QuinStreet, Inc. (QNST) Earnings Call Transcript & Summary

Thank you. Good day, and welcome to QuinStreet's Fiscal Fourth Quarter and Full Year 2026 Financial Results Conference Call. Today's conference is being recorded. Following prepared remarks, there will be Q&A session. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Financials, Robert Amparo. Mr. Amparo, you may begin.

Thank you, operator, and thank you everyone for joining us as we report QuinStreet's fiscal fourth quarter and full year 2026 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.

Thank you, Rob. Welcome everyone. Fiscal Q4 was another record quarter. We delivered strong performance and progress across the business to close out a record fiscal year for QuinStreet. We grew quarterly revenue 43% year-over-year, with strength in both financial services and home services. Adjusted EBITDA was up 87% year-over-year in the quarter. Adjusted EBITDA margin was 11.1% in the quarter, a 270-basis-point expansion over the year-ago period. Full fiscal year 2026 revenue grew 18% year-over-year to $1.3 billion. Full fiscal year adjusted EBITDA grew 38% year-over-year to $112.5 million, an 8.7% margin, and a 130-basis-point expansion year-over-year. Over the past two years, we have more than doubled revenue, while expanding margins, growing adjusted EBITDA by over 450%. We have also delivered strong cash flows and maintained a conservative and flexible balance sheet. Going forward, we expect to be able to continue to grow revenue at strong double-digit rates. We are early in the penetration and footprint of our addressable markets, which we estimate to be well over $100 billion per year in total opportunity, to be themselves growing at double-digit rates. Carrier demand and economics in auto insurance are exceptionally strong and our footprint of clients and products is expanding rapidly. In home services, our trade growth and new trade expansion programs are going well. Client demand is exceptionally strong, and the addition of HomeBuddy, whose integration has gone very well, has given us much-valued new-scale capacity to meet demand. The home services client vertical is now running well over $500 million per year in revenue. We are also making good progress on growth initiatives in our other, earlier stage client verticals and products, all of which are targeting big, attractive market opportunities. Those businesses already generated over $200 million in revenue last fiscal year. Our revenue growth generally will continue to be driven by the relentless shift of marketing budgets to digital, and in digital to our performance marketplaces, whose microeconomics drive unparalleled media efficiency at scale for our clients. Our customer retention rates continue to be extraordinarily high, and the vast majority of our double-digit organic revenue growth comes from existing clients shifting and allocating more budgets to our marketplace solutions. We see the shift to digital and performance marketing as still early and accelerating. And we are driving market growth by expanding and innovating new products and media capacity, and by uniquely and consistently delivering results at scale for clients. Strategically, we expect to continue to be a disciplined and effective acquirer and consolidator, just as we have always been, and as has been most recently demonstrated by our exceptional results with AmOne, Modernize, [ Aquavita Media ], and HomeBuddy. Our key operating competitive advantage continue to be our industry-leading technologies, including our core AI optimization algorithms. We are implementing dozens of new AI applications to accelerate performance and productivity across the business. And we are already seeing significant positive results from those AI applications, and we are broadening and accelerating those projects. As we grow revenue, we expect to continue to expand margins, driven by 1, growth of owned and operated media; 2, a mix shift to higher margin products and verticals; and 3, top-line leverage from increased revenue scale combined with continuous improvement productivity and cost efficiency. Turning to our outlook. We expect revenue in fiscal Q1, which began on July 1st, to be between $370 million and $380 million, implying 31% growth year-over-year at the midpoint of the range. We expect adjusted EBITDA to be between $38 million and $40 million, implying 90% growth, a 10.4% margin, and a 320-basis-point margin expansion year-over-year at the midpoint of the range. Our initial outlook for full fiscal year 2027 is that we expect revenue of $1.45 billion to $1.55 billion, implying 16% growth year-over-year at the midpoint of the range. We expect adjusted EBITDA to be between $150 million and $160 million, implying 38% growth, a 10.3% margin, and another 160-basis-point margin expansion year-over-year at the midpoint of the range. This is on top of last year's 130-basis-point adjusted EBITDA margin expansion. Obviously, the new fiscal year is young. As the year progresses, we believe that there may be opportunities to grow revenue and expand margins even further, just as we found last fiscal year. If so, we will of course refine our outlook accordingly. With that, I'll turn the call over to Greg.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Q4 was a strong finish to a record year for QuinStreet, as we delivered yet another quarter of strong double-digit revenue growth and expanded adjusted EBITDA margins. For the June quarter, total revenue grew 43% year-over-year and was $373.9 million. Adjusted net income was $29 million, or $0.50 per share. Adjusted EBITDA grew 87% year-over-year to $41.4 million and came in at an 11.1% margin, a 270-basis-point expansion over the year-ago quarter. Looking at revenue by client vertical, our financial services client vertical represented 62% of Q4 revenue and grew 24% year-over-year to $232.3 million, a record revenue quarter for that business. Auto insurance remained strong in the quarter and grew 37% year-over-year. Our home services client vertical represented 38% of Q4 revenue and grew 88% year-over-year to $141.6 million, also another record revenue quarter for that business. Full fiscal year 2026 revenue grew 18% year-over-year. EBITDA grew 38% year-over-year to $112.5 million. Turning to the balance sheet, we entered the quarter with $128 million in cash and equivalents and net debt of $22 million. We also repurchased $14.6 million worth of shares in the quarter and $31.4 million worth of shares for the year. We continue to have a measured approach to capital allocation, focused on maximizing long-term shareholder value, and we will continue to prioritize: 1, investing in new products and initiatives for future growth and margin expansion; 2, accretive acquisitions; and 3, share repurchases at attractive levels. Turning to our outlook, as Doug mentioned, we expect revenue in fiscal Q1 to be between $370 million and $380 million, and adjusted EBITDA to be between $38 million and $40 million. And we expect revenue in full fiscal year 2027 to be between $1.405 billion and $1.55 billion, and adjusted EBITDA to be between $150 million and $160 million. This is our initial view on fiscal 2027, and we will of course provide updates to our expectations as the year progresses. In closing, fiscal 2026 was another record year for QuinStreet. Our outlook has never been more promising. Over the past two years, we've more than doubled our revenue and more than quadrupled the adjusted EBITDA. We believe that our market opportunities are still in their early innings and have never been bigger, and we will continue to invest against those opportunities in fiscal 2027 and beyond. With that, I'll turn it over to the operator for Q&A. Thank you.

[Operator Instructions] The first question comes from Jason Kreyer with Craig-Hallum. Please go ahead.

Wanted to start out on home services. You had a very healthy step-up in revenue there. Wondering if you can just talk about the performance in terms of, you know, progress in existing verticals, new verticals, new media channels, just any additional color there is appreciated.

Sure, Jason, kind of all of the above. The HomeBuddy integration and synergy capture programs have gone very well. We have strong demand from existing clients and existing verticals. We made good progress in opening up and beginning to build new verticals. We have had strong growth in new media channels and broadening out our media footprint. I'd say that it's really not a cylinder in that business we're not firing on. And it's, as you know, it's an exceptionally big market opportunity and it requires real sophisticated execution, and I think things are going about as well as we could possibly expect there, and we are super excited about the future in that business.

Perfect. Good to hear. Doug, as you wrapped up, you kind of teased out opportunities to grow revenue faster and expand margins further. Just wanted to see if you can, you know, if there's anything you can provide to the site industry, what different levers you can pull for upside or perhaps, you know, kind of some new development areas that you're looking into. Thanks.

Sure, Jason. Well, it's the beginning of a fiscal year, so, you know, we have a lot of initiatives that we're early in or in, that add up to a lot of opportunities. Given that it's the beginning of the fiscal year, we usually don't count on all of those working out. But I would say that our internal plans and things that we expect ourselves to accomplish this year would add up to considerably more than we're at this point willing to commit, you know, to the shareholder base, and it's our job to deliver on those. And they're everywhere. They're across the business in terms of opportunities to better scale certain product programs, media programs, client budgets, vertical and trade expansions like we talked about for home services. So pretty much across the board, earlier in the year, we're going to be heavier in terms of our risk adjustment to those things because it's just by definition more uncertainty because we're not as far along yet. But I can't think of one of the businesses where we don't believe in our internal planning process. We have more opportunity than we're yet willing to fully commit to given it's just, again, earlier in the year.

Is QRP a part of that, or can you just give any updates on how QRP has progressed?

Yes, QRP has done exceptionally well. QRP and 360 Quote are two big product initiatives. Both grew extraordinarily fast last fiscal year, much faster than overall company revenue, which is already pretty fast. Together this year, would expect those two businesses to do over $20 million in revenue. And they're pretty close to the same size, which is interesting. But, yes, those businesses have both scaled nicely, continue to have a lot more opportunity in front of them than behind them. But of course, we're getting good leverage, good margin leverage from them because they are getting to decent scale and we're past the heavy investment period, more into the market penetration expansion period for those products. But we love both those products in terms of value proposition, market opportunity, competitive advantage, client demand, expected long-term importance to the channel and importance to the business model. We continue to be extraordinarily bullish on those products, and they're making good progress.

That's great. Thanks, Doug. Thanks, guys.

Thank you, Jason.

Thank you. The next question comes from Naved Khan with B. Riley Securities. Please go ahead.

Hi, this is Ethan Waddell calling in for Naved. With this $100 billion a year opportunity, growing at double digits, how would you think of the relative cadence of growth for home services versus financial services?

It's kind of hard to say. As you see, they're both growing very rapidly and they both have enormous markets and we have great footprints and a lot of vectors for scale in them. I can't really, I'm not going to bias one way or the other. I think they both can grow at very strong double digits for as far as we can see into the future. So I think they're both great businesses for us, again, great market opportunities, and we're just investing in both of them to continue to grow them as rapidly as we can reasonably and profitably do so.

Okay, and then maybe can you characterize just, you know, with the HomeBuddy integration working, kind of what the margin profile looks like going forward between those two? Between home services and financial services?

Right. But yes, home services is a higher kind of media margin business than financial services. So our biggest cost is of course media, and it's the biggest component of costs at the gross margin line, if you will. The home services business, though, has more costs below the median line per dollar of revenue than the financial services business. So net-net, they're both very attractive contribution margins, which would be the next line, of course, to us. I would say that home services overall is probably a little bit better than financial services, but not, you know, hugely better. But it's better at the contribution line than financial services at this point, but both of them will exceed our targets for making sure that we can maintain and hopefully build on, you know, our current double-digit margin profile.

All right, makes sense. I appreciate the color. Thank you.