PR Newswire | Feb 3, 2021 04:06PM EST

02/03 15:05 CST

QuinStreet Reports Second Quarter Fiscal Year 2021 Results- Reports record fiscal Q2 revenue of $135.0 million- Grows revenue excluding divested businesses 36% year-over-year- Delivers Auto Insurance revenue growth of 57% year-over-year- Outperforms expectations for Modernize Home Services acquisition- Expects momentum and strong performance to continue- Guides to all-time record quarterly revenue in fiscal Q3 FOSTER CITY, Calif., Feb. 3, 2021

FOSTER CITY, Calif., Feb. 3, 2021 /PRNewswire/ -- QuinStreet, Inc. (Nasdaq: QNST), a leader in performance marketplace technologies and services for the financial services and home services industries, today announced financial results for the fiscal second quarter ended December 31, 2020.

For the second quarter, the Company reported revenue of $135.0 million.

Revenue excluding divested businesses grew 36% year-over-year.

GAAP net income was $0.5 million, or $0.01 per diluted share. Adjusted net income was $7.0 million, or $0.13 per diluted share.

Adjusted EBITDA was $10.0 million.

The Company generated $5.6 million in operating cash flow and $7.5 million in normalized free cash flow, and closed the quarter with $102.6 million in cash and equivalents.

"Our strong momentum continued in fiscal Q2, driven by Insurance and Home Services, our two largest businesses," commented Doug Valenti, QuinStreet CEO. "Auto Insurance revenue once again grew 57% year-over-year as we continued to see unprecedented and broadening demand from clients, growth in consumer activity in digital media, and good progress with growth initiatives. Home Services growth accelerated year-over-year to 165% due to continued successful execution of initiatives, and ahead-of-schedule integration and synergies with the Modernize acquisition."

"Trends in credit-driven businesses, specifically Personal Loans and Credit Cards, continued to improve in fiscal Q2."

"Looking ahead to the current quarter or fiscal Q3, we expect continued strong momentum and revenue growth in Insurance and Home Services, and continued improvement in Personal Loans and Credit Cards. We expect continued strong overall Company performance as a result. We expect revenue in fiscal Q3 to be between $145 and $150 million which, at the midpoint of the range, represents 34% year-over-year growth in revenue excluding divested businesses. We expect adjusted EBITDA to be between $13 and $14 million," concluded Valenti.

Conference Call Today at 2:00 p.m. PTThe Company will host a conference call and corresponding live webcast at 2:00 p.m. PT. To access the conference call dial +1 866-248-8441 (domestic) or +1 323-289-6576 (international callers) using passcode #1730393. A replay of the conference call will be available beginning approximately two hours after the completion of the call by dialing +1 888-203-1112 (domestic) or +1 719-457-0820 (international callers) and using passcode #1730393. The webcast of the conference call will be available live and via replay on the investor relations section of the Company's website at http://investor.quinstreet.com.

About QuinStreetQuinStreet, Inc. (Nasdaq: QNST) is a leader in performance marketplace technologies and services for the financial services and home services industries. QuinStreet is a pioneer in delivering online marketplace solutions to match searchers with brands in digital media, and is committed to providing consumers with the information and tools they need to research, find and select the products and brands that meet their needs.

Non-GAAP Financial Measures and Definitions of Client VerticalsThis release and the accompanying tables include a discussion of adjusted EBITDA, adjusted net income, adjusted diluted net income per share and free cash flow and normalized free cash flow, all of which are non-GAAP financial measures that are provided as a complement to results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The term "adjusted EBITDA" refers to a financial measure that we define as net income less (benefit from) provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other expense, net, acquisition and divestiture costs, gain on divestitures of businesses, net, strategic review costs, contingent consideration adjustment, litigation settlement expense, and restructuring costs. The term "adjusted net income" refers to a financial measure that we define as net income adjusted for amortization expense, stock-based compensation expense, acquisition and divestiture costs, gain on divestitures of businesses, net, strategic review costs, contingent consideration adjustment, litigation settlement expense, and restructuring costs, net of estimated taxes. The term "adjusted diluted net income per share" refers to a financial measure that we define as adjusted net income divided by weighted average diluted shares outstanding. The term "free cash flow" refers to a financial measure that we define as net cash provided by operating activities, less capital expenditures and internal software development costs. The term "normalized free cash flow" refers to free cash flow less changes in operating assets and liabilities. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. In addition, our definition of adjusted EBITDA, adjusted net income, adjusted diluted net income per share and free cash flow and normalized free cash flow may not be comparable to the definitions as reported by other companies.

We believe adjusted EBITDA, adjusted net income and adjusted diluted net income per share are relevant and useful information because they provide us and investors with additional measurements to analyze the Company's operating performance.

Adjusted EBITDA is useful to us and investors because (i) we seek to manage our business to a level of adjusted EBITDA as a percentage of net revenue, (ii) it is used internally by us for planning purposes, including preparation of internal budgets; to allocate resources; to evaluate the effectiveness of operational strategies and capital expenditures as well as the capacity to service debt, (iii) it is a key basis upon which we assess our operating performance, (iv) it is one of the primary metrics investors use in evaluating Internet marketing companies, (v) it is a factor in determining compensation, (vi) it is an element of certain financial covenants under our historical borrowing arrangements, and (vii) it is a factor that assists investors in the analysis of ongoing operating trends. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance, debt-service capabilities and as a metric for analyzing company valuations.

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, certain other items that we do not believe are indicative of core operating activities (such as litigation settlement expense, acquisition and divestiture costs, gain or loss on divestitures of businesses, contingent consideration adjustment, strategic review costs, restructuring costs and other income and expense) and the non-cash impact of depreciation expense, amortization expense and stock-based compensation expense.

With respect to our Adjusted EBITDA guidance, the Company is not able to provide a quantitative reconciliation without unreasonable efforts to the most directly comparable GAAP financial measure due to the high variability, complexity and low visibility with respect to certain items such as taxes, and income and expense from changes in fair value of contingent consideration from acquisitions. We expect the variability of these items to have a potentially unpredictable and potentially significant impact on future GAAP financial results, and, as such, we also believe that any reconciliations provided would imply a degree of precision that would be confusing or misleading to investors.

Adjusted net income and adjusted diluted net income per share are useful to us and investors because they present an additional measurement of our financial performance, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the impact of certain non-cash expenses (stock-based compensation, amortization of intangible assets, and contingent consideration adjustment), non-recurring charges and certain other items that we do not believe are indicative of core operating activities. We believe that analysts and investors use adjusted net income and adjusted diluted net income per share as supplemental measures to evaluate the overall operating performance of companies in our industry.

Free cash flow is useful to investors and us because it represents the cash that our business generates from operations, before taking into account cash movements that are non-operational, and is a metric commonly used in our industry to understand the underlying cash generating capacity of a company's financial model. Normalized free cash flow is useful as it removes the fluctuations in operating assets and liabilities that occur in any given quarter due to the timing of payments and cash receipts and therefore helps investors understand the underlying cash flow of the business as a quarterly metric and the cash flow generation potential of the business model. We believe that analysts and investors use free cash flow multiples as a metric for analyzing company valuations in our industry.

We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. A reconciliation of these non-GAAP measures to GAAP is provided in the accompanying tables.

FY2020 results in our Education Client Vertical include revenue from US, (historically) Brazil, and India. Revenue in our Financial Services Client Vertical includes Auto Insurance (auto, home, motorcycle, and small business), Life Insurance, Health Insurance, Personal Loans, Credit Cards, Banking, and (historically) Mortgage. Revenue in our Other Client Vertical includes Home Services and (historically) B2B. In fiscal Q3 2020, we divested our B2B client vertical and Brazil operations. In fiscal Q4 2020, we divested our Mortgage business. In fiscal Q1 2021, we divested our Education business.

Legal Notice Regarding Forward Looking StatementsThis press release and its attachments contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Words such as "estimate", "will", "believe", "expect", "intend", "outlook", "potential", "promises" and similar expressions are intended to identify forward-looking statements. These forward-looking statements include the statements in quotations from management in this press release, as well as any statements regarding the Company's anticipated financial results, growth and strategic and operational plans. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that may contribute to such differences include, but are not limited to: the impact from risks and uncertainties relating to the COVID-19 pandemic; the impact of changes in industry standards and government regulation including, but not limited to investigation or enforcement activities of the Federal Trade Commission and other regulatory agencies; the Company's ability to maintain and increase client marketing spend; the Company's ability, whether within or outside the Company's control, to maintain and increase the number of visitors to its websites and to convert those visitors and those to its third-party publishers' websites into client prospects in a cost-effective manner; the impact from risks relating to counterparties on the Company's business; the Company's ability to compete effectively against others in the online marketing and media industry both for client budget and access to third-party media; the impact of changes in our business, our industry, and the current economic and regulatory climate on the Company's quarterly and annual results of operations; the Company's exposure to data privacy and security risks; and the Company's ability to protect our intellectual property rights. More information about potential factors that could affect the Company's business and financial results are contained in the Company's annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission ("SEC"). Additional information will also be set forth in the Company's quarterly report on Form 10-Q for the quarter ended December 31, 2020, which will be filed with the SEC. The Company does not intend and undertakes no duty to release publicly any updates or revisions to any forward-looking statements contained herein.

Investor Contact:Hayden Blair(650) 578-7824 hblair@quinstreet.com

QUINSTREET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

December 31, June 30,

2020 2020

Assets

Current assets:

Cash and cash equivalents $ 102,647 $ 107,509

Accounts receivable, net 71,277 64,472

Prepaid expenses and other assets 7,455 13,591

Total current assets 181,379 185,572

Property and equipment, net 6,650 5,657

Operating lease right-of-use assets 12,672 9,118

Goodwill 110,109 80,677

Other intangible assets, net 55,690 28,174

Deferred tax assets, noncurrent 45,209 48,673

Other assets, noncurrent 3,348 536

Total assets $ 415,057 $ 358,407

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 37,748 $ 36,759

Accrued liabilities 47,802 42,271

Deferred revenue 394 73

Other liabilities 11,841 6,734

Total current liabilities 97,785 85,837

Operating lease liabilities, noncurrent 10,782 8,692

Other liabilities, noncurrent 27,084 7,934

Total liabilities 135,651 102,463

Stockholders' equity:

Common stock 53 52

Additional paid-in capital 313,017 304,650

Accumulated other comprehensive loss (290) (237)

Accumulated deficit (33,374) (48,521)

Total stockholders' equity 279,406 255,944

Total liabilities and stockholders' equity $ 415,057 $ 358,407

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Net revenue $ 134,968 $ 118,101 $ 274,237 $ 244,715

Cost of revenue ^(1) 120,437 105,318 242,668 218,507

Gross profit 14,531 12,783 31,569 26,208

Operating expenses: ^(1)

Product development 4,980 3,399 9,871 6,955

Sales and marketing 2,892 2,592 5,535 4,955

General and administrative 6,890 5,498 13,471 11,323

Operating (loss) income (231) 1,294 2,692 2,975

Interest income 12 54 34 126

Interest expense (307) (177) (646) (389)

Other income (expense), net 34 (9) 16,723 (266)

(Loss) income before income taxes (492) 1,162 18,803 2,446

Benefit from (provision for) income taxes 958 387 (3,656) 235

Net income $ 466 $ 1,549 $ 15,147 $ 2,681

Net income per share:

Basic $ 0.01 $ 0.03 $ 0.29 $ 0.05

Diluted $ 0.01 $ 0.03 $ 0.28 $ 0.05

Weighted average shares used in computing netincome per share:

Basic 53,055 51,414 52,774 51,129

Diluted 55,163 53,489 54,716 53,407

^(1) Cost of revenue and operating expenses include stock-based compensationexpense as follows:

Cost of revenue $ 2,544 $ 2,347 $ 4,745 $ 4,837

Product development 643 518 1,192 1,002

Sales and marketing 765 558 1,312 979

General and administrative 1,603 1,277 3,086 2,530

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Cash Flows from OperatingActivities

Net income $ 466 $ 1,549 $ 15,147 $ 2,681

Adjustments to reconcile netincome to net cash provided byoperating activities:

Depreciation and amortization 4,003 2,854 8,136 5,666

(Benefit from) provision forsales returns and doubtful (12) 21 (107) 150accounts receivable

Stock-based compensation 5,555 4,700 10,335 9,348

Non-cash lease expense (195) 342 (364) 166

Deferred income taxes (1,019) (427) 3,506 (311)

Gain on divestitures of - - (16,615) -businesses

Other adjustments, net 41 57 380 269

Changes in assets andliabilities:

Accounts receivable (2,863) 4,982 (3,159) 5,866

Prepaid expenses and other 6,101 1,265 6,082 628assets

Accounts payable (9,979) (5,608) (997) (2,610)

Accrued liabilities 3,425 (176) 712 (2,781)

Deferred revenue 56 329 81 407

Net cash provided by operating 5,579 9,888 23,137 19,479activities

Cash Flows from InvestingActivities

Capital expenditures (604) (404) (1,041) (948)

Internal software development (703) (607) (1,399) (1,114)costs

Business acquisitions, net of - - (40,304) -cash acquired

Proceeds from divestitures of 730 - 21,460 -businesses

Purchases of equity investment (2,000) - (2,000) -

Other investing activities - 25 - 25

Net cash used in investing (2,577) (986) (23,284) (2,037)activities

Cash Flows from FinancingActivities

Proceeds from exercise of 1,791 1,325 2,958 3,153common stock options

Payment of withholding taxesrelated to release of (1,706) (1,828) (4,580) (4,186)restricted stock, net of sharesettlement

Post-closing payments andcontingent consideration (2,672) (2,816) (3,020) (2,866)related to acquisitions

Net cash used in financing (2,587) (3,319) (4,642) (3,899)activities

Effect of exchange rate changeson cash, cash equivalents and (12) 23 (73) 59restricted cash

Net increase (decrease) incash, cash equivalents and 403 5,606 (4,862) 13,602restricted cash

Cash, cash equivalents andrestricted cash at beginning of 102,258 70,532 107,523 62,536period

Cash, cash equivalents andrestricted cash at end of $ 102,661 $ 76,138 $ 102,661 $ 76,138period

Reconciliation of cash, cashequivalents, and restrictedcash to the condensedconsolidated balance sheets

Cash and cash equivalents $ 102,647 $ 76,124 $ 102,647 $ 76,124

Restricted cash included in 14 14 14 14other assets, noncurrent

Total cash, cash equivalents $ 102,661 $ 76,138 $ 102,661 $ 76,138and restricted cash

QUINSTREET, INC.

RECONCILIATION OF NET INCOME TO

ADJUSTED NET INCOME

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Net income $ 466 $ 1,549 $ 15,147 $ 2,681

Amortization of intangible 2,929 1,933 6,057 3,868assets

Stock-based compensation 5,555 4,700 10,335 9,348

Acquisition and divestiture 330 16 606 311costs

Gain on divestitures of - - (16,615) -businesses

Strategic review costs - 199 - 199

Restructuring costs 375 - 766 -

Tax impact of non-GAAP items (2,608) (2,061) (404) (3,827)

Adjusted net income $ 7,047 $ 6,336 $ 15,892 $ 12,580

Adjusted diluted net income per $ 0.13 $ 0.12 $ 0.29 $ 0.24share

Weighted average shares used incomputing adjusted diluted net 55,163 53,489 54,716 53,407income per share

QUINSTREET, INC.

RECONCILIATION OF NET INCOME TO

ADJUSTED EBITDA

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Net income $ 466 $ 1,549 $ 15,147 $ 2,681

Interest and other expense, net 261 132 504 529

(Benefit from) provision for income (958) (387) 3,656 (235)taxes

Depreciation and amortization 4,003 2,854 8,136 5,666

Stock-based compensation 5,555 4,700 10,335 9,348

Acquisition and divestiture costs 330 16 606 311

Gain on divestitures of businesses - - (16,615) -

Strategic review costs - 199 - 199

Restructuring costs 375 - 766 -

Adjusted EBITDA $ 10,032 $ 9,063 $ 22,535 $ 18,499

QUINSTREET, INC.

RECONCILIATION OF CASH PROVIDED BY

OPERATING ACTIVITIES TO FREE CASH FLOW

AND NORMALIZED FREE CASH FLOW

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Net cash provided by operating $ 5,579 $ 9,888 $ 23,137 $ 19,479activities

Capital expenditures (604) (404) (1,041) (948)

Internal software development costs (703) (607) (1,399) (1,114)

Free cash flow $ 4,272 $ 8,877 $ 20,697 $ 17,417

Changes in operating assets and 3,260 (792) (2,719) (1,510)liabilities

Normalized free cash flow $ 7,532 $ 8,085 $ 17,978 $ 15,907

QUINSTREET, INC.DISAGGREGATION OF REVENUE(In thousands)(Unaudited)

In the first quarter of fiscal year 2021, the Company completed the acquisition of Modernize, Inc. to increase the scale and capabilities in the home services client vertical. In addition, in fiscal year 2020 and in the first quarter of fiscal year 2021, the Company completed the divestitures of its education client vertical, business-to-business technology client vertical, its mortgage business, as well as its wholly owned subsidiaries, QuinStreet Brasil Online Marketing e Midia Ltda, and VEMM, LLC along with its interests in Euro-Demand Do Brasil Servios de Geraao de Leads Ltda to narrow its focus to the best performing businesses and market opportunities.

As a result of these activities, in the second quarter of fiscal year 2021, the Company updated its reporting structure which resulted in two client verticals: financial services and home services, which was applied on a retrospective basis. All remaining businesses that are not significant enough for separate reporting are included in other revenue. The following table presents the Company's net revenue disaggregated by vertical:

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Net revenue:

Financial Services $ 104,154 $ 88,150 $ 198,367 $ 179,014

Home Services 29,190 11,016 62,563 24,027

Other Revenue 1,624 - 1,720 -

Divested Businesses:

Education - 14,532 11,587 31,930

Business-to-Business Technology - 3,457 - 6,783

Mortgage Business - 719 - 2,466

Brazil Businesses - 227 - 495

Total net revenue $ 134,968 $ 118,101 $ 274,237 $ 244,715

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SOURCE QuinStreet, Inc.