QuinStreet, Inc.

expansion in fiscal Q1 and in full fiscal year 2025, which began on July 1st. Turning to our outlook for fiscal Q1, revenue is expected to be between $220 and $230 million, growth of 82% year-over-year at the midpoint of the range, Adjusted EBITDA is expected to be $14 to $16 million, growth of over 1,400% at the midpoint of the range. As an initial early full fiscal year 2025 outlook, we expect revenue of between $800 and $850 million, growth of 34%

year-over-year at the midpoint of the range, and adjusted EBITDA of $50 to $60 million, growth of 170% year-over-year at the midpoint of the range.

We believe that there are opportunities to scale revenue and expand margins even further than that, and we will refine our outlook as the year progresses. With that, I will turn the call over to Greg. Thank you, Doug. Hello, and thanks to everyone for joining us today. Q4 was a record revenue quarter for Quinn Street. All of our client verticals delivered year-over-year growth in the quarter. For the June quarter, total revenue grew 52 percent year-over-year and was $198.3 million. Adjusted net income was $6.5 million, or 11 cents per share. And adjusted EBITDA was $11 million. As Doug noted, the strong re-ramp of auto insurance continued in the June quarter. Auto insurance revenue ramped throughout the quarter, and the demand from carriers is broad-based. Additionally, our outlook for the vertical remains bullish as carriers continue to expand footprints and as the shift to digital performance marketing returns as the dominant long-term theme in driving channel and market growth. Looking at revenue by client vertical, our financial services client vertical represented 69% of Q4 revenue and grew 82% year-over-year to $136.9 million, a record revenue quarter for that business. Our home services client vertical represented 30 percent of Q4 revenue and grew 12 percent year-over-year to $59.3 million, also a record revenue quarter for the business. The other revenue was the remaining $2 million of Q4 revenue. Turning to our full fiscal year 2024 performance, we reported revenue of $613.5 million, up 6 percent year-over-year. Our financial services client vertical represented 64% of full fiscal year revenue and grew 3% year-over-year to $392.6 million. Our home services client vertical represented 35% of full fiscal year revenue and grew 10% year-over-year to $211.9 million. Other revenue represented the remaining $9 million of full fiscal year revenue. Adjusted EBITDA for full fiscal year 2024 was $20.4 million. Turning to the balance sheet, we closed the year with $50.5 million of cash and equivalents and no bank debt. In closing, our outlook on the business has never been brighter. We expect another record revenue quarter in fiscal Q1 with further margin expansion. We remain well-positioned to benefit from the re-ramp of auto insurance client spending and are seeing continued momentum in our non-insurance client verticals. We expect strong total company revenue growth and adjusted EBITDA expansion driven by our diversified portfolio of client verticals. With that, I'll turn it over to the operator for Q&A.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift the handset before pressing any keys. Your first question comes from the line of John Campbell from Stevens. Please go ahead.

Hey guys, good afternoon.

Hey John. Hey, so, um, obviously really solid results as far as the client demand. I mean, it's coming in, I think way better than any of us expected. And on the, you know, the FY 25 revenue guidance, the high end of your range is actually above where consensus is for FY 26. So, you know, it's tough to poke holes at it, but if I look, if I annualize the revenue this quarter, right, and this is not a seasonally strong quarter, which seems like it's pretty fair. it assumes that your midpoint of the revenue guidance is about 4% higher. I'm thinking you've probably got a lot of conservatism in there, but maybe if you could talk to if you expect a deceleration in home services or anything like that or anything non-auto, any kind of color that would be helpful.

Yeah. Thank you, John. We do not expect a deceleration in any of our businesses. We expect All of our businesses are growing at pretty strong double-digit rates this year. I would say that it's a couple of things. One is it's the first guy of the year, and it's early in the year. So we certainly don't want to get too far out ahead of ourselves. The other thing is the insurance ramp has been spectacular, largely foretold by us, as I'm sure you know, given that we did get to the range. on the year as we had said we thought we might. And we just want to see how it settles out. We don't have any indications that it won't extend, but we want to see how it settles out as we and others work to regrow and optimize media to align better with the surge in demand, which is now what we're all working hard on, and see if and as that has any impact at all. So I would say First guy of the year, you're going to find us pretty conservative when we go out with the first guy of the year. We do not expect any deceleration in any parts of the business. And we do expect auto insurance to continue to be very strong for the rest of the year and beyond. But we'd like to see how it settles out in terms of the precise numbers as the media side of the market catches up to the demand side of the market.

Okay, that's helpful. And then maybe like a bigger picture industry, maybe a strategic question, but I think a lot of your competitors are, I think this is a broad-based recovery. Everybody's feeling the strength right now. As far as the margin flow through, I think you talked a little bit about Maybe last quarter talking about 10% margins for this year, but everybody's kind of chasing the same opportunity, it seems like at this point. So maybe a little bit lower margin. You have to obviously be there for your carrier partners. You can't go sit on the sidelines. So I totally understand it, but as I think about industry consolidation – and Doug, you've been in this industry. I think you're maybe one of the godfathers or forefathers of this industry – Talk to me about where you feel like the market could head over time, because it just feels like if you take four or five of these competitors and make one or two, the whole customer acquisition cost, the margin opportunity is really there for you.

Yeah, John, it's a good question. Let me touch on the margin first of all. We think that 10% is still where we're heading. In terms of this particular quarter in the near term, the heavier mix of auto insurance doesn't help that because, as you know, auto insurance, given its scale, maturity, competitiveness, comes in at a little bit lower than average media margin percent. We expect that mix to fix itself over time as we continue to expand all the other businesses. And we expect the margins in auto insurance to actually get better from here as we work to, as I indicated before, optimize the media margin. against that surge in demand. Nobody had time to do that. The demand came so fast. What media was still available got bid up by everybody. And it's taken a little while for the other media channels to reinvest and regrow themselves to catch up. That's all good stuff for going forward. That's all tailwind stuff for going forward. In terms of the strategic context, there are arguments for and against consolidation. a number of the larger clients want more than one player in the role that we play and so it could be and that consolidating could be you could not get the main synergy you're hoping for which is the hope for increase in media margin or gross margin through that combined market power. And that's something that I think is a big concern for anybody thinking about consolidating. There are a lot of other potential barriers to consolidation in terms of how different companies operate, what they're good at, whether or not those are synergistic or not, if they could be combined in a way that didn't destroy more value than it created. So I think it's a complicated question. It's not something I would count on. In the foreseeable future, it's not something I would count out in the long term, depending on how these markets continue to evolve. But I think in any and all cases, we're going to be in really good shape. We could not feel better about the setup for Quinn Street.

All really great points. I appreciate the color, Doug. Thank you, John.

Your next question is from the line of Zach Cummings from B Riley Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my questions and congrats on the strong into your fiscal 24. Just curious if you could give some more insight into where you're seeing strength among the carriers. I imagine there's some that are further along in terms of their recovery, but just curious of the trends that you're seeing and how you expect that to continue to play out in the coming quarters.

Yes, Zach. More broad-based than ever in terms of scale demand.

We have several clients doing multiple millions of dollars per month with us. We have twice that number. So, you know, I'd say between five and ten clients, depending on how you count some of it, doing over, in total, doing over at least a million dollars a month with us. And we're seeing it across the spectrum in terms of both direct carriers as well as more agent-driven carriers. We're seeing it across the product mix, clicks, calls, and leads, although, you know, we're dominant in clicks on the direct side. We have a lot more market to penetrate on the agency and lead side and call side of the industry. So, you know, a mix of carriers... and a mix of products, and a very healthy, diverse mix, and probably the healthiest, most diverse mix we've ever had, honestly, in terms of the breadth of the footprint is how I would mainly characterize it. I would say I don't see any, but the one other common theme, though, is that nobody's really back to their pre-COVID peak in terms of their footprint coverage. of in terms of geo coverage and product coverage. So, for example, not many folks back in California yet. And a lot of the folks not covering big parts of Florida and or not covering Florida in a certain type of coverage range. And I could go, there's lists, there's lists after lists after lists after lists. So, and then, and there are still carriers, significant carriers, who have not really moved dramatically from their, from their lows. of the past few years. So it's a good broad-based mix. Still nobody back to their pre-COVID peak, and still others not really up in the market. And one of the areas that's still lagging quite a bit is the independent agency channel, because they've just now started to get product back, carriers coming back into the market. And so it will still take them a while to get staff back up, get set back up, and have enough of that product that they're in the right states to make their business work. So it's broad-based, but it's still not complete by any stretch.

Understood.

And my one other question really centers around home services. Can you talk about your preparations in terms of one-to-one consent regulations under the TCPA with those going into effect early next year? Any sort of indications of what kind of impact that could present to home services and how you're prepping to work through that?

That was a great question. And it is mainly for us, as you know, it's mainly a home services thing, somewhere between 20% and 30% of our total business would be impacted or applicable under the regulation. And just to kind of level set everybody, the FCC came out with a modification to the TCPA consumer consent rules that is slated to go into effect next January, which requires consumers to consent one to one for any service provider. that intends to contact them either by phone or by text. And that is not current industry practices. And this applies to mainly leads, based on what I just said, as I'm sure you figured out. And so that means that any lead that's generated, the consumer has to opt in. specifically opt-in for that service provider to contact them. That's new for the industry, and the industry has got to adapt to it. A few things. First and foremost, we believe that it's well accounted for in terms of any impact or any effects it will have in the plan and outlook we just gave you, including the fact that we think there's probably, assuming we continue to execute well, more that we can add to that over time. So that's probably the most important point. The other points would be we've been involved and known about this likely regulation for quite some time. We have a good dialogue with the FCC. We understand and, of course, respect what their objectives are here. We may or may not have gone about it the same way. We think that the main reason is that it is probably going to have a pretty negative effect on smaller service providers because they won't have the name recognition with consumers, and so they'll be less likely to get an opt-in. As you know, Twin Street traffics primarily and mainly in large providers, big branded players. We're dominated in our client base by the big brands. But we've noticed common. We've been looking at and testing and preparing for it for quite some time. And so I think that while there may be some disruption, which again is fully accounted for in our outlook, likely to be a lot because we've had so much notice and we've been preparing for it, and it only applies to 20% to 30% of our business to the extent it has any impact. And I think in the longer run, and I don't mean 10 years, I think the next two to three to four years, it's a really good thing for the channel, and it's a really good thing for Quinstream. It's going to take out, clean up, get rid of a lot of the junk in the channel. There are a lot of folks who do nothing but buy and resell leads and contacts and column leads and overmatch consumers to providers to the tune of, you know, more than five, ten times. And that is not helpful to our consumer response. It's not helpful to the long-term health of the channel. It's not helpful to the clients We don't do any of that. And so that means that there's going to be a lot more market share and a lot more market demand for what we do. The other thing is it will likely make leads under that program much more highly effective and much more highly converting, which will make them more valuable. And nobody's better positioned than Quinn Street to benefit from that. We are all about being close to our clients and right pricing to quality and to value. So You know, it's going to be something we'll get to. It's accounted for in our guide, and I think probably more than accounted for in our guide. And we feel really good about the other side.

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter. Thank you, Zach. Your next question comes from the line of Jason Cryer from Craig Hallam.

Please go ahead.

Great. Thank you, guys. Again, nice results here. Doug, you included a comment about just the opportunity to scale revenue and margins faster. Curious if that's just a nod to conservatism in the numbers, or are you kind of alluding to some strategic opportunities that you see over the course of the year?

Jason, we don't have a great connection. I think Rob got the gist of that.

Rob, what was the conservatism in the guide and any upside based off of our initiatives?

We do think there's a lot of potential upside based on our initiatives, Jason, both because of the current run rate, assuming that doesn't settle out differently, and because of a lot of initiatives we've got working in all of the businesses. So while I think this is a fair outlook given how early it is in the year and making sure that we think about, I guess what I might facetiously call a duration risk, I think in terms of where we would put it on the scale relative to what we have in our internal plans based on the execution against the initiatives, we'd say it's pretty conservative, yeah.

Okay, apologies if I have a bad connection. I'm going to try to squeeze one more, but you just mentioned, you know, the focus on optimizing media supply. Can you just elaborate on the things you can do there?

You bet. A few things.

First of all, as I said, the demand came in so quickly that any discretionary media, in other words, media that isn't proprietary to any one of us that are in this business, was bid up very quickly because it was scarce, right? Scarcity. Simple supply and demand happening. That will soften as more media comes online. Folks that had had stopped investing in, stopped in either content or campaigns or other ways of driving media for auto insurance, are very rapidly trying to rebuild that to catch up, including us, but also a lot of our partners. So as that catches up, that will cause media to be more right-priced to its true value rather than overpriced because it's scarce. So that's a big part of it. Another big part of it is that it has come in so quickly and in a narrower footprint than you would expect and across so many different clients so suddenly that the normal process and procedure we go through to make sure that we adequately segment, match, and right price that media to the right carrier in the right way, we just haven't caught up. And that's a huge part of what we do. to add value and create and extract surplus from the media. And so we have not had, we just haven't had time to do all of that yet. So those two dimensions are things that we will be doing and that we're hard at work doing right now.

Great. Thank you very much. Thank you, Jason.

Your next question comes from the line of James Goss from Barrington Research. Your line is now open.

All right. Thank you. I was wondering if any M&A opportunities seem to be on the horizon, either tuck-in or otherwise. I know you've made a couple that have been material in both the financial and home services side of your business.

We're always looking. I would say nothing imminent. but we are a natural consolidator of these small to mid-sized players on the media, client, or technology side of our industry, and we will continue to be so. We've had very, very good results from our acquisitions, both small and large, including some of the smaller ones lately, but I would say we'll stay in market. We'll continue to be opportunistic. That's the number one thing we expect to use capital for over time. But there's nothing imminent.

Okay. And as we move toward the time when interest rate cuts seem likely to begin to materialize, are there certain verticals you expect, or businesses even, you expect will benefit more than others, either in financial or in home services? And are there any new verticals to potentially target?

I think all of the businesses are in a pretty good position relative to interest rate cuts and, by the way, relative to a recession. We're very well positioned if, in fact, there is a recession. I think the latest estimates are 25 to 35 percent of that. I'd love to go business by business. I think we're in phenomenal shape relative to that, but we've grown through every past recession. So, I think we're very well positioned for that. In terms of interest rates, I don't expect that there's going to be a huge impact on any of our businesses from interest rates coming down. Here are some of the dynamics, though. In our personal loans business, we will likely see a resurgence of lending. Relative to debt and credit management, as you know, that had shifted the other way when interest rates went up. We'll see that go back. We're ready for that. We have great client coverage. We'll show just as, I think, flexible and faster response as we did the one way when we go the other way. But that will be a dynamic. I think in home services, you'll go from – you'll still have people – That won't refi because I think 70% of mortgage holders have still under 5% mortgage. So there won't be a lot of refi action going on. We're not in that business. But it may loosen up moving. So more people may move. If they do, that usually does generate some home services activity. If they don't move or if they don't want to move because they're in too low a mortgage, that usually generates some home services activity because they want to nest. and they want to get their home ready for lots of things, including aging, and we are highly leveraged to aging in place in several of our trades in home services. I don't think it will have much of an effect in credit cards. It will probably keep the industry healthier because today the rates on balances are prohibitive, even though the credit card industry is very, very healthy right now, as you heard from the banks and you would hear from us. I think in our banking business, which is our smallest business, independent client vertical, if you will. There'll be a shift around to different kinds of products, but I don't think that business will go away because it's, you know, we're not going back to zero. And if it goes back to three, 4%, there's still going to be a place for CDs and savings accounts and money market funds and those kinds of things in the consumer mix. So, you know, as I, and, and, and insurance, I just can't expect part of the any effect. I don't know that I can't think of any way that it would, meaningfully impact in the range it likely happens anything. A reminder, though, going back to the recession, auto insurance shopping typically increases during a recession. So I think we've done a lot of scenario planning. We really like the setup for us in whatever scenario you're looking at.

Okay, maybe one last one. I wonder, you've talked sometimes of states that are avoiding adding new policies, is there any exposure of note in your area, especially among larger states, that could be important to you that are very negative on some of the new auto insurance that would be more appropriate to you?

I don't think so. We don't see anything like that that would be material at all. And by the way, I forgot to answer part of your last question, Jim, and I apologize. You asked about new verticals. Not explicitly new verticals, but what we will do when we have plans to do is continue to add new trades and home services, and some of those trades are, you know, many millions of dollars a year, so the effect is almost a new vertical. We expect to add new segments in banking, including trading platforms and other ways that People put their money to work in credit cards. We expect to add new segments of cards. We're really leveraged to promotional miles-based cards now, and there are a lot of other areas of cards where we can get a lot bigger. In insurance, we're growing, and we'll continue to grow in new areas of insurance, including B2B and commercial insurance, which is a big initiative for us. So none that we would at the big name level necessarily get into, though we didn't expect to get into personal loans when we did, so it certainly will remain opportunistic. But we will continue to add big, chunky legs to the business that create more footprint for growth in the future.

All right. Thanks for all your elaboration. Thank you, Jim. Your last question comes from the line of Chris Sakai from Singular Research.

Please go ahead.

Yes, hi, Doug and Greg. Hey, Chris. So on your experience with prior auto insurance sort of turnarounds like we're seeing, how high and how much can it keep growing before it tails off?

Hey, Chris, it's a massive market, and most of the spend is still offline. As far as I know, we still only have one significant, one of the majors, Progressive, just a couple of years ago, finally started spending more than half their marketing media budget online. If you look at the consumer shopping patterns and you allocate budget based on that, most carriers, most clients of any type, should be spending 70 or more percent of their budgets online. So the most advanced, most penetrated carrier still isn't there. And most of the others, none of the others that we know of, except for some of the upstarts, which aren't that significant, are way, way, way below where they should be. So that's going to be, you know, billions of dollars still to come in terms of just the natural shift over to, to digital, and they find their way to digital performance marketplaces like ours when they do that because that's where you want to be. And obviously, I don't think that's arguable anymore when you look at the patterns and you look at people like Progressive. And so that could last us for many, many years to come. And then you've got commercial insurance, which is super early, and it's half the industry. And you've got other areas of insurance that you can tuck in. So we ourselves... participate in just really mainly clicks to direct carriers, which is one half, pretty much one half of the overall P&C market. And we have clicks, and we have more clicks to more carriers because of the budget moving online. We have calls and leads, which are very early stages for us that apply to the market that we're ramping up very aggressively, growing very aggressively. We have the more agency-driven clients, which have not represented much for us historically, but will as we add the other products. And then we get to go into the agency side, as I indicated, which is half PNC market, and then the other half of the overall market is commercial. So, you know, we will be growing at good rates in insurance long past, my leaving Quinn Street, and I don't have any near-term plans to leave Quinn Street.

Okay, thanks for that answer. And then one question as well. I know there's a lot of fires in the West Coast and storms in the East Coast. Are you seeing an increase in revenue and online searching for different insurances because of that.

Not necessarily because, well, we're seeing a lot of searching and shopping in California, but not a lot of carriers willing to cover California, both because of the risk and because California won't allow insurers to raise their rates big enough, fast enough. So there's a lot of wasted shopping, if you will, going on in California because consumers just aren't finding But more broadly, the main thing we're seeing relative to shopping and activity is record shopping levels because of inflation and consumers trying to find ways to save money and because of the increase in rates that they've seen over the past few years. You know, insurance rates, you probably know yourself, have gone up 30 to 50 percent after multiple years of compound rate increases So there's a big surge in shopping nationwide because the rate increases and because of inflation. And that's only going to get bigger, we think, as if and as the economy softens more, so more consumers are going to want to save money. So we expect consumer shopping to be high for a long time to come and should be a tailwind to the industry for quite a while. The rate down cycle, if it starts happening, then you're going to get more shopping again because then people are going to want to go see who lowered their rates first where. So changes are good for us in insurance, and there's a lot of change right now.

Okay, great. Thanks for the answer. Thank you, Chris.

There are no further questions at this time. Thank you everyone for taking the time to join Queen Street's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's conference call. Thank you.