QuinStreet, Inc. • SEC Filing

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-34628

QuinStreet, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		77-0512121
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


950 Tower Lane, 6th Floor
Foster City, California	94404
(Address of principal executive offices)	(Zip Code)

650-578-7700

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share
 

QNST
 

The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Number of shares of common stock outstanding as of October 27, 2023: 54,579,044

QUINSTREET, INC.

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets at September 30, 2023 and June 30, 2023		3

Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2023 and 2022		4

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2023 and 2022		5

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2023 and 2022		6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2023 and 2022		8

Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28

Item 4. Controls and Procedures		28

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		29

Item 1A. Risk Factors		29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		52

Item 3. Defaults Upon Senior Securities		53

Item 4. Mine Safety Disclosures		53

Item 5. Other Information		53

Item 6. Exhibits		54

SIGNATURES		55

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUINSTREET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 30,			June 30,
	2023			2023
Assets
Current assets:
Cash and cash equivalents	$	56,305		$	73,677
Accounts receivable, net of allowances and reserves of $3,716 and $3,722 as of September 30, 2023 and June 30, 2023, respectively		67,684			67,748
Prepaid expenses and other assets		8,690			9,779
Total current assets		132,679			151,204
Property and equipment, net		19,504			16,749
Operating lease right-of-use assets		5,806			3,536
Goodwill		121,141			121,141
Other intangible assets, net		36,122			38,700
Other assets, noncurrent		5,713			5,825
Total assets	$	320,965		$	337,155

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	34,286		$	37,926
Accrued liabilities		41,322			44,010
Deferred revenue		—			9
Other liabilities		7,649			7,875
Total current liabilities		83,257			89,820
Operating lease liabilities, noncurrent		4,047			1,261
Other liabilities, noncurrent		11,325			16,273
Total liabilities		98,629			107,354
Commitments and contingencies (See Note 10)
Stockholders' equity:
Common stock: $0.001 par value; 100,000,000 shares authorized; 54,648,886 and 54,192,928 shares issued and outstanding as of September 30, 2023 and June 30, 2023		55			54
Additional paid-in capital		332,194			329,093
Accumulated other comprehensive loss		(268	)		(266	)
Accumulated deficit		(109,645	)		(99,080	)
Total stockholders' equity		222,336			229,801
Total liabilities and stockholders' equity	$	320,965		$	337,155

See notes to condensed consolidated financial statements

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended
	September 30,
	2023			2022
Net revenue	$	123,923		$	143,593
Cost of revenue (1)		116,274			131,245
Gross profit		7,649			12,348
Operating expenses: (1)
Product development		7,637			6,826
Sales and marketing		3,124			3,100
General and administrative		6,787			7,319
Operating loss		(9,899	)		(4,897	)
Interest income		166			7
Interest expense		(111	)		(226	)
Other income (expense), net		29			(23	)
Loss before income taxes		(9,815	)		(5,139	)
(Provision for) benefit from income taxes		(750	)		622
Net loss	$	(10,565	)	$	(4,517	)
Net loss per share:
Basic	$	(0.19	)	$	(0.08	)
Diluted	$	(0.19	)	$	(0.08	)
Weighted-average shares used in computing net loss per share:
Basic		54,470			53,350
Diluted		54,470			53,350

(1)

Cost of revenue and operating expenses include stock-based compensation expense as follows:


Cost of revenue	$	2,052	$	2,119
Product development		773		765
Sales and marketing		640		652
General and administrative		1,810		1,734

See notes to condensed consolidated financial statements

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended
	September 30,
	2023			2022
Net loss	$	(10,565	)	$	(4,517	)
Other comprehensive loss:
Foreign currency translation adjustment		(2	)		(5	)
Total other comprehensive loss		(2	)		(5	)
Comprehensive loss	$	(10,567	)	$	(4,522	)

See notes to condensed consolidated financial statements

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


															Accumulated
												Additional			Other						Total
	Common Stock					Treasury Stock						Paid-in			Comprehensive			Accumulated			Stockholders’
	Shares			Amount		Shares			Amount			Capital			Loss			Deficit			Equity
Balances at June 30, 2023		54,192,928		$	54	—			$	—		$	329,093		$	(266	)	$	(99,080	)	$	229,801
Issuance of common stock upon exercise of stock options		114,486			—		—			—			416			—			—			416
Release of restricted stock, net of share settlement		378,222			1		—			—			(1	)		—			—			—
Issuance of common stock under the employee stock purchase plan		140,761			—		—			—			1,164			—			—			1,164
Stock-based compensation expense		—			—		—			—			5,288			—			—			5,288
Withholding taxes related to release of restricted stock, net of share settlement		—			—		—			—			(2,188	)		—			—			(2,188	)
Repurchase of common stock		—			—		(177,511	)		(1,578	)		—			—			—			(1,578	)
Retirement of treasury stock		(177,511	)		—		177,511			1,578			(1,578	)		—			—			—
Net loss		—			—		—			—			—			—			(10,565	)		(10,565	)
Other comprehensive loss		—			—		—			—			—			(2	)		—			(2	)
Balances at September 30, 2023		54,648,886		$	55		—		$	—		$	332,194		$	(268	)	$	(109,645	)	$	222,336


															Accumulated
												Additional			Other						Total
	Common Stock					Treasury Stock						Paid-in			Comprehensive			Accumulated			Stockholders’
	Shares			Amount		Shares			Amount			Capital			Loss			Deficit			Equity
Balances at June 30, 2022		53,356,875		$	53	—			$	—		$	316,422		$	(261	)	$	(30,214	)	$	286,000
Issuance of common stock upon exercise of stock options		37,855			—		—			—			236			—			—			236
Release of restricted stock, net of share settlement		302,167			1		—			—			(1	)		—			—			—
Issuance of common stock under the employee stock purchase plan		137,914			—		—			—			1,324			—			—			1,324
Stock-based compensation expense		—			—		—			—			5,284			—			—			5,284
Withholding taxes related to release of restricted stock, net of share settlement		—			—		—			—			(2,016	)		—			—			(2,016	)
Repurchase of common stock		—			—		(285,644	)		(3,050	)		—			—			—			(3,050	)
Retirement of treasury stock		(285,644	)		—		285,644			3,050			(3,050	)		—			—			—
Net loss		—			—		—			—			—			—			(4,517	)		(4,517	)
Other comprehensive loss		—			—		—			—			—			(5	)		—			(5	)
Balances at September 30, 2022		53,549,167		$	54		—		$	—		$	318,199		$	(266	)	$	(34,731	)	$	283,256

See notes to condensed consolidated financial statements

QUINSTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended
	September 30,
	2023			2022
Cash Flows from Operating Activities
Net loss	$	(10,565	)	$	(4,517	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		5,338			4,362
Provision for sales returns and doubtful accounts receivable		223			120
Stock-based compensation		5,275			5,270
Non-cash lease expense		(253	)		(262	)
Deferred income taxes		544			(802	)
Other adjustments, net		(438	)		(147	)
Changes in assets and liabilities:
Accounts receivable		(159	)		5,822
Prepaid expenses and other assets		1,089			(426	)
Accounts payable		(3,603	)		(1,868	)
Accrued liabilities		(2,525	)		(1,594	)
Deferred revenue		(9	)		(293	)
Other liabilities, non-current		110			—
Net cash (used in) provided by operating activities		(4,973	)		5,665
Cash Flows from Investing Activities
Capital expenditures		(1,624	)		(476	)
Internal software development costs		(3,470	)		(2,561	)
Net cash used in investing activities		(5,094	)		(3,037	)
Cash Flows from Financing Activities
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan		1,579			1,560
Payment of withholding taxes related to release of restricted stock, net of share settlement		(2,187	)		(2,016	)
Post-closing payments and contingent consideration related to acquisitions		(5,277	)		(5,494	)
Repurchase of common stock		(1,426	)		(4,731	)
Net cash used in financing activities		(7,311	)		(10,681	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		6			(4	)
Net decrease in cash, cash equivalents and restricted cash		(17,372	)		(8,057	)
Cash, cash equivalents and restricted cash at beginning of period		73,692			96,453
Cash, cash equivalents and restricted cash at end of period	$	56,320		$	88,396
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	56,305		$	88,382
Restricted cash included in other assets, noncurrent		15			14
Total cash, cash equivalents and restricted cash	$	56,320		$	88,396
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	84		$	73
Supplemental Disclosure of Non-cash Investing and Financing Activities
Purchases of property and equipment included in accrued liabilities		1,660			1,036
Retirement of treasury stock (See Note 11)		(1,578	)		(3,050	)

See notes to condensed consolidated financial statements

QUINSTREET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company

QuinStreet, Inc. (the “Company”) is a leader in performance marketplaces and technologies for the financial services and home services industries. The Company was incorporated in California in April 1999 and reincorporated in Delaware in December 2009. The Company specializes in customer acquisition for clients in high value, information-intensive markets or “verticals,” including financial services and home services. The corporate headquarters are located in Foster City, California, with additional offices throughout the United States and India. The majority of the Company’s operations and revenue are in North America.

2. Summary of Significant Accounting Policies

Basis of Presentation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying condensed consolidated financial statements and the notes to the condensed consolidated financial statements as of September 30, 2023 and for the three months ended September 30, 2023 and 2022 are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC on August 21, 2023. The condensed consolidated balance sheet at June 30, 2023 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s condensed consolidated balance sheet at September 30, 2023, its condensed consolidated statements of stockholders’ equity, operations and comprehensive loss for the three months ended September 30, 2023 and 2022 and condensed consolidated statements of cash flows for the three months ended September 30, 2023 and 2022. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024, or any other future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. On an ongoing basis, management evaluates these estimates, judgments and assumptions, including those related to revenue recognition, stock-based compensation, goodwill, long-lived assets, contingencies, credit losses of accounts receivable, and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. In addition, the Company may engage third-party valuation specialists to assist with the preparation of certain of its valuations. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.

Accounting Policies

The significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. There have been no material changes to our significant accounting policies as of and for the three months ended September 30, 2023.

Accounts Receivable and Allowances

The Company’s accounts receivable are derived from clients located principally in the United States. The Company performs ongoing credit evaluation of its customers and generally does not require collateral. The Company makes estimates of expected credit losses for the allowance for doubtful accounts and allowance for unbilled receivables based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers.

The allowance for credit losses on accounts receivable was $2.1 million as of both September 30, 2023 and June 30, 2023. The revenue reserve was $1.6 million as of both September 30, 2023 and June 30, 2023. The total allowance for credit losses and revenue reserve was $3.7 million as of both September 30, 2023 and June 30, 2023.

Concentrations of Credit Risk

The Company had one client that accounted for 25% of net revenue for the three months ended September 30, 2022. No other clients accounted for 10% or more of net revenue for the three months ended September 30, 2023 or 2022 or 10% or more of net accounts receivable as of September 30, 2023 or June 30, 2023.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash equivalents, accounts receivable, accounts payable, post-closing payments and contingent consideration related to acquisitions. The recorded values of the Company’s accounts receivable and accounts payable approximate their current fair values due to the relatively short-term nature of these accounts.

Cash and Cash Equivalents

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents on the Company’s condensed consolidated balance sheets.

Recent Accounting Pronouncements

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. The Company adopted the new standard in the first quarter of fiscal year 2024 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

3. Revenue

Disaggregation of Revenue

The following table presents the Company’s net revenue disaggregated by vertical (in thousands):


	Three Months Ended
	September 30,
	2023		2022
Net revenue:
Financial Services	$	72,125	$	94,990
Home Services		49,394		46,733
Other Revenue		2,404		1,870
Total net revenue	$	123,923	$	143,593

Contract Balances

The following table provides information about contract liabilities from the Company’s contracts with its clients (in thousands):


		September 30,