QNST Earnings Call

OperatorGood 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. At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Robert AmparoThank you, operator. 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.

Robert AmparoToday, 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.

Doug ValentiThank 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.

Doug ValentiAdjusted EBITDA was up 87% year over year in the quarter.

Doug ValentiAdjusted EBITDA margin was 11.1% in the quarter, a 270 basis point expansion over the year-ago period.

Doug ValentiFull 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.

Doug ValentiOver the past 2 years, we have more than doubled revenue while expanding margins, growing adjusted EBITDA by over 450%.

Doug ValentiWe have also delivered strong cash flows and maintained a conservative and flexible balance sheet.

Doug ValentiGoing 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. And to be themselves growing at double-digit rates.

Doug ValentiCarrier demand and economics in auto insurance are exceptionally strong, and our footprint of clients and products is expanding rapidly.

Doug ValentiIn 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.

Doug ValentiThe home services client vertical is now running well over half a billion dollars per year in revenue.

Doug ValentiWe 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.

Doug ValentiOur 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.

Doug ValentiOur 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.

Doug ValentiWe 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.

Doug ValentiStrategically, 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, Aqua Vida Media, and HomeBuddy.

Doug ValentiOur key operating competitive advantage continued to be our industry-leading technologies, including our core AI optimization algorithms.

Doug ValentiWe 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.

Doug ValentiAs 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 in productivity and cost efficiency.

Doug ValentiTurning to our outlook.

Doug ValentiWe expect revenue in fiscal Q1, which began on July 1st, to be between $370 and $380 million, implying 31% growth year-over-year at the midpoint of the range.

Doug ValentiWe expect adjusted EBITDA margin to be between $38 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.

Doug ValentiOur initial outlook for, for full fiscal year 2027 is that we expect revenue of $1.45 to $1.55 billion, implying 16% growth year over year at the midpoint of the range.

Doug ValentiWe expect adjusted EBITDA to be between $150 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.

Doug ValentiThat is on top of last year's 130 basis point adjusted EBITDA margin expansion.

Doug ValentiObviously, 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.

Doug ValentiWith that, I'll turn the call over to Greg.

Greg WongThank 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.

Greg WongAdjusted 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.

Greg WongLooking 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.

Greg WongOur 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.

Greg WongFull 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 ended the quarter with $128 million in cash and equivalents and net debt of $22 million.

Greg WongWe also repurchased $14.6 million worth of shares in the quarter and $31.4 million worth of shares for the year.

Greg WongWe 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.

Greg WongTurning to our outlook, as Doug mentioned, we expect revenue in fiscal Q1 to be between $370 and $380 million and adjusted EBITDA to be between $38 and $40 million.

Greg WongAnd we expect revenue in full fiscal year 2027 to be between $1.45 and $1.55 billion and adjusted EBITDA to be between $150 and $160 million.

Greg WongThis is our initial view on fiscal 2027, and we will, of course, provide updates to our expectations as the year progresses.

Greg WongIn closing, fiscal 2026 was another record year for QuinStreet, and our outlook has never been more promising. Over the past 2 years, we've more than doubled our revenue and more than quadrupled 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.

OperatorThank you.

OperatorAt this time, we will start the Q&A session.

OperatorLadies and gentlemen, we will now conduct the question and answer session. If you have a question, please press the star key followed by 1 on your touchtone phone. You will hear a one-tone prompt acknowledging your request. Your questions will be polled in the order they are received. If you would like to decline from the polling process, please press pound. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question.

OperatorThe first question comes from Jason Kreyer with Craig Hallum. Please go ahead.

Jason KreyerExceptional quarter, guys. Good work.

Doug ValentiThank you, Jason.

Jason KreyerI want 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.

Doug ValentiSure, 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 in 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 requires real sophisticated execution. And I think we're—. 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.

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

Doug ValentiSure, Jason. Well, it is 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.

Doug ValentiGiven that it's the beginning of the fiscal year, we usually don't count on all of those working out.

Doug ValentiBut we— 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 go 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, you know, vertical and trade extensions like we talked about for home services. So, Pretty much across the board, you know, earlier in the year, we're going to be heavier in terms of our risk adjustment to those things because they're just by definition more uncertainty because we're not as far along yet. But it's— 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, you know, just again earlier in the year.

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

Doug ValentiYeah, QRP has done exceptionally well. You know, QRP and 360 Finance are two big product initiatives. Both grew extraordinarily fast last fiscal year, much, much faster than overall company revenue, which is already pretty fast. And together this, this year we 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 yeah, 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, you know, getting to decent scale and And we're, you know, 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.

Doug ValentiWe, we're, we continue to be extraordinarily bullish on those products and they're making good progress.

Jason KreyerThat's great. Thanks, Doug.

Doug ValentiThanks, guys. Thank you, Jason.

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

Ethan WaddellHi there. This is Ethan Waddell calling in for Nev. Thanks for taking my questions. To start—.

Doug ValentiSure.

Ethan WaddellWith this $100 billion a year opportunity, you know, growing at double digits, how would you think the relative cadence of growth for home services versus financial services?

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

Ethan WaddellOkay. And then maybe can you characterize just with the HomeBuddy integration, working, kind of what the margin profile looks like going forward between those two?

Doug ValentiBetween HomeBuddy—. I mean, sorry, between home services and financial services?

Ethan WaddellRight.

Doug ValentiYeah, home services is a higher kind of media margin business than financial services. So that, you know, our biggest cost is of course media, and it's the biggest component of costs at the gross margin line, if you will.

Doug ValentiThe Home Services business has— business though has more costs below the media 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.

Doug ValentiThan financial services, but not, you know, hugely better. But it is, it's better at the contribution line than financial services at this point. But both of them, you know, well exceed our targets for making sure that we can maintain and hopefully build on, you know, our current double-digit margin profile.

Ethan WaddellAll right. Makes sense. I appreciate the color. Thank you.

Doug ValentiYou bet.

OperatorThank you. The next question comes from Luke Horton with Northland Securities. Please go ahead.

Luke HortonYeah. Hey, guys. Thanks for taking the questions and congrats on a really nice quarter here to finish the year. Wanted to kind of shift over to the financial services side, kind of specifically in auto. You said grew 37%. Year over year. I guess, can you kind of decipher between how much of that growth is coming from just carrier budgets and increased spending versus any market share gains? And kind of how do you think about the durability of that demand as we head into 2027 or fiscal '27?

Doug ValentiSure. I think it's the growth in auto insurance right now is primarily being driven by growth in demand. From the carriers and continued pretty high shopping levels by consumers because of their need to seek out and find ways to save money as they fight inflation in other parts of their— other parts of their budget. If you look at the others that have reported that are in that industry, you know, we kind of all grew very similar rates. So, I don't think we— I don't think we or they took as much share as we did throughout our existing footprints. And some of those footprints don't have a lot of overlap, so that's going to be the case. There's not a lot of direct competition between several of us. We have one competitor where there's more direct competition, but not nearly as much as there used to be as the— as our— both of our media footprints have shifted. And of course, the basis of competition is primarily in media.

Doug ValentiSupply because the client demand is really in excess of what most of us can deliver anyway. So that's where that is. In terms of the durability of demand, you know, the carriers are in exceptionally good financial— in an exceptionally good financial position. Their loss ratios are at great margin.

Doug ValentiThey are, you know, really hungry for demand because of that. Their loss ratios are inclusive of many of them already having lowered rates in a lot of places from where they had peaked, kind of coming out of the post-COVID period. And so if you look on balance at the health of the, you know, carriers, their margins, their demand, you know, where they are on rates relative to where they were, and, you know, fears that they would have to lower rates, which they've already done. I think one of the big carriers has said they've lowered rates in like 68% of their markets or something like that over the past couple years. I think we're in— they're in extraordinary—. That would all add up to great durability and a lot of long-term strength. They, you know, they had the big disruption coming out of COVID because of kind of hidden inflation and increased frequency. And years before that, they had a big disruption because of the, you know, higher incident rates associated with distracted driving and, and, um, self-driving and sensing technologies, which increase costs to repair.

Doug ValentiUh, you know, we don't know of anything else big like that in front of us, and it looks like more of a return to what was more, much more normal prior to those two events. Yeah, and that was, you know, a, uh, soft, pretty soft market right now, which is a good thing in insurance., and the hard markets being much less disruptive than they were. Those, you know, those two generally generationally big adjustments again coming out of COVID So durability looks good. The long-term looks good. The carriers are all getting more sophisticated in digital, which is great news for us. There's still a lot more budget not in digital that should be in digital, and there's a lot of budget in digital that should be in performance. Again, we're seeing the general trend lines continue to be from offline to digital. Once in digital, go into performance because that's where you can get the scale and the efficiency for those dollars spent.

Luke HortonGot it. That's very helpful. And then how much work is left on the HomeBuddy integration? Are there any sort of synergies you've unlocked or any learnings from the integration process here? And I guess, do you feel like you're in a good spot there where the appetite for additional M&A is strong? And what sort of criteria would you be looking for?

Doug ValentiYeah, the HomeBuddy acquisition, in terms of more synergies, we'll always find more. And we're excited to be continuing to identify places we can capture more. And we're not fully through the programs to capture the ones that we had identified when we made the acquisition in the first place. So we will find more, but we have also had great progress capturing synergies on the client side, synergies on the media side, synergies on the product side, cost synergies in terms of overlapping resources. And we've captured a lot of it. And there's still considerably more to be captured in all of those areas. In terms of more M&A, yes, we have capacity and appetite for more. We have a pretty active pipeline right now of attractive opportunities. I would say that, you know, probably within the— you know, before the end of the calendar year, we're likely to close at least one more, maybe two. I don't think any of those will be anywhere near the size of HomeBuddy, but I think we have some very attractive opportunities that we expect would be highly accretive and give us more capacity for more growth and/or more margin expansion.

Doug ValentiSo we, we'll— it's been a part of us for forever, and it'll continue to be a big part of us, that being and an active, effective acquirer.

Luke HortonGot it. Thanks for taking the questions. Congrats again on a really nice quarter.

Doug ValentiThank you.

OperatorThank you. The next question comes from Elle Niebuhr with Lake Street Capital Markets. Please go ahead.

Elle NiebuhrHey guys, thanks for taking my question. Just one from me. So you've highlighted numerous AI initiatives across the platform. So which AI applications are already having the greatest measurable impact on your revenue growth or margins today? And then where do you expect the next leg of economic benefit to come from over the next 12 months?

Doug ValentiSure, Elle. I would say that the places where we're probably right now having the biggest direct impact are in coding, as many, many people are. And we have a lot of coding, whether it be on the core infrastructure on our platform, or creative generation for our ad campaigns where we've had enormously positive productivity impacts, or in the design of our other parts of our consumer interface. So those are having a big direct impact and we're capturing synergies there. We're capturing synergies and productivity increases in contact centers. Where AI is allowing us to pre-qualify consumers without having to have a representative involved. And we've— and to better qualify those consumers and to have a more efficient consumer experience. So we're getting— we have less costs and greater qualification of those consumers and greater productivity and conversion of those consumers. I would say that internally, as far as analytics, folks are able to use AI to do more direct analytics without having to involve analysts, which saves us, you know, labor costs.

Doug ValentiIt also allows us to focus those analysts on harder problems, bigger problems, or bigger opportunities. And we have, you know, and again, there are dozens of places. And so those would be examples of specific places where we're having big impacts. I think in the long run, we'll have all of those continuing to help us to be more productive. And then we will likely have more traffic from the AI platforms. You know, we are integrated with OpenAI in most of our verticals now, and our two biggest verticals, auto insurance and home services, of course. There's a lot of activity there. The platforms themselves, ad platforms, aren't where they need to be yet for us to get big scale out of them, but they will be. And they have very strong user bases, very big scale user bases, and we can see a path to those platforms, the, the LLMs, to being very big new channels of high-quality, high-intent, well-qualified media for our marketplaces, and we are super excited about that.

Doug ValentiSo that's one that's more relatively small now, but we're in there working on it as early and as big as anybody is, and we expect those to be exceptionally big in the future. If you wanted to pick out, you know, the one that's probably biggest in the future. But there, you know, we have proprietary, a big value proposition business model with a lot of proprietary relationships, data integrations, workflows. And there's, there's kind of not a place in our business model that you can't apply smart AI to do it better or more efficiently. And that's where the vast majority of the long-term value creation is going to be from AI. And I think we're a prime example and a perfect business model for doing that. And we're, we're hard at it.

Elle NiebuhrAwesome. Thanks for taking my question. Congrats on the quarter.

Doug ValentiThank you.

OperatorWell, thank you. The next question comes from Patrick Sholl with Barrington Research. Please go ahead.

Patrick ShollHi, thanks for taking the question. Congrats on the really strong quarter and the really impressive guidance.

Doug ValentiThank you, Pat.

Patrick ShollJust following up on what you said about— sorry, on the growth of the health of the carrier budgets and the moving from digital to performance. Could you talk about where performance's share within their digital budgets stands currently and how you see that evolving over time? Certainly growing, but like, kind of, we're just— a little bit more color around that.

Doug ValentiYeah, for the vast majority of carriers, they spend— they still don't spend the majority of their budget in digital, despite the fact that the majority of consumers begin and end their shopping in digital. So start there. So we, and then within digital, we still have carriers who spend, many carriers who spend more in not in performance in digital than they do in performance in digital. And what we have seen over time, particularly with the most successful carriers, is that that's kind of the opposite of where they go eventually. Eventually they spend most of their budgets in digital and most of that digital budget in performance, or at least they max out what they can spend in performance within the allocation to other parts of digital. And so, you know, the answer is the— in terms of specific numbers and share, it's too complicated because of the various carriers and the various channels and all that for us to have our arms fully around that.

Doug ValentiBut as we talk to each carrier, I can tell you there's not one carrier that doesn't—. That we don't know—. That we serve and we serve all the big carriers, that isn't trying to put more into digital and more into performance. And there's not one of those carriers who today isn't under-indexed to both digital and within digital to performance. And if you asked me to give you my best ballpark estimate of how far we are in that overall transition, I would say 20% of the way there, maybe. And that's probably being aggressive as I look ahead and look at the channel evolving and those budgets, you know, following that evolution.

Patrick ShollOkay. And then just on the guidance, could you maybe talk a little bit about the expectations between the two main categories, financial services and Home Services and like the different, like maybe like pro forma for the acquisition of HomeBuddy and how those— you expecting the growth of those two segments to contribute to the full year guidance?

Doug ValentiI think we expect them, and Greg, correct me if I'm wrong, we expect them to— we expect Home Services to grow faster in the first half, mainly because of the HomeBuddy effect. And I think in the— and they think in the second half we expect both businesses to grow pretty strong double digits and not too dissimilar from one another. And Greg, make sure that I got that totally right.

Greg WongThat's right. That's right.

Patrick ShollOkay. Thank you.

Doug ValentiThank you.

OperatorThank you.

OperatorAt this time, there are no more questions. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.