base of carrier clients. In addition, there was an increase in net revenue in our banking businesses of $7.6 million and credit cards business of $4.1 million due to increased media and client budgets. Revenue from our home services client vertical increased by $49.9 million, or 24%, primarily as a result of increased client budgets and successful execution of our growth initiatives. Other revenue increased by $5.8 million, or 64%, which primarily includes performance marketing agency and technology services.

Current wording

Net revenue increased by $200.0 million, or 18%, in fiscal year 2026 compared to fiscal year 2025. Revenue from our home services client vertical increased by $128.8 million, or 47%, primarily as a result of the acquisition of HomeBuddy, which contributed $88.9 million in net revenue, in addition to increased client budgets, and successful execution of growth initiatives. Revenue from our financial services client vertical increased by $71.2 million, or 9%, primarily due to an increase in revenue in our insurance business of $79.0 million, attributable to higher demand from a broad base of carrier clients, offset by a decrease in our other financial services client verticals of $7.8 million.

Previous wording

Cost of revenue increased by $415.6 million, or 73%, in fiscal year 2025 compared to fiscal year 2024. This was primarily driven by increased media and marketing costs of $406.8 million due to higher revenue volumes. Personnel costs increased by $5.9 million mainly due to higher stock-based compensation expense due to higher average grant date share prices in the current year.

Current wording

Cost of revenue increased by $165.1 million, or 17%, in fiscal year 2026 compared to fiscal year 2025. This was primarily driven by increased media and marketing costs of $161.4 million due to higher revenue volumes. Personnel costs increased by $5.1 million mainly due to higher stock-based compensation expense due to higher average grant date share prices in the current year.

Previous wording

Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 10% and 8% in fiscal years 2025 and 2024. Our gross profit was $110.9 million for fiscal year 2025 compared to $46.2 million for fiscal year 2024, an increase of $64.6 million, or 140%. 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.

Current wording

Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 11% and 10% in fiscal years 2026 and 2025. Our gross profit was $145.8 million for fiscal year 2026 compared to $110.9 million for fiscal year 2025, an increase of $34.9 million, or 32%. The increase in gross profit margin was attributable to a decrease in personnel cost and depreciation cost as a percentage of net revenue, partially offset by an increase in media and marketing costs as a percentage of net revenue.

Previous wording

We define adjusted EBITDA as net income (loss) less depreciation and amortization expense, stock-based compensation expense, interest and other expense, net, provision for (benefit from) income taxes, restructuring costs, acquisition costs, litigation settlement expense, tax settlement expense, and contingent consideration adjustment.

Current wording

We define adjusted EBITDA as net income (loss) excluding depreciation and amortization expense, stock-based compensation expense, interest and other expense, net, provision for (benefit from) income taxes, restructuring costs, acquisition costs, litigation settlement expense, and contingent consideration adjustment.

Previous wording

We use adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates or fluctuations in permanent differences or discrete quarterly items), non-recurring charges and certain other items that we do not believe are indicative of our core operating activities (such as acquisition related expense, contingent consideration adjustment, litigation settlement expense, tax settlement expense, restructuring costs, and other expense, net) and the non-cash impact of depreciation and amortization expense and stock-based compensation expense.

Current wording

We use adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates or fluctuations in permanent differences or discrete quarterly items), non-recurring charges and certain other items that we do not believe are indicative of our core operating activities (such as acquisition related expense, contingent consideration adjustment, litigation settlement expense, restructuring costs, and other expense, net) and the non-cash impact of depreciation and amortization expense and stock-based compensation expense.

Previous wording

should we enter into borrowing arrangements in the future, adjusted EBITDA does not reflect the interest expense or the cash requirements that may be necessary to service interest or principal payments on such indebtedness;

Current wording

adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on indebtedness;

Previous wording

As of June 30, 2025, our principal sources of liquidity consisted of cash and cash equivalents of $101.1 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 June 30, 2026, our principal sources of liquidity consisted of cash and cash equivalents of $128.3 million, cash we expect to generate from future operations, and our $150.0 million Revolving Credit Facility, from which we have drawn $70.0 million. 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

Our short-term and long-term liquidity requirements primarily arise from our working capital requirements, capital expenditures, internal software development costs, repurchases of our common stock, and acquisitions from time to time. Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date. Our primary operating cash requirements include the payment of media costs, personnel costs, costs of information technology systems and office facilities. Our ability to fund these requirements will depend on our future cash flows, which are determined, in part, by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons.

Current wording

Our short-term and long-term liquidity requirements primarily arise from our working capital requirements, capital expenditures, internal software development costs, repurchases of our common stock, debt service and commitment fees on our $150.0 million revolving credit facility, and acquisitions from time to time. Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date. For example, on January 2, 2026, we completed the acquisition of HomeBuddy, pursuant to which we paid $114.8 million in cash at closing and we are obligated to pay $75.0 million in additional post-closing payments, payable in equal annual installments over a four-year period. Our primary operating cash requirements include the payment of media costs, personnel costs, costs of information technology systems and office facilities. Our ability to fund these requirements will depend on our future cash flows, which are determined, in part, by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control, and also our ability to access our revolving credit facility. Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain additional debt financing, issue additional equity securities or draw down on or increase our borrowing capacity under our current revolving credit facility for other reasons.

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. In fiscal year 2024, we repurchased and retired 247,618 shares of our common stock at an average price of $8.85 per share at a total cost of $2.2 million (including a broker commission of $0.03 per share). 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 fiscal year 2025. As of June 30, 2025, approximately $16.8 million remained available for stock repurchases pursuant to the board authorization.

Current wording

In April 2022, the Board of Directors authorized the 2022 Stock Repurchase Program allowing the repurchase of up to $40.0 million worth of common stock. During the second quarter of fiscal year 2026, the Company had fully utilized the $40.0 million authorized for repurchase under the 2022 Stock Repurchase Program. In October 2025, the Board of Directors authorized the 2025 Stock Repurchase Program allowing the Company to repurchase up to $40.0 million of the outstanding shares of common stock. In fiscal year 2026, the Company repurchased and retired 2,308,491 shares of our common stock at an average price of $13.59 per share, at a total cost of $31.4 million (including a broker commission of $0.03 per share). Repurchases under these programs took place in the open market. The repurchased shares of common stock were recorded as treasury stock and were accounted for under the cost method. As of June 30, 2026, approximately $25.4 million remained available for stock repurchases pursuant to the board authorization. There were no repurchases made during the fiscal year 2025.

Previous wording

We believe that our principal sources of liquidity will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and thereafter for the foreseeable future.

Current wording

We believe that our existing cash, cash equivalents, cash we expect to generate from future operations, and our available borrowings under our revolving credit facility will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and thereafter for the foreseeable future.

Previous wording

Cash flows from operating activities are primarily the result of our net (loss) income 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, impairment of investment in equity securities and changes in working capital components. Cash provided by operating activities was $85.0 million in fiscal year 2025, compared to $12.0 million in fiscal year 2024 and $11.8 million in fiscal year 2023.

Current wording

Cash flows from operating activities generally include our net income 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 $131.3 million in fiscal year 2026, compared to $85.0 million in fiscal year 2025 and $12.0 million in fiscal year 2024.

Previous wording

Cash provided by operating activities in fiscal year 2024 consisted of a net loss of $31.3 million, adjusted for non-cash adjustments of $50.4 million, and a net decrease in cash from changes in working capital of $7.0 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $23.7 million, depreciation and amortization expense of $24.0 million, and impairment charge for investment in equity securities of $2.0 million. The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $44.9 million, offset by an increase in accounts payable of $10.5 million, an increase in accrued liabilities of $25.4 million, and a decrease in prepaid expenses and other current assets of $3.0 million. The increases in accounts receivable, accrued liabilities and accounts payable were primarily due to higher revenue levels in the two months ended June 30, 2024 as compared same period in prior year, and the timing of receipts and payments. The decrease in prepaid expenses and other current assets was primarily due to decreased prepayments made to third-party publishers and lower amortization expense.

Current wording

Cash provided by operating activities in fiscal year 2026 consisted of a net income of $81.2 million, non-cash adjustments of $21.3 million, and a net increase in cash from changes in working capital of $28.7 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $37.4 million, and depreciation and amortization expense of $25.2 million, offset by a one-time non-cash benefit of $60.7 million related to our release of the valuation allowance for the majority of our federal and certain state deferred tax assets. The changes in working capital accounts were primarily attributable to an increase in accrued liabilities and accounts payable of $66.7 million, offset by an increase in accounts receivable of $41.7 million. The increases in working capital accounts were primarily due to higher revenue levels in fiscal year 2026 as compared to the same period in prior year, and the timing of receipts and payments.

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 $11.4 million in fiscal year 2025, compared to $22.7 million in fiscal year 2024 and $15.1 million in fiscal year 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 $118.6 million in fiscal year 2026, compared to $11.4 million in fiscal year 2025 and $22.7 million in fiscal year 2024.

Previous wording

Cash flows from financing activities generally include post-closing payments related to business acquisitions, payment of withholding taxes related to the release of restricted stock, net of share settlement, repurchases of common stock, proceeds from issuance of common stock under employee stock purchase plan and exercise of stock options. Cash used in financing activities was $23.0 million in fiscal year 2025, compared to $12.5 million in fiscal year 2024 and $19.5 million in fiscal year 2023.

Current wording

Cash flows from financing activities generally include post-closing payments related to business acquisitions, payment of withholding taxes related to the release of restricted stock, net of share settlement, repurchases of common stock, proceeds from issuance of common stock under employee stock purchase plan and exercise of stock options, and borrowing from time to time. Cash provided by financing activities was $14.5 million in fiscal year 2026, compared to cash used in financing activities of $23.0 million in fiscal year 2025 and $12.5 million in fiscal year 2024.

Previous wording

Cash used in financing activities in fiscal year 2024 was due to payment of post-closing payments and contingent consideration related to acquisitions of $7.0 million, payment of withholding taxes related to the release of restricted stock, net of share settlement of $6.7 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 $3.5 million.

Current wording

Cash provided by financing activities in fiscal year 2026 was primarily due to the borrowings of $70.0 million under the Revolving Credit Facility to partially fund the HomeBuddy acquisition and proceeds from the issuance of common stock under the employee stock purchase plan of $3.2 million, offset by repurchase of common stock of $31.4 million, payment of post-closing payments and contingent consideration related to acquisitions of $14.0 million, and payment of withholding taxes related to the release of restricted stock, net of share settlement of $11.4 million.

Previous wording

In February 2010, we entered into a lease agreement and into a subsequent lease amendment in April 2018 for our corporate headquarters located at 950 Tower Lane, Foster City, California. In March 2023, the lease agreement was further amended, pursuant to which the corporate headquarters will be relocated to a different floor within the same building upon the expiration of the existing lease. The amended agreement commenced in fiscal year 2024, with a lease term of five years and one option to extend the term of the lease for an additional three years.

Current wording

In February 2010, we entered into a lease agreement and into a subsequent lease amendment in April 2018 for our corporate headquarters located at 950 Tower Lane, Foster City, California. In March 2023, the lease agreement was further amended, pursuant to which the corporate headquarters was relocated to a different floor within the same building upon the expiration of the existing lease. The amended agreement commenced in fiscal year 2024, with a lease term of five years and an option to extend the term of the lease for an additional three years.

Previous wording

The above table does not include approximately $2.8 million of long-term income tax liabilities as of June 30, 2025 for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing and amount of these potential future payments.

Current wording

The above table does not include approximately $2.9 million of long-term income tax liabilities as of June 30, 2026 for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing and amount of these potential future payments.

Previous wording

The Company accounts for income taxes using an asset and liability approach to record deferred taxes. The Company’s deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. The Company regularly assess the realizability of our deferred tax assets. Judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate. The Company considers all available evidence, both positive and negative, to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating the need, or continued need, for a valuation allowance The Company considers, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, forecasts of future profitability, and the duration of statutory carryforward periods. Our judgment regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.

Current wording

We account for income taxes using an asset and liability approach to record deferred taxes. Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. We regularly assess the realizability of our deferred tax assets. Judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate. We consider all available evidence, both positive and negative, to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating the need, or continued need, for a valuation allowance We consider, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, forecasts of future profitability, and the duration of statutory carryforward periods. Our judgment regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.

Previous wording

The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.

Current wording

We recognize tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.

Previous wording

We account for business combinations using the acquisition method, which requires that the total consideration for each of the acquired business be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Current wording

We account for business combinations using the acquisition method, which requires that the total consideration for each acquired business be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Previous wording

In determining the fair value of assets acquired and liabilities assumed in a business combination, we used the income approach to value our most significant acquired assets. Significant assumptions relating to our estimates in the income approach include base revenue, revenue growth rate net of client attrition, projected gross margin, discount rates, projected operating expenses and the future effective income tax rates. The valuations of our acquired businesses have been performed by a third-party valuation specialist under our management’s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and comprehensive loss and may have a material effect on our financial condition and operating results.

Current wording

In determining the fair value of assets acquired and liabilities assumed in a business combination, we used the income approach to value our most significant acquired assets. Significant assumptions relating to our estimates in the income approach include base revenue, revenue growth rate net of client attrition, projected gross margin, discount rates, projected operating expenses and the future effective income tax rates. The valuations of our acquired businesses have been performed by a third-party valuation specialist under our management’s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and comprehensive income (loss) and may have a material effect on our financial condition and operating results.