Q3 2026 Earnings Call Transcript

Good day, and welcome to QuinStreet's Fiscal Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin.

Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Third Quarter 2026 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.

Thank you, Rob. Welcome, everyone. Fiscal Q2 was another quarter of strong performance and progress. We grew revenue 28% year-over-year to a new company record, and we grew adjusted EBITDA 53% year-over-year, also to a new company record.

Our core business is strong, and we continue to make good progress on initiatives that we expect to continue to deliver impressive revenue growth and margin expansion in fiscal Q4 and beyond. Those initiatives include dozens of active projects applying AI across our business system to our proprietary data, tech stack, integrations and workflows and to our media campaigns and interactions with consumers. AI is strengthening our already formidable competitive advantages and is driving even better results for clients, media partners and QuinStreet. As a technology-driven company with hundreds of engineers and technical product employees, we are a fast and effective developer and adopter of leading-edge AI technologies and tools.

And of course, we have a proven history with AI. We have been developing and applying AI algorithms since 2008. Getting back to fiscal Q3, let me review some of last quarter's accomplishments in more detail. We set a company record for quarterly revenue, $346 million, up 28% year-over-year. We also set a company record for quarterly adjusted EBITDA, $29.6 million, up 53% year-over-year with expanding margins.

We continue to be in a strong financial position with a strong balance sheet and strong cash flows. We ended the quarter with over $100 million in cash and with net debt of around $50 million, including all bank debt and seller notes. Our net debt is well less than 0.5x our annualized adjusted EBITDA, even after accounting for the full cost of the $190 million acquisition of HomeBuddy. And we expect to deliver well over $100 million more free cash flow over the next 12 months.

So fiscal Q3 was an exceptionally strong quarter, and we are in an exceptionally strong market and financial position. Looking at the current June quarter or our fiscal Q4, we expect growth to accelerate even more and margins to expand even further, and we expect to set new records for quarterly revenue and adjusted EBITDA in Q4. Our early view of next fiscal year, which begins on July 1, is that we expect to again grow revenue and adjusted EBITDA at strong double-digit rates year-over-year. Looking at our major client verticals. We delivered record auto insurance revenue in fiscal Q3 due to strong carrier demand and high levels of consumer shopping activity.

Carriers continue to report good results. We are confident that our full market opportunity in auto insurance is still in its early innings, and we are successfully expanding our media, client and product footprints in that important client vertical. We also delivered record quarterly revenue in home services in Q3, with revenue run rates now approaching $0.5 billion annually. The work to integrate HomeBuddy and to capture synergies is going well as we continue to successfully expand our media, client and product footprints for growth in the enormous home services market opportunity.

As I indicated earlier, our success continues to be driven by our industry-leading technologies and business systems, including, at their core, our AI optimization algorithms. And we are expanding the application of AI to dozens of other areas of the business, to our massive store of proprietary data generated from billions of dollars of media spend, to our millions of permutations of campaign and marketplace variables, to our proprietary integrations with clients and media, to our thousands of proprietary workflows and to our interactions with millions of in-market consumers every month. Those efforts are already delivering big improvements in performance and productivity, and we see much, much more.

Let me give you a few examples of where we are successfully applying AI to our broader business system. First example. We are applying AI to integrate new and updated carrier rates faster and at greater scale into QRP, our insurance rating platform, increasing productivity there by an estimated 50%. Another example.

We are using AI to generate more and better ads for creative, improving productivity in that core essential function by an estimated 400% and resulting in faster campaign launches. A third example. Our frontline employees are using AI-enabled natural language analytics to access even more of our deep trove of proprietary data and to drive deeper analytic insights and improvements in client, media and margin results with less need for analyst support or long cycle times. And one final example here.

We are, of course, applying AI to dramatically improve software coding productivity across the business and tech stack. We are also seeing exciting growth in revenue from AI media and as AI grows in media. Some examples of that. First, as AI overviews have expanded rapidly over the past year to now trigger on an estimated 50% plus of Google searches, revenue from our proprietary campaigns on Google has grown by over 100% over the same period.

A second example. We are an early participant in OpenAI's advertising platform, where we are already live in both insurance and home services. And one last AI media example. We are improving consumer conversions for our media campaigns and for clients due to the use of conversational AI in our web flows, chatbots and inbound calls and in SMS and e-mail communications with end market consumers.

Overall, we are and have been and expect to continue to be an AI winner. Turning to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, up sequentially to yet another new quarterly record and implying at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, also up sequentially to yet another new quarterly record, reflecting continued margin expansion and implying at least 67% growth year-over-year.

With that, I'll turn the call over to Greg.

Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another successful quarter, as Doug noted. It was the third consecutive quarter of record revenue for QuinStreet and also a record for adjusted EBITDA.

This strong performance was driven by continued momentum and execution across our verticals. For the March quarter, total revenue was $346.1 million, up 28% year-over-year. Adjusted EBITDA was $29.6 million, up 53% year-over-year, and adjusted net income was $17.8 million or $0.31 per share. Looking at our revenue by client vertical.

Our financial services client vertical represented 67% of Q3 revenue and grew 16% year-over-year to $231.8 million. Auto insurance momentum continued, delivering a record quarter and growing 27% year-over-year. Our home services client vertical represented 33% of Q3 revenue and grew 63% year-over-year to $114.3 million. Turning to the balance sheet.

We ended the quarter with $102 million in cash and equivalents and net debt of $54 million. Overall, QuinStreet remains in a strong financial position, and we expect to generate strong cash flows in the coming quarters and years. We continue to have a rigorously disciplined approach to capital allocation, and we'll continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value.

Moving to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, representing at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, reflecting continued margin expansion and representing at least 67% growth year-over-year. With that, I'll turn it over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Jason Kreyer from Craig-Hallum.

Doug, can you talk more about the AI actions that you've taken in the quarter? You'd highlighted some relationships with Google and OpenAI. And perhaps you can elaborate on your role there and what you expect over the long term with these partnerships.

I think Jason got disconnected. Our next question comes from the line...

I'm sorry, operator. This is Doug. Let me get back in. I apologize, Jason, but yes, thank you for the question.

We're applying AI across the business system, as I indicated, including in media. And one of the places in media that we are active is now in OpenAI's advertising platform. They are early, but we were -- we believe we were in the first few hundred folks to actually be engaged with them and to be active on the platform. And as I said, we're active in both insurance and in home services, running advertising campaigns there to both generate revenue, of course, and we have generated our first revenues there, but also to continue to help them pilot that platform and evolve it into a much bigger part of their business and a much bigger part of everybody -- of our business as well.

So super excited. As we've indicated before, we believe the LLMs are going to be a new entry point for consumers just like AI overviews on Google have been a new component, a new entry point for consumers. And we believe that it's a new great opportunity for us to plug in and do what we do, which is to help those consumers get matched to the best service providers and generate maximum media yield and revenue for all parties, including the platform companies, whether they be Google or OpenAI or others. So that's what that's about.

But again, a lot of AI opportunities and a lot of AI activity going on.

We look forward to hearing more about how that evolves. Just as a follow-up, I want to ask about the HomeBuddy performance in the first quarter. And I'm curious how you felt the HomeBuddy and Modernize assets interacted over the course of the quarter and kind of how that integration is modified as we go forward?

Yes. It's going extremely well, going certainly as we had predicted and, in some ways, better. We integrated very quickly and, in the quarter, actually generated revenue from the integrations in terms of, for example, taking media from the Modernize side, sending it over to HomeBuddy to be converted into their auction basics, which will be product for their clients and vice versa, getting revenue back. So we're -- it's going well.

It's going as expected, and we continue to be very excited about the expansion of our footprint, both in product and media with HomeBuddy. So in terms of changes, I think we're a little bit ahead of schedule in terms of integrating the organizations. We are a little bit ahead of schedule in terms of doing what we -- in terms of having a -- kind of a one-platform approach to the media. And so I'd say that, again, every bit as well as we hoped and, in some places, better.

Our next question is from Luke Horton from Northland Securities.

Congrats on the quarter. Just wanted to touch on the auto insurance side. It looks like spending remains strong. Could you provide a little color on size of carriers and any trends you're seeing with the major carriers versus smaller guys?

Sure, Luke. We are continuing to see strength across the auto insurance client base. One of the trends that we are seeing is continued broadening. The broader base of clients grew significantly faster than the largest client, which also grew very rapidly.

So there's no issues there, just a continued increased activity and broadening of demand across the client base and across the major carriers, top 10 to 15, however you want to think about them. So I'd say if there was a trend, it was just continued strength generally and continued broadening, which we've indicated previously.

Okay. Awesome. That's great to hear. And then on the kind of early fiscal year '27 color you provided with the strong double-digit revenue and EBITDA growth. I guess, could you expand on what the kind of 2 or 3 biggest drivers underpinning that outlook would be? Or what would be the biggest risk to achieving that?

Sure. Right now, we've seen preliminary numbers for next year from pretty much all of the businesses. And we've got double-digit revenue growth across the board -- strong double-digit revenue growth across the board. And in most cases, margins growing faster than revenue.

And the one place where I think that's not yet indicated, it's flat margin cash revenue, but really strong growth. So some investment going on there. So no issues with that. So again, as you would expect, home services, of course, will be particularly strong early because of the acquisition in the first couple of quarters, we expect it to be strong in the back half as well after we lap the comp on the HomeBuddy acquisition.

Insurance, we see strong demand from clients and continued strong development of new media capacity, which has been a good driver of our growth and margin expansion in auto insurance over the past couple of quarters. And then we're seeing, in the credit-driven verticals, good legs of growth there as well, whether it be in credit cards where we're getting strong indications from the issuers or banking where we're seeing strong demand from the clients there, and we have strong media capabilities there. And in the -- in AmOne Financial, the personal loans and debt solutions company, we've been focused on quality of revenue there.

So we have not been growing that business over the last year or so, but we've been pretty significantly expanding margins. We've had some decline. We've indicated before, some decline in revenue, but pretty flat margin dollars as we've improved the quality of the revenue, and we expect to be able to resume pretty aggressive growth next fiscal year at those higher margins. So right now, it's pretty much across the board strength as we go through the detailed planning for each of the client verticals.

Our next question is from Elle Niebuhr from Lake Street Capital Markets.

So on the home services front, given the heavier implied Q4 weighting, what are you seeing in contractor demand, lead pricing, media availability? Any of that, that gives you the confidence that the seasonal ramp is playing out as expected?

We're seeing pretty much all those things, Elle. I mean the client demand continues to be extraordinarily strong. The -- and that's been consistent for a while. We have significantly greater demand than we have capacity to fill it, which is always what you want in our business, given the way we serve clients.

We are making great progress on the media side with our proprietary campaigns, with the shared media between HomeBuddy and Modernize, which are the 2 brands we have in home services. And that's an area of real opportunity as both clients -- both of us take media that we don't match as well or don't have as good a coverage for, and take advantage of the new coverage, either Homebuddy for Modernize or Modernize for Homebuddy. We're seeing good growth in new product areas, continued growth in new product areas. Consumers are -- and homeowning consumers, who are the customers there, are quite strong still.

The consumers has been exceptionally resilient, given the uncertainties and inflation and gas prices. I can't really say that about the low-end consumer where we -- but AmOne has solutions to help those consumers. But as far as the homeowning consumer, which are the folks that are the customers for our contractors in home services, those folks are quite healthy and quite active. So there's not really a dimension of weakness we're seeing in home services.

If you look at the components that we worry about most, which, of course, media, capacity, client demand, pricing or consumer activity, consumer demand for projects. So continued strength and advantages of having HomeBuddy now to multiply that strength.

Our next question comes from the line of Patrick Sholl from Barrington Research.

Maybe just a follow-up on the AI side. Can you maybe talk about like carrier adoption on that? Is that sort of -- I guess, just how carriers are spending within, I guess, maybe either in agentic format or through kind of the ChatGPT or other tools like that?

Sure, Patrick. They -- if it works for them and it comes to our platform, they're buying it. In terms of buying direct there, not yet in terms of buying, say, directly off those platforms. From what we understand and have been told, OpenAI and others are focusing primarily on marketplace providers like us initially because of the consumer choice and the content.

I do expect that, over time, as their platforms and their ad platforms develop further that, of course, carriers will spend direct and there will be opportunities for them to do that. But again, as I indicated, we're early and one of the early folks working with them and one of the early folks they want to work with to help them develop their ad revenue platform and to be in a position to be able to scale that and continue to evolve it to be a big part of the channel. And I think it will be a big part of the channel. We're excited about it, as I said, as another way for consumers to come into digital. and to shop and pursue products and service providers in our verticals.

So early, not a lot of direct activity from what we've seen and what we've heard, but good active planning and activities and indications that OpenAI is going to be a big player here, and we're going to be a big part of that, just like we have been with Google since the early days of the company. We launched our first campaign with Google, gosh, as soon as they -- we had SEO with them in the early days and as soon as they went into an ad-based platform, again, we were one of the first ones in that as well. So we expect this to be a pretty similar kind of opportunity and curve.

Okay. And maybe just a quick clarification on your outlook for 2027 on the solid double-digit growth. Should we be, I guess, understanding that to be excluding acquisitions as well? Or is that on a current operations basis?

We are -- we don't have any new acquisitions in that assumption. So yes, we would expect that, that would be on the current base business.

Yes, sorry, I misspoke. I meant like would that be pro forma for acquisitions or just...

No acquisitions in that. No acquisitions in that plan.

Okay. All right. And then lastly, just on the other financial services verticals. I think you kind of touched on this a little bit, but those don't seem -- are those like being impacted at all from the rate environment or the macro, I guess?

I think like some appliance manufacturers have cautioned on the consumer spending side. And I'm just kind of curious on how that might be flowing through on from consumer demand.

Sure. No, we're seeing a mixed bag, mostly good for us. The AmOne Financial business is really positioned to help consumers on the lower end of the spectrum access capital in the form of personal loan or deal with debt problems in the form of debt settlement or credit repair. And so, unfortunately, in some ways, there's still a lot of consumer demand and appears to be growing consumer demand there.

Credit cards, we only really serve prime and super prime consumers. We're not in the lower income spectrum of cards or credit development cards or anything like that. So those consumers continue to be very robust, and we have not seen issues there. On the deposit side, similarly, folks have money to put into savings accounts, high-yield savings accounts or CDs or other platforms, annuities and other.

They tend to be consumers that are in the middle to upper income spectrum. So continues to be strength there. We've seen some -- I guess if there was something to look out for, I'd say that there's probably a little bit less activity by source of funds clients than there would be if the interest rate path were clearer. I wouldn't say that's something that's fundamentally going to change our outlook or is a big risk to the business going forward.

But I'd say that that's something that -- it's probably not as robust as it would be if everybody knew that rates were either going up or down. And you can imagine why, right? They don't want to commit to a CD rate until they know where rates are going and they have to decide what their interest margin is going to be when they develop those products and when they recruit consumers for those products. But generally speaking, what you've heard from everybody, pretty stable, strong consumers, generally, particularly middle and upper income.

The consumers at the lower end of the income spectrum are getting squeezed because of inflation, because of gas prices, which disproportionately hurt them and because of relatively low wage growth. But relative to -- as you position that against our business, that's a pretty good profile for the products that we serve.

[Operator Instructions] Our next question is from Naved Khan from B. Riley Securities.

This is Ethan Widell calling in for Naved Khan. To start off with, can you maybe add a little bit of color on just what you're seeing on the macro side for auto? I imagine that elevated oil prices pressing on discretionary budgets might cause less driving, more -- it's better for carriers, maybe more shopping for rates, but just wondering kind of what you're seeing along those lines.

I think both of those things. What we're seeing at our level is continued real strong demand and carriers wanting us to do more and figure out how to get more. But I think, at a macro level, I think you hit on it there. The carrier loss ratios are very healthy.

They -- the indications we've gotten from them and from the industry is that they feel like they're rate adequate. And I think that the effect of higher gas prices is likely to be less driving, which means less -- the rate of incidents will be lower, which is going to be good for them because, as you said -- because there's likely to be fewer incidents and fewer claims. And the other thing that is absolutely a factor in auto insurance is that consumers shop more when they're under financial pressure for auto insurance because they want to see if they can save money because they have to have it, but they want to make sure they're not paying more than they have to pay for it.

So shopping activity tends to be at pretty high levels. And we have seen good strong shopping activity, certainly through the peak shopping season, which is always in the kind of February-March time frame. But generally speaking, we're seeing a good strong consumer activity.

Got it. And then kind of longer term, how do you view or maybe anticipate, like, your mix shift over time as you take into account kind of various growth rates in your verticals, but also layering in HomeBuddy to that? And how do you consider that in terms of maybe long-term margin possibility?

Yes, it's a great question. I think the theme that we'll probably see over the next few periods, and I'd say that's probably certainly quarters and maybe years, is that a little bit more normalization of the mix. And what I mean by that was the spike in auto insurance really caused auto insurance to be super heavy in our mix there for a period of time. And one of the reasons our margins -- and we said before, auto insurance, at its scale and with its structure, tends to come in at a little bit lower media margin percentage than our average.

And so that shifted our margins down some. But as the greater growth in auto insurance has normalized after that -- the rapid expansion of 1.5 years, 2 years ago, and the other businesses continue to grow strongly, you're seeing the mix shift back to -- gradually shift back to a more normalized level where the auto insurance won't be as dominant, which means that there will be a natural lifting of our media margin profile, which will be -- should be a natural upward tug on EBITDA margins. And I've said before that there are kind of 3 things that are going to -- that are causing us to expand margins, have caused it over the last few quarters and are likely to continue to do it, including as we forecast next quarter.

One is that mix shift. After kind of getting a heavy mix of auto insurance, that mix is going to more normalize and that will be a natural upward move in our media margin profile, which translates fairly directly to EBITDA margin since our fixed cost base is semi-fixed. The second is going to be continued success in expanding our auto insurance margins, which have been -- are up 4 to 5 points this year over the beginning of the year, largely due to a lot of specific projects to do that as well as the development of proprietary media that we said we were going to develop, and we spent a lot of money and invested in developing and have very successfully developed.

We're going to continue to do that. And that's been very, very beneficial to us and to our margins in auto insurance. And the third is just natural operating leverage. I mean, as we grow at these rates on the revenue and therefore, margin dollar lines, but of course, don't grow at these rates on the semi-fixed cost lines below the margin -- the media margin lines, then you have a natural expansion of margin, top line leverage or operating leverage, depending on how you want to talk about it.

So those 3 factors, I think, are going to continue to play a role, certainly next quarter and probably for a considerable time going forward.

There are no questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.