QuinStreet(QNST) - 2024 Q4 - Annual Report

PART I Business QuinStreet is a performance marketing company specializing in customer acquisition for financial and home services, generating CPA-based revenue through proprietary technology and media buying power - Financial services and home services verticals are key focus areas for the company's performance marketplaces[5] - Revenue is generated through cost-per-action (CPA) models by delivering measurable online marketing results like clicks, leads, and calls[5][6] Client Concentration (Fiscal Years 2024 & 2023) | Client Category | FY 2024 (% of Net Revenue) | FY 2023 (% of Net Revenue) | | :--- | :--- | :--- | | Largest Client | 12% | 20% | | Top 20 Clients | 46% | 52% | Employee Distribution as of June 30, 2024 | Department | Number of Employees | | :--- | :--- | | Operations | 506 | | Product Development | 291 | | Sales and Marketing | 58 | | General and Administration | 44 | | Total | 899 | - The company operates as a licensed insurance agent across all fifty states, subject to extensive federal and state regulations including the CAN-SPAM Act and TCPA[28][29] Risk Factors The company faces substantial risks from its evolving business model, client concentration, reliance on third-party media, data privacy, regulatory changes (TCPA, CCPA), and acquisition integration challenges - 12% of net revenue in fiscal year 2024 came from a single client, highlighting significant client concentration risk due to at-will contracts[45] - High dependency on Internet search companies for traffic exposes the business to risks from algorithm changes, which can negatively impact website placements and revenue[53][55] - Processing personal information creates significant data privacy and security risks, with potential for substantial expenses, reputational damage, and business loss from breaches[49][50] - The company navigates a complex and evolving regulatory landscape, including TCPA and CCPA, with new FCC rules in 2024 and 2025 expected to increase compliance costs and legal risks for marketing calls and texts[60][61][65] - Acquisitions pose risks such as operational complications, potential dilution, unforeseen liabilities, and integration challenges[102][104] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments exist[162] Cybersecurity QuinStreet manages cybersecurity through a formal risk management program, overseen by a Security Committee and Audit Committee, involving regular assessments, training, and third-party testing, with no material incidents to date - The cybersecurity program encompasses regular Security Committee meetings, mandatory employee training, and over two dozen Information Security policies[164] - External consultants are engaged for SOC 2 Type II Certification and penetration testing, complementing internal audit efforts[165] - Cybersecurity governance involves the Information Security team reporting to the CTO and a Security Committee, with the Audit Committee conducting quarterly risk reviews[169] - No cybersecurity incidents have materially impacted the company's business strategy, operations, or financial condition to date[168] Properties The company's corporate headquarters are in Foster City, California, occupying 22,915 square feet under a lease expiring in October 2028, with additional facilities leased globally - The corporate headquarters in Foster City, California, occupies 22,915 square feet under a lease expiring in October 2028[170] Legal Proceedings The company is involved in ordinary course legal proceedings, with management not expecting a material adverse effect on financial position or results - No pending or threatened legal proceedings are expected to materially adversely affect the company's financial position or results of operations[171] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[172] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities QuinStreet's common stock trades on Nasdaq (QNST), with no dividends paid, and a $40.0 million stock repurchase program had $16.8 million remaining as of June 30, 2024 - The company's common stock trades on the Nasdaq Global Select Market under the symbol QNST[173] - A $40.0 million stock repurchase program, authorized in April 2022, had approximately $16.8 million remaining as of June 30, 2024[175] - The company has never declared or paid dividends and does not anticipate future dividend payments[174] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2024, net revenue grew 6% to $613.5 million, driven by Home and Financial Services, resulting in a net loss of $31.3 million and adjusted EBITDA of $20.4 million Results of Operations FY2024 net revenue grew 6% to $613.5 million, driven by Home and Financial Services, but gross profit decreased 5% and operating loss widened, while net loss narrowed to $31.3 million due to a prior-year tax allowance Consolidated Results of Operations (Fiscal Years Ended June 30, in thousands) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $613,514 | $580,624 | 6% | | Gross Profit | $46,246 | $48,523 | (5%) | | Operating Loss | $(28,065) | $(20,816) | 35% | | Net Loss | $(31,331) | $(68,866) | (55%) | - Net revenue increased by $32.9 million (6%), primarily due to a 10% increase in Home Services and a 3% increase in Financial Services verticals[202] - Cost of revenue rose by $35.2 million (7%), driven by $20.8 million in media and marketing costs and $8.3 million in personnel costs[203] - The income tax provision was $0.9 million in FY2024, significantly lower than $47.5 million in FY2023, which included a $52.4 million non-cash charge for a deferred tax asset valuation allowance[210][211] Adjusted EBITDA Reconciliation (Fiscal Years Ended June 30, in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net loss | $(31,331) | $(68,866) | $(5,248) | | Adjustments | $51,696 | $85,556 | $36,278 | | Adjusted EBITDA | $20,365 | $16,690 | $31,030 | Liquidity and Capital Resources As of June 30, 2024, liquidity included $50.5 million in cash, with operating activities providing $12.0 million, and the company deems its liquidity sufficient for the next 12 months - As of June 30, 2024, cash and cash equivalents totaled $50.5 million[219] Summary of Cash Flows (Fiscal Year Ended June 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,039 | $11,838 | | Net cash used in investing activities | $(22,735) | $(15,125) | | Net cash used in financing activities | $(12,511) | $(19,459) | - In fiscal year 2024, the company repurchased 247,618 shares of common stock for $2.2 million[221] Contractual Obligations as of June 30, 2024 (in thousands) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $13,921 | $3,896 | $5,631 | $4,185 | $209 | | Post-closing acquisition payments | $18,143 | $8,416 | $9,727 | $0 | $0 | | Contingent acquisition consideration | $2,466 | $956 | $1,510 | $0 | $0 | | Total | $34,530 | $13,268 | $16,868 | $4,185 | $209 | Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, business combinations, goodwill impairment, and income tax accounting, particularly regarding deferred tax asset valuation allowances - Revenue is recognized over time as marketing results are delivered, with the company typically acting as the principal and reporting revenue on a gross basis[232][239] - Business combinations are accounted for using the acquisition method, allocating purchase price to fair-valued assets and liabilities, with any excess recorded as goodwill[245] - Goodwill is tested annually for impairment on April 30, with a qualitative assessment in fiscal year 2024 indicating no impairment[249] - A valuation allowance is maintained against deferred tax assets when realization is uncertain, requiring significant judgment regarding future profitability[242][309] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on short-term cash equivalents, which management deems immaterial due to investment duration - The primary market risk stems from interest rate fluctuations on cash equivalents held in money market funds[252] - Due to the short-term nature of its investments, the company does not believe it has material exposure to fair value changes from interest rate fluctuations[253] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2024, including an unqualified opinion from PricewaterhouseCoopers LLP on both financial statements and internal controls Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on QuinStreet's financial statements and internal controls, identifying revenue recognition as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[259] - Revenue recognition was designated as a Critical Audit Matter, necessitating extensive auditor effort in procedures and evidence evaluation[265][267] Consolidated Financial Statements Consolidated financial statements show total assets increased to $368.5 million, liabilities grew to $151.7 million, and a net loss of $31.3 million for FY2024 Consolidated Balance Sheet Highlights (as of June 30, in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $50,488 | $73,677 | | Total Assets | $368,546 | $337,155 | | Total Liabilities | $151,721 | $107,354 | | Total Stockholders' Equity | $216,825 | $229,801 | Consolidated Statement of Operations Highlights (Fiscal Year Ended June 30, in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Net revenue | $613,514 | $580,624 | | Operating loss | $(28,065) | $(20,816) | | Net loss | $(31,331) | $(68,866) | | Net loss per share | $(0.57) | $(1.28) | Notes to Consolidated Financial Statements Notes to financial statements detail accounting policies, including revenue recognition, acquisitions (BestCompany, AquaVida), and a $67.7 million deferred tax asset valuation allowance Disaggregation of Revenue by Vertical (in thousands) | Vertical | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Financial Services | $392,579 | $379,723 | $417,110 | | Home Services | $211,944 | $193,133 | $158,805 | | Other Revenue | $8,991 | $7,768 | $6,184 | | Total | $613,514 | $580,624 | $582,099 | - On January 4, 2024, the company acquired BestCompany assets for $2.5 million cash, $4.0 million in post-closing payments, and a $1.0 million convertible note[329] - On March 1, 2024, AquaVida assets were acquired for $2.0 million cash, $4.0 million in post-closing payments, and $2.1 million in contingent consideration[332] - As of June 30, 2024, a $67.7 million valuation allowance was maintained against deferred tax assets due to realization uncertainty[350] - Total stock-based compensation expense increased to $23.7 million in FY2024 from $18.8 million in FY2023[363] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[381] Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2024, with no material changes in the fourth quarter - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024[382] - Management concluded that internal control over financial reporting was effective as of June 30, 2024, based on the COSO framework[384] - No material changes to internal control over financial reporting occurred during the fourth quarter of fiscal 2024[386] Other Information CFO Gregory Wong established a Rule 10b5-1 trading plan, and the company adopted insider trading and clawback policies compliant with SEC and Nasdaq standards - CFO Gregory Wong established a Rule 10b5-1 trading plan on June 5, 2024, for the potential sale of up to 111,416 gross shares starting September 12, 2024[387] - A clawback policy was adopted on October 27, 2023, in compliance with SEC and Nasdaq rules, enabling recoupment of executive incentive compensation following a financial restatement[389] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[389] - A Code of Conduct and Ethics has been adopted, applicable to all employees, officers, and directors[391] Executive Compensation Executive compensation information is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[392] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and related stockholder matters are incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[393] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[394] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[395] PART IV Exhibits, Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits, including Schedule II detailing valuation and qualifying accounts Schedule II: Valuation and Qualifying Accounts (in thousands) | Account / Fiscal Year | Beginning Balance | Charged to Expenses/Revenue | Write-offs/Recoveries | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | | | | | | 2022 | $1,010 | $581 | $(55) | $1,536 | | 2023 | $1,536 | $2,740 | $(554) | $3,722 | | 2024 | $3,722 | $935 | $(2,551) | $2,106 | | Deferred tax asset valuation allowance | | | | | | 2022 | $8,193 | $9 | $(1,042) | $7,160 | | 2023 | $7,160 | $52,396 | $0 | $59,556 | | 2024 | $59,556 | $8,113 | $0 | $67,669 | Form 10-K Summary This section indicates that no Form 10-K summary is provided - No summary is provided under this item[404]