QuinStreet(US:QNST)2020-02-06 04:00Financial Data and Key Metrics Changes - Total revenue increased 13% year-over-year to $118.1 million, marking a record fiscal second quarter for the company [19] - Adjusted EBITDA was $9.1 million, representing 8% of revenue, with adjusted net income at $6.3 million or $0.12 per share on a fully diluted basis [19] - Cash balance grew by $5.6 million to close the quarter at $76.1 million [19][25] Business Line Data and Key Metrics Changes - Financial Services client vertical accounted for 76% of Q2 revenue, growing 20% year-over-year to $89.1 million, with all segments except mortgage showing strong double-digit growth [20][21] - Excluding mortgage, Financial Services grew 27% year-over-year, particularly strong in auto insurance, which saw a 25% increase [21] - Education client vertical represented 12% of Q2 revenue, declining 10% year-over-year to $14.5 million [22] - Other client verticals, including Home Services and B2B, also represented 12% of Q2 revenue, growing 7% year-over-year to $14.5 million [23] Market Data and Key Metrics Changes - The company noted a trend of clients increasing their budgets in digital marketplaces, indicating a shift towards performance-based spending [22] - The company expects continued growth in client spending as they transition more budget to digital platforms [22] Company Strategy and Development Direction - The company is reviewing strategic alternatives with Goldman Sachs, exploring a range of options including potential acquisition offers [12][39] - A divestiture strategy is underway to focus on high-performing businesses, with the sale of the Brazil Education business already completed and Brazil Financial Services in the process of being spun out [14][15] - The company aims to simplify strategic discussions and improve execution by narrowing its focus [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving record revenue in the upcoming fiscal third quarter, aligning with full-year revenue and EBITDA guidance [10][28] - The company anticipates that the transition to a new business model will take several quarters, with expectations for margin expansion as the business scales [16][24] - Management highlighted strong interest and engagement from clients regarding new product offerings, particularly the QRP initiative [46] Other Important Information - The company reported a normalized free cash flow of $8.1 million or 7% of revenue, indicating low capital requirements for its business model [26] - The company expects adjusted EBITDA to expand in the second half of the fiscal year as it enters seasonally stronger quarters [24] Q&A Session Summary Question: Is QRP included in guidance? - Management confirmed that QRP contributions are not included in the current guidance [34] Question: How long to recognize QRP revenue after signing clients? - Management indicated that revenue recognition from QRP is expected to be quick, likely within months, but exact timing is uncertain [35][36] Question: Have live offers been received in the strategic review? - Management confirmed that live offers have been received [39] Question: What is the margin profile expected for QRP? - Management expects QRP to have a gross margin in the 80% range as it scales [45] Question: What components are being considered for divestiture? - Management stated that the Brazil businesses are relatively immaterial but are part of a broader strategy to divest underperforming assets [50][55] Question: How is the Education segment expected to perform? - Management anticipates better performance in the Education segment moving forward, particularly after the exit from DCEH [114][115] Question: What is the outlook for operating expenses? - Management expects operating expenses to grow at a lower rate than revenue growth, targeting mid-single digits annually [121] Question: Is there any impact from CECL accounting changes? - Management confirmed that there has been no impact from CECL on the credit card or personal loans business [126]