Q4 2022 Quinstreet Inc Earnings Call
Please standby.
Good day and welcome to the Queen Street fourth quarter and fiscal year 2022 financial results Conference call. Today's conference is being recorded at this time like to turn the conference over to Queen Street Investor Relations. Please go ahead.
Thank you to everyone joining us as we report Clinton Street fourth quarter and fiscal year 2022 financial results.
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.
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 coming 10-K.
Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements.
Today, we will be using both GAAP and non-GAAP financial 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 Quint Street Dot com with that I'll turn the call over to Doug Valenti. Please go ahead Sir.
Thank you Lee and welcome everyone.
As indicated in our press release fiscal Q4 played out pretty much as expected.
Monthly auto insurance revenue in the quarter stabilized at a level generally flat with February and March.
There's also a lot of insurance are likely to continue to essentially bounce along the bottom.
Over the next couple of quarters.
As carriers continue the process of <unk>.
Raising their rates in response to inflation and.
And supply chain pressures.
We expect a positive inflection in auto insurance marketing budgets and revenue in January .
As one carrier combined ratios reset for the new calendar year.
And to consumers shopping for insurance increases in reaction to the higher rates.
Our non insurance type vertical revenue results were good.
<unk> grew revenue there at a strong double digit rate year over year.
Even given current conditions in auto insurance and the complicated macro environment generally.
Our team executed well.
And our results and outlook.
Good.
We our EBITDA and cash flow positive with a stronger balance sheet containing over $95 million of cash.
And no bank debt.
And we continue to invest aggressively in a long list of exciting big growth initiatives.
We are investing across the business.
Including to be ready to fully benefit from the other side of this rate transition period and auto insurance.
I think it's important to note that our investments have been paying off.
We now have three nine figure revenue legs on our more balanced and diversified business platform.
They include auto insurance.
Services.
And what we call our credit driven client verticals comprise.
Comprised of personal loans and credit cards.
All three represent big total addressable markets and enormous untapped opportunities for our future growth.
Also.
Our new product pipeline is easily the most exciting ever.
Adding new dimensions and vectors of growth.
And promising transformative new levels of value to our clients and the channel.
And competitive advantage and increasing margins.
Yes.
Overall, we.
We have the most balanced business.
And best mix of big scale opportunities in company history.
The future is really bright.
And not just the long term.
We are very likely to be growing at strong double digit rates at big scale with rapidly expanding margins and cash flows in the back half of this fiscal year.
As the auto insurance market normalizes.
That is the most likely scenario.
And we are well positioned for it.
We plan to continue to invest aggressively in these big opportunities and growth initiatives.
And in our product and technology capabilities to.
To scale profitably and sustainably for the foreseeable future.
We also plan to remain nicely EBITDA and cash flow positive while doing so.
And to maintain a strong balance sheet.
Turning to our near term outlook.
As a reminder, we just entered our new fiscal year fiscal year 2023 on July one.
We expect revenue and EBITDA results for the full fiscal year 2023.
To be at least flat to fiscal 2022.
In other words, we expect to grow this year.
Auto insurance challenges will likely continue through the end of the calendar year.
And then inflect positively beginning in January .
Our second half.
Non insurance client verticals are expected to continue to grow at strong double digit rates throughout the fiscal year.
It is hard to give more specific guidance given the complexity of the environment.
And remember we are only one month.
Into our new fiscal year.
We will of course update.
Our outlook for the full year as the year progresses.
We expect business dynamics and results for fiscal Q1.
The current quarter ending in September to be similar to what we saw in the June quarter.
Just a little added conservatism in auto insurance as carriers enter the heavy weather season.
And with a little lower EBITDA.
Mainly reflecting that iron that auto insurance conservatism.
But also the impact of routine annual increases in employee compensation.
Coincident with the beginning of the new fiscal year.
So specifically for fiscal Q1.
We expect revenue to be between 135 and $140 million and.
And adjusted EBITDA to be between three and $3 $4 million.
I want to reiterate that overall, we expect to remain EBITDA and cash flow positive throughout fiscal 2023.
Despite the challenges in auto insurance, and we expect to maintain our strong balance sheet, while continuing to invest aggressively in opportunities in future capabilities across the business.
Now I wanted to make a few more comments on our business relative to the macroeconomic environment.
First we have included contingency planning for a possible recession in developing our FY 2023 expectations.
In the event of a recession.
We would still expect to be at least flat in FY 'twenty three revenue versus FY 'twenty two.
So it's still positive cash flow and EBITDA.
We have grown through both of the two previous recessions.
Remember, we have been around for over 23 years.
Performance marketing is typically one of the last budgets to be impacted as the economy softens because by definition clients can tie their spend directly to revenue.
Further.
Our business helps consumers better shop, and save for needed products and services.
In particular.
Consumer shopping for insurance tends to increase significantly and a softer economy.
Even more generally our business footprint is well positioned for a downturn leveraged more to prime and homeowner consumers and our insurance home services and credit cards client verticals.
And to helping lower income consumers deal with the financial pressures of inflation or a downturn in our personal loans client vertical.
A second comment regarding the macroeconomic environment.
Specifically with respect to the more direct effects on us from inflation.
We are not seeing.
Nor do we expect a big impact on our costs.
Media is our biggest cost.
It is largely unaffected by inflation and is actually typically more affordable a softening economy.
Increases this year or two employee compensation, our second biggest cost will be less than 1% of revenue.
Up a little from a more typical one 5% historically, but still quite manageable and largely immaterial.
A third point on the macro environment.
With respect to the strong dollar.
We have essentially no international revenue.
And we are actually positively leveraged to the strong dollar.
Because almost one third of our employees.
Or in India.
Fourth rigs.
Regarding the macro context as.
As we have noted in the past, we have little exposure to display advertising or Apple iOS tracking changes.
And we would not expect challenges in those areas to represent a meaningful risk too.
The impact on our business or results.
I would note that trends in advertising are indicating some softening of display advertising and social media budgets.
But again those areas are not our domain.
Performance marketing.
Search traffic and higher intent media.
Our our domains.
Finally.
An update on our share repurchase or buyback.
We bought back one 7 million shares of our stock or approximately 3% of the shares outstanding last quarter.
Total of $17 million.
Aligning our actions and money.
With our confidence in our business and opportunities.
With that I will turn the call over to Greg.
Thank you Doug.
Hello, and thanks to everyone for joining us today.
For the June quarter.
Total revenue was $146 5 million.
Adjusted net income was $2 million or <unk> <unk> per share.
Adjusted EBITDA was $5 1 million.
Overall non insurance claim verticals.
56% of Q4 revenue and grew 26% year over year.
Insurance made up 44% of Q4 revenue.
Looking at revenue by client vertical.
Our financial services client vertical.
Represented 69% of Q4 revenue.
$128 million.
Doug covered the details of what is going on in the insurance client vertical in his remarks.
Within our credit driven claim verticals of personal loans and credit cards.
We continue to be pleased with our performance and execution in Q4.
Increasing revenue by 47% year over year, and eclipsing the $130 million annual run rate for those combined businesses.
Revenue on our own services client vertical increased 20% year over year.
The $44 3 million or 30% of revenue.
We expect this early stage client vertical to continue to deliver double digit organic growth for as far as the eye can see.
Other revenue was the remaining $1 $4 million of Q4 revenue.
Turning to our full fiscal year 2022 performance, we reported record revenue of $582 1 million.
Our financial services client vertical represented 72% of full year revenue was $417 1 million.
Our credit driven client verticals grew 73% year over year offsetting insurance effects.
Our home services client vertical represented 27% of full year revenue and grew 18% year over year to $158 $8 million.
Other revenue represented the remaining $6 2 million of full year revenue.
Adjusted EBITDA for fiscal year, 2022 was $31 million.
Turning to the balance sheet, we generated $28 7 million of operating cash flow in FY 'twenty to dispose.
Closed the year with $96 $4 million of cash and equivalents and.
And no bank debt.
As a reminder, last quarter, we announced a share repurchase program.
Selective of the expected transitory nature of the insurance industry challenges.
The strength of our underlying business model and financial position and confidence in our long term outlook for the business.
During the June quarter.
We repurchased one 7 million shares of common stock at a total cost of about $17 million.
In summary, we feel great about our business prospects and financial model.
For full year fiscal 'twenty, two our non insurance client verticals grew 28% year over year, and we believe that will support a period a fantastic total company growth when we get to the other side of this current environment and insurance.
As a reminder, the last time, we exited a transitory cycles like this in 2017, we doubled our insurance business within 12 months.
Looking forward our objective is to continue to invest in our people products and technologies to drive long term growth in the business, while also delivering positive adjusted EBITDA and cash flow to shareholders.
With that I'll turn it 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. If you are using a speaker phone. Please make sure. Your mute function is turned off to Larry <unk> equipment I've always prompt on your phone line to indicate when Youre line is open again press star one to ask a question.
And we'll take our first question today from John Campbell with Stephens, Inc.
Hey, guys good afternoon.
Hey, John Hey, just two quick questions on the guidance. So first just relative to the first quarter guidance. It looks like you guys are calling for like a mid to high single digit sequential decline in revenue. It seems like that's a period you guys historically have grown and just I guess from a seasonality standpoint.
You guys called out stabilization insurance and kind of bouncing off the bottom. So I guess, what explains why you'd see that degree of a sequential decline for what you just posted.
Really it's reflective John what we indicated is that insurance, we have been bouncing along the bottom.
We entered the heavier weather season.
We expect to see clients be more conservative with even more conservative with their budgets.
In defense of that weather season, which can.
Create.
Losses, particularly from Hurricanes, particularly in the Gulf in the South and southeast we've seen a little bit of that already.
And so we're really just bake that in.
The guidance.
Okay. That's helpful and then on the full year guidance.
I know you guys are kind of leasing, leaving that open and going to update us along the way but.
On a flat revenue.
Just on my back of a napkin math it looks like even kind of trough insurance route through the remainder of the calendar year.
Maybe it looks like you've got to have just a modest recovery maybe mid to high single digits out of insurance in the back half that to me seems awfully conservative, especially just given the commentary around you guys doubling the insurance business coming out of the life cycle.
Is that is that about right or am I thinking about it right assumptions there and then Doug also did you mentioned that the flat revenue already assumes a recession.
And we're not we're not expecting we.
We are not assuming in the.
If we were just flat we would be assuming relatively modest.
Uptick in auto insurance in the back half to your point, John given the strength of continued growth in our other businesses.
So as we said we.
It's hard for us to project exactly what's going to happen in insurance everything indicates.
January .
Pick up again to loss ratios and combined ratios excuse me will reset consumers will have a lot higher rates that drives them to shop. We've seen this pattern of a couple of times took a big cycles. Historically the carriers all have seen them. They all tell us to get ready to kind of comment is going to be a big surge. So I would say is it is likely concern.
But again, it's been a pretty uncertain time in insurance.
But I don't think were going on and on.
Jim.
At least studying what we consider to be the floor.
The.
The guy.
In terms of recession, we ran a whole.
Another model.
Terms of recession scenario.
Risk adjusting businesses that we thought might be affected and going business by business and asking folks running that business do a bottoms up of what they thought the impact would be a recession. When we ran that recession. It also came out that we would be at least flat in revenue with fiscal year 2022, which again I think you would where you can read into that that.
That is a pretty conservative.
Four we've set as far as an initial guide we just want to make sure folks know that we see.
Under all the scenarios that we've run and model that we think are realistic and conservative.
We think we're going to grow this year despite.
Despite the first half being <unk>.
Tampered.
By auto insurance.
Totally understandable if I could squeeze in just one more Doug just maybe refresh us on coming out of some of the past cycles.
Is it typically as you get into the new calendar year, I guess as budgets get placed is it pretty much a step function higher in spend or is it kind of built up over the years, what does that look like historically.
Usually a step function.
It's funny because you even saw this past year you may recall that.
There are two dimensions to this one is the just resetting annually the combined ratios and new new new calendar year budgets for the carriers typically that ended up itself as a step function increase and we saw that this past year recall.
<unk>.
Insurance spinning had dropped a lot in the late fall.
2021, and then January we had a year that was.
Up from even the pre flattening or they're clean.
The previous cycle, a huge January and then the carriers realize that in fact, though.
Costs.
And.
We're much higher than they anticipated they needed dropped back down again in February and March Thats, why we refer to February and March rather than the first last quarter, because the quarter was a little bit.
Skewed.
Im kind of a monster January so typically and that is consistent with what we typically see a big step function increase in January as combined ratios for the new year reset and Theres kind of a greenfield opportunity new budgets, new a new whole new world to go after.
We expect that that will probably be the case again this January.
Then you have on top of that this time not unlike past.
Right.
Raising cycles.
The behavior of the insurers having raised rates. So they have better economics. So it can be more aggressive with marketing because they have more room to do so along with consumers reacting to those higher rates and shopping more aggressively and that's what I referred to I think a call or two ago was kind of a super cycle in insurance.
Where you have the combined effects of.
The ratios resetting as we do annually plus consumers aggressively shopping because their rates are higher and they figure they might be able to.
Get cheaper insurance elsewhere, and I would add a third dimension. This time, which is if in fact, that's coincident with the softening of the economy, you get even more consumer shopping.
The last time, we went through one of these right Ray cycles in auto insurance was not coincident with the recession that is Greg reminded you and as I mentioned, I think last call and the call before.
We doubled our insurance revenue because of the factors I just talked about within one year of those rates being reset.
And the ratio of being reset so everything points to historic experience that carriers talking to us.
The factors that we just outlined everything points to a likely very strong.
Second half.
Assuming that in fact rates continue to get increased.
On which the carriers are doing state by state and are mostly having success. Some of the carriers have had a lot of success somewhere a little bit further behind.
And I think there'll be even more success once we get through the November election cycles. So.
Everything points to it being very strong we're not assuming a monster cycle.
Our initial we think theres kind of four Conservative guide, we're doing that we're providing that because the fact is right now.
Insurance is in tough shape, and we're having to bet on it coming back because of everything we know.
But again I don't think were going at all in here.
That's great color I appreciate all the help thanks.
Net.
Next we'll hear from Jason prior with Craig Hallum.
Hey, everybody Cal Barbizon here for Jason So I just had a couple of questions for you.
First off I was just wondering if you could just talk about the home services segment and how that's kind of progressing in this environment.
It seems that consumers may be pulling back on large ticket items I was just kind of wondering if that has any implications on your home services partners.
Yes, we have not seen that.
And it really depends on what part of home services renter.
Largely on home improvement.
Most of the so first of all let me talk specifically about that and we have not seen that and in fact this quarter home services continues to run a strong double digit growth rates.
And we continue to see.
Same kind of consumer behavior that we have seen for the past.
Year, plus so we're not seeing any weakening in the consumer in the home services business or weakening or slowing of that business as.
As we sit here today, and we're not hearing that.
About next month or the month after generally speaking our home services business is really in home improvement.
And then home improvement is Angie.
Talked about a couple of weeks ago when they did their report on the whole segment, a segment or a few weeks ago.
Home improvement is actually in really good shape for a lot of reasons first of all.
Consumers have a lot of value in their homes because the prices have run up second of all the new housing market has slowed because of increased mortgage rates, which usually means consumers choose to invest in their current home rather than buying a new home.
And so when you combine those factors with the fact that the home improvement vertical as we are in are largely not.
Purely discretionary and the fact that home improvement by definition.
As leveraged to homeowners, who are prime consumers in prime consumers.
And some of the best shape they have been in financially for 20 years. According to all the commercial banks.
We don't expect a big slowdown there now.
Now in our recession contingency planning scenario, we did dock our home services business about 20%.
Despite from the plan that we have on a normalized environment. We did that despite the fact that the team running that business came back to US and said Hey, we think there's going to be some puts and takes but net net we don't think there is going to have any impact or impact on our growth rate. So we were more conservative than the folks running the business and more conservative than I think we certainly should be based on.
What we're seeing now and if you think it to what the likely impact is so no we're not seeing it not seen a slowdown.
Perfect. Thanks for that and then just my second question here.
Just going back to the guide here.
With the declining revenue in the first quarter guidance, but then the full year to go plan to go flat just wondering if you could kind of talk about your conviction in that early calendar year 'twenty three rebound and then just tied to that you know it seems that this is now like the second or third time that carriers have had to reprice policy.
In an effort to improve the combined ratio. So I'm just wondering what you might be hearing from them that may lead you to believe that theyre going to get it right. This time.
Right.
As high as it can be given that.
We're still trying to predict the future but.
What gives us confidence is that we've seen it before.
This is not our first auto insurance rodeo in.
We nor is it for our clients and.
Everybody knows that combined ratios are going to reset in January and that rates are going to be higher than that historically, we all know what that's meant I meant bigger marketing budgets.
Aggressive consumer shopping and therefore super cycle, which has led to.
Outside growth rates every time, it's happened so.
It's consistent with history is consistent with any kind of decent.
With all the outlooks, we know in any kind of decent analytics, so I want to say quite high.
But we're still predicting the future, which always makes us nervous.
What could go against that.
I guess carriers, it's curious can't get their rates increased that'd be a problem to date.
The carriers that we're.
First.
And most aggressively for the rate increases for the most part gotten those rate increases through <unk>.
There have been some state holdouts.
Particularly in the northeast where some of the states have not allowed as bigger rate increases of the carriers because they need given the environment.
But in general terms I think that.
At the end of the day historically, sometimes when states hold out they eventually get in because they have to have.
They are their citizens have to have auto insurance.
And if they don't allow carriers to price the auto insurance in a way that allows them to make money.
To ensure as just won't write in those states.
And you have a whole another problem so.
The site the cycle is more difficult and longer this time because of how much inflation and how much costs have increased.
But I don't blame that on the carriers I blamed it on the environment.
There what we're seeing is that several carriers have really gotten that done.
Very effectively and the vast majority of the states and the others are close behind them. So.
I just don't see anything that.
I haven't seen anything that.
Does it suggest.
The back half.
Going to be quite strong.
Based on everything that you know everything that we've seen historically and how it all lines up with what we're hearing perspective.
Great. Thank you very much.
You bet.
We'll now hear from Jim Goss with Barrington Research.
Yeah.
Hi, Hey, Doug.
Jim here.
Don't mean to beat a dead horse, but in terms of the resetting of the combined ratios.
I'm, just wondering isn't that influenced by competition and market share gain.
Efforts to gain market share vis vis the other.
Companies from does that throw a wrench into that.
The notion that things improve as quickly as they do.
Or I know you said historically, it's sort of work itself out pretty.
Smoothly.
It seems like it's taken quite a bit longer this time around because I think we've been talking about this for at least a year or two.
Hasnt been two years.
The softness started back.
Greg I think it was last September .
In mid September timeframe.
And so you certainly are accurate when it feels like it's getting to be a year and it is longer.
Largely because it's again the.
This is probably the well it's not probably this is the.
Worst period of rapid the escalating inflation combined with.
With constrained.
Fly changed in the last 50 to 70 years. So it's a very unusual environment for them to have to adapt to that and so.
The disappointing.
And I'd say not surprising that its taking them as long as it's taking them.
<unk>. Thank.
You will find some carriers trying to figure out how to get an advantage. During this period in terms of gaining share.
Others raise their rates, but we as you look carrier by carrier.
That is not by any means the dominant and I would say not even a significant factor. The main factors are without a rate increase they can't make money.
Can you hear that from all the public carriers and we hear it from the Mutuals as well.
And so and.
So theyre not anxious to go and steal share when there when every time they run a new policy that lose money on it they don't want to they don't want to lose money at dollar client and make it up in volume.
I would say this time less than any other time, that's a factor because the economics are so upside down.
And it was a couple of minutes late getting on the call because they were like three or four pumps today, but and serious I apologize. If you talked about this that the auto chip shortage.
<unk> thrown a wrench in there are a lot of things.
And it would seem like it's probably changed the mix of new Carter's versus used cars.
It seems like we're still waiting for that to work itself out and I was just wondering how you would contextualize that as part of what youre dealing with.
Yeah, I don't know specifically how the auto.
Chip.
Supply chain issues are affecting that I do know that.
What we've been told by clients and what clients have stated publicly.
Including.
And some written releases over the past month or so.
Used car pricing.
There's been a big.
Has had a big negative impact on the economics.
And so.
Because a lot of these policies I guess are these replacement clauses.
And they go to replace a vehicle with a similar vehicle that debt.
Similar vehicle costs 2030, 40% more than it did.
Before.
That was because it has been called out specifically with some of the public carriers as one of the primary drivers.
The combined ratio issues that theyre, having so.
Yes.
That probably isn't cause Jim to your point by the fact that there aren't enough new cars and so therefore demand for vehicles generally shifts more more skews more to us than it would.
Normally.
That would be that'd be pure conjecture on my part, but I can tell you that.
The cost of automobiles, particularly use automobiles has been called out specifically by some of the carriers as a driver.
Oh.
These combined ratio or loss cost issues.
Okay, and one final one.
Are there any new concerns consumer verticals, you have your eye on or some of them.
Potential or you're an early stage of development.
Yes, we are.
The.
The main.
Category.
Of new consumer verticals is really and what we would call trades, but you might consider some verticals in home services.
Currently and scale.
And about four.
So home services verticals and arguably really just one Q1 say real scale.
We have a presence in 16.
And we think we can be in dozens and so part of what we do everyday and our home services client vertical.
<unk> worked to scale.
Some of the 16 that we have some level of presence in.
And work to add more to that list of dozens that will eventually be and so that in terms of investment and activity against new verticals, new consumer verticals. That's the main one for us that said we have entered.
New verticals in financial services banking.
We call them broadly banking.
Which used to be very narrowly defined as kind of source of funds for savings accounts and Cds and now includes brokerage accounts wealth management financial advisory and many others and those are all new vertical to US we are entering new areas of credit cards. We are very very highly leveraged to prime and Super Prime.
And so we're adding more mid prime and subprime offerings, there, which are new verticals to US then there's client coverage, there which means maybe economics.
It can be better if we can have those matches for consumers, we're adding new segments in personal loans, we are highly <unk>.
Today and focused on that consolidation and in fact credit card debt consolidation.
And there are a number of other use cases.
And personal lending.
And other ways for consumers to get bond money, if they're on the prime or subprime side.
And so we're adding new coverage in segments in personal loans, and we're adding new products and insurance we've been historically.
Almost.
100%.
Direct budgets with direct carriers and where we are.
Our very early stages.
Doing more and more.
Leads to agent networks.
And thats being enhanced by some of the <unk> activities and some of them.
Project activities, we have with some of the big carriers to two <unk>.
We improved the integration.
With those agencies in those agent networks and so.
But in terms of.
So you can hear that we define our verticals broadly enough that a lot of the new business will be within those broad definitions, but are better new quite significant.
Incremental opportunities for us in terms of new beyond insurance.
What cards home services.
Personal loans in banking.
Not eminent non eminent we have plenty of capacity in those defined and that defined footprint to do billions and billions of dollars of revenue.
And pretty much all we can stand we remember we've exited some businesses in order to better focus on the places we thought had the best opportunities for.
Over the past couple of years, we exited education, we actually <unk>, we exited mortgage.
It seems like we ask is it seems like there is one I'm forgetting Greg so.
Lots of new Greenfield opportunities lots of big opportunities in our current footprint plenty to keep us growing at high rates for very long time to come.
So brand new named vertical footprint areas.
Our likely tenure and imminently, but we're opportunistic.
We'll see how things develop.
Alright, thanks very much.
Thank you Jim.
As a reminder press star one if you have a question, we'll now hear from Chris Sakai with singular research.
Hi, Doug and Greg.
Chris I just had I had a question on.
The demand in use of <unk> in.
Environment insurance environment, and then I wanted to ask about.
Your thoughts on are we at the bottom I know last quarter. It seemed like you thought we were at the bottom as far as.
Repricing goes and stuff like that I wanted to get your thoughts on that.
You bet, Chris in terms of Q RFP.
We're making a lot of great progress on not surprisingly and I think I mentioned this last call on the call before given the insurance environment.
The the activity and the progress of that pipeline has slowed pretty substantially pretty significantly.
We're still making progress, but the agencies themselves have lost carrier coverage and budgets.
They are dealing with that more than they are dealing with the brand new product integrations and so that pipeline has definitely slowed.
I would say our enthusiasm is not diminished at all for that project that product in this long term opportunity and we would expect it and we are making still making good progress just not as rapid progress as we were before given what's going on in insurance.
And we still I would expect as insurance comes back that pipeline and progress will.
Accelerate once again.
We think again, that's one of the biggest.
New opportunities both in terms of impact on our clients and the channel as well as impact on us.
That we've ever worked on so still working hard at it and the progress has slowed because of what's going on in your insurance environment, but no less enthusiastic and nonetheless excited about.
Where we're going.
In terms of the bottom of the repricing.
As I said as I indicated hey, we've been.
Bouncing along the bottom for.
Five six months now.
Think that the only risk between us in January now when I indicated which is carriers.
I'll now have two <unk>.
Look at facing August and September potential.
Potential weather events and if they I think if we have a normal weather season.
Likely to be pretty flat.
Plus or minus $1 million a month.
Over the next.
Until we get to January .
If you if we have a bad hurricane season, I would say that there can be a further reduction in auto insurance.
I think we have guided for a.
Average to worse than average.
Hurricane season.
And so I think we're in a pretty good spot, but if we have a.
<unk> really really bad hurricane season that could have more of an effect on auto insurance I don't think it would be.
That meaningful <unk>.
<unk> results given the.
We still have the other business is cranking along and <unk>.
And we would still expect and we know that combined ratio as a reset in January and we'll be off to the races.
A new cycle.
Okay, Thanks, and maybe this one for Greg.
Looks like.
Gross margin declined by 1% sequentially.
Just wondering what was happening there on if you had any could share anything there.
Yes, Chris the declining gross margin both sequentially and year over year is really two fold and it's all insurance related so the first would be it's just a loss of operating leverage against.
Against a lower insurance revenues as we're carrying more employees than we typically would at these revenue levels as we keep investing through this transitory period insurance. So we come out the other side.
Much stronger so second would be.
Also associated with auto insurance is our media margins are lower than they typically would be due to the macroeconomic pressures in auto where pricing is definitely carriers. So we're temporarily temporarily running a lower margin than we would in a normal normal environment. So that said both of those impacts impacts <unk>.
Those both are correct themselves as.
Carriers begin to spend again and the topline leverage comes back and as you get normalized pricing and we get our margins back in those businesses. So.
Those are the impacts.
They're both in my opinion pretty short term until we see the cycle turn.
Okay. Thanks for that.
Yes.
And that will conclude the question and answer session for today. The replay information will be available on Queen Street Investor Relations website. Thank you for your participation you may now disconnect.
Okay.
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