QuinStreet, Inc. (NASDAQ:QNST) is a leader in performance marketplaces and technologies for the financial services and home services industries. The company specializes in customer acquisition for clients in high-value, information-intensive markets, leveraging its expertise in digital marketing to deliver measurable and cost-effective results.

Financials

In the fiscal year ended June 30, 2023, QuinStreet reported annual revenue of $580.6 million and a net loss of $68.9 million. The company generated annual operating cash flow of $11.8 million and had negative free cash flow of $3.2 million. These financial results demonstrate the company's ability to generate significant revenue, though profitability remains a challenge.

Third Quarter Performance

The third quarter of fiscal year 2024 was a strong period for QuinStreet, with revenue growing approximately 40% sequentially to $168.6 million. This growth was primarily driven by a significant positive inflection in auto insurance carrier spending, which the company had previously forecast. The ramp of auto insurance carrier spending continued through the third quarter and extended into the current fourth quarter.

According to management, auto insurance carrier activity and spending are broad-based and continue to be supported by reports of good carrier results. The company expects the ramp of auto insurance spending to continue in the coming quarters as carriers expand their product and market footprints, enabled by increased rates and improved profitability. QuinStreet believes the fundamental shift of budgets to digital and performance marketing will reassert itself as the dominant long-term trend, leading to continued growth in the auto insurance vertical.

Adjusted EBITDA in the third quarter jumped to almost $8 million, reflecting the leverage from the higher revenue. Management expects adjusted EBITDA margin and dollars to continue growing as revenue continues to ramp.

Outlook

Looking ahead, QuinStreet provided guidance for the current fourth quarter of fiscal year 2024. The company expects revenue to be between $180 million and $190 million, which would represent a quarterly record and imply year-over-year growth of over 40% at the midpoint of the range. Adjusted EBITDA is expected to be between $10 million and $11 million, implying year-over-year growth of over 400%.

Notably, the annual run rate of QuinStreet's fiscal fourth quarter revenue outlook already implies growth of 20% or more over the full fiscal year 2024. This suggests the company is well-positioned to continue its strong performance into the next fiscal year.

Business Mix

In terms of the company's business mix, the financial services client vertical represented 67% of third-quarter revenue, or $112 million. The home services client vertical accounted for 32% of revenue, or $54 million, a record quarter for that business. The remaining 1% of revenue, or $2.4 million, came from other revenue sources.

Liquidity

QuinStreet's balance sheet remains strong, with $40 million in cash and cash equivalents and no bank debt as of the end of the third quarter. The company received an additional $8.5 million payment two days after the quarter-end, bringing its normalized cash balance to approximately $48 million.

Recent Developments

The company's outlook for the business remains bright, with management expecting a record revenue quarter in the fourth quarter of fiscal year 2024 and further margin expansion. QuinStreet is well-positioned to benefit from the re-ramp of auto insurance client spending and is seeing continued momentum in its non-insurance client verticals.

One area of focus for the company is the development of its QRP (QuinStreet Retail Platform) product, which provides technology and services to insurance agents. During the downturn in the insurance industry, QRP went dormant as agents cut back due to a lack of available products. However, as the insurance market recovers, QuinStreet expects QRP to lag the overall market's rebound, as agents need to rebuild their product offerings and staffing. The company is excited about the potential of QRP and is pleased to have two of its biggest clients in the industry beginning to ramp up their activities on the platform in the coming months.

In the home services vertical, QuinStreet continues to see strong momentum, with the segment posting a record revenue quarter in the third quarter and expected to deliver another record in the fourth quarter. The company believes the home services market represents a massive, $69 billion addressable opportunity, and it is focused on scaling its presence in the various trades within this vertical. While new trade launches can initially be less efficient from a media cost perspective, QuinStreet manages this dynamic and maintains strong media margins in the home services business.

Conclusion

Overall, QuinStreet's performance in the third quarter and its outlook for the fourth quarter and beyond demonstrate the company's ability to capitalize on the resurgence in the auto insurance market while also driving growth in its home services and other non-insurance verticals. The company's diversified business model, strong financial position, and strategic initiatives position it well for continued success in the years ahead.