QuinStreet, Inc. (Nasdaq:QNST), a leader in performance marketing
products and technologies, today announced financial results for
the fiscal first quarter ended September 30, 2017.
For the first quarter, the Company reported
revenue of $87.4 million, an increase of 19% year-over- year, and
GAAP net income of $1.4 million, or $0.03 per share. Adjusted net
income for the first quarter was $3.5 million, or $0.08 per share,
and adjusted EBITDA was $6.6 million, or 8% of revenue.
The Company generated $5.6 million in normalized
free cash flow in the first quarter and closed the period with
$50.4 million in cash and no debt.
“Results were strong in the first quarter.
Revenue was up 19% year-over-year, and adjusted EBITDA margin was
8%,” commented Doug Valenti, QuinStreet CEO. “Improved performance
continues to be driven by our new product and media strategies and
by clients shifting more spending to digital media and performance
marketing.”
“We expect these general themes to continue.
Given our strong performance in the first quarter and the momentum
we are carrying into Q2, we now expect full fiscal year revenue
growth to be in the range of 10-15% and that adjusted EBITDA margin
will be about 8%. We will again update our full year outlook after
reporting fiscal Q2 results,” concluded Valenti.
Reconciliations of adjusted net income to GAAP
net income, adjusted EBITDA to GAAP net income 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
The Company will host a conference call and
corresponding live webcast at 2:00 P.M. PT today. To access the
conference call, dial +1 (877) 723.9521 or +1 (719) 457.2627 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://event.mymeetingroom.com. The
conference call replay will be available through Monday, November
6, 2017 at 4:30 P.M. PT.
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 (loss) less benefit from
taxes, depreciation expense, amortization expense, stock-based
compensation expense, interest and other income, net and external
expenses related to the material weakness disclosed in our Annual
Report on Form 10-K. The term "adjusted net income" refers to a
financial measure that we define as net income (loss) adjusted for
amortization expense, stock-based compensation expense and external
expenses related to the material weakness disclosed in our Annual
Report on Form 10-K, net of estimated taxes calculated based on the
estimated annual statutory tax rate. Due to the effects of our
deferred tax asset valuation allowance and our historical net
operating losses, our annual effective tax rate is not meaningful
as our income tax amounts for each period are not directly
correlated to the amount of income or losses before income taxes
for such period. 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. The term
“normalized free cash flow” refers to free cash flow less changes
in operating assets and liabilities. 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
and adjusted diluted net income 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 useful to us and investors
because (i) we seek to manage our business to a level of
adjusted EBITDA as a percentage of net revenue, (ii) it is
used internally by us for planning purposes, including preparation
of internal budgets; to allocate resources; to evaluate the
effectiveness of operational strategies and capital expenditures as
well as the capacity to service debt, (iii) it is a key basis upon
which we assess our operating performance, (iv) it is one of
the primary metrics investors use in evaluating Internet marketing
companies, (v) it is a factor in determining compensation, and
(vi) it is an element of certain financial covenants under our
historical borrowing arrangements. In addition, we believe adjusted
EBITDA and similar measures are widely used by investors,
securities analysts, ratings agencies and other interested parties
in our industry as a measure of financial performance, debt-service
capabilities and as a metric for analyzing company valuations.
We use adjusted EBITDA as a key performance
measure because we believe it facilitates operating performance
comparisons from period to period by excluding potential
differences caused by variations in capital structures (affecting
interest expense), tax positions (such as the impact on periods or
companies of changes in effective tax rates or fluctuations in
permanent differences or discrete quarterly items), non-recurring
charges, certain other items that we do not believe are indicative
of core operating activities (such as external expenses
related to the material weakness disclosed in our Annual Report on
Form 10-K and other income and expense) and the non-cash impact of
depreciation expense, amortization expense and stock-based
compensation expense.
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), non-recurring charges and certain other items
that we do not believe are indicative of core operating activities.
We believe 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. We believe 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, 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 are contained in the Company's
annual report 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 September 30,
2017, 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) |
|
|
|
|
|
September 30, |
|
June 30, |
|
2017 |
|
2017 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
50,367 |
|
|
$ |
49,571 |
|
Accounts
receivable, net |
|
48,895 |
|
|
|
44,059 |
|
Prepaid
expenses and other assets |
|
7,227 |
|
|
|
6,225 |
|
Total
current assets |
|
106,489 |
|
|
|
99,855 |
|
Property and equipment,
net |
|
5,181 |
|
|
|
5,613 |
|
Goodwill |
|
56,118 |
|
|
|
56,118 |
|
Other intangible
assets, net |
|
2,970 |
|
|
|
4,105 |
|
Other assets,
noncurrent |
|
8,327 |
|
|
|
8,617 |
|
Total
assets |
$ |
179,085 |
|
|
$ |
174,308 |
|
Liabilities and
Stockholders' Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
27,411 |
|
|
$ |
25,205 |
|
Accrued
liabilities |
|
26,166 |
|
|
|
26,223 |
|
Deferred
revenue |
|
834 |
|
|
|
1,126 |
|
Total
current liabilities |
|
54,411 |
|
|
|
52,554 |
|
Other liabilities,
noncurrent |
|
3,533 |
|
|
|
3,672 |
|
Total
liabilities |
|
57,944 |
|
|
|
56,226 |
|
Stockholders'
equity: |
|
|
|
Common
stock |
|
46 |
|
|
|
45 |
|
Additional paid-in capital |
|
265,137 |
|
|
|
263,533 |
|
Accumulated other comprehensive loss |
|
(454 |
) |
|
|
(463 |
) |
Accumulated deficit |
|
(143,588 |
) |
|
|
(145,033 |
) |
Total
stockholders' equity |
|
121,141 |
|
|
|
118,082 |
|
Total
liabilities and stockholders' equity |
$ |
179,085 |
|
|
$ |
174,308 |
|
|
|
|
|
|
QUINSTREET, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(In thousands, except
per share data) |
(Unaudited) |
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2017 |
|
2016 |
|
|
Net revenue |
$ |
87,418 |
|
$ |
73,438 |
|
|
Cost of revenue
(1) |
|
75,940 |
|
|
67,808 |
|
|
Gross profit |
|
11,478 |
|
|
5,630 |
|
|
Operating expenses:
(1) |
|
|
|
|
Product
development |
|
3,214 |
|
|
3,954 |
|
|
Sales and
marketing |
|
2,447 |
|
|
2,590 |
|
|
General
and administrative |
|
4,460 |
|
|
4,031 |
|
|
Operating income
(loss) |
|
1,357 |
|
|
(4,945 |
) |
|
Interest income |
|
37 |
|
|
21 |
|
|
Interest expense |
|
— |
|
|
(156 |
) |
|
Other income, net |
|
43 |
|
|
135 |
|
|
Income (loss) before
taxes |
|
1,437 |
|
|
(4,945 |
) |
|
Benefit from taxes |
|
8 |
|
|
1,376 |
|
|
Net income (loss) |
$ |
1,445 |
|
$ |
(3,569 |
) |
|
|
|
|
|
|
Net income (loss) per
share: |
|
|
|
|
Basic |
$ |
0.03 |
|
$ |
(0.08 |
) |
|
Diluted |
$ |
0.03 |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
Weighted
average shares used in computing net income (loss) per
share: |
|
Basic |
|
45,578 |
|
|
45,668 |
|
|
Diluted |
|
46,728 |
|
|
45,668 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Cost of
revenue and operating expenses include stock-based compensation
expense as follows: |
Cost of
revenue |
$ |
925 |
|
$ |
971 |
|
|
Product
development |
|
476 |
|
|
536 |
|
|
Sales and
marketing |
|
299 |
|
|
357 |
|
|
General
and administrative |
|
737 |
|
|
743 |
|
|
|
|
|
|
|
|
QUINSTREET, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2017 |
|
2016 |
|
Cash Flows from
Operating Activities |
|
|
|
|
|
Net income (loss) |
|
$ |
1,445 |
|
|
$ |
(3,569 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
|
2,261 |
|
|
|
3,373 |
|
|
Provision
for sales returns and doubtful accounts receivable |
|
|
139 |
|
|
|
95 |
|
|
Stock-based compensation |
|
|
2,437 |
|
|
|
2,607 |
|
|
Other
adjustments, net |
|
|
— |
|
|
|
(156 |
) |
|
Changes
in assets and liabilities: |
|
|
|
|
|
Accounts
receivable |
|
|
(4,975 |
) |
|
|
2,820 |
|
|
Prepaid
expenses and other assets |
|
|
(712 |
) |
|
|
(574 |
) |
|
Accounts
payable |
|
|
2,275 |
|
|
|
676 |
|
|
Accrued
liabilities |
|
|
(115 |
) |
|
|
(3,783 |
) |
|
Deferred
revenue |
|
|
(292 |
) |
|
|
(163 |
) |
|
Other
liabilities, noncurrent |
|
|
(139 |
) |
|
|
(119 |
) |
|
Net cash
provided by operating activities |
|
|
2,324 |
|
|
|
1,207 |
|
|
Cash Flows from
Investing Activities |
|
|
|
|
|
Capital
expenditures |
|
|
(124 |
) |
|
|
(401 |
) |
|
Internal software
development costs |
|
|
(543 |
) |
|
|
(695 |
) |
|
Other investing
activities |
|
|
— |
|
|
|
90 |
|
|
Net cash
used in investing activities |
|
|
(667 |
) |
|
|
(1,006 |
) |
|
Cash Flows from
Financing Activities |
|
|
|
|
|
Withholding taxes related to release of restricted stock, net of
share settlement |
|
|
(726 |
) |
|
|
(347 |
) |
|
Repurchases of common
stock |
|
|
(125 |
) |
|
|
— |
|
|
Net cash
used in financing activities |
|
|
(851 |
) |
|
|
(347 |
) |
|
Effect of exchange rate
changes on cash and cash equivalents |
|
|
(10 |
) |
|
|
2 |
|
|
Net increase (decrease)
in cash and cash equivalents |
|
|
796 |
|
|
|
(144 |
) |
|
Cash and cash
equivalents at beginning of period |
|
|
49,571 |
|
|
|
53,710 |
|
|
Cash and cash
equivalents at end of period |
|
$ |
50,367 |
|
|
$ |
53,566 |
|
|
|
|
|
|
|
|
|
QUINSTREET, INC. |
RECONCILIATION OF NET INCOME (LOSS)
TO |
ADJUSTED NET INCOME |
(In thousands, except
per share data) |
(Unaudited) |
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2017 |
|
2016 |
|
Net income (loss) |
$ |
1,445 |
|
|
$ |
(3,569 |
) |
|
Amortization of intangible assets |
|
1,134 |
|
|
|
1,948 |
|
|
Stock-based compensation |
|
2,437 |
|
|
|
2,607 |
|
|
Material
weakness related expense |
|
528 |
|
|
|
— |
|
|
Tax
impact after non-GAAP items |
|
(1,996 |
) |
|
|
(355 |
) |
|
Adjusted net
income |
$ |
3,548 |
|
|
$ |
631 |
|
|
|
|
|
|
|
Adjusted
diluted net income per share |
$ |
0.08 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
Weighted
average shares used in computing adjusted diluted net income
per share |
|
46,728 |
|
|
|
45,700 |
|
|
|
|
|
|
|
|
QUINSTREET, INC. |
RECONCILIATION OF NET INCOME (LOSS)
TO |
ADJUSTED EBITDA |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2017 |
|
2016 |
|
Net income (loss) |
$ |
1,445 |
|
|
$ |
(3,569 |
) |
|
Interest
and other income, net |
|
(80 |
) |
|
|
— |
|
|
Benefit
from taxes |
|
(8 |
) |
|
|
(1,376 |
) |
|
Depreciation and amortization |
|
2,261 |
|
|
|
3,373 |
|
|
Stock-based compensation |
|
2,437 |
|
|
|
2,607 |
|
|
Material
weakness related expense |
|
528 |
|
|
|
— |
|
|
Adjusted EBITDA |
$ |
6,583 |
|
|
$ |
1,035 |
|
|
|
|
|
|
|
|
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 |
|
|
|
September 30, |
|
|
|
2017 |
|
2016 |
|
Net cash
provided by operating activities |
$ |
2,324 |
|
|
$ |
1,207 |
|
|
Capital
expenditures |
|
|
(124 |
) |
|
|
(401 |
) |
|
Internal
software development costs |
|
|
(543 |
) |
|
|
(695 |
) |
|
Free cash
flow |
$ |
1,657 |
|
|
$ |
111 |
|
|
Changes
in operating assets and liabilities |
|
|
3,958 |
|
|
|
1,143 |
|
|
Normalized
free cash flow |
$ |
5,615 |
|
|
$ |
1,254 |
|
|
Investor Contact:
Erica Abrams (415) 297-5864
eabrams@quinstreet.com
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