QuinStreet, Inc. (Nasdaq:QNST), a leader in vertical marketing and
media online, today announced its financial results for the quarter
and nine months ended March 31, 2012.
For the third quarter, the Company reported total revenue of
$93.0 million, a decrease of 14% over the same quarter last year.
For the nine month period, the Company reported total revenue of
$284.8 million, a decrease of 8% over the same period of the prior
year.
Adjusted EBITDA for the third quarter was $17.3 million, or 19%
of revenue. EBITDA results included a $1.4 million unexpected bad
debt write-off of receivables due the Company by an agency that
became insolvent during the quarter. Excluding this effect,
adjusted EBITDA for the third quarter would have been $18.7
million, or 20% of revenue.
Adjusted EBITDA for the nine month period was $57.4 million, or
20% of revenue.
The Company reported GAAP net income of $2.9 million, or $0.06
per diluted share, for the third quarter of 2012. GAAP net income
for the nine month period was $12.8 million, or $0.27 per diluted
share.
Adjusted net income for the third quarter was $9.5 million, or
$0.21 per diluted share, and $0.23 per share excluding the
write-off. For the nine month period, adjusted net income was $32.0
million, or $0.67 per diluted share. Adjusted net income excludes
stock-based compensation expense and amortization of intangible
assets, net of estimated tax.
The Company generated $15.0 million of normalized free cash flow
for the third quarter and $44.8 million for the nine month period.
Cash flow from operations totaled $17.4 million for the third
quarter and $42.4 million for the nine month period.
For the third quarter, revenue for the Education client vertical
was $38.9 million, a decrease of 19% compared to the year-ago
quarter. Revenue for the Financial Services client vertical was
$38.9 million, a decrease of 20% compared to the same quarter last
year. Revenue for Other client verticals was $15.3 million, an
increase of 39% compared to the year-ago quarter.
Reconciliations of adjusted net income to net income, adjusted
EBITDA to net income, and normalized free cash flow to net cash
provided by operating activities are included in the accompanying
tables.
The Company now expects total fiscal 2012 revenue
to be between $360 and $370 million, and revenue and profits to be
down year-over-year in fiscal Q4. The Company continues to target
an adjusted EBITDA margin of 20% for the full fiscal year.
"We continue to manage through challenges in Education and
Financial Services that are creating uncertainty and weighing on
our results," commented Doug Valenti, QuinStreet CEO. "We are
focused on strategies and initiatives that we believe will mitigate
or overcome the challenges and return us to growth. Digital
performance marketing is an early stage, enormous opportunity, and
our assets and capabilities are strong. We continue to pursue
opportunities that we believe represent substantial growth
potential."
Conference Call
QuinStreet will host a conference call and corresponding live
webcast at 2:00 p.m. PT today. To access the conference call, dial
1-866-240-0819 for the U.S. and Canada and 1-973-200-3360 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 April 30, 2012
until 11:59 p.m. PT on May 6, 2012 by dialing 1-800-585-8367 in the
U.S. and Canada, or 1-404-537-3406 for international callers, using
passcode 71119897#. 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.
Final financial results will be included in the Company's
quarterly report on Form 10-Q, which will be filed with the
Securities and Exchange Commission no later than May 10, 2012.
About QuinStreet
QuinStreet, Inc. (Nasdaq:QNST) is one of the largest Internet
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
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 income less provision for taxes, depreciation
expense, amortization expense, stock-based compensation expense,
interest and other income (expense), net. In the current quarter,
we also computed adjusted EBITDA excluding the effect of a bad debt
write-off of $1.4 million; the calculation simply removes the
effect of that write-off upon the non-GAAP measure ("EBITDA results
included a $1.4 million unexpected bad debt write-off of
receivables due the Company by an agency that became insolvent
during the quarter. Excluding this effect, adjusted EBITDA for the
third quarter would have been $18.7 million, or 20% of revenue.").
The term "adjusted net income" refers to a financial measure that
we define as net income adjusted for amortization expense and
stock-based compensation expense, 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. In the current quarter,
we also computed adjusted net income per share excluding the effect
of a bad debt write-off of $1.4 million; the calculation simply
removes the after-tax effect of that write-off upon the non-GAAP
measure ("$0.23 per share excluding the write-off"). 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 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 enhance
financial performance; 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. In the current quarter, we also provide a
computation of adjusted EBITDA excluding the after-tax effect of a
bad debt write-off, because it is a historically large write-off
and we believe that analysts and investors will want to understand
the effect of the write-off upon that non-GAAP measure; hence, we
provide the computation for clarity and ease-of-use.
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 and amortization of intangible assets).
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. In the current quarter, we also provide a
computation of adjusted net income per share excluding the effect
of a bad debt write-off, because it is a historically large
write-off and we believe that analysts and investors will want to
understand the effect of the write-off upon that non-GAAP measure;
hence, we provide the computation for clarity and ease-of-use.
Free cash flow is useful to us and investors 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.
The measure 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
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. Free cash flow and normalized free cash flow have
certain limitations in that they do not represent the total
increase or decrease in the cash balance for the period, nor do
they represent the residual cash flow for discretionary
expenditures. Therefore, we think it is important to evaluate both
of these cash flow measures along with our consolidated statement
of cash flows and understand any changes in the operating assets
and liabilities.
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 "will, " "believe, " "intend, " "potential" and similar
expressions are intended to identify forward-looking statements.
These forward-looking statements include the quotations from
management in this press release, as well as any statements
regarding the Company's anticipated financial results and strategic
and operational plans. 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 Company's ability to deliver
an adequate rate of growth and manage such growth; the impact of
changes in government regulation and industry standards; the
Company's ability to maintain and increase the number of visitors
to its websites; the Company's ability to identify and manage
acquisitions; the impact of the current economic climate on the
Company's business; 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; the impact and costs of any failure by the Company
to comply with government regulations and industry standards; and
costs associated with defending intellectual property infringement
and other claims. 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, 2012, which will be filed with the SEC no
later than May 10, 2012. The Company does not intend and undertakes
no duty to release publicly any updates or revisions to any
forward-looking statements contained herein.
QUINSTREET,
INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(In
thousands) |
(Unaudited) |
|
|
|
|
March 31 |
June 30, |
|
2012 |
2011 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 77,861 |
$ 132,290 |
Marketable securities |
37,532 |
34,927 |
Accounts receivable, net |
50,030 |
48,225 |
Deferred tax assets |
10,249 |
10,253 |
Prepaid expenses and other assets |
6,041 |
5,773 |
Total current assets |
181,713 |
231,468 |
|
|
|
Property and equipment, net |
9,211 |
8,875 |
Goodwill |
238,133 |
211,856 |
Other intangible assets, net |
77,606 |
65,847 |
Deferred tax assets, noncurrent |
5,866 |
5,866 |
Other assets, noncurrent |
1,049 |
1,012 |
Total assets |
$ 513,578 |
$ 524,924 |
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Current liabilities |
|
|
Accounts payable |
$ 24,228 |
$ 23,300 |
Accrued liabilities |
28,568 |
33,238 |
Deferred revenue |
2,565 |
2,531 |
Debt |
13,169 |
10,038 |
Total current liabilities |
68,530 |
69,107 |
|
|
|
Debt, noncurrent |
94,992 |
96,010 |
Other liabilities, noncurrent |
5,416 |
4,418 |
Total liabilities |
168,938 |
169,535 |
|
|
|
Stockholders' equity |
|
|
Common stock |
44 |
50 |
Additional paid-in capital |
224,603 |
255,689 |
Treasury stock |
-- |
(7,779) |
Accumulated other comprehensive
income |
(185) |
51 |
Retained earnings |
120,178 |
107,378 |
Total stockholders' equity |
344,640 |
355,389 |
Total liabilities and stockholders'
equity |
$ 513,578 |
$ 524,924 |
|
|
QUINSTREET,
INC. |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In thousands,
except per share data) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net revenue |
$ 93,023 |
$ 107,705 |
$ 284,770 |
$ 308,903 |
Cost of revenue (1) |
72,278 |
78,578 |
216,422 |
222,869 |
Gross profit |
20,745 |
29,127 |
68,348 |
86,034 |
Operating expenses: (1) |
|
|
|
|
Product development |
5,069 |
6,836 |
16,245 |
18,320 |
Sales and marketing |
3,394 |
4,687 |
11,114 |
14,097 |
General and administrative |
6,239 |
5,525 |
16,303 |
15,190 |
Operating income |
6,043 |
12,079 |
24,686 |
38,427 |
Interest income |
31 |
25 |
105 |
139 |
Interest expense |
(1,111) |
(1,091) |
(3,309) |
(3,108) |
Other income (expense), net |
3 |
66 |
(121) |
151 |
Income before income taxes |
4,966 |
11,079 |
21,361 |
35,609 |
Provision for taxes |
(2,093) |
(4,740) |
(8,561) |
(14,841) |
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
Basic |
$ 0.06 |
$ 0.14 |
$ 0.28 |
$ 0.45 |
Diluted |
$ 0.06 |
$ 0.13 |
$ 0.27 |
$ 0.42 |
|
|
|
|
|
Weighted average shares used in computing net
income per share |
|
|
Basic |
44,870 |
46,792 |
46,491 |
45,910 |
Diluted |
45,794 |
50,593 |
47,584 |
48,960 |
|
|
|
|
|
|
|
|
|
|
(1) Cost of revenue and operating
expenses include stock-based compensation expense as follows: |
|
|
|
|
|
Cost of revenue |
$ 962 |
$ 1,138 |
$ 3,338 |
$ 3,411 |
Product development |
637 |
669 |
1,979 |
2,084 |
Sales and marketing |
816 |
918 |
2,436 |
3,116 |
General and administrative |
781 |
782 |
2,338 |
2,242 |
|
|
QUINSTREET,
INC. |
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Cash Flows from Operating
Activities |
|
|
|
|
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
Depreciation and amortization |
8,032 |
7,632 |
22,657 |
20,252 |
Provision for sales returns and doubtful
accounts receivable |
1,589 |
325 |
1,557 |
(143) |
Stock-based compensation |
3,196 |
3,507 |
10,091 |
10,853 |
Excess tax benefits from stock-based
compensation |
(49) |
(1,432) |
(146) |
(6,744) |
Other non-cash adjustments, net |
601 |
123 |
1,476 |
208 |
Changes in assets and liabilities, net of
effects of acquisitions: |
|
|
|
|
Accounts receivable |
(1,068) |
(609) |
(656) |
(486) |
Prepaid expenses and other assets |
(1,927) |
4,601 |
(259) |
1,896 |
Other assets, noncurrent |
(30) |
(34) |
(36) |
133 |
Accounts payable |
390 |
1,312 |
942 |
6,567 |
Accrued liabilities |
3,461 |
6,057 |
(6,826) |
3,403 |
Deferred revenue |
237 |
507 |
(256) |
947 |
Other liabilities, noncurrent |
127 |
531 |
1,033 |
923 |
Net cash provided by operating
activities |
17,432 |
28,859 |
42,377 |
58,577 |
Cash Flows from Investing
Activities |
|
|
|
|
Capital expenditures |
(633) |
(1,483) |
(2,017) |
(4,430) |
Business acquisitions, net of notes payable
and cash acquired |
(23,436) |
(5,095) |
(54,639) |
(91,723) |
Internal software development costs |
(664) |
(442) |
(1,746) |
(1,322) |
Purchases of marketable securities |
(15,121) |
(15,007) |
(37,807) |
(33,923) |
Proceeds from sales and maturities of
marketable securities |
16,128 |
8,484 |
34,163 |
8,484 |
Other investing activities |
(1) |
6 |
29 |
-- |
Net cash used in investing
activities |
(23,727) |
(13,537) |
(62,017) |
(122,914) |
Cash Flows from Financing
Activities |
|
|
|
|
Payments for issuance of common stock |
-- |
-- |
-- |
(106) |
Proceeds from exercise of common stock
options |
1,339 |
2,966 |
3,526 |
12,580 |
Proceeds from bank debt |
-- |
(375) |
5,884 |
24,425 |
Principal payments on bank debt |
(1,250) |
(875) |
(3,875) |
(2,650) |
Payment of bank loan upfront fees |
-- |
-- |
(1,370) |
-- |
Principal payments on acquisition-related
notes payable |
(419) |
(614) |
(2,190) |
(7,725) |
Excess tax benefits from stock-based
compensation |
49 |
1,432 |
146 |
6,744 |
Withholding taxes related to restricted stock
net share settlement |
(84) |
-- |
(346) |
-- |
Repurchases of common stock |
(21,037) |
-- |
(36,593) |
-- |
Net cash (used in) / provided by
financing activities |
(21,402) |
2,534 |
(34,818) |
33,268 |
Effect of exchange rate changes on cash and
cash equivalents |
1 |
7 |
29 |
(17) |
Net decrease in cash and cash
equivalents |
(27,696) |
17,863 |
(54,429) |
(31,086) |
Cash and cash equivalents at beginning of
period |
105,557 |
106,821 |
132,290 |
155,770 |
Cash and cash equivalents at end of
period |
$ 77,861 |
$ 124,684 |
$ 77,861 |
$ 124,684 |
|
|
QUINSTREET,
INC. |
RECONCILIATION OF NET
INCOME TO |
ADJUSTED NET
INCOME |
(In thousands,
except per share data) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
Amortization of intangible assets |
6,821 |
6,124 |
18,769 |
16,575 |
Stock-based compensation |
3,196 |
3,507 |
10,091 |
10,853 |
Tax impact of the above items |
(3,348) |
(3,395) |
(9,636) |
(9,818) |
Adjusted net income |
$ 9,542 |
$ 12,575 |
$ 32,024 |
$ 38,378 |
|
|
|
|
|
|
|
|
|
|
Adjusted diluted net income per share |
$ 0.21 |
$ 0.25 |
$ 0.67 |
$ 0.78 |
|
|
|
|
|
Weighted average shares used in computing
adjusted diluted net income per share |
45,794 |
50,593 |
47,584 |
48,960 |
|
|
|
|
|
|
|
|
|
|
QUINSTREET,
INC. |
RECONCILIATION OF NET
INCOME TO |
ADJUSTED NET
INCOME |
(In thousands,
except per share data) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
Amortization of intangible assets |
6,821 |
6,124 |
18,769 |
16,575 |
Stock-based compensation |
3,196 |
3,507 |
10,091 |
10,853 |
Bad debt write-off |
1,435 |
-- |
1,435 |
-- |
Tax impact of the above items |
(3,822) |
(3,395) |
(10,210) |
(9,818) |
Adjusted net income |
$ 10,503 |
$ 12,575 |
$ 32,885 |
$ 38,378 |
|
|
|
|
|
|
|
|
|
|
Adjusted diluted net income per share |
$ 0.23 |
$ 0.25 |
$ 0.69 |
$ 0.78 |
|
|
|
|
|
Weighted average shares used in computing
adjusted diluted net income per share |
45,794 |
50,593 |
47,584 |
48,960 |
|
|
|
|
|
|
|
|
|
|
QUINSTREET,
INC. |
RECONCILIATION OF NET
INCOME TO |
ADJUSTED
EBITDA |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
Interest and other income (expense),
net |
1,077 |
1,000 |
3,325 |
2,818 |
Provision for taxes |
2,093 |
4,740 |
8,561 |
14,841 |
Depreciation and amortization |
8,032 |
7,632 |
22,657 |
20,252 |
Stock-based compensation |
3,196 |
3,507 |
10,091 |
10,853 |
Adjusted EBITDA |
$ 17,271 |
$ 23,218 |
$ 57,434 |
$ 69,532 |
|
|
|
|
|
|
|
|
|
|
QUINSTREET,
INC. |
RECONCILIATION OF NET
INCOME TO |
ADJUSTED
EBITDA |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net income |
$ 2,873 |
$ 6,339 |
$ 12,800 |
$ 20,768 |
Interest and other income (expense),
net |
1,077 |
1,000 |
3,325 |
2,818 |
Provision for taxes |
2,093 |
4,740 |
8,561 |
14,841 |
Depreciation and amortization |
8,032 |
7,632 |
22,657 |
20,252 |
Stock-based compensation |
3,196 |
3,507 |
10,091 |
10,853 |
Bad debt write-off |
1,435 |
-- |
1,435 |
-- |
Adjusted EBITDA |
$ 18,706 |
$ 23,218 |
$ 58,869 |
$ 69,532 |
|
|
|
|
|
|
|
|
|
|
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 March 31, |
Nine Months Ended
March 31, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 17,432 |
$ 28,859 |
$ 42,377 |
$ 58,577 |
Capital expenditures |
(633) |
(1,477) |
(2,017) |
(4,424) |
Internal software development costs |
(664) |
(442) |
(1,746) |
(1,322) |
Free cash flow |
$ 16,135 |
$ 26,940 |
$ 38,614 |
$ 52,831 |
Changes in operating assets and
liabilities, less excess tax benefits from stock-based
compensation |
(1,141) |
(10,933) |
6,204 |
(6,639) |
Normalized free cash flow |
$ 14,994 |
$ 16,007 |
$ 44,818 |
$ 46,192 |
CONTACT: Erica Abrams or Matthew Hunt
(415) 217-5864 or (415) 489-2194
erica@blueshirtgroup.com
matt@blueshirtgroup.com
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