QuinStreet(QNST) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents QuinStreet, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, for periods ending March 31, 2023 Condensed Consolidated Balance Sheets Compares the company's financial position at March 31, 2023, with June 30, 2022, detailing changes in assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $62,962 | $96,439 | | Accounts receivable, net | $105,606 | $81,429 | | Total current assets | $177,297 | $182,792 | | Total assets | $412,479 | $419,909 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $112,793 | $109,579 | | Total liabilities | $127,952 | $133,909 | | Total stockholders' equity | $284,527 | $286,000 | Condensed Consolidated Statements of Operations Details the company's revenues, costs, and profitability for the three and nine months ended March 31, 2023, compared to the same periods in 2022 Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $172,671 | $150,658 | $450,312 | $435,597 | | Gross profit | $17,038 | $14,091 | $37,924 | $41,971 | | Operating (loss) income | $(1,409) | $1,060 | $(15,478) | $(2,555) | | Net (loss) income | $(479) | $2,230 | $(12,975) | $(305) | | Diluted EPS | $(0.01) | $0.04 | $(0.24) | $(0.01) | Condensed Consolidated Statements of Cash Flows Outlines cash movements from operating, investing, and financing activities for the nine months ended March 31, 2023 and 2022 Cash Flow Summary (in thousands) | Activity | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,131) | $20,981 | | Net cash used in investing activities | $(10,654) | $(6,775) | | Net cash used in financing activities | $(16,677) | $(15,052) | | Net decrease in cash | $(33,476) | $(855) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies and specific items within the financial statements, including revenue, assets, and equity - One client accounted for 25% of net revenue for the three months ended March 31, 2023, and 23% for the nine months ended March 31, 2023[26] Net Revenue by Vertical (in thousands) | Vertical | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Financial Services | $120,219 | $304,520 | | Home Services | $50,289 | $139,997 | | Other Revenue | $2,163 | $5,795 | | Total net revenue | $172,671 | $450,312 | - Goodwill remained stable at $121.1 million as of March 31, 2023, with no impairments recorded during the nine-month period[46] - During the nine months ended March 31, 2023, the company repurchased and retired 285,644 shares of its common stock for a total cost of $3.1 million. Approximately $20.0 million remained available for future repurchases[61] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management provides an overview of the business, key trends, and an analysis of financial results, including revenue, costs, liquidity, and capital resources Management Overview & Trends Provides an overview of QuinStreet's performance marketing business, key trends in Financial and Home Services, and influencing factors like seasonality and regulations - The Financial Services vertical has been challenged by factors such as increased insurance industry loss ratios, which led to decreased advertising spending by auto insurance carriers[79][80] - The Home Services vertical has expanded, driven by growth initiatives and synergies from the acquisition of Modernize[81] - The business is subject to seasonality; the second fiscal quarter (ending Dec 31) is typically weaker, while the third fiscal quarter (ending Mar 31) is generally stronger due to new client budgets[85] Results of Operations Provides a detailed comparison of operational results for the three and nine months ended March 31, 2023, versus the prior year, covering revenue and expenses Revenue Change by Vertical (Q3 FY23 vs Q3 FY22) | Vertical | Change ($M) | Change (%) | | :--- | :--- | :--- | | Financial Services | +$11.9 | +11% | | Home Services | +$9.6 | +24% | | Total Net Revenue | +$22.0 | +15% | Revenue Change by Vertical (Nine Months FY23 vs FY22) | Vertical | Change ($M) | Change (%) | | :--- | :--- | :--- | | Home Services | +$25.5 | +22% | | Financial Services | -$11.8 | -4% | | Total Net Revenue | +$14.7 | +3% | - Gross profit margin for Q3 FY23 increased to 10% from 9% YoY, but for the nine-month period, it decreased to 8% from 10% YoY, primarily due to increased personnel costs as a percentage of revenue[109][110] - Operating expenses increased by 42% for the third quarter and 20% for the nine-month period year-over-year, mainly due to higher personnel costs, including increased headcount, salary increases, and stock-based compensation[111][112][114][116] Liquidity and Capital Resources Details the company's liquidity and capital resources, including cash position, primary uses of cash, and management's assessment of future sufficiency - As of March 31, 2023, principal sources of liquidity consisted of cash and cash equivalents of $63.0 million[120] - For the nine months ended March 31, 2023, net cash used in operating activities was $6.1 million, compared to $21.0 million provided by operating activities in the same period of 2022. This change was primarily due to a net loss and an increase in accounts receivable[124][126][127] - Under its stock repurchase program, the company repurchased $3.1 million of its common stock in the first quarter of fiscal 2023. As of March 31, 2023, approximately $20.0 million remained available for future repurchases[123] Quantitative and Qualitative Disclosures About Market Risk Details the company's primary market risk exposure from interest rate fluctuations on cash equivalents and management's assessment of its materiality - The company's main market risk is interest rate risk on its cash equivalents held in money market funds[139][140] - Management believes the exposure to interest rate changes is not material due to the short-term nature of its investments. A hypothetical 1% decline in interest rates would not have a material effect on the financial statements[140] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[141] - No material changes to the company's internal control over financial reporting were identified during the quarter[142] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, which management does not believe will have a material adverse effect on future financial results - The company does not believe that the final outcome of any pending or threatened legal proceedings will have a material adverse effect on its future financial results[144] Risk Factors Details numerous risks associated with the company's business, industry, and stock ownership, including client concentration, data security, and regulatory compliance Risks Related to Our Business and Industry Outlines operational and industry-specific risks, including client reliance, third-party dependence, data security breaches, and the impact of complex regulations - A substantial portion of revenue is generated from a limited number of clients, with one client accounting for 23% of net revenue for the nine months ended March 31, 2023[154] - The company depends on internet search companies to direct a significant portion of visitors, and changes in search engine algorithms could harm website placements and reduce revenue[162] - The business is exposed to online data privacy and security risks, as it gathers and stores personally identifiable information, making it subject to federal, state, and foreign laws and potential cyber-attacks[158][159] - The business is subject to highly complex laws and regulations, such as the TCPA for telemarketing and the CCPA/CPRA for data privacy, which are costly to comply with and could lead to significant penalties if violated[169][170] Risks Related to Our Intellectual Property Discusses risks associated with protecting the company's proprietary technology, defending against infringement claims, and potential liability for content creation and distribution - The company's ability to compete effectively depends on its proprietary systems and technology, which it protects using patent, trade secret, trademark, and copyright law[211] - The company may be subject to legal proceedings and claims of infringing on the intellectual property rights of third parties, which could be costly to defend and result in substantial damages or changes to business practices[213][215] - As a creator and distributor of content, the company faces potential liability for claims based on the nature of the materials it distributes, including defamation, deceptive advertising, or copyright infringement[217] Risks Related to the Ownership of Our Common Stock Covers risks for investors, including stock price volatility, the stock repurchase program, dividend policy, and anti-takeover provisions that could discourage favorable takeovers - The trading price of the company's common stock has been volatile and may continue to fluctuate significantly in the future[219] - The stock repurchase program does not obligate the company to repurchase a specific number of shares and could be suspended or terminated at any time, potentially increasing price volatility[224] - The company may be subject to short-selling strategies, where negative opinions are published to drive down the market price of the common stock[225] - The company does not intend to pay dividends on its common stock in the near term; therefore, returns will depend on capital appreciation[233] General Risk Factors Covers broader risks, including potential adverse impacts from the COVID-19 pandemic, counterparty risks, reliance on management, and potential damage to reputation - The business could be materially and adversely impacted by the effects of the COVID-19 pandemic and its aftermath, including negative macroeconomic effects and reduced client budgets[234][235] - The company is subject to counterparty risks, where clients, third-party publishers, or strategic partners may fail to perform their contractual obligations due to economic or other factors beyond the company's control[241] - The company's success depends on the continued services of its management team and other key employees, and the loss of such personnel could harm the business[242] Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities and no purchases of its equity securities during the period covered by this report - There were no unregistered sales of equity securities during the period[251] - There were no purchases of equity securities by QuinStreet, Inc. during the period[252] Other Information Indicates no other information to report for this item - None[255] Exhibits Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files