Earnings Call Transcript - QNST Q4 2025

Operator, Operator

Good day, and welcome to QuinStreet's Fiscal Fourth Quarter and Full Year 2025 Financial Results. Today's conference is being recorded. At this time, I would like to turn the conference over to the Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Robert Anthony Amparo, Vice President of Investor Relations and Finance

Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Fourth Quarter and Full Year 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.

Douglas Valenti, CEO

Thank you, Rob. Welcome, everyone. Fiscal Q4 was another quarter of strong revenue growth and continued margin expansion. We grew total revenue 32% year-over-year and adjusted EBITDA 101%. Auto Insurance revenue grew 62% year-over-year in the quarter. Home Services revenue grew 21%. Q4 caps a successful full fiscal year 2025, in which we grew revenue 78% to $1.1 billion and adjusted EBITDA 299% to $81 million, delivering strong operating leverage and margin expansion at scale. Margins expanded even as we accelerated ongoing investments and initiatives to drive further revenue growth and margin expansion in coming quarters and years. Our pipeline of growth and margin expansion initiatives is, in my view, the best, most innovative and most impactful in the history of the company. Our balance sheet also continued to get even stronger in Q4, again, despite heavy ongoing investments in growth and margin expansion initiatives. We ended the quarter with over $100 million in cash, and we have no bank debt. We have the competitive advantages and financial strength to continue to successfully invest in and pursue our enormous and growing long-term market opportunity. Renewed demand from auto insurance clients was a key component of fiscal 2025 success, even as carrier spending growth moderated in the second half of the fiscal year due in large part to tariff uncertainties. Some clients have recently begun to reaccelerate spending, and we expect strong sequential auto insurance revenue growth in the current quarter, our fiscal Q1. Even with the recent increases, auto insurance client spending continues to be generally guarded versus its potential given carrier financial strength and results and is likely to remain so until the tariff fog fully clears. So we believe that there continues to be significant pent-up demand in auto insurance and that there will likely be another significant leg up in client spending as the full level and impact of tariffs become more clear and as the industry continues to adapt. We do not expect a significant gap down in carrier spending from current levels, given: one, current carrier financial strength and results; two, the fact that carriers have had time to anticipate and prepare for the impact of tariffs; and three, the levels of most applicable tariff agreements announced thus far have been relatively moderate. And as I mentioned earlier, a number of our auto insurance clients have just recently begun to reaccelerate spending. Given that outlook, we QuinStreet are going to continue to invest aggressively in media capacity and products to be positioned to prosper from the pent-up and growing demand we expect in auto insurance in coming quarters and years, just as we have done so successfully in past cycles. Turning to our outlook. We expect revenue in fiscal Q1 to be about $280 million and adjusted EBITDA to be about $20 million. Our initial view of full fiscal year 2026 is that revenue will grow about 10% and adjusted EBITDA will grow about 20% as we work to further expand margins.

Gregory Wong, CFO

Thank you, Doug. Hello, and thanks to everyone for joining us today. Q4 was a strong finish to a record year for QuinStreet as we delivered yet another quarter of strong double-digit revenue growth and expanded adjusted EBITDA margins. For the June quarter, total revenue grew 32% year-over-year and was $262.1 million. Adjusted net income was $14.7 million, or $0.25 per share. Adjusted EBITDA grew 101% and was $22.1 million. Looking at revenue by client vertical, our Financial Services client vertical represented 71% of Q4 revenue and grew 36% year-over-year to $186.6 million. Our Home Services client vertical represented 27% of Q4 revenue and grew 21% year-over-year to $71.7 million, another record revenue quarter for that business. Other revenue was the remaining $3.8 million of Q4 revenue. Turning to our full fiscal year performance, 2025 was a record year as revenue grew 78% year-over-year and surpassed $1 billion for the first time. Our Financial Services client vertical represented 75% of full fiscal year revenue and grew 108% year-over-year to $817.2 million. Our Home Services client vertical represented 24% of full fiscal year revenue and grew 24% year-over-year to $261.8 million. Other revenue represented the remaining $14.8 million of full fiscal year revenue. Adjusted EBITDA for full fiscal year 2025 grew about 300% and was $81.3 million. Turning to the balance sheet, we closed the year with $101 million of cash and equivalents and no bank debt. Turning to our outlook. As Doug mentioned, we expect revenue in fiscal Q1 to be about $280 million and adjusted EBITDA to be about $20 million. And we expect full fiscal year 2026 revenue will grow about 10% and adjusted EBITDA will grow faster at about 20%. This is our initial view on fiscal 2026, and we will, of course, provide updates to our expectations as the year progresses. In closing, fiscal 2025 was a record year for QuinStreet. We grew revenue almost 80% and surpassed $1 billion for the first time. We also quadrupled our adjusted EBITDA year-over-year and doubled our cash position. We believe that our market opportunities are still in their early innings and have never been bigger. And we will continue to invest against those opportunities in fiscal 2026 and beyond.

Cal Bartyzal, Analyst

This is Cal on for Jason. So maybe to start, can you just kind of walk through what you saw as far as carrier spend trends across Q4 and what you're hearing from carriers amid some of this reacceleration into Q1?

Douglas Valenti, CEO

Sure. In the fourth quarter, we observed spending levels that were quite consistent with those in the third quarter, which had already seen a moderation from the peak period. The heaviest spending occurred from July to December last year, followed by a slowdown from January to June. As we progressed through the quarter, we noticed an increase in spending levels, and carriers indicated that they expect to continue increasing their spending into the current quarter. Furthermore, recent feedback from carriers suggests that they plan to further boost spending in the December quarter. Overall, we are witnessing gradual increases in spending as carriers take advantage of their strong financial positions and favorable combined ratios. We have gained more clarity regarding tariff levels, allowing carriers to adequately prepare. Despite this, there's still a significant amount of demand that hasn't fully entered the market, as carriers are cautiously navigating uncertainties with tariffs. If I had to summarize, I would say there is growing momentum, confidence, and commitments. The current quarter is expected to see a notable increase in auto insurance compared to the last quarter, driven by the rising demand we are receiving from carriers.

Gregory Wong, CFO

Great. And then just a follow-up. Can you just touch on some of the assumptions in the initial 2026 guidance? And just following up on some of your comments there, just curious for your thoughts on the potential for a budget flush dynamic that we kind of saw at the back half of last calendar year, maybe happening again this year with carriers running so strong on profitability.

Douglas Valenti, CEO

Yes, it's too early for 2026, and we're providing our preliminary outlook. We're aiming to be somewhat conservative regarding our full plans and our expectations for the auto insurance market. This initial assessment leans towards a cautious stance on what we believe may occur over the next year, taking into account both the economic environment and the auto insurance sector, as well as our company's progress. Regarding your question about the fourth quarter, it's an excellent point. The carriers are entering the latter half of the year with robust financial performance. A knowledgeable investor conducted a detailed analysis and noted that even if large publicly traded carriers experience their worst months for the rest of the year, they could still meet their annual combined ratio goals. This indicates significant surplus. Additionally, we have to consider the potential impact of tariffs. As we advance into the months leading to year-end, and if these strong ratios persist, some carriers have already indicated their plans to significantly increase spending in the fourth quarter, and we may see more of that. However, this will depend on tariffs and their effects, as well as weather events, though those aspects are generally well accounted for at this stage in the year.

Zachary Cummins, Analyst

Doug, I wanted to ask you just about general trends with some of your carrier base. A lot of the recovery has been driven by, call it, the top 2 or 3 carriers over the past 12 to 18 months. So just curious of maybe the spending levels or potential intent to spend across your entire carrier base versus maybe some of the trends that we saw over the past 12 months.

Douglas Valenti, CEO

Yes, that's a great question. We've actually observed very strong activity across our entire carrier base. In fact, we had more carriers spending over $1 million per month with us this past quarter than at any other time in the company's history, with about 8 or 9 carriers at those spending levels. This indicates broad-based participation. Additionally, Progressive accounted for a smaller percentage of our overall revenue last quarter compared to previous quarters. I mention this because it's important to report publicly and it reflects the strong engagement and growth we're seeing. We're experiencing significant interest from our carrier partners and clients in areas such as the channel, performance marketing, and our marketplaces, particularly performance marketing. There’s a lot of effort underway among many carriers to improve their digital performance marketing to increase their participation rates. Currently, few carriers are spending as much as they should on digital performance marketing. Given the efficiency of the channel and where customers are shopping, which is primarily online, it's crucial for them to recognize that most customers in the market end up in a performance marketplace—ours being one of the largest. Overall, we see strong participation, interest, spending, and activity across the board.

Gregory Wong, CFO

Zach, this is Greg. Just to add a little bit more color to that is, as Doug mentioned in his prepared remarks, our auto insurance business grew 62% year-over-year in the quarter. If you exclude our largest carrier in that mix, the auto insurance business still grew 60%, 6-0 percent, year-over-year. So it just shows you the broad-based carrier demand that we have.

Zachary Cummins, Analyst

Got it. That's helpful. Greg, I have a follow-up question for you regarding the margin side. Based on your comments regarding the initial outlook for 2026, it seems you're targeting an EBITDA margin for the full year. Can you discuss the progress of your margin expansion initiatives in Q4 and how you anticipate those will carry over into the next several quarters?

Gregory Wong, CFO

Doug, do you want to take that one?

Douglas Valenti, CEO

Yes, happy to. We have seen significant progress in our margin expansion initiatives and anticipate that this momentum will continue. To give you some context, we are optimizing existing media, especially in auto insurance, where we are achieving better carrier participation and improved matching, which is leading to better margins. Additionally, we are expanding new media capacity to meet the growing demand, addressing the gap between this demand and our current media capabilities. We are making substantial investments in new proprietary media opportunities that are experiencing rapid growth and delivering strong performance, with margins expected to improve significantly in the coming months as we continue to scale and optimize these initiatives. In the auto insurance sector, we're also developing new market opportunities that are yielding substantially higher margins compared to our traditional business. One of these new ventures has recently reached approximately $8 million per month and boasts a margin profile three times that of our core marketplace business. This new business achieved over 100% growth last year, and we anticipate similar growth this year. Our QRP also grew over 100% last year, and we predict it will do so again this year, indicating we are reaching a solid scale. There is a lot happening in the insurance segment, alongside developments in our other businesses. We are focused on optimizing margins in our personal loans segment, which is resulting in much faster margin growth than revenue as we refine these marketplaces in preparation for a new phase of revenue growth at improved margins. Furthermore, to maximize our margin expansion initiatives, we have managed to keep our non-variable operating expenses flat compared to last year through various internal restructuring efforts and by adopting new technologies that enhance our productivity. Overall, we have a steady stream of significant margin improvement initiatives that we are currently executing and have substantial room for further progress. This is what gives us the confidence to project that next year, we expect to grow EBITDA at a faster rate than revenue, starting with last year's base EBITDA in fiscal Q1 and continuing to improve our margins from there.

Patrick William Sholl, Analyst

I was wondering if you could maybe talk a little bit more about some of the other business items like the Home Services side and how that tariffs have been impacting that side of the business going into fiscal 2026.

Douglas Valenti, CEO

I'll address that, Patrick. There have been some concerns among professionals in the home services industry regarding the potential impact of tariffs, but we haven't observed any signs from our clients suggesting that this will affect their spending levels or market activity. We maintain our outlook for Home Services to grow by 15% to 20% year-over-year, as we have consistently aimed for this level of growth. We believe we can achieve that again this year in Home Services, where we are experiencing a lot of momentum and showcasing operational excellence. Additionally, we have significantly expanded our product offerings there and have seen positive results. We are also set to launch the next version of our central QuinStreet media platform, known as QMP, in Home Services in the upcoming weeks. This launch should facilitate even faster growth with reduced friction, as this business is indeed quite complex. That complexity underscores the importance of operational excellence within the organization, which is critical for achieving growth and maintaining margins. We haven't heard any concerning feedback, nor do we expect that there will be any negative impact on our outlook for this business in the next fiscal year. Regarding our other businesses, we're not encountering significant concerns. The area where we hear the most chatter in the industry, which is also likely to be most affected, is auto insurance. However, a recent study by a non-competitive digital insurance company indicated that a 15% tariff, if that becomes the standard, especially in key automotive markets like Japan, the EU, and South Korea, could necessitate an average auto rate increase of about 6%. While averages can be misleading due to the complexities of the industry, this is far from the double-digit rate hikes we experienced a few years ago. This context may explain the resurgence we are seeing among our auto insurance clients, who may be optimistic given the robustness of their current financial models.

Patrick William Sholl, Analyst

Okay. And then circling back to one of your earlier answers. I think you talked about opening up additional media sources. I'm just curious if you could provide an update on maybe like the mix of media sources and just the contribution from some of the acquisitions that you've done over the past couple of years to expand the amount of media that you're able to source traffic through.

Douglas Valenti, CEO

Yes. We don't really talk about the mix because that's pretty proprietary and pretty competitively sensitive. We get chased everywhere we go. So we'd rather not give them a head start. But I can tell you that the acquisition we made of Aqua Vida Media, which was a company that allows us to get much more aggressive in media outside of Google, if you will, has been very successful for us. And if you need any indication, just look at how we have to keep marking up the earnout. So we love that. It's a huge new world of media. We've historically been pretty concentrated, quite frankly, in the search and therefore, Google ecosystem, and we love that. We're going to keep driving as much as we can there. And by the way, we have a lot more to go there because we're not as big as we should be. But Aqua Vida and the kind of the other media opportunity is massive and Aqua Vida has given us the ability to be very successful there, and we're getting to pretty good scale, but nowhere near where we will eventually get in those other channels.

Operator, Operator

Your next question comes from the line of Chris Sakai from Singular Research.

Unidentified Analyst, Analyst

Your guidance implies adjusted EBITDA margins of about 7% in Q1 versus 8.4% in Q4. What's driving this sequential margin compression? And is this seasonal or investment related?

Douglas Valenti, CEO

Yes. It's a combination of media capacity still being trying to catch up with now continuing to increase auto insurance demand, Chris, and the need to keep optimizing that media against that demand. But as long as that gap exists and media prices and/or competition for that media is going to continue to push down margins. So it's that, which we're working as fast as we can to address through optimization and other approaches, and the fact that we are going to aggressively invest in building new capacity to close that gap. And those investments are real. It takes a lot of money to build at scale new campaigns, whether it be in the Google ecosystem or outside the Google ecosystem. But we think it's essential that we do that both to have the capacity to meet the current demand but have the capacity to meet the current demand plus what we see as a coming new surge of demand and, of course, to optimize margins around that. And we think 7% is a pretty good baseline that we've reestablished now. It was the average last fiscal year, and that was a big expansion over the fiscal year before that. And as we indicated in our outlook for the year, we do expect that to be a baseline and that we will be expanding margins pretty significantly beyond that as all these efforts and initiatives continue to come to fruition throughout the fiscal year.

Unidentified Analyst, Analyst

Okay. Can you break down the growth within financial services beyond auto insurance? How are other verticals like personal loans, credit cards or other insurance products performing?

Douglas Valenti, CEO

They all experienced year-over-year growth in the quarter. We believe we're still in the early stages in these markets, which presents significant opportunities for scaling. Among the three, personal loans had the least revenue growth because we are currently implementing a margin optimization program there, resulting in margin growth outpacing revenue growth and the elimination of unproductive revenue. This strategy aims to establish a new baseline of profitability for that segment as we look to scale further. Overall, the three sectors—credit cards, banking, and personal loans—grew year-over-year, and we anticipate similar growth this year. In all these segments, we aim to grow margins even more rapidly than revenue.

Operator, Operator

Your next question comes from the line of Elle Niebuhr from Lake Street Capital Markets.

Unidentified Analyst, Analyst

So first one, assuming a lower interest rate environment in 2026 or calendar year 2026, how should we think about incremental growth in the Home Services segment?

Douglas Valenti, CEO

That's a great question, Elle. I would say that we don't really model it that way. So I would guess that it would probably be supportive of more growth in Home Services because you'd likely have more home buying activity. And typically, when somebody buys a home, one of the first things they do is start doing a little work on it. That's been something that has been missing, hasn't been as big a part of that market in the current kind of stalled home selling environment as it used to be. So it would certainly likely be a positive. I can't think of any ways in which it would be a negative. But we have not modeled that into our outlook.

Unidentified Analyst, Analyst

Awesome. And then second one for me. In regards to product development, where are you pointing investments in your development efforts?

Douglas Valenti, CEO

Sure. Several places. One is, of course, QRP continues to be a big focus of our product development efforts. And as I have indicated in the past, that's an incredibly important strategic business for us and for the future of digitization of the insurance, and particularly the insurance agency channel. And we're seeing renewed activity as the market has come back and very good growth, and we have very good outlook for that business. So we're going to continue to invest there. We're also investing in our finance product in Home Services, 360 Finance, a very big market opportunity to provide a point-of-sale kitchen table, we call it, financing app to contractors. We have a big contractor network in Home Services, and this is an add-on product of very high value to those contractors. It matches up well to our ability to run a marketplace and in another marketplace, in this case, a lending marketplace. We're putting a lot of our money there. And again, that business was up very significant this past year. We expect it to be up almost 3x, at least, this year and could be up as much as 5x to 10x this year. So that business, we are continuing to spend aggressively to scale. Both those businesses, I would point out, are very contiguous to our core business, but also do not have media costs, so are also very enhancing to our margins. But we're also spending money on continued improvements in our core technologies. I indicated before, we are launching our next version of QMP, our core media optimization platform, that runs our marketplaces in media. We're launching that in Home Services. That's a big effort. It's a big development project. We expect it to have a big impact across the business, but in particular initially in Home Services, where scaling is going to help us to scale with a lot less friction, a lot less effort than we've had in the past. And then we have a new call platform, which is also a contact platform for consumers, which we're rolling out this year. And that's a big part of our spend and a very important part of our overall economic model and one that reengagement and remarketing to consumers that don't fully complete the process online is a very accretive to margin thing that we do. And we've really been limping along on three different platforms that were legacies of three different acquisitions and three different businesses. So it really hasn't been optimal, and we've freed up the capacity and the spend over the past year or so to completely rebuild and relaunch those capabilities on a unified platform that I expect is going to have big impact on that part of the business as well. So Greg, did I miss any big ones? There are a lot of. I only listed probably four of the 10 to 12 significant projects, but I think those are the four biggest, Greg. Is that right?

Gregory Wong, CFO

You hit the big ones, yes.

Operator, Operator

Thank you, Elle. And there are no further questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.