Q4 2019 Earnings Call
Good day, and welcome to the Quinstreet fourth quarter and fiscal year 2019 financial results Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Ms. Erica Abrams Ma'am. Please go ahead.
Thank you Chelsea good afternoon, ladies and gentlemen, thank you for joining us today to report Quinstreet fourth quarter and fiscal year end 2019 financial results.
Joining me on the call today are Dr., lungi, CEO and Greg Wong CFO of Quinstreet.
This call is being simultaneously webcast on the Investor Relations section of our website at Www Dot Quinstreet Dot com.
Before we get started I would like to remind you that the following discussion contains forward looking statements. These statements involve a number of risks and uncertainties that could 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 actually see filings, including our most recent 10-Q filing made on May 10 2019.
Forward looking statements are based on assumptions as of today and the company undertakes no obligation to update. These statements today, we will be discussing both GAAP and non-GAAP measures a reconciliation of GAAP to non-GAAP financial measures are included in todays earnings press release, which is available on our Investor Relations website.
With that I will turn the call over to Doug CEO of Quinstreet. Please go ahead.
Thank you Eric.
Fiscal Q4 was a record revenue quarter for the company.
Closing out a record revenue year in fiscal 2019.
Business ramped throughout the quarter.
End of June was a record revenue month.
There was a lot of momentum in the business.
Oh, there's a split Chris.
Expansion over the past few years has created an enormous amount of activity and opportunity and a great number of attractive growth isn't initiatives or greater number of attractive growth isn't it initiatives than at any time in company history.
That momentum and those efforts that's it does to the record results, which also included growing strongly sequentially from the March to June quarters, contrary to a typical seasonal drop.
We expect to grow sequentially this quarter or fiscal 2020 , Q1, again handily, beating typical seasonal patterns and setting another quarterly revenue record.
We also expect yet another annual revenue record and full fiscal year 2020.
That said.
Fiscal Q4 results were disappointing versus our expectations and outlook.
There's also were particularly disappointing given the business trajectory and forecast we had through the first two months of the quarter.
The revenue forecast came down by over $6 million in the last few weeks of June .
As the rate of acceleration and results from a number of initiatives slowed forestall due to various factors.
Some of the causes had to do with clients or media partner delays or setbacks.
Most of those have gone well, we'll get back on track.
But the ball off also exposed the clear need for us to improve operations and execution.
To better manage the increase and the breadth and complexity of the business over the past few years.
The demands of managing to larger footprint.
And scale of initiatives outran, our organizational development in the short run.
We should have done better.
And we will.
We have taken aggressive steps to improve execution.
Catch back up with the demands of rapid expansion and accelerate growth.
Among them.
One.
Further reorganizing to eliminate silos and consolidate functional management.
Two.
Elevating one of our strongest and most experienced operating executives, Tim Stevens to oversee media operations.
Arguably the most complex and operationally intensive area of the organization.
Three.
Adding new executives and realigning assignments across the organization to install more experience and better oversight and accountability for key initiatives.
And for implementing improved management reporting whereby key initiatives old and new in the media and client groups are now tracked sensory more frequently and more formally.
[noise] together, we believe these moves close our execution gap.
Improved visibility.
And better support strong progress and growth.
We're already seeing indications are the positive effects of these changes.
As I indicated earlier, we fully expect to deliver a new record revenue quarter in fiscal Q1.
And a record revenue year in fiscal 2020.
Importantly.
In assessing and responding to the Miss last quarter, we did not identify fundamental or structural issues with our business or market opportunity that would change our strong positive outlook going forward.
Our opportunity is big and attractive.
Driven by fundamental and inevitable secular shifts.
To digital media.
And the performance marketing.
Quinstreet is distributed marketplace model sits at the center of those trends.
And enables them.
And we are pursuing the broadest footprint.
And the largest number of growth initiatives in the history of the company.
Our business momentum is strong.
With that I will turn the call over to Greg to review the financials in more detail.
Thank you Doug.
Hello, and thanks to everyone for joining us today.
As you can see from our press release Q4 wrapped up a record revenue year for Quinstreet.
Even though our Q4 performance was disappointing versus expectations.
As Doug discussed.
We have made important changes to our operating structure to improve execution and better address this large and growing market opportunity ahead of us.
That said.
Revenue did continue to ramp in the back half of the fiscal year.
Resulting in a record revenue month in June .
A record revenue quarter in Q4.
In record revenue for the full fiscal year.
As a reminder, in the past two years, we've grown annual revenue from around $300 million to $455 million.
So, although we are disappointed with the quarter versus expectations.
We remain excited about the business momentum.
And the opportunity ahead.
For fiscal year 2019.
We posted revenue of $455.2 million, an increase of 13% year over year.
Adjusted EBITDA was $34.5 million or 8% of revenue.
Excluding the one time charge related to DCH.
Adjusted EBITDA would have been $40.3 million or 9% of revenue.
An increase of 16% year over year.
Adjusted net income for fiscal 2019 was $24.7 million or 47 cents per share.
Our financial services client vertical.
Represented 73% of total revenue.
And grew 17% year over year.
$330.4 million.
Excluding mortgage the rest of our financial services business grew 29% year over year.
Our education client vertical represented 15% of total revenue and declined 11% year over year to $68.5 million.
In our other client vertical represented the remaining 12% of revenue and grew 28% year over year to $56.3 million.
Turning to more details on the fourth quarter.
Total revenue was $122 million and grew 9% year over year.
We also grew 5% sequentially significantly outpacing typical seasonality and demonstrating the continued growth momentum in our business.
Adjusted EBITDA was $10.4 million or 9% margin.
Adjusted net income was $8.2 million or 15 cents per share on a fully diluted basis.
Looking at revenue by client vertical.
Our financial services client vertical.
Represented 75% of Q4 revenue and grew 22% year over year to $91.7 million.
All of our financial services businesses with the exception of mortgage delivered solid revenue growth in the quarter.
Excluding mortgage.
The rest of our financial services business grew 38% year over year.
Our education client vertical.
Represented 12% of Q4 revenue.
And declined 37% year over year to $15.1 million.
The year over year decline was due to the loss of DCH, formerly our largest education client.
And that will continue to be a tougher year over year comparable until we lap this customer loss at the end of calendar 2019.
Our other client vertical which includes home services and BBB.
Represented the remaining 13% of Q4 revenue and grew 23% year over year to $15.1 million.
Turning to the balance sheet.
We began the quarter with $67 million in cash.
The cash movements in the quarter include the generation of $8.6 million and operating cash flow.
Offset by $12.5 million of cash outflow for acquisitions.
The close of the quarter was $62.5 million of cash and equivalents.
Normalized free cash flow for the quarter.
Was $9 million or 7% of revenue.
Most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model.
In summary.
We continue to be excited about our opportunities and business model.
And believe we are well positioned to continue to deliver double digit revenue growth and expanding margins.
In fiscal 2020 and beyond.
With that.
I'll turn the call back over to Doug.
Thank you Greg.
I wanted to remind everyone.
Of the five key initiatives, helping to drive the strong momentum we are seeing in the business.
The first initiative is a continuing increase in our share of wallet with clients as they shift more marketing budget to digital and to performance.
Most marketing clients are still underpenetrated and different portion of their budget spent online.
On performance marketing.
And with Quinstreet.
Compared to our most advanced and successful digital marketing clients.
Most marketing clients are also still generally underpenetrated and their proportion of their budget spend online compared to the portion of consumer activity now represented by digital media versus other channels.
This underpenetration.
And need to catch up.
Is driving secular trends to spend more in digital media and on performance marketing.
And the trends are accelerating.
We continue to see these fundamental and inevitable trends as the most powerful drivers of our base business for many years to come.
The second key initiative is expanding the number and size of our media partnerships with big brands.
These partnerships allow us and our marketing clients to access more end market consumers.
And they create new.
Strategically important performance marketing revenue streams for the brands.
Revenue from this relatively new channel about doubled in fiscal year 19 over fiscal year 18, and we expect it to double again in fiscal year 22, well over $100 million in revenue.
Quinstreet White label.
Industry, leading distributed marketplace technologies and product solutions are uniquely and ideally suited to this opportunity.
The third key initiative is the reinvestment in any resurgence of.
Quinstreet owned and operated media one web sites.
Our initiatives to refocus and rebuild these properties over the past couple of years are paying off.
Traffic to our core financial services sites was up significantly last year after climbing strongly the year before.
These sites are high authority in their verticals and provide us with many degrees of leverage in the business.
Recall the sites include insurance Dot com.
Car insurance Dot com.
Insure dot com.
Cardratings Dot com.
Sage Dot com.
Money rates Dot com.
And now my bank tracker Dot com.
And am one dot com among others.
The fourth key initiative is the continued expansion of our client industry footprint.
Over $200 million of Quinstreet annualized revenue is now from verticals other than our largest historic businesses in education and auto insurance.
And that run rate is expected to reach $300 million in fiscal <unk> in this fiscal year.
Specific initiative is the expansion of our product and service footprint, adding new revenue streams from existing clients and allowing quinstreet to serve large groups of new clients.
These adjacent offerings include taking on entire areas of marketing budget management as media agency of record and providing our Q impede technology product to power and optimize client and agency digital media buying.
They also include other more deeply integrated client and media funnel technologies and services.
Examples there include sophisticated customer or prospect prequalification.
And nurturing services for our marketing clients.
Another example is the Quinstreet quoting and agency management platform, which we call Q RP.
In the independent insurance agent channel.
Q RP was developed and piloted in the past two years.
And we are now rolling it out to agencies beyond the pilot partners.
That initiative continues to go very well.
The product is a game changer, we believe for carriers and independent agencies, a great application of Quinstreet core technologies and capabilities.
And a perfect example of our expansion strategy to deepen our relationships and integrations with clients and media partners and our industry verticals.
Our business momentum is strong.
Thanks, largely to those five key initiatives.
We are coming off a record revenue month.
Quarter and the year in June .
Q4 and fiscal 2019.
We expect the current quarter, our fiscal Q1 to be another record revenue quarter.
And we expect fiscal 2020 to be another record revenue year.
Surpassing $500 million for the first time in company history.
Our outlook for fiscal 2020 and beyond.
Is strong.
We expect to grow full fiscal year 2020 revenue tend to 15% over fiscal 2019.
And to deliver adjusted EBITDA margin of 10% or more.
With that.
I'll turn the call over to the operator for today.
Thank you Sir.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure that your mute function is turned off.
Your signal to reach our equipment again, please press star one to ask a question and we'll pause momentarily to allow everyone an opportunity to signal for questions.
And our first question will come from John Campbell with Stephens.
Hey, guys good afternoon.
Hey, John .
Hey.
What are your competitors recently caught out some compression in the personal loan channel I know that.
Kind of nice emerging growth driver for you guys. If you could maybe just talk to what you're seeing out there theres been a notable slowdown if you're expecting any kind of slowdown in the in the quarters ahead.
We saw that and I think they particularly called out margin pressure there or maybe it was just a mix that was affecting their overall margin pressure.
We are not seeing similar dynamics now recall were probably.
Earlier in our penetration curve than they are in that vertical.
But we have been seeing quite strong growth and performance in personal loans.
And all dimensions of that business that is continues to be a very strong and.
Fast growing business at scale for us.
Okay. That's helpful. And then I wanted to get an update on the platform opportunity. What's the latest there what do you guys said and then are you building I guess for Gregory building any of the contributions in 2020 guidance.
We have a.
Then the product as we I think an indicated last quarter was code ready as of June .
We have now been given a batch of agencies to roll out with beyond the pilot agencies or we're in the midst of working with those agencies to do that.
We have not because this is a very long term and a little bit of a it's a new product for everybody. So it's very difficult to project. This.
The timing on this and ramp of this particular product we have not built anything into the forecast for fiscal year 2020.
For Q RP.
So we do expect there will be contributions from TRP, but because it's a new product in a new ramp and difficult for us to forecast.
We've taken the approach of not including anything obviously given that we're now.
In contact with enrolling with the first batch of.
The agencies.
It's unlikely to not contribute anything so it should be additive.
To the to the.
Forecast the.
One other thing is we have hired a new executive to head that project up now that we're in rollout mode. It's an executive.
With the many years of indifference industry experience, including running agencies for some of the big carriers. So we're excited about the project excited about the progress excited about him and what he brings to that and excited to be able to be at the point of of early rollout.
That all sounds great. Thank you.
Thanks, John .
Thank you.
Our next question will come from Jason Kreyer with Craig Hallum.
Hey, guys good afternoon.
Hey, Jason.
Hey, Doug just wondering if you can kind of simplify your commentary on the execution issues. If I look at the results versus the model. It seems like that was probably embedded in financial services and you kind of indicated some some things with you know rollout of media partners, but just wondering if you can talk about maybe like what what industries or verticals that impacted and and just help us understand what's going on.
Sure It was pretty much across the board.
Jason and that's one of the ways you know, it's you've gotten to the point, where it's an execution issue. We we had a fraying.
Of of of the forecast.
Across most of the businesses.
We found out it began happening in May we didn't find out until we got into the closing the books and when we're about halfway through June on May and then of course, we attracted to the month of June so while we continue to see good growth momentum and upper trajectory. It just was a different slope.
Than we had forecast and that the businesses had forecast.
So it was a combination of a lot of things its initiatives with media partners that were supposed to launch and ramp that didn't get launched and didn't begin their ramp sometimes because of an issue with the media partner, sometimes issues on our side in terms of either the way we forecast that it will be executed it.
It was new clients.
And getting them launched and having that be delayed in time and they were those those folks were included in the forecast some times on our entire times on their end it was just a.
An across the board issue it was a and pretty much every business.
And almost proportionately I'd say the places where we saw the.
The biggest drop offs were.
Because it's the biggest business insurance auto insurance, because just has the most going on in the most volume education.
Partly because of the launch of a new really very exciting client with our Q impede technology.
And the delay and then a change in the way we had to account for revenue there.
Mortgage.
Got worse, yet you know we would I expect we will be up.
We think we're we believe we're coming off the bottom a mortgage and will be sequentially up this quarter, but mortgage has been a business that we have been.
As you know struggling with getting that in shape and overall financial services without mortgage as Greg said grew 38% year over year in the quarter. So very strong performance elsewhere, but just not as strong as we had.
As the forecasts had implied.
As folks are those lines kind of tilted or stall now I will say.
As I said in my open my remarks that much of that has corrected.
As we've gone into this quarter.
And I expect that we will and I think it's implied in the forecast more than make up.
For the stalls and the effect it had last quarter.
As you move into this quarter, but it was disappointing.
It's not completely surprising given how quickly we've expanded the footprint.
Oh, we should have done better.
As you've heard we are we've taken aggressive steps to address that.
And to do better.
I would say not as an excuse but just as context that is not completely unnatural and you know we had begun this process because we've talked about it some with you.
Jason and meetings as well as on costs.
Two to reorganize for better execution, we had to we just had to get more aggressive about that it's not a natural I have to go through that we've gone through a long period, where.
Our being a little bit more decentralized.
Created the environment for us to be much more and to have the innovation to be able to develop many of these new business opportunities in this footprint.
But at some point you have to.
Cycle back to a more execution oriented culture and organization and we just had to accelerate that cycle and Unfortunately, I think we we didn't.
We didn't keep pace.
With the complexity and I think we're I'd say that we have been more than keeping pace slightly and I'd say that most folks here I believe that we're now well ahead of that but it was something that we had decided naturally have to do it.
We were in the process of doing it.
We didn't do it fast enough in hindsight.
I would say that at this point I'm pretty satisfied with where we are in with what I'm seeing.
In terms of the not just the improvement in the slope of the line in the performance.
But the clarity and the visibility and the tracking then also goes along with that.
A lot of great color. There. So thank you for that and you mentioned the mortgage business, which has continued to be a little bit challenging I can you give me kind of what the outlook is there just relative to the backdrop that rates have come in a lot.
I think we had some economic data. This week that said you know the re Fi cycle has kind of started to reemerge. There do you think that could potentially get turned around in 2020 or what are your thoughts on it.
I think we'll be up in 2020.
Oh I were already going to be up sequentially this quarter over last.
I think that we have a very good.
Our plan and operating cadence to do that there is that we are finally getting a little bit more of a tailwind as you indicated.
There have been an awful lot of headwinds in that market as we in all of our competitors have reported.
But I do think that I feel good about.
Probably.
The last two quarters of fiscal year 19, being the bottom.
And I think it's I do think it's up from here how much up I think we have to see.
The good news is rates are really down and there's a little bit more life in the market and we're.
I think ed into a better operating strategy.
And that is more accommodative of the new environment. The bad news is it's been a really really long rifai cycle.
And there's there's not a lot of stock out their housing stock that hasn't refied at this point in the yield curve. So you know I think that's I don't think it's going to be a gang Buster.
But I don't think its going to be a big drag given its net this now small scale and given that I think we're up into the right from here.
Rather than you know down hard and to the right like we were.
This past fiscal year.
Okay and just the last one for me you gave some good commentary on kind of where Q RP stands and and how that will kind of shape up as we go through the year, but just wondering if have you guys ironed out what the revenue model is there and then just wondering what the timing is for kind of being able to share some details around what that the the economic model looks like.
We have not finalized the details of it we.
We are doing that.
In partnership with our Big carrier partners as well as in partnership with the agencies, we just want to be very.
Deliberate and cautious about making sure that what we come up with.
Meets everybody's expectations and needs and is.
Hi be additive to the channel.
Oh, Yeah as you know the broad outlines our that of course, there won't be media costs.
It will be more of a SaaS economic model in terms of its profile.
But the exact pricing.
We have we have not yet determined, but we have to or getting the boxes small around where we think it ends up as we've gotten good feedback from the pilot agencies, which is very positive for us.
And as Weve cycled with our carrier partners.
I think we are I think we'll have a decision made.
Within the next few weeks.
In order to accommodate the rollout of the new agencies or the New agency list.
And and we'll at that point, we'll be able to share because there'll be public anyway. So we'll soon as soon as we know we'll be sharing it because it will be coming out because the agencies will be talking about it and it will it'll be public knowledge through that channel at some level. So but I think the broad outlines are we you know we believe it to be a.
Meaningful eight figure opportunity, we believe that it will have SaaS like margins because its a platform with an engineering team. So it's all pretty much semi fixed costs are running no incremental cost to serve incremental volume.
And and will largely price.
Based on volume.
But that exact pricing.
Structure, an exact pricing point not yet finalized because again, we were doing it in collaboration with all the important constituencies in that in that process.
All right. Thanks, guys.
Thank you.
Thank you.
Our next question will come from Jim Goss with Barrington Research.
Hello, This is a hat on for Jim.
Hey, Pat.
Wonder if you could provide a little more color on sort of just the.
The method of scaling the non insurance not education business.
Sort of increasing penetration within certain verticals or expanding into new ones and what those might be.
Yeah.
As you know Pat we have a number of verticals that weve been scaling now.
For a number of years that are incremental to our historic big businesses and education onto insurance in particular, and I say auto insurance because we've added a lot of other insurance verticals now I think were in five or six total insurance verticals. At this point that are that are growing nicely for us.
And.
And so home services for example.
Personal loans as an example credit cards as an example.
Our all businesses that are now at.
You know.
50 ish plus million dollars in revenue scale.
And growing at exceptionally strong double digit rates.
And those.
And then we but we also have a number of other businesses that are just behind those in terms of their scale, whether it be banking.
Or or other other verticals within financial services in particular.
That are that are also ramping at pretty high rates and as again as Greg indicated in his review if you pull out mortgage overall financial services grew at 38%.
Year over year last quarter, which is exceptionally obviously strong growth at really good scale.
So what's driving that or the things I talked about that some more and more clients more and more budget from those clients as we perform.
More media partnerships more ability to monetize that media as we get more efficient.
In matching and with more client coverage.
You know contributions from other areas of business, including our owned and operated sites new types of services, which allow us to serve.
Clients outside of our traditional marketplace model there are a lot of clients out there that.
I cannot really.
Our havent yet developed the ability to operate in a marketplace efficiently.
Or to compete with their folks that are bigger than them or that had been in these marketplaces for 10 15 20 years.
But they want to be online too.
And we have the ability to provide services to those clients that allow them to do that and that opens up a whole new range and world of clients to us with those into providing those services to help them.
Prepare for participate in and get online effectively in our marketplaces, and an FCM and other places so thats, that's adding we have.
I think last year at this time, we had one key our Q MP client, which is our.
Media management platform, which is.
A real.
Our product to the future for us.
That was DCH that we've seen over the best things coming out of DCH was that allowed us to really demonstrate the power of that platform. Despite that company is having its own issues.
I think as of this week, we probably have somewhere between seven six and seven companies who are either now on Q MP.
Or committed to Q MP in various stages of ramp as a big big deal.
In terms of the.
Most importantly, the impact we can have for those clients in terms of making them more efficient in their digital marketing spend broadly.
But also in terms of base load Big chunky revenue for Quinstreet, that's deeply integrated into the client.
So that's a lot of progress and is a big part of what we're seeing in terms of.
The ramps and the accelerating ramps on the various businesses and initiatives. So those would be there'll be some Colorado, Greg I forget anything right now.
That's good.
Thank you.
Hi, Thank you.
Our next question will come from Alan Weber with William Blair.
Thanks, Good afternoon.
How much to the insurance vertical grow year over year.
Where did we don't break them all out separately, Adam but as we as Greg indicated as I said, if you take all of our all of the financial services businesses, except mortgage.
Had strong solid growth year over year in the quarter and in total they grew about 38% ex mortgage again mortgage was down and mortgage down pretty significantly.
Year over year in the quarter.
Well again just ballpark.
I know the personal loans and credit cards are smaller and grown very very.
Hi growth rate.
Insurance grow as it has been grown as much in the last two quarters was that still a little slower than you would have liked that this quarter.
Well, that's a bigger business and it's a more mature business.
And.
It's kind of hard to answer the question theres slower than we'd like because it's everything's always slower than online.
So.
Yeah.
But I wouldn't say I wouldn't say that we have that we're concerned about insurance business as we look into this year, we expect insurance to grow we're right in that range that we're forecasting for the whole company.
In terms of and so we expect insurance to be pulling its weight.
In 2020 and we.
Gone and going forward. We're we've got a lot of budget from a lot of carriers and a lot of projects with a lot of media partners and insurance.
And that I expect you're going to continue to give us a lot of momentum there for many years to come were not.
Just the growth in the other business and point that out to in any way diminish.
Our enthusiasm.
Or commitment to insurance or just point that out to.
To illustrate the broadening of the footprint and the growth platform, Yes, I would add if you just look at the I think the rate of growth in insurance a lot of times could depend on.
The rate environment within the carriers, but I would say if you look at.
The overall theme or overarching theme of.
Budget shifting from offline channels to online channels and with online within online to performance I think those tailwinds alone those general Tailwinds allow us to grow insurance in the double digits for as far as the agency. So yes. We just had this does this analysis for the board as we went through the planning and that's exactly what we the conclusion, we came to for them. As we said you know they're going to be cycles in and out for various regions, depending on where carriers are with rate changes and everything else, but as we assess the overall market and our penetration in the footprint and the media landscape. We just we have a very hard time seeing us not being out of Grove insurances, good strong double digits for as far as we can as far as we can reasonably see.
Okay, but maybe let me ask in a different way you had a shortfall of roughly 6 million on the revenue line.
Was that more the insurance was that the other financial services or was that mortgage.
What is across the board.
No it was across the board and.
Insurance had a bad its share of proportionately.
Is the way I would express it as you look at where it how it dropped off.
So it was probably it was probably half of that.
Or half of that and great to have made a little bit more but I wouldn't read anything into that just that we have a lot more going on in insurance, because it's a lot bigger more complicated business.
Okay, we had but we had a drop off in education to drop off a mortgage we had drop offs and.
And this again is partly how you know it's.
It's a it's an education organization, our I'm, sorry execution organizational fatigue thing when you see so many things going wrong in so many places all at once.
It's it tends to be the organization is kind of reached its limits.
And I own that Anna I didn't I did not do the job I needed to do will keep us ahead of that.
I'm fixing that.
And I think we're already well on our way to having been fixed based on what I'm seeing right now.
And then I know last quarter, you talked about.
Particularly with am one and the personal loans there are some new big really ships beginning to ramp up.
Did that materialize at all this quarter are you seeing a month and half into this quarter or are those.
New relationships ramping up better.
They are but they were too a significant part of the miss because some of them did not ramp and maintain the ramp.
Rate that we expected now that said.
You know.
If you look at the rate of growth. The first launch for US has been Ics is tremendously exciting.
And that business is I think I said last call that we expect that business will get $200 million.
In revenue run rate.
In a not too distant future and we're just we're in we're nipping at the heels of that so.
Yes is the short answer to your question.
Much of that has been fixed as and as regained attraction and it was.
Just a lot going on all at once and personal loans as we more than doubled that business from the base.
That it had.
If you added Ram one and our personal loans business together.
We've now more than doubled that footprint, just sense buying am one less than a year ago.
Okay, that's a lot of stuff going on.
And so it it though there were they ramp or the slope came down a little.
And that did affect us as we got to the end of the quarter.
But it's still a darn impressive ramp.
And then on mortgage and again it sound like it continued to drop even sequentially if I'm understanding right.
Is the when we look at the comparison of first quarter of last year to the year over year comparison are you still looking for another good drop in mortgage.
In the upcoming quarter year over year.
Yes, it's going to be challenge from a year over year basis, our job right now is to get a growing sequentially again.
And then in what will result out of that as year over year growth, but I think it will be challenged from year over year basis for the next two quarters I would say, yes, I mean, as I said I'm as I think Greg the forecast in front of them. So I think the answer is.
As we look at the year forecast so sequentially, we expect to grow and I think what we expect to grow sequentially pretty much every quarter this year and mortgage as we.
As we get on track with the with the new market dynamics and our and our.
Revised strategy and operations, there, which we had to do to to accommodate the market.
But I think.
As you look year over year, it's one of only two businesses that we expect to be down year over year This fiscal year.
The other one being education, mostly driven by the DCH comparable.
Okay, and then that education in the last couple of quarters looks like its.
Settled more in the $15 million range.
Is there any reason it should stair step down there from there.
Yes.
No we expect it will.
I think again, if you if you.
And I am going to hate to have to say this quarter after quarter to the end of the calendar year, but.
I think if you pull DCH addicts education is actually operating and going pretty well.
Thats, where we are getting a lot of traction with the new products.
A lot of new QM peak clients, which is super exciting for us and for those clients.
And I think that business I think we may face I think we'll be all be very pleased with how education does and how we can talk about it once we lap DCH assisted DCH is so big boat anchor to be dragging around with us for a couple of more quarters.
Yes, I mean, I would look at it as well despite being down.
37% year over year due to the loss of DCH. If you actually look at the sequential growth at grew sequentially from the March quarter to the June quarter, which is not typical.
In our business so.
Okay.
And then just jumping back to insurance I guess two more questions on that.
It was would you say the PG our growth was sort of in line with the rest of the vertical the other insurance better worse.
From a PR its progressive.
I haven't looked at that specifically as it turns out that progressive we had we had a couple of the new let me put it this way.
We had a couple of new big carrier.
But just come in.
In the past quarter.
And so I don't think progress is you're going to find I think progressive performance is not going to be in line with the overall verticals performance because we have had a number of other carrier partners.
Pick up a lot of budget.
Particularly in mobile.
Which is super exciting for us and some carriers that are really able to do better with mobile than some of the more traditional clients and so again I haven't seen the final numbers on the progressive versus the rest Greg would probably know it but I'm guessing that based on that progressives growth year over year is going to be less than the overall.
Verticals growth year over year.
Okay. Okay, and then also staying with insurance for a minute but.
When will we saw obviously ever quote and Lendingtree is their insurance vertical they had pretty big.
Growth year over year.
Is there.
Are they taking share from you guys.
Not do we can tell you know the we get as much budget.
As we can deliver on.
And so and you've heard me say this before Adam and so really the the basis of competition is media.
It's whoever can get the media.
And have it perform.
To the expectations of the client and to their own margin targets.
And I would now put parameters around ever quote when I talk about margin targets.
'cause they still don't make money and in our business.
Anybody can generate revenue at a loss that's easiest thing in the world to do is being able to generate revenue and make a margin and sustain that margin over time that matters. So we'll see if and when they ever get there, but so in media, we just aren't seeing those guys in our media.
Landscape, we're not running into and they are not fighting for share than not taken deals away from us.
And I'd say I'd go so far as to say almost never I don't remember the last time.
That we ran into either of those those companies I remember they have very different media footprints ever quotas.
Dominantly display and advertorial.
And some SCM.
But SCM in areas that we don't really participate.
And then.
Tree Similarly has historically, mostly advertorial and display.
Some SCM and some partnerships that we don't have.
But we have not seen.
Those folks compete effectively with us in our media footprint either in our existing partnerships our target partnerships.
We still where we get competition is still mainly from a small private.
That that we still compete with more and more effectively not nearly as is tougher competitors. There were a number of years ago.
Called media Alpha, but and media is really our main competitor in our footprint of media.
Although we just don't see those other guys much and it's hard for me to.
Hard for me to say, where their growth is coming from trees case, I don't know how much of it is value Penguin, which is a phenomenal acquisition for them organic property had a lot of insurance traffic.
I. So I don't know how much is organic inorganic so it's hard for us to compare them, but the specific answer to the question is are they taking share from us.
From from clients know and in our media footprint now.
Okay.
Thanks, a lot guys.
Thanks, Ed.
Thank you.
Our next question will come from Eric Martinuzzi with Lake Street.
Hey couple of questions from me, obviously Q4 was a disappointment.
Outlook for 2020 is a little bit below the street, but it sounds like Q1 based on your color certainly on the revenue side. It sounds like you're comfortable I just wanted to put those numbers out there with the Q1.
$3 million to $124 million and $12.9 million on the adjusted EBITDA do I have that correct that the Q1 you're comfortable with.
I would say, we don't guide on a quarterly basis Eric.
I think what we said for the full years, 10% to 15% full year growth on the top line and 10% hopefully more on EBITDA I would say I would characterize what we see in the first quarter is.
But a lot of.
Exit case Executional improvements.
From what we saw in Q4 and again just to add to state. The obvious we did 122 point something in Q4.
As the streets at 124, and we just said that Q1 is going to be a record quarter. Then we're probably awfully close if not really really comfortable with that number.
Or we wouldn't be is we wouldn't be saying is confidently that we are going to set a new revenue record in Q1 over Q4, So I think by implication.
The answer is probably a pretty strong yes.
But again, we're trying to we're trying to be and get out of the mode of guiding quarter to quarter and trying to just give a year and then revising year as we go as we've done the last couple of years as Greg said, if that makes sense to you.
No it doesn't.
Im new to the story, so I'll follow that up with the seasonality question given the outlook for the year.
For better than 10% on the adjusted EBITDA or their seasonal aspects to Q1 that pressure.
I'm looking at the full year.
There are seasonal pressure in Q1 on the margin.
No I mean, typically what you will see Eric on the topline.
Is Q1 is pretty flat or living for for folks that are used to calendar quarters. Let me. Let me talk to the September quarter is typically pretty flat to the June quarter, where you see the seasonality is in the December quarter.
The December quarter is typically down I would say, 8% to 10% sequentially in December .
He is asking the marginal.
Yes, and then from a margin standpoint, you know we have a semi fixed cost base that doesnt get adjusted with revenue.
And so yes, where you have seasonality in the drop of topline.
It will affect your margin.
EBITDA margin, because we don't adjust our cost base.
Due to seasonality in the top line.
Yes, I think Thats. The main point, Eric is that the ISPOR pretty much a.
Revenue minus.
Margin on revenue after media cost drops into semi fixed cost base. So.
As that topline moves so moves margin in the short term.
And we will we expect to grow revenue considerably faster than that semi fixed cost base, which is why we continue to have.
Great confidence about expanding our EBITDA margins because that's the basic business model right revenue minus media cost dropping into semi fixed cost base, which is mostly headcount growing at a slower rate than revenue, that's our and so thats why you've heard me say and others have heard me say, we get topline Leverages, we're topline leverage expansion model.
And that I can see that I can see the mid teens from here if you run some pretty simple assumptions to a model.
No we've added a little bit more semi fixed cost base this year.
Not by growing the existing base for by acquiring a couple of businesses that we think are going to accelerate our revenue growth in the future and have already begun that and thats.
Am one and cloud controlled media in particular and on smart slightly smaller basis My bank tracker. So those change the equation a little bit on the short run because you will get a little bit more.
Increase in our semi fixed cost base before you get the full revenue benefit, but we expect those ought to be pretty highly accretive.
Over the next few years and I would say am one already is and is growing lease so.
But that's the that's the main characteristic will be is that topline.
Drops a little bit in the December quarter, which is our softest quarter do you have a little bit of a.
Margin impact due to loss of topline.
And then March is usually our strongest quarter now we've been growing beyond through that seasonality last couple of years, but typically March is our strongest annual quarter and it also is often our strongest EBITDA quarter for the same reason despite some incremental employee tax things that get involved. So that's how I would think about it at a high level.
Got you I appreciate the detail thanks.
You bet.
Alright, thank you.
Our last question will come from Chris.
With singular research.
Hi, Doug and Greg.
I just.
That's just a couple of questions I'll try and make it faster.
What was the.
Increase for other intangible assets of about 17 million what was going on there.
Acquisitions.
So as you recall, Chris we made three acquisitions this year.
In the air and one in the October timeframe and then two in the fourth quarter.
Okay.
Great and then.
Are you seeing any.
New customers for for the education.
Segment.
Yes, we are.
In fact, one of our big initiatives, there is adding clients because we have a whole lot of clients. Both on the not for profit side, which is in emerging.
Client base for online marketing as you know.
As well as a lot of the.
A lot of schools and even in the traditional for profit space that are more regional that we have not served or not emphasized and so we have a.
We have dedicated personnel, who are working to add those clients.
And also our cost control media.
Operation is very focused on new clients and new services to clients and we are seeing a lot of traction with the new products in education, and a lot of traction with those new products with new clients. So we are.
Okay, Great and then one thing about.
Stock based compensation and I would increase.
Any any sort of how do we see that going forward.
Yes, Chris the real increase in stock based comp was associated with valuing awards, a higher stock price. So it's it's tougher to say if we get a lot of it depends on.
The share price, we see on the market in terms of how it effects of stock based comp.
Yes, I can we can give you a bit more current about how we do that I mean, we run a we have a comp consultant compendia, which is one of the best in the country. They run.
The series a set of comparable companies that has to be approved up to the board of directors compensation Committee.
The date that that have the right characteristics and acceptable parameters for being considered comparable is by all the various agencies that oversee this stuff.
And we look at the the dilution from stock based compensation.
From all those competitors and we usually benchmark assessed about the middle of that pack.
And then that's that's how we we grant on a on a go forward basis from a dilution standpoint, the actual dilution we've seen historically.
He has been somewhere in the 1.5% range.
By the time you net out.
The the grant budget, which is.
'cause just barely a little bit higher than that but then you have to net out grants that the the stock that doesn't get vested.
And then the stock you hold back for tax purposes. So that the dilution rate is tends to track for about 1.5% to Max around 2% on average over the past decade to 20 years.
And we track that pretty closely to make sure we maintain.
We have to be competitive for employees, but it was but we also don't want to be overly dilutive to our shareholders in doing so in terms of the actual cost itself as Greg said, the jump and we have not deviated from those practices. It's just that when you take a higher stock price and apply it to the same.
Percentage dilution you get a whole a much bigger expense number so I wouldn't read anything into that except.
We got the stock price up hopefully to performance and we'll keep we'll keep trying to get that part of it up.
Okay, Alright, thanks, guys.
Thank you.
Great. Thank you.
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