QuinStreet, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended March 31, 2018 (fiscal 2018 third quarter), with nine-month results through that date. This differs from the request metadata’s “2017 Q3.” Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
QuinStreet provides performance-marketing and customer-acquisition services, primarily in financial services and education, with additional activity in home services and business-to-business technology. Most revenue is generated in the United States. The interim financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Mar. 31, 2018 | Three months ended Mar. 31, 2017 | Nine months ended Mar. 31, 2018 | Nine months ended Mar. 31, 2017 |
|---|---|---|---|---|
| Revenue | $117.9 | $79.2 | $292.8 | $218.3 |
| Gross profit / margin | $17.9 / 15.2% | $9.9 / 12.5% | $41.7 / 14.2% | $19.5 / 8.9% |
| Operating income (loss) / margin | $6.6 / 5.6% | $0.4 / 0.5% | $9.6 / 3.3% | $(12.3) / (5.6)% |
| Net income (loss) | $7.1 | $0.6 | $10.5 | $(10.8) |
| Diluted earnings (loss) per share | $0.14 | $0.01 | $0.21 | $(0.24) |
- Cash flow: Nine-month operating cash flow was $15.3, versus $8.3 a year earlier. Investing cash outflow was $15.2, including the Katch acquisition; financing cash outflow was $2.6. Cash declined $2.5 from June 30, 2017 to $47.1.
- Liquidity and debt: Current assets were $123.2 and current liabilities $69.8 (current ratio approximately 1.8). The company reported no borrowing outstanding and had $47.1 of cash and cash equivalents. It stated that available liquidity should cover anticipated needs for at least 12 months.
- Balance sheet: Total assets were $207.0, total liabilities $73.3, and stockholders’ equity $133.7. Accounts receivable rose to $69.1 from $44.1 at June 30, 2017.
- Other commitments: Operating lease minimum payments totaled $17.3 as of March 31, 2018. A lender commitment to a strategic partner could reach $2.5; nothing was drawn at quarter-end.
Material changes versus the prior comparable period
- Quarterly revenue grew 49%; nine-month revenue grew 34%. Financial-services revenue was the main driver, increasing 79% for the quarter and 56% for the nine-month period, reflecting enhanced products, improved media yields, and client movement toward digital marketing.
- Financial services rose to 74% of quarterly revenue from 62% a year earlier; education declined to 17% from 24%. The nine-month financial-services mix was 71%, compared with 61%.
- Gross margin improved to 15.2% for the quarter and 14.2% year to date. Management attributed the improvement primarily to lower personnel and intangible-amortization costs as a share of revenue, partly offset by financial services’ higher media costs.
- Nine-month operating results improved from a $12.3 loss to $9.6 income. The prior-year period included $2.4 of restructuring charges; the restructuring was completed by June 30, 2017.
- In November 2017, QuinStreet acquired Katch assets for $14.0 cash, adding auto insurance, home insurance, and mortgage relationships. The purchase-price allocation included $6.1 of goodwill and $7.9 of identifiable intangibles.
Outlook, risks, contingencies, and unusual items
- No specific revenue or earnings guidance is provided. Management expected financial services and education to remain the majority of revenue for the rest of fiscal 2018, with financial services expected to increase as a proportion of total revenue.
- Management describes growth at target profitability levels as its objective, while continuing to invest in growth initiatives. Results are subject to seasonality, including typically weaker December quarters and a general rebound in the March quarter.
- Customer concentration is significant: one financial-services client generated 22% of quarterly and 23% of nine-month revenue. Management also identifies dependence on third-party media, search platforms, client budgets, and highly regulated financial-services and education markets as risks.
- Disclosure controls were deemed ineffective as of March 31, 2018 because of an unremediated material weakness involving completeness and accuracy of accounting for non-standard revenue credits. Remediation steps were implemented, but had not operated long enough to establish effectiveness. Management stated the financial statements fairly present results in all material respects.
- The Tax Cuts and Jobs Act had no material reported impact for the period; the foreign transition-tax calculation remained provisional. The company maintained a valuation allowance against the majority of deferred tax assets.
- In April 2018, after quarter-end, the company amended its headquarters lease, reducing space and extending the term through October 2023. The filing reports no pending legal matter expected by management to materially adversely affect future results, while noting legal outcomes remain uncertain.
Important facts for investors to verify
- Confirm that the reporting period is fiscal Q3 2018, not 2017 Q3, and compare the figures with the filed statements.
- Assess whether financial-services growth and the elevated client concentration are sustainable, and monitor the leading client’s revenue and receivables share.
- Track accounts-receivable growth and collections alongside revenue growth and operating cash flow.
- Monitor remediation and subsequent auditor or management reporting on the material weakness in revenue-credit controls.
- Review the Katch acquisition’s contribution, the $2.5 lending commitment, and the amended headquarters lease’s future cash obligations.