You're currently holding for the QuinStreet Q3 fiscal 2022 financial results conference call. At this time, we're assembling our audience and we'll be underway in approximately two minutes. We thank you for your patience in holding and ask that you please remain on the line. Good day, and welcome to the QuinStreet Q3 fiscal 2022 financial results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Hayden Blair. Please go ahead, sir. Thank you, Jenny. Thank you to everyone joining us as we report QuinStreet's Q3 fiscal year 2022 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 are 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. Thank you, Hayden. Welcome, everyone. Increased claims costs continue to suppress insurance carrier marketing spend, and in turn, revenue in our auto insurance client vertical. The good news is that those effects on our insurance clients and their business economics are transitory. Further good news is that revenue in our insurance client vertical appears to be at or near a bottom. Carriers are working diligently through the well-honed process of re-rating or repricing their policy products to reflect the new environment. We now have a number of examples of successful client re-rating, where they have reestablished or increased marketing spend that had been previously paused or reduced. Said another way, the environment in insurance remains generally complicated and dynamic, but the climb back out to the other side of this adjustment and transition period certainly appears to have begun. Importantly, we and carriers continue to expect strong marketing spend and consumer shopping on the other side of this re-rating cycle. Carrier economics will be renewed, and consumers are expected to shop aggressively in response to higher rates. As a reminder, our auto insurance revenue doubled within 12 months of the end of the last major re-rating cycle. In the meantime, revenue from our non-insurance client verticals continues to perform well. It represented 50% of total revenue and grew 35% year-over-year in the quarter. All in all, we remain highly enthusiastic about our business prospects and are focused on the projects and initiatives to achieve them. Overall, I am really pleased with how our team and business are navigating and performing in this complicated environment. Strong trends in our non-insurance client verticals, combined with the eventual resurgence of insurance, bode well for the future. A return to insurance revenue just to the levels prior to current industry challenges would imply total annual company revenue of over $700 million per year, growing at 15%-20% per year. Even with the current impact on insurance revenue, our financial position is strong with no letup in our investments in the future. We remain solidly cash flow and EBITDA positive while continuing to invest aggressively in growth and product initiatives across the company. Our balance sheet is strong with over $100 million of cash and no bank debt. One of the important areas of investment in the future is, of course, QRP. Current insurance industry conditions have affected agent activity and therefore reduced the slope of the QRP revenue ramp. Despite those challenges, QRP quote volumes are still well up and to the right. The fundamental opportunity represented by QRP and our enthusiasm for that opportunity are as strong as ever. Yet another reason to be excited as we climb out of this insurance re-rating period. We are forecasting FQ4 revenue to be between $138 million and $142 million. We expect adjusted EBITDA to be between $4.5 million and $5 million, continuing to demonstrate the resiliency and strength of our underlying business model and our diversification. Finally, the board of directors has approved a $40 million share repurchase program. The buyback reflects the expected transitory nature of insurance industry challenges, the strength of our underlying business model and financial position, and confidence in our long-term outlook for the business. With that, I will turn the call over to Greg. Thank you, Doug. Hello, and thanks to everyone for joining us today. Revenue in the March quarter declined 2% year-over-year to $150.7 million. GAAP net income was $2.2 million or $0.04 per share. Adjusted net income was $4.9 million or $0.09 per share. Adjusted EBITDA was $6.9 million. Looking at revenue by client vertical, our financial services client vertical represented 72% of Q3 revenue and declined 7% year-over-year to $108.3 million. Doug well covered the details of what is going on in the insurance client vertical in his remarks. Within our credit-driven client verticals of personal loans and credit cards, progress and revenue growth continue well ahead of our initial outlook for the year, growing 89% year-over-year and eclipsing a $100 million annual run rate in fiscal Q3. Our home services client vertical represented 27% of Q3 revenue and grew 16% year-over-year to $40.7 million. We continue to expect this early-stage client vertical to deliver double-digit organic growth for as far as the eye can see. Other revenue, which consists primarily of performance marketing agency and technology services, was the remaining $1.7 million of Q3 revenue. Turning to the balance sheet, we generated $3.6 million in normalized free cash flow and closed the quarter with $109.5 million of cash and equivalents and no bank debt. In summary, we continue to be pleased with our diverse footprint of client verticals. Non-insurance client verticals grew 35% year-over-year in the quarter, and we believe that will support a period of fantastic growth when we get to the other side of this challenging macro environment in insurance. In the meantime, we will continue to focus on execution and expect to aggressively execute on our recently authorized share repurchase program at current valuation. With that, I'll turn the call over to the operator for Q&A. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Pause just a moment to allow everyone an opportunity to signal for questions. We will go first to John Campbell of Stephens Inc. Hey, guys. Good afternoon. John. Hey, I might have missed this, but could you guys maybe talk a little bit more, maybe unpack the guidance and specifically just around the insurance trends? I you know, I know FY3Q is your seasonally strongest quarter, so I'm assuming that's down from that level. Maybe if you could just talk to what you're considering on a year-over-year decline basis. Yeah. What's in the guidance for this quarter is really what we've been experiencing since February, and that's pretty flat insurance revenue. We have been for the past four months or so and expect to be through the end of the fiscal year through June, flat in insurance, which does beat, by the way, typical seasonality in terms of the way we know it normally works. As you know, January was an outlier, but February forward has been, you know, plus or minus a very small number in terms of the revenue and insurance. It's one of the reasons we point out that we feel like we're bouncing along a bottom here. That combined with recent moves by some of the insurers and recent announcements by some of the insurers of success in re-rating and intentions to begin to raise their marketing budgets in the second half of 2022 are one of the reasons we, again, have talked about, we certainly believe we're at or near a bottom and bouncing along that bottom. That's a main component. The other businesses in the guide we're assuming are showing pretty much the same pattern they've been showing for the past year or so in terms of their growth rate year-over-year, but with some seasonality associated with to your point, the move from, you know, the March quarter into the June quarter is typically a little bit down 'cause the strength of the March quarter. It's a pretty normal recent patterns, which have been quite strong in non-insurance and flat in insurance. This is what we've seen since February, and that's what we are forecasting and as we get indications and run rates for the business through June. Okay. That's helpful. Then- Let me add one other thing, John. I'm sorry, just so I don't forget to mention this. The pressure we're seeing on margins associated with insurance is twofold. One is, of course, we've lost a lot of top-line leverage 'cause of the loss of that revenue. And that's reflected in the guide, because we're not restructuring to accommodate that. We're investing through this cycle because we know it's temporary, and we wanna be ready to take full advantage of the other side. But the other point is with the remaining insurance revenue, auto insurance revenue, which is dominant of course with us, pricing and filter. Filters are tighter and pricing is down. We're getting a little bit of a double whammy on margins right now that will cure itself as we come out of this period in insurance. Okay, that's helpful. In a similar vein, around just the year-over-year growth of insurance. I mean, you guys don't specifically break that out. We've done kind of back of the napkin math. I feel like we've gotten pretty close to that over time. If I look at this on a two-year stack, obviously 2021, FY 2021 is a very good year. On FY 2020, even with the decline in insurance here, it looks like you're still maybe up 10% or so, you know, 11%, 12% or so over the last two quarters relative to FY 2020. Is that directionally correct? I don't have that in front of me, John. Greg, do you have that in front of you? No, I do not have that in front of me right now. I apologize, John. Okay. That's fine. I think the point I'm making here is it just feels like there's some investor concerns around potentially overearning, you know, in FY '21, you know, getting outsized, you know, industry trends and helping on the insurance side. It sounds like for you guys that you. No. really do believe it's a, you know, transitory issue, otherwise you would be maybe making some cost measures, you wouldn't have a buyback in place because of it. Is that fair to say? Yeah. Absolutely. I don't know where that comes from, by the way. That's not consistent with anything that we hear from, know about our clients' plans and business, anything any of our clients have said about their business and their intentions and their plans and anything we, you know, we have that we're doing that would have an impact on that. That does not sync up at all with reality as we know it and expect it. I don't know where that came from. I know sometimes in the investment community, people, you know, kind of something like that takes on a life of its own, but that has zero credibility. Makes sense. Thanks, guys. We'll move next to Jason Kreyer of Craig-Hallum. Thank you, gentlemen. Apologies I hopped on late, so I apologize if you've already touched on this. Given you've been at the auto insurance business for a long time, I'm just curious, when you start to see contraction on that acquisition spend, does that usually happen across, like one or two large carriers and then flow into the smaller carriers? If there's a specific pattern on how that flows across the industry, I mean, can you talk about where we're at in terms of your customer base, large and smaller? Are you seeing that kind of across the entire stack? No, that's a great question, Jason. I'm gonna talk generically because of course, we're very careful to try not to talk about specific clients for obvious reasons. Generally speaking, they don't all act at once. I'm talking mainly the big carriers, by the way, which really dominate the market. You did mention the smaller carriers, but they're relatively unimportant in the overall scheme of things in terms of supply and demand and media pricing and utilization. I'll focus mainly on the larger clients who dominate our budgets and dominate everybody's budgets in this channel. Typically, they don't all act at once, because they all have very different economics and very different pricing and very different models and they're not all even in the same states, as you know. That does tend to be a kind of a ripple effect that you will get some that will move sooner than others, and then you'll get, they'll raise prices sooner. They'll initially lose a little share because of that. Very quickly thereafter, you'll see others begin to raise their prices as soon as they can and/or stop marketing where they haven't yet because they can't make any money at the current pricing. Then you'll see that will turn a little bit, and the ones that initially raised prices and maybe lost a little bit of conversion share begin to start gaining traction because they're present in a market where others aren't. Then they may gain even more share when the others come in with their price hikes 'cause then you start seeing consumers start to shop. You get this dynamic of prices going up and pausing and stopping and across various clients, and it kind of ripples through the market. Where we are right now is we think we're, you know, we're somewhere in the middle of that. We have seen, as I said, a lot of examples now, finally. You know, for a while, it was just, you know, we were seeing nothing but reduced budgets, reduced pricing, and stoppages in terms of marketing activities in certain geographies. Lately, we have been seeing and have a lot of examples where folks have very successfully rerated in states, have gotten much more active or have gotten active again in those states, and have begun to re-ramp their spend in various segments in certain geographies and in multiple geographies. We're very much seeing the first pattern of one carrier that stopped early, went in and started fixing their rates, and the others hadn't gotten to it yet. We've seen the, you know, successful rerating, successful repricing, and a re-ramp of marketing and others, still in the process of beginning to do all that. What we haven't seen lately, and the other reason I say we're somewhere in the middle, is that most, if not all, have now either pulled back their marketing spend or stopped their marketing spend where they haven't been able to reprice and are unlikely to begin to re-ramp that spend until they do get repriced, and they are in that repricing cycle now. Long way of saying we're finally seeing some upside from some carrier clients. The other carrier clients that we're not necessarily seeing upside from yet, we don't expect to see any more downside 'cause they're out of the market. We're in the middle. Again, as I said, it certainly feels and looks to us like we're beginning to climb back out. Coupled with that, for what it's worth, we're not gonna try to be heroes and predict the exact timing. I think that's fraught, but I will give you a couple data points. One of our competitors said in their call recently in their discussions with clients that they thought that the climb would begin in the second half of 2022, and that the market would be normalized by January. I believe I'm quoting them correctly. Folks can certainly check if not. I'm pretty sure I read that pretty carefully. For what it's worth, that's what they said based on their discussions with clients. Then another large carrier client said just recently that they did expect to be re-ramping their marketing spend and trying to get back into what they call growth mode or words to that effect in the second half of 2022. Those two things would also imply that we're, you know, at or near bottom and beginning to ramp back out. Always appreciate the incremental color, so thank you for that. I do have a follow-up. Just given the choppy backdrop in auto insurance, can you maybe talk about what you think that means for QRP? Like, is there an opportunity for carriers to view this as an opportunity in more challenging times and lean into QRP more in this environment than they would in a more robust environment? I think the momentum and interest in QRP is super high, regardless of the information environment. We've spent some time over the past month or so, and I have personally visiting with big partners to reconfirm that, and I would say never seen more enthusiasm from the partners that matter most for the long-term success of that product, and really leaning in to help with that. That said, we're seeing a little bit while we are continuing to be up into the right sequentially every month, and pretty significantly so in terms of the activity and volumes through QRP, quote-unquote, "through QRP," and last month was our biggest month. That's the slope of that pretty steep ramp has certainly been diminished by the current period. The agencies themselves are losing budget and carrier coverage as carriers pull out of certain states until they get rerated. That just diminishes the activity level and the economics and the opportunity for those agencies. Also, you know, and implying what I just said, there are carriers who aren't as active on the platform because they are still getting rerated in certain states, and so we've lost that activity. We have definitely lost activity in the market on both the agency and the carrier side, which has reduced the slope. The slope is still well up and to the right. Again, our outlook in the overall scheme of things for QRP remains as good or better than it ever has been. I wouldn't say that this bad market has necessarily helped us in QRP, but it hasn't turned the slope downward, and it has not diminished anybody's, you know, medium to long-term, depending on how you define that, and I define that in quarters and years, not decades, enthusiasm for the product and what it means to the agent channel. Perfect. Thanks for all your comments, Doug. Appreciate it. Thank you, Jason. We'll go next to Jim Goss of Barrington Research. Thank you. I agree, Doug, that was a great description of the process. It also sounds, though- Thank you, Jim. It also sounds like it could be quite extensive and quite variable. You're welcome. Now, your opportunity in terms of marketing costs might be less tied to how well the insurance carriers are doing than just whether there's a level of activity of the search process. I'm wondering, is there some phase of this that's better or worse for you, and how long do you think the duration of this process might be? Yeah, no, thank you, Jim. That's a good question. I don't think we know how long it will be. I don't wanna predict it because I don't think anybody can precisely. That's why I gave the couple of data points I did in terms of what at least one of our competitors felt confident enough to say and what one of the largest carriers just said. I think it was yesterday in their call. But I would say that what we're seeing by way of consumer activity is that we did see a pretty normal shopping cycle in the February-March timeframe, which we expected from consumer activity. I think, Greg, correct me if I'm wrong, but I think we had a peak volume ever of increase or clicks to our marketplaces in auto insurance. Was that March, Greg? Yeah, that's correct. We're seeing pretty strong consumer activity. It was on trend line. It was in the right cycle time. We haven't seen any diminishment of consumer interest. We did see a reduced conversion rate of that activity because there are less offerings. There were fewer carriers in the market for all the reasons we just talked about to match to those consumers or for those consumers to choose from. What we expect as we Dynamically, as you think about the rating process and the rolling rating process that I described, what we have seen historically, and it was 2016 when there was a pretty major rerating cycle, and what carriers have described to us, based on their experience, is that as companies increase their rates and as more companies increase their rates, and remember I noted that most companies now have either increased their rates or they're pausing their aggressive marketing activity until they do get their rates increased. What we're seeing now is we're on the second half of the wave, where the first half was people kind of closing down their activity because their rates economics didn't work. Now we're beginning to see people either begin the rerating process or having finished the rerating process and begin to increase their marketing spend. We're, as I said, we now have examples of the early movers getting to that point. More and more consumers are gonna get their rates increased. When those consumers get their rates increased, a very large number of them go and shop. When they go and shop, it increases activity pretty dramatically. We, you know, large portion of the folks that go and shop are gonna end up on our market, in our marketplaces. That's why you keep hearing us talk about, hey, the other side of this cycle and the second half of this cycle get very good for us because you have the combination of carriers who have increased their rates so that their economics work, and they have, therefore, the surplus to spend on marketing, combined with a motivated consumer seeking alternatives because their rates just got increased. That creates a bit of a super cycle. As I mentioned in my prepared remarks, in 2016, the last time we saw a cycle like this, within 12 months at the end of that cycle, whenever that happens, if you assume that, you know, what our competitor said that January is that, then say within 12 months of January, our auto insurance revenue had doubled because of the combination of those two factors. We expect, and our clients have articulated to us that they expect a very strong cycle for those very reasons at the end of this period as well. Okay. Thanks for that. You know, I wonder too if there are things to describe the rest of the financial services besides insurance, how that is proceeding. Also, what are the key drivers right now in the home services category? Are there certain groups that are sort of carrying the increases or creating the increases, rather? Yeah. In terms of the rest of financial services, as Greg mentioned, if you look at the credit-driven verticals, which are the next two biggest verticals within financial services for us, personal loans and credit cards, those two businesses combined grew, I think, Greg, 85% year-over-year in the quarter. 89%. Yeah, 89%. 80%. We are now running at well over $100 million per year in annual revenue in the quarter. Those businesses continue to do very well as we see increased consumer activity broadly in the economy. Therefore, with that activity comes the, you know, the requirement or desire to access credit and to use credit. I think we feel very good about the outlook, continued outlook for those businesses. That dominates the rest of financial services. Home services drivers, it's we're in, you know, a lot of different trades. A trade would be like window replacement, walk-in tubs, home security, solar. We're in a number of trades in home services, and we're seeing, you know, we're performing as well as we are, despite the fact that the market's not easy right now. There are still a lot of supply chain problems, labor problems. Installers need to be hired. Sometimes, you know, our clients are shutting down in various geographies 'cause they don't have enough installers or they're not able to fill orders 'cause the supply chain's not yet working like it should be or not caught up. We're seeing good activity generally across the spectrum of trades that we're in. I think we're in about 10 trades, notionally maybe 12, and in four of them, we're pretty big in, pretty mature in. For the most part, we're seeing activity across all those trades, but that activity has been constrained and complicated by, again, supply chain and labor issues. Despite that, we continue to grow at a good clip, and we continue to generate good margins there. We expect that as we continue to come out of this period, this period being COVID and supply chain issues and COVID-driven, potentially, partially COVID-driven labor shortages, that we're gonna get more and more wind at our back. All the while, we're continuing to do the things we can do and execute against. We are adding more clients, getting more budgets from those clients. We're adding more media, getting more yield and consumers matched in that media. We are working diligently to fully apply all of our marketplace technologies and capabilities in home services because, you know, home services is mostly our modernized acquisition, and we have to integrate all of our technologies into our modernized operations, and we're a long way from getting all that done. What we know is when we do that, we get a big surge and a big lift in performance. You know, home services is a really big opportunity. It will continue to be driven by our continuing to execute better on the product media and the client side, combined with our continuing to add more trades. We believe we can be in dozens. We're in about a dozen, and we're only really big, defined as, you know, what we think is at least a scale that's a reasonable, you know, mid-size scale for us in about four. Again, I think Greg said it, and I would second it. We have a long time of runway, and a lot of upside in home services for as far as the eye can see. Okay. Well, appreciate your color. Thanks very much. You bet. You're welcome. As a reminder, it is star one for questions, and we will go to Chris Sakai of Singular Research. Hi, good afternoon. I just had Hey, Chris Had a question on insurance. How much of that was financial services? Oh, how much of financial services does insurance represent? Right. Is that the question? Yeah. Historically, it's been about 70%, 70% of financial services. With the downturn, Greg, do you have a round number for what insurance represented of financial services this past quarter? Yes. It's pretty similar, Doug. It's 70% of financial services right around there and that'll, you know, and it can vary quarter to quarter. As we discussed, you can see in the bullets or the press release, it's 50% of total revenue. Non-insurance businesses are now 50% of revenue that grew at 35%. Okay, great. My other question was on home services. I know in previous calls you might have talked about this, but I can't remember for sure. I mean, we're seeing now we're in a rising rate environment. How, you know, would this affect home services if at all? What other time periods? I mean, if you can remember that home service, how did a rising rate environment affect home services and, you know, what was the outcome? Yeah. We just went through an analysis of this because we were doing some contingency planning, partly as we were putting together the cash flow models for the buyback, just to kind of consider worst case scenarios to make sure we still had lots of margin in terms of cash to fully execute the buyback. We did some planning around recession and an interest rate driven recession. You know, as we went through that process with the team, the answer was pretty flat. Not significantly down, not significantly up. We have some trades within home services that we would expect to be negatively impacted. We have some trades in home services that we expect to be positively impacted. There are a lot of different themes to that because home services is quite a diverse set of trades. You know, a simple example I might give you is that we are likely to see fewer new home buyers, which would mean that projects to work on and remodel, dress up existing homes many times will go up there. The general answer is in a recession or rising rate environment, which could push us to a recession, just rising rates alone have very little impact generally. We're still at rates that aren't gonna have a big impact, we don't believe, on any of our businesses. To the extent rates get quite high and/or drive a recession, the business we think would suffer most would be credit cards, where we would expect to see a pretty significant downturn. We've modeled that into our downside scenario planning. I guess home services, Greg, was the other one that we had relatively flat to down as much as 20% in that environment. Yeah. Is that right? That's correct. To add on to that, you know, we did in that contingency planning. That said, if you look at recessions historically that we've been in home services for a long time, we have not seen an impact from historical recessions on the growth of our home services business. Yeah. Let me say this. Don't take that negative 20% as a sure thing. That was. We're trying to be conservative and come up with, you know, we were doing modeling to protect our cash position and making sure we're leaving lots and lots of cushion, which we did and which we have. We have not seen historically in the last recession a meaningful negative impact on home services. I think it's for a couple reasons. One is we're not so penetrated that the macro effects are what rule in home services, and I don't expect we will be for a very long time. The second is, as I mentioned, home services is a very diverse set of trades. What we will do is we will focus on the trades least affected and/or even that get tailwinds from a recession. We will, you know, de-emphasize those that are affected negatively. You know, we have levers that we can pull given the nature of that marketplace, just like we do anyway. Again, if you wanted what we think was a worst case downside for, again, very conservative contingency planning for assessing cash positions and making sure we had lots and lots of room for cash no matter what happened, I think we had it worst case down 20%. Okay, great. Well, thanks, Doug. Thank you, Chris. I might also add, by the way, while we're talking about the recession, that generally speaking, historically, and we've been in insurance a long time, auto insurance does very well in a recession, because consumers shop aggressively to reduce their costs across the board, including the requirement to spend on auto insurance, and driving activity is reduced. Auto insurance carriers tend to do well in recessionary type periods, generally speaking. As a reminder, it is star one for questions. Thank you. A replay of today's call will be available for a week starting at 5 P.M. Pacific Time today. The replay can be accessed by calling 1-719-457-0820 and entering passcode 7396520. This concludes today's call. You may now disconnect.