Q3 2024 QuinStreet Inc Earnings Call
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Operator: Good day and welcome to Quinstreet's fiscal third quarter 2024 financial results conference call. Today's conference is being recorded. Following the prepared remarks, there will be a question and answer session. If at any time during the call you require operator assistance, please press star zero. At this time, I would like to turn the conference over to Senior Director of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may now begin.
Good day, and welcome to clean streets fiscal third quarter 'twenty 'twenty four financial results conference call.
Operator: Today's conference is being recorded.
Robert Amparo: Following the prepared remarks, there will be a question and answer session.
Operator: If at any time during the call you require operator assistance. Please press star zero.
Robert Amparo: This time I would like to turn the conference over to senior director of Investor Relations and finance Robert apparel.
Robert Amparo: Mr. Alfaro you may now begin.
Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report Quinstreet's fiscal third quarter 2024 financial results. Joining me on the call today are Chief Executive Officer Doug Valenti and Chief Financial Officer Greg Wong.
Robert Amparo: Thank you operator, and thank you everyone for joining us as we report <unk> fiscal third quarter 2012.
Robert Amparo: For financial results.
Speaker Change: Joining me on the call today are Chief Executive Officer, Doug Blanking, and Chief Financial Officer, Greg Walker.
Robert Amparo: Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Such 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 8K filing made today and our most recent 10Q filing.
Robert Amparo: Before we begin I would like to remind you that the following discussion will contain forward looking statements forward.
Robert Amparo: 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 the future performance.
Robert Amparo: 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 in our most recent 10-Q filings.
Robert Amparo: Overlooking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both gap and non-gap measures. A Reconciliation of Gap to Non-Gap Financial Measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Douglas Valenti. Please go ahead
Robert Amparo: Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update these statements.
Douglas Valenti: We will be discussing both GAAP and non-GAAP measures.
Robert Amparo: Reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at Investor <unk> Com.
Douglas Valenti: With that I will turn the call over to Doug.
Douglas Valenti: Please go ahead Sir.
Douglas Valenti: Thank you Rob.
Douglas Valenti: Welcome everyone.
Douglas Valenti: Company revenue grew about 40% sequentially in fiscal Q3, fueled by a significant positive inflection in auto insurance carrier spending, as we head for the forecast. The ramp of auto insurance carrier spending continued through Q3, and has extended into the current quarter. Fiscal Q4. Auto insurance carrier activity and spending are broad-based and continue to be supported by reports of good carrier results. We expect the ramp of auto insurance spending to continue in coming quarters as carriers expand their product and market footprints and are enabled by increased rates and improved profitability.
Douglas Valenti: Company revenue grew about 40% sequentially in fiscal Q3.
Douglas Valenti: Fueled by a significant positive inflection in auto insurance carrier spending.
Douglas Valenti: As we had forecast.
Douglas Valenti: Yeah.
Douglas Valenti: We're up about our insurance carrier spending continued through Q3.
Douglas Valenti: And has extended into the current quarter.
Douglas Valenti: For Q4.
Douglas Valenti: Auto insurance carrier activity and spending are broad based.
Douglas Valenti: And continued to be supported.
Douglas Valenti: Our reports a good carrier results.
Douglas Valenti: We expect the ramp of bond insurance spending to continue in coming quarters.
Douglas Valenti: Carriers expand their product and market footprints.
Douglas Valenti: And our enabled by increased rates and.
Douglas Valenti: And improved profitability.
Douglas Valenti: Overall.
Douglas Valenti: We expect auto insurance revenue to grow for the foreseeable future, as the fundamental shift of budgets to digital and performance marketing reasserts itself as the dominant long-term trend. Adjusted EBITDA jumped to almost $8 million in FYQ3 due to the leverage from the higher revenue. We expect adjusted EBITDA margin and dollars to continue to grow as revenue continues to ramp. Turning to our outlook for the current quarter or fiscal Q4, We expect revenue to be between $180 and $190 million, a quarterly record revenue for Quinstreet, and implying year-over-year growth of over 40 percent at the midpoint of the range.
Douglas Valenti: We expect auto insurance revenue could grow for the foreseeable future.
Douglas Valenti: That's the fundamental shift of budgets to digital and performance marketing.
Douglas Valenti: Search itself.
Douglas Valenti: As the dominant long term trend.
Douglas Valenti: Yeah.
Douglas Valenti: Adjusted EBITDA jumped to almost $8 million in FY Q3 due.
Douglas Valenti: Due to the leverage from the higher revenue.
Douglas Valenti: We expect adjusted EBITDA margin and dollars to continue to grow.
Douglas Valenti: As revenue continues to ramp.
Douglas Valenti: Turning to our outlook for the current quarter or fiscal Q4.
Douglas Valenti: We expect revenue to be between 180 and $190 million.
Douglas Valenti: A quarterly record revenue for Quint Street.
Douglas Valenti: And implying year over year growth.
Douglas Valenti: With over 40%.
Douglas Valenti: Midpoint of the range.
Douglas Valenti: We expect adjusted EBITDA to be between 10 and $11 million.
Douglas Valenti: Implying year over year growth of over 400%.
Douglas Valenti: We expect the adjusted EBITDA to be between $10 and $11 million, implying year-over-year growth of over 400 percent. Our fiscal year 2025 begins this July 1st. I would point out that the annual run rate of our fiscal Q4 revenue outlook already implies growth of 20% or more over full fiscal year 2024. We are excited about the size of our market opportunities, about the resilience we have demonstrated in our business, about our plans and initiatives to keep growing revenue and profits into the future, and, of course, about our continued strong financial position. With that, I will turn the call over to Greg.
Douglas Valenti: Our fiscal year 2025 begins this July 1st.
Greg: I would point out that the annual run rate of our fiscal Q4 revenue outlook.
Greg: Already implies growth of 20% or more over full fiscal year 2024.
Greg: We are excited about the size of our market opportunities.
Greg: About the resilience, we have demonstrated in our business.
Greg: About our plans and initiatives to keep growing revenue and profits into the future.
Greg: And of course.
Greg: Our continued strong financial position.
Douglas Valenti: With that I will turn the call over to Greg.
Greg: Thank you Doug.
Gregory Wong: Hello, and thanks to everyone for joining us today. Fiscal Q3 was another solid quarter for Quinstreet. Total revenue was $168.6 million. Adjusted net income was $3.4 million, or $0.06 per share, and Justin Diebenthaler was $7.9 million. The significant positive inflection in auto insurance client spending has indeed begun, and in Fiscal Q3, we saw auto insurance revenue continue to ramp throughout the quarter. That said, we're still in the early innings of the re-ramp of auto insurance and continue to expect growth for many quarters ahead. Looking at Revit, my client vertical.
Greg: Hello, and thanks to everyone for joining us today.
Gregory Wong: Our financial services client vertical represented 67% of Q3 revenue, and it was $112 million. Our home services client vertical represented 32% of Q3 revenue and was $54 million, a record quarter for that business. Other revenue was the remaining $2.4 million of Q3 revenue. Turn over the balance sheet. We close the quarter with $40 million of cash inequivalent, and Noel Bainter. A more normal SBO branding cash balance would be approximately $48 million
Gregory Wong: Fiscal Q3 was another solid quarter for Quint Street.
Gregory Wong: Total revenue was $168 $6 million.
Gregory Wong: Adjusted net income was $3 $4 million or <unk> <unk> per share.
Gregory Wong: And adjusted EBITDA was $7 $9 million.
Gregory Wong: The significant positive inflection in auto insurance client spending has indeed begun.
Gregory Wong: In fiscal Q3.
Gregory Wong: We saw auto insurance revenue continue to ramp throughout the quarter.
Gregory Wong: That said, we are still in the early innings of the re ramp of auto insurance.
Gregory Wong: We continue to expect growth for many quarters ahead.
Gregory Wong: Looking at revenue by client vertical.
Gregory Wong: Our financial services client vertical represented 67% of Q3 revenue.
Gregory Wong: And it was $112 million.
Gregory Wong: Our home services client vertical represented 32% of Q3 revenue.
Gregory Wong: It was $54 million a record quarter for that business.
Gregory Wong: Other revenue was the remaining $2 $4 million of Q3 revenue.
Gregory Wong: Turning to the balance sheet.
Gregory Wong: We closed the quarter with $440 million of cash and equivalents.
Gregory Wong: Bank debt.
Gregory Wong: A more normal as Vito brining cash balance would be approximately $48 million.
Gregory Wong: We received a payment of approximately $8.5 million two days after quarter end. Moving on to our outlook for Fiscal Q4, our June quarter. We expect revenue to be between $180 million and $190 million, and Adjusta Diva Dot to be between $10 and $11 million. As Doug pointed out, the annual run rate of our fiscal Q4 revenue outlook already implies revenue growth of 20% or more over full fiscal year 2024. We also expect adjusted EBITDA to continue to expand faster than revenue.
Gregory Wong: We received a payment of approximately $8 million two days after quarter end.
Gregory Wong: Moving to our outlook for fiscal Q4, our June quarter we.
Gregory Wong: We expect revenue to be between $180 million and $190 million and adjusted EBITDA.
Gregory Wong: Between 10 and $11 million.
Gregory Wong: As Doug pointed out.
Gregory Wong: The annual run rate of our fiscal Q4 revenue outlook already implies revenue growth of 20% or more over a full fiscal year 2024.
Gregory Wong: We also expect adjusted EBITDA to continue to expand faster than revenue.
Gregory Wong: In closing... Our outlook on the business has never been brighter. We expect a record revenue quarter in fiscal Q4 and further margin expansion. We remain well-positioned to benefit from the re-ramp of auto insurance client spending and are seeing continued momentum in our non-insurance client vertical. We expect strong total company revenue growth and adjusted EBITDA expansion, driven by our diversified portfolio of quiet verticals. With that, I'll turn it over to the operator for Q&A.
Gregory Wong: In closing.
Gregory Wong: Our outlook on the business has never been brighter.
Gregory Wong: We expect a record revenue quarter in fiscal Q4, and further margin expansion.
Gregory Wong: We remain well positioned to benefit from the re ramp up auto insurance client spending.
Speaker Change: And we're seeing continued momentum in our non insurance client verticals.
Gregory Wong: We expect strong total company revenue growth and adjusted EBITDA expansion, driven by our diversified portfolio of client verticals.
Gregory Wong: With that I'll turn it over to the operator for Q&A.
Speaker Change: Thank you ladies.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any button.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Operator: Should you have a question. Please press star followed by the number one on your Touchtone phone, you'll hear a prompt that their hand has been raised should you wish to decline from the polling process. Please press star followed by the number too.
Operator: You're using a speaker phone please lift the handset before pressing any keys.
Operator: Your first question is from the line of John Campbell from Stevens. Please go ahead.
Operator: Your first question is from the line of John Campbell from Stephens. Please go ahead.
John Robert Campbell: Hey guys, good afternoon. Hey John. Hey, so, you know, over the last year, you guys have talked about getting back, you know, eventually to, you know, the 10% EBITDA margins, I guess, as the insurance channel just normalizes, and you kind of rebuild the top line scale. I'm not asking you to really pinpoint exactly when all that comes together, but just based on the fixed cost base you guys have now and what you're, you know, the plans you have to grow it from here, I'm hoping you guys can maybe outline the level of it or the degree of revenue you'd need to get back to those kind of low double-digit EBITDA margins.
John Robert Campbell: Hey, guys good afternoon.
John: Hey, John.
John Robert Campbell: Hey, So you know over the last year, you guys have talked to getting back.
John Robert Campbell: Really that 10% EBITDA margins.
John Robert Campbell: I guess, that's the insurance channel just normalizes I mean, you've kind of rebuild the topline scale.
John Robert Campbell: I'm not asking you to really pinpoint exactly when all that comes together, but just based on the fixed cost base you guys have now.
John Robert Campbell: The planes you have to grow it from here I'm, hoping you guys can maybe outline the level that part of the degree of revenue you'd need to get back to those kind of low double digit EBITDA margins.
Douglas Valenti: All right, sure, I... I'd say it's hard to pinpoint the exact level of revenue, John, because it depends so much on the mix. As you can see, we'll get up into the mid to high single digits in terms of percentage next quarter, and we have a lot of growth beyond that that we can see coming given the demand that we're seeing and the initiatives that we have.
John: Hi, Sean.
John Robert Campbell: I'd say I'm hard to pinpoint the exact level of revenue jobs.
Douglas Valenti: And so much on the mix.
Douglas Valenti: As you can see where you will get up into the.
Douglas Valenti: Mid to high single digits in terms of percentage next quarter.
Douglas Valenti: And we have a lot of growth beyond that that we can there where we could see coming given the demand.
Douglas Valenti: That we're seeing in the initiatives that we have so again.
Douglas Valenti: So, again, I have a hard time giving you the exact number in terms of revenue, but it's not too far off, if that's helpful. I would say it's... likely to be in, you know, very likely to hit next year, next fiscal year, in my opinion, but we'll have to wait and see what the mix looks like in the planning and the forecast. And, of course, we'll give you a more precise view of that in our next column as we look out to fiscal 25.
Douglas Valenti: I have a hard time, giving you the exact number because it in terms of revenue.
Douglas Valenti: It's not too far off if that's helpful.
Douglas Valenti: I would say it's.
Douglas Valenti: Likely to be and you know.
Douglas Valenti: Very might be to hit next year next fiscal year is my opinion, but well have to wait and see what the mix looks like in the planning and forecasting of course will give you more precise view of that in our next call as we as we look out to fiscal 'twenty five.
Douglas Valenti: Okay, that's totally fair. And then Doug, if you take your guidance, the high end, which you guys have pretty consistently outpaced your high end of your guidance, I mean, that puts you well above consensus for next year. Obviously, that's annualizing that on a kind of early cycle or early stage of the cycle recovery for insurance. And, you know, I think it's helpful for investors to maybe kind of size up where we're at.
Speaker Change: Okay. That's that's totally fair and then Doug.
Douglas Valenti: You know if you take you know your guidance. The high end what you guys are pretty consistently outpaced your high end of your guidance I mean that puts you well above consensus for next year obviously.
Douglas Valenti: Annualizing that on a.
Douglas Valenti: Kind of an early cycle early stage of the cycle recovery for insurance and you know I think it's helpful for investors. So maybe kind of size up where we're at as far as that recovery is likely you guys mentioned early that can be defined in a couple of different ways, but maybe if you can start off with like the progression like month to month increases I don't know if you want to get granular to the <unk>.
Douglas Valenti: As far as that recovery cycle you guys mentioned earlier, that can be defined a couple of different ways. But maybe we can start off with like the progression, like month to month increases. I don't know if you want to get granular to the percent increase, but just maybe broadly the acceleration throughout the month, whether that's continued in April. And then as you look out the past couple years where we are coming today versus past, you know, prior peak.
Douglas Valenti: A cent increase but just maybe broadly the acceleration throughout the month, whether that's continued in April and then as you look out past.
Douglas Valenti: A couple of years, where we are today versus past prior peaks.
Douglas Valenti: No, it's a great question. We did see growth throughout the quarter. February was bigger than January. March was bigger than February. April was bigger than March. We expect May to be bigger than April and June to be, only because it has fewer days in it, pretty consistent with May being a little bit higher.
Speaker Change: No no no it's a great question.
Douglas Valenti: We did see growth throughout the quarter February was bigger than January March is bigger than.
Douglas Valenti: February April was bigger than March we expect may to be bigger than April and June and June to be only because it has fewer days in it.
Douglas Valenti: Pretty consistent with maybe being a little bit higher and then we as we look out we've done the early looks at our forecast for next year.
Douglas Valenti: And then as we look out, we've done the early looks at our forecasting for next year. Despite historic seasonality, we expect next fiscal year that we will have sequential growth every quarter. So every quarter will be higher than the quarter before it, despite the fact that, as you know, we often have seasonality in both the December and June quarters. So, we will overcome, we will be a lot better than seasonality this quarter over the last quarter, and then we expect that to continue throughout next year. So, it's a pretty relentless ramp.
Douglas Valenti: Despite historic seasonality.
Douglas Valenti: We expect next fiscal year that we will have sequential growth every quarter.
Douglas Valenti: So every quarter will be higher than the quarter before it. Despite the fact that as you know we often have seasonality in both the December and June quarters.
Douglas Valenti: So we will overcome it will be a lot better than seasonality.
Douglas Valenti: This quarter over last quarter, and then we expect that to continue throughout next year. So it's a pretty relentless ramp we have extraordinary activity and demand from the clients.
Douglas Valenti: We have extraordinary activity and demand from the clients, and we are all ramping up our media to recover and to regrow it out of the more dormant period we've been through as fast as we can, so just a lot of vectors going up and to the right. And so, yeah, the notion of annualizing the fourth quarter is just to kind of give you what we would perceive to be a floor.
Douglas Valenti: Where we are all ramping our media and to recover.
Douglas Valenti: And you really grow it.
Douglas Valenti: You know more dormant period, we've been through as fast as we can so just a lot of vectors going up into the right.
Douglas Valenti: And so yeah, the notion of Annualizing the fourth quarter, just to kind of give you what we were perceived to be a.
Douglas Valenti: Floor.
Douglas Valenti: We have a lot more coming, not just in auto insurance, certainly in auto insurance, which I know is what you're asking about. But a lot more coming from other businesses as well next fiscal year. I think there's another part of the question, though, in terms of where we are. Oh, in terms of the re-ramp to the previous peaks, maybe, which is part of what I think part of your question. We're about 60% back from where we bottomed to the previous peak. So that also gives you a sense of why we are so bullish about what's coming in the future. By the way, despite that.
Douglas Valenti: We have a lot more coming not just necessarily sure certainly in auto insurance, which I know is what you're asking about.
Douglas Valenti: But a lot more coming from the other businesses as well next fiscal year.
Douglas Valenti: I think there was another part of your question, though in terms of where we are that they are in terms of the rent and re rent to the previous peaks maybe.
Douglas Valenti: As part of it was I think part of your question, we're about 60% back.
Douglas Valenti: From from where we bought them to the previous peak.
Douglas Valenti: So that also gives you a sense for why we are so bullish about what's coming in the future and by the way despite that we.
Douglas Valenti: We grew, and we've now listened to the calls from the other folks in our space, of course, and we grew much faster in auto insurance sequentially than anybody else. We were well over 100%. And we, in our forecast, have embedded the assumption, and again, we've listened to the others and looked at their numbers, that we will once again grow much faster in auto insurance than they will in the current fiscal Q4 or calendar Q2. So we're doing very well with the ramp, and there's a lot more to come. It's great to hear. Thanks for all the co...
Douglas Valenti: We grew our we've now listen to the costs from the other folks in our space of course, and we grew much faster.
Douglas Valenti: Auto and auto insurance sequentially than anybody else, we are well over 100%.
Douglas Valenti: And we in our forecast is embedded the assumption and again.
Douglas Valenti: Listen to any others and looked at their numbers, we will once again grow much faster than auto insurance that they will and the exit in the current or our fiscal Q4 or calendar Q2, So we're doing very well with the ramp and Theres a lot more to come.
John Robert Campbell: It's great to hear. Thanks for all the color, Doug. I really appreciate it.
Douglas Valenti: It's great to hear thanks for all the color really appreciate it.
Speaker Change: You bet.
Operator: Your next question is from the line of Jim Goss from Barrington. Please go ahead.
John Robert Campbell: Your next question is from the line of Jim Goss from Barrington. Please go ahead.
James Charles Goss: Thank you. This is Pat speaking on behalf of Jim. With the improved trajectory in insurance spending, I'm just wondering if you could provide an update on the development of additional efforts within insurance, such as QRP, and getting that back into a growth stage.
James Charles Goss: Thank you.
James Charles Goss: As a pat on for Ken.
James Charles Goss: I was just wondering with the improved trajectory and insurance spending I was wondering if you could provide an update on the development of additional efforts within insurance such as PRP.
James Charles Goss: That back into a growth stage.
Douglas Valenti: Yeah, good question, Pat. QRP obviously went kind of dormant during the insurance downturn. We've talked about that.
Speaker Change: Yeah. Good question Pat.
James Charles Goss: <unk> was obviously when kind of dormant during the insurance downturn, we've talked about that just wasn't any product for the agencies. The agencies work had to cut way back because it didn't have products. So the re ramp.
Douglas Valenti: There just wasn't any product for the agencies. The agencies were cut, and had to cut way back because they didn't have any product. So the re-ramp and rescaling or getting back on track to scale QRP is going to lag the overall market coming back for those reasons because the agencies now have to get product, and they still don't have a full footprint product. And they have to restaff and retool and get geared back up. So just a natural lag to it before I think we'll start seeing a return to strong ramp there. That said, we have two big clients of QRP.
Douglas Valenti: And re scaling or getting back on track to scale. Your RFP is going to lag.
Douglas Valenti: The overall market coming back for those reasons because.
Douglas Valenti: Now I'll have to get product and they still don't have full.
Douglas Valenti: Footprint product.
Douglas Valenti: And they have to re staff and retool and get geared back up so it's just a natural lag to it before I think we'll start seeing a.
Douglas Valenti: A return to strong ramp there that said.
Douglas Valenti: We have two big clients.
Douglas Valenti: <unk>.
Douglas Valenti: I'm going live. One's already live with a pilot that will be ramping up over the coming months. And another will be going live with their pilot and re-ramp starting in June, two of the biggest players in the industry and certainly are the two biggest clients in terms of their scale in the channel or in the industry. So we expect that we will return. We'll get back on track. We'll get back on the ramp.
Douglas Valenti: Going live Ah ones are already live with a pilot that will be ramping.
Douglas Valenti: Over coming months.
Douglas Valenti: And another would be going getting live with their pilot and re ramp starting in June and they are.
Douglas Valenti: Two of the biggest players in the industry and.
Douglas Valenti: Certainly our two biggest.
Douglas Valenti: Clients in terms of their scale.
Douglas Valenti: And indeed in the channel.
Douglas Valenti: The industry so are we.
Douglas Valenti: We expect that we will return we will get back on track, we'll get back on the ramp it's been delayed obviously, that's going to lag a little bit but.
Douglas Valenti: It's been delayed, obviously, and it's going to lag a little bit, but we're excited. We're as excited as we've ever been about that product and what it represents for the future of the channel. And we're super excited to have two big clients beginning their activities again in a pretty earnest way beginning in June.
Douglas Valenti: We're excited we are as excited as we've ever been about that product and what it represents the future for the future of the chairman we're super excited about two big clients.
Douglas Valenti: Beginning their activities again in a pretty earnest way beginning in June.
Douglas Valenti: Okay. Sort of building off of the prior question on EBITDA and margins, I was wondering if you are seeing anything in terms of media costs or talent retention that kind of limits some of the flow-through versus historical trends.
Douglas Valenti: Okay.
Douglas Valenti: It's sort of filling out the prior question on EBIT.
Douglas Valenti: Ebitdas.
Douglas Valenti: Margins.
Douglas Valenti: I was just wondering if you're seeing anything in terms of media costs or our talent retention that kind of limits.
Douglas Valenti: Flow through versus historical trends.
Douglas Valenti: No, not really. Again, as I told John, it's really going to depend on the mix that we're still fully staffed in auto insurance because we want to take full advantage of that industry coming back, which I indicated when I gave you the numbers on how we're doing versus others. We are taking full advantage, but we're only 60 percent back. And then you've got a different mix of different other businesses. But there's nothing structural or fundamental that would indicate that we're not going to have all the top-line leverage that we would have had historically and that you would expect from us.
Douglas Valenti: No not really again as I told John it's really going to depend on the mix that where we are.
Douglas Valenti: We're still fully staffed in our insurance because we want to take full advantage of that that industry coming back, which I indicated when I gave you the numbers on how we're doing versus others. We are taking full advantage.
Douglas Valenti: We're only 60% back and then you've got a different mix of different than the other businesses. So, but there's nothing structural or fundamental that would indicate that we're not going to have all the topline leverage that we would have had historically in and that you.
Douglas Valenti: You would expect from us.
Gregory Wong: Okay, and just the last one for me. Within home services, when you launch a new service availability, I guess, is there any sort of like ramp-up, like startup costs for reaching sort of like an initial level of profitability? And that's how some of those services may differ in consumer and customer profile. Yeah, no, it's a great observation.
Speaker Change: Okay, and then just a last one for me.
Gregory Wong: Within home services.
Gregory Wong: When you launch a new service availability.
Gregory Wong: Is there any sort of like ramp up like startup cost of that for reaching sort of like an initial.
Gregory Wong: Level of profitability.
Gregory Wong: And just how some of those services make differing.
Gregory Wong: And customer profile.
Douglas Valenti: Yeah, it's a great observation slash question. Yes, that is the answer.
Gregory Wong: Yeah.
Speaker Change: Great observation Slash question, Yes is the answer and so we we manage that makes it pretty carefully but when you begin to build out a new new trade you're initially quite inefficient from a media standpoint, because you just don't have coverage and that's more the case in home services and there's another.
Douglas Valenti: And so we manage that mix pretty carefully. But when you begin to build out a new business, you're initially quite inefficient from a media standpoint because you just don't have coverage. And that's more the case in home services and as another vertical, or other client verticals because home services is such a fragmented industry. And so we have to go kind of step by step, build up client coverage, get more media, then get more client coverage, and get more media.
Douglas Valenti: Our other client verticals because home services is such a fragmented industry and so we have to be kind of step by step buildup. The client coverage get more media than get more client coverage and get more media, but it does create some inefficiencies for the period of time, where we're in the ramp because we don't have full cover.
Douglas Valenti: Which yet so that is part of the formula.
Douglas Valenti: But it does create some inefficiencies for the period of time when we're in the ramp because we don't have full coverage yet. So that is, that's part of the equation. We still do quite well in terms of our media margin and home services. But it absolutely is the case that when we're in new trades, they have less media efficiency than the more mature trades, but we manage that and balance that and still maintain very good, strong media margins in home services.
Douglas Valenti: We still do quite well in terms of our media margin on services, but it absolutely is the case that.
Douglas Valenti: When we're in new trades.
Douglas Valenti: They have less media efficiency.
Douglas Valenti: And then the more mature trades, but we manage that and balance that and still maintain very good strong media margins in home services.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Douglas Valenti: Okay.
Operator: Your next question is from the line of Zach Cummins from B. Reilly Securities. Please go ahead. Yeah. Hi, good afternoon.
Douglas Valenti: Your next question is from the line of Zach Cummins from B Riley Securities. Please go ahead.
Zach Cummins: Hi, good afternoon. I apologize; I was late joining the call, hopping on from another one. Doug, could you go into kind of... Any sort of impact that you saw in the home services vertical in the current quarter? And what are your expectations for what we should be assuming for a sustainable growth rate on that side of the business moving forward?
Zach Cummins: Yes, hi, good afternoon, I apologize I was late joining the call Harper gone from another one but.
Zach Cummins: Doug could you go into.
Zach Cummins: Any sort of impact that you saw in the home services vertical in the current quarter and kind of what are your expectations for what we should be assuming for a sustainable growth rate on that side of the business moving forward.
Zach Cummins: Sure.
Zach Cummins: Hello.
Douglas Valenti: First of all, last quarter was a record revenue quarter for home service. And we expect another record revenue quarter in home services this quarter. We will return once again to double-digit year-over-year growth, again this quarter, fiscal Q4, and we will grow home services by double-digits over last year. So, in the long way of saying, we still have the same outlook we've always had, which is we think home services gives us scale and we have the opportunities and the initiatives to grow at double-digits on average because, of course, last quarter grew 7% year-over-year in the quarter for as far as we can see into the future.
Doug: First of all last quarter was a record revenue quarter in home services.
Douglas Valenti: And we expect another record revenue quarter in home services this quarter.
Douglas Valenti: We will return once again to double digit year over year growth.
Douglas Valenti: Again this quarter fiscal Q4.
Douglas Valenti: And we will grow our home services in the fiscal year double digits over last year. So long way of saying, we still have the same that look we've always had which is we think home services gives us the scale and we have the opportunities and initiatives to grow in double digits on average which of course last quarter grew 7% a year.
Douglas Valenti: During the quarter.
Douglas Valenti: For as far as we can see into the future. It is a massive massive business opportunity I think we just sites. It again it at $69 billion of addressable market.
Douglas Valenti: It is a massive, massive business opportunity. I think we just sized it again at $69 billion of addressable market. And we are running now 200 and something million and have a lot of wind at our backs and a lot of demand and a lot of opportunities. It's really more of a matter of making sure we are focusing on the right things in the right ways at the right time than it is about any, any, any lack of opportunity or capabilities to deliver against that opportunity.
Douglas Valenti: And we are what running now 200, and something million and have a lot of wind at our backs and a lot of demand and a lot of opportunity, it's really more about making sure we're focusing on the right things in the right ways at the right time than it is any any.
Douglas Valenti: Any lack of.
Douglas Valenti: Opportunity or capabilities to deliver against that opportunity. So.
Douglas Valenti: So, we're, you know, we love that opportunity. We love that business. We love where we are in terms of product footprint and where we're going with it. And we think double digits is the right expectation for many, many years to come.
Douglas Valenti: We'd love that that opportunity, we love that business, we love, where what we have in terms of product footprint and where we're going with it and we think double digits is a is the right expectation for.
Douglas Valenti: Many many years to come.
Gregory Wong: understood. And just one question for Greg.
Speaker Change: Understood and just one question for Greg in terms of free cash flow generation, how should we be thinking about that as you start to hit the up cycle in auto insurance.
Gregory Wong: And in terms of free cash flow generation, how should we be thinking about that as you start to hit the upcycle in auto insurance? What's your typical conversion from adjusted EBITDA to free cash flow? And how are you thinking about putting excess cash to use since your balance sheet's already pretty strong?
Gregory Wong: Your typical conversion from adjusted EBITDA to free cash flow and how are you thinking about putting our excess cash to use that since your balance sheets already pretty strong.
Gregory Wong: Yeah, it's a great question. If you look at it, the general model is that the bulk of our adjusted EBITDA less CapEx drops to free cash flow or normalized free cash flow. As you can see, depending on your working capital and your receivables, we could be, you know, like this quarter, we collected eight and a half million dollars two days after the quarter end, which we typically would have gotten before the quarter.
Speaker Change: Yeah. It's a great question. If you look at it as a general model is the bulk of our adjusted EBITDA less capex drops to free cash flow or normalized free cash flow as you can see depending on your working capital in your in your receivables we could be like this quarter, we collected $8 million two days after the quarter end, which we tip.
Gregory Wong: But typically, if you look at our adjusted EBITDA, less CapEx is what drops to free cash flow. So if you look at our CapEx right now, it's going to run anywhere. I would say a good model to look at is, you know, $11 to $15 million a year. So that's kind of how I think about the conversion of EBITDA to cash flow.
Gregory Wong: We would've gotten before the quarter, but didn't really if you look at our adjusted EBITDA less capex is what drops to free cash flow.
Gregory Wong: So if you look at our Capex right now, it's going to run it anywhere I.
Gregory Wong: I would say a good model to look at this.
Gregory Wong: $11 million to $15 million a year.
Gregory Wong: So that's kind of a home and thinking about the conversion of EBITDA to cash flow.
Zach Cummins: Okay. Well, thanks for taking my questions and best of luck with the rest of the quarter.
Speaker Change: Understood well, thanks for taking my questions and best of luck with the rest of the quarter.
Speaker Change: Thank you Scott.
Operator: Your next question is from the line of Mark Hagen from Lake Street Capital Markets. Please go ahead.
Zach Cummins: Your next question is from the line of Mark Hagan from Lake Street Capital markets. Please go ahead.
Mark Hagen: Hi, thank you for taking my questions. I'm just kind of curious if you're seeing any impact on the, let's call it, higher for longer rate environment on some of the other financial services businesses, call it maybe ex-auto insurance, and maybe even home services as well.
Mark Hagen: Hi, Thank you for taking my questions.
Mark Hagen: Just kind of curious if youre seeing any impact on the let's call it higher for longer rate environment on some of the other financial services business call. It maybe ex.
Mark Hagen: Auto insurance.
Mark Hagen: And maybe even home services as well.
Douglas Valenti: I think it's a mixed bag really, Mark. Hiring for longer is not a bad thing for home services because we believe an industry report suggests that consumers are spending more on their existing homes. And so I started, kind of, vertically by vertical.
Mark Hagen: I think it's a mixed bag really mark.
Douglas Valenti: Higher for longer is not a bad thing for home services to we believe an industry reports suggest that consumers are spending more on their existing home.
Douglas Valenti: And so it takes a certain kind of vertical by vertical and credit cards higher for longer is not a bad thing.
Douglas Valenti: And credit cards being hired for longer is not a bad thing. The R-Corps. Credit Cards Consumer is a prime consumer in our mix, and so those consumers are in very good shape, and the higher interest rates for longer actually mean that banks are making a lot of money on the outstanding balances, so they have a lot of money to continue marketing. In personal loans, we have seen that the Hire for Longer is having an effect on the demand for and the underwriting models of the lenders.
Douglas Valenti: Our core.
Douglas Valenti: Credit cards consumer is the prime consumer and our mix.
Douglas Valenti: So those consumers are in very good shape and the higher interest rates for longer excuse me. The banks are making a lot of money on the outstanding balances to have a lot of money to continue marketing.
Douglas Valenti: In personal loans, we have seen that the higher for longer is having an effect on the.
Douglas Valenti: Demand for and the underwriting models of the lenders. So I think we've talked about this in past quarters, but we are seeing less demand for lending, but more demand for other credit solutions and we are the strongest in the industry at other credit solutions and we once again this past quarter way outperformed the results reported by everybody else that we know when that is.
Douglas Valenti: So I think we've talked about this in previous quarters, but we've seen less demand for lending but more demand for other credit solutions, and we are the strongest in the industry at other credit solutions. And we, once again, this past quarter, way outperformed the results reported by everybody else that we know in our industry in that business.
Douglas Valenti: <unk>.
Douglas Valenti: And our and our industry in that business.
Douglas Valenti: And it doesn't really affect much in our insurance, except that, to the extent it puts pressure on consumers at the low end, which it does. We see increased shopping for auto insurance, and that continues to be a dynamic we're seeing. There's a J.D.
Douglas Valenti: And then.
Douglas Valenti: It doesn't really affect much at all insurance except that.
Douglas Valenti: To the extent it puts pressure on consumers at the low end, which it does.
Douglas Valenti: We see increased shopping for auto insurance and that continues to be a dynamic we're seeing there as well.
Douglas Valenti: Powers puts out a report, they just put out their most recent report on insurance shopping habits a couple weeks ago, and it was the highest level of shopping behavior by consumers for auto insurance they'd ever seen in their history of their report. Not surprising, given how far and fast the rates have come up on insurance. And so, overall, pretty good for Quinstreet's profile.
Douglas Valenti: J D Power's puts out a report they just put out their most recent report on insurance shopping habits.
Douglas Valenti: Couple of weeks ago, and it was the highest level of shopping behavior by consumers for auto insurance they'd ever seen in their history. Their report not surprising given how how far and fast.
Douglas Valenti: Alright.
Douglas Valenti: The rates have come up on insurance and so I guess net net overall pretty good for <unk> profile.
Mark Hagen: Fair enough. Thank you, guys.
Speaker Change: Fair enough. Thank you guys.
Speaker Change: Thank you.
Mark Hagen: Okay.
Operator: Your next question is from the line of Jason Kreyer from Craig Hallam. Please go ahead.
Mark Hagen: Your next question is from the line of Jason <unk> from Craig Hallum. Please go ahead.
Jason Michael Kreyer: Great, thank you. This is Cal Bartyzal on for Jason. Just to start kind of as this as Otto's kind of picked up, can you just kind of speak to any pockets where spend has yet to return and, you know, how eventually coming back that expectation contributes to confidence and this being a long-term tailwind of the auto resurgence?
Speaker Change: Great. Thank you this is <unk> on for Jason.
Jason Michael Kreyer: Just to start kind of as this is auto has kind of picked up can you just kind of speak to any pockets where spend is yet to return them.
Jason Michael Kreyer: These eventually coming back that expectation contributes to confidence in this being a long duration tailwind about auto resurgence.
Douglas Valenti: We've got a lot of data points. First of all, we now have more Last year was a pretty concentrated ramp from mainly the biggest player in the channel.
Jason Michael Kreyer: We've got a lot of data points first of all we now have more.
Douglas Valenti: Last year, it was pretty concentrated ramp from may.
Douglas Valenti: Mainly the biggest player in the channel.
Douglas Valenti: And they were, I don't know, 60-something percent of auto insurance revenue in the third quarter, and we're reporting mid to high 90s combined ratio. This year, that same client is well under 50% of revenue, although still very strong. And it's really because we have more other clients, other carriers, now spending over a million dollars a month with us than we've had in the history of the company, period. I mean, we've got a much broader footprint, a much bigger spin from, you know, a lot, a lot more carriers.
Douglas Valenti: And they were.
Douglas Valenti: There are 60 something percent I think about our insurance revenue in the third quarter.
Douglas Valenti: And we're reporting mid to high Ninety's combined ratios.
Douglas Valenti: This year that same client is well under 50% of revenue.
Douglas Valenti: Although still very strong and it's really because we have more other clients other carriers now spending over $1 million a month with us and we've had in the history of the company period, I mean, we got a much broader footprint with much bigger spend from.
Douglas Valenti: You know a lot of not more carriers.
Douglas Valenti: And so, I mean, that, and then we have activity wise. Every one of those carriers is asking for a lot more than we can actually deliver right now. So we're really more, you know, working on the other side of the market ramp, the media ramp, than we are the client demand ramp at this point because of the breadth of our relationships, the breadth of the demand for, the breadth of our products.
Douglas Valenti: And so.
Douglas Valenti: That and then we have activity wise.
Douglas Valenti: Every one of those carriers is asking for a lot more than we can actually deliver right now so we're really more you know.
Douglas Valenti: Working on the other side of the market ramp their media ramp that we are the client demand ramp at this point.
Douglas Valenti: Because our the breadth of our relationships the breadth of the demand for breadth of our products.
Douglas Valenti: And again, as I said, the demand for those clients. So, and then you have the combined ratio reporting. Combined ratios being reported this year are in the mid 80s to low 90s, which again, that's right, lower is better. And when you talk about combined ratios, insurance, and that's from all the significant players who report their combined ratio results publicly. So you've got better fundamental underlying economics, a broader footprint with more clients, with more demand from all those clients and higher spending from all those clients and big indications from all those clients for the coming quarters and years. So we really don't have any indications of anything but not just sustainability but acceleration of the ramp going forward.
Douglas Valenti: And again as I said the demand for those clients. So and then you have the combined ratio reporting a combined ratio has been reported this year.
Douglas Valenti: R&D.
Douglas Valenti: In the mid eighties to low Ninety's, which again, that's right lower is better and when you talk combined ratio of insurance.
Douglas Valenti: And that's from all the significant players.
Douglas Valenti: Who report their combined ratio results publicly.
Douglas Valenti: So you've got better fundamental underlying economics, a broader footprint with more clients with more demand from all of those clients and higher spending from other clients and big indication smaller clients for coming quarters and years. So we really don't have any indications of anything but not just sustainability.
Douglas Valenti: Acceleration of the ramp going forward.
Douglas Valenti: And then it just looked like you guys have been broadening out the home services offering recently with some new verticals. Can you just kind of talk about the ambition for vertical expansion in home services and what opportunities you're seeing in broadening out this offering?
Speaker Change: Perfect. Thank you.
Douglas Valenti: And then it just looked like you guys had been broadening out the home services offering recently with some new verticals can.
Douglas Valenti: Can you just kind of talk to the ambition for vertical expansion there in home services and what opportunities you're seeing in broadening out this offering.
Douglas Valenti: Okay.
Douglas Valenti: Yeah, we're in maybe 14 or 15 verticals with some level of presence. We think we could be in dozens. I can't really be more precise than that because we have hypotheses about which we can be, and we don't really know until we start doing more work and analysis and actually start doing some testing. Of the 14 or so, and I think it's a little bit more than that, actually, if you count everything that we're in now, only two are at any reasonable scale. I wouldn't call either of those even mature.
Speaker Change: Yeah, we were in maybe 14 or 15 verticals with some level of presence.
Douglas Valenti: We think we can be in dozens.
Douglas Valenti: I can't be more precise than that because it's we have hypotheses about which we can be and we don't really know until we start doing more work and analysis and actually start doing some testing.
Douglas Valenti: About <unk> of.
Douglas Valenti: Of the 14, or so I think its little bit more than that actually if you count everything that we're in now only two are at any reasonable scale.
Douglas Valenti: I wouldn't call either of those even mature.
Douglas Valenti: One of them, I think, represents 40% of home services revenue or something in that vicinity. So we're actually relatively constant. It happens to be the one we've been in the longest, really, you know, in a meaningful way. And so, you know, the two vectors are going to continue to be getting into more trades, but right now we're more focused on scaling the trades we're already in, and that scaling is a matter of focusing our efforts and initiatives and teams, as well as, you know, signing more clients, getting more media that can be efficient with that client, and then that client based on going and signing more, still more clients and getting more media and kind of working our way up that whip.
Douglas Valenti: One of them I think represents 40% services revenue or something in that vicinity. So we are actually relatively constant it happens to be the one we've been in the longest.
Douglas Valenti: Really.
Douglas Valenti: And in any meaningful way and so it is those are the two vectors are going to continue continued to be getting into more.
Douglas Valenti: Trades, but right now we're more focused on scaling the trades, we're already in and that scaling is a matter about focusing our efforts and initiatives and teams as well.
Douglas Valenti: You know getting signing more clients getting more media that can be efficient with that client and that client based on going signed more still.
Douglas Valenti: Still more clients and getting more media and kind of working our way up that whip.
Douglas Valenti: You know, we've got to work on both sides of the market. As we talked about earlier, it's, and I think it was Pat that asked the question, that there is a sequencing and an iterating aspect to that as you try to work your way up to media efficiency. Now, we don't have any concerns about being able to do that. It just is something that does take some time. So one of the reasons you want to have as many a lot of trades going on at once so you can have different ones at different stages delivering different growth rates and profitability. And, you know, we think we're pretty good at that.
Douglas Valenti: We got to work both sides of the market as we talked about earlier, Amit and I think it was Pat did ask the question.
Douglas Valenti: If there is a sequencing and iterating aspect to that as you try to work your way up to media efficiency.
Douglas Valenti: Have any concerns about being able to do that it just is something that does take some time.
Douglas Valenti: So one of the reasons you want to have as many a lot of trades going on at once so you can you can have different ones in different stages different growth rates and profitability.
Douglas Valenti: Think we're pretty good at that.
Cal Bartyzal: All right, very helpful. Thank you.
Speaker Change: Alright very helpful. Thank you.
Speaker Change: You bet.
Operator: Ladies and gentlemen, just a reminder, if you have a question, please press star 1. Your next question is from Chris Sakai from Singular Research. Please go ahead.
Cal Bartyzal: Ladies and gentlemen, just a reminder, if you have a question. Please press star Zero started one.
Operator: Your next question is from the line of Chris Sakai from singular research. Please go ahead.
Christopher Sakai: Hi Doug and Greg, I've got one question.
Christopher Sakai: Hi, Doug and Greg.
Christopher Sakai: I've just got one question.
Christopher Sakai: It looks like back in last quarter, you had 2020 for revenue growth of about 5% to 15%, but now youre guiding for Q4 revenue of 180 to 190, which which puts a year of revenue growth at about two five to four 5%.
Christopher Sakai: So I want to know I mean, what what's going on why why is there somewhat of a guide lower now for for the year revenue growth.
Christopher Sakai: Please help me understand thanks.
Douglas Valenti: Looks like back in the last quarter you had 2024 revenue growth of about 5 to 15%, but now you're guiding for Q4 revenue of $180 to $190, which puts the year revenue growth at about 2.5 to 4.5%. So I want to know, I mean, what's going on? Why is there somewhat of a lower guide lower now for the year revenue growth? Please help me understand. Yeah, hey Chris. Oh, I think, um, a couple of things.
Douglas Valenti: Yeah. Hey Chris.
Christopher Sakai: Yeah, Hey, Chris.
Christopher Sakai: I think couple.
Speaker Change: Couple of things.
Douglas Valenti: I think a couple of things. We're pretty pleased with the ramp. First of all, we just grew as fast as we did, sequentially 40% and over 100% in auto insurance. And we had a record quarter in home service, we had a record quarter in non-insurance, and we're going to have a record total company revenue quarter this quarter, Q4. We're going to, by that way, have another record quarter in home services in Q4 as well and another record quarter in non-insurance in Q4.
Chris: We're pretty pleased with the ramp first of all.
Douglas Valenti: We just grew.
Douglas Valenti: As fast as we did you know sequentially, 40% and over 100% in auto insurance.
Douglas Valenti: And we had a record quarter in home services, we had a record quarter in non insurance and we had a wreck and we're going to have a record total company revenue quarter this quarter.
Douglas Valenti: Q4.
Douglas Valenti: We're going to buy that way have another record quarter in home services in Q4, as well and another record quarter non insurance in Q4 so.
Douglas Valenti: We're firing on all cylinders. That said, as we have indicated in the last couple of quarters, the exact pace of the ramp and auto insurance is really hard to predict because the demand and activity there is just extraordinary. But the ability to convert that demand into a very complicated dynamic system and channel is less predictable. So we try to continue to give you guys the full range. And I would say that we also don't feel the need, given how well we're performing, to get too far out of our skis.
Douglas Valenti: We're firing on all cylinders that said as we have as we indicated last couple of quarters. The exact pace of the ramp in auto insurance is really hard to predict because the demand in activity. There is just extraordinary but the ability to convert that demand.
Douglas Valenti: And in a very complicated dynamic system and channel is less predictable. So we tried to continue to give you guys. The full range and and I would say that and we also don't feel the need given how well, we're performing to get way out over our skis.
Douglas Valenti: So, I'd say that, you know, the upper end of the current range gets to the bottom end of the annual, and maybe, you know, we'll see if the slope, what the slope actually looks like, and if we, you know, how we do from there. But I wouldn't read anything into that at all. I think what I would want to remember is that we're already pacing at 20% plus faster growth for next year than we are this year.
Douglas Valenti: So I'd say that the upper end of the current range. It gets you to the bottom end of the annual and maybe we'll see if the slope the slope actually looks like and if we you know how we do from there, but I wouldn't read anything into that at all I think what I would would remember is.
Douglas Valenti: You know were already pacing at 20 plus.
Douglas Valenti: Plus faster growth for next year.
Douglas Valenti: Then than we are this year and we've got a lot to build on that so we'll probably do much better than that.
Douglas Valenti: And we've got a lot to build on that, so we'll probably do much better than that, and all the record quarterly numbers in the numbers that I just gave you in all the different businesses, which gives you a full indication of just how well everything's going. But I wouldn't, I wouldn't, I would not read anything more than that into that number.
Douglas Valenti: And all of a record quarter in our numbers I just gave it all different businesses, where it gives you full indication of just how well everything's going but I wouldn't I wouldn't.
Douglas Valenti: Would not read anything more than that into into that number.
Speaker Change: Okay. Thanks for that.
Speaker Change: You bet.
Operator: Ladies and gentlemen, there are no further questions. At this time, thank you everyone for taking the time to join Quinstreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.
Speaker Change: Ladies and gentlemen, there are no further questions at.
Operator: At this time. Thank you everyone for taking the time to join Green Street's earnings call replay information is available on the earnings press release issued this afternoon.
Operator: This concludes today's call. Thank you.
Operator: Okay.
Operator: Okay.
Operator: [music].