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May 10, 2016
QuinStreet Reports Financial Results for Third Quarter Fiscal Year 2016

FOSTER CITY, Calif., May 10, 2016 (GLOBE NEWSWIRE) -- QuinStreet, Inc. (Nasdaq:QNST), the leader in performance marketing products and technologies, today announced financial results for the third quarter ended March 31, 2016.

For the third quarter, the Company reported total revenue of $81.2 million, an increase of 8% compared to the same quarter last year. Total revenue grew 10% year-over-year, excluding the one-time benefit of $1.6 million related to the collection of a historical receivable in the same quarter last year. Adjusted EBITDA for the quarter was $3.5 million, or 4% of revenue. Adjusted net income for the third quarter was $1.2 million, or $0.03 per share, and GAAP net loss was $2.9 million, or ($0.06) per share.

The Company generated $5.8 million in operating cash flow and closed the third quarter with $54.8 million in cash and $39.8 million in net cash, up $4.0 million over the prior quarter.

"We grew revenue 10% year-over-year in Q3, excluding a one-time item, and delivered over $80 million in quarterly revenue for the first time since 2012," commented Doug Valenti, QuinStreet CEO. "Adjusted EBITDA margin re-expanded, as expected, due to top-line leverage and expense management.  Revenue growth was driven primarily by strength in our Financial Services client vertical, which grew about 50% year-over-year on the success of new products and media partnerships. Our successful growth and diversification initiatives continue to scale.

"We expect revenue and adjusted EBITDA margin momentum to continue. Q4 revenue is expected to grow 15% to 16% year-over-year, beating historical sequential seasonality, with adjusted EBITDA margin at or above Q3 levels. We plan to continue to expand EBITDA margin with top-line leverage," concluded Valenti.

Reconciliations of adjusted net income and adjusted EBITDA to GAAP net loss are included in the accompanying tables.

Conference Call Today at 1:30 p.m. PT

The Company will host a conference call and corresponding live webcast at 1:30 p.m. PT today. To access the conference call, dial (888) 510-1765 for the U.S. and Canada or +1 (719) 325-2469 for international callers. 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 registering online at https://jsp.premiereglobal.com/webrsvp and using passcode 8340671 to obtain dial-in information for the replay. 

Non-GAAP Financial Measures

This release and the accompanying tables include a discussion of adjusted EBITDA, adjusted net income (loss) and adjusted diluted net income (loss) per share, 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 loss less (provision for) benefit from taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other (expense) income, net, impairment of goodwill, restructuring expense, and legal settlement expense. The term "adjusted net income (loss)" refers to a financial measure that we define as net loss adjusted for amortization expense, stock-based compensation expense, restructuring expense, impairment of goodwill and tax valuation allowance, debt restructuring costs, and legal settlement expense, net of estimated taxes. The term "adjusted diluted net income (loss) per share" refers to a financial measure that we define as adjusted net income (loss) divided by weighted average diluted shares outstanding. 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 (loss) and adjusted diluted net income (loss) per share may not be comparable to the definitions as reported by other companies.

We believe adjusted EBITDA, adjusted net income (loss) and adjusted diluted net income (loss) 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 part of our internal management reporting and planning process and one of the primary measures used by our management to evaluate the operating performance of our business, as well as potential acquisitions. Adjusted EBITDA is useful to us and investors because it provides information related to the Company's ability to provide cash flow for acquisitions, capital expenditures and working capital requirements. Internally, adjusted EBITDA is used by management for planning purposes, including preparation of internal budgets; to allocate resources; to evaluate the effectiveness of operational strategies; and to evaluate the Company's capacity to fund acquisitions and capital expenditures as well as the capacity to service debt. Adjusted EBITDA is used as a key financial metric in senior management's annual incentive compensation program. The Company believes that analysts and investors use adjusted EBITDA as a supplemental measurement to evaluate the overall operating performance of companies in its industry and use adjusted EBITDA multiples as a metric for analyzing company valuations. It is also an element of certain maintenance covenants under our debt agreements.

Adjusted net income (loss) and adjusted diluted net income (loss) 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, amortization of intangible assets, impairment of goodwill and tax valuation allowance) and other non-recurring charges. The Company believes that analysts and investors use adjusted net income (loss) and adjusted diluted net income (loss) per share as supplemental measures to evaluate the overall operating performance of companies 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 is contained in the Company's annual reports 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 quarterly report on Form 10-Q for the quarter ended March 31, 2016, 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.

    
QUINSTREET, INC.   
CONDENSED CONSOLIDATED BALANCE SHEETS   
(In thousands)   
(Unaudited)   
      
 March 31,June 30,   
  2016  2015    
Assets     
Current assets:     
Cash and cash equivalents$  54,802 $  60,468    
Accounts receivable, net   49,500    46,240    
Deferred tax assets   173    166    
Prepaid expenses and other assets   6,979    11,503    
Total current assets   111,454  118,377    
      
Property and equipment, net   8,282  8,565    
Goodwill   56,118  56,118    
Other intangible assets, net   12,172  19,030    
Other assets, noncurrent   11,557  3,063    
Total assets$  199,583 $  205,153    
      
Liabilities and Stockholders' Equity     
Current liabilities:     
Accounts payable$  22,489 $  20,425    
Accrued liabilities   29,957  27,146    
Deferred revenue   903  1,208    
Debt   50  49    
Total current liabilities   53,399  48,828    
      
Debt, noncurrent   15,000  15,000    
Other liabilities, noncurrent   5,409  5,740    
Total liabilities   73,808  69,568    
      
Stockholders' equity:     
Common stock   45  45    
Additional paid-in capital   254,574  249,358    
Accumulated other comprehensive loss   (426) (413)   
Accumulated deficit   (128,418) (113,405)   
Total stockholders' equity   125,775  135,585    
Total liabilities and stockholders' equity$  199,583 $  205,153    
      


QUINSTREET, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(In thousands, except per share data) 
(Unaudited) 
      
 Three Months EndedNine Months Ended 
 March 31,March 31, 
  2016  2015  2016  2015  
Net revenue$  81,243 $  75,345 $  218,593 $  211,228  
Cost of revenue (1)   72,771    65,192    198,735    188,996  
Gross profit   8,472    10,153    19,858    22,232  
Operating expenses: (1)     
Product development   4,136    4,653    12,283    13,853  
Sales and marketing   2,861    3,881    9,353    10,905  
General and administrative   4,264    4,300    12,484    12,994  
Operating loss   (2,789)   (2,681)   (14,262)   (15,520) 
Interest income   23    7    39    61  
Interest expense   (155)   (760)   (433)   (2,726) 
Other income, net   112    40    120    3,001  
Loss before income taxes   (2,809)   (3,394)   (14,536)   (15,184) 
(Provision for) benefit from taxes   (72)   178    (477)   204  
Net loss$  (2,881)$  (3,216)$  (15,013)$  (14,980) 
      
      
Net loss per share:     
Basic$  (0.06)$  (0.07)$  (0.33)$  (0.34) 
Diluted$  (0.06)$  (0.07)$  (0.33)$  (0.34) 
      
Weighted average shares used in computing net loss per share:     
      
Basic   45,333    44,522    45,098    44,409  
Diluted   45,333    44,522    45,098    44,409  
      
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:     
      
Cost of revenue$  787 $  863 $  2,344 $  2,292  
Product development   497    542    1,542    1,731  
Sales and marketing   464    600    1,333    1,626  
General and administrative   684    576    2,046    1,733  
      


QUINSTREET, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (In thousands) 
 (Unaudited) 
      
 Three Months EndedNine Months Ended 
 March 31,March 31, 
  2016  2015  2016  2015  
      
Cash Flows from Operating Activities     
Net loss$  (2,881)$  (3,216)$  (15,013)$  (14,980) 
Adjustments to reconcile net loss to net cash provided by operating activities:     
Depreciation and amortization   3,721    4,370    11,437  14,778  
Provision for sales returns and doubtful accounts receivable   209    (412)   843  58  
Write-off of bank loan upfront fees   -     -     -     328  
Stock-based compensation   2,432    2,581    7,265  7,382  
Excess tax benefits from stock-based compensation   -     51    -     -   
Gain on sales of domain names   (44)   (173)   (160)   (3,331) 
Other adjustments, net   -     61    -   160  
Changes in assets and liabilities:     
Accounts receivable   (9,165)   (3,434)   (4,103) (3,040) 
Prepaid expenses and other assets   (23)   (365)   (3,968) (734) 
Deferred taxes   -     -     (8) 2  
Accounts payable   5,066    (836)   2,121  2,128  
Accrued liabilities   6,890    5,595    3,007  2,146  
Deferred revenue   (336)   3    (305) 181  
Other liabilities, noncurrent   (117)   (63)   (327) (316) 
Net cash provided by operating activities   5,752  4,162    789  4,762  
Cash Flows from Investing Activities     
Capital expenditures    (546)   (344)   (1,689) (2,629) 
Internal software development costs   (758)   (495)   (2,689) (1,428) 
Purchases of marketable securities   -     -     -   (16,600) 
Proceeds from maturities of marketable securities   -     2,558    -   26,849  
Proceeds from sales of marketable securities   -     25,432    -   28,427  
Proceeds from sales of domain names   44    188    135    3,346  
Other investing activities   (2)   -     (2)   11  
Net cash (used in) provided by investing activities   (1,262)   27,339    (4,245)   37,976  
Cash Flows from Financing Activities     
Proceeds from exercise of common stock options   -     -     26  1,300  
Principal payments on bank debt   -     (5,000)   -   (12,500) 
Payment of bank loan upfront fees   -     -     -     (272) 
Principal payments on acquisition-related notes payable   -     -     -   (444) 
Excess tax benefits from stock-based compensation   -     (51)   -     -   
Withholding taxes related to restricted stock net share settlement   (391)   (284)   (2,139) (910) 
Net cash used in financing activities   (391) (5,335)   (2,113) (12,826) 
Effect of exchange rate changes on cash and cash equivalents   (47)   (6)   (97) 11  
Net increase (decrease) in cash and cash equivalents   4,052  26,160    (5,666) 29,923  
Cash and cash equivalents at beginning of period   50,750  87,940    60,468  84,177  
Cash and cash equivalents at end of period$  54,802 $  114,100 $  54,802 $  114,100  
      


QUINSTREET, INC. 
RECONCILIATION OF NET LOSS TO 
ADJUSTED NET INCOME (LOSS) 
 (In thousands, except per share data) 
 (Unaudited) 
      
 Three Months EndedNine Months Ended 
 March 31,March 31, 
  2016  2015  2016  2015  
Net loss$  (2,881)$  (3,216)$  (15,013)$  (14,980) 
Amortization of intangible assets   2,183    2,879    6,839    9,955  
Stock-based compensation   2,432    2,581    7,265    7,382  
Restructuring   79    -     297    439  
Legal settlement   100    -     100    -   
Tax impact after non-GAAP items   (689)   (808)   -     (1,009) 
Adjusted net income (loss)$  1,224 $  1,436 $  (512)$  1,787  
      
      
Adjusted diluted net income (loss) per share$  0.03 $  0.03 $  (0.01)$  0.04  
      
      
Weighted average shares used in computing adjusted diluted net income (loss) per share   45,343    45,137    45,098    44,626  
      
QUINSTREET, INC. 
RECONCILIATION OF NET LOSS TO 
ADJUSTED EBITDA 
 (In thousands) 
 (Unaudited) 
      
 Three Months EndedNine Months Ended 
 March 31,March 31, 
  2016  2015  2016  2015  
Net loss$  (2,881)$  (3,216)$  (15,013)$  (14,980) 
Interest and other expense (income), net   20    713    274    (336) 
Provision for (benefit from) taxes   72    (178)   477    (204) 
Depreciation and amortization    3,721    4,370    11,437    14,778  
Stock-based compensation   2,432    2,581    7,265    7,382  
Restructuring   79    -     297    439  
Legal settlement   100    -     100    -   
Adjusted EBITDA$  3,543 $  4,270 $  4,837 $  7,079  
      
QUINSTREET, INC. 
RECONCILIATION OF NET CASH PROVIDED BY 
OPERATING ACTIVITIES TO FREE CASH FLOW 
AND NORMALIZED FREE CASH FLOW 
 (In thousands) 
 (Unaudited) 
      
 Three Months EndedNine Months Ended 
 March 31,March 31, 
  2016  2015  2016  2015  
Net cash provided by operating activities $  5,752 $  4,162 $  789 $  4,762  
Capital expenditures   (546)   (344)   (1,689)   (2,629) 
Internal software development costs   (758)   (495)   (2,689)   (1,428) 
Free cash flow$  4,448 $  3,323 $  (3,589)$  705  
Changes in operating assets and liabilities,     
less excess tax benefits from stock-based     
compensation   (2,315)   (951)   3,583    (367) 
Normalized free cash flow$  2,133 $  2,372 $  (6)$  338  
      


 

Investor Contact: 

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