QuinStreet(QNST) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company presents its unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2025, showing significant revenue growth and a return to net income. Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $81,815 | $50,488 | | Total current assets | $228,384 | $169,087 | | Total assets | $417,235 | $368,546 | | Total current liabilities | $156,674 | $126,398 | | Total liabilities | $181,760 | $151,721 | | Total stockholders' equity | $235,475 | $216,825 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $269,842 | $168,587 | $831,657 | $415,193 | | Gross profit | $27,862 | $14,311 | $83,021 | $28,813 | | Operating income (loss) | $4,912 | $(5,332) | $2,317 | $(26,626) | | Net income (loss) | $4,416 | $(7,048) | $1,501 | $(29,167) | | Diluted EPS | $0.08 | $(0.13) | $0.03 | $(0.53) | Condensed Consolidated Statements of Cash Flows (Nine Months Ended Mar 31, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $55,083 | $(4,517) | | Net cash used in investing activities | $(8,387) | $(19,086) | | Net cash used in financing activities | $(15,385) | $(10,485) | | Net increase (decrease) in cash | $31,328 | $(34,075) | | Cash at end of period | $81,831 | $39,617 | - The company operates as one reportable segment, as the chief operating decision maker reviews financial information on a consolidated basis[75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong performance, highlighting a significant 100% YoY revenue increase for the nine-month period, driven by a 147% surge in the financial services vertical, particularly the insurance business. Management Overview QuinStreet is a leader in performance marketplaces for financial and home services, focusing on sustainable revenue growth and long-term market opportunity. - The company's primary financial objective is to create sustainable revenue growth at target profitability levels, not to maximize short-term profits[83] Revenue Contribution by Vertical (Three and Nine Months Ended Mar 31, 2025) | Vertical | % of Net Revenue (Q3 2025) | % of Net Revenue (9M 2025) | | :--- | :--- | :--- | | Financial Services | 74% | 76% | | Home Services | 24% | 23% | | Other | 2% | 1% | - A single client in the financial services vertical accounted for 27% of net revenue for the three months ended March 31, 2025. For the nine-month period, two clients accounted for 23% and 13% of net revenue, respectively[86] - The auto insurance industry, a key part of the financial services vertical, began to recover in calendar 2024 due to rate increases and optimizations, leading to increased advertising spending and a return to net income for the company starting in the quarter ended March 31, 2025[88] Results of Operations For the third quarter of fiscal 2025, net revenue grew 60% year-over-year to $269.8 million, driven by a 78% increase in the Financial Services vertical. Net Revenue by Vertical (in thousands) | Vertical | Q3 2025 | Q3 2024 | 9M 2025 | 9M 2024 | | :--- | :--- | :--- | :--- | :--- | | Financial Services | $199,724 | $112,250 | $630,549 | $255,708 | | Home Services | $65,448 | $53,908 | $190,098 | $152,636 | | Total Net Revenue | $269,842 | $168,587 | $831,657 | $415,193 | - The increase in gross profit margin for both the three and nine-month periods was attributed to a decrease in personnel cost and depreciation as a percentage of net revenue, partially offset by a higher revenue mix from the financial services vertical, which has a higher media cost[116][117] - General and administrative expenses for the nine months ended March 31, 2025, increased by $17.3 million (75%) YoY, primarily due to a $12.4 million adjustment to the fair value of contingent consideration related to an acquisition and a $1.9 million increase in stock-based compensation[124] Liquidity and Capital Resources As of March 31, 2025, the company's principal liquidity source was $81.8 million in cash and cash equivalents, with strong cash from operations. - As of March 31, 2025, principal sources of liquidity consisted of cash and cash equivalents of $81.8 million[127] Cash Flow Summary (Nine Months Ended Mar 31, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $55,083 | $(4,517) | | Net cash used in investing activities | $(8,387) | $(19,086) | | Net cash used in financing activities | $(15,385) | $(10,485) | - The $55.1 million in cash from operations for the nine months ended March 31, 2025, was primarily driven by net income of $1.5 million and non-cash adjustments of $57.4 million (including $24.5 million stock compensation and $12.4 million change in fair value of contingent consideration), offset by a $3.8 million use of cash for working capital[131][132] - As of March 31, 2025, approximately $16.8 million remained available for stock repurchases under the authorized program[129] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure stems from interest rate fluctuations on its cash and cash equivalents, which management deems not material. - The company's main market risk is interest rate risk on its cash and cash equivalents, which are held in money market funds with maturities of 90 days or less[142][143] - Management believes the exposure to interest rate changes is not material, and a hypothetical 1% decline in interest rates would not have a material effect on the financial statements[143] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting. - Based on an evaluation as of March 31, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[144] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[145] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, none of which are expected to have a material adverse effect on its financial position. - The company is involved in legal proceedings from time to time in the ordinary course of business[147] - Management does not believe that any pending legal proceedings will have a material adverse effect on the company's financial position, results of operations, and cash flows[147] Risk Factors The company outlines significant risks including client concentration, reliance on third-party media, data privacy concerns, regulatory changes, and the need to adapt to new technologies like AI. - A substantial portion of revenue is generated from a limited number of clients. One client accounted for 27% of net revenue for the three months ended March 31, 2025, and two clients accounted for 23% and 13% for the nine-month period[156] - The company is exposed to significant data privacy and security risks, including cyber-attacks and ransomware. A failure to protect personal information could lead to significant expenses, regulatory action, and reputational damage[160][161] - The business is highly dependent on internet search companies and third-party media partners. Changes in search engine algorithms or the loss of key media sources could significantly harm revenue[158][166] - The business is subject to a complex and evolving regulatory environment, including the TCPA for telemarketing, state privacy laws (e.g., CCPA), and new FCC rules, which could increase costs and legal risks[173][174][178] - Failure to adapt to rapidly changing technologies, including the successful implementation and management of Artificial Intelligence (AIML), could render services obsolete and harm the company's competitive position[189][190] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales or purchases of its equity securities during the quarter ended March 31, 2025. - There were no unregistered sales of equity securities during the period[266] - The company made no purchases of its own equity securities during the period[267] Defaults Upon Senior Securities The company reported that there were no defaults upon its senior securities during the reporting period. - None[268] Mine Safety Disclosures This item is not applicable to the company's business. - Not Applicable[269] Other Information The company disclosed that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of fiscal 2025. - During the three months ended March 31, 2025, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[270] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL financial data files. - The filing includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[272] - The filing includes Inline XBRL Instance Document, Taxonomy Extension Schema, and Cover Page Interactive Data File[272]