Good day and welcome to QuinStreet's Fiscal Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. At this time, all lines are in listen-only mode. Following prepared remarks, there will be a Q&A session. 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 third 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. We delivered strong results again in the March quarter, our fiscal Q3, growing revenue 60% year-over-year and adjusted EBITDA 145%. Financial services client vertical revenue grew 78% year-over-year, with auto insurance up 165%. Home Services revenue grew 21% year-over-year to a new quarterly record. The continued strong results are due to the combination of our big market opportunities, exceptional value proposition, and strong competitive advantages, and to our execution-focused culture. As always, our results include investments in a long list of high-impact new product, media, and client expansion initiatives to fuel future performance. We expect to be able to continue to average double-digit year-over-year revenue and profit growth in the short and long term. We strengthened our financial position further in fiscal Q3, ending the quarter with over $80 million in cash and no bank debt. Growing cash flow and expanding margins continue to be top priorities and areas of active focus. Turning to our outlook, we are maintaining our full fiscal year 2025 outlook as we move into the June quarter, our fiscal Q4. Full fiscal year revenue is expected to be between $1.065 billion and $1.105 billion, implying revenue growth of at least 18% year-over-year in fiscal Q4. Full fiscal year adjusted EBITDA is expected to be between $80 million and $85 million, implying adjusted EBITDA growth of at least 89% year-over-year in fiscal Q4. The implied outlook range for fiscal Q4 is wider than our usual outlook range, reflecting our view that tariffs and tariff-related uncertainties introduce risk and potential volatility to client spending. We are enthusiastic about our prospects, both short and long term. We will continue to position QuinStreet to be resilient to a wide range of macroeconomic scenarios and to thrive as we pursue our big market opportunities. And we will prioritize expense and cash flow management, margin expansion, and maintaining a strong balance sheet.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another strong quarter for QuinStreet. We delivered double-digit revenue growth year-over-year and continue to make progress on our profitability initiatives, further strengthening our financial position, and highlighting the strong leverage in our business. For the March quarter, total revenue grew 60% year-over-year and was $269.8 million. Adjusted net income was $12.4 million, or $0.21 per share, and adjusted EBITDA was $19.4 million. Looking at revenue by client vertical, our financial services client vertical represented 74% of Q3 revenue and grew 78% year-over-year to $199.7 million. The strong performance was largely driven by auto insurance, which grew 165% year-over-year. Our Home Services client vertical represented 24% of Q3 revenue and grew 21% year-over-year to $65.4 million, a record quarter for that business. Other revenue was the remaining $4.7 million of Q3 revenue. Turning to the balance sheet, we closed the quarter with $82 million of cash and equivalents and no bank debt. Moving to our outlook, we are maintaining our full fiscal year 2025 expectations. Full fiscal year revenue is expected to be between $1.065 billion and $1.105 billion. The full fiscal year adjusted EBITDA is expected to be between $80 million and $85 million. As Doug noted, the implied outlook range for fiscal Q4 is wider than our usual outlook range, reflecting our view that tariff and tariff-related uncertainties introduce risk and potential volatility to client spending. As a reminder, our full fiscal year outlook implies continued margin expansion in fiscal Q4. We continue to, one, optimize media efficiencies and client results in auto insurance, two, grow higher margin growth opportunities, and three, continue ongoing productivity improvements across our business. Taking a step back, the fundamentals of our business have never been better. We expect revenue in fiscal 2025 to grow over $1 million or up at least 74% from just over $600 million in fiscal 2024. And we expect adjusted EBITDA in fiscal 2025 to grow even faster than revenue to at least $80 million or up at least 293% from $20 million in fiscal 2024. Our market opportunities have never been bigger, and our competitive advantages have never been stronger. Importantly, we've strengthened both our financial and strategic positions for the future, and we remain confident in our ability to perform regardless of the macroeconomic environment.

Your first question comes from Jason Kreyer from Craig-Hallum. Your line is now open. Please go ahead.

Great. Thank you, guys. This is Cal, on for Jason. So maybe first, can you just provide some insight into your conversations with auto carriers and your view on if they can absorb some of this pressure on profitability and potentially take rate, just kind of the runway that they might have there to absorb any of these tariff pressures.

Yes, Cal, our conversations are much different than the auto carrier executives have stated publicly. The big ones, in fact, and that is that the tariffs, if fully implemented, are likely to have a negative effect on their loss ratios because they could increase claim costs. That said, they also enter this period or are performing during this period with exceptionally strong, positive combined ratios and could likely absorb a very wide range of actual tariff implementations and still be in very good financial shape. The problem everybody has is none of us really know exactly what is and isn't going to be implemented at what rate and where. So right now, we have seen no material reductions from any of the clients in any of the verticals, including auto insurance, based on spending, I'm sorry, based on tariffs and tariff planning. And it's a little bit of a wait and see because I think we have also not seen as strong a ramp as we might see. If given the strong financial results and economics clients are delivering, we would expect even stronger ramps than this, and we're not seeing that yet. I think that's because folks are kind of in wait-and-see mode and wanting to know more about what exactly is going to happen with the tariffs before making decisions to be even more aggressive. I would expect if and as the tariff air clears, you're going to see a lot more aggressiveness, again, given the very strong operating financial results the carriers are reporting. But again, we're seeing stable mode, just a stable spend right now.

Great. Thanks. And then just maybe as a follow-up, we saw some nice even margin improvement in the quarter, and you're guiding to another healthy uptick here in Q4. So just curious how you're approaching margin expansion versus investments in the business and the different levers that you have to sustain this margin improvement?

That's a great question. We are aggressively investing in new growth initiatives, which represent the majority of our operating expenses focused on future growth and margin expansion. Regarding margin expansion, there are numerous opportunities we are pursuing. For instance, we benefit from top-line leverage as our media margins improve with revenue growth, which is expected to continue at a double-digit rate while operating expenses will not grow at the same pace. Additionally, we have successful new media initiatives, particularly in auto insurance, where proprietary media has rapidly grown to represent around half of our media margin, yielding double the margin compared to third-party sources. While we remain committed to third-party media for market awareness and insights, the growth in proprietary media is significant, and we see ample opportunities ahead. We are also converting several major media partnerships in auto insurance to fee-based relationships, which aligns better with the nature of those interactions. Some lower-margin opportunities will shift to a platform fee model, akin to a private exchange model already utilized by some competitors. We have a strong private exchange product adopted by several partners, and we intend to transition partnerships with lower margins into this model, enhancing our margins in that segment. In addition to media initiatives, we are rolling out new products aimed at agencies, which have doubled this year. These products are growing rapidly and yield twice the margin of our historic direct-to-carrier offerings. We are also scaling new product areas like QRP and our 360 finance product, both expected to surpass break-even this year. Our investments in scaling these products are already showing positive trends, and we are optimistic about their impact on margins. In the personal loans sector, we are at an early stage with a narrow focus. We understand that we only engage a third of the over 2 million qualified consumers we see monthly, and we are working to match more of them to our products. By adding clients to better serve this traffic, we anticipate significant margin expansion in the coming years. In home services, we are expanding our trades intelligently by targeting areas with less coverage, which enhances our margins and buying power. Our approach in home services is centered on margin-expanding growth, and we are seeing successful results from that strategy. Overall, we have numerous opportunities for margin expansion, and we are actively pursuing them with considerable progress already made. There is still significant potential ahead.

Great. Really appreciate all the cover there. Thanks and congrats on the quarter.

Thank you, Cal.

Your next question comes from Patrick Scholl from Barrington Research. Your line is now open. Please go ahead.

Hi. Thanks for taking the question. Maybe touching back on home services, I was just wondering how you're seeing any of the tariffs impact that side of the business.

Yes, Patrick. We had not really heard much from our clients about the tariffs until fairly recently. Again, we have had no clients reduce spend because of anticipation or anxiety about tariffs, but we have heard from clients that they are concerned in certain pockets that the tariffs could meaningfully increase their costs. And then they would have to figure out whether or not they'd be able to pass those along, and if not, what that would mean for their economics and what that would mean for their marketing budget. We have not heard it across the board. We've heard it in pockets. Obviously, it's a pretty diverse marketplace, a pretty diverse industry. And so some folks who are more leveraged to, say, China for sure, would feel a much bigger impact depending on how, again, the tariffs get implemented. They're beginning to let us know that they're doing planning around what happens and what they would do. The great news is it's a very diverse marketplace, very diverse industry. We're already making plans ourselves to make sure we're leaning into areas that are likely to be less impacted rather than more impacted, and we have the ability to make sure that we shift our efforts and our focus to those places. The other thing to think about, and this was mentioned by one of our competitors, and it's something that folks, I know that if and as the tariffs lead to macroeconomic issues or difficulties, one of the things we also see is that many of these clients buy more inquiries from people like us when the market gets softer because of either pricing due to tariffs or demand reductions due to a recession. So, exactly how it shakes out, we don't know. It's one of the reasons we're providing a broader range in the fourth quarter of our fiscal fourth quarter. But right now, still strong demand, strong performance, and we're preparing ourselves to be sure that we're ready in case that changes, and hopefully it will not. But again, I don't think any of us know exactly how this is going to play out.

Okay, and then I realize that with the guidance that you provided, there's a wide range of outcomes with the tariffs, so maybe it's a little premature to ask about the next fiscal year. But can you maybe talk about how you're seeing that shape up in terms of either a return to the traditional seasonality of revenue trends, or if you think that, I think you've kind of addressed this with the continued ramp, or if there should still be kind of a ramp of growth to kind of exceed those trends.

Yes, it's a fair question. We have not completed the planning cycle yet for next fiscal year. As you can imagine, sans tariffs, I would expect a pretty strong double-digit top-end adjusted EBIT downline growth, with likely stronger growth on the adjusted EBIT downline. And I would expect generally a return to relatively normal seasonality, but for the fact that there has been a little bit of a modification to buying patterns, I think, based on waiting to see what's going to happen with the tariffs, rather than there being a downward shift in spending from our clients. What we've more seen is a reluctance to ramp the way they normally would, given the performance that we know they are getting from our channel. And so, I don't know exactly how that would shape out and shape the seasonality curve next year. So, again, without any tariff effects, strong double-digit revenue growth and adjusted EBITDA margin growth, and probably a return, generally speaking, to the seasonality patterns we've seen historically, but for the fact that there's been some modification to the curve just based on the anticipation of tariffs. But then if you throw tariffs and their implementation and all the permutations of what that might look like into the mix, I think we still have good, strong revenue and adjusted EBITDA, but in terms of the rates of growth and the shape of the curve, it's just too complicated to sort out.

Okay, thank you.

Thank you, Patrick.

Your next question comes from the line of John Campbell from Stephens Inc. Your line is now open. Please go ahead.

Hey, good afternoon. This is Oscar Nieves on for John at Stephens. So, my first question, I think for Greg, you reported that cash exit in the quarter was at $80 million. So, given that cash level on hand and how the stock has performed over the last few months, have you guys considered engaging in any buybacks?

Hey, Oscar. You know, our capital allocation strategy has not changed at all. First and foremost, we are going to look to grow the business. Either through internal investments, through M&A, or through partnerships. We have shown the ability to buy back shares, but I think also in this environment, it's super prudent to make sure you build up a strong balance sheet. And so, kind of that's where we're focused right now from a capital allocation standpoint.

Okay, yes, that's fair. I have another one for you, Greg. I think Doug alluded to this earlier, but we know that this quarter tends to be the seasonally strongest. And the last quarter, as you mentioned, was skewed by a big spike in spend by top customers. But looking ahead, I'm hoping that you can touch on your level of confidence in the ability to grow up or near this type of base. And that's looking ahead to fiscal year '26?

Yes, I mean, and I can let Doug comment on that as well, but we feel very good about our ability to continue to grow double digits across our business, both in the short and long term. So, our markets are early, our positions in our markets are early, and the overarching trend of the shift from offline marketing to online and within online, from traditional to performance marketing, gives us a lot of runway for a lot of years to grow double digits. And so, yes, I have no lack of confidence in our ability to continue to grow double digits for a long time to come.

All right, I'll get back in the queue. Thank you.

Thank you, Oscar.

Your next question comes from the line of Zach Cummins from Riley Securities. Your line is now open. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. I really wanted to ask a little bit more about your auto insurance business. I mean, can you give us a sense of how that performed on a sequential basis versus Q2? And it sounds like you're trying to be a little more prudent in terms of just the margin profile of the business that you're doing on that side. So, just curious of how maybe your approach has evolved a little bit on the auto insurance side.

We were, we down.

Yes, we were down sequentially, about a little over 10% sequentially. Which the whole industry pretty much was, because the December quarter was an exceptionally strong quarter for the auto insurers, because they had such strong combined ratios going into the end of the calendar year, and extraordinary budgets available. So, that was, I think we talked about this last quarter. So, we were, which is unusual for Q4, calendar Q4 to be the December quarter, to be that strong, and very unusual for us to be down sequentially in this quarter. But it was just the nature of the fact that that was such an extraordinarily strong quarter. So, this quarter, we've seen good, strong spend levels, obviously, from the auto insurance carriers. But a little bit more of them being prudent in entering a new calendar year, because their loss ratios and their budgets reset, and they don't want to get too far over their skis and hurt themselves in the back half of the year. So, we're seeing good, strong spend levels. In terms of our approach, we're doing what we've always done, which is we want to build a good, strong, sustainable, profitable business in auto insurance, just like we do everywhere else. We are adapting our approach to the fact that the market did come out so strong and that there was so much demand relative to media. What we don't want to do is chase all that media down to nothing in terms of margins. That doesn't make sense to us. So, we are being a little bit more prudent in terms of how we mix our media. You heard me talk about that in terms of the growth of proprietary media where we're not having to compete down to the lowest possible denominator and margin with everybody trying to get it to fill demand. You heard me talk a little bit about the private exchange model, which we're happy to lean into. We have a great product there. We have some partners on it that are very happy with it. We expect to convert some more partners to it. We expect to go out and probably conquest some partners from some of our competitors with it. We are happy to lean into that part of the market. If margins are going to be relatively low with some of these publisher or media partnerships, then we may as well convert it to a fee-based model where we don't have the overhead associated with what we might have in more of a revenue share based model. So, we like that, and we'll mix that in. So we are adapting to the market, and I think we're adapting in a way that I'm very excited about, and we're showing real success in that adaptation. I think you're going to continue to see it show up in the performance of the business and the margin line.

Understood. And just my one follow-up question is really, can you speak to the trends across the different auto insurance carriers that you've seen and talked to here in recent months? I know throughout the last couple of quarters, it's really been outsized contribution from a couple of the top carriers. I'm just wondering if that dynamic has shifted a little bit here in recent months.

I'll talk generically, of course, because it's not my role to talk specifically about what my clients are doing or not doing, but here at QuinStreet, we have the broadest footprint of engagement with the most clients spending over a million dollars a month with us that we've ever had. And that's super exciting for us because the market historically has been narrower, for sure, but generally speaking, over the past couple of quarters, that market has broadened quite a bit. I would say while the spending patterns haven't necessarily stayed exactly the same, the general trends going forward, we would expect to continue to be that there are a lot more carriers spending a lot more of their budgets online and a lot more of that online budget being spent in performance and in particular with us, because we're seeing those carriers commit to the channel, and we're seeing them commit to building the capabilities that make you successful in this channel, which tend to be much more data and analytics-based than they have been in other channels historically. And so it takes time. It takes work. But because of the leadership of some of the carriers that have been so successful in this channel, I think others have a real felt need to follow and to figure out how to get it right. And so I think the general trends are broader, more clients spending more, better, deeper engagement with us on performance and on the things that make performance work. In terms of short-term patterns, they're shifting all over the place because of the new calendar year and tariff concerns and all the other things that are going on. But I'd kind of read through that and assume that the broader pattern is more what I just talked about.

And Zach, just to give you just some numbers related to that, we said our auto insurance grew 165%. If you exclude our largest client, the rest of the auto insurance business grew over 150%. So very broad-based ramp from a lot of carriers, as Doug was saying.

Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.

The next question comes from Chris Sakai at Singular Research. Your line is now open. Please go ahead.

Yes, hi. Just kind of want to ask about auto insurance. And, I mean, are we seeing, is this your opinion, are we seeing that the tariff, anything with tariffs on cars has to do maybe with a lower demand for auto insurance advertising? Is that what we're seeing with this sort of hiccup or decline sequentially in auto insurance? And how should we see this going out the rest of the year?

We are not observing that at this stage, Chris. The sequential decline from the December quarter is mainly because the December quarter was exceptionally strong for auto insurance clients' online spending, thanks to their solid financial results from the previous year. What we're witnessing this quarter is more aligned with normal patterns for ongoing strong year-over-year growth, particularly for the March quarter, but not at the extraordinary levels we experienced in December. We are seeing stable spending this quarter, which is also extending into the current one. However, I believe we haven't yet seen the aggressive increase we anticipate, given the robust financial performance of the carriers. They are reporting strong combined ratio results in the 80s, indicating very good performance, and are willing to invest significantly despite not needing to, as their results are favorable. I think the influence of tariffs currently may be causing them to hold back on increasing their spending to the extent we expect until they better understand the tariff impacts on their business and claims costs. Notably, we haven't had any carriers reduce their spending based on concerns about tariffs, as the tariffs have not yet been enacted, and their results remain strong. That is not the trend we are observing.

Okay, sounds good. And thanks for that. Have you seen any early signs of success in any other new verticals or client segments?

We are. Across the board, really, we have seen extraordinary growth in our new products aimed at the agency side of the insurance market, which is a place we've really not participated historically. Big, strong, triple-digit growth, and now running at well over 10 figures a year in terms of the run rate at this point. Ramp two, we have ramped to that very quickly. And we're going to see we have a lot more to do there, a lot more opportunity. And that's half of the online market. And we're a very small share of that. And we expect to be a very good share of that in coming quarters and years. So that's one area that's a real standout opportunity. We are also seeing good success in some other segments of insurance. I won't talk about them, but they're big areas as well. I won't talk about them just because of competitive sensitivities. I don't want to road map it for people. We continue to see great success in our home services business, adding new trades. We've added several new trades this year, a number of which are getting to good scale while we continue to ramp the trades we were already in to greater scale. And we expect to add good numbers of new trades each year over the next 10 years. So that has continued to be a good success and is creating new footprint for strong growth going forward in home services. In our credit cards business, we're adding new media and new products. And in our banking business, the same thing. We're seeing good success there. And then in our personal loans business, we have a roadmap now to pretty dramatically broaden our offerings to that customer base because we have more demand from consumers and we have clients and products to fill that demand, which is exciting for us because it's easier to get the clients and products than it is to get the consumers. So I would say, yes, across the board, a lot of good, strong momentum on growth initiatives in new verticals, if you will, whether you define that as more trades in home services or more areas and segments of insurance or more products to serve consumers that we're already seeing in the credit businesses.

Okay, great. Thanks for the answer, Doug.

Thank you, Chris.

Thank you. There are no further questions at this time. Thank you, everyone, for joining QuinStreet's earnings call. Replay information is available in the earnings press release issued this afternoon. This concludes today's call. Thank you.