Q3 2021 Quinstreet Inc Earnings Call

May 5, 2021

[music].

Ladies and gentlemen, and good day and welcome to the Queen Street third quarter fiscal 2021 and financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Hayden Blair Investor Relations that Quint Street. Please go ahead Sir.

Thank you David and thank you to everyone joining us as we report <unk> third quarter of fiscal year 2021 financial result.

Joining me on the call today are Chief Executive Officer, Doug lengthy and Chief Financial Officer, Greg Wong.

Before we begin I would like to remind you that the following discussion will contain forward looking statements.

We're looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance.

Factors that may cause results to differ from our forward looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our 10-K filing made on August 28 2020.

Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements.

Today, we will be discussing both GAAP and non-GAAP measures.

A reconciliation of GAAP to non-GAAP financial measures are included in today's earnings press release, which is available on our Investor Relations website at Investor Day, Quint Street Dot com.

With that I will turn the call over to Doug Valenti. Please go ahead.

Yes.

Thank you Hayden.

And thank you all for joining us today.

Our business momentum and execution continue to be strong.

We delivered excellent numbers once again last quarter as a result.

Revenue, excluding divested businesses grew 39% year over year.

Adjusted EBITDA.

Grew 65%.

Cash flow was strong.

And we continue to maintain a strong balance sheet.

We expect the business momentum and good results to continue and the current quarter.

Last quarter's results.

And we're again driven by strength and insurance and home services.

Our two largest businesses.

Where we delivered record quarterly revenue and.

We estimate that those client verticals represent large addressable markets.

Tens of billions of dollars.

And that both are still early and.

There are shifts to digital and performance marketing.

And and Quint Street market share.

We also continued to see improving trends and the credit driven client verticals of financial services.

We expect those businesses to return to year over year growth and the current.

June quarter.

Most important.

We continue to make excellent progress on a wide range of growth initiatives across the business.

And to strengthen our products.

Technologies.

And operations.

For future growth.

Competitive advantage.

And efficiency.

Those growth initiatives include QR P.

The pipeline there continues to growth.

And client integrations cash.

<unk> and.

And initial rollouts.

Continue to progress.

Revenue is still early but ramping.

And our long term expectations for Q R. P.

We remain excited.

And in the meantime.

Our core business tail winds.

And strong.

Marketing budgets and consumer activity.

Continue to shift to digital and and.

Precedented rate.

And increasingly.

Performance marketing and media.

Within those Mega trends.

Quint Street performance marketplace solutions.

Are ever more recognized.

Are the biggest.

Most sophisticated.

And most advanced clients.

As their most productive and consistent digital marketing channels at scale.

We had a record number of <unk>.

And actual services and home services clients.

Spending over $1 million per month with us and the March quarter.

We also continued to make precise.

Industry consolidating acquisitions and investments.

To accelerate progress and our client verticals and in new product areas.

We've made two relatively small acquisitions and.

And one strategic investment and and early stage technology company last quarter.

Turning to our outlook.

As I indicated earlier.

We expect the strong business momentum and results to continue.

Revenue in the June quarter.

Our fiscal Q4.

And is expected to be between 140.

And $145 million.

Seasonally consistent with last quarter's outperformance.

And once again, representing 39% year over year growth and revenue excluding divested businesses at.

At the midpoint of the range.

We expect adjusted EBITDA to be between 12 and $13 million.

Consistent with the top line seasonality of the June quarter.

And representing about 50% year over year growth.

At the midpoint of the range.

With that I'll turn the call over to Greg.

Thank you Doug.

Hello, and thanks to everyone for joining us today.

Our strong business momentum and execution continued in Q3.

And where we delivered an all time record revenue month in March and at all time record revenue quarter and Q3.

All while expanding adjusted EBITDA dollars and margin.

Total revenue was $153 1 million and grew 39% year over year, excluding divested businesses.

Adjusted EBITDA was $15 4 million.

Or 10% of revenue.

And grew 65% year over year.

Adjusted net income was $10 9 million or <unk> 20 per share and grew 57% year over year.

Looking at revenue by client vertical.

Our financial services client vertical.

Represented 76% of Q3 revenue.

And grew 18%, excluding divested businesses to $116 3 million.

Momentum and auto insurance, our largest business remains strong where we delivered an all time record revenue month in March and.

And and all time record revenue quarter.

This reflects strong spending and growth from a broad range of major carrier clients.

And good progress on a number of growth initiatives and the quarter.

Also in financial services, our credit driven client verticals continued to improve on a year over year basis in fiscal Q3.

We expect these businesses to return to year over year revenue growth and the June quarter and to be good long term growth drivers for Quint Street.

Our home services client vertical.

Represented 23% of Q3 revenue and grew 204% year over year to $35 million.

From services continues to outpace our expectations due to strong organic growth.

And to the continued success of the integration and capturing of synergies from the modernized acquisition.

Other revenue, which consists primarily of performance marketing agency and technology services was the remaining $1 $7 million of Q3 revenue.

Turning to the balance sheet, we closed the quarter with $103 $2 million of cash and equivalents.

During the quarter, we generated $13 1 million of operating cash flow offset by $11 million of cash outflow for two acquisitions and our strategic investments.

Normalized free cash flow for the quarter was $13 $1 million or 9% of revenue.

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

Okay.

Our success and narrowing the footprint to our best performing and fastest growing opportunities as evident.

Trailing 12 month revenue, excluding divested businesses was $518 4 million, reflecting a three year compound annual growth rate of 28%.

With that I'll turn the call over to the operator for Q&A.

Thank you ladies and gentlemen at this time the floor is open for your questions. If you would like to ask a question you may do so by pressing star one on your Touchtone phones now if you're on a speaker phone. Please make sure that your mute function is disabled to allow your signal to reach our equipment.

And then if he would like to ask a question. Please press star one now and.

And we'll give it just a moment to let everyone have an opportunity to signal for questions.

And it looks like our first question.

Hold on just a moment.

Yes.

Our first question comes from.

John Campbell with Stephens.

Mr. Campbell Your line is open Sir.

Hey, guys. This is James Holly stepping in for John Campbell.

Hey, James.

So I kind of wanted to touch here on the insurance side can you talk a little bit more first about some of the growth youre seeing there maybe like how much it grew or some specific numbers around that.

Yeah.

Yes auto insurance grew over 40%.

Year over year and the quarter.

Very strong momentum still.

Obviously, if you look at some of the numbers that have come out.

And the other companies and the space you can tell that we are gaining share and growing share.

It's going faster.

And those who have reported so far and not surprising given.

The.

Initiatives, we have going on our strength with client budgets and clients.

And our expansion of the product set and the mediaset.

And that you know our biggest business vertical.

So yes.

Lots and lots of very good stuff going on and auto insurance and insurance broadly.

A lot of momentum.

A lot of strong growth as I just indicated.

And very good outlook.

Yeah. It was really impressive to see what you guys did there.

And like competitor only grown about 5% and then you guys are up and around 40, so it's really impressive to see how.

And that's all I got take percent 42, Thank you 42%.

Thank you guys.

Thank you James.

Thank you. Our next question comes from Jason and prior with Craig Hallum.

Thanks, gentlemen, nice quarter.

Thank you Jay you mentioned, you mentioned and you're in the early stages of this shifted from.

Online and the performance marketing and over the course of the last year. Obviously, it seems like we've seen an acceleration of that trend and certainly you recognize that and your business. Just wondering as you look forward do you see any risk that the rapid moves we've seen and the last year could kind of take a little bit of a breather this year and all of them.

Media formats could maybe.

And a little bit more market share relative to this this online and pivot.

I don't think and a fundamental way Jason.

Whether or not we can sustain 40 50, 60% year over year growth rates at their scale or you know.

Consistently though I think we will see.

We will see other rounds of debt in the future.

Is doubtful.

But we do not see.

Following them to offer the clip or a reversal and trends of clients wanting to spend more on digital and it's just not the indications we're getting from clients. So I'm not when I say that I mean, that's this is from indications that we're getting from our clients about their budgets going forward in the coming year.

And the programs and initiatives that we're working on with them. So we do not see.

A meaningful reversal or any reversal at all in terms of budget going back offline from online.

Whether or not you know I think the growth rates will remain strong and and and we expect.

Good good strong double digits.

And whether or not we will you know, we'll keep stringing together, 40% to 50% at this scale.

Indefinitely and consistently as is.

Unlikely but.

We don't see a slowdown from double strong from good strong double digits, and we don't see a reversal.

And again clients are much the big Megatrend here continues to be.

Clients wanting and needing.

You spend more money and digital and being Underexposed and under leveraged against digital.

Versus the opportunity.

Perfect.

I appreciate that.

Wanted to walk through puts and takes on the home services side, you've now lapped the beginning of pandemic headwinds and so thinking through the different services you offer and I would assume things like indoor remodeling and starts to see easy comps, while I gutters and solar probably starts to see difficult comps so can.

Can you maybe frame what your expectations are as we go forward.

And home services continue to grow the way. It has the last couple of quarters or do you expect any acceleration or deceleration in that category.

And we expect again continued strong double digit growth and home services. The triple digits is largely coming from the the effects of the acquisition, which we will lap here.

And the next couple of months.

But in terms of the organic momentum.

And strong double digit growth at scale, we expect that to continue.

Really for as far as you and I can see I mean, we are.

And then maybe the most underpenetrated.

Versus the Tam and.

And home services and have a very clear view and runway.

And for continuing to expand.

And grow and that that really big market share.

I think we will have the lapping of the modernized acquisition.

But I think we expect the power right through that with good strong double digit growth for literally as far as the eye can see we are already talking about.

Numbers and the next couple of years that are that are pretty significantly higher than where we are today and we have we have our eyes on.

And a half a billion dollar revenue business there and the next three to five years on an annual basis. So we think that's a big market. We think we can make it.

We can pick up that are really big business, there and even then we will be relatively small and relatively underpenetrated. When you look at the number of service providers that we will be representing and the percentage of their budgets that will be.

But there will be representing for them on line. So that is a massive market and a very very big long term opportunity, we have a lot of momentum there.

Okay last one from me I'm going to take the bait from from earlier in your prepared remarks, but you mentioned some tuck in acquisitions and a strategic investment can you give any additional color on those.

Yes.

Tuck in acquisitions, where both and insurance a couple of small opportunities that we think added meaningfully to our our footprint as we continue to look to expand different lines of insurance.

And we're both and not an auto insurance.

And so those were excited about because as you know, we often we can pick up bits and pieces that help us.

Get our cycle moving faster and ramp that so those were those were small acquisitions that help seed and and accelerate the development of a couple of insurance verticals that.

And that we're continuing to work hard and growing pretty rapidly.

And the strategic investment wasn't a technology company that there is a technology, that's very important to our future product we have.

And that we're working on.

And as part of our continued.

Progress and deepening our integration.

And to our client verticals.

And this is a very big long term program, we're working on that that's a it's similar and and attractiveness in our opinion to QR P, but and AR and AR and.

And a different vertical.

And this locks down debt technology partnership, which is a key piece of that product and it gives us exclusive rights to that that technology in that business area.

And as a as just part of that.

And that roadmap.

And we're super excited about that business opportunity and we'll talk more about it as it gets a little bit further along a little bit.

More ready for prime time, but think of it as is.

The piece of the product roadmap of R&D for another deep integration technology and another one of our verticals and another one of our very big verticals.

And our product profile debt debt from a size and profitability standpoint looks a lot like your RP.

Perfect. Thank you appreciate the time, Inc.

Thank you Jason.

Thank you. Our next question comes from Adam Klauber with William Blair.

Hi, Thanks couple of a couple of questions.

I'm not sure. If you said it was generally what has been the organic growth of the home service from the last quarter and to the last two quarters.

22%, Adam I don't have the numbers.

And right in front of me, Greg and thank you.

Hey, Adam last quarter, it was 21% organic growth okay.

Okay great.

Has that picked up or has that run what its been running the last quarter of the last quarter or two.

That increase from last quarter last quarter, we are and the teams.

Okay, and they look at per quarter. So December quarter was and the teams organically this quarter it was 21% great.

Great.

And then for the.

The credit card and personal loan business, how much of a drag would you say that was this quarter on growth just thinking roughly.

Yes, the overall credit driven businesses.

And about 35% this quarter and that's.

Down from.

42% and the December quarter, 60%, and the September quarter, and 70% and the June quarter of last year.

Okay.

So as I think you said you are you exposed to more flatten out next quarter also.

Yeah, it's pretty pretty low numbers is that right.

And we expect it to return to growth.

Pretty strong growth there are and you heard the second derivative has been getting better and.

We are I think I said this last last quarter up pretty significantly from the bottom and.

And those businesses were still a long way from the top.

But we do expect those businesses to actually all of those businesses all of the financial services.

Client verticals, we expect to grow it.

And pretty significant double digit rates this quarter year over year, the current quarter year over year.

Okay.

And so and those credit businesses from February to March and to the extent you know just April.

Have you seen sequential improvement and those businesses.

We have yes.

Continuously.

Sequential improvement that there's again I think and Greg you you would have the numbers, but I think were up and.

And at least 80% to 100% off the bottom.

And Brian has been a consistent up into the right trend Adam.

And we expect that trend and we're seeing that trend continue we're seeing the client the clients are back.

Budgets are back.

Underwriting sectors are opened up and really the Michigan ingredient at this point, although it's already begun because as you can hear the business has already started coming back.

Really a re ramp of consumer activity.

You and and credit cards that will.

That would be.

And just general consumer spending activity, including per travel, which is a big part of credit cards, which is just just beginning to come back.

And in personal loans, just kind of getting beyond our beyond the stimulus.

And also getting people are spending on their credit cards to them. They want to consolidate that credit card debt to a lower rate and a personal loan and so.

A lot of good trends were still be.

Up a lot from the bottom and those trends had been continuously improving.

From the bottom which was.

A little over a year ago and.

And a good outlook going forward and those businesses.

Okay. Thanks, and then as far as QR P. How many agents have for agencies and sign.

Signed up today versus maybe six nine months ago are beginning to use it.

I think we have 25 launched and sign now mean that day.

The answer is it's up.

Pretty significantly I don't have the exact numbers in front of me book continues to be up and to the right and the progress and to everybody that has signed has also been good and everybody that has launched has also been good. So if you look at every piece of the pipeline.

We are very pleased as our carrier partners.

With the progress that and then and now and.

And where this thing is going we are.

As excited today.

About QR P given that progress and that feedback as we have ever been.

Actually more than we've ever been and we think it is a bigger opportunity than we ever have.

Great Yeah, that's good growth if I remember roughly.

Roughly a year ago, you were more in the single digits silicone and from that to 25 is definitely a good sign and.

And then as far as home service and that thing.

And youre going to do it but you know is there are there other acquisition debt could not just tuck ins that could move the pilot like the last one.

There are other opportunities to look at and we will.

Continue to do that we as we proved with modernized and as we've proven and so many places probably way twenty-five signed agencies is the number I just went back and I just went to a pipeline report.

And.

We have 31 fifth day something.

And the in the later stages of the pipeline and.

And so oh, Okay, Big Big continued progress and opportunity and TRP.

And the.

Oh, I'm, sorry, I got caught myself.

My first question Oh, sorry.

And then the last question is that you know.

The last year or so you've signed up some big marketing partners, helping the insurance vertical.

Is there a point, where some of those annualize and will that have an impact as they begin to annualize or is this just more of a continual flow and I'm looking at are there one or two big Big partners that signed up that are you know really been pushing growth from the last two quarters that are probably still grown but maybe two quarters down the road wont have as big and impact.

I don't think so I don't think we've had any big chunky new.

Publishers are partners come on line.

And that we're gonna be ramping and the pursuit of its a fairly continue.

Fairly smoothed continuum, Gregg and Matt and micro getting anything no no youre not I mean, we're not overly concentrated in any single publishers and so it's just a continuation and they continue all day.

Alright, Thank no single public still that I think is still the fact that no single publisher represents.

Even 10% of our.

Insurance volume I think that's still correct.

Okay.

For me, but it's been a cash okay.

So again, thanks for the answers guys.

You bet.

Thank you. Our next question comes from Jim Goss with Barrington Research.

Thanks.

And listen the home services category I'm wondering if there if you could talk about which specific verticals, where most prominent debt this quarter and how that might have compared to a year ago. When you were in the midst of the pandemic has there been a shift from <unk>.

And outside do more inside type activity.

Or is one complements the other and that helped you achieve greater growth.

Oh, that's a great question I don't think there's anything anything.

And that's particularly illuminating there Jim we're still.

The bias right now amongst consumers are still the exterior work and.

And so that's still has represented the strongest growth areas for us, but we have good growth there is and more interior oriented areas as well, particularly as the as we come up and coming out of the pandemic and as clients have been coming back and there's some supply chain and gotten fixed source of supply chain effects for a while and.

And some of the indoor products, including somebody that's a kitchen and bathroom and related remodel products. So I'd say, it's still a bias generally towards the exteriors you would expect but good activity across the board and we're seeing good growth.

Xtra, and interior and and I would expect the.

Interior stuff to just continue to come back at a pretty good clip as we get.

Further and further down the path of opening up.

Opening up People's homes and people getting vaccinated.

Okay, and just to make sure I'm reading this correctly when you talked about the 21% organic growth.

Brian are you basically suggesting.

A modernized was bigger than your own home services last year and the third quarter.

And with which you've been comparing and that would be a similar situation and the fourth quarter before you lap it and move on this.

And the single comparable year over year company.

Make sure I understand the question, but you have modernized we will lap Greg July 1st attended my first is that yes.

I burst and of course, the July so and that 200 and subjects and year over year growth you've got to modernize volumes. If you were to take the if you were to normalize out and modernize volumes. The overall business the combined business.

Including modernize.

Greg keep me honest on the calculation here was about was up 21% year over year.

Right.

Okay, that's very well and picture because 11.5 year ago quarter, modernize would've been more than that number to give you there.

That's right that's right Jim first of all we do from our organic growth calculation as we take the two stand alone businesses.

From last year, we take our stand alone.

Home services number, adding to modernize and standalone and calculated and the growth off of that to get to the organic growth. So yes, that's correct.

So that's a reasonable template for the fourth fiscal quarter and.

And then we get into normalcy.

Except once we like we're lagging and yep.

Okay.

And our outlook is for growth rates to be and that 20% plus range.

Going forward on that business.

And then and last question how are you thinking in terms of your.

Our future growth and home services to focus to a greater extent and.

Filling in the.

Several verticals that may be key to you right now I think there are five or six I think the last time you talked about this or are you is it.

And it to try to move into other verticals.

As a complementary.

Our basis for those five or six they're big right now.

It'll be both we have a lot of growth opportunities and the and the verticals that we're already in.

Four of five of which are the most mature and and biggest right now we have another six plus that are.

You know earlier stage, but decent size and then we have.

You know call it another.

It doesn't or so debt.

Are we that we're beginning our footprint and and we're very early so that the growth will be coming from a combination and we're organized this way.

Both are continuing to develop the productivity and the effectiveness of the marketplaces and the the servicer and the trades, we call them the trader services we're in.

While also continuing to add new trades and develop those new trades.

Just from an earlier stage. So it's one of the reasons the growth and the scale and home services and so attractive to US going forward is that we have both of those vectors of growth and each of these service areas is quite large so we have a rhythm.

We got a lot more we can do and the verticals were in even the most mature ones, where some of which about a weighted the ones that are growing fastest force.

And then we have a lot of new verticals. So it's a lot more growth to come and we have more brokers were going to add over time. We think we can be and you know anywhere from 50 to 100 per head between depending on who you believe and and and and and how they develop trades that is trade might be.

Roofing siding kitchen, Remodels and home security.

Something like that and so those are there's a book that will come back to what we would call a trade or a sub vertical.

So we expect both and we're working on both and that's why we as far as the eye can see we see growth and home services.

Yes.

Okay, and one last one to the extent that you are still a very small given relative to the Tam you outlined are you attracting a lot of attention and therefore, our competition does.

And you might have never had before.

And is this and home services are generally.

And home services channel and Homeserve specifically.

Yeah home services.

And there is there's reasonable competition there already but.

It is more consolidated already then say insurance.

We we believe we're a pretty strong number two at this point and this and the performance marketing and marketplace model to Angie.

And there's pretty there's quite a bit of white space between us and and number three and.

And it would be a priority.

Tough.

And the challenge for them to try to figure out how to catch us.

These are companies that have been around a long time, so right now I'd say, let's say.

It's as complicated and difficult and space to execute and is there and it's and performance marketing, partly because there's multi service multi vertical.

The good news for Quint Street, as we were built to be multi service multi vertical and we've always been multi service multi vertical and so theres a lot of fragmentation of folks that are in specific verticals and are folks that have begun to go multi vertical but have kind of stalled because of the complexity of trying to do that and.

And so it's Oh, there certainly is competition, but.

And I'd say that we are further along the consolidation curve.

And that market and.

And most waves and we are and insurance where theres still.

No relatively good amount of.

Fragmentation and competition for the scale of that industry.

Alright, thanks, guys.

Okay. Thank you Jim.

Thank you. Our next question comes from Jacob Stefan with Lake Street capital markets.

Yeah, Hi, Thanks for taking my question I'm here on behalf of Eric Martin Newsy.

Just a quick question about possible margin compression and so there is.

Some of these governments want to kind of.

Take advantage of other retailers or other.

Other large advertising digital advertising companies, making a can.

<unk> gross revenue.

Yes.

Worried about any margin compression, where and he might be charged more.

Per per lead.

And really Jacob we're not saying that we generally.

Our price makers not price takers, so where were the ones that are driving the price up because that's our marketplaces get more and more efficient and productive.

And and yield more than we're able to pay.

Pay that much more from media whether it be in the.

Partnership or and by click stay from a Google.

And as you know as well.

We we control to a large extent our gross margin.

Because of the where we choose to be on the media.

Kirk.

And so no not really we're not saying that the the main effect that you were you should to manufacture you should continue to see on margin with us.

And as operating leverage.

As we grow.

Revenue.

Debt on average 30% Inc.

<unk> margin.

Which is the.

Contribution after media costs, and we dropped and we'd get because we grow that at double digits, which we expect to be able to do for as far as we can see and we dropped that onto a semi fixed cost base underneath that.

And then there's a natural upward tug on on EBITDA and that's what you've been seeing lately and you saw again last quarter.

You'll see a little bit of a diminishment of that this quarter only because this is always a seasonally down quarter for us over last quarter down a little bit. So you lose a little bit of that operating leverage and then it starts coming back up again as we flow through the rest of the year into again.

Next the next time, we hit Q3, which is our is our peak quarter of the year fiscal Q2 or your.

Normal human calendar Q1, so we're and that's so that's one effect is that operating leverage which will be driving our margins and we expect to bear and continuing to drive our margins up to operating leverage.

As we continue to grow that top line at about debt incremental contribution and to a semi fixed cost base below that line.

And as we are blending in at a higher rate now.

A much higher margin businesses than our traditional and historic core.

And.

And so that is going to.

Depending on how we just decide to manage that either do we.

And it to grow faster.

Or do we find that we can't do that and in a way that we feel is maximally productive or efficient and therefore do we begin to grow that 30% number.

Which is good which obviously drives everything else up until the ride at a higher higher rate.

Those are things that we're working on and with their trade offs. It will have to make because of course, you want us to continue to invest in growth but.

You know again day.

Take lets take your pay for example, if Europe is anywhere near as Big as we think it is and it seems to be.

That is that blends into the business model and there's going to be a pretty dramatic impact up until the ride on margin.

And we probably will be at that point.

Probably have to expand margin beyond just the operating leverage effects.

So, but those are the things that I expect to have the biggest impact on margin and.

And the foreseeable future debt do not see any effects from the other things you mentioned.

Not material.

No that's great color. Thank you.

And just overall macro question.

Kind of piggybacking off of Jason's I believe.

Are you guys concerned that you have.

While consumer spending might kind of shift away from being online as you know everything kind of starts to open back up and it was live concerts and.

And just how.

How do you think about that.

Yeah. That's a great question, we don't own the clients don't either.

We've said for awhile and and what the clients have indicated to us is debt.

This has been and acceleration of our long term curve to spend more in digital and.

And on digital marketing.

And it's helping to and to catch up faster. They were they were forced to focus on it and and.

And by COVID-19, because other channel is diminished so rapidly, but none of them are talking about pulling budget back out of digital to put into other channels.

Our offline channels, we're not hearing that from anybody no clients.

We don't expect that what we do expect is that we're further up the curve.

And that we're going to keep running up that curve and the slope of that curve.

I think well you know it was unlikely to stay $4 50 per cent.

200 per cent, but we think it's going to be.

Strong double digits up into the right place for the foreseeable future.

A couple of things that are working in our favor going forward that kind of wood.

Credit card use is only going to drive more credit card spending.

Credit card usage and drive more personal loans lending growth of business that have been completely we're dead and COVID-19.

And we also expect on home services side that a lot of the verticals that had been installed by COVID-19 a lot of the <unk>.

<unk> services that Jim talked about or Jim referred to me I was talking about.

And are coming back and.

And we're seeing a lot of homeowner activity and what people do and homes get really expensive.

Don't sell the home and move which most are not doing as they invest in their homes.

And so we are seeing extraordinary demand and strength.

And home services and we see no reason why that would do anything other than increase post COVID-19.

Again, driven largely by the fact that people now are now willing to have work and workers.

And done in house.

Well that's great. Thank you congrats on the quarter by line.

Thank you Jason.

Thank you our last question comes from Chris Sakai with singular research.

Hi, Hi, good afternoon.

Hey, Chris just had a question on and Doug.

Interest and I know you mentioned, you talked about it and the Q&A, a little but entrance into new client verticals.

I know you said you've got a lot on your docket already wanted to see get your idea about.

What when it takes or how do you test it and that's it.

Far as well.

And what you think can be and next great successful client vertical.

Sure and and ours.

And when I talked about that I was referring to adding more service trade or trade verticals and home services.

Where.

It's really a home services is broadly made up of a lot of independent trades and get and roofing would be one siding with day one.

<unk> home security with day one.

Kitchen, remodels bathroom, remodels and social with each be trades or verticals within that and the way we look at that as we look at a combination of of a client budget available.

Availability, and and and where the biggest budgets for marketing generally and and debt debt that we think.

R R.

<unk> teed up to move into digital.

Along with the media availability.

How much are consumers how active our consumers are researching looking for.

And that trader service.

On line.

And then we began working on a range and we score those verticals against a number of dimensions that we believe help indicate how attractive they are for our business model and four four for the clients and for the media.

And then we began working on a range of them.

From a largely starting with clients.

And then we were we we get progress we focus so ideally we will get our what we call it and anchor tenant a big national client or at least the big Super Regional client.

That engages and that we get far enough along with that we begin to debt.

And that we can begin to focus on that vertical we get them signed up we surround them with more clients.

And then we that gives us some the media buying power to go and get the kind of media is media supply curve, but the media whipped going and then as we get more media. We can go get more clients and and we get more clients, we got more and more media. So it's really a it's first of all identifying.

And five characteristics the areas and we think our best opportunities and and and most attractive.

And we then work on those opportunities have folks calling doing research and then as we start to make progress you'll see is kind of focusing on the ones, where we've made progress to get them developed and didn't growing and then as far as capacity opens up and door.

And we get those working and we start we go right back and start all over again, so its a pretty tried and true approach that we've used historically on.

To get into any vertical area and again wouldn't be surprised you didn't know was anyway, we're looking at the combination of characteristics.

Characteristics of clients and client budgets.

And with media, and digital media availability and and and and structure.

And then we just go with that so that's that's how we do.

Oh, Okay any chance you you reenter into education.

And.

And the and a performance marketplace format very very low.

Very low chance that market has a lot of challenges a day.

And the demise of the big high quality for profits and I call them high quality, because they largely were.

The University of Phoenix is and others or the conversion and some of those high quality ones.

And to not for profit has really resulted in there being and.

A and a lot less marketing budget.

And and overcome and then there's from Omega three and standpoint, there's an overcapacity and higher education generally so when you and then there's an overcapacity and the marketing services, our performance marketplace components of that industry because of all the loss of a for profit budgets. So I think that industry is going to be unattractive structurally for a very very low.

Long time, and we have plenty.

To work on and our core financial services.

And home services.

Verticals going forward I don't expect that we would be looking at going back and education and and Mike There and they are certainly not in my career lifetime.

Okay and that is like our items marketplaces, and I say it that way because there are some clients we serve on the agency or the technology services side that they know where but we are not going and those are very attractive businesses for us but weird.

Our core marketplace business, which is what 99% of our business we.

We do not anticipate going back and education.

Okay alright. Thanks.

Thank you Chris.

Ladies and gentlemen that concludes the time, we have for Q&A. Please note that a replay of this webinar can be found on the company's web site at Investor Day, Quint Street Dotcom.

This concludes today's presentation you may disconnect your phone lines and thank you for joining us this afternoon.

[music].

Thank you David and thank you to everyone joining us as we report <unk> third quarter of fiscal year 2021 financial results.

Joining me on the call today are Chief Executive Officer, Doug Valenti, and Chief Financial Officer, Greg Wong.

Before we begin I would like to remind you that the following discussion will contain forward looking statements.

Forward looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance.

Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements.

Today, we will be discussing both GAAP and non-GAAP measures.

A reconciliation of GAAP to non-GAAP financial measures are included in today's earnings press release, which is available on our Investor Relations website at Investor Day, Queen Street Dot Com.

With that I will turn the call over to Doug <unk>. Please go ahead.

Okay.

Thank you Hayden.

And thank you all for joining us today.

Our business momentum and execution continue to be strong.

We delivered excellent numbers once again last quarter as a result.

Revenue, excluding divested businesses grew 39% year over year.

Adjusted EBITDA.

<unk> grew 65%.

Cash flow was strong.

And we continue to maintain a strong balance sheet.

We expect our business momentum and good results to continue and the current quarter.

Last quarter's results.

Were again, driven by strength and insurance and home services.

Our two largest businesses.

We delivered record quarterly revenue and each.

We estimate that those client verticals represent large addressable markets.

Tens of billions of dollars.

And both are still early and.

And there are shifts to digital and performance marketing.

And and Quint Street market share.

We also continue to see improving trends and the credit driven client verticals of financial services.

We expect those businesses to return to year over year growth and the current.

June quarter.

Most important.

We continue to make excellent progress on a wide range of growth initiatives across the business.

And to strengthen our products.

Technologies.

And operations.

For future growth.

Competitive advantage.

And efficiency.

Those growth initiatives include QR P.

The pipeline there continues to growth.

And client integrations.

And the Sting and.

And initial rollouts.

Continue to progress.

Revenue is still early but ramping.

And our long term expectations for Q R. P.

We remain excited.

And in the meantime.

Our core business tail winds.

<unk> strong.

Marketing budgets and consumer activity.

Continue to shift to digital and and.

Precedented rate.

And increasingly.

To performance marketing and media.

Within those Mega trends.

When street performance marketplace solutions are ever more recognized.

The biggest.

Most sophisticated.

And most advanced clients.

As their most productive and consistent digital marketing channels at scale.

We had a record number of <unk>.

<unk> services and home services clients.

Sending over $1 million per month with us and the March quarter.

We also continued to make precise.

Industry consolidating acquisitions and investments.

So accelerate progress and our client verticals and and new product areas.

We made two relatively small acquisitions.

And one strategic investment and and early stage technology company last quarter.

Turning to our outlook.

As I indicated earlier.

We expect the strong business momentum and results to continue.

Revenue in the June quarter.

Our fiscal Q4.

And is expected to be between 140 and $145 million.

Seasonally consistent with last quarter's outperformance.

And once again, representing 39% year over year growth and revenue excluding divested businesses.

At the midpoint of the range.

We expect adjusted EBITDA to be between 12 and $13 million.

Consistent with the top line seasonality of the June quarter.

And representing about 50% year over year growth.

At the midpoint of the range.

With that I'll turn the call over to Greg.

Thank you Doug.

Hello, and thanks to everyone for joining us today.

Our strong business momentum and execution and continued in Q3.

While we delivered an all time record revenue month in March and at all time record revenue quarter and Q3.

Paul while expanding adjusted EBITDA dollars and margin.

Total revenue was $153 1 million and grew 39% year over year, excluding divested businesses.

Adjusted EBITDA was $15 4 million or 10% of revenue.

And grew 65% year over year.

Adjusted net income was $10 9 million or <unk> 20 per share and grew 57% year over year.

Looking at revenue by client vertical.

Our financial services client vertical.

Represented 76% of Q3 revenue.

And grew 18%, excluding divested businesses to $116 $3 million.

Momentum and auto insurance, our largest business remained strong and where.

Where we deliver and all time record revenue month in March.

And and all time record revenue quarter.

This reflects strong spending and growth from a broad range of major carrier clients and good progress on a number of growth initiatives and the quarter.

Also in financial services.

A credit driven client verticals continued to improve on a year over year basis in fiscal Q3.

We expect these businesses to return to year over year revenue growth and the June quarter and to be good long term growth drivers for Quint Street.

Our home services client vertical.

<unk> represented 23% of Q3 revenue and grew 204% year over year to $35 million.

Home services continues to outpace our expectations due to strong organic growth.

And to the continued success of the integration and capturing of synergies from the modernized acquisition.

Other revenue, which consists primarily of performance marketing agency and technology services was the remaining $1 7 million from Q3 revenue.

Turning to the balance sheet, we closed the quarter with $103 2 million of cash and equivalents.

During the quarter, we generated $13 1 million of operating cash flow offset by $11 million of cash outflow for two acquisitions and our strategic investments.

Normalized free cash flow for the quarter was $13 1 million or 9% of revenue.

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

Our.

<unk> and narrowing the footprint to our best performing and fastest growing opportunities as evident.

Trailing 12 month revenue, excluding divested businesses was $518 4 million, reflecting a three year compound annual growth rate of 28%.

With that I'll turn the call over to the operator for Q&A.

Thank you ladies and gentlemen at this time the floor is open for your questions. If you would like to ask a question you may do so by pressing star one on your touch tone phones now if you're on a speaker phone. Please make sure that your mute function is disabled to allow your signal to reach our equipment.

And if he would like to ask a question. Please press star one now.

And we'll give it just a moment to let everyone have an opportunity to signal for questions.

And it looks like our first question.

Hold on just a moment.

Our first question comes from it.

John Campbell with Stephens.

Mr. Campbell Your line is open Sir.

Hey, guys. This is James holiday stepping in for John Campbell.

Hey, Jeff Hey, James.

Yes auto insurance grew over 40%.

Year over year and the quarter.

Very strong momentum still.

Obviously, if you look at some of the numbers that have come out.

And so on the other companies and the space you can tell that we are gaining share and growing.

From faster.

And those that have reported so far and not surprising given.

The.

Initiatives, we have going on our strength with client budgets and clients.

And our expansion of the product set and the mediaset.

And that you know our biggest business vertical.

So yes.

Lots and lots of very good stuff going on and auto insurance and insurance broadly.

A lot of momentum.

A lot of strong growth as I just indicated.

And very good outlook.

Yeah. It was really impressive to see what you guys did there.

Competitor only grown about 5% and then you guys are up and around 40, so it's really impressive to see.

Yes.

40% to 42%.

Okay.

Thank you guys.

Thank you James.

Thank you. Our next question comes from Jason and prior with Craig Hallum.

Thanks, gentlemen, nice quarter.

Thank you Jay you mentioned, you mentioned and you're in the early stages of this shifted from <unk> to answer.

The online and the performance marketing and over the course of the last year. Obviously, it seems like we've seen an acceleration of that trend and certainly you recognize that and your business. Just wondering as you look forward do you see any risk that the rapid moves we've seen and the last year could kind of take a little bit of a breather this year and all day.

Media formats could maybe.

Again, a little bit more market share relative to this this online and pivot.

I don't think and a fundamental way Jason.

And whether or not we can sustain 40 50, 60% year over year growth rates at their scale or you know.

Consistently do I think we will see.

And we'll see other rounds of debt in the future.

And is doubtful.

But we do not see.

And following up to offer the cliff or a reversal and trends of clients wanting to spend more on digital and it's just not the indications we're getting from clients. So I'm not when I say that I mean, that's this is from indications that we're getting from our clients about their budgets going forward in the coming year.

And the programs and initiatives that we're working on with them. So we do not see.

A meaningful reversal or any reversal at all in terms of budget going back offline from online.

Whether or not you know I think the growth rates will remain strong and and we expect.

Good good strong double digits.

Whether or not we will keep stringing together, 40%, 50% at this scale.

And definitely and consistently is unlikely but.

We don't see a slowdown from double strong from good strong double digits, and we don't see a reversal.

And clients are much the big Megatrend here continues to be.

Clients wanting and needing.

And you spend more money and digital and being Underexposed and under leveraged against digital.

Versus the opportunity.

Perfect I appreciate that.

Wanted to walk through puts and takes on the home services side, you've now lapped the beginning of pandemic headwinds and so thinking through the different services you offer I would assume things like indoor remodeling and starts to see easy comps, while gutters and solar probably starts to see difficult comps so can.

And you maybe frame what your expectations are as we go forward.

And home services continue to grow the way. It has the last couple of quarters or do you expect any acceleration or deceleration in that category.

And we expect again continued strong double digit growth and home services. The triple digits is largely coming from the effects of.

The acquisition, which we will lap here.

And the next couple of months.

But in terms of the organic momentum and strong double digit growth at scale, we expect that to continue really for as far as you and I can see I mean, we are.

And then maybe the most underpenetrated.

Versus the Tam and.

And home services and have a very clear view and runway.

And for continuing to expand.

And growth in that debt.

Really big market. So I think we will have the lapping of the modernized acquisition.

But I think we expect the power and do that with good strong double digit growth per literally as far as the eye can see we are already talking about.

Numbers and the next couple of years that are that are pretty significantly higher than where we are today and we have we have our eyes on.

A half a billion dollar revenue business there and the next three to five years on an annual basis. So we think that's a big market. We think we can make it.

But there will be a representing for them on line. So that is a massive market and a very very big long term opportunity, we have a lot of momentum there.

Okay last one from me I'm going to take the bait from from earlier in your prepared remarks, but you mentioned some tuck in acquisitions and our strategic investments can you give any additional color on those.

Yeah.

Tuck in acquisitions, where both and insurance a couple of small opportunities that we think added meaningfully to our our footprint as we continue to look to expand different lines of insurance.

And we're both and not an auto insurance.

And so those were excited about because as you know, we often we can pick up bits and pieces that help us.

Get our cycle moving faster and ramp that so those were those were small acquisitions that help seed and and accelerate the development of a couple of insurance verticals to debt.

And that we're continuing to work hard and growing pretty rapidly.

And the strategic investment was and a technology company that there is a technology, that's very important to our future product we have.

And that we're working on.

And as part of our continued.

Progress and deepening our integration.

And to our client verticals.

And this is a very big long term program, we're working on debt, that's it's similar and attractiveness in our opinion.

And <unk>, but and AR and AR.

And a different vertical.

And this locks down debt technology partnership, which is a key piece of that product and it gives us exclusive rights to that that technology in that business area.

And this is just part of that.

And that roadmap, we're super excited about that business opportunity and we'll talk more about it as it gets a little bit further along a little bit.

More ready for prime time, but think of it as is.

The piece of the product roadmap of R&D for another deep integration technology and another one of our verticals and another one of our very big verticals.

And our product profile debt debt from a size and profitability standpoint looks a lot like Q RP.

Perfect. Thank you appreciate the time.

Thank you Jason.

Thank you. Our next question comes from Adam Klauber with William Blair.

Hi, Thanks, a couple a couple of questions.

I'm not sure if you said it to what generally what has been the organic growth of the home service and the last quarter and to the last two quarters.

20%, Adam I don't have the numbers.

Right and finally, Greg I think you have.

Hey, Adam last quarter, it was 21% organic growth okay.

Okay great.

Has that picked up or has that run what its been running the last quarter, the last quarter or two.

That increase from last quarter last quarter, we are and the teams.

Okay and the November quarter. So December quarter was in the teens organically this quarter it was 21% great.

Great.

And then for the.

The credit card and personal loan business, how much of a drag would you say that was this quarter on growth.

And roughly.

Yes, the overall credit driven businesses.

And about 35% this quarter and Thats.

Down from.

42% and the December quarter, 60%, and the September quarter, and 70% and the June quarter of last year.

Okay.

So as I think you said you are you opposed to more flatten out next quarter.

Yeah, it's pretty pretty low numbers is that right.

And we expect to return to growth.

Pretty strong growth there are and you heard the second derivatives and getting better and.

And we are I think I said this last last quarter up pretty significantly from the bottom and.

And those businesses were still a long way from the top.

But we do expect those businesses to actually all of those businesses all of the financial services.

And pretty significant double digit rates this quarter year over year, the current quarter year over year.

Okay.

So and those credit businesses from February to March and to the extent you know just April.

Have you seen sequential improvement and those businesses.

We have yes.

Continuously.

Sequential improvement and again, I think and Greg you you would have the numbers, but I think were up and.

And at least 80% to 100% off the bottom.

And Brian has been a consistent up into the right trend Adam.

And we expect that trend and are seeing that trend continue we are seeing the clients the clients are back.

Budgets are back.

Underwriting filters are opened up and really the missing ingredient at this point, although it's already begun because as you can hear the business has already started coming back.

And we ramp of consumer activity.

And and credit cards that will.

That would be.

And just general consumer spending activity, including for travel, which is a big part of credit cards, which is just just beginning to come back.

And in personal loans, just kind of getting beyond.

Beyond the stimulus.

And also getting people are spending on their credit cards, and then they want to consolidate that credit card debt two and to.

To a lower rate and a personal loan and so.

Lot of good trends were still be.

Up a lot from the bottom and those trends have been continuously improving.

From the bottom, which was a little over a year ago.

And a good outlook going forward and those businesses.

Okay. Thanks, and then as far as <unk>.

<unk> P. How many agents have for agencies and.

Signed up today versus maybe six nine months ago are beginning to use it.

I think we have 25 launched and sign now mean that day.

The answer is it's up.

Pretty significantly I don't have the exact numbers in front of me, but continues to be up into the right and the progress with everybody that has signed has also been good and everybody that has launched has also been good. So if you look at every piece of the pipeline.

We are very pleased as our carrier partners.

With the progress that and then and now.

And where this thing has gone and we are at.

As excited today.

About <unk>, given that progress and the feedback as we have ever been.

More than we've ever been and we think it is a bigger opportunity than we ever have.

Great Yeah, that's good growth if I remember.

And roughly a year ago, you were more in the single digit silicone and from that 25 is definitely a good sign.

And then as far as home service.

And youre going to do it but you know.

Is there are there other acquisition debt could not just tuck ins that could move the pilot like the last one.

There are other opportunities to look at and.

And.

We will continue to do that as we proved with modernized and as we've proven and so many places probably weigh 25 signed agencies is the number I just went back and.

And just went to a pipeline report.

And.

We have 31 day something.

And the later stages of the pipeline and so.

Okay, Thank big continued progress and opportunity and TRP.

Yeah.

Well I'm, sorry, I got caught myself.

Question and then the last question is that you know I.

No and the last year, so you've signed up some big marketing partners helped from the insurance vertical.

Is there a point, where some of those annualize and will that have an impact as they begin to annualize or is this just more of a continual flow and I'm looking at are there one or two big Big partners that signed up that are you know really been pushing growth and the last two quarters that are probably still growing but maybe two quarters down the road and have as big and impact.

I don't think so I don't think we've had any big chunky new.

Publishers are partners come on line that we're going to be ramping and the presumably it's a fairly continue.

Apparently smoothed continuum, Gregg and Matt and Microgrid and no no youre not I mean, we're not overly concentrated in any single publishers and so it's just a continuation and and continual thing.

Alright, Thank no single pub still and I think is still the fact that no single publisher represents.

Even 10% of our of our insurance volume I think that's still correct.

Okay.

And for me, but it's been a cash okay.

So yeah. Thanks for the answers guys.

You bet.

Thank you. Our next question comes from Jim Goss with Barrington Research.

Thanks.

And listen the home services category I'm wondering if there if you could talk about which specific verticals, where most prominent and this quarter and how that might have compared a year ago and you were in the midst of the pandemic has there been a shift from <unk>.

And outside do more insight type activity.

Or is one complement or the other and that helped you achieve greater growth.

And that's a great question I don't think there's anything anything.

And that's particularly illuminating there Jim.

No.

And the bias right now amongst consumers, there's still the exterior work and.

And so that still has represented the strongest growth areas for us, but we have good growth there is and and more interior oriented areas as well, particularly as the <unk>.

We've come up and coming out of the pandemic and as clients have been coming back and there's some supply chain and gotten fixed source of supply chain effects for a while.

And some of the indoor products and create somebody that's a kitchen and bathroom and related remodel products. So I'd say, it's still a bias generally towards the exteriors you would expect but good activity across the board and we're seeing good growth.

Extra and interior and and I would expect the.

Our interior stuff to just continue to come back at a pretty good clip as we get.

Further and further down the path of opening up.

Opening up People's homes, and people get back to Nate.

Okay, and just to make sure I'm reading this correctly when you talked about the 21% organic growth.

Or are you basically suggesting.

Modernize was bigger than your own home services last year and the third quarter.

With which you then compare and and that would be a similar situation and the fourth quarter before you lap it and move on and this March.

And of a single <unk>.

Comparable year over year company.

Make sure I understand the question, but you have modernized we will lap Greg July 1st satellite first is that yes July burst and of course, the July so and that 200 and subjects that year over year growth you've got to modernize volumes. If you were to take the if you were to normalize out the modernized volumes.

The overall business the combined business.

Including modernize.

And Greg keep me honest on the calculation here was about was up 21% year over year.

Correct.

Okay, that's very wide picture, because 11.5 year ago quarter, modernize would've been more than that number to give you there.

That's right that's right Jim preferable, we deal from our organic growth calculation as we take the two stand alone businesses.

From last year, we take our stand alone.

From services number, adding the modernized and standalone and calculated and the growth off of that to get to the organic growth and so yes, that's correct.

So that's a reasonable template for the fourth fiscal quarter, and then we get into normalcy.

Except once we like.

Yes.

Okay and.

And our outlook is for growth rates to be and that.

20% plus range.

And I am going forward on that business.

And there and last question how are you thinking in terms of.

And there are future growth and home services to focus to a greater extent and.

Filling in the.

Several verticals that may be key to you right now I think there are five or six I think the last time you talked about this or are you.

To try to move into other verticals.

As a complementary.

Basis for those five or six they're big right now.

It'll be both we have a lot of growth opportunities and the and the verticals that we're already and.

Four of five of which are the most mature and and biggest right now and we have another six plus that are.

You know earlier stage, but decent size and then we have.

Call it another.

<unk> thousand or so debt.

With that we're beginning our footprint and and we're very early so the growth will be coming from a combination and we're organized this way.

Both are continuing to develop the productivity and the effectiveness of the marketplaces and the the servicer and the trades, we call and the trade or services were in.

While also continuing to add new trades and develop those new trades.

All of which are by the way the ones that are growing fastest force.

Our roofing siding kitchen, Remodels and home security.

And like that and so those are debt.

And that's what we would call a trade or some vertical.

So we expect both and we're working on both and.

And that's why we as far as the eye can see and we see growth and home services.

Okay.

Okay, and one last one to the extent that you are still a very small given relative to the Tam you outlined are you attracting a lot of attention and therefore, our competition does.

He might have never had before.

And is this and home services are generally.

And home services channel and home.

Sure and specifically.

Yeah home services.

There is there's reasonable competition there already but.

It is more consolidated already then say insurance.

We believe we're a pretty strong number two at this point and this and the performance marketing and marketplace model to Angie.

And there's pretty there's quite a bit of white space between us and and number three.

And it would be a priority.

Tough.

A challenge for them to try to figure out how to catch us.

These are companies that have been around a long time, so right now I'd say its a.

And as complicated and difficult and space to execute and as arena and performance marketing, partly because there's multi service multi vertical.

And so it's there certainly is competition, but.

But I'd say that we are further along the consolidation curve.

And that market and.

And most ways and we are and insurance where theres still.

No relatively good amount of.

Fragmentation and competition for the scale of that industry.

Alright, Thanks, Doug.

Okay. Thank you Jim.

Thank you. Our next question comes from Jacob Stefan with Lake Street capital markets.

Yeah, Hi, and thanks for taking my question here.

And here on behalf of Eric Martin Newsy.

Just a quick question about <unk>.

Possible margin compression so that is.

Some of these governments want to kind of.

Take advantage of other retailers or.

Other large advertising digital advertising company is making.

Consider borgwarner revenue.

Guys.

Worried about any margin compression, where and you might be charged more.

Per per lead.

And really Jacob we're not saying that we generally.

Our price makers not price takers, so where were the ones that are driving the price up because that's our marketplaces get more and more efficient and productive.

And yield more than we're able to pay.

Hey that much more from media, whether it be in the.

Partnership or and by click stay from a Google.

And as you know as well.

We control to a large extent our gross margin.

Because of the where we choose to be on the media.

<unk>.

And so no not really we're not saying that the the main effect that you would you should to manufacturing should continue to see on margin with us.

One is operating leverage.

As we grow.

Revenue at debt on average 30%.

Incremental margin.

The <unk>.

Contribution after media costs, and we dropped and we'd get free as we grow that at double digits, which we expect to be able to do for as far as we can see and we dropped that onto a semi fixed cost base underneath that and then that's it.

Natural upward tug on on EBITDA, and that's what you've been seeing lately and you saw again last quarter.

Our next the next time, we hit Q3, which is our is our peak quarter of the year fiscal Q2 or your.

Normal human calendar Q1, so we're okay.

So that's one effect is that operating leverage which will be driving our margins and we expect to be able to continue to drive our margins up to operating leverage.

As we continue to grow that top line at about that incremental contribution and to a semi fixed cost base below that line. The second is we are blending in at a higher rate now.

And much higher margin businesses than our traditional and historic core.

And so that is going to.

Depending on how we just decide to manage that either do we tended to grow faster.

Or do we find that we can't do that and a way that we feel is maximally productive or efficient and therefore do we begin to grow that 30% number.

Which is good which obviously drives everything else up until the ride at a higher higher rate.

Those are things that we're working on and what their trade off so we'll have to make because of course, you want us to continue to invest in growth but.

You know again day.

Take just take Europe for example, if Europe is anywhere near as Big as we think it is and it seems to be.

That is that blends into the business model and theres going to be a pretty dramatic impact up until the ride on margin.

And we probably will be at that point.

Probably have to expand margin beyond just the operating leverage effects.

So, but those are the things that I expect to have the biggest impact on margin and the foreseeable future.

See any effects from the other things you mentioned.

Not material.

No that's great color. Thank you.

And just an overall macro question.

Kind of piggybacking off of Jason's I believe.

You guys concern debt.

Youre welcome.

And while consumer spending might kind of shift away from being online and as you know and everything kind of starts to open back up and live concerts and.

And just how do you think about that.

Yeah. That's a great question, we don't well the clients don't either.

What we've said for a while and and what the clients have indicated to us is debt.

And this has been and acceleration of our long term curve.

And more in digital and non digital marketing.

And it's helping to and to catch up faster day, where they were forced to focus on it and.

And by COVID-19, because other channel has diminished so rapidly, but none of them are talking about pulling budget back out of digital to put into other channels.

Our offline channels, we're not hearing that from anybody no clients. So.

So we don't expect that what we do expect is that we're further up the curve.

And that we're going to keep running up that curve.

Flow per that curve.

I think we'll be well, it's unlikely this day, 40% to 50%.

We're 200%, but we think it's going to be.

Strong double digits up into the right for the foreseeable future.

A couple of things that are working in our favor going forward that kind of wood.

Credit card use there's only going to drive more credit card spending.

Card usage and drive more personal loans lending those are businesses that have been completely we're dead and COVID-19.

And we also expect on home services side that a lot of the verticals that had been installed by COVID-19 and lot of the inside services that Jim talked about or Jim referred to me I was talking about.

We're coming back.

And we're seeing a lot of homeowner activity and what people do and homes get really expensive if they don't sell the home and move which most are not doing as they invest in their homes and.

So we are seeing extraordinary demand and strength.

And home services and we see no reason why that would do anything other than increase post COVID-19.

And again driven largely by the fact that people now are now willing to have work and workers.

And done in house.

Well that's great. Thank you congrats on the quarter by line.

Thank you Jason.

Thank you our last question comes from Chris Sakai with singular research.

Hi, Hi, good afternoon.

Hey, Chris just had a question.

Hi, Doug.

Interest and I know you mentioned, you talked about it and the Q&A a little but.

And entrants into new client verticals.

I know you said you've got.

A lot on your docket already wanted to see get your idea about.

What what it takes.

How do you test it and Sars.

What what you think will be index.

Great successful client vertical.

Sure and.

I was referring when I talked about that I was referring to adding more service trade or trade verticals and home services.

And it's really a home services is broadly made up of a lot of independent trades and get and roofing would be one siding with day one.

Gross home security would be one.

And kitchen, Remodels bathroom, remodels and socially with each be trades or verticals within that and the way we look at that as we look at a combination of of a client budget.

Availability and and.

And we're the biggest budgets for marketing generally and and debt that debt we think.

R R.

Teed up to move into digital.

Along with the media availability and how.

And I electric consumers, how active our consumers are researching looking for.

That trader service.

Online and then we began working on a range and we score those verticals against a number of dimensions that we believe help indicate how attractive they are for our business model and four for the clients and for the media.

And then we began working on a range of them.

And largely starting with clients.

And then we were we we get progress we focus so ideally we will get our what we call it and anchor tenant a big national client or at least the big Super regional client that engages and that we get far enough along with that we begin to.

And that we can begin to focus on that vertical we get them signed up we surround them with more clients.

And then we that gives us some the media buying power to go and get the kind of media and media supply curve, but the media whipped going and then as we get more media. We can go get more clients and and we get more clients to get warmer media. So it's really it's first of all identifying.

And five characteristics the areas, and we think our best opportunities and and and and.

Most attractive we then work on those opportunities have folks calling doing research and then as we started to make progress you'll see is kind of focusing on the ones, where we've made progress to get them developed and didn't growing and then as as capacity opens up and or are we.

And we get those working then we start we go right back and start all over again, so its a pretty tried and true approach that we've used historically.

And to get into any vertical area.

And then again wouldn't be surprised you didn't know that anyway, we're looking at the combination of.

Characteristics of clients and client budgets.

With media, and digital media availability, and and and and structure.

And then we just go with that so that's that's.

And that's how we do it.

Oh, okay.

Any chance you you reenter into education.

And.

And the and a performance marketplace format, very very very low chance that market has a lot of challenges.

And <unk>.

The demise of the big high quality for profit and I call them high quality, because they largely were.

The University of Phoenix is and others or the conversion and some of those high quality ones.

And to not for profit has really resulted and there'd be and and <unk>.

A lot less marketing budget.

Long time, and we have plenty to.

To work on and our core financial services.

And home services.

Verticals going forward I don't expect that we would be looking at going back and education, and and Mike and they are certainly not in my career lifetime.

Okay, and that is that alright, and marketplaces, and I say it that way because there are some clients we serve on the agency or the technology services side debt.

We're not going and those are very attractive businesses for us, but we are.

Core marketplace business, which is what 99% of our business we.

We do not anticipate going back and education.

Okay alright. Thanks.

Thank you Chris.

Ladies and gentlemen that concludes the time, we have for Q&A. Please note that a replay of this webinar and can be found on the company's web site at Investor dumped Quint Street Dotcom and <unk>.

This concludes today's presentation you may disconnect your phone lines and thank you for joining us this afternoon.

Q3 2021 Quinstreet Inc Earnings Call

Request a DemoDemo

QNST

Quinstreet

Earnings