QuinStreet, Inc.
Feb 3, 2015

QuinStreet Reports Financial Results for Second Quarter Fiscal Year 2015

FOSTER CITY, Calif., Feb. 3, 2015 (GLOBE NEWSWIRE) -- QuinStreet, Inc. (Nasdaq:QNST), a leader in performance marketing online, today announced financial results for the second quarter ended December 31, 2014.

For the second quarter, the Company reported revenue of $66.7 million, and adjusted EBITDA of $2.1 million, or 3% of revenue.

Adjusted net income for the second quarter was $0.2 million, or $0.01 per diluted share, and GAAP net loss was $5.5 million, or ($0.12) per share. Adjusted net income excludes stock-based compensation expense, and amortization of intangible assets, net of estimated tax.

The Company closed the quarter with $116 million in cash and marketable securities and $46 million in net cash.

"We exceeded the outlook we provided last quarter and grew quarterly revenues year-over-year for the first time in three years," commented Doug Valenti, QuinStreet CEO. "Improved year-over-year results were driven by renewed strength in our Financial Services client vertical, particularly auto insurance, as well as increasing contributions from new products and markets in Education and continuing growth in Other client verticals. Revenue from businesses other than traditional lead generation for U.S. for-profit education grew 27% year-over-year in the quarter. Revenue from traditional lead generation for U.S. for-profit education clients declined 45%."

"For the March quarter, we expect revenue to be generally flat to up 3% versus year ago, as growth areas largely to fully offset declines in traditional lead generation for U.S. for-profit education clients. We continue to believe the trajectory from here is generally up and to the right. Adjusted EBITDA margin next quarter will remain in the low single digits as we continue to invest and focus on revenue growth," concluded Valenti.

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

Conference Call Today at 2:00 p.m. PT

QuinStreet will host a conference call and corresponding live webcast at 2:00 p.m. PT today. To access the conference call, dial (888) 572.7034 for the U.S. and Canada or +1 (719) 325.2495 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 until the Company's announcement of its financial results for the next quarter. An audio replay of the call will also be available to investors beginning at approximately 5:00 p.m. PT on February 3, 2015 by dialing (888) 203.1112 in the U.S. and Canada or +1 (719) 457.0820 for international callers, using passcode 2215690#. This press release, the financial tables, as well as other supplemental financial information are also available on the investor relations section of the Company's website at http://investor.quinstreet.com.

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 (loss) income less provision for taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other income (expense), net, and impairment of goodwill. The term "adjusted net income" refers to a financial measure that we define as net (loss) income adjusted for amortization expense, stock-based compensation expense, impairment of goodwill and tax valuation allowance, net of estimated taxes. The term "adjusted diluted net income per share" refers to a financial measure that we define as adjusted net income 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. "Normalized free cash flow" refers to free cash flow adjusted for changes in operating assets and liabilities net of estimated taxes related to impairment of goodwill, tax valuation allowance and the impact from excess tax benefits from stock-based compensation. 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, adjusted diluted net income per share, free cash flow and normalized free cash flow 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 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, amortization of intangible assets, impairment of goodwill and tax valuation allowance). The Company believes 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 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. The Company believes 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 and 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 enforcement activities of the Department of Education; 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 December 31, 2014, 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)
     
  December 31, June 30,
  2014 2014
Assets    
Current assets    
Cash and cash equivalents  $ 87,940  $ 84,177
Marketable securities  27,951  38,630
Accounts receivable, net  40,805  41,979
Deferred tax assets  223  223
Prepaid expenses and other assets  11,668  11,647
Total current assets  168,587 176,656
     
Property and equipment, net  9,405 11,126
Goodwill  55,451 55,451
Other intangible assets, net  24,305 31,441
Deferred tax assets, noncurrent  1,710 1,712
Other assets, noncurrent  479 457
Total assets  $ 259,937  $ 276,843
     
Liabilities and Stockholders' Equity    
Current liabilities    
Accounts payable  $ 21,610  $ 19,517
Accrued liabilities  22,511 27,854
Deferred revenue  1,860 1,175
Debt  19,714 17,698
Total current liabilities  65,695 66,244
     
Debt, noncurrent  49,764 59,565
Other liabilities, noncurrent  5,630 5,883
Total liabilities  121,089 131,692
     
Stockholders' equity    
Common stock  44 44
Additional paid-in capital  244,777 239,558
Accumulated other comprehensive loss  (812) (1,054)
Accumulated deficit  (105,161) (93,397)
Total stockholders' equity  138,848 145,151
Total liabilities and stockholders' equity  $ 259,937  $ 276,843
     
 
QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
         
  Three Months Ended Six Months Ended
  December 31, December 31,
  2014 2013 2014 2013
Net revenue  $ 66,694  $ 66,145  $ 135,883  $ 143,106
Cost of revenue (1)  60,395  56,116  123,804  119,708
Gross profit  6,299  10,029  12,079  23,398
Operating expenses: (1)        
Product development  4,244  4,776  9,200  9,935
Sales and marketing  3,357  3,659  7,024  7,815
General and administrative  4,079  4,411  8,694  8,545
Operating loss  (5,381)  (2,817)  (12,839)  (2,897)
Interest income  28  27  54  54
Interest expense  (786)  (976)  (1,966)  (2,002)
Other income (expense), net  636  (29)  2,961  (48)
Loss before income taxes  (5,503)  (3,795)  (11,790)  (4,893)
Benefit from (provision for) taxes  26  (40,234)  26  (40,075)
Net loss  $ (5,477)  $ (44,029)  $ (11,764)  $ (44,968)
         
         
Net loss per share        
Basic  $ (0.12)  $ (1.01)  $ (0.27)  $ (1.04)
Diluted  $ (0.12)  $ (1.01)  $ (0.27)  $ (1.04)
         
Weighted average shares used in computing net loss per share        
Basic  44,440  43,420  44,353  43,268
Diluted  44,440  43,420  44,353  43,268
         
         
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:
         
Cost of revenue  $ 785  $ 721  $ 1,429  $ 1,595
Product development  594  610  1,189  1,342
Sales and marketing  562  598  1,026  1,368
General and administrative  585  697  1,157  1,356
         
 
QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
         
  Three Months Ended Six Months Ended
  December 31, December 31,
  2014 2013 2014 2013
         
Cash Flows from Operating Activities        
Net loss  $ (5,477)  $ (44,029)  $ (11,764)  $ (44,968)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization  4,986  6,668  10,408 13,344
Provision for sales returns and doubtful accounts receivable  288  32  470 (243)
Write-off of bank loan upfront fees  --   --   328  -- 
Stock-based compensation  2,526  2,626  4,801 5,661
Excess tax benefits from stock-based compensation  --   (213)  (51) (309)
Gain on sale of domain names  (708)  --   (3,158)  -- 
Other adjustments, net  58  249  99 538
Changes in assets and liabilities, net of effects of acquisition:        
Accounts receivable  13  5,216  704 3,562
Prepaid expenses and other assets  943  (1,172)  (369) (513)
Other assets, noncurrent  --   27  --  (59)
Deferred taxes  --   40,371  2 40,393
Accounts payable  2,331  (2,352)  2,964 (196)
Accrued liabilities  (1,380)  (557)  (4,266) (5,861)
Deferred revenue  614  (199)  685 (638)
Other liabilities, noncurrent  (92)  (208)  (253) (370)
Net cash provided by operating activities  4,102 6,459  600 10,341
Cash Flows from Investing Activities        
Capital expenditures  (144)  (2,989)  (2,285) (4,179)
Business acquisition  --   (875)  --  (875)
Other intangibles  --   (2,597)  --  (2,692)
Internal software development costs  (506)  (547)  (933) (1,204)
Purchases of marketable securities  (5,995)  (10,258)  (16,600) (23,236)
Proceeds from sales and maturities of marketable securities  17,525  9,127  27,287 21,345
Proceeds from sale of domain names  458  --   3,158  -- 
Proceeds from sale of property and equipment  10  --   10  -- 
Net cash provided by (used in) investing activities  11,348  (8,139)  10,637  (10,841)
Cash Flows from Financing Activities        
Proceeds from exercise of common stock options  --   934  1,300 1,927
Principal payments on bank debt  (3,750)  (2,500)  (7,500) (5,000)
Payment of bank loan upfront fees  --   (1,714)  (272)  -- 
Principal payments on acquisition-related notes payable  --   --   (444) (2,237)
Excess tax benefits from stock-based compensation  --   213  51 309
Withholding taxes related to restricted stock net share settlement  (182)  (289)  (626) (1,328)
Net cash used in financing activities  (3,932) (3,356)  (7,491) (6,329)
Effect of exchange rate changes on cash and cash equivalents  1  (12)  17 (41)
Net increase (decrease) in cash and cash equivalents  11,519 (5,048)  3,763 (6,870)
Cash and cash equivalents at beginning of period  76,421 88,295  84,177 90,117
Cash and cash equivalents at end of period  $ 87,940  $ 83,247  $ 87,940  $ 83,247
         
 
QUINSTREET, INC.
RECONCILIATION OF NET LOSS TO
ADJUSTED NET INCOME
(In thousands, except per share data)
(Unaudited)
         
  Three Months Ended Six Months Ended
  December 31, December 31,
  2014 2013 2014 2013
Net loss  $ (5,477)  $ (44,029)  $ (11,764)  $ (44,968)
Amortization of intangible assets  3,315  5,021  7,076  10,157
Stock-based compensation  2,526  2,626  4,801  5,661
Restructuring  --   --   439  -- 
Tax valuation allowance  --   40,211  --   40,211
Tax impact after non-GAAP items  (133)  (828)  (201)  (3,708)
Adjusted net income  $ 231  $ 3,001  $ 351  $ 7,353
         
Adjusted diluted net income per share  $ 0.01  $ 0.07  $ 0.01  $ 0.17
         
Weighted average shares used in computing adjusted diluted net income per share  44,460  43,980  44,371  44,106
         
         
         
QUINSTREET, INC.
RECONCILIATION OF NET LOSS TO
ADJUSTED EBITDA
(In thousands)
(Unaudited)
         
  Three Months Ended Six Months Ended
  December 31, December 31,
  2014 2013 2014 2013
Net loss  $ (5,477)  $ (44,029)  $ (11,764)  $ (44,968)
Interest and other expense (income), net  122  978  (1,049)  1,996
(Benefit from) provision for taxes  (26)  40,234  (26)  40,075
Depreciation and amortization  4,986  6,668  10,408  13,344
Stock-based compensation  2,526  2,626  4,801  5,661
Restructuring  --   --   439  -- 
Adjusted EBITDA  $ 2,131  $ 6,477  $ 2,809  $ 16,108
         
         
         
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 Six Months Ended
  December 31, December 31,
  2014 2013 2014 2013
Net cash provided by operating activities  $ 4,102  $ 6,459  $ 600  $ 10,341
Capital expenditures  (144)  (2,989)  (2,285)  (4,179)
Internal software development costs  (506)  (547)  (933)  (1,204)
Free cash flow  $ 3,452  $ 2,923  $ (2,618)  $ 4,958
Changes in operating assets and liabilities, less excess tax benefits from stock-based compensation  (2,429)  (1,146)  584  3,758
Normalized free cash flow  $ 1,023  $ 1,777  $ (2,034)  $ 8,716
         
         
CONTACT: Investor Contact: 



         Investor Relations

         Erica Abrams 

         (415) 217-5864 

         IR@quinstreet.com