Q4 2020 Quinstreet Inc Earnings Call
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Good day, and welcome to the Quinstreet fourth quarter and fiscal year 2020 financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Erica Abrams. Please go ahead.
Thank you Todd good afternoon, ladies and gentlemen, thank you for joining US today as we report Quinstreet fourth quarter fiscal year 2020 financial results.
Joining me on the call today or doesn't guarantee CEO, Greg won CFO quinstreet.
Well, it's been tough simultaneously webcast on Investor Relations section of our website at Www Dot Quinstreet Dot com.
Before we get started I would like to remind you. It's a following discussion contains forward looking statements. These statements involve a number of risks and 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 results to differ from our forward looking statements are discussed I did the legal notice section in our form 8-K filed today with the FCC, including disclosures about be effective covert 19 unrelated restrictions on our business and they're also discussed in more detail under the risk factor section Interestingly Pete.
[laughter] Didnt, our most recent pinch you filing.
Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements.
Today, we won't be discussing both GAAP and non-GAAP measures reconciliation of GAAP to non-GAAP financial measures are included in today's press release.
Which is available on our Investor Relations website.
With that ill turn the call ever to Doug CEO of Quinstreet. Please go ahead.
Thank you Eric.
Thank you all for joining us today.
Fiscal Q4 was a successful quarter for Quinstreet.
Despite challenges posed by cobot nineteens impact on clients media and operations.
We delivered better than expected results on both the top and bottom lunch.
And we made excellent progress on strategic and operating initiatives.
We continue to narrow our focus and investment.
So our biggest and most attractive opportunities.
Also.
Our reorganization has reinvigorated functional excellence and competitive advantage.
Correct and media.
And with clients.
And just delivering better faster progress and results.
Overall.
We believe that we're now better position for long term growth and performance than at any time in the past decade.
Revenue, excluding divested businesses grew 3% year over year in fiscal Q4.
Adjusted EBITDA was 7% from revenue.
We generated strong cash flow.
Ending the quarter with over $170 million in cash.
Our financial performance during the pandemic.
It's once again, highlighting the strength of our long term opportunity and advantages.
And the resilience and strong cash flow generation characteristics of our business model.
Results in the auto insurance and home service client verticals, our two largest businesses and the core of our focus going forward.
Were particularly strong in Q4.
Auto insurance revenue grew almost 50%.
Year over year at home services grew almost 30%.
The over performance in those client verticals was driven by strong client demand.
Good navigation by our team, including shifting efforts to areas less impacted by the pandemic.
An excellent execution and progress on big and important long term product media and client initiatives.
The strong results in auto insurance and home services offset weakness in our credit driven quite verticals personal loans and credit cards.
Which continued to be negatively impacted our clients response to the weakening economic and employment environment.
Those businesses declined significantly in the quarter.
As we had expected.
On the strategic front.
We acquired modernize add to our scale and capabilities at home services.
The modernize transaction closed on July 1st.
Subsequent to quarter end.
Additionally.
We further narrowed our footprint than fiscal Q4 by divesting our mortgage assets.
The reminder.
The objective and expectation.
Narrowing our footprint and focus.
We will deliver faster and more predictable growth in revenue and EBITDA in coming quarters and years.
Q R. P continues to progress well.
The pipeline for that important new products further strengthened in the quarter.
And though still early in early stages.
We're seeing good and growing implementation and usage activity buy side clients.
The current quarter.
Our fiscal Q1.
It is expected to be the first quarter of meaningful revenue for Q R. P.
Turning to our outlook.
It remains difficult to forecast specifics.
For two look too far ahead.
And these uncertain times.
That said.
We expect to the general trends of strength in insurance at home services.
And weakness in credit driven quite verticals to continue in the near term.
Our current estimate is that revenue in the current quarter.
Our fiscal Q1.
Well be between 125 and $130 million.
We expect adjusted EBITDA margin to again be in the mid single digits.
With that I'll turn the call.
However to Greg.
Thank you Doug.
Hello, and thanks to everyone for joining us today.
Q4 wrapped up another record revenue year for Quinstreet, despite significant headwinds in the second half of our fiscal year due to cope with 19.
For the fourth quarter total revenue was $117 million, a decrease of 4% year over year.
Revenue, excluding divested businesses.
Grew 3% year over year.
Adjusted EBITDA was $8.4 million were 7% of revenue.
Adjusted net income was $70.4 million or 14 cents per share.
Looking at revenue by client vertical.
Our financial services client vertical represented 76% of Q4 revenue decreased 3% year over year to $88.6 million.
During our fiscal fourth quarter, we divested our mortgage business.
Excluding divested businesses, our financial services client vertical was about flat year over year.
Auto insurance, our largest business delivered record revenue and grew 47% year over year.
This growth reflects strong spending from a broad range of major carrier clients.
Excellent progress on a number of long term growth initiatives in the quarter.
Our credit driven personal loans and credit cards businesses declined significantly year over year as expected due to cold in 19, driven economic unemployment conditions.
Our home services client vertical represented 12% for Q4 revenue in grew 29% year over year to $14.4 million a record quarter for that business.
In the quarter.
We executed well in shifting our efforts to better performing less impacted areas of our home services business.
Great exceptional revenue growth. Despite these unprecedented times.
On July 1st.
Subsequent to our fiscal year end.
We acquired modernize the outdoor scaling capabilities in home services.
Total consideration.
Was $67.5 million, which included an upfront cash payment of $40 million.
And notes payable of $27.5 million, which wouldn't be be paid and equal annual installments over the next five years.
Modernize is expected to add $50 million to $60 million to fiscal 2021 revenue.
In margins are expected to be accretive to cover the EBITDA.
Our education client vertical.
Represented the remaining 12% of Q4 revenue decreased 8% year over year to $13.9 million.
The decrease in revenue reflects the divestiture of our Brazil education business in the March quarter.
Excluding the divestiture or education client vertical grew 3% year over year.
Adjusted EBITDA on the quarter was $8.4 million or 70% of revenue.
Turning to the balance sheet.
We began the quarter with $97.2 million in cash.
Big cash movements in the quarter.
With the generation of $13 million in operating cash flow.
$3.3 million from the sale of our mortgage business.
Offset by outflows of $4.6 million for seller notes issued in connection with prior acquisitions.
And $1.3 million for Capex.
We closed the quarter with $170.5 million of cash and equivalents.
Turning to our full fiscal year 2020 performance.
We posted record revenue of $490.3 million in grew 8% year over year.
During the fiscal year, we made good progress on our strategic initiative to narrow footprint to our best performing the fastest growing businesses.
We divested our b to B mortgage in Brazil operations during the year.
Excluding the divested businesses total revenue increased 15% year over year.
Our financial services client vertical represented 75% a fiscal 2020 revenue grew 12% year over year to $370.1 million.
Financial services revenue, excluding divested businesses grew 19% year over year.
Or other client vertical which included home services and B to B.
Represented 12% of revenue and grew 5% your year over year to $59 million.
We divested our b to B business in February of 2020.
Our home services business alone grew 24% year over year to $49.9 million in fiscal 2020.
Our education claim vertical represented the remaining 12% of fiscal 2020 revenue and declined 11% year over year to $61.2 million.
Education revenue, excluding divested businesses declined 7% year over year.
In summary.
We're pleased with our financial performance in the fourth quarter, particularly given tough economic conditions.
We delivered record revenue from both insurance and home services that more than offset expected softness in our credit driven quite markets.
Beating our expectations and outlook for the quarter.
For fiscal 2020.
We made good progress narrowing our footprint to our best performing fastest growing businesses.
Revenue in the year from our go forward core financial services and home services businesses was $416.2 million.
Representing a three year compound annual growth rate of 32%.
Despite current challenges related to cover the 19, we believe that we're on a path to faster more predictable revenue growth and expanding margins.
With that I'll turn the call over to the operate a few and <unk>.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to retry equipment again press star one to ask a question.
We'll take our first question from John Campbell with Stephens incorporated.
Hey, guys good afternoon, and congrats on a great corridor.
Thank you John.
Sure. So really impressive results out of the older insurance business I'm, just looking across the space as best as we can see it you guys pretty handily outpacing your peers any sense for you know what triggered that outperformance I don't know because maybe around because exposure to carriers over agents or I don't know, maybe better or less effect.
Media, a you know, Connecticut, <unk> since we're kind of what drove that outperformance.
I'm not just speculative John we on the of the other two books and reported publicly one group insurance, 1% year over year and other grew auto insurance I think 30% year over year, sorry, 50%, 47% growth, you're gear and auto insurance, which is by far and away our biggest business.
I did stand out and I think we're.
Gaining more share a budget faster clearly.
But it's tough to say yeah, we can talk to about what caused hours, it's hard to say relative to to the other folks about what did it did not cause there as far as ours is concerned.
Lot of momentum with the big carriers as you as you suggested a we're seeing.
HM an acceleration.
Well the shift of budgets to online.
During this period not surprising because offline media is is Ah that's abundant and that's that's productive right now.
Because of the loss of programming and the a and B.
The loss in activity.
And so.
Cure and in addition that carries or course healthy financially because reduce driving is it's a resulted in fewer incidents, which means lower loss ratios. So there's lot of budget.
And consumer activity is high and consumers are at home their online shopping.
Unfortunately, a lot of consumers are experiencing financial stress and when they experienced financial stress they shop to see if they can save money on.
On the things that they have to buying like insurance.
So we're seeing a good strong demand compliance and budgets shifting over it online and to us in particular.
For carriers, because a we tend to be best performing.
Platform for the carriers and we're seeing a lot of consumer shopping we're hopeful.
That the are you.
The inflection and acceleration to budgets online that we're seeing.
Ah represents a permanent shift.
Or barring any inflection against what is the permanent or the long term trend a bunch of shifting online we're pretty confident that is the case.
And if so that's really great news of course, it's a it's it will spur growth.
Growth in future periods as well as well.
The only one thing I would add is that we do have a lot of initiatives as we have.
Focused refocused on our inner core businesses, we have a lot of initiatives going on and then in insurance.
And those initiatives did add meet are quite meaningfully.
In the quarter.
New product initiatives, which added millions donerson revenue to the quarter.
New media initiatives, which similarly added millions of dollars rather good quarter.
And and and also client initiatives.
Which we're working with those plants to help them as they seek to ship more budget online working to make sure. They can do that as effectively and productivity as possible. So.
Lot of momentum.
And a long long term momentum.
In our insurance business for sure.
Hey, John This is Greg indeed be clear what what does it was referred to in initiatives was he was return refer to the core business not not related to our Pete.
Okay make sense.
Then just kind of go into the revenue model here and your second the street I'm interested in home services for the quarter I'm, assuming that the person on the credit cards, probably fell somewhere the too like 80 or 90% is out about right.
No I think they were credit cards was down over 70% and I think personal loans was down about 70% for Greg I may be confused that's right. So the combined was about 70%, 70% down year over year in the quarter. So yeah, a personal all just down just left.
And 70% in credit cards was down over 70%.
Okay got it.
I guess kind of similar to what we're seeing out there were some of your peers, but on a on the fiscal year you know when Q guidance. You know if you assume kind of there can you can be which is extreme coming out of insurance services and then you bake in other seasons and the modernize revenue I mean, it seems like you're factoring in a pretty pretty much a continuation of.
That's the pressure person, that's a credit card, maybe not cut it down to that extent, but pretty similar that's about right.
Well, we only guided for next quarter or the current corridor and where we're seeing continued significant weakness.
In credit cards, and personal loans, though a personal loans, our personal lines business looks like it probably bottomed in April or May.
And we had a we've made some good progress since.
Credit cards continues to be quite.
Challenged I mean, a lot of the issuers are back in.
In the market, but they're back in the market with either smaller card offerings or extraordinarily tight filters and and high qualification standards and or price reductions. So credit cards are still quite challenged I expect we'll continue to be for a while it's the banks.
Try to sort out.
You know their own balance sheets and try to get comfortable with you and click implications of the cobi.
And then in the economic problems caused by cobot.
Oh for consumers and consumer credit.
So I would say that we.
And one of the reasons, it's hard for us to look out much further than a quarter right now is that that's a very.
Dynamic situation as you can imagine.
So yeah, we we continue to expect Oh, the credit driven businesses to be pretty weak.
And we are we do feel like they credit cards is bouncing along the bottom a personal is bounced off the bottom.
And we'll see.
If and how their progress continues and I think it's going to be tied pretty pretty directly.
To the economy and two employment for the foreseeable future.
Okay, that's what makes sense thanks, guys.
Thanks, John.
Thank you I'll take our next question from Jason Kreyer with Craig Hallum.
Hi, gentlemen, good afternoon.
Hey, Jason.
I'll start out with just the education bids.
Uh huh.
Yes, I seem to have last year.
Oh.
Jason Please go ahead.
Do you have me.
I've got you hear you have your back.
Okay, sorry about that I was asking about education, you know brick and mortar education, probably not performing well online education, probably performing well I mean, he just walk through the puts and takes in in the quarter.
Well you hit it the online budgets continue to be pretty strong.
Not not not a dramatically stronger than they had been.
But pretty decently strong campus budgets, which have represented as much as about 40% of our education revenue over the past year or two.
Almost completely went away.
And so the that the team and that business actually did a phenomenal job.
Yes.
Working to replace it pretty.
Significant drop in demand from campus based clients, which did represent a pretty significant portion of our revenue in education, but yeah that that is the main dynamic a decent.
No not overly strong.
Online education performance and demand and.
Almost totally gone.
Is the.
Demand for campus education.
Okay, and I joined the call late so I missed your comment dogs. So apologies if you addressed this but just any update on the timeline for Q R. P contribution kind of curious if you're happy with the way things are progressing through the pipeline or do you have any pipeline update there.
Sure we are happy what the way things are progressing through the pipeline pipeline got stronger yet again this quarter.
Oh, we have great momentum.
With the carriers with the agencies agency clients.
And with our partners or the.
The carriers that are helping us to promote the product into the channel.
We feel that there's the opportunity is every bigger bigger than we have communicated previously.
Whereas excited or more than we've ever been about the opportunity.
This will be the first quarter of meaningful revenue.
For Q R P, which is great.
And it'll be up like 4000% over last quarter. The bad news is it still only gonna be hundreds of thousands of dollars. So we're early.
But it's progressing very well be outlook and the engagement and the a value proposition and how it's catching with the clients continues to go extraordinarily well.
We are getting great support.
From everybody that matters in the channel, including the carriers.
<unk> as they help us promote the product so.
And what we don't know with what we never knows exactly what does the ramp curve looked like we just and you heard me say it do your secure here in it but we just haven't done it before.
But as far as you know doing the things that we can do which is to work pipeline watch pipeline metrics. She how clients progress through the pipeline.
Well see that they implement see that they get active see that it works for the initial agents into test and see that they begin to expand it to more agents and I think we have.
Were three of the agency clients now have committed to dates when they're going to expand it a quote floor wide in other words <unk> all of their agents, which is great. Because that's what you want you know just want to keep seeing a move but the movement through the pipeline.
Continues to be a very good and the the reaction we're getting seems to be very good we've had no one drop out of the pipeline.
We've had no one say hey, this isn't a better product then we're using today.
We have no and had no one's say hey, this is a this is pricing doesn't make sense.
For the value proposition you're delivering so.
You know exactly what the ramp looks like as I said, we just don't know but.
Okay, just share progress into you know the than most important aspect of progress. This quarter is hey, we're going to absent the net revenue, it's not going to be stuck a change our lives but it's.
What the heck of lot of your last quarter. Because we are you can actually see now usage activity.
And and Oh by the caused by the folks that have signed they've gotten implemented they've gotten testing that's starting to use it and we're getting paid for.
Perfect and last one for me, we've talked a little in the past about the credit repair service that that within your personal loans offering is that doing anything to help offset the weakness or does that play a role in this kind of a market or or you know when when we started.
Well, it's back a little bit do you think that can be a more helpful product just looking for more color on that.
Yeah, yes, absolutely.
Absolutely.
Oh, there's huge demand right now oh for credit repair.
In credit management services, and we are seeing that in our in our personal lines business as you know.
The acquisition of Am one.
One of the same into the several things that acquisition brought to us was better coverage and better abilities to match consumers to high quality credit repair and debt settlement provide a service providers. So.
Absolutely part of the reason we bounced up.
After bottoming in April or May in personal loans was the.
Oh demand that we were able to service.
Increasing significantly increases in demand Unfortunately really.
For credit repair and debt settlement credit debt settlement services. So <unk> Ah, yes, a we've put a lot of focus there.
I expected that will allow us to continue to grow off the bottom that we saw on India early spring.
In personal loans and expected that we'll continue that will be a nice strong business offsetting weakness with the lenders or in the foreseeable future.
Thank you.
Thank you Jason.
Thank you once again to ask a question. Please press star one.
We'll take our next question from Jim Goss with Barrington Research.
Hi, Good evening, a this is pat on for Jim.
I tell just wondered if you could.
Hi. This is one of you cut out to talk a little bit more about the carriers are helping to support your roll out of Q R. P and maybe just how.
No. They reacted just in terms of.
How that how they view or your your funnel per customers or just more generally with that roll out.
Yeah. The carriers are supportive of Q R. P and have been from the beginning date they were the ones that Rudy.
I told us it.
They there was an opportunity for this product in the channel.
And and we worked with them to find it into it to build it in a way that they and their carrier or their agency partners thought would be.
Most effective.
They continue to support us by.
Acting as a reference for the product.
By a working with us to add more integrations to the probably we have that long we already have the most.
Oh, and and integrations with carriers.
For accurate quoting.
In the country as far as we know and I'm pretty sure we know.
And now we have the deepest pipeline it even more end to end integrations with more carriers.
And then more states.
Add to that and you have a whole team in India working on that full time.
And we also have carriers committing to use the product.
In a in their own organizations, because many carriers have call centers almost all of them do.
And those cost centers, very often if someone doesn't match that carriers policy or or or.
Or other criteria.
Some of those many there's consumers go on served and so a big part of the pipeline volume wise.
<unk> carriers that have a.
Committed.
Do you use in Q R P in their own call centers to satisfy consumers it today.
Get you know what they were pit terms you shouldn't call center in the agency. This of course and this is dropped on the floor.
So we're getting support so from a from a promotional event and and support for the product reference for the product we're getting support in terms of integrations. So we have even more or like accurate end to end rates and integrations and getting support body curious actually.
Committing to adopt the product so across the board support.
Okay.
And then there's a heck of a lot a lot of moving parts on the topline, but what I'm I guess at the the midpoint of here in Q1 guidance, what would that sort of translate to an arrow thier growth rate just between all the divested in acquired businesses.
Greg you have that I don't have done in front of me.
I don't have that in front of me right now.
[laughter].
So I had had a.
And with a great exceptional Claire okay.
Thank you Pat.
Thank you again to ask a question. Please press star one.
Well take our next question from Chris a kind with singular research.
Oh, Hi, Doug in grade Ah, Hey, Chris that's out there.
Hi.
Got a question on modernized a one it you have to see.
You know.
In the next quarter will will revenue be.
You know sort of recognized from the acquisition you know what what's the sort of ramp up time for modernized.
Yeah, we won't reported separately, Chris I'm, because like most of our acquisitions. It's this is a business that we pretty immediately combined with our existing home services business, which as you know which.
Running it did about $50 million last year, so we'll be incorporated into our numbers this quarter quite cleanly since we closed on July 1st in fact.
And we'll be reported as a as within our home services.
Financial results, so that revenue will be in the in the home services numbers.
And.
Sounds pretty directly into the business, we as Greg indicated and I think we indicated when we announced the acquisition.
We expect total revenue for modernized and the full fiscal year 2021.
To be between to add between 50 and $60 million.
To a company revenue and of course to home services revenue as a component of that.
And so are you sure you'll be out you'll see that this quarter.
As the first quarter revenue the exact number four modernize this quarter I you know I don't you know when terms or what it might represent again 'cause this combined with home services. It's what they had plus what we can add due to the synergies the synergies will come at it increasing hopefully accelerating pace throughout the year. So you know this call.
There will likely be the least impact from modernize and the on and the lowest incremental revenue from modernized, but we would expect that.
Subject only to seasonality or that will grow.
As we get the business movie.
<unk> integrated with our existing business and we.
Execute against.
Quite significant synergies between the two businesses in terms of <unk> media efficiencies and quite budgets and.
And product improvements.
Okay.
Great and then.
As far as yes. The acquisition goes are there in this coming quarter, our they're gonna be any extra sort of acquisition costs or was that in the in the last quarter.
I don't think there are any Greg do you I mean, I'm missing anything I I'm pretty sure there's an acquisition costs or.
All behind us, but Greg together, but does not materialize, they're all if you could there be small pieces coming up yeah, right. There there could be but no I expect the bulk of the acquisition costs related to that.
In in the June quarter.
Okay, great well a lot I am I take so for me so the thing.
Great. Thank you Chris.
Thank you. This concludes today's call a replay of the conference will be available by dialing 8882, 03111 to 47194 or 570 820 The act.
Says code is three to one 6055. Thank you for your participation you may now disconnect.
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