Good day, and welcome to QuinStreet’s Fiscal First Quarter 2025 Financial Results Conference Call. Today’s conference is being recorded. Following the prepared remarks, there will be a Q&A session. At this time, I would like to turn the conference over to Senior Director of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Thank you, operator. And thank you, everyone, for joining us as we report QuinStreet’s fiscal first quarter 2025 financial results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today’s earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir.

Thank you, Rob. Welcome, everyone. Fiscal year 2025 first-quarter revenue grew 125% year-over-year and 41% sequentially. Adjusted EBITDA jumped to over $20 million in the quarter. The strong results were driven by the broad-based ramp of auto insurance carrier budgets and by our expanded client, media, and product footprints. Auto Insurance revenue grew 664% year-over-year to a record level in the quarter. Total Financial Services revenue grew 192%, and Home Services revenue grew 32%. The outlook for Auto Insurance going forward remains strong. Carriers continue to report good results overall and from our channel. We are focused on increasing and optimizing media supply to meet surging carrier demand. Those efforts should eventually further expand margins. Turning to our outlook for fiscal Q2, we expect revenue to be between $235 million to $245 million and adjusted EBITDA to be between $17.5 million to $18.5 million. Though it is still early, we are raising our full fiscal year 2025 outlook. Full fiscal year revenue is now expected to be about $1 billion. Full fiscal year adjusted EBITDA is expected to be between $75 million to $80 million. We will continue to update our outlook as warranted as the fiscal year progresses. Finally, we know FCC changes to TCPA rules scheduled to go into effect in January are an area of investor interest. Most importantly, we have been preparing and testing implementation of the new rules for almost a year, and we have included in our outlook the expected impact from them. We expect the impact to occur mainly during the period over which we, clients, and the industry transition and adapt to the new rules, most likely over a number of quarters. Beyond the period of transition to the new rules, we expect the changes to be a strong, long-term positive for the channel and for QuinStreet. They will accelerate the long-term trend of industry rationalization and consolidation to the best, most capable companies. They will improve consumer experience and participation in the channel, increasing the speed and size of the development of our market, and they will significantly increase client sales efficiency and productivity from our channel, further accelerating and growing the development of our market. We expect QuinStreet to disproportionately benefit from all of those positive effects. With that, I'll turn the call over to Greg.

Thank you, Doug. Hello and thanks to everyone for joining us today. Fiscal Q1 was another record revenue quarter for QuinStreet as all of our client verticals delivered strong year-over-year revenue growth. We delivered record revenue in Insurance, record revenue in Home Services, and record revenue in Non-insurance Financial Services, which includes personal loans, credit cards, and banking. For the September quarter, total revenue was $279.2 million, adjusted net income was $12.5 million or $0.22 per share, and adjusted EBITDA was $20.3 million. Looking to revenue by client vertical, our Financial Services client vertical represented 76% of Q1 revenue and grew 192% year-over-year, to $210.9 million. The record performance was largely driven by Auto Insurance, which grew 664% year-over-year. Non-insurance Financial Services businesses grew 18% combined. Our Home Services client vertical represented 23% of Q1 revenue and grew 32% year-over-year to a record $65.1 million. Other revenue was the remaining $3.3 million of Q1 revenue. Turning to the balance sheet, we closed the quarter with $25 million of cash and equivalents and no bank debt. A more normalized view of our ending cash balance would be approximately $47 million. We've received payments of approximately $22 million, just one day after quarter-end. As we look ahead into Q2, I'd like to remind everyone of the seasonality characteristics of our business, as I do every year at this time. The December quarter, our fiscal second quarter, typically declines sequentially. This is due to reduced client staffing and budgets during the holidays and end-of-year period, a tighter media market and changes in consumer shopping behavior. This trend generally reverses in January. Moving to our outlook, for fiscal Q2, our December quarter, we expect revenue to be between $235 million and $245 million and adjusted EBITDA to be between $17.5 million and $18.5 million. As Doug already mentioned, we are raising our full fiscal year 2025 outlook. We now expect revenue to be between $975 million and $1.025 billion and adjusted EBITDA to be between $75 million and $80 million. With that, I'll turn it over to the operator for Q&A.

Thank you. Your first question comes from the line of John Campbell from Stephens. Please go ahead.

I want to maybe start on insurance. Obviously, really good results there. If my math is right, I'm thinking you guys might have almost doubled your past fiscal 1Q peak for insurance. Is that right?

That would be a great question. Is that right, Greg?

I don't have that answer. You're asking if we doubled our previous Q1 peak? Sorry, John. I got to be honest, I don't have that, but I wouldn't be surprised.

I'm thinking that's probably the case. And then, maybe if you could help out with phasing. I don't know if you've got this by close to you, but the insurance growth just sequentially and then what that typical seasonal drop off is just seasonally into 2Q?

Yes. Quarter-over-quarter, John, we grow our Insurance business over 80% sequentially. Typically, what you're going to see in the second quarter is about a 10% sequential decline. That's kind of the normal seasonality in the business and really not just Insurance, but across all our client verticals.

And have you factored in somewhat typical seasonality or are you expecting continuation of strength?

Yes. We have definitely factored in seasonality. That's the biggest when you look at the decline from the Q2 guide to what we just delivered in Q1. Again, we're not hearing right now anything about a slowdown. We're super bullish. We're super positive on what we're hearing from the carriers themselves. But yes, we do have seasonality assumed in there.

And then last question for me, just looking at the full year guidance, just the balance, I guess, the back half of the year more so, if I assume kind of a continuation of the insurance you saw in 1Q, at least just for the back half, I think it might be implying that the core business might be down year-over-year. I know you've talked about some of the one-to-one rule changes potentially providing some degree of an impact and you've factored that in the guidance. So maybe if you could just kind of talk to the phasing of guidance in the back half of the year, whether you're expecting more of a slowdown in insurance rather than the front half or if it's more of a core business?

Yes. As we reflect on the full year and the second half, there has been a significant increase in insurance, and we're pleased with how much we've raised. However, we want to see how things settle as we optimize media and clients manage their budgets. While carriers are not signaling any slowdown, this ramp has been considerable. We want to ensure we have some flexibility as the situation unfolds, particularly regarding media and budget optimization. Additionally, the FCC changes will affect the industry, causing some disruption not just for QuinStreet but for the ecosystem as a whole, and we're uncertain of the exact implications. We have made our best estimates based on testing and actual data, but we prefer to adopt a cautious approach during the FCC transition period. I believe that once the transition is complete, it will be very beneficial for the channel. Although we wouldn't have selected this path for regulation, the eventual positive impacts will be significant. The upcoming election may also create some disruptions, although we can't predict the specifics. Thus, it's essential to maintain a conservative and defensive stance regarding this. This context explains why our guidance for the second half differs from our typical seasonal trends, which is still early in the year.

Your next question is from the line of Jason Kreyer from Craig Hallum. Your line is now open.

Just so the insurance business obviously kicking into a new gear here. What's changed over the last quarter? Are you seeing more carriers participating in the market, or is this just kind of the same participants with opening up greater allocations of budget?

It is a much broader footprint of clients spending at much greater scale, is how I would characterize it, Jason. We do have some clients that are key leaders in the channel and they always have been. But I would say that the thing that is most impressive about the current market, and we've been working on this for a long time, so I don't think it's just an industry thing, but I think there's some of it's particular to us and maybe one of our other competitors is the breadth and the breadth of scale. We are seeing clients that have made huge strides in how they think about digital and performance and how they are more analytic and how they're better measuring performance, and how they're integrated and cycling closely with us to optimize. So I think we're just at a next stage of development of this channel that was obviously postponed for a while during the hard market in insurance. And I think it's indicative of continued upward trends, as we've always said, because this is by far the best channel to spend in terms of efficiency and productivity of your budget.

Could you clarify what increasing media supply means for your owned properties compared to the media supply from partnerships, and what the margin opportunity is as you scale that up?

Yes, we need to enhance our media supply, particularly as we have several partnerships that had become less active and redirected their resources during the tough market, but are now starting to ramp up again. This is crucial for meeting demand and will also positively impact margins, since the rapid increase in carrier demand has outpaced supply, resulting in higher media costs than necessary over time. On our owned-and-operated side, we are also working on several initiatives focuses on improving margins. We're aggressively ramping up significant high-margin campaigns, especially in paid SEM. Our goal is to broaden and scale our campaigns across various sizes and properties. We acquired a company last year that has strengthened our presence in display, native, and social media, areas where we previously lacked engagement due to the lower intent of those consumers. This acquisition was carefully targeted, as we needed a company that could effectively engage intent-based consumers in those channels. Since the acquisition last March, that company has more than doubled its revenue and tripled its margins, providing a substantial boost to our overall margins. The growth of this channel and the company will be pivotal for us. Overall, we are dedicated to increasing media supply in a manner that will enhance margins specifically for QuinStreet.

Your next question comes from the line of Zach Cummins from B. Riley. Please go ahead.

Thanks for taking my questions and congrats on the strong start to your fiscal '25. Doug, I wanted to shift directions and ask a little more about Home Services. Can you talk about what really drove the strong growth we saw here in Q1? And really what are the expectations for Home Services especially as you go through the TCPA changes here in the coming months?

Sure. I'd say that the strong growth is just indicative of what we've said for a while, which is, this is a huge market opportunity for us. We're early into it, and we just made better progress on our big initiatives, and we're going to keep making better progress on those big initiatives. And we have some very big growth initiatives in Home Services that represent massive improvements and expansion of our footprint for the business. TCPA is going to have its most direct effect on our Home Services business because it is more of a lead business. I think we're extraordinarily well positioned against that. We have included in our outlook a more modest outlook for Home Services in the back half than we would if there were not going to be new rules at TCPA. And so, we want to, again, maintain a fairly conservative, defensive profile against that, particularly the transition period there. But we have worked very hard on making sure that we test new flows, test how we get consumers to opt-in, and test how we match to optimize against that, to work with clients to make sure they understand the new rules and how to position themselves for those rules to work on pricing, because we and clients both expect that an opt-in consumer lead is going to convert at a higher rate, which means that it's going to be more valuable. So a lot of the effects of the new rules will be offset by higher value and higher pricing, which we have now cycled through the vast majority of our clients to have those discussions and to prepare for that. And let me give you a little bit of data on that, which is something I think folks need to understand and probably don't, because it's kind of performance marketing nerd stuff. If a lead converts at twice the rate, it's rational and easy to pay twice the amount for that lead because it's the same marketing cost for that customer. But if a lead converts at twice the rate, that means the client only has to use one half the sales cost and sales capacity to get the same amount of revenue. It's a huge benefit from an efficiency and productivity standpoint, and it's going to drive just like the better consumer experience is going to drive a lot more volume and a lot more value into this channel. We've been working with clients to pursue that. A lot of work has gone into it. We are maintaining what I would consider to be a relatively modest and conservative profile against the back half, based on what we know and what we've tested into. We have a lot of initiatives to be ready, but we feel pretty good about where we are. By the way, the only other thing I'd throw in about Home Services is most consumers do want multiple quotes. So we expect that the effect in Home Services won't be nearly as dramatic as it might be in other places. But all in, yes, a little bit more modest in the back half of the fiscal year than we would have been otherwise. We expect that we'll work through it nicely, and we expect in the long run that we'll continue to do very well, and we still expect good strong double-digit growth in home services on average for many years to come.

And my one follow-up is geared towards Greg. You addressed it within your comments, but just in terms of the free cash flow in this quarter, it seems like it was just some collections that pushed into your Q2. Can you talk about how we should think about free cash flow generation? And should this be kind of a one-quarter flip that normalizes here on that side of it?

Yes. Zach, it really was the timing of payments. We got a couple of large payments in, which we typically would have received within the quarter. They literally came in on October 1st. So that's where we're at with the cash balance. I do say it was pretty impressive. We've over doubled the business and we're able to fund that growth in the business with our existing cash. I would expect us, as we start moving forward to get back into cash generation mode, given the increase in profitability in the business. But it was a steep ramp, and that requires quite a bit of working capital, and we were able to do that with our existing cash.

Your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.

Yes. I wanted to get into the carrier precision regarding their spend versus LTV. You've often talked about Progressive as being very analytically oriented. But let me start there. What percent of revenue in Q1 was Progressive?

Yes, Eric. This is Greg. Our largest client, they were 20% of revenue.

And then the other carriers, are they getting more like Progressive in that kind of real-time evaluation of spend versus LTV, or is it just coming so fast, got to get everybody's competing and there’s less concern about LTV?

I would say it's much more the former. We're seeing, as I said before, much more sophistication amongst the carriers that are scaling in how they spend in the performance channel and how they analyze their spend. I would say they're all moving on a curve that's analytic perfection in the upper right. They're all moving well up that curve. I would say nobody is perfect yet, but the scaling has really come from folks getting better at being more analytic, not from any other phenomenon. It's a good, good trend from our perspective. The more sophisticated, the better as far as we're concerned.

And then, given the upward revision to the adjusted EBITDA for the year, I think, I had written in my notes from last call or maybe it was a follow-up call that you were anticipating about $15 million or so of CapEx. So is that CapEx number relatively unchanged? And then, can we just use do the simple math on a midpoint adjusted EBITDA back off the free CapEx to get to a free cash flow estimate for '25?

Yes. I think, Eric, that's a pretty good estimate. There's no change in terms of what we expect to spend on CapEx.

Next question is from the line of Chris Sakai from Singular Research. Please go ahead.

I have a question about the remarkable growth in Auto Insurance revenue. Are there any potential challenges you might encounter in scaling? That 664% growth is outstanding. Can you provide any insights on QuinStreet's capacity to handle this level of growth?

That's a good question, Chris. We don't expect to maintain 664% growth this year, but I believe we will still achieve strong double-digit growth on average moving forward. We're fully capable of scaling to our current level and will make adjustments in media optimization to improve our margins further. We're well-positioned to continue growing at strong rates from this new level.

And you mentioned potentially the election coming up. How is that going to potentially have an effect on revenue and auto assurance?

We don't know. There is the concept of consumer distraction depending on what goes on post-election. It's just not like we took a number off of it or that we know exactly what it's going to be. But I would say that, again, we would prefer to maintain a relatively conservative and defensive profile against that backdrop, just like we would, given everything being re-optimized in the insurance side, budget, and media-wise, and of course, the FCC changes. So it's just in the mix of things that when we step back and say, do we feel like being more aggressive or more conservative right now? It's one of the things in the mix that caused us to say we prefer to be a little bit more conservative right now.

Your next question comes from the line of Patrick Sholl from Barrington Research. Please go ahead.

I just had another question around the election. I was just wondering if there are still some states that are not necessarily appropriately allowing insurance rates to meet profitable levels and just if any of that might get resolved post-election?

It's a good question, Patrick. I don't know the answer to that. I would say that I haven't read anything from the industry that implies that any particular election outcome in any particular state is likely to have a big impact there. For example, California is the biggest state that has that issue. They only allow carriers to increase rates at a certain pace and obviously the costs have way outpaced that. A lot of carriers are just not active in California. I think that only gets resolved unfortunately with time. They can take maybe maximum rate each year for a while and eventually catch up, but it's going to take a couple of years at this rate. Whether or not there'll be any action in California in the legislature, there's no indication that California is going to have any kind of change in the party leadership after the election. So if there are going to be any changes, it's going to be driven by a change of heart of the current officials, not the change of officials. Otherwise, again, I don't know of any other places where there'll be a big impact. I can say that, most, though not all, California being the outlier, and most of the other states, the carriers are back active in there. Again, there are some other exceptions, but they're not big states at this point.

And then, can you talk about the impact of the expected trajectory of interest rates on some of the other verticals, whether home services or the credit-driven ones, if you think that could be something of a tailwind for those segments?

I think so. I mean, I think the only place it won't be a tailwind is our banking business, where demand for CDs or the CD offerings is down because banks don't want to lock in CDs while rates are going down. We still have very strong demand and we're still growing at a good rate in that business and other products. But I think it will help credit cards because their rates will go down, making credit cards more affordable since a lot of consumers do, of course, keep a balance on those credit cards. Personal loans have helped a lot. Our Head of Personal Loans just got back from a major conference of lenders, and he said it's the most positive tone and specific indications from lenders he has heard in a few years, as the rates are coming down to make their products more affordable, and most of them have now recapitalized and gotten access to new capital. So, we're seeing a resurgence of demand from lenders in personal loans. And then, of course, we already have pretty strong demand and decent strong demand there. We've been outperforming the market there, including in our debt management and credit management side of the business, which have been helping consumers as rates have been high. Those two businesses are probably most directly affected. There's not a big effect in Home Services, although we have a lending product that we're rolling out there that we're excited about, which will help consumers finance more projects, expanding that market even more. It doesn't have a big effect generally speaking in insurance. So I think that’s the landscape from it. And I'd say net-net probably, neither here nor there, kind of not way up, not way down.

There are no further questions at this time. Thank you everyone for participating in QuinStreet's earnings call. Replay information is available in the earnings press release issued this afternoon. This concludes today's conference call. Thank you everyone. You may now disconnect.