Q1 2022 Quinstreet Inc Earnings Call
Good day and welcome to the Queen Street first quarter fiscal 2022 financial results Conference call. Today's conference is being recorded and at this time I would like to turn the conference over to Mr. Hayden Blair. Please go ahead Sir.
Thank you Jenny and thank you to everyone joining us as we report <unk> first quarter fiscal year 2022 financial results.
Joining me on the call today are Chief Executive Officer, Doug the 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.
Forward looking statements involve a number of risks and uncertainties that may cause actual results to differ materially 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 most recent 10-K filing.
Forward looking statements are based on assumptions as of today and.
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 Dot Queen Street Dot com.
With that I will turn the call over to Doug Lindsay. Please go ahead.
Thank you Heng.
Welcome everyone.
We continue to demonstrate the power of our footprint and advantages in FY Q1.
And to separate ourselves through our performance.
No one else in our markets has our breadth.
And depth of advantages and capabilities for long term success.
We expect the trend of strong absolute and relative performance to continue.
As we ramp towards the full effects of our long term investments and product.
Technology.
And market initiatives.
Our markets are growing.
And we believe we are gaining share in every one of them.
All of our client verticals grew at least double digit rates year over year in fiscal Q1.
Including auto insurance.
We are raising our outlook for full fiscal year 2022.
We now expect revenue to be between 650 and $670 million.
And adjusted EBITDA.
Be between $65 million and $67 million.
The raise is driven by.
One.
Specific indications.
Auto insurance clients of <unk>.
Budget increases in the January to June period.
True.
Stronger than expected momentum in our credit driven client verticals.
And three.
The acceleration.
Our growth initiatives across the business.
Including QR P.
Our full year outlook fully reflects the expected impact on auto insurance marketing budgets from increased claim costs.
Including Hurricane Idaho.
These losses were significantly greater than expected.
For the December quarter.
Our fiscal Q2.
We expect revenue to be between 130 and $135 million and.
And adjusted EBITDA to be between seven and $8 million.
The Q2 outlook reflects normal seasonality.
And.
The short term effects of higher claim costs on auto insurance client budgets.
In calendar year 2021.
Our Q2 <unk>.
<unk> full year outlook.
Also fully reflect the expected can you continued effects.
From the pandemic on our markets and operations.
And on those of our clients and partners.
And finally.
Our Q2 and full year outlook.
Fully reflect.
The expected effects from privacy changes to Apple I O S.
From which we expect little impact.
We do little to no cookie or tracking driven ad targeting.
With that.
I will turn the call over to Greg.
Thank you Doug.
Hello, and thanks to everyone for joining us today.
Q1 started off the new fiscal year on strong footing.
As we grew revenue to a record $159 $6 million, representing 15% year over year growth.
Revenue grew 25% year over year, excluding divested businesses.
GAAP net income was $3 1 million or.
<unk> <unk> per share.
Adjusted net income was $9 4 million or <unk> 17 per share.
Adjusted EBITDA was $13 $4 million.
Looking at revenue by client vertical.
Our financial services client vertical represented 74% of Q1 revenue and grew 25% year over year to $117 $9 million.
Within financial services, all of our businesses grew at double digit rates for more in the quarter.
Our home services client vertical.
Represented 25% in Q1 revenue and grew 20% year over year to $40 million.
As a reminder, we lapped the modernize acquisition on July one.
We expect the strong double digit organic growth trajectory in home services to continue throughout the rest of FY 'twenty to.
Including in the December quarter.
Other revenue, which consists primarily of performance marketing agency and technology services was the remaining $1 $7 million of Q1 revenue.
Turning to the balance sheet, we closed the quarter with $105 $9 million of cash and equivalents.
During the quarter, we generated $5 $8 million of operating cash flow and $11 $4 million of normalized free cash flow.
As a reminder, most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model.
Looking back.
Q1 was highly representative of how we view, our new footprint and the long term vision for Quint Street.
All of our client verticals delivered double digit revenue growth or more and represents a massive market opportunities for <unk>.
Our confidence in our growth initiatives.
There has never been stronger.
And we believe that we are better positioned to compete and execute against those opportunities.
And at any time in company history.
With that I'll turn the call over to the operator for Q&A.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment again that is star one to ask a question.
And we will go first to John Campbell of Stephens, Inc.
Hey, guys good afternoon, and congrats on great results.
Thank you John.
Sure I mean, I think considering the backdrop and obviously what some of your peers have reported I think there was a lot of Henry and go into the results so great execution.
By you guys, but Doug you highlighted that these results help you kind of separate yourself from the pack I Couldnt agree more that statement, but maybe if you could unpack that a little bit more so maybe what stood out as this specific advantages and then you guys are outgrowing peers by a healthy margin in recent quarters Theres been stretches obviously in the past where you maybe.
<unk> so.
As you think about those advantages was anything particularly kind of enhanced by the backdrop. We're just working in your favor or do you view these as kind of growing structural advantages.
Yes, great points and questions.
Most of the times will be chairman in the past we were.
Pulling along the education boat anchor as you recall so.
Getting that out of the mix is super helpful to kind of.
Clarify how well we actually are doing in the core verticals that don't have big structural industry problems as you know.
We are seeing advantages.
Across the board, but we believe and I think it's showing in our results.
We have the best products.
Do both match and serve consumers, but also.
Match and serve our clients the marketers.
In the industry, we've talked about those four years, we've invested in those.
They matter.
And they're working.
The best broadest mix and.
And we have the ability to integrate any client and to match pretty much any consumer in the way they want to be matched that matters. A lot. We believe we have the best technologies in the industry.
For segmenting.
Our right pricing based on performance or.
We're optimizing.
The best algorithms for optimizing.
First data analytics, we believe we have the.
Top of the data analytics, we think we have the best data experience. We've been doing this for 22 years, we started out as a company that said you know what we need to save this data and use it along with our clients performance to drive results and I think we've built up the best data.
Base and I think we have the best.
Most sophisticated.
Team and technologies are weighed against that data for analytics, and <unk> optimization, which really matter in a marketplace.
Technology.
We believe we have the deepest integration and the deepest relationships deeper integrations and relationships with the biggest clients.
I don't think there's any doubt about that and it shows in the multiple projects that we're working on with them to continuously not only allow them to perform better in our marketplaces.
To add new business opportunities and we have a number of those rolling out to market.
Only one of which was really talked a lot about which is <unk>, which will be done.
In conjunction with the big carrier clients in partnership with them.
And we believe that we have the deepest integrations and the best relationships with the Big Media partners.
Again, a long long list of initiatives to continue to help them strengthen there.
There are positioned in the market to better engage consumers.
Better optimize the results for those consumers and then optimize the results for themselves.
And as you know in our business model, we have been investing in these all of these areas, which we call growth initiatives a subset of the growth initiatives.
For years, and we've talked about them over and over and over again and the compound effects.
That experience and those investments and that execution.
Are really coming together and inflicting fresh and a lot of ways and a lot of different parts of the business.
That's a great answer very thorough I appreciate that.
Then on the guidance, Greg I, just want to make sure I kind of understand it I mean, obviously the full year very impressive raise are you guys expecting it sounds like from client indications that you feel very good about the first half of the calendar year, but.
The guidance for the next quarter it looks like it steps down a little bit and then you've got the ramp in exploration.
So I guess on the guidance for this next quarter.
Is it more of a continuation.
I guess when you're exiting this last quarter was there a slowdown in spend youre expecting that to kind of continue through the quarter Youre just being conservative there or does it require a ramp did you dropped pretty sharply I, just kind of give us any kind of indications of movements within the quarter.
Yeah, I would tell you John two things on the Q2 guidance. The first one is always reflects normal typical seasonality that we see which is gonna be about down 10% or <unk>.
What we saw later in the quarter.
It was really the impact of hurricane Ida on auto insurance client budgets.
Which are putting pressure from that standpoint in the December quarter, and again, we feel that that's short term pressure. We have very specific budget indications are big budgets coming in the June or the January through June time period. So we feel very good about the overall outlook for the year, but the Q2 outlook is a combination of typical seasonality that you see which is going to be at about 10.
A percent down sequentially as well as.
Loss ratio impact on auto insurance carrier budgets.
Okay. That's very helpful. Thank you guys.
Hey, John and I know, we just probably vast here, but just to I didn't answer part of your question as it relates to the guide and what you asked about the backdrop and whether or not it was helping or hurting us.
And the performance marketing industry generally.
When things get soft like they did in the last part of last quarter and they are for this quarter generally for auto insurers.
The the worst mixes and the lowest quality get cut first always.
And so we do know from our clients.
That we have been cut the least.
And we have been told by.
All of them and we know for a bunch of them just from that from the numbers that we would have gained share.
As well we have been cut some and you can see it in the guide that we expect to lose somewhere in the neighborhood of $10 million next quarter and revenue from from the impact of auto insurance client budgets relative to where we might be at a normal 10% down scenario.
And then and it gives us lose we lose a little bit of EBITDA leverage on that.
Very very minor impact relative to what you've heard from a number of the other industry participants and thats because when again when things get tough.
Clients.
But the worst.
First.
And they keep the best and they cut at least and we had sort of the backdrop in many ways is an advantage to us.
Relatively speaking, obviously, we don't like losing to spend this quarter.
But we do what we do have from our clients is as assurances of her.
Having been cut.
By the lowest amount.
Having picked up share.
And a very aggressive budget starting in the June period of January period, it's important to understand that the.
The loss ratios for these major carriers, who are our big clients.
On January one.
The calendar year, new fiscal year, new loss ratio calculations, So Ida, which was a hurricane that had a lot worse losses than than than most and I think it's at least in the top five might be in the top two of all time, largely because not just because it hit the post hard and that's tragic for those folks.
Where it got hit.
But because it then worked its way to the northeast, which is the most populated area of the country and sat there and flooded automobiles.
And our clients cover that.
And so very very high loss ratios for a hurricane and for storm any type, but again isolated.
In calendar year 2021 for the purposes of our budgets and our clients' budgets.
And a reset happens on January one.
And our big clients are already talking to us and we are already in the planning stages with them.
On how we're going to meet those budgets starting January one.
And all of the big clients budgets are not only up.
Sequentially January force.
But they were up pretty significantly year over year.
The January quarter. So that's that's what gives us the confidence of deep relationships.
Ongoing conversations and actual planning with our clients of how we're going to meet their demand January 1st.
Thank you Doug.
And we'll go to our next question from Jason <unk> of Craig Hallum.
Hey, this is Billy on for Jason. Thank you guys for taking my question.
Hey, Brian relations on a great quarter.
Thank you.
Just wanted to.
Touch a little bit on.
QR piano.
With a more choppy backdrop for auto insurance or just kind of wondering what do you think.
The impact will be if any on the continued rollout there of European.
Yes, it's a great question.
So early in the rollout that we would expect little to no impact on the from the loss ratio issues that we're gonna experienced.
Although we experienced late last quarter and this quarter.
It's the pipeline is stronger than ever.
In the market.
Is bigger than we thought.
We now have clients past integration and testing stages and into the ramp stages.
And those ramps are going very well, so we're better able to.
To begin two project.
We were very conservative.
In our Q R P.
Estimates and the outlook that we gave.
Last call.
Which of course was our first outlook for the fiscal year. So we're generally conservative anyway, but we were.
Very conservative for TRP, because again, our new business still in the early stages.
I would say that.
While we have.
Pretty substantially increased our expectations for Q R. P.
And the revised outlook.
It is still at the low end of the range that we actually think we're going to hit.
So we're still being conservative.
But we're also it would add pretty substantially.
As I said, we have.
<unk>.
A lot more real market data.
Some clients that are now actually ramping.
And into that and we're able to now begin to project and watch lines and curves and we also have a couple of very big.
Client projects.
That have been accelerated.
That we expect to.
Being executed.
By mid January.
So that they can hit the insurance shopping season auto insurance shopping season, which starts in mid to late January and runs through the spring.
The carriers really want to hit that hard.
Including.
A couple of our biggest in fact I think our two biggest.
RP.
Projects and clients want to be up and running for scale.
Before that January shopping season, so just a lot a lot of good stuff going on with European we are we have.
Pretty meaningfully increased our expectations and the outlook.
But only to the lower end of the band that we.
I actually believe we're going to get to.
But again, it's a newer business. So we are more conservative and I think thats appropriate for everybody to.
To understand and appropriate for us to do.
Well, that's great color and great to hear I appreciate that.
I could just squeeze one more in there.
I was wondering you know if.
If you guys might be able to frame the recovery in loans and credit card.
Wondering how you expect that to progress with the consumer or the volatility we've been.
C N and the rest of the market.
I appreciate it yeah.
We call personal loans and credit cards are credit driven verticals.
And then pretty big businesses, there are third and fourth biggest businesses I think.
After insurance and home services.
And.
Together, they about doubled year over year in the quarter.
And.
Continue to have a lot of tailwind the consumer is healthy.
The credit is healthy.
They are the credit card business.
Is leading a little bit which is what you would expect consumers in good financial shape, but begin to spend begin to increase their activity levels, which we're seeing.
Credit cards get used more and they shop more for more credit cards and that cycle begins and so credit cards, it's a little bit ahead of personal loans.
What typically happens is then they built a credit card debt and that's followed by a cycle of looking for personal loans to two.
To consolidate and pay down often and lowered the rates on that credit card debt, which we haven't really gotten much into that cycle. Yet. So we see in the indications from our clients and from consumer activity.
Credit cards.
To continue to grow at a high rate.
And we are beginning to see and we have extraordinary activity amongst the personal loans clients as they are geared up and waiting for their part of the cycle to pick up more steam and we're very early in that so.
Our expectation and the actual results have been.
Been quite strong and we feel very good about our position in those businesses in those markets. We feel very good about the trajectory of those markets.
Well that's good to hear.
Thanks again.
Great.
Thank you. Thank you bill.
And well hear next from Jim Goss of Barrington Research.
Hi, This is Pat on for Jim.
Hum.
Question on <unk>.
On the auto insurance vertical I was just wondering in prior E S.
Just curious when you had issues with the loss ratio are driving a reduction in budget, what was sort of like the timeframe timeframe of that recovery and I guess is there any sort of issue potentially.
I guess supply chains or anything like that that could cause it to.
Take a little bit longer or anything else I could shorten our system towards better understanding of fee.
Our pricing policy.
Yeah between us and our and the predecessor company that we acquired when we got into the auto insurance market.
About 22 years.
Experience.
And the uninsured market.
So we've seen a lot of cycles.
Most of them.
Similar to what I've described will reset in January in a relatively short term if you have a if.
We have an event driven.
Issue like we just have.
And so what the clients, you're telling us relative to next year.
In the January is very consistent with an event driven.
In a given year is that issue.
There have been times in the biggest time was really and I think there's 2016 where took longer.
And that was when there were structural issues with the client's underwriting models.
Which we do not have today.
Our clients are very comfortable with their underwriting models that breakup with their pricing.
They just had an event that costs more than everybody thought it was that costs and therefore, they have less money to spend on marketing because I spend more money on their claims.
In 2020 in calendar 2021.
But in 2016, it was a structural thing and that was and that was up a little bit more difficult for them to work through because what was happening was.
They were seeing.
Higher incident rates.
That had crept up on them due to distracted driving and people more and more people with their cell phones in their cars and they're smartphones in their cars and doing stuff in their cars, they shouldn't be doing when they're supposed to be driving.
That kind of broke through was a major issue that had fundamentally changed underwriting models in consumer.
And it rates.
And that was combined with a higher repair costs.
Which had also kind of crept up on them.
As you got more and more cars into the market with smart.
The bumper technologies the road get.
What used to be a Fender Bender became a 5000 dollar repair or 3000 dollar repair because yeah all of those sensors.
In the bumpers.
That had not been in cars before so that cycle was longer that one took as I recall somewhere around a year to work itself out but it was very fundamental they had to rework to underwriting monitors rework their profitability models rework their risk models repriced their policies and get those all approved.
We're not in that time.
We are in the there was an event last year.
Costs more than they thought the underwriting models refine their pricing is fine they make lifted a little bit more reflective of general trends rather than gradual trend drove the onetime things.
And they fully expect and is consistent with past behavior.
They would and based on that type of an issue come back very strong in January so very consistent with what we what we know to be the case went to rationalize and what we've seen.
In previous cycles.
Okay. Thank you.
You bet.
Okay.
And we'll move to our next question from Max Nicholas of Lake Street Capital markets.
Hey, guys. This is Max on for Eric Congrats on the quarter. My first question, thanks for that related to.
Hum.
Any change have you seen any change in your ability to acquire high converting media.
No.
Okay.
Not anymore.
I mean, we're always seeing changes in the high quality media market.
But we are not having any issues acquiring high quality media.
To meet the to meet our plans and our outlook and our objectives, if nothing nothing unusual I.
I guess, there's a where there's.
Always stuff going on but nothing more.
Meaningfully or unusual relative to the <unk>.
Consistent historic General trends.
Okay, and then if I could just squeeze a couple more in my second one is related more to a model I have you guys noticed any opex inflation, you know regarding to more talent acquisition as well as more travel and entertainment expenses.
No.
Greg.
Yeah.
Yeah go ahead Greg.
Yeah, I wouldn't say anything material no from operating expense perspective, I would tell you as we get into the back half of the year you do have slightly seasonally higher operating expenses, just because things like on January 1st payroll taxes reset and so they're at a high.
You're right earlier on in the year and we also have some regulatory work we do because we are a junior in so we do.
A little more regulatory work on the back half of the year. So seasonally were slightly higher in the back half than we were in the first half, but we're not seeing any anything major from our current events.
Alright, thanks for that as it is every year. So it's not there's nothing unique about it or knew about it.
Okay. Thank you guys and then just my last one and I'll jump back into queue. Here have you guys seen at this time any near term M&A opportunities.
Where we are constantly looking we looked really hard at a couple this past quarter that I really liked one that gave us some new capabilities in media.
That one they decided not to do anything it looks like we're going to have a partnership there, which which is good but I wouldn't mind owning them too.
Another one that was an extension of one of our verticals are a business that was would've would've added more scale and a lot of synergies with one of our businesses that one two decided not to do anything they took a little bit more private equity and they're going to do some stuff on their own where.
<unk> discussions and we'll continue to talk to both of them, but and we are.
We will continue to look at others, they're always going to be and you've seen us do a consolidation acquisition opportunities, which are accretive and performance marketing we will continue to be active.
But we'll also continue to have a very high bar, but we did not do any.
This past quarter any any any of any size I can't remember, who didn't even small ones or not because we sometimes you will scrape ups little wants to but I don't recall us doing any of those but.
We did we are looking we are seeing some we didn't get any done last quarter, but you should expect us to continue to continue to be actively looking and active when we find something as good as the Amazon to modernize type acquisitions that we've made historically.
Alright, thanks, guys congrats on the quarter.
Thank you.
Okay.
And we'll hear next from Chris Sakai of singular research.
Hi, Doug and Greg.
Just a quick one.
In your opinion, what's what's driving the increase in auto insurance marketing budgets.
In general.
Yeah.
In the January to June period, or just overall generally over time.
Oh in the in this last period.
The increase in the last period for US was combination of.
Or more budget penetration.
And greater share of wallet for us for the number of the larger clients as we've continued to rollout with them.
Mostly a lot of the analytics programs that we work with them on to help them.
Best segment optimizing right price.
The consumer in the market in the marketplace.
Along with some new initiatives.
That expand our media footprint, a couple of which are in partnership with specific clients.
That we're quite excited about and then when we do that we also pick up more budget for those media initiatives. So a comment.
More general budget increases in penetration of budgets and share increases to us.
For the programs that we're running with them and then.
A new new projects and initiatives with them and of course in the longer run those also will be compounding as well as just general shift of.
Budgets to online and online to performance and from performance to us because that's where usually the last stop that theres most sophisticated big budgets.
Okay, Great and then.
As far as are you guys looking to go into any new verticals.
We are adding contiguously and the verticals were in so for example in insurance were auto and home of course, our biggest.
Sure.
Aggressively expanding in life health.
And some of the even smaller ones like pet motorcycle RV.
Home insurance home service excuse me you've heard me say before we're in you know.
Four of five of our verticals are kind of pretty good scale, we're in another call it and.
And those are earlier stage and we're expanding those and we think we can be in dozens at least and I used to say 100, and I think that's still the right number but lets say dozens for for for the kind of scale I'm talking about overtime. So you and those are trades like a windows would be a trade or a sub vertical doors bathroom.
Modeling you know kitchen remodeling those are those are the our solar home security those would be what I would call. So taking all those and ramping them up so we're continuing to enter new verticals in home services or trades is what we call them at home services.
We are entering new verticals.
Verticals in our banking.
Vertical we have expanded beyond traditional source of funds accounts like <unk>.
Deposit accounts.
To money market accounts investment accounts retirement accounts advisory accounts and <unk>.
Fintech and beyond so we've dramatically expanded that footprint and are entering depending on how you count what you decide what you want to call a vertical we call the whole vertical banking, but within banking so at the highest level.
We are not adding any new major vertical headings beyond.
Insurance on services credit cards personal loans.
Banking.
I think the name <unk>.
Personal loans.
But within them, we're expanding pretty aggressively into new segments of them expanding their footprint and of course getting a lot deeper in them. So we have plenty of growth capacity to keep working on for.
You know I'd say that we could feedstock for what we've got the footprint, we've got now underway.
And the expansion opportunities, we have because I havent, even talked about the broadened product offerings in those verticals like QR P. In insurance and we have a couple very much like your P. Right behind you or Peter you haven't started talking about that are part of a couple of our other verticals.
Coming as well so we could see us talk about for at least the next decade and grow really really well so.
The answer is kind of a no one yes, no, but yes, no more big ones right.
Right now but.
Yes, because we're filling out the ones that we're in.
Okay, great well thanks.
Thank you Chris.
And as a reminder, it is star one for questions. At this time that is star one.
All right.
Okay.
And with no other questions in the queue.
That concludes today's question and answer session.
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Okay.
Yeah.
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