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Operator: Good day! And welcome to QuinStreet’s Third Quarter and Fiscal Year 2023 Financial Results Conference Call. Today’s conference is being recorded. [Operator Instructions]. 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 begin.

Robert Amparo: Thank you, operator. And thank you, everyone for joining us as we report QuinStreet’s third quarter fiscal year 2023 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 may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing.

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 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 Doug Valenti. Please go ahead, sir.

Doug Valenti: Thank you, Robert. Welcome, everyone. Fiscal Q3 results were strong, exceeding our outlook for revenue and adjusted-EBITDA. Quarterly revenue was $173 million, growing 15% year-over-year and setting an all-time company record. Adjusted-EBITDA jumped to $9 million in the quarter, once again demonstrating the strong operating leverage of our business model. Q3’s good results were driven by continued strength in noninsurance verticals where revenue grew 34% year-over-year and represented 58% of total company revenue. The good results were also driven by the strong early stages of the reramp of auto insurance. Auto insurance revenue surged 53% in Q3 over Q2. Q3 demonstrated our strong core business, our continued success scaling and broadening our footprint and the financial resilience and the leverage of our business model, all on the foundation of sound business and financial fundamentals, cost discipline and a great balance sheet with no bank debt.

As we look ahead, you can continue to expect more of the same. As demonstrated once again we are indefinitely built to last. And our long term business opportunities and capabilities have never been better. While auto insurance client spending came back strongly last quarter as they and we had forecast, clients once again reduced marketing spend in late March and early April due to recurring mixed results with their combined ratios or profitability. The reductions were significant and unexpected for them and therefore, of course for us. Clearly, the road back to normal for insurance carriers from the challenges of the pandemic, inflation and severe weather events is complicated and difficult to navigate even for the best companies. The unexpected break in the reramp of auto insurance client spending will affect our outlook for the current quarter or fiscal Q4.

But the near term insurance carrier spending reductions do not diminish our longer term opportunity, expectations or enthusiasm that big and important market. The auto insurance reramp is pausing, not stopping. The long arc of auto insurance spending is still up and to the right. Carriers will continue to adjust and adapt and marketing budgets will continue to shift from offline to online. Most consumers will continue to shop online for everything, including evermore so for insurance and digital performance marketing like that pioneered and enabled by QuinStreet will still be the most efficient marketing spend at scale for advanced marketers. In the meantime, QuinStreet will keep doing what we have been doing. We will continue to make great progress on initiatives to broaden and diversify our revenue footprint and to grow our market opportunity in insurance and in noninsurance client verticals.

We will focus investments on new technology, product and business expansion areas that offer the best returns and the biggest opportunities for future growth. And we will maintain a strong fundamental financial foundation, including of course cost discipline and a strong balance sheet. Of particular note, we will continue to stay spring loaded for strong leverage and rapid margin expansion as revenue grows or returns as demonstrated last quarter. Turning now to our near term outlook. We expect auto insurance revenue to decline in FY Q4 versus FY Q3 due to the unexpected near term carrier spending reductions. For full fiscal year 2023, which ends in June, we expect revenue of $575 million to $580 million. We expect positive adjusted-EBITDA in FY Q4 despite the auto insurance challenges, and that adjusted-EBITDA for full fiscal year 2023 will be between $16 million and $17 million.

We have also begun the detailed planning process for our fiscal year 2024, which begins in July. We expect revenue and adjusted-EBITDA to grow at double digits in fiscal year 2024, and that we will be strongly cash flow positive. We will update our outlook and be more precise as the reramp of auto insurance continues to unfold. Our longer term outlook has never been better. We expect double digit annual revenue growth rates on average in coming years due to continued strong performance in noninsurance businesses alone. We expect auto insurance revenues to be up and to the right, eventually returning to and exceeding FY 2021 peak levels. We expect adjusted-EBITDA to grow faster than revenue, eventually exceeding a 10% margin. Our adjusted-EBITDA margin in March is up to 7% just from the early stages of the return of auto insurance revenue, demonstrating the leverage we expect in future quarters and years.

With that, I’ll turn the call over to Greg.

Greg Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. The continued strength and resilience of our business model in client vertical footprint were on display again in the March quarter, where we delivered strong results, including an all-time record revenue quarter, a return to double digit year-over-year revenue growth, and even stronger adjusted-EBITDA growth. Total revenue was $172.7 million and grew 15% year-over-year despite began the early stages of the recovery in auto insurance as well as a shifting macroeconomic environment. Our noninsurance client verticals represented 58% of total Q3 revenue and grew 34% year-over-year. Looking at revenue by client vertical. Our financial services client verticals represented 70% of Q3 revenue and grew 11% year-over-year to $120.2 million.

This was a result of continued strength in our credit-driven and banking client verticals as well as an improving environment in insurance for the quarter. Our credit-driven client verticals of personal loans and credit cards as well as our banking business delivered excellent results in Q3. Combined, these noninsurance financial services verticals grew 48% year-over-year. Within insurance, we did see a significant ramp in revenue in the March quarter, though carriers have since unexpectedly reduced spending to assess and adjust to current market conditions and results. We still expect auto insurance to be up and to the right over time and believe that it is a great long term growth business for QuinStreet. The exact pace of carrier reramps is unclear.

Revenue in our home services client vertical grew 24% year-over-year to $50.3 million or 29% of total revenue. As we’ve discussed in the past, home services may be our largest addressable market and is run rating to an over $200 million business growing at strong double digits. Our strategy to drive long term growth here is simple. One, grow our business from our existing dozen or so service offerings, for examples being window replacements, solar system sales and installation, and bathroom remodeling, none of which we believe are anywhere close to their full potential. And two, expanding into new service offerings, where we see the opportunity to at least triple the number of these sub-verticals we currently serve. This multipronged growth strategy is expected to drive double digit organic growth for the foreseeable future.

Other revenue was the remaining $2.2 million of Q3 revenue. Adjusted-EBITDA for fiscal Q3 grew 30% year-over-year and sequentially from $1 million to $9 million, demonstrating the significant operating leverage of our business. Turning to the balance sheet. We closed the quarter with $63 million of cash and equivalents and no bank debt. Cash in the quarter was impacted by the timing of receivables, where we received over $15 million of payments shortly after quarter end. Those payments would have typically been received before quarter end. So a more normalized view of our earning cash would be approximately $78 million. Normalized free cash flow in the quarter was $5.2 million. Normalized free cash flow is our primary cash flow metric as it removes the effects of current quarter working capital account fluctuations to drive to the underlying cash flow characteristics of our business model.

In closing, we are excited about our business and financial model as we move forward. Our diversified portfolio of client-verticals has enabled us to drive double-digit revenue growth and expansion of adjusted-EBITDA despite being only in the early stages of the recovery in insurance. We expect to drive even stronger total company revenue growth and further expansion of both adjusted-EBITDA and cash flow, as insurance revenue renews its path up into the right. With that, I’ll turn the call over to the operator for Q&A.

Operator: Thank you. [Operator Instructions]. Your first question comes from the line of Jason Kreyer from Craig-Hallum. Your line is now open.

Operator: Thank you. And your next question comes from the line of John Campbell from Stephens, Inc. Your line is now open.

Operator: Thank you. And your next question comes from the line of Eric Martinuzzi from Lake Street. Your line is now open.

A – Doug Valenti: You bet. Thank you Eric.

Operator: Thank you. [Operator Instructions] And your next question comes from the line of Jim Goss from Barrington Research. Please go ahead.

Operator: Thank you. And your next question comes from the line of Chris Sakai from Singular Research. Please go ahead.

Operator: Thank you. And 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 in the earnings press release issued this afternoon. You may disconnect.