QuinStreet, Inc. (NASDAQ:QNST) Q1 2020 Earnings Conference Call - Final Transcript

May 06, 2020 • 05:00 pm ET

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QuinStreet, Inc. (NASDAQ:QNST) Q1 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the QuinStreet First Quarter Fiscal 2020 Financial Results Conference Call. Today's call is being recorded.

At this time, I would like to hand things over to Erica Abrams. Please go ahead, Erica.

Executive
Erica Abrams

Thank you, Lisa. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report QuinStreet's first quarter fiscal 2020 financial results. Joining me on the call today are Doug Valenti, CEO; and Greg Wong, CFO of QuinStreet.

This call is being simultaneously webcast on the Investor Relations section of our website at www.quinstreet.com.

Before we get started, I would like to remind you that the following discussion contains forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause the results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 10-K filing made on August 29, 2019. 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 are included in today's earnings press release, which is available on our Investor Relations website.

With that, I will turn the call over to Doug, CEO of QuinStreet. Please go ahead.

Executive
Douglas Valenti

Thank you, Erica, and thank you all for joining us today. As projected, we set another revenue record in fiscal Q1. Revenue in our financial services client vertical, ex mortgage, grew 32% year-over-year. Most importantly, the changes we announced last quarter to improve execution and regain momentum are already paying off, and we expect accelerating positive effects on the business from those changes as we move forward. We are maintaining our full fiscal year outlook for both revenue and EBITDA.

Let me give you more color on the EBITDA outlook since it implies that we expect higher margins throughout the rest of the year. First, our gross margin in Q1 reflected relatively heavy investment in new media opportunities for our fast-growing financial services businesses. We have already made good progress optimizing those sources to a higher media margin in Q2, and we expect those investments in new media opportunities to contribute to continued strong revenue growth. Investments in new media opportunities, where we test and ramp new sources, then go through a cycle of margin and performance optimization, are an ongoing part of our business model, as many of you know.

Second, with respect to gross margin and EBITDA. We are seeing a mix shift to higher-margin businesses. Our fastest-growing at-scale client vertical businesses have higher-than-average gross margins and now represent almost $200 million of annual revenue. We expect the mix shift trend to higher-margin client verticals to continue throughout this fiscal year.

Finally, with respect to gross margin and EBITDA. We are in the early stages of ramping new