Market Overview

QuinStreet Reports Strong Fourth Quarter and Record Fiscal Year 2018 Results

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  • Reports revenue growth of 37% for fiscal Q4 and 35% for full-year fiscal 2018
  • Delivers double-digit growth in all reported client verticals in Q4
  • Achieves record annual revenue of $404.4 million in fiscal 2018
  • Grows adjusted EBITDA 189% in fiscal 2018
  • Builds net cash to $65 million
  • Expects double-digit revenue growth and expanding EBITDA margin in fiscal 2019

FOSTER CITY, Calif., Aug. 07, 2018 (GLOBE NEWSWIRE) -- QuinStreet, Inc. (NASDAQ:QNST), a leader in performance marketing products and technologies, today announced financial results for the fourth quarter and fiscal year ended June 30, 2018.

For the fourth quarter, the Company reported revenue of $111.5 million, an increase of 37% year-over-year, and GAAP net income of $5.4 million, or $0.10 per share. Adjusted net income for the fourth quarter was $6.9 million, or $0.13 per share, and adjusted EBITDA was $10.3 million, or 9% of revenue, an increase of 70% year-over-year.

For the fiscal year, the Company reported revenue of $404.4 million, an increase of 35% year-over-year, and GAAP net income of $15.9 million, or $0.32 per share. Adjusted net income for the fiscal year was $22.3 million, or $0.45 per share, and adjusted EBITDA was $34.7 million, or 9% of revenue, an increase of 189% year-over-year.

During the fiscal year, the Company generated $27.0 million in operating cash flow and $30.5 million in normalized free cash flow and closed the year with $64.7 million in cash and no debt.

"Our business momentum and fundamentals remained strong in fiscal Q4", commented Doug Valenti, QuinStreet CEO. "Our strategies and products are meeting increased demand for performance marketing with clients and media. Fiscal Q4 capped a year of strong growth, record revenue, and expanded margins and cash flow. Our business success continues to be driven by measurable results for our clients and media partners, and by our competitive advantages, superior products and technologies.

"Business momentum continues. We expect fiscal 2019 revenue to be up at least 10% year-over-year and full-year fiscal 2019 adjusted EBITDA margin to be approximately 10%," concluded Valenti.

Reconciliations of adjusted net income to GAAP net income, adjusted EBITDA to GAAP net income and normalized free cash flow to net cash provided by operating activities are included in the accompanying tables.

Conference Call Today at 5:30 a.m. PT
The Company will host a conference call and corresponding live webcast at 5:30 a.m. PT. To access the conference call in the US dial +1 (877) 260.1479 (domestic) or +1 (334) 323.0522 (international). The webcast will be available live on the investor relations section of the Company's website at http://investor.quinstreet.com and via replay beginning approximately two hours after the completion of the call by dialing  +1 (888) 203.1112 (domestic) or +1 (719) 457.0820 (international) and using passcode 1533184.

Non-GAAP Financial Measures
This release and the accompanying tables include a discussion of adjusted EBITDA, adjusted net income, adjusted diluted net income per share, free cash flow and normalized free cash flow, all of which are non-GAAP financial measures that are provided as a complement to results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The term "adjusted EBITDA" refers to a financial measure that we define as net income (loss) less provision for (benefit from) taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other income, net, restructuring expense, external expenses related to the material weakness disclosed in our Annual Report on Form 10-K, and acquisition related expense. The term "adjusted net income" refers to a financial measure that we define as net income (loss) adjusted for amortization expense, stock-based compensation expense, restructuring expense, external expenses related to the material weakness disclosed in our Annual Report on Form 10-K, and acquisition related expense, net of estimated taxes calculated based on the estimated annual statutory tax rate. Due to the effects of our deferred tax asset valuation allowance and our historical net operating losses, our annual effective tax rate is not meaningful as our income tax amounts for each period are not directly correlated to the amount of income or losses before income taxes for such period. The term "adjusted diluted net income per share" refers to a financial measure that we define as adjusted net income (loss) divided by weighted average diluted shares outstanding. The term "free cash flow" refers to a financial measure that we define as net cash provided by operating activities, less capital expenditures and internal software development costs. The term "normalized free cash flow" refers to free cash flow less changes in operating assets and liabilities. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. In addition, our definition of adjusted EBITDA, adjusted net income, adjusted diluted net income per share, free cash flow and normalized free cash flow may not be comparable to the definitions as reported by other companies.

We believe adjusted EBITDA, adjusted net income and adjusted diluted net income per share are relevant and useful information because they provide us and investors with additional measurements to analyze the Company's operating performance.

Adjusted EBITDA is useful to us and investors because (i) we seek to manage our business to a level of adjusted EBITDA as a percentage of net revenue, (ii) it is used internally by us for planning purposes, including preparation of internal budgets; to allocate resources; to evaluate the effectiveness of operational strategies and capital expenditures as well as the capacity to service debt, (iii) it is a key basis upon which we assess our operating performance, (iv) it is one of the primary metrics investors use in evaluating Internet marketing companies, (v) it is a factor in determining compensation, and (vi) it is an element of certain financial covenants under our historical borrowing arrangements. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance, debt-service capabilities and as a metric for analyzing company valuations.

We use adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or fluctuations in permanent differences or discrete quarterly items), non-recurring charges, certain other items that we do not believe are indicative of core operating activities (such as restructuring expense, external expenses related to the material weakness disclosed in our Annual Report on Form 10-K, acquisition related expense, and other income and expense) and the non-cash impact of depreciation expense, amortization expense and stock-based compensation expense.

Adjusted net income and adjusted diluted net income per share are useful to us and investors because they present an additional measurement of our financial performance, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the impact of certain non-cash expenses (stock-based compensation and amortization of intangible assets), non-recurring charges and certain other items that we do not believe are indicative of core operating activities. We believe that analysts and investors use adjusted net income and adjusted diluted net income per share as supplemental measures to evaluate the overall operating performance of companies in our industry.

Free cash flow is useful to investors and us because it represents the cash that our business generates from operations, before taking into account cash movements that are non-operational, and is a metric commonly used in our industry to understand the underlying cash generating capacity of a company's financial model. Normalized free cash flow is useful as it removes the fluctuations in operating assets and liabilities that occur in any given quarter due to the timing of payments and cash receipts and therefore helps investors understand the underlying cash flow of the business as a quarterly metric and the cash flow generation potential of the business model. We believe that analysts and investors use free cash flow multiples as a metric for analyzing company valuations in our industry.

We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. A reconciliation of these non-GAAP measures to GAAP is provided in the accompanying tables.

Legal Notice Regarding Forward Looking Statements

This press release and its attachments contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Words such as "estimate", "will", "believe", "intend", "potential" and similar expressions are intended to identify forward-looking statements. These forward-looking statements include the statements in quotations from management in this press release, as well as any statements regarding the Company's anticipated financial results, growth, strategic and operational plans and results of analyses on impairment charges. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that may contribute to such differences include, but are not limited to: the impact of changes in industry standards and government regulation including, but not limited to investigation or enforcement activities of the Department of Education, the Federal Trade Commission and other regulatory agencies; the Company's ability to maintain and increase client marketing spend; the Company's ability to maintain and increase the number of visitors to its websites and to convert those visitors and those to its third-party publishers' websites into client prospects in a cost-effective manner; the impact of the current economic climate on the Company's business; the Company's ability to access and monetize Internet users on mobile devices; the Company's ability to attract and retain qualified executives and employees; the Company's ability to compete effectively against others in the online marketing and media industry both for client budget and access to third-party media; the Company's ability to identify and manage acquisitions; and the impact and costs of any alleged failure by the Company to comply with government regulations and industry standards. More information about potential factors that could affect the Company's business and financial results are contained in the Company's annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission ("SEC"). Additional information will also be set forth in the Company's anual report on Form 10-K for the year ended June 30, 2018, which will be filed with the SEC. The Company does not intend and undertakes no duty to release publicly any updates or revisions to any forward-looking statements contained herein.

About QuinStreet

QuinStreet, Inc. (NASDAQ:QNST) is one of the largest Internet performance marketing and media companies in the world. QuinStreet is committed to providing consumers and businesses with the information they need to research, find and select the products, services and brands that meet their needs. For more information, please visit www.QuinStreet.com.

Investor Contact:

Erica Abrams
(415) 297-5864
eabrams@quinstreet.com

QUINSTREET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (Unaudited)
         
    June 30,   June 30,
      2018       2017  
Assets        
Current assets:        
Cash and cash equivalents   $   64,700     $   49,571  
Accounts receivable, net        68,492         44,059  
Prepaid expenses and other assets       4,432         6,225  
    Total current assets       137,624       99,855  
Property and equipment, net       4,211       5,613  
Goodwill       62,283       56,118  
Other intangible assets, net       8,573       4,105  
Other assets, noncurrent       7,605       8,617  
    Total assets   $   220,296     $   174,308  
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $   32,506     $   25,205  
Accrued liabilities       34,811       26,223  
Deferred revenue       715       1,126  
      Total current liabilities       68,032       52,554  
Other liabilities, noncurrent        3,938       3,672  
      Total liabilities       71,970       56,226  
Stockholders' equity:        
Common stock       48       45  
Additional paid-in capital       277,761       263,533  
Accumulated other comprehensive loss        (380 )     (463 )
Accumulated deficit       (129,103 )     (145,033 )
       Total stockholders' equity       148,326       118,082  
       Total liabilities and stockholders' equity   $   220,296     $   174,308  


QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
               
  Three Months Ended   Year Ended
  June 30,   June 30,
    2018       2017       2018       2017  
Net revenue $   111,521     $   81,532     $   404,358     $   299,785  
Cost of revenue (1)     94,786         70,606         345,947         269,409  
Gross profit     16,735         10,926         58,411         30,376  
Operating expenses: (1)              
Product development     3,430         3,061         13,805         13,476  
Sales and marketing     2,581         2,188         10,414         9,189  
General and administrative     4,696         4,086         18,556         15,934  
Restructuring charges     —         —         —         2,441  
Operating income (loss)     6,028         1,591         15,636         (10,664 )
Interest income     63         39         181         138  
Interest expense     —         (24 )       —         (346 )
Other (expense) income, net     (182 )       (2,668 )       687         (2,416 )
Income (loss) before income taxes     5,909         (1,062 )       16,504         (13,288 )
(Provision for) benefit from income taxes     (488 )       (306 )       (574 )       1,080  
Net income (loss) $   5,421     $   (1,368 )   $   15,930     $   (12,208 )
               
Net income (loss) per share:              
Basic $   0.11     $   (0.03 )   $   0.34     $   (0.27 )
Diluted $   0.10     $   (0.03 )   $   0.32     $   (0.27 )
               
Weighted average shares used in computing net income (loss) per share:               
Basic     47,528         45,468         46,417         45,594  
Diluted     51,886         45,468         49,872         45,594  
               
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:                              
Cost of revenue $   1,029     $   719     $   3,982     $   3,109  
Product development $   494         403         1,949         1,834  
Sales and marketing $   301         286         1,222         1,154  
General and administrative $   741         664         3,029         2,759  
Restructuring charges     —         —         —         42  


QUINSTREET, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
 (In thousands)  
 (Unaudited)  
                   
    Three Months Ended   Year Ended  
    June 30,   June 30,  
    2018       2017     2018       2017    
Cash Flows from Operating Activities                
Net income (loss)   5,421     $   (1,368 )     15,930     $   (12,208 )  
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
               
Depreciation and amortization   1,790         2,394       7,767       11,377    
Impairment of investment   —         2,500       —         2,500    
Provision for sales returns and doubtful accounts receivable   144         182       525       291    
Stock-based compensation   2,565         2,072       10,182       8,898    
Other adjustments, net   (192 )       45       (1,108 )     (116 )  
Changes in assets and liabilities:                
   Accounts receivable   430         (1,134 )     (24,958 )     2,868    
   Prepaid expenses and other assets   2,733         905       1,910       830    
   Deferred tax assets   (51 )       80       (51 )     (430 )  
   Other assets, noncurrent   302         233       1,096       891    
   Accounts payable   2,109         4,285       7,350       5,394    
   Accrued liabilities   (4,157 )       122       8,489       (1,155 )  
   Deferred revenue   160         86       (411 )     (74 )  
   Other liabilities, noncurrent   412         (142 )     258       (530 )  
         Net cash provided by operating activities   11,666         10,260       26,979         18,536    
Cash Flows from Investing Activities                
Capital expenditures   (214 )       (182 )     (610 )     (1,160 )  
Business acquisitions   —         —       (14,154 )       —    
Internal software development costs   (613 )       (451 )     (2,146 )     (2,185 )  
Restricted cash   —         (866 )     —         (766 )  
Other investing activities   193         53       1,061       (26 )  
         Net cash used in investing activities   (634 )       (1,446 )     (15,849 )       (4,137 )  
Cash Flows from Financing Activities                
Proceeds from exercise of common stock options   7,863         —       11,028         —    
Payment of withholding taxes related to release of restricted stock, net of share settlement   (1,372 )       (253 )     (6,487 )     (1,018 )  
Repurchases of common stock   —         (721 )     (647 )       (2,487 )  
Repayment of revolving loan facility   —         —       —         (15,000 )  
         Net cash provided by (used in) financing activities   6,491         (974 )     3,894         (18,505 )  
Effect of exchange rate changes on cash and cash equivalents   88         (13 )     105       (33 )  
Net increase (decrease) in cash and cash equivalents   17,611         7,827       15,129         (4,139 )  
Cash and cash equivalents at beginning of period   47,089       41,744       49,571       53,710    
Cash and cash equivalents at end of period   64,700         49,571       64,700         49,571    


QUINSTREET, INC.
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED NET INCOME
 (In thousands, except per share data)
 (Unaudited)
               
  Three Months Ended   Year Ended
  June 30,   June 30,
    2018       2017       2018       2017  
Net income (loss) $   5,421     $   (1,368 )   $   15,930     $   (12,208 )
Amortization of intangible assets     803         1,196         3,515         6,215  
Stock-based compensation     2,565         2,072         10,182         8,856  
Restructuring     —         —         —         2,441  
Acquisition costs     31         —         667         —  
Material weakness related expense     35         —         563         —  
Shareholder litigation expense     16         —         16         —  
Contingent consideration adjustment      (152 )       —         (152 )       —  
Impairment of investment     —         2,500         —         2,500  
Tax impact after non-GAAP items     (1,831 )       (1,584 )       (8,464 )       (2,809 )
Adjusted net income $   6,888     $   2,816     $   22,257     $   4,995  
               
Adjusted diluted net income per share $   0.13     $   0.06     $   0.45     $   0.11  
               
Weighted average shares used in computing
  adjusted diluted net income per share
    51,886         45,946         49,872         45,594  


QUINSTREET, INC.
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED EBITDA
 (In thousands)
 (Unaudited)
               
  Three Months Ended   Year Ended
  June 30,   June 30,
    2018       2017       2018       2017  
Net income (loss) $   5,421     $   (1,368 )   $   15,930     $   (12,208 )
Interest and other (income) expense, net     119         2,653         (868 )       2,624  
Provision for (benefit from) taxes     488         306         574         (1,080 )
Depreciation and amortization      1,790         2,394         7,767         11,377  
Stock-based compensation     2,565         2,072         10,182         8,856  
Restructuring     —         —         —         2,441  
Acquisition costs     31         —         667         —  
Material weakness related expense     35         —         563         —  
Shareholder litigation expense     16         —         16         —  
Contingent consideration adjustment      (152 )       —         (152 )       —  
Adjusted EBITDA $   10,313     $   6,057     $   34,679     $   12,010  


QUINSTREET, INC.
RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW
AND NORMALIZED FREE CASH FLOW
 (In thousands)
 (Unaudited)
                 
    Three Months Ended   Year Ended
    June 30,   June 30,
      2018       2017       2018       2017  
Net cash provided by operating activities    $   11,666     $   10,260     $   26,979     $   18,536  
Capital expenditures       (214 )       (182 )       (610 )       (1,160 )
Internal software development costs       (613 )       (451 )       (2,146 )       (2,185 )
Free cash flow   $   10,839     $   9,627     $   24,223     $   15,191  
Changes in operating assets and liabilities     (1,938 )       (4,435 )       6,317         (7,794 )
Normalized free cash flow   $   8,901     $   5,192     $   30,540     $   7,397  

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