Q2 2020 Earnings Call

Please standby.

Good day, ladies and gentlemen, and welcome to the Quinstreet second quarter fiscal 2020 financial results Conference. Today's call is being recorded at this time I would like to hand things over time is Erica Abrams. Please go ahead.

Thank you Lisa good afternoon, ladies and gentlemen, thank you for joining us today to report Quinstreet second quarter fiscal 2020 financial results.

Joining me on the call today or does the lungi CEO, Greg long CFO of Quinstreet.

This call is being simultaneously webcast on the Investor Relations section of our website at Www Dot Quinstreet Dot com.

Before we get started I would like to remind you that discussion contains forward looking statement.

Statements involve a number of risks uncertainties that could cause actual results could differ materially from those projected.

Such statements and are not guarantees of future performance factors that may cause.

Differ from our forward looking statements are discussed in our recent SEC filings, including our most recent trenching filing.

Forward looking statements are based on assumptions hasn't today and the company undertakes no obligation to update these days.

Today I'll be discussing both GAAP and non-GAAP measures reconciliation of GAAP to non-GAAP financial measures are included in today's earnings press release, which is available on our Investor Relations website.

I'll turn the call over to Doug CEO Quinstreet. Please go ahead.

Thank you Eric.

And thank you all for joining us today.

Just a second quarter results were in line with our outlook for full year revenue and EBITDA.

We delivered record fiscal second quarter revenue.

There continues to be good and accelerating momentum and opportunity on the business, particularly.

In our core financial services and home services client verticals, which grew 20% year over year.

Good progress is also being laid on gross and operating initiatives that we expect to your strong and improving results in coming quarters.

Current quarter results, our fiscal third quarter.

Are expected to set a quarterly revenue record for the company [noise].

Notably.

Our Q RP ramp is off to a quick starts with six large insurance agency clients now signed and expect it to launch shortly.

We estimate that the sign to Q RP clients already represent over $10 million annual revenue opportunity to quinstreet.

In addition, [noise].

You are big clients, not yet signed but in the advanced stage of the sales pipeline that is at contract stage.

Represents over $10 million more estimated annual revenue opportunity.

Regarding the Goldman Sachs, let process to reduce strategic alternatives.

We are reviewing a broad range of alternatives as previously indicated.

At this point.

The process has generated options along the full range of costs what alternatives, including.

Indications of interest to acquire the company.

We are in the early stages of qualifying and assessing options.

In the meantime.

We continue to move ahead, what strategies to set us up for maximum performance and shareholder value.

And have begun to divest underperforming businesses.

This is being done in parallel with.

And we see as complimentary to.

Our broader process, what's Goldman Sachs.

The divestitures are part of an overall plan to narrow our focus to a smaller number but our best performing businesses and market opportunities.

To restructure to align resources and efforts with them.

We're making good early progress.

We've already sold our Brazil education business.

And are in the process are spinning out Brazil financial services.

Hey, buyer isn't the final stages of due diligence on acquiring another of our client verticals with a potential close that deal.

For the end of February.

[noise] these moves to narrower focus to a smaller number of our best performing business isn't market opportunities are expected to simplify strategic discussions.

Resulted in improved execution and performance.

And deliver faster and more predictable growth.

We also expect faster margin expansion from topline leverage on a smaller cost base.

And from a heavier mix of businesses with SAS like margins, beginning with Q RP.

Not including any other outcomes that may result from the broader process to review strategic alternatives.

We would expect the full transition period to a new footprint and format.

To take a number of quarters.

With that.

I'll turn the call over to Greg.

Thank you Doug.

Hello, and thanks, everyone for joining us today.

We continue to deliver solid results in the second quarter, driven by the strength of our marketplace technologies in our core financial services and home services client verticals.

Total revenue increased 13% year over year, so $118.1 million a record fiscal second quarter for Quinstreet.

Adjusted EBITDA was $9.1 million or 8% of revenue.

Adjusted net income was $6.3 million or 12 cents per share what a fully diluted basis.

In the corner.

We grew our cash felt by $5.6 million to close the quarter was $76.1 million of cash and equivalents.

Looking at revenue by client vertical.

Our financial services client vertical represented 76% Q2 revenue in grew 20% year over year $89.1 million.

All of our financial services businesses with the exception a mortgage delivered strong double digit year over year revenue growth in the quarter.

Excluding mortgage.

Financial services grew 27% year over year.

We saw strength in auto insurance, our largest financial services client vertical in the second quarter.

Revenue increased 25% year over year.

Reflecting a meaningful increase in spending from a broad range of large carrier clients.

We expect this trend more clients spending more budget in our marketplace is to continue as they ship more busted digital.

The more digital spend the performance marketplaces.

Our education client vertical represented 12% of Q2 revenue and declined 10% year over year to $14.5 million.

Our other client vertical which includes home services and B to B represented the remaining 12% of Q2 revenue in grew 7% year over year.

$14.5 billion.

We delivered strong revenue growth in our home services client vertical which was offset by softness of B to b.

Moving on to adjusted EBITDA.

Adjusted EBITDA was $9.1 million, 40% of revenue.

Down slightly sequentially.

This is due to seasonally lower revenue in the December quarter falling on top of our semi fixed cost base, which we do not adjust for revenue seasonality.

Adjusted EBITDA in the back half of the fiscal year.

As expected you expand as we head into our seasonally stronger March in June quarters.

Turning to the balance sheet, we grew our cash balance by $5.6 million in the quarter.

During the quarter was $70.5 million.

Generated $9.9 million, an operating cash flow.

Offset by outflows of $3 million sprint acquisition related notes.

And $1 million a capex.

We closed the quarter was $76.1 million of cash and equivalents.

Normalized free cash flow for the quarter was $8.1 million or 7% of revenue.

Most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model.

In summary.

We believe that we have more identified big growth opportunities and initiatives against them than at any point in company history.

As noted in our press release, we have begun to divest underperforming businesses and we expect that transformation journey footprint and format to take a number of course.

Regarding the outlook, we delivered Q2 results that were in line with the full year outlook for revenue and EBITDA provided last quarter.

We expect to deliver Q3 results that are also in line without l. with that outlook for revenue and EBITDA.

Not including any impact from divestitures or the strategic process.

With that I'll turn the call over the operator for doing it.

Thank you for in ladies and gentlemen, if you would like to ask your question. Please press star one on your telephone keypad.

You are using these speakerphone. Please make sure your mute button is turned off to allow your signal to reach our equipment.

Once again, everyone Star one if you have a question.

We'll take your first question today from John Campbell Stephens, Inc.

Hey, guys good afternoon.

Hey, John.

Great work on Q R. P. That's a really exciting development for you guys.

I guess first question is I want to make sure I get a good grip on a on the guidance.

I think the since you guys are still not including Q RP contributions in the guidance or is it kind of mid to offset some of divestures, let's make sure I get that don't that.

We still don't have any TRP in our guidance.

Okay.

And then you know I guess shifts.

And it might be a little bit too early for that for this but how long is typically take to recognize that GRP route once once customers are side.

Uh huh.

We're not sure John this part of the reason as you've you know we've said before we're not really forecasting it into pilot is pretty quick from launch.

Two usage in revenue.

The we've got to Oh number as Youve, just heard us talk about.

In the process of launching.

Exactly what pace they'll begin usage, we don't know yet because we haven't done it before we don't expect it to be you know quarters.

We think to 100% it's likely months.

But we really just don't know since we haven't really done it before other than in the pilot.

There's a super strong interest and feedback we've done it to the pilot.

Folks are putting a lot effort into launching the value proposition is extraordinarily strong we expect that most will use it in a small group initially just to make sure that they get training done and functionality tested and then based on again, our pilot expansion, we would expect them to roll it up pretty quickly from there given to the.

Benefits as you know in the pilot the.

Upon an organization.

So about 40% lift in productivity, which not surprising given the power this platform and that the.

The usability end to end the functionality so we'd expect a lot of incentive drawn a fast but again, we just don't know at what rate. It will ramp. So we're we're not comfortable projecting until we have a few of these folks.

You know going through it.

Okay that makes a lot of trends and then speaking of launching I think I'm going to launch in Airball and that's what I thought to give it a shot on the strategic reviews have you guys are actually received a life any life offers or is it just takes weeks or what kind of exploratory at this stage.

We have received my offers.

Okay I'll get back in queue. Thanks, guys.

Thank you John.

Our next question will come from Jason Kreyer, Craig Hallum.

Hey, good afternoon. Thank you for taking questions I just wanted to touch on Q R. P. Again, maybe you can touch just a little bit on the margin profile that you expect as that kind of gets up and running and then any feedback that you've heard from the first six agencies that you're kind of in contract with at this point I don't know there.

Those were all part of the pilot process, but just wondering if there's any specific commentary around those.

Sure Jason margin wise it there's as you know this is a very high margin for us because it say technology service without any who media are variable costs. The Johnson to fairly limited semi fixed cost speech was based which is a product.

<unk>.

That's.

Peripheral to our core product group so from a.

Gross margin or variable margin basis, we expect this business to run in the 80 plus percent.

And the more it scares the higher the margin gets because again, you're dropping that into a fairly limited semi fixed cost basis, that's got to.

It's going to grow significantly more slowly so.

Yeah, I think we will go out initially with probably 80%.

Margins essentially get at 27 figure kind of scale and then we'll go from there.

So, let's say very high margin business then they in terms of feedback.

I can only provide you with the you know from the pipeline there's been.

A lot of engagement lot of interest a lot.

Pretty fast move from engagement demos to contract ends and.

And now moving on to launch we've we haven't lost anybody the contract stage.

That's been the pipeline so far so we tend to think if it sends contract stage its a.

It's going to get there pretty fast it's just not a complicated.

Contracting or contract their relationship.

With Sars feedback beyond that all reports from our product team or that the launches are going well.

But it's hard to start to tell what that means we haven't I guess the only thing that means we haven't seen any major hiccups in terms of either client side or our side on the product. So.

We're just now and in a position are waiting for this these first six to get launched.

Again, we our expectation is that there would be lies the current communicate expectations. It and this this is somewhat dependent on client resources of course, but current expectations as communicated to us by the clients might have product family that they'll be a the folks that are signed to be launched by the into this quarter.

And then we and then when the.

Then we'll be watching the ramp so that we can have a lot more information for you next quarter terms of how the launches when and where we think there on the ramps and we'll give you.

More update on the pipeline obviously it was only told you that signed in contract stage, we have a very very big deep pipeline for this product so theres a lot more to come.

Perfect. Thank you I in regard to the divestitures, maybe a couple of there can you talk a little broadly about you know what components of the business. You would you would classify as kind of either underperforming or less profitable that you may be looking to the vast and then along those same line to any.

Financials around the up like the contribution that we've seen over the last few months or or the last year on the businesses that have already been divested. So we could just kind of take a look at how that would impact our models.

Yes.

Sure.

Hey, Great question.

The.

Numbers for the Brazil businesses that have been divested already are relatively immaterial.

Thanks, Greg will be able to give you that and the in the after call in terms of of inputs to your models.

Beyond that it's going to be hard for us to say ahead of time until the deals are actually close for probably obvious reason, it's difficult to talk about particular transactions until you actually get them close once it closes then greg or be able to help give you a estimates of what those numbers mean to or have meant to the financials and.

Bill will.

Provides you with with numbers that allow you to reconcile that with the model, but we don't have.

Let's turn to to this point.

The first two are relatively small but important because they were a.

A drag both on growth and on margin.

The next one of the little bit bigger than that and we'll be and hopefully we'll get it done on the timing, we expect which again is at this point, we expect by the end of February.

And we'll be able to provide and.

Well, we'll decide based on its its materiality whether or not we.

Announced that it is and when that would give you never said that partner for weight to the ended the quarter.

And and give you the numbers then but it's at this point relatively immaterial given the relative small scale of the Brazil operations, but meaningful as a starting point and meaningful in terms of their impact, but the next one is gonna be.

More significant it will have some impact on your March.

The current one Jason or is Brazil, a single digits millions annually in revenue so it's immaterial.

Okay I appreciate that I'm going to try to sneak one more in just we've seen a little bit of a pullback in the gross profit margins kind of over the last two or three quarters and weve hashed out a little bit over the last two conference calls here, but just wondering if you can kind of set up expectations going forward, we saw a little bit of progression there.

They are in the December quarter, and so what kind of wondering where we are in terms of of kind of those media margin progressing into the back half a year.

Yeah I would.

No we don't provide outlook from that standpoint on the forward looking quarters to give you a little color on.

Where we currently our media margin grew this quarter over sequentially over last quarter and so we're making good progress as you know Jason in our business we've talked about this.

Margin optimization as you take on new media into the into our platforms are always follows revenue growth in so upfront. We initially take take on new sources. It sometimes I'm, we're at a lower margin level as we know we can optimize that up overtime to acceptable margins I think we're making.

Good headway on that but nothing again, we grew media margin percentage sequentially over the September quarter this quarter.

Yeah, I wouldn't and I wouldn't read anything significant into it is just to add on day I think we're in a half point.

Of what is our long term target media margin and very variations are plus or minus a point in a particular quarter really usually don't mean anything in this case started they don't mean anything other than the mix that we're working on at that time in terms of business and media opportunities and where we're seeing opportunities and as you know and it tends to work.

Work itself out over time as we get the you know we may have in any particular quarter, a little bit more activity with some newer sources that we feel like are important for us to to take on and the working on or we're having to respond to some competition there while we work to do to build our monetization up but.

It's not a I wouldn't I read into it any kind of meaningful structural.

Implications for the business model.

Perfect. Thank you for the color.

Next time, thank you Jason.

That is Jim Goss Barrington research.

Thanks, Ken maybe beginning with the education that that position has become smaller and smaller I'm wondering if it plays a role in New York future.

And.

Also the extent that.

There has been an LTM trend and the.

Yes that the industry as that helps you are hurt you in fact, the jury even posture that to some extent given the nature of.

Lets you can deliver to the.

About education companies.

[noise] will review education as part of our broader process.

As we will all the businesses Jim I think is the short answer and then it and we were we want to.

Talk about where we come out on any particular business until we actually make a decision or or or have a transaction is the way. We'll we'll have to go through dealing with that are for obvious reasons in terms of.

Sensitivities, along a whole different a bunch of dimensions are in terms of the Oh PM trends, we don't see it as harmful at all I mean, we have a number of.

Of clients that are old Pmts, and we have good relationships with those folks I think overtime as the lpms can be great partners of ours and many already are because we allow them to do a better job managing the media buys in the marketing spend and that's a huge part of what they do in their business models.

As you know.

So I would say.

It's not harmful in my opinion, its and so and then probably is somewhat helpful. Because you have a an organization who many times says more keen focus.

More scale and more sophistication around marketing and we do better with those kinds of organizations quite frankly, so probably at a net positive and we again, we have I don't think there any significant lpms, we don't already served.

And most are growing their relationship with us and we're working hard to try to to do even more so I would you know I guess my.

My assess it would be pretty much in net positive it's not a.

It is a focus of ours to work with your gas, but it's been a focus of ours for a number of years. So it's it's not a it's not a new phenomenon to us but it is a they are growing part of the ecosystem for sure.

In terms of the for profits you know, we still see about volatility amongst the for profit stay lpms largely serve.

As you know the not for profits and so there's there is still.

Volatility than for profit side as post secondary industry, and we continue to try to navigate that specialty cans.

Okay and whatever.

Our revenue by the way just for context about half of our revenues not for profit schools and there are pmts about half of our revenue was four products.

And with a mortgage refinancing.

Is there late at the end of the tunnel and I've been surprised that Oh that has turned around.

In that regard.

Yeah, I think that's been a this has been a matter of a couple of things one is our priorities and focus we we we.

I've had a lot of opportunities and needs to focus efforts elsewhere and the rebuild of mortgage for us is not a simple task.

And so part of its just been privatization resource allocation against opportunities that we felt like were better.

The second is a change in strategy to make sure that as we rebuild mortgage.

And is that that refi market comes back that we do it on a more solid media base and we have some some good opportunities to do that with some assets we own some some things that we're doing and so really this combination of privatization of resource allocation and the fact that we are going to seek to rebuild that business.

A little bit differently than weve shifted in the past and then a way that we hope will be more resilient next time, the refi market turns.

We're kind of.

Fatigue list going up, but the refund market and down with me Fry market enough, but the refund market and downwards, the refi market we'd like to.

To to put in place and we have a blueprint to do so.

Business said, there's a bit more resilient little less volatile and so it's going to take a little bit more work than than just running back up at the market, but I.

Yeah, that's how I would characterize mortgage right now.

Okay.

And lastly, I know you indicated.

Earlier that you have actually.

Gotten some offers for the entire company.

But it seems the way the earnings release was written this effort is appears to be much more focused and reshaping the positioning of the company's and in terms of.

Sectors and the nature of the exposure.

Does it.

Is that reading too much into.

The whole.

You bet Goldman Sachs or is that.

That.

Sort of the <unk>.

Direction, you're trying to point, it's too.

No I would say that's reading too much into it and we feared that that might we're trying to navigate the factor were weren't doing both in parallel and so just to be clear a in the Goldman Sachs process. We've got we're now.

We're looking at a number of.

Things were now at the point, where we've gotten indications of interest for those are you familiar with these kinds of processes.

And those indications are attractive to us theoretically.

But we have to go to the further process of qualifying those in assessing dam and getting them to the point of our you know of Oh.

Actual.

Go shaded.

Purchase agreements or not.

And that takes some time and you want to be very deliberate and and careful about that because you.

I want to make sure that you're not responding to things that you don't take through a full process of bedding.

And qualification and due diligence and getting all the eyes and index and T dotted and T's crossed we're now at the point of doing that.

Are going or entering that process when a with with.

With.

Some of those indications.

And then well while we're doing that.

Our job to keep moving the business forward and as we do that and if and as we get to the end.

To the point, where you have quantified fully vetted.

Offers for the company or not from those that have come in we're going to need to for the shareholders inboard compare that to the go forward independent option.

And we want to make sure we are continuing to develop the best possible go forward independent option we can.

And then we'll compare those and make a decision.

You know as as a board of directors that that we think is in the long term best interest.

Of the shareholders and as you know, there's a lot going on in the business. So in some ways. This a little bit of Oh.

I have an evolving target. So I would just say that we're fully engaged in and they're getting full value from in my opinion.

Well run Goldman Sachs process, we are the stage of.

Working from a narrowing down indications are working for those indications too.

Fully qualified.

From offers or not we'll be going through that over the next.

Month, or so I would guess based on based on timing.

And then we'll be at a point, where we can compare.

Those two.

Where we are in the business and what we think the go forward looks like the the strategy and will be out a model those two together and with the help of advisors and counsel and a full board will take a look and say, okay. What do we thanks.

Most attractive to the shareholders.

I can tell you that.

There's.

You know there's lot of weren't going into both so it would be it would be reading way too much into what I've said.

To say that we're kind of steering away from the strategic alternatives process and focusing on the independent.

We are fully focused on both at this point.

All right. Thanks, Great response appreciate it.

You bet Jim Thank you.

Robert Breza from Northland Capital markets has the next question.

Hi, good afternoon, everybody, Doug maybe just around the area Youre getting these.

Indications of interest.

As you step back and let's say that her Wade will be.

[music].

Are they asking or youre, incurring maybe and looking at the that.

Right.

We cleaned up the Brazilian thing a year ago, and we got to do a little bit a hard work.

As we go through this process.

Or are they willing to do the hard work or they want you to do the hardware clean it up or.

Just curious on that Ben.

As a follow on that when you look at.

Process you're undertaking.

Have you seen a lot of.

Call voluntary people, leading I mean, obviously, there's going to be involuntary yet as we all know, but I'm just curious.

In may.

Get an understanding of you know people's desire to continue forward.

Sure.

Noticed told us to divest unemployment assets and the strategic process. The best question.

Nobody said that they would or would not move forward. If we did something or did not do something these decisions being made.

Based on management's recommendations to the board to make sure we create the best possible profile for the bus business going forward, whether there's a strategic process or not so the and the short answer to your question is no.

And at same time, none of the folks that were talking too.

In my opinion.

Are going to be less interested if we don't on some of these if somebody is underperforming assets are not included in the end to end the package. So I think that's obviously important thats why I said in my prepared remarks as complementary.

We clearly wouldn't do these things if they in some way.

Interfered with with the process in terms of attrition no. We've had zero attrition of Ah of key employees and I would say that.

Deep the a key employees are are.

Enthusiastic.

I'm not going forward and are excited about.

Potentially.

The results of the process that also excited about the a go forward strategy it's been developed.

As a management team overtime and there's strong agreement unanimous agreement amongst the senior team and key employee base that there is the right things for the business excitement about the new business opportunities, we're going to be focusing on into the about their opportunities for.

Are there their personal professional growth also their wealth creation. So I'd say you know morale is extraordinarily good you know we've we're we're a company that communicates.

We think pretty openly and transparently with employees and brings them along but I would say that right now enthusiasm and morale and engagement are really really good I've never I don't think they've ever been any better.

Fantastic.

Maybe Greg just to follow up accounting question for you as you look I'm, bringing on that.

Ah you RP business and the assessment.

Should we I mean, I know you are Doug commented that.

You hadn't done it before but just from a revenue recognition point of view.

Is it going to be daily rapid rack, the stuff engagement or how do we see that.

Just hitting the P., an ally and you know.

Features quarters I'm happy to realize it's not gonna be immediately.

Yep.

No the Rev. Rec simple, it's where do we get paid for quote.

Serious.

For core generated on the platform.

It's a super Super clear direct Rev. Rec, yes, those activity on the platform couldn't be any simpler and.

We'll be recorded at the time of the you know will be invoice, Luckily I guess, but basically recorded at the time to close generated and everybody is comfortable with that that's kind of the business model of the systems. We're.

We're launching.

Alongside or that we're replacing.

And then we get a paid a price per quote that is very attractive relative to again historic systems.

And a very attractive and therefore, even more attractive given the value add of this platform. So very very simple revenue model and very very straightforward and simple Rev. Rec.

Perfect. Thank you.

Thank you.

Our next question will come from Adam Klauber William Blair.

Thanks.

The reason you then from here aren't guidance because the guy that's two chair could change that.

And assuming that no divestiture would you reaffirmed guidance for revenue.

Yes, and yes.

Okay [laughter].

[laughter] figure you kind of laid it out exactly correctly I know that's yeah.

Right, Greg I mean, I don't think Greg.

That we agree yes, and yes.

Okay great.

And then some like insurance was pretty strong.

And is that from.

Pairs that.

A lot of money, becoming more engaged is that.

Have you users being more engaged can you give us some.

I don't if we got cut off or not its dynetek until she finished your question, but I think you said on insurance was it from a new users or or existing users being it's a combination I think we have.

I'm going great growth with existing large clients continuing to work with us to find ways to spend more effective more more effectively on the platform.

We I think had.

More large clients spending.

Record levels for them at least record over the past gosh seven eight years onto the platform than we've had.

Ever.

Again or at least have spent seven eight years. There was a there's a period early on were a few big client spend a lot whenever early in the business on our I'd have to go back and look at that but in terms of the breadth of the spend I think is the broadest with the most large players spending the most large amounts and then we also had.

Never folks have been big with us for quite some time.

Spend a lot more.

And so I'd say it was the biggest theme would be broadening of the spend.

On the large clients and.

More large clients than ever spending significant amounts and I want to say, probably a record month of folks spending over into the millions per month with us, but I don't have as numbers in front of me. So I won't I won't say that but I I have the impression that that was the case. So it was a rodney would probably be the biggest theme.

But you know continue to find ways to work with clients to allow them to spend more and more effectively on the plan more money more effectively on the platform and then the channel.

Right and then as far as you are key.

The independent agents universe is extremely warm.

There's going to the jury large reagents.

Theres mid size and then there's.

Oh agent.

You talked about your marketing efforts, how are you actually going out.

In marketing.

Years.

Summit in the small.

Yeah for the large we're doing it.

Oh with <unk> with.

Basically national sales representation.

Folks.

All of the folks that had been in that industry.

In one case or a warmer national sales manager just a run all the agency relationships for one of the large carriers. So.

That effort in partnership with our largest carrier partner, who is also helping us with the pipeline.

As it is going on.

For the larger institution, we're focused mostly on the larger entities as you can well imagine in terms of our early sales efforts and partnership efforts for the smaller we are in partnership discussions, where we should be able to do some implementations into existing systems.

And and have kind of one to many effects.

Rather than having go suite those folks up one at a time where one.

Very exciting partnership in.

And kind of.

At a pretty good stage for doing that so.

So that's the do it the general strategy wouldn't be national sales representation from folks dedicated and focused on this product with real industry expertise and contacts working in partnership with some of our our.

Or carrier partners.

And.

I'll start that for the large and on the small.

Looking at technical integration partnerships, where we can.

Capture.

In some cases literally thousands of entities with one integration.

Great. Thank you that makes a lot of sense.

You bet. Thank you Adam.

That the Eric Martinuzzi Lake Street.

Just a clarification first and then a question.

Hi, watermark for the company's revenue I've got it in the quarter ended September 2019, and that revenue was 126.6 million is that correct.

Correct.

Okay record quarter was the September quarter. This was a record fiscal second quarter this quarter.

Right I was specifically referring to your outlook.

Fiscal third quarter.

The language that says you expect to set a quarterly revenue record for the company, meaning that it would be great 126.6 million in Q.

Yes, we also said it where we expected that would be in line with our annual guidance so kind of.

Triangulate from there.

Okay.

And then my question has to do it.

The education segment, obviously, you know you still had that the age I think in there in Q2.

Yeah.

Segment see leap in the third quarter.

Having a clean comp.

Yeah, we Oh, we lapped the loss of DCH at the end of November so it did affect the quarter this fiscal second quarter.

I would expect to see better performance as we move forward in the year that said that you know its education and we've been in for a long time and it is a volatile space. So when I say expect to see better performance I do expect to see better performance, but it remains volatile.

Yeah, right now we'd expected to grow.

I would just year over year in the third quarter based on current forecasts. So yes, yeah. The answers it should definitely performed better now that we've not DCH was a which you would hope given that that was such a significant loss of revenue.

Thank you.

Our next question will come from Chris.

Dealer research.

Oh, Hi, Doug and Greg.

Hey, Chris.

My question is with regard to.

Operating income margin looks like.

No I'm looking at the three.

Categories product development sales marketing general and administrative.

Over the life.

Your next month.

You know they've looked like the increase not all on all fronts.

I'm, just wondering but but the margin the margins have been decreasing.

I'm wondering if there is gonna be a leveling off though anytime soon or or what's your what's your goal there.

I think what you'll see at our operating expenses. Chris is a reminder, we did a couple of acquisitions at the end of last year. So you will do you look from a year over year perspective, you'll see higher operating expenses until we lap those acquisitions.

But beyond that and you know as we've talked about and we've.

We've communicated our general model is to grow our operating expenses at a lot lower rate than our revenue growth and so we expect our you know over the long term that our operating expense base would increase about.

ER mid mid single digits a year.

But I'd get a trend, though I would think about.

Organically organically.

But do you will see a higher or elevated levels on a year over year basis until we lap the acquisitions.

Okay. All right. Thanks, that's all questions on that.

Next question will come from John Campbell Stephens, Inc.

Hey, guys. Thanks.

Additional question that had two quick ones, Doug I think you said the back half of the year double digits out of education.

Greg I don't I don't know if you can provide this if you have this one hand, but what did what was what was education growth excluding DCH in this past quarter.

I don't have that off and John I apologize.

Okay, I can probably for set out later and there was like when I had a little bit more off the wall I don't know because even remotely impact what do you guys, but what the FIFO accounting changes.

That how does that have an influence on credit cards business or personal loans anything where I guess they have to just for potential loss ratios.

Yes.

No we have not seen any impact from that.

Okay. That's all I got thanks, guys.

Thanks, John.

Once again, everyone. If you have a question today.

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This does conclude today's conference I'd like to thank you all for your participation you may now disconnect.

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