Q1 2025 QuinStreet Inc Earnings Call
Good day and welcome to Queen Street's fiscal 1st quarter 2025 financial results conference call. Today's conference is being recorded.
Following the prepare-of-the-mark there will be a Q&A session. If at any time during the call you require immediate assistance, please press star zero for the operator.
At this time, I would like to turn the conference over to Senior Director of Investor Relations in Finance, Robert Amparo, Mr. Amparo, you may begin.
Robert Amparo: Thank you, operator. And thank you everyone for joining us as we report Quinn Street's fiscal 1st quarter, 2025 financial results. Joining me on the call today are Chief Executive Officer Doug Valenti and Chief Financial Officer Greg Wong.
Before we begin, I would like to remind you that the following discussion will contain forward-looking statements.
Forward looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance.
Factors that Nikos results to differ from our forward-looking statements are discussed in our recent SEC Files, including our most recent AK Filing made today, and our most recent 10Q Filing.
Robert Amparo: Forward-looking statements are based on assumptions as of today and the company undertakes no obligation to update the statements.
Robert Amparo: 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.quistreet.com.
Robert Amparo: With that, I will turn the call over to Doug Valenti. Please go ahead, sir.
Doug Valenti: Thank you, Rob.
Doug Valenti: Welcome, everyone.
Doug Valenti: Fiscal year 2025 first quarter revenue grew 125% year-over-year and 41% sequentially.
Doug Valenti: Adjusted EBITDA jumped to over $20 million in the quarter.
The strong results were driven by the broad-based ramp of auto insurance carrier budgets and by our expanded client, media, and product footprints.
Auto insurance revenue grew 664% year over year to a record level in the quarter.
Total financial services revenue grew 192%.
Doug Valenti: and home services revenue grew 32%.
Doug Valenti: The outlook for auto insurance going forward remains strong. Carriers continue to report good results overall and from our channel.
Doug Valenti: We are focused on increasing and optimizing media supply to meet surging carrier demand. Those efforts should eventually further expand margins.
Doug Valenti: Turning to our Outlook for Fiscal Cue 2
Doug Valenti: and Adjusted EBITDA to be between $17.5 and $18.5 million.
Doug Valenti: Though it is still early, we are raising our full fiscal year 2025 Outlook.
Doug Valenti: Full fiscal year revenue now expected to be about $1 billion.
Doug Valenti: Full fiscal year adjusted EBITDA is expected to be between $75 and $80 million.
Doug Valenti: We will continue to update our outlook, as warranted, as the fiscal year progresses.
Doug Valenti: Finally.
Doug Valenti: We know FCC changes to TCPA rules scheduled to go into effect in January are an area of investor interest.
Doug Valenti: Most importantly, we have been preparing and testing implementation of the new rules for almost a year.
Doug Valenti: and we have included in our outlook the expected impact from them.
Doug Valenti: We expect the impact to occur mainly during the period over which we, clients, and the industry transition and adapt to the new rules.
Doug Valenti: most likely over a number of quarters.
Doug Valenti: Beyond the period of transition to the new rules, we expect the changes to be a strong, long-term positive for the channel and for Queen Street.
Doug Valenti: they will accelerate the long-term trend of industry rationalization and consolidation to the best, most capable companies.
They will improve consumer experience and participation in the channel, increasing the speed and size of the development of our market.
Doug Valenti: and they will significantly increase client sales efficiency and productivity from our channel.
Doug Valenti: further accelerating and growing the development of our market.
Doug Valenti: We expect Queen Street to disproportionately benefit from all of those positive effects.
Doug Valenti: With that, I'll turn the call over to Greg.
Greg Wong: Thank you, Doug. Hello and thanks to everyone for joining us today.
Greg Wong: Fiscal Q1 was another record revenue quarter for Queen Street as all of our client verticals delivered strong year-over-year revenue growth.
Greg Wong: We delivered record revenue in insurance, record revenue in home services, and record revenue in non-insurance financial services, which includes personal loans, credit cards, and banking.
Doug Valenti: For the September quarter, total revenue was $279.2 million.
Greg Wong: Adjusted net income was $12.5 million or $0.22 per share, and adjusted EBITDA was $20.3 million.
Looking at revenue by client vertical.
Doug Valenti: Our financial services client vertical represented 76% of Q1 revenue and grew 192% year-over-year to $210.9 million.
Doug Valenti: The record performance was largely driven by auto insurance, which grew 664% year-over-year.
Doug Valenti: Non-insurance financial services businesses grew 18% combined.
Doug Valenti: Our home service is quite vertical, represented 23% of Q1 revenue, and grew 32% year-over-year to a record $65.1 million.
Doug Valenti: Other revenue was the remaining $3.3 million of Q1 revenue.
Doug Valenti: Turn to the balance sheet, we close the quarter with $25 million of cash and equivalents and no bank debt.
Doug Valenti: A more normalized view of our ending cash balance would be approximately $47 million. We received payment of approximately $22 million just one day after quarter end.
Doug Valenti: As we look ahead into Q2, I'd like to remind everyone of the seasonality characteristics of our business as I do every year at this time.
Doug Valenti: The December quarter, our fiscal second quarter, typically declines sequentially.
Doug Valenti: This is due to reduced client staffing and budgets during the holidays and end-of-year period, a tighter media market, and changes in consumer shopping behavior.
This trend generally reverses in January.
Doug Valenti: Moving to our outlook, for fiscal Q2, our December quarter, we expect revenue to be between $235 million and $245 million, and adjusted EBITDA to be between $17.5 million and $18.5 million.
Speaker Change: As Doug already mentioned, we are raising our full fiscal year 2025 outlook. We now expect revenue to be between $975 million and $1.025 billion, and adjusted EBITDA to be between $75 million and $80 million.
Doug Valenti: With that, I'll turn it over to the operator for Q&A.
Speaker Change: 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.
Speaker Change: Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please make sure to lift your handset before pressing any keys.
Speaker Change: One moment while we prepare the Q&A
Speaker Change: Your first question comes from the line of John Campbell from Stevens. Please go ahead.
John Campbell: Hey guys, good afternoon, congrats on a great quarter.
Speaker Change: Hey John, thank you.
John Campbell: Sure. Okay, I want to maybe start on insurance. Obviously, really good results there. If I'm math is right, I'm thinking you guys might have almost doubled up your past physical 1Q peak for insurance. Is that right?
Speaker Change: That would be a great question.
Speaker Change: I don't have that answer. Are you asking if we were doubled our previous first quarter peak?
John Campbell: Right.
Speaker Change: You know, I gotta be honest, I don't have that, but I wouldn't be surprised.
John Campbell: Okay, I'm thinking that's probably the case. And then maybe if you could help on with phasing. I don't know if you've got this by close to you, but the insurance growth just sequentially and then what that typical seasonal drop-off is just seasonally and into 2Q.
Speaker Change: Quarter over quarter, John, we grow our insurance business over 80% sequentially. Typically what you're going to see in the second quarter is about a 10% sequential decline. That's kind of the normal seasonality in the business and really not just insurance but across all our client verticals.
Speaker Change: OK, and have you kind of factored in somewhat typical seasonality, or are you expecting a continuation of strength?
Speaker Change: Yeah, we have definitely factored in seasonality. That's the biggest, when you look at the decline from the Q2 guide to what we just delivered in Q1.
Speaker Change: Again, we're not hearing right now anything about a slowdown. We're super bullish. We're super positive on what we're hearing from the carriers themselves. But yeah, we do have seasonality assumed in there.
Speaker Change: Okay, that's helpful. And then last question for me, just looking at the full year guide and just the balance, I guess, the back half of the year more so.
Speaker Change: If I assume kind of a continuation of the insurance you saw in 1Q, at least just for the back half.
Speaker Change: I think it might be implying that the core business might be down year-over-year. I know you've talked about some of the...
Speaker Change: One-to-one, you know, the rule changes potentially providing some degree of an impact, and you factor that in the guidance. So maybe if you could just kind of talk to the phasing of guidance in the back half of the year, whether you're expecting more of a slowdown in insurance rather than the front half, or if it's more of a core business.
Speaker Change: Yeah, I think as we looked at the the full year in the back half, John, there's been a big ramp, obviously, in insurance and
Speaker Change: We're excited about how much we've been able to raise but we want to as we as we settle out the ramp and we optimize media and clients optimize budgets
Speaker Change: We want to kind of see where all that settles out. Greg said, and I would repeat, the carriers are not indicating any kind of slowdown.
Speaker Change: But again, this has been a pretty big ramp. We'd like to make sure that we leave ourselves a little bit of room as things shake out, and if they shake out from, again, optimizing media and optimizing budget standpoint. Also, of course, there is the FCC.
Speaker Change: There are the FCC changes. That will have some impact, some disruption on the industry. Not all of that just direct on Quinn Street, but to the ecosystem, and we don't know exactly what that will mean in some places.
Speaker Change: done our best.
Speaker Change: to estimate that based on testing and real data, but we'd rather keep a relatively conservative defensive posture as it comes to the FCC transition period.
Doug Valenti: I'd repeat that I think after the transition period, I think this is an extraordinarily good thing for the channel. We wouldn't necessarily have chosen to be regulated into it, or to do the regulations exactly this way, but it will have all the positive effects I talked about.
Doug Valenti: And then we have, you know, the election, which is likely to have some type of disruption. We don't know exactly what. So again, we'd prefer to maintain a relatively
Doug Valenti: defensive and conservative posture relative to that. So I would say, you know, there's a lot in it, but those would be the main factors for why you don't see necessarily our typical seasonal trends.
Doug Valenti: and the back half in our current guide, which again is our current outlook, which is, again, pretty early in the year.
Speaker Change: Okay, that's very helpful. Thank you, Doug.
Speaker Change: You bet.
Speaker Change: Your next question is from the line of Jason Cryer from Craig Hallam. Your line is now open.
Jason Cryer: All right, thank you, congrats guys. Great, great start to the year. Thank you, Joe.
Jason Cryer: Thank you.
Jason Cryer: Just so, you know, the insurance business obviously kicking into a new gear here. What's changed over the last quarter? Are you seeing more carriers participating in the market or is this just kind of the same participants with opening up greater allocations of budget?
Speaker Change: It is a much broader footprint of clients spending at much greater scale is how I would characterize it, Jason. We do have, you know, there are some clients that are key leaders in the channel and always have been.
Jason Cryer: But I would say that the thing that is most impressive about the current market
Jason Cryer: And we've been working on this for a long time, so I don't think it's just an industry thing, but I think some of it is particular to us and maybe one of our other competitors, is the breadth and the breadth of scale.
Jason Cryer: We are seeing clients that have made huge strides.
Jason Cryer: in how they think about digital and performance.
Jason Cryer: and how they are more analytic and how they're better measuring performance and how they're integrated and cycling closely with us to optimize.
Jason Cryer: So, I think we're just at the next stage of development of this channel that was obviously postponed for a while during the hard market in insurance.
Jason Cryer: and I think it's indicative of a continued up and to the right, as we've always said, because this is the best place if you're a carrier, and PNC, this is by far the best channel to spend in in terms of efficiency and productivity of your budget.
Speaker Change: increasing media supply at some of the partnerships and what the opportunity is, what the margin opportunity is as you scale that up.
Speaker Change: Yeah, and it's both. We have to increase, uh, we have a lot of, uh,
Speaker Change: of Partnerships.
Speaker Change: that had gone relatively dormant and had spent their time and resources elsewhere during the hard market that are gearing back up, of course. And those are an important part of growing supply to meet demand. And by the way, that will help margin too.
Speaker Change: because the demand from the carriers shot up so quickly that it outstripped supply so that the media that...
Speaker Change: was there, got bit up.
Speaker Change: and got more expensive probably than it needs to be in the long run. So the supply side, including partnerships, is important. Now, on the owner-operator side, we do have a lot of things going on as well. And you're right, they're largely focused on improving margins.
Speaker Change: We're ramping some very important campaigns.
Jason Cryer: that are some of our highest margin very aggressively right now on the paid side, particularly paid SEM. We are working on a broadening and bigger scaling in a multiple size.
Jason Cryer: of our campaigns on the O&O side and FCM on a bunch of our properties.
Jason Cryer: We made an acquisition a year or so ago
Jason Cryer: of a company that has helped us have a better presence in display, native, and social, which is an area, a huge part of the ecosystem that we really haven't had a big presence in because of the relatively low intent for those consumers.
Jason Cryer: But we looked for a company like this for a long time and found one that had really figured out.
Jason Cryer: how to siphon or filter out the intent-based consumers in an economic way in those channels and that company
Jason Cryer: I guess we acquired them just, again, I think it was last March, as more than doubled in revenue.
Jason Cryer: and more than tripled in margin and is coming in at margins that are highly accretive to our current margins so the growth of that channel in that company is going to be an important part of what we're doing.
Jason Cryer: So we have a we have a lot going on and and we are keenly focused on getting the supply up generally speaking.
Speaker Change: and getting the supply up in a way that's going to allow us to increase margins specifically for Quinn Street.
Speaker Change: All right, thank you guys. Keep up the good work.
Speaker Change: Thank you, Jason.
Speaker Change: Your next question comes from the line of Zach Cummins from B. Reilly. Please go ahead.
Zach Cummins: Hi, good afternoon. Thanks for taking my questions and congrats on the strong start to your fiscal 25
Zach Cummins: Doug, I wanted to shift directions and ask a little more about home services. I mean, can you talk about what really drove the strong growth we saw here in Q1, and really, what are the expectations for home services, especially as you go through the TCPA changes here in the coming months?
Doug Valenti: Sure, I'd say that the strong growth is just indicative of what we've said for a while, which is this is a huge market opportunity for us. We're early into it and we just, you know, made better progress on our big initiatives.
Zach Cummins: and we're going to keep making better progress on those big initiatives and we have some very big growth initiatives in home services that represent
Zach Cummins: Massive improvements and expansion of our footprint for the business. TCPA is going to have its most direct effect on our home services business because of it being more of a lead business?
Zach Cummins: I think we're extraordinarily well positioned against that. We have, though.
Speaker Change: included in our Outlook.
Speaker Change: a more modest outlook for home services in the back half than we would if there were not going to be new rules in TCPA. And so we want to, again, maintain a fairly conservative defensive profile against that, particularly the transition period there.
Speaker Change: but we have worked very hard on making sure that we test new flows, test how we get consumers to opt-in, test how we match.
Speaker Change: to optimize against that, to work with clients.
Speaker Change: to make sure they understand the new rules and how to position themselves for the new rules to work on pricing because we and clients both expect that an opt-in consumer lead is going to convert at a higher rate.
Speaker Change: and which means that that's going to be more valuable so a lot of the effects of the new rules will be offset by higher value and higher pricing which we have we've now cycled through the vast majority of our clients to
Speaker Change: to have those discussions and to prepare for that. And let me give you a little bit of, a little data on that, which is something I think folks need to understand and probably don't, because it's kind of performance marketing.
Jason Cryer: nerd stuff, but obviously.
Jason Cryer: And I'm going to use some simple math. If a lead converts at twice the rate.
Jason Cryer: It's rational and easy to pay twice the amount for that lead because it's the same marketing cost for that customer.
Jason Cryer: But if a lead converts at twice the rate, that means the client only has to use one half.
Jason Cryer: the sales cost and sales capacity.
Jason Cryer: you get the same amount of revenue.
Jason Cryer: It's a huge benefit from an efficiency and productivity standpoint, and it's going to drive just like the better consumer experience is going to drive.
Jason Cryer: a lot more volume and a lot more value into this channel. And we've been working with clients to procure that. So a lot of work has gone into it. We are maintaining what I would consider to be a relatively modest and conservative profile against the back half.
Jason Cryer: Based on what we know and what we've what we've tested into we have a lot of initiatives
Jason Cryer: To be ready but we we feel pretty good about where we are and and We feel by the way, the only other thing I throw in about home services is most consumers do want multiple quotes, by the way
Jason Cryer: So that we expect that the effect in home services won't be nearly as dramatic as it might be in other places. But all in, yeah, a little bit a little bit more modest in the back half for the fiscal year than we would have been otherwise. We expect that we'll work to it.
Jason Cryer: Nicely and we expect in the long run that we'll continue to do very well And we still expect good strong double-digit growth and home services on average for many years to come
Speaker Change: Your cue to can you talk about how I was using think about free cash flow generation And should this be kind of a one-quarter flip that normalizes here on that side of it
Speaker Change: Yeah, Zach, it really wasn't timing of payments. We got a couple large payments in which we typically would have received within the quarter. They literally came in on October 1. So that's where we are with the cash balance. I do say, you know, it was pretty impressive. We've over doubled the business and we're able to fund that growth in the business with our existing cash.
Speaker Change: I would expect us as we start moving forward to get back into cash generation mode given the increase in profitability in the business. But it was a steep ramp and that requires quite a bit of working capital and we were able to do that with our existing cash, so.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Eric Martineci from Lake Street. Please go ahead
Eric Martineci: Yeah, I wanted to get into the carrier, I guess, precision regarding their spend versus LTV. You've often talked about Progressive as being very analytically oriented, but let me start there. What percent of revenue in Q1 was Progressive?
Greg Wong: Hey Eric, this is Greg, our largest client. Yeah, they were 20% of revenue.
Jason Cryer: Okay and then the other carriers are they are they getting more like progressive in that kind of real-time evaluation of spend versus LTV or is it just coming so fast got to get you know everybody's competing and there's less concern about LTV
Jason Cryer: I would say it's much more the former. We're seeing, as I said before, much more sophistication.
Jason Cryer: amongst the carriers that are scaling.
Jason Cryer: and how they spend on the performance channel and how they analyze their spend.
Jason Cryer: I would say they're all moving on a curve that's analytic perfection in the upper right. They're all moving well up that curve. I would say nobody's perfect yet, but the scaling...
Jason Cryer: has really come from folks getting better at being more analytic, not from any other phenomenon. So it's a good, good trend from our perspective. The more sophisticated, the better, as far as we're concerned.
Speaker Change: Okay, and then given the upward revision to the adjusted EBITDA for the year I think I had written in my notes from last call or maybe it was a follow-up call that you were anticipating about
Speaker Change: 15 million or so of CapEx.
Speaker Change: So, is that...
Jason Cryer: Is that capex number relatively unchanged and then can we just use, do the simple math on a midpoint?
Jason Cryer: I just need to back off the CAPEX to get to a free cash flow estimate for $25.
Speaker Change: Yeah, I think, Eric, that's a pretty good estimate, and there's no change in terms of what we expect to spend on CapEx.
Speaker Change: Thanks for taking my questions.
Speaker Change: Next question is from the line of Chris Sakai from Singular Research. Please go ahead.
Chris Sakai: Yes, hi Doug and Greg.
Chris Sakai: Just had a question on, I mean, great, this amazing growth on the record, auto insurance revenue. Are you facing, would you be possibly facing any headwinds to that as far as scaling? I know that, I mean, 664% growth is pretty...
Speaker Change: Pretty amazing, so can you give me any head any color there as far as
Speaker Change: Quinn Street's ability to withstand growth like that.
Speaker Change: That's a good question, Chris. We don't expect the, you know, we'll lap this year and and it won't be growing at 660 something percent anymore, but I think it will continue to grow at certainly strong double-digit rates.
Speaker Change: on average from here, and we're more than capable of continuing to scale.
Speaker Change: to where we are now, certainly. We'll catch up a little bit on media optimization to get our margins up a little bit more and to get re-optimized. And we're perfectly capable and well-positioned to do that, but certainly capable of continuing to grow from this new level at strong rates going forward.
Speaker Change: and you mentioned potentially the election coming up, how is that going to potentially have an effect on on revenue and auto insurance?
Speaker Change: We don't know. I've, you know, there is the concept of consumer distraction.
Jason Cryer: depending on what goes on post-election.
Jason Cryer: So it's not like we took a number off of it for it, or that we know exactly what it's going to be. But I would say that, again, we would prefer to maintain a relatively conservative.
Jason Cryer: and defensive profile against that backdrop, just like we would against, you know, getting everything re-optimized in the insurance side, budget and media-wise, and of course, the FCC, TCPA thing. So it's just in the mix.
Jason Cryer: of things that we when we step back and say you know do we feel like being more aggressive and more conservative right now it's one of the things in the mix that caused us to say we prefer to be a little bit more conservative right now
Speaker Change: Okay, great. Thanks for the answer.
Speaker Change: Your next question comes from the line of Patrick Shaw from Barrington Research. Please go ahead.
Patrick Shaw: Hi, thank you. I just had kind of another question around the election. I was just wondering if there's like, if there's still sort of some states that are not necessarily appropriately
Speaker Change: allowing insurance rates to meet profitable levels and just if any of that might get resolved post-election.
Speaker Change: It's a good question, Patrick. I don't know the answer to that. I would say that I haven't read anything from the industry that implies that...
Speaker Change: that any particular election outcome in any particular state is likely to have a big impact there?
Speaker Change: For example, California is the biggest state that has that issue. They only allow carriers to increase rates at a certain rate.
Speaker Change: pace and obviously the costs.
Speaker Change: have way outpaced that. So a lot of carriers are just not active in California. And I think that only gets resolved, unfortunately, with time. You know, they can take maybe maximum rate each year for a while and eventually catch up, but it's going to take, you know, based on back-of-the-envelope calculations.
Speaker Change: Douglas Amparo, Douglas Valenti, Gregory Wong
Speaker Change: If there are going to be any changes, it's going to be driven by a change of heart of the current.
Speaker Change: officials, not the change of officials it seems to me. Otherwise, again, I don't know of any other places, I haven't read of any other places where there'll be a big impact. I can say that most, though not all, of California being the outlier and most of the other states
Speaker Change: The carriers are back active in there. Again there are some other exceptions but they're not big states at this point.
Speaker Change: Okay and then maybe just can you talk about like the impact of the expected trajectory of interest rates on some of the other verticals whether home services or the credit driven ones if you think those that could be something of a tailwind for those segments.
Speaker Change: I think so. I mean, I think the only place it won't be a tailwind is in our banking business and for, you know, CDs or the offerings, CD offerings are down because banks don't want to lock in CDs while rates are going down. We still have very strong demand and we're still growing at a good rate in that business and other products.
Speaker Change: But I think it will help credit cards because their rates will go down and credit cards will be more affordable.
Speaker Change: because a lot of consumers do, of course, keep a balance on their credit cards. Personal loans would help a lot. Our head of personal loans just got back.
Speaker Change: from a major conference of lenders and he said it's the most positive tone.
Speaker Change: and specific indications from lenders he's heard in a few years is The rates are coming down to make their products more affordable and most of them have now Recapitalized and gotten access to new capital and so we're seeing a resurgence
Jason Cryer: of demand from lenders and personal loans, and of course, we already have pretty strong demand, decent strong, very strong demand there. We've been doing well outperforming the market there.
Jason Cryer: including in our debt management and credit management side of the business which have been helping consumers as rates have been high.
Jason Cryer: So those two businesses are probably most directly affected.
Jason Cryer: And it doesn't have a big effect, generally speaking, in insurance. So, I think that's kind of the lay of the land. I'd say net, probably neither here nor there. Not way up, not way down.
Speaker Change: Thank you very much.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star 1 on your telephone keypad. If you're using a smartphone, please make sure you lift your handset before pressing any keys.
Speaker Change: Thank you. There are no further questions at this time. Thank you everyone for taking the time to join Queen Street's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's conference call. Thank you everyone.