QuinStreet Inc (QNST) 2025 Q2 法說會逐字稿

Good day and welcome to Quin street fiscal second quarter, 2025 financial results conference call. Today is conference is being recorded following prepared remarks, there will be a Q&A session and if you wish to ask a question, please press star followed by the one. If at any time during this 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 and Finance, Mr Robert Amparo. Thank you. You may begin.

Thank you, operator, and thank you everyone for joining us as we report Quin Street fiscal second quarter, 2025 financial results.

Joining me on the call today are Chief Executive Officer Douglas Valenti and Chief Financial Officer Gregory 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 gape measures. A reconciliation of GAAP to Non gape financial measures is included in today's earnings press release which is available on our investor relations website at investor.quinstreet.com.

With that, I will turn the call over to Douglas Valenti. Please go ahead, sir.

Thank you, Rob.

Welcome everyone.

We delivered record revenue again fiscal Q2 define typical seasonality driven by the unprecedented surge and broadening of auto insurance client demand revenue. And other client verticals also continue to perform well.

Growing 15% year over year in the quarter adjusted EBITDA remained strong as profitability continued to benefit from operating leverage.

We expect the justice David do margin to expand further from here as we continue to optimize media efficiencies and client results in auto insurance.

And as we progress a range of other revenue growth and margin expansion initiatives, we also expect strong demand in auto insurance to continue and continued strong growth in our non insurance client verticals.

Turning to our outlook, we expect fiscal Q3 revenue to be between $265 million and $275 million and Q3 adjusted EBITDA to be between $19.5 million and $20 million. We are once again raising our outlook for full fiscal year, 2025.

We now expect full fiscal year revenue to be about $1.085 billion and just to leave it down to be about $82.5 million.

Finally, we previously discussed FCC changes to T CPA. Regulations expected to go into effect. In January. Those regulations were stayed by the courts just prior to going into effect and they are not likely to be reinstated.

There may be replacement regulations regarding consumer contact rates but we believe that they would be less disruptive than those that were stayed and more consistent with Quin Street's current approach with that.

With that. I'll turn the call over to Gregory Wong.

Thank you, Doug. Hello and thanks to everyone for joining us today.

Fiscal Q2 was another record revenue quarter for Quinn Street.

Significantly outpacing typical sequential seasonality. As Doug mentioned, the strength was mainly due to the continued unprecedented ramp of auto insurance client demand.

Though our noninsurance businesses also maintained strong momentum and grew double digits for the December quarter.

Total revenue grew 130% year over year and was $282.6 million. Adjusted net income was $11.9 million or $0.20 per share. An adjusted EBITDA was $19.4 million. Looking at revenue by client vertical, our financial services client vertical represented 78% of Q2 revenue and grew 208% year by year to $219.9 million.

The record performance was largely driven by auto insurance which grew 615% year over year. Our home services client vertical represented 21% of Q2 revenue and grew 21% year over year to $59.6 million.

Other revenue was the remaining $3.1 million of Q2 revenue turn to the balance sheet. We closed the quarter with $58 million of cash and equivalents and no bank debt. We are again raising our full fiscal year 2025 outlook.

We now expect revenue to be between $1.065 billion and $1.105 billion and adjusted EBITDA to be between $80million and $85 million.

I'd like to note that our full fiscal year outlook implies strong sequential margin expansion in the June quarter, our fiscal Q4 as we continue to optimize media efficiencies and client results in auto insurance. And as we make progress on a number of growth initiatives, moving forward between media and client optimizations, favorable mix shifts as auto insurance growth rates normalize growing new higher margin opportunities and ongoing productivity improvements.

We believe that we are getting within reach of our target 10% adjusted EBITDA margin with that. I'll turn it over to the operator for Q&A.

Thank you. Ladies and gentlemen.

Thank you. And your first question comes from the line of John Campbell from Stephens Please go ahead.

Hey guys, good afternoon. Congrats on a great quarter.

Thank you, John.

Sure. I want to start off. You know, I caught one of your large customers. The earnings call today was, was pretty upbeat. I mean, they talked a lot about ramping up growth just across the board, but mainly in auto. This is also, one of the largest national carriers that' is also kind of running half throttle from a national exposure standpoint. You know, there's a handful of your customers that are kind of similar situation. it is great to see you guys put up record results, against that backdrop. So, I am kind of curious about your ability to maintain the momentum. I am hoping Doug maybe you could talk to or provide some colour around maybe the capacity that's out there. Kind of what remains is some of these scary starts to open more and more states and kind of what you're seeing in the channel, as you go week to week, month to month.

Yeah. No, sure John, it is a great question. We see a lot of capacity in front of us. We have broadened the client base pretty dramatically over the past a year or so. And we now have a record number of carriers spending you know, seven figures plus a month, with us.

And most of those carriers do not have all the exposure they want in the channel and are not putting nearly as much budget into digital as they should. If you look at ratios of eyeballs and shopping habits in this channel versus other channels. So, if you combine the capacity that our clients have budget wise with the potential, they have to spend more to be more efficient and more aligned with the with consumer activity.

we see a lot of upsides from here. We think we are going to, consolidate around and this this new higher base and be able to grow good strong double digits from here for as long as we can see. we are also opening up whole new dimensions of insurance in terms of addressable markets. we are in a relatively small part of the overall market.

we are highly leveraged to direct carriers we will and are adding and growing very rapid their exposure to agent driven carriers, which is almost the other half of the adjustable market. And we are very under indexed there and we are rapidly pursuing other areas of insurance including business insurance, which is yet again, another half of the overall market, the overall market in our estimates.

So, a lot of capacity in the current footprint with the existing clients where we have great relationships and are working with them to optimize and spend better and a lot of capacity in other areas that we have opened up, you know, new initiatives and have begun to serve and are in the process of beginning to scale. So a lot of opportunity insurance for a long, long time to come in our estimation.

Okay. That's great to hear. And then maybe on the gross margin or I am sorry, on overall just even on margin. I think you guys have pretty accurately depicted the channel just kind of being a mismatch of, over demand and under supply. And I think have talked to maybe that being somewhat of a transitory issue where that will correct itself over time is as some of your media partners, shift up funnels and, and just basically change their media sources.

So, I am curious, as you kind of unpack your guidance on the four looks like you' are looking for about 9% margin at the midpoint. So above what, expectation, that would be a lot of your, your margin expansion, so would be a great outcome. So, I am curious about how much of that is kind of that dynamic, the more, the channel kind of correcting itself versus more of the self-help and some of the other initiatives you are working on.

A couple of things, the margins last quarter were a little lower than we might have expected if we had a normalized mix, but we had a very heavy mix of auto insurance. And to your point, we had a heavy mix of auto insurance that was not yet optimized because the surge has been so rapid that we are working as hard as we can but can't quite catch it yet.

In terms of optimizing. We say optimizing, there is definitely media out there that hasn't been properly segment, it hasn't been properly matched to the right client hasn't been properly priced to its performance and has, and it hasn't been properly priced in terms of what we should be buying it for. So that and, and we're working on that every day and making progress and that's what we do for a living. So a lot of it will be that dynamic, John, the one that the exact dynamic you talked about.

But there are a lot of other things going on in a lot of growth in the other verticals and other businesses and products where we have significantly higher margins.

And a lot of work being done to improve just structurally our margins by opening up new media sources and building ones that we know we can scale that are higher margin than the current media sources we have in building capacity. There were really under indexed and for example, social display, native areas that, that we know we can be bigger, and we have seen others have some success and, and we are growing those very rapidly through our Avita media acquisition.

which has gone extraordinarily well, so a lot of moving parts, but you know much of it to do with what you alluded to. But then other things that we work on day-to-day initiative wise and, or growth wise to to expand the margin. And that is what will you see that step this quarter where we're, we're expecting even down margins to be higher than they were last quarter, and you'll see that again.

I mean, you'll see that in the fourth quarter.

And, and a little bit as we get even more momentum on those activities and more progress on those activities. and again, a pretty significant jump we expect in the fourth quarter over the third quarter, but I would again point out we are also expecting to jump this quarter over last quarter. So progress across the board.

Thanks. Doug.

Thank you, John.

Thank you. And your next question comes from the line of Jason Kreyer from Craig-Hallum Please go ahead.

Great. Thank you. Great job guys. I just wanted to ask about TCPA. understanding is that a lot of carriers requested TCPA compliance even before that deadline was put in place. So curious if there's anything, any notable takeaways kind of in this period of time that it seems like the industry was operating under TCPA compliance and then the work that you did leading up to TCPA. I'm wondering if there's any learning there that you think you can apply to the business going forward to make things more efficient.

That's a great question. It was, were getting ready for TCPA for over a year and we knew it was coming. very wired into to the FCC and want to be, we want to be, know what they are thinking and make sure we are ahead of those things.

And so, we did an awful lot of work, and I think we did learn a lot. We tested an enormous number of approaches to matching and communications and, and, and contacts with consumers. And, and despite the fact that the regulations did not go into effect, will improve a lot of areas based on that feedback and those that testing, it was disruptive in many ways because we still had to prepare for it.

And to your point, Jason, many clients required us to implement early just to make sure it was working. But I am not being critical. It made sense. If you are going to have to comply, you got to test it early before the actual due date.

And so, I think we would have done even better in the quarter had we not had to go through that disruption, which certainly wasn't as big as it would have been if we had fully implemented across the board but was not insignificant and it was a distraction quite frankly from a lot of other activities.

So I would say that yes, we did learn a lot. We will roll those into continuing to improve.

As you know, I said, when I talked about their regulations before I said they would be a short term disruption, but they would likely accelerate long term trends to make the channel a better safer, more participatory place for consumers and for clients and I think those long term trends will continue to go forward and we've learned yet more about how to push those long term trends.

And we will benefit. We win Street will disproportionately benefit from those long-term trends. And we get to do that now without the short term, non-insignificant disruption that would have would have occurred if everybody would have been forced to convert right away and adapt, which in this ecosystem would have been, would have been disruption, we're disruptive.

So, it's we are happy, we went through it. We learned a lot. we are, we still, we'll take the lead on making sure this is a great channel, a compliant channel, a safe channel for our clients and for consumers. And we get to do that now without the, with having had a little disruption in having to prepare for it, but not the big disruption of having to actually fully implement.

Appreciate that Doug I wanted to piggyback off of John's question, just on margins and what you are seeing there. We have talked for a few quarters now about this supply constraint or the media constraint that exists. Can you, give any more detail on like, are there any locations that that is starting to open up or the factors that you can do to, and I think again, you are alluding to that in the Q4 guide, but is any more colour on what other industry participants are doing that could give us more supply in the market.

We have seen a number of media companies broadly defined because media companies come in all shapes and sizes. They could be folks with databases that are that with permission emails as well as folks that publish materials and content shift their act. We have seen them pretty aggressively shift their activity and their focus back to auto insurance and that takes a little while to ramp. But we definitely are seeing results from that increased supply from that increased activity and opportunities from that.

And we ourselves have shifted a lot of our own activities on the owned and operated side back to auto insurance to grow our own campaigns in all media, digital and are seeing a lot of great results and very strong growth there. So, I don't think that we should expect that in the foreseeable future, there will be a big GAAP between demand and supply anymore.

I think that supply is catching up, but it was, it was tough there for a few quarters because the surge was so rapid and so ma and massive that it was kind of impossible for it to not outstrip everyone is ability to kind of ramp back up there, their media activities. But I don't think that is going to be a big constraint for over the next few quarters. I think we are almost caught up frankly and I think we will stay caught up. I think that big miss, a big structural mismatch we are going to have to be dealing with.

All right. Thank you.

Thank you. And your next question comes from the line of Zach Cummins B. Reilly. Financial - Please go ahead.

Hi, good afternoon I just wanted to piggyback off of Jason's question TCPA. I mean first, can you comment on any potential impact especially on the margin side that you had around implementation ahead of the planned date consent rule and, and I know in your prior guidance that you issued in Q1 you baked in some headwind home services as a result of this implementation. Just curious if you are now assuming a higher growth rate for home services, especially as we go into the second half of your fiscal year.

Yes, Zach, we are expecting that the home services performance will be better in the back half of the fiscal year than it would have been fully implemented the new two TCPA changes. And that it does one of the factors baked into our guidance in the back half.

It was in terms of commenting on the work it, we worked on it for a year and worked on it hard. So, I would say that what I was pleased with was the exceptional work that all the teams did. Our marketplace team or engineering team, in particular, our home services team getting ready for the changes. And so, I think the impact would have been less severe than we feared because of that great work. And because we were, as far off of the new rules as a lot of other people are in terms of how we operate.

And I mean are always limited match rates, always being the last, 10 to 15 years. And, and there are even people who refer to limiting match rates as the, as kind of the Quin Street approach because we believe that it matters and we know there is a sweet spot in terms of consumer engagement, consumer response rates and how and how many times you match them.

Most consumers do want multiple options by the way. So, matching them more than once is usually a consumer preferred thing, but they probably don't want to be contacted or to be matched to more than about five and the sweet spot seems to be about three.

So, I think we proved that once again through all the testing and we will continue to be to be disciplined as we have been for a very long time. On that front so that we get the best combination of consumer engagement and conversion for our clients and, and best experience those consumers.

Understood that is helpful. And my one follows up question is really around auto insurance. Nice to hear the broad-based strength that you are seeing amongst carriers. I was just curious if you could go a little bit deeper in terms of the contribution, you are seeing from maybe your top one or two carriers versus maybe how you expect that to evolve throughout calendar 2025 as a broader base of carriers should, have profitability metrics to spend more money to acquire customers.

We have a couple of clients that are significantly bigger in terms of their spend than the rest, they are just further along, and we are closer to them. But I would say that, and I and Greg may be able to give you some numbers, but I would characterize it kind of qualitatively that I have never seen more carriers, significant carriers. I am not talking about anybody small because, but although there are a bunch of those too, but no more of the big carriers more engaged in digital in a very productive, smart way than I am seeing right now. think it is an exaggeration to call it dramatically different than it was going into COVID.

I think that the capabilities, the focus, the willingness and ability to engage on a digital level analytically with us to get the kind of results you can get if you do that, which are by the way spectacularly better, then if, then other channels or not doing it analytically or well in this channel.

As it is a dramatic improvement and a dramatic increase in the number of carriers that are capable and want to be better at it and are working hard at being better at it. Obviously, there are a couple that lead the pack and have led the pack for a long time, and it is going to be tough to catch them. But they are we are seeing a lot smarter activity in the broader carrier group than we are ever seen.

And it not surprising channel is incredibly efficient. but it is very different. You have to have a different skill set to win this channel. You and it's taken a while for a number of companies to and still taking a while for a number for everybody to build those capabilities because it is hard. But we are seeing, I would say again, I will keep using the word dramatic progress on from where we are few years ago.

Understood. Well, thanks for taking my questions and congrats again on the strong results.

Thank you, Zach.

Thank you. And your next question comes on the line of Patrick Sholl from Barrington Research - Please go ahead.

Good afternoon. And congrats again on the strong results. I had a question the other financial services verticals. I was wondering if you could talk about to clarify the 15% growth that you talked about. Was that the other financial service verticals or is that just all other revenue cate categories including home services?

That was all non-insurance client verticals. Was the 15% and Greg, I don't know if you have any other of the numbers that you wanted to share.

Yeah, I would say that is exactly it. It was all financial services total business ex insurance group, 15% are non-insurance, financial services businesses all delivered year over year growth itself. I would tell you good year over year growth. The only place that where we did see really good performance, but we had a very tough comp was against credit cards so very happy with our performance of credit cards in the quarter, but it was closer to flat this quarter just given the comp from last year. But pretty robust growth across the business.

I was just going to reinforce that, but I would say that we were very happy with the performance of the other businesses. We don't give out the numbers for every, one of the verticals, but the 15% was again all non-insurance, which would include home services.

And then you talked about going after more an insurance agent driven business. I was just wondering if you could talk about the margin profile of that side of the market versus kind of the direct side.

Sure. We would expect that it's it will be as good or better. I don't know that it will be dramatically better as we scale because the media market gets pretty efficient at scale. But we do believe that what will help us margin wise is it can largely be incremental yield on existing media and any time you can because there are consumers that, that really do want to work with an agent for good reason.

And we have not, we have been very underrepresented we have underrepresented that part of the market. So, consumers that come through our flows haven not had as much of an opportunity to engage with an agent in a productive way and so therefore wouldn't convert.

And so, I think it will be additive to margin for a long time and eventually the margins will be similar, maybe a little bit better overall than the current market as we get to more maturity and scale. I think it is years out. But initially, as you know, we will think it'll be a higher margin component because of the fact that again, much of it will be yield on existing media, which is, theoretically, almost pure margin.

Okay. Thank you.

Thank you. And your next question comes on the line of Christopher Sakai Singular Research from Singular research. Please go ahead.

Yes, I you talked about potentially entering a business insurance. Can you, can you talk about the margin the margins there?

Sure, Chris. it is early and so we don't know exactly where those commercial and business insurance margins settle out. We're still early in the process of, we have all the, we have, we have now a critical mass of the clients that cover the most important segments as clients. And we are now building our media and so it's too early to say.

So, I would project that the margins will probably be somewhere near our, our averages, in the 30 (ish) 25% to 30% as we get to any reasonable scale. They are not there yet because we are still early and we're still building that media profile. The good news is you know, there those much of the not like I said about agent driven demand. There are a lot of customers in our current flows who match that business or commercial insurance.

And so therefore they haven't been converting for us because we didn't have it in our offers and we'll be able to convert them now because we have the demand and we are hooked up, quote unquote the pipes if you will, to the, to the folks that can serve them. So there, there'll be a lot of that early on, not on. Like I said, there would be in, for agents and then over time as we scale, it, probably something close to our average is what I would expect until we get to really big scale. At which point we might be more where auto insurance is. Because when you get the really big scale, you can still the market that market and again, that's years out, but then that market gets a little more mature, the media margins come down some, but the contribution margins stay healthy because you get so much efficiency, out of the other operating lines. It is kind of that the way to think about the evolution of the margin these verticals.

Okay. Thanks for that and one other question I had was we've seen pretty volatile swings with insurance, I mean, just a year ago to now it has been pretty volatile swing, and we are on the upside now. Can you help me understand? Is this something regular or normal with insurance or are we seeing some a change or could is there going to be potentially a down swing again?

Yeah, I it is a great question. Obviously, I think, and industry experts and carriers have said what happened in the prior downswing was unprecedented.

There never been a period of such a hard market and insurance and it was driven by what we have talked about. Right. Coming out of COVID, you had supply constraints which drove up costs, you had inflation, which drove up costs.

You had higher incident rates amongst consumers as they got back to driving, not just because they were driving more, but because they were distracted more because they were using their cell phones even more. And so, they did that cell phone usage had continued to grow.

But they been driving so much during COVID and as it came out of COVID, they started driving and they were using cell phones, oh, they had more accidents. And so, you had a very unique combinations driven by a very unique pandemic, which we haven't seen the likes of which I ever, I guess unless you go back to the flu epidemic early in the last century.

So, I have everything that we know about insurance and that what we have been told by our clients and industry experts says that the downswing which was dramatic was very unique and highly unlikely. There will be, there have been and there will be at times when it,

There less dramatic ups and downs in insurance driven by things like weather and the severity of weather in any particular year. We have seen those over the past 20 years that we have been in, we in the predecessor company required have been in insurance. But those are, those are very manageable.

Obviously, we made the last one manageable. We never went cash from the operating profit negative or even done negative. But and we said, while we were going through, we said we' are going to continue to invest through this cycle because we know it is coming back and when it comes back, we want to be ready to take full advantage of it and we did that.

So it was, it was not a great time to go through, but at least we knew it was temporary and, and we're now benefiting from doing the right thing during the downturn to be ready for the other side. And I think so I my way of saying it is not going to be as volatile as it has the last couple of years. It is going to probably come back to a pretty normal up into the right curve that has some variability but very manageable variability over time. And, and, and it's likely going to be that way for, at least the rest of my career and probably, decades. If you, if you look at the long-term curve back behind the COVID issue.

Thanks for that. Doug.

Thank you. And your next question comes from the line of Eric Martin from Lake Street. Please go ahead.

Doug, with the arrival of the new administration, tariffs are definitely on the table, and I was just curious to know you the auto carrier rates are obviously tied to the price of the replacement parts and, and many of those parts are imported to the US. We have kicked the Can 30 days you know, Mexico and Canada, but we haven't on China. Have you had any conversations with auto carriers regarding the potential kind of return of inflation due to tariffs?

heard nothing from clients on that. It is a good question. Obviously, we have not heard that being a concern or an issue from clients when speaking with us. guess and anybody's guess is as good as anybody else's in terms of when, whether how we get, we actually get tariffs, but we have not heard that as something that people are planning around or worried about, at least in their conversations with us and as they talk to us about what they are looking to do with us over the next you know, quarters. not something we have heard.

Okay. If we go to a pessimistic scenario where tariffs are do go into effect, would there be, is the assumption that there would be a request by carrier, the carriers would be going back to the states for a re-rating process.

Yeah, probably. Although they're in very good shape right now, as you probably know, the loss ratios are coming in, and profit, which is a, a key profitability measure for, for these carriers coming in very strong.

And so, they have good pricing now, but they have also opened up the channels of communication, opportunity to get pricing when they need it from the states. Even California is beginning to make it easier for carriers to actually raise their rates based on their costs because the states have learned that it is just economics. If you, want your citizens to be able to get insurance, insurance carriers have to be able to rate economically.

And so, I think if there's, one of the good things that maybe came out of the past few years is a lot of lessons learned on the parts of everyone. But hopefully including anybody that makes rate decisions or regulates rate decisions because, it's as long as the carriers are doing it based on real economics and obviously inflation of any kind would be real economics and you kind of have to let them do it or they'll not be able to serve your citizens. So, I think that is to direct answer your question. Yeah, I think they would.

Got it. Thanks for taking my questions.

You bet. Thank you, Eric.

Thank you. Once again. Should you have a question.

Thank you. And there are no further questions at this time. Thank you everyone for taking the time to join Quin Street's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.