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QuinStreet Reports Third Quarter Fiscal Year 2017 Financial Results

FOSTER CITY, Calif., May 09, 2017 (GLOBE NEWSWIRE) -- QuinStreet, Inc. (Nasdaq:QNST), a leader in performance marketing products and technologies, today announced financial results for the third quarter ended March 31, 2017.

For the third quarter, the Company reported total revenue of $79.2 million and GAAP net income of $579,000, or $0.01 per share. Adjusted net income was $2.6 million, or $0.06 per share, and adjusted EBITDA was $5.2 million, or 7% of revenue.

The Company generated $6.2 million in operating cash flow in the third quarter, ending the period with $42 million in cash and equivalents, and no debt.

“Fiscal Q3 was in line with our expectations and outlook,” commented Doug Valenti, CEO of QuinStreet. “We saw strong double-digit sequential revenue growth in all of our client verticals: Financial Services grew 23%, Education grew 18%, and Other (Home Services, Business-to-Business Technology) grew 17%. We delivered on our commitment to rapidly expand adjusted EBITDA margin and operating cash flow in the quarter. We are pleased to have achieved adjusted EBITDA margin of 7% and operating cash flow of $6.2 million, resulting in a net cash position of $42 million.

“Looking at fiscal Q4, we expect revenue to grow in the low single digit percentages both year-over- year and sequentially. The expected sequential growth is considerably better than our typical historic pattern of a seasonal decline in Q4, indicating the continued positive momentum we are seeing in the business. We expect adjusted EBITDA margin to be at least 7% for the quarter,” concluded Valenti.

Reconciliations of adjusted net income to GAAP net income and adjusted EBITDA to GAAP net income 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 (800) 768.6544 or +1 (785) 830.7990 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://jsp.premiereglobal.com/webrsvp and using passcode 5654911 to obtain dial-in information for the replay. Dial-in information for the replay will be available beginning one day prior to the conference call and the conference call replay will be available through Tuesday, May 16, 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 (loss) and adjusted diluted net income (loss) per share, 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 (provision for) taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other income (expense), net, restructuring expense and legal settlement expense. The term "adjusted net income (loss)" refers to a financial measure that we define as net income (loss) adjusted for amortization expense, stock-based compensation expense, restructuring expense and legal settlement expense, net of estimated taxes. The term "adjusted diluted net income (loss) per share" refers to a financial measure that we define as adjusted net income (loss) divided by weighted average diluted shares outstanding. 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 (loss) and adjusted diluted net income (loss) per share may not be comparable to the definitions as reported by other companies.

We believe adjusted EBITDA, adjusted net income (loss) and adjusted diluted net income (loss) 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 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 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 agreement.

Adjusted net income (loss) and adjusted diluted net income (loss) 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) and other non-recurring charges. The Company believes that analysts and investors use adjusted net income (loss) and adjusted diluted net income (loss) per share as supplemental measures to evaluate the overall operating performance of companies 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 March 31, 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)
March 31, June 30,
2017 2016
Assets
Current assets:
Cash and cash equivalents $41,744 $53,710
Accounts receivable, net 43,107 47,218
Prepaid expenses and other assets 7,130 7,055
Total current assets 91,981 107,983
Property and equipment, net 6,277 7,678
Goodwill 56,118 56,118
Other intangible assets, net 5,300 10,081
Other assets, noncurrent 10,474 11,242
Total assets $170,150 $193,102
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $20,874 $19,814
Accrued liabilities 26,185 27,705
Deferred revenue 1,040 1,200
Debt 15,000
Total current liabilities 48,099 63,719
Other liabilities, noncurrent 3,733 4,631
Total liabilities 51,832 68,350
Stockholders' equity:
Common stock 45 45
Additional paid-in capital 262,391 257,950
Accumulated other comprehensive loss (453) (418)
Accumulated deficit (143,665) (132,825)
Total stockholders' equity 118,318 124,752
Total liabilities and stockholders' equity $170,150 $193,102


QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2017 2016 2017 2016
Net revenue $79,205 $81,243 $218,253 $218,593
Cost of revenue (1) 69,338 72,956 198,803 199,220
Gross profit 9,867 8,287 19,450 19,373
Operating expenses: (1)
Product development 3,147 4,214 10,415 12,501
Sales and marketing 2,243 2,898 7,001 9,502
General and administrative 4,023 4,348 11,848 12,706
Restructuring charges 38 2,441
Operating income (loss) 416 (3,173) (12,255) (15,336)
Interest income 42 23 99 39
Interest expense (31) (155) (322) (433)
Other income, net 142 112 252 120
Income (loss) before income taxes 569 (3,193) (12,226) (15,610)
Benefit from (provision for) taxes 10 (72) 1,386 (477)
Net income (loss) $579 $(3,265) $(10,840) $(16,087)
Net income (loss) per share:
Basic $0.01 $(0.07) $(0.24) $(0.36)
Diluted $0.01 $(0.07) $(0.24) $(0.36)
Weighted average shares used in computing net income (loss) per share:
Basic 45,507 45,333 45,636 45,098
Diluted 45,722 45,333 45,636 45,098
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:
Cost of revenue $691 $969 $2,390 $2,826
Product development 424 576 1,431 1,761
Sales and marketing 291 501 868 1,482
General and administrative 671 770 2,095 2,270
Restructuring charges 42


QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2017 2016 2017 2016
Cash Flows from Operating Activities
Net income (loss)$579 $(3,265) $(10,840) $(16,087)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 2,660 3,721 8,983 11,437
(Provision for) recovery from sales returns and doubtful
accounts receivable
(102) 209 109 843
Stock-based compensation 2,077 2,816 6,826 8,339
Gain on sales of domain names (11) (44) (154) (160)
Other adjustments, net (3) (7)
Changes in assets and liabilities:
Accounts receivable (1,887) (9,165) 4,002 (4,103)
Prepaid expenses and other assets 23 (23) 583 (3,968)
Deferred taxes (510) (510) (8)
Accounts payable 482 5,066 1,109 2,121
Accrued liabilities 3,225 6,890 (1,277) 3,007
Deferred revenue (209) (336) (160) (305)
Other liabilities, noncurrent (138) (117) (388) (327)
Net cash provided by operating activities 6,186 5,752 8,276 789
Cash Flows from Investing Activities
Capital expenditures (374) (546) (978) (1,689)
Internal software development costs (552) (758) (1,734) (2,689)
Proceeds from sales of domain names 11 44 154 135
Other investing activities (36) (2) (133) (2)
Net cash used in investing activities (951) (1,262) (2,691) (4,245)
Cash Flows from Financing Activities
Proceeds from exercise of common stock options 26
Withholding taxes related to restricted stock, net of share settlement (229) (391) (765) (2,139)
Repurchases of common stock (723) (1,766)
Repayment of revolving loan facility (15,000)
Net cash used in financing activities (952) (391) (17,531) (2,113)
Effect of exchange rate changes on cash and cash equivalents (35) (47) (20) (97)
Net increase (decrease) in cash and cash equivalents 4,248 4,052 (11,966) (5,666)
Cash and cash equivalents at beginning of period 37,496 50,750 53,710 60,468
Cash and cash equivalents at end of period$41,744 $54,802 $41,744 $54,802


QUINSTREET, INC.
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED NET INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2017 2016 2017 2016
Net income (loss) $ 579 $ (3,265) $ (10,840) $ (16,087)
Amortization of intangible assets 1,380 2,183 5,019 6,839
Stock-based compensation 2,077 2,816 6,784 8,339
Restructuring 38 79 2,441 297
Legal settlement 100 100
Tax impact after non-GAAP items (1,466) (689) (1,225)
Adjusted net income (loss) $ 2,608 $ 1,224 $ 2,179 $ (512)
Adjusted diluted net income (loss) per share $ 0.06 $ 0.03 $ 0.05 $ (0.01)
Weighted average shares used in computing
adjusted diluted net income (loss) per share
45,722 45,343 45,729 45,098
QUINSTREET, INC.
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2017 2016 2017 2016
Net income (loss) $ 579 $ (3,265) $ (10,840) $ (16,087)
Interest and other (income) expense, net (153) 20 (29) 274
(Benefit from) provision for taxes (10) 72 (1,386) 477
Depreciation and amortization 2,660 3,721 8,983 11,437
Stock-based compensation 2,077 2,816 6,784 8,339
Restructuring 38 79 2,441 297
Legal settlement 100 100
Adjusted EBITDA $ 5,191 $ 3,543 $ 5,953 $ 4,837

Investor Contact: Erica Abrams (415) 297-5864 eabrams@quinstreet.com

Source:QuinStreet Inc