QuinStreet(US:QNST)2022-11-04 18:32Part I: Financial Information This section presents the company's financial statements, management's analysis, market risks, and internal controls Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended September 30, 2022, and 2021, including Balance Sheets, Statements of Operations, Statements of Comprehensive (Loss) Income, Statements of Stockholders' Equity, and Statements of Cash Flows, along with accompanying notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $88,382 | $96,439 | | Total current assets | $169,081 | $182,792 | | Total assets | $405,527 | $419,909 | | Total current liabilities | $104,377 | $109,579 | | Total liabilities | $122,271 | $133,909 | | Total stockholders' equity | $283,256 | $286,000 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net revenue | $143,593 | $159,608 | | Gross profit | $12,348 | $18,103 | | Operating (loss) income | $(4,897) | $3,938 | | Net (loss) income | $(4,517) | $3,093 | | Diluted net (loss) income per share | $(0.08) | $0.06 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,665 | $5,753 | | Net cash used in investing activities | $(3,037) | $(1,374) | | Net cash used in financing activities | $(10,681) | $(8,764) | | Net decrease in cash | $(8,057) | $(4,390) | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, revenue composition, acquisitions, goodwill, and segment information, including client concentration, revenue breakdown, and stock repurchase program details - A single client in the financial services vertical accounted for 25% of net revenue for the three months ended September 30, 2022, up from 15% in the same period of 202125 Net Revenue by Vertical (in thousands) | Vertical | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Financial Services | $94,990 | $117,912 | | Home Services | $46,733 | $39,986 | | Other Revenue | $1,870 | $1,710 | | Total net revenue | $143,593 | $159,608 | - In April 2022, the Board authorized a new stock repurchase program of up to $40.0 million, with the company repurchasing and retiring 285,644 shares for $3.1 million during the quarter, leaving approximately $20.0 million available for repurchases as of September 30, 202263 - The company operates as one reportable segment, with revenue from the United States at $140.8 million and international revenue at $2.8 million for the three months ended September 30, 20227072 Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, highlighting a 10% year-over-year revenue decrease to $143.6 million for the quarter, driven by a decline in Financial Services offset by Home Services growth, resulting in an operating loss due to increased expenses - The company's primary business model is delivering measurable and cost-effective marketing results to clients in the financial services and home services industries, typically in the form of qualified inquiries like clicks, leads, calls, or applications7677 - Key business trends include challenges in the financial services vertical due to decreased advertising spending by auto insurance carriers, expansion in the home services vertical driven by the Modernize acquisition, and the impact of regulations like the TCPA83848594 Results of Operations Net revenue decreased 10% year-over-year to $143.6 million, primarily due to a 19% decline in Financial Services, partially offset by a 17% increase in Home Services, leading to a 32% drop in gross profit and a 22% rise in operating expenses Comparison of Operations (in thousands) | Metric | Q1 FY2023 (ended Sep 30, 2022) | Q1 FY2022 (ended Sep 30, 2021) | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $143,593 | $159,608 | (10%) | | Gross Profit | $12,348 | $18,103 | (32%) | | Operating Expenses | $17,245 | $14,165 | 22% | | Operating (Loss) Income | $(4,897) | $3,938 | N/A | - The decrease in net revenue was primarily due to a 19% decline in the Financial Services vertical, as insurance carriers reduced spending to address profitability concerns, partially offset by a 17% increase in the Home Services vertical from higher client budgets and growth initiatives112 - Gross profit margin decreased from 11% to 9% year-over-year, primarily due to increased personnel costs as a percentage of revenue113 - Operating expenses increased by 22%, driven by a 48% rise in Product Development costs and a 10% rise in General and Administrative costs, both primarily due to higher headcount and professional services fees114115117 Liquidity and Capital Resources The company maintained strong liquidity with $88.4 million in cash, generated $5.7 million from operations, and used funds for investing activities, acquisition-related payments, and stock repurchases - As of September 30, 2022, principal sources of liquidity consisted of cash and cash equivalents of $88.4 million120 Cash Flow Summary (in thousands) | Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,665 | $5,753 | | Net cash used in investing activities | $(3,037) | $(1,374) | | Net cash used in financing activities | $(10,681) | $(8,764) | - During the quarter, the company used $4.7 million to repurchase common stock and $5.5 million for post-closing payments related to acquisitions132 Market Risk Disclosures The company's primary market risk exposure is from fluctuations in interest rates on its cash and cash equivalents, which management deems immaterial due to short-term investments - The company's market risk is primarily related to interest rate fluctuations on its cash equivalents, with management believing there is no material exposure, as a hypothetical 1% decline in interest rates would not have a material effect on the financial statements137138 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2022, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective139 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls, and the remote work environment due to COVID-19 has not had a material impact140 Part II: Other Information This section covers legal proceedings, key risk factors, stock repurchase activities, and other required disclosures Legal Proceedings The company is involved in various legal proceedings arising in the ordinary course of business, with management not expecting a material adverse effect on financial results - The company records a liability for legal proceedings when a loss is probable and the amount can be reasonably estimated, with management not believing any pending proceedings will have a material adverse effect based on current knowledge142 Risk Factors This section details significant business risks, including client concentration, reliance on third-party media, online security threats, intense competition, macroeconomic impacts, and regulatory challenges - A substantial portion of revenue is generated from a limited number of clients, with one client accounting for 25% of net revenue for the three months ended September 30, 2022145152 - The business depends on third-party media sources and Internet search companies, where changes in search engine algorithms or a decline in available media could harm revenue145155160 - The company is exposed to online security risks, including data breaches and ransomware attacks, as it handles personally identifiable information, with failure to protect this data potentially leading to significant expenses and reputational damage145156 - The business faces risks related to the COVID-19 pandemic and its aftermath, which could disrupt operations and have a material adverse impact on financial results through reduced client spending and supply chain disruptions145233235 Stock Repurchases This section details the company's stock repurchase activity, including the repurchase of 285,644 shares under a new $40.0 million program authorized in April 2022 Stock Repurchase Activity (Q1 FY2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 285,644 | $10.65 | | August 2022 | 0 | N/A | | September 2022 | 0 | N/A | | Total | 285,644 | $10.65 | - The total cost for shares repurchased in the quarter was approximately $3.1 million, with approximately $20.0 million remained available for future repurchases under the authorized program as of September 30, 202263251 Other Required Disclosures This concluding section confirms no defaults on senior securities, no mine safety disclosures, and lists exhibits filed with the report, along with the Chief Financial Officer's formal signature