QuinStreet, Inc. (NASDAQ:QNST) Q4 2023 Earnings Call Transcript

QuinStreet, Inc. (NASDAQ:QNST) Q4 2023 Earnings Call Transcript August 9, 2023

QuinStreet, Inc. misses on earnings expectations. Reported EPS is $-0.01 EPS, expectations were $-0.00667.

Operator: Good day, and welcome to QuinStreet’s Fiscal Fourth Quarter and Full Year 2023 Financial Results Conference Call. Today’s conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Senior Director of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Robert Amparo: Thank you, operator, and thank you everyone for joining us as we report QuinStreet’s fiscal fourth quarter and full year 2023 financial results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing.

Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today’s earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir.

Doug Valenti: Thank you, Rob. Welcome everyone. QuinStreet had a very successful fiscal Q4. We continue to make great progress against our big non-insurance market opportunities. Those nine figure revenue client verticals grew its strong double-digit rates year-over-year in the quarter and represented 75% of total revenue. We expect to grow those businesses at double-digit rates for years. We also continued to invest smartly and effectively in our next-generation products and capabilities, including in insurance where we are positioned to take maximum advantage of the reinflection of carrier marketing budgets. We expect that reinflection to begin in January. Lastly, regarding Q4, we continue to demonstrate operational and financial excellence as well as resilience in our business model.

We delivered better than expected revenue, profits and cash flow, improving our already strong balance sheet, all while navigating the auto insurance market and while maintaining high levels of investment and important new products, technologies, and growth initiatives. Moving to our outlook. First, for the new full fiscal year 2024, which began on July 1. We continue to expect that revenue and adjusted EBITDA we’ll grow at double-digit rates year-over-year this fiscal year, driven mainly by continued momentum and scale in non-insurance client verticals. We also expect a significant positive inflection in auto insurance client spending to begin in January for the second half of our fiscal 2024. We will also, of course, continue to maintain our strong balance sheet in fiscal 2024.

Regarding our outlook for fiscal Q1 or the September quarter, we expect revenue to be between $120 million and $125 million, and adjusted EBITDA to be approximately breakeven. Finally, our longer term outlook has never been better. We expect to deliver double-digit annual revenue growth rates. We could do so just based on continued strong performance in non-insurance businesses. Revenue from non-insurance businesses is now running at almost $400 million per year. It grew 26% in fiscal 2023 and has grown organically at a compound annual rate of 19% over the past three years. We also expect insurance revenue to be up and to the right over the longer term, eventually returning to and exceeding prior peak levels as carriers benefit from compound rate increases, product changes, pooling inflation, and improving supply chains, and allowing the shift to digital and performance marketing to reassert itself as the dominant long-term trend.

We expect adjusted EBITDA to grow faster than revenue, as we scale the top-line faster than expenses, eventually reaching and exceeding an adjusted EBITDA margin of 10%. With that, I’ll turn the call over to Greg.

Greg Wong: Thank you, Doug. Hello and thanks to everyone for joining us today. For the June quarter, total revenue was $130.3 million. Adjusted net loss was $514,000 or $0.01 per share. Adjusted EBITDA was $1.8 million. Non-insurance revenue was $97.1 million or 75% of Q4 revenue and grew 18% year-over-year. Looking at revenue by client vertical. Our financial services client vertical represented 58% of Q4 revenue and was $75.2 million. Our home services client vertical represented 41% of Q4 revenue and was $53.1 million. Other revenue was the remaining $2 billion of Q4 revenue. Turning to our full fiscal year 2023 performance, we reported revenue of $580.6 million roughly flat year-over-year as strong performance in non-insurance businesses offset insurance results.

Revenue from non-insurance businesses were $367.4 million in fiscal year 2023 and an increase of 26% year-over-year. Our financial services client vertical represented 65% of full fiscal year revenue and was $379.7 million. Our home services client vertical represented 33% of full fiscal year revenue and was $193.1 million. Other revenue represented the remaining $7.8 million of full fiscal year revenue. Adjusted EBITDA for full fiscal year 2023 was $16.7 million. Turning to the balance sheet. We closed the year with $73.7 million of cash and equivalence and no bank debt. GAAP net income this quarter included a one-time non-cash charge of $51.9 million to establish a valuation allowance against our deferred tax assets. Establishing the valuation allowance was required by GAAP, but to be clear, our deferred tax assets have expiration dates many years out, and we do expect to be able to utilize them in the future to offset tax liabilities.

In summary, let me emphasize the same three main points Doug made. One, our non-insurance businesses are big market opportunities. We’re growing them at strong double-digit rates and as expect to continue to do so for years to come. Two, we expect a significant positive inflection in auto insurance client spending to begin in January or the second half of our fiscal 2024. And three, we continue to maintain a strong financial foundation and to demonstrate the resilience and cash generating capabilities of our business model. With that, I’ll turn it over to the operator for Q&A.

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from John Campbell from Stephens. Go ahead John.

AJ Hayes: Hey, this is AJ Hayes stepping on for John. Congrats on the quarter and thanks for taking our questions. So obviously the fiscal year 2024 guidance commentary is calling for growing revenue and EBITDA double digits. So if I just assume 10% growth for both revenue and EBITDA, you actually come out ahead of where consensus stood on revenue, so congrats on that. But this wouldn’t imply adjusted EBITDA margin of roughly 2.9%. So with that said, my question is, does this 2.9% EBITDA margin, roughly 3% put us in the right ballpark for how you’re thinking about EBITDA margins this year? Or would you consider this maybe the floor given that you expect EBITDA to outgrow revenue as part of your long-term outlook? And then maybe if this – this is kind of like the base margin assumption here could you maybe give some more color on how you’re thinking about margins this year?

Doug Valenti: Yes, thanks, AJ. I don’t think we want to be overly specific at this point about the margin, but I would say that we would consider 10% to be the bottom end of the improvement year-over-year. So, I guess that’s a long way of saying, yes, we would probably expect to be better than that. In terms of how it comes out. It’s going to be driven. Let me give you some parameters around it. Insurance can be down this year, this fiscal year over last fiscal year, which wasn’t a very good fiscal year for insurance, obviously, and we’ll still grow at double digits and on the revenue line and the EBITDA line this fiscal year. We do expect though that there’ll be a pretty significant positive inflection insurance beginning in January and hopefully sustained and off to the race as we go from there for a lot of periods to come.

If and as that does happen, that’s quite additive to those numbers. So hopefully that gives you that brackets it for you that as much as I think we’re – we’d like to bracket at this point. I think until we see how insurance does in the back half and how fast it does come and what rate it comes and how sustained it is, it’s hard for us to be too precise about the number other than to say, again, we can deliver what we’ve guided even if insurance is down this year over last fiscal year.

AJ Hayes: Great, thanks for the color there. And then one more on guidance, and kind of run it with 10% rev growth assumption here again. And we’re still working through the math here, but if I just assume that 10% rev growth in 2024 and then you hit your midpoint of your 1Q guide and revenue largely holds flat until we kind of flip into the new calendar year. I’m kind of getting in the ballpark of mid-teens year-over-year growth and 3Q and then a sizable year-over-year jump in 4Q in terms of revenue somewhere in the range of maybe 50%. Is this rev ramp somewhat in the ballpark of how you’re thinking about things? And maybe you kind of alluded to this in your prior commentary, but just kind of thinking is that the right way to conceptually thinking about the rev ramp this year?

Doug Valenti: Yes, I think we’re again getting – yeah, go ahead Greg, you want to go ahead?

Greg Wong: That was – that’s exactly what I was going say. I think we’re trying not to get over precise with that AJ, just because we don’t know the exact curve of what that inflection looks like. We expect a significant positive expect in inflection in auto insurance spending to begin in January, but without fully knowing what the shape of that curve is, it’s hard for us to get over precise on that.

Doug Valenti: Yes, that’s exactly right. And AJ the only thing I would add is that generally speaking, the kind of curve shape you’re talking about is accurate, because what you get, of course, in the back half, we believe is the effects of not only continued success in growing our non-insurance businesses throughout the year, but also auto insurance and, beginning it’s – and it’s positive inflection. So generally speaking, I think the shape you talked about is accurate. To Greg’s point and it’s same thing I was going to say, is just hard to be overly precise about it at this point until we know what that auto insurance curve looks like. We feel good about it coming. It’s consistent with what we’re hearing from the carriers.

It’s consistent with what we’re hearing from industry analysts. It’s consistent with what we’re hearing from banking analysts that cover the insurance industry. And it’s obvious why, right? You’ve got now several years of, in some cases double-digit rate increases. You have consumers renewing at those higher rates. You have the carriers adjusting their products in terms of where they’re covering and what they’re going to cover and how much they’re going to cover to reflect the environment. You have a pooling inflation environment. You have dramatically improved supply chains on the auto and auto parts side. Everything adds up to things getting a lot better. The CEOs of the carriers themselves have talked about most of these same things.

So we feel very good particularly given that January was strong two years ago, January through March was really strong last year, and things have only gotten better from there going into count of 2024. And of course the reason the calendar year, beginning of the calendar year is always magical is, because the combined ratios reset, combined ratio targets reset for some of the most important carriers in the channel. So, we’ve – everything adds up to, it’s probably going to be what we described. It’s going to be a significant positive inflection and it’s going to begin in January. We just don’t know exactly how much and how fast because nobody does.

AJ Hayes: That’s very helpful. Thank you guys.

Doug Valenti: Thank you, AJ.

Operator: And our next question comes from Jason Kreyer from Craig-Hallum. Go ahead.

Cal Bartyzal: Hey, this is Cal Bartyzal on here for Jason. Just a couple from me. I guess to start going back to auto; can you just talk about maybe any differences in performance you saw on agent channels versus digital channels?

Doug Valenti: Agent versus digital?

Cal Bartyzal: Yes, just any differences, in any performances you’re seeing between those channels.

Doug Valenti: Yes, I’ll speak generally about it, but first by terms of overlay, we’re mostly leveraged to the direct channel, to the direct digital channel. We’re – we serve primarily direct carriers and we certainly have some business on the agent side, but it is not – it’s the small minority of what we do it’s unlike a couple of the other folks in particular say a LendingTree’s insurance business or ever quote, who are much more highly exposed and/or concentrated on the agent and read [ph] side. We’re much more concentrated on clicks and the direct side of the market. But we do serve and we do have insights into the agent side both in, because we do sell to some of them leads and calls in particular and because of QRP, we’re quite engaged with agencies.

And I would say that the agent side, there’s, it’s the agent side in some ways is doing better than the direct side, because the big carriers that have captive or dedicated agent networks are continuing those agents and those carriers are continuing to spend to keep the agencies healthy. If they were to completely cut off their spending, then those agencies would dry up and their whole distribution channel would dry up. So what you usually find is that while spending can drops in the agent channel, when there’s a hard market like there is now, it doesn’t drop as precipitously or as deeply as it does in the direct channel because they need to keep that channel at least breeding until the market comes back. Because if they don’t, then they lose, they risk losing to state overstate it their entire distribution channel.

Unlike with direct carriers who can just cut off advertising spend and when they want to come back, they just turn it back on and, “distributions” there all the time, whether they’re spending in it or not. So generally speaking, the agent channel has gone down, but not as much, and it doesn’t have as deep a bottom for those reasons. The other thing I would say about the agent channel, I guess, is that they are also hurting depending on which part of the agent channel you’re looking at because those carriers are also having hard, have had a hard time with combined or lost ratios particularly on the independent agent side, because independent agencies, some of the largest carriers in the independent agency channel are more the direct spenders or the direct carriers who have cut back and have other ways, other forms of distribution and share that channel with other carriers so they don’t have to worry as much about killing their distribution for the long term.

And because generally speaking, there’s just less coverage from carriers to write to the carrier. The agents just have fewer carriers to write because of the folks being out, out of the market. So, that would be from our, from where we sit and that’s what we’re seeing agent versus digital or direct.

Cal Bartyzal: Perfect. Thanks for that. And then just last one from me just talking about personal loans and credit cards, seems like that’s still performing for you guys pretty well just maybe any call outs you’d have there and kind of what you’re seeing? Thanks.

Doug Valenti: Yes, no, those businesses have done great through, all of our non-insurance businesses grew as strong double-digit rates this past fiscal year. We expect all to grow this fiscal year as strong double-digit rates. We are seeing great strength and good gains in credit cards where we are most, almost exclusively leveraged to prime consumers. And that’s a good thing in the credit card market. And then in personal loans, we’ve seen a lot of strength and we’re having a record, we had a record month in June in personal loans. So despite the fact that there has been some credit tightening on the lender side, we continue to expand, our client base have more options for consumers, and we have a pretty vibrant component of our business that helps consumers get connected to folks can help them with their credit and can help them with their debt situations.

And we’ve seen the balance shift, not surprisingly given inflation and other factors a little bit more to that side of the business, but we’re early in a very big market and personal loans and continue – and then, and have a real balanced set of services for consumers that are really serving the market now, despite some of the credit tightening. But yes, personal loans, as I said, and credit cards, both strong double-digit rates we expected again this year. And both have a great outlook and as I said, personal loans even had a record month just in June. So those businesses doing very well for us.

Cal Bartyzal: Perfect. Thanks. That’s helpful.

Operator: And our next question is from Jim Goss from Barrington. Go ahead, Jim.

Jim Goss: All right, thanks. You were pretty emphatic about expecting a turn in January, and I know you talked about the resetting of the combined ratios, but it’s been a sort of a challenge to make that turn over the past year or so anyway, and I’m – I was just wondering is that really the source of your confidence because of that resetting of the combined ratios? And are there things we should be watching as observers to monitor whether, whether that turn is more likely to take place aside from whatever, you might tell us.

Doug Valenti: Jim, I can’t believe you don’t want to just rely on what I tell you, but no, the…

Jim Goss: Well I always, I always rely on that back.

Doug Valenti: Okay. Hey I – as I said before, and I think it’s a great question, by the way I – we have had false starts. The industry auto insurance engine has had false starts the last two years going into the New Year. So completely understand the question and is a completely valid question, and we are asking it from every direction we know how, for the exact same reasons. All I can do is let me, let me tell you, what we’re seeing, what we’re hearing, and on the question about what else you should watch, let me jump to that and then I’ll jump back in terms of what we’re seeing and hearing why we think it. I would encourage you to read any industry analyst reports you can get your hands on. I shared some of those with our board this past board meeting.

I would look to the analysts that cover the big carriers, and particularly the big direct carriers including Geico and Progressive and what they’re saying and hearing about the economics of those folks. I would watch Progressive’s reporting, which is monthly on their combined ratio and see if in fact, the combined ratio for the remainder of this calendar year improves significantly over what it has been over the past, the first half of the calendar year. And because that will imply that they’re getting to, not just that they’ve cut costs, but they may be getting to rate adequacy and that they have the rates and the economics to be more aggressive in the January forward period, which we do believe is probably happening based on everything, what that we are hearing out, not from Progressive, but in the market.

And as we as we hear and read industry and stock analysts, you might note that when Progressive reported their quarter, the stock industry traded down and it popped right back up again, because I think several of the analysts, the sell side analysts came out and talked about those exact happenings those exact factors. So that’s, that, those are some of the things I would watch. And I think, and I would invite you to, and again, I completely understand, but I would remind you that two years ago, January was a record for us in auto insurance last year, the January, February, March quarter was I think Greg and perhaps another record, if not very close in terms of quarter for auto insurance and…

Greg Wong: It wasn’t a record, but it was a very strong quarter.

Doug Valenti: Thank you. And since then, again, what we’ve had in the market is carriers successfully getting rate increases and getting compounded rate increases over several years now. And having now consumers who renew about every six months renew under those increased rates, but we’ve had carriers adjust their products and their coverage to better reflect where they think they can make money in the market. And to reflect the current economics in the market. We obviously have dramatically cooling inflation from where it was two years ago and a year ago, and supply chains, as you can tell, just by watching your television, seeing all the car ads, the automobile ads are back, well, they’re back because we have cars to sell again.

And so you’ve seen a supply chain improvement for automobiles. You’ve seen a softening of used car pricing, and you’ve seen some, an improvement in supply chains for automobile parts, all of which matter to a carrier who has to pay for all that. So everything adds up to when combined ratios reset in January, the environment being a lot more conducive to carriers getting back into growth mode. And the CEOs of these companies have come out and said, we want to grow, and by the way, they’re rewarded for growing. So, they will have had three years to adjust and adapt and they’ve had price increases, as I said, and the environment getting better. So it’s just hard for us to imagine, and we haven’t found an industry analyst anywhere that disagrees with the notion that 2024 is going to be, count of 2024 is going to be better than 2023.

The big question is at exactly what rate. So what, how we would characterize it as what I think is pretty safe ground, pretty significant positive inflection in January from where we are right now, because the carriers are down so much as they look to finish out this calendar year against a pretty bad first half. But exactly how big and exactly how fast. Here’s the good news. Our insurance business could be down year-over-year, this fiscal year, and we will still deliver double-digit growth.

Jim Goss: Okay, well one more this area, and then I have one other thought, but – there’s a clear difference between homeowners and automotive insurance that some of the carriers are getting out of Florida and California in the homeowners area. So it can be very unpredictable, and I’m wondering if you get squeezed between the cautious carriers and the sort of the concerned consumers who don’t really have other good options as their pricing goes up, even if they look through the options, they don’t really find anything better, which can seem to extend the process of that transition.

Doug Valenti: Well, the more they shop the more business we get. So and the places where carriers are pulled out of markets are really kind of immaterial to our auto insurance business getting a heck of a lot bigger, in fact, getting back to the size it was before as the market normalizes. So those are certainly factors, but I don’t think the factors that in any way changes the answer for us if the market in fact comes back and begins its comeback, as we think it will beginning in January. So the only other two things I’d throw in there and I don’t mind to pile on, because hey, God knows we’ve all had way too much of a frustrating time trying to figure out what’s going on in the auto and home insurance markets, including the carriers about the way.

It’s not like these guys aren’t trying, these are great companies. You – them, at their best shot in an incredibly complicated, difficult environment. So this is, it’s, there’s, I don’t think there’s blame to be laid anywhere but it has been awfully difficult. But I would say that the with inflation, with the softening economy, god forbid a recession, what we have always seen is that shopping for auto insurance increases. On top of that, consumers are getting, or as they renew, their rates are getting increased. In some cases their rates are getting increased strong double digit rates, 10%, 15%, 20%, 30% that causes shopping. When consumers shopped more for insurance, we get more traffic and our business gets goes up. Our business is driven by two things, traffic and budgets.

Right now, traffic is up, because rates have gone up and budgets are down, but it’s really hard to produce revenue. We expect from January forward that we’ll still have very strong traffic for all the reasons I just talked about, and that budgets will begin to come back and that adds up to, and that should mean significant positive inflection spending should mean significant positive inflection and our auto home insurance revenue. Okay.

Jim Goss: Well, my last thought was that it seems that this is your big opportunity to put the pedal to the metal and the huge non-financial verticals, the home services area, as you did back when education hit a wall and you sort of transitioned your, the theme of your business basically. And I’m wondering if there are challenges that are stopping you from going even faster there, whether they’re, financial issues in the homeowners or anything else, or is it just a matter of defining which areas you want to get into sort of as an additive – great middle area.

Doug Valenti: No, it’s a great observation and, and a great point and question. I would say that we’re investing as aggressively as we think we can to good effect. I don’t think that we’re missing anything big in terms of how, what we’re investing in, we’re investing of course for the long term. And so what we’re doing or we think we’re building, we want to build it in a big sustainable way, which I think we’re doing that it we’re, it, if we wanted to push further out on the kind of probability or risk curve in terms of our investments I think we could, if we were not more constrained by wanting to make sure we maintain a pretty safe profile while we wait for insurance to come back. So you think about it, what are we balancing?

We want to maintain our infrastructure and insurance and in fact continue to invest in that infrastructure so that when insurance comes back, we get maximum advantage, but we’re doing that without insurance, without much insurance revenue. So that’s pretty hard on profits and cash flow, but we’re investing very aggressively on a non-insurance businesses, to your point. And we’re doing that with great effect. We measure our performance on that. We measure our margins on that this year. We expect about a 30% margin on those incremental investments and to deliver strong double digit growth rates again in those businesses. So we think we’re doing it very effectively. We think we’re doing it in the right places, and we think we’re doing it in a way that’s going to give us sustainability.

And so we take those two things and you balance them against the, the business and you say, but we, because we want to continue to control our own destiny and maintain a very safe profile, we want to be cash flow positive. So those are kind of the things we’re balancing and I think, I would argue and nobody’s more biased than I am and we’re doing it awfully well if you look at the, if you look at the results.

Jim Goss: Well, I appreciate your thoughts and thanks for taking my questions.

Doug Valenti: Thank you, Jim.

Operator: And up next we have Chris Sakai from Singular. Go ahead, Chris.

Chris Sakai: Yes. Hi Greg and Doug, just I had a question on Q1s guidance of what, $120 million to $125 million. Can you do – can you provide a breakdown as far as what percentage of that would be financial and what percentage of those services?

Doug Valenti: Greg, I don’t know if you have that in front of you if you want, or if we want to provide the guide at that level of detail. We don’t typically provide the guide by vertical like that, Chris, but I would say that the general way to think about it is auto insurance is running along the bottom of where it’s been for the last several years. And so you, which you should expect and, but our other non-insurance businesses are doing extraordinarily well. So the bulk, just like this quarter, 75% of our revenue was non-insurance. I would expect that it would be that or more this quarter, because auto insurance is actually as low as it’s been in a very long time. And it dropped down to that level of, in the May and June timeframes, so it’ll be lower this quarter than it was last quarter.

As again, the carriers try to offset a very bad first half and get ready, we hope to be able to inflect in January. Greg, I’m sorry. Make sure I cover that right for you.

Greg Wong: Yes, no, that’s exactly it. I think we’ll see a full quarter effect from auto insurance of depressed spending in the September, September quarter offset by double digit growth in non-insurance businesses. So very similar dynamic to what we saw in the June quarter.

Chris Sakai: Okay. Sounds good. And then, let’s see yes, I think can you talk about essentially providing guidance for the year? How, would you provide that?

Doug Valenti: No, that’s a great question, Chris. I think as soon as we have any kind of reasonable clarity on auto insurance we’ll be able to get more precise. I know it’s kind of frustrating when we give something as generic as, double digits. But what we can do with that is we can make a broad range of assumptions and we know what our forecasts are for non-insurance businesses. We’ve been quite accurate. In fact, I think beat those that that budget last year quite handily. But what we don’t have a handle on, as I said before is the exact shape of the auto insurance curve from January forward. We believe, of course, for all the reasons I’ve talked about that there’s going to be a significant positive infection.

We don’t know exactly how big or how or what rate. We’ve run a lot of different models and again, I think the best news to give you is that we can be down year-over-year in auto insurance, this fiscal year and still deliver double-digit growth over, over fiscal 2023. That’s about as precise as we can be. And hopefully that’s a good bracket to at least give you until we begin to get budgets. Probably in the December, we’ll get indications maybe in late November. We’ll get, hopefully budget numbers in December, and then we’ll know, where we’ll have a much better feel for where we are. So I would hope that the answer to that is when we report our fiscal Q2 or for the December quarter, that we will be able to be – we’ll be able to tighten that range quite a bit for you.

Chris Sakai: Okay. Sounds good. And then last one for me. So you expect adjusted EBITDA to be exceeding the 10% margin range. Can you give any timeframe on that?

Doug Valenti: I can’t, because it depends on auto insurance. I can tell you that if we do an auto insurance, what we think we could do in auto insurance, which is not to the levels that it was anywhere near to the levels of the peak, then we could be pretty close to that as soon as the fiscal fourth quarter. Now, we don’t expect that, and we’re not guiding to that, but that gives you a sense for how rapidly EBITDA margin will come back as we get a return of any kind of top-line leverage from auto insurance. And I’ don’t know, Greg, is that – do you want to give any – you want to make sure I’m giving that accurately and/or more color on that that.

Greg Wong: No, that’s accurate. That’s correct. That is correct.

Chris Sakai: Okay, sounds good. Thanks for the answers.

Doug Valenti: Thank you, Chris.

Operator: And up next we have Max Michaelis. Go ahead, Max, from Lake Street Capital.

Max Michaelis: Hey guys congrats on the quarter. I won’t keep beating the dead horse on the guidance. I’ll shift gears here. Just going back to some of your commentary on investments in the quarter and going forward, can you just get into a little bit more specifics on what kind of investments you’re going to be directing some of this cash towards? Thank you.

Doug Valenti: You bet, Max. So when I say investments, I don’t just mean capital investments. Oftentimes when I talk about investment, I mean like, people and/or working on a new media opportunity that might result in some losses for a while until we optimize it up into the right. So again, I use the term investments pretty generically and I don’t know, that can be confusing, I apologize for that. But mostly it’s going to be several buckets. One is, we have a lot of opportunities to continue to press our growth in non-insurance plant verticals, because those are big markets. They don’t have the structural headwinds of auto insurance. And we have more clients to add, we have more media properties to partner with. We have more media campaigns to develop.

We have the development and application of our core optimization technologies to those verticals as they get to the scale that justifies that and where a scale that requires that in order for us to really be as efficient as we need to be. So it’s investment in all of those areas, whether it be people or trial and error or other forms of ramping all those kinds of things. So that’s probably the bulk of the investment. And in fact, it has been the bulk of the investment this past year will likely be the bulk of the investment. This coming year. We’re also investing in, as you know new products. We continue to invest aggressively in QRP. We continue to see great opportunity in QRP. We have made great, great progress with QRP, but for the bad market and that product is just continued to get better as we get feedback from carriers and from agencies and as we work with some of the big agencies to get that implemented.

So that and another product that we talked about for lending and home services, we’re continuing to invest in that product though neither of those products have big revenue yet QRP because of the insurance market, the other lending product, because it’s earlier stage. But we’re putting a lot of money into those products. We think they both represent tens to hundreds of millions of dollars of very high margin opportunity for the company that are very contiguous to and very complimentary to our core business. So we’re continuing those investments and have continued those investments. Including an insurance, as I said, not just QRP, but also in media and all the other things we need to do in insurance to be ready for that, for the business to come back on the other side.

So those are – those are the big buckets. And we have been doing that. We will continue to do that. And this, and the reason you see the reduction EBITDA this past year is because we’ve done that while losing from the peak $200 million a year in insurance revenue. So that’s kind of the things we think are important to keep investing in while maintaining a great balance sheet and while staying cash flow and adjusted EBITDA positive.

Max Michaelis: No, that’s great color. And then actually I do want to ask something about the quarter here with the insurance vertical. I know the rug was kind of pulled out from underneath you back in April unexpectedly. Did it get materially worse throughout the quarter in May and June?

Doug Valenti: It did, it did. I think we’re – and we’ve been told by the carriers that we’re kind of at the bottom, hopefully they’re right, well, but yes, they are – they’re going to, I think what we’re seeing is carriers cutting cost dramatically in order to offset a bad first half and get to their combined ratio targets and hopefully, fingers crossed to be ready to spring out. And inflict very positively come January.

Max Michaelis: Okay. And then last one from me, what was progressive in the quarter as a percentage of revenue?

Doug Valenti: 6%.

Greg Wong: Hey, Max, this is Greg. Progressive was 6%. Yes. 6%.

Max Michaelis: Yes. Thank you. That’s it from you guys.

Doug Valenti: Thank you, Max.

Operator: And our final question is a follow up from John Campbell from Stephens. Go ahead, John.

AJ Hayes: Hey guys, this is AJ Hayes on again for John. Just wanted to follow up on the home services segment. You’ve been putting up impressive year-over-year growth numbers there, despite last being tough comps. So you’ve had a handful of really strong quarters and maybe even a handful of really strong years going on here in this segment. So question is, what is driving this growth of late? Is it new product driven? Is it new customers? Is it getting deeper share of wallet or is there may be anything else worth calling out there?

Doug Valenti: Yes, we have had several great years in home services, AJ. We just had another great quarter. We expect yet another great year. There’s a lot of momentum in that business. A lot of dimensions to the growth. We are getting deeper into the – in the trades we call them. A trade is kind of a sub-vertical in home services. A trade might be roofing, for example, or windows or HVAC. So we are getting deeper into the trades. We’re in getting more clients, more budgets from existing clients and more media access because of those stronger budgets. That’s one dimension. Other dimensions, we’re adding new trades. We’re getting into more trades and we expect to continue to get into more trades as we go forward. And then we’re just executing extraordinarily well.

We – when we merged our home services business with the modernized home services business, they were very complimentary. And we thought one-on-one would be two and a half, one-on-one’s been about four as that those teams have executed. So we just, just good basic execution on all the dimensions that matter to our business, whether it be more media, better results from media, more budgets, better results for our clients, so we get even more budgets or the application of our, of the QuinStreet core optimization technologies, which are really our secret sauce. That’s our magic into home services as we’ve gotten further along the integration curve. But all of those things have been have been additive and have contributed to strong growth, which we just had, again, another strong year, another strong quarter, and we expect another strong year going forward.

So there’s, and it’s a massive market that you’ve heard us say. And Greg has said maybe our biggest addressable market and quite possibly so it’s a great fit for QuinStreet. And we got a great team and they’re executing extraordinarily well, and we know what we need to do and we get up and do it every day. So that’s, those are kind of the dimensions.

AJ Hayes: That’s great. Thanks for the color there, Doug.

Doug Valenti: Thank you, AJ.

Operator: And we have no further questions at this time. Thank you everyone for taking the time to join QuinStreet earnings call, replay information is available on the earnings press release issued this afternoon. This concludes today’s call. Thank you. You may all disconnect.